Theory and Practice of Modern Islamic Finance

Citation

Zaman, M. (2010), "Theory and Practice of Modern Islamic Finance", Journal of Islamic Accounting and Business Research, Vol. 1 No. 2, pp. 172-174. https://doi.org/10.1108/17590811011086741

The above text, hereafter referred to as TPIF, examines the theory underlying Islamic finance and provides preliminary analysis of the practice of selected Islamic financial institutions in Australia. The stated aims of the book are as follows:

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  undertake a comparative study of the following areas of finance: housing, motor vehicles, and consumer goods financing as practiced by both Islamic and conventional finance in Australia;

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  investigate the extent to which Islamic financial services providers (IFSPs) in Australia adhere to the strict notion of Islamic financing in the three selected areas mentioned above;

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  review the Shari'a compliant issues vis‐à‐vis the ideals and actual practices of IFSPs of Australia under the existing regulatory environment;

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  provide a comprehensive picture of Islamic finance practices in the context of Australasian society; and

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  help expand Islamic finance, which the vibrant Australian Muslim community can use comfortably as it meets their religious as well as market requirements.

Structured in 11 chapters, the first five chapters are primarily descriptive, and seek to provide some sort of framework for the analysis of practice in Australia. Chapters six to 11 explain the Australian context and the actual practice of financial institutions. Specifically, Chapter 1 provides the introduction to the book. Chapter 2 describes the sources of Shari'a. Chapter 3 is on the application of Shari'a. Chapter 4 is on the theories of financial regulation. It mainly summarises some material from the conventional literature but does not directly engage with the issues arising from the coverage in the earlier chapters. Chapter 5 provides a general description of the historical evolution of financial products. The Australian legal context affecting Islamic finance practice is covered in Chapter 6, while Chapter 7 outlines the compliance requirements for Islamic finance in Australia. Chapter 8 of the book examines the instruments used by IFSPs in Australia. In Chapter 9, the extent to which IFSPs are Shari'a compliant is examined. Before the summary and concluding Chapter 11, in Chapter 10, the book provides some coverage of the UK regulatory framework with a view to considering its appropriateness for adoption in Australia.

Overall, the book examines pertinent issues and the aims are quite ambitious. Given the global proliferation of “Islamic” financial products, the subject matter of the book is topical and relevant to debates both within and outside the Muslim community. The study is also to be commended for its choice of subject matter as well as for the empirical focus on Australia. The outlining of Shari'a issues first, before going onto examination of practice in Australia is an appropriate one for setting the context against which the extent of compliance can be assessed. The book also does a good job of bringing together some insight into the practices of IFSPs in Australia.

Who is the book aimed at?

This book provides useful material regarding ISFPs in Australia. The coverage of the Shari'a material in the earlier part of the book is useful. However, readers interested in the Shari'a relating to Islamic finance are likely to find the coverage somewhat broad and lacking detailed examination. From the choice and mix of chapters, it is difficult to discern who the target audience is. The book seems to be a straightforward publication of a doctoral thesis, with the replacement of the word “thesis” by “book” throughout the text (a quick browse of the acknowledgements page indicates that the thesis perhaps has not been edited before publication as a book). While the research grounding of the book gives it more credibility, the failure to edit it potentially restricts its appeal to a broader range of audience. As a reference, or background reading, it is likely to be of some use to researchers. However, it is not a text that can suitably be adopted as a core reading in an undergraduate or postgraduate course on Islamic finance (or on a related one).

How well was the subject matter examined?

Readers interested in broad coverage will find the material of some interest, and reasonably well presented throughout. The most interesting material in the book (for me at least), were Chapters 8 and 9. Given the huge volume of literature on Islamic finance, I had expected the book to move more quickly onto examining the IFSPs practices in Australia and evaluating the extent to which they complied with the spirit of Shari'a. Since the text was written as a doctoral thesis, it is understandable that the reader has to wait so long before getting to that material. Chapters 8 and 9 are likely to be of particular interest to empirical researchers of Islamic finance practices. The analysis in these chapters is quite informative, although not very detailed or broad. This is largely due to the narrow focus on the contracts used by the IFSPs. Empirically, while the text states that the methodology chosen (for the study) is “through the Shari'ah, where law, finance, economics and business form a single dimension only”, the methodological framework for the study is not clearly elaborated and it is not clear how the methodology has informed the analysis of the empirical evidence. The examination of the issues covered in the book were “undertaken through the literature in the relevant field as well as the author's personal expertise and working experience with several Islamic banks and Islamic financial institutions for a considerable period of time, in addition to his active involvement with at least two IFSPs in Australia”. The study is not based on case studies of IFSPs or on evidence gathered from (structured or otherwise) interviews with their management. This has somewhat limited the scope as well as the analysis of the evidence.

Overall, the book engages with a very interesting topic and provides initial insights. In examining the practice of Islamic finance (in Australia), the book has taken an important step in moving from theory to reality. Reading the book has left me keen to know more – what are the sources of Islamic finance and how does that affect its growth? How IFSPs are governed, both from a conventional as well as from Shari'a perspectives? How transparent and accountable are IFSPs? What is the standard by which the extent of IFSPs compliance with the Shari'a is to be evaluated?