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Understanding Islamic Finance
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Understanding Islamic Finance

Muhammad Ayub
Wiley, 2007
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Editorial Rating

8

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  • Innovative

Recommendation

Muhammad Ayub provides a thorough report on the major economic and political ramifications of Islamic finance, now practiced in more than 75 countries. This system follows specific, religion-grounded financial policies. For instance, it accommodates Riba, the Islamic prohibition of certain kinds of gains, including interest. Ayub makes it clear that Islamic finance, backed by billions in petrodollars, could come to compete with Western capitalist practices, which he roundly criticizes. His book is simultaneously academic, religious, legal, political and economic (as well as being rhetorical at times, with some challenging long and winding sentences). He also states some apparently opinion-based observations as facts, often with no references, but he knows his subject area and he sounds authoritative throughout, though you may differ with his political viewpoint. getAbstract finds this book critically important for anyone whose work is touched by Islamic banking or finance.

Summary

Problems with Classical Capitalism

In the 1980s, the failure of capitalism created vast areas of poverty around the world. Capitalism, which is governed by greed and exploitation, works through various distribution channels until it creates a “master-slave” relationship. As a result, the capitalist system could collapse at any time. Fiscal inequity – stemming primarily from an interest-based financial system – has created social inequality, widespread unethical practices and abuse of the lower classes. Charging interest on loans creates large debts, thus making one class of people subservient to another. This interest-based approach distorts payment systems and curtails economic growth. When large loads of debt burden a country, it can increase taxes and raise the rates it charges for public utilities and consumer goods, without providing any new services in return. This slows economic growth and creates a widening wealth gap among its own citizens. The system of charging interest creates a class of “idlers” and “bloodsuckers.”

Nations traditionally implement economic policies to foster growth and overall development. Yet modern experience shows that in capitalist ...

About the Author

Muhammad Ayub directs training development and Shari'ah aspects at IIBI, London. Formerly, he was the senior joint director in the research and Islamic banking departments of the State Bank of Pakistan, heading the Islamic Economics Division and Shari'ah Compliance. He is an Islamic Finance master trainer.

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