Professional Documents
Culture Documents
BUSINESS LAW
Submitted by:
Aaima Sarwar
Arslan Aftab
Asim Liaqat Khan
Komal Agha
Muhammad Waleed Usman
Omair Farooq
Submitted to:
Mr. Shariq.G.Mahmood
ACKNOWLEDGEMENTS
First of all we would like to thank Allah Almighty for giving us the strength to complete this
exigent and challenging task. We would like to thank our instructor, Mr.Shariq Mahmood, for
his guidance and relaxed, thoughtful insight. We thank him for her hospitality and for his
continuous assistance. The research in this paper would have taken far longer to complete
without the encouragement from many others. It is a delight to acknowledge those who have
supported us.
The days would have passed far more slowly without the support of our friends, whom we thank
for putting up with our idiosyncrasies and for providing such a rich source of conversation and
learning. Finally, we wish to thank our parents for their love and encouragement, without whom
we would never have enjoyed so many opportunities.
Thank you all.
International Business---Islamic Law 3
Table of Contents
ACKNOWLEDGEMENTS...............................................................................................2
Table of Contents....................................................................................................... 3
ABSTRACT...................................................................................................................5
What Is International Business?..................................................................................6
When I Export Products Do I Have An International Business?.............................6
What Is International Business Versus Global Business?......................................7
What is LAW?..............................................................................................................9
Is LAW really NEEDED?..........................................................................................10
What is ISLAMIC LAW?..............................................................................................11
Ijtihad, Istihsan and Istislah:..................................................................................11
Capitalism; as a system:...........................................................................................13
Islamic Views about Capitalism Ideology:..............................................................15
Islamic Transactions Law as Common Law...............................................................22
Islamic Finance:........................................................................................................ 25
Finance without Interest?.........................................................................................25
Bounded Rationality and Paternalism....................................................................26
The Prohibition of Riba.......................................................................................27
Equity and Efficiency through Marking to Market..................................................28
Economic Substance of Prohibition........................................................................29
Prohibition of Ghara...........................................................................................29
Sale-Based Islamic Finance......................................................................................30
Leasing, Securitization, and Sukuk...........................................................................31
General Lease:...................................................................................................... 31
General Lease Conditions:.....................................................................................32
Flexible-Rate Financing.........................................................................................33
Asset-Backed Leasing Bonds (Sukuk)....................................................................33
Partnerships Business...............................................................................................34
Classical Forms Of Partnership..............................................................................34
Silent Partnership: Theoretical Workhorse of Islamic Finance...............................35
Profit-Sharing Conditions....................................................................................36
International Business---Islamic Law 4
Common-Stock Ownership.......................................................................................36
“Islamic Screens” and Their Shortcomings...............................................................37
Line-of-Business Screens..........................................................................................37
Islamic Financial Institutions.....................................................................................38
Islamic Banking Business......................................................................................39
Observing Shariah principles..............................................................................40
Two Conflicting Fatawa......................................................................................40
Conventional Bank interest is a form of forbidden riba......................................41
Insurance and Takaful...........................................................................................44
Takaful a worldwide perspective........................................................................47
Toward a New Islamic International Business Identity..............................................48
Conclusion................................................................................................................ 49
References................................................................................................................51
International Business---Islamic Law 5
ABSTRACT
In recent years, business and financial activities conducted under the banner of “Islamic finance”
have grown significantly in volume and scope, attracting significant attention worldwide.
Numerous books and articles have been published on the topic over the past few decades. Their
genres have ranged from highly religious treatises on Islamic law and worldview to highly
practical surveys of the latest Islamic financial products to reach the market.
In every aspect of business – from personal loans to investment banking, and from market
structure to corporate governance of financial institutions – Islamic finance aims to replicate in
Islamic forms the substantive functions of contemporary financial instruments, markets, and
institutions.
This supposed Islamization of contemporary financial practice is accomplished by means of
modified pre modern financial contracts (such as sales, leases, and simple partnerships). The
contracts are designed by teams of (1) financial professionals who make and cater to the market
for “Islamic” products, (2) lawyers who are skilled in the art of regulatory arbitrage, and (3)
jurists or religious scholars who are familiar with medieval juristic texts (mostly in Arabic) and
provide certification of the Islamicity of various business products and services.
"There are very few who are doing that yet”, Frank E. Vogel said “As a result, truly few Muslims
who are international businesspeople are exposed to the vagaries of currency exchanges." There
are religiously acceptable options for commodities, but they're very cumbersome, he said.
In this paper we aim to find out if International business is practical n wide enough to be
implemented anywhere and everywhere in the world.
International Business---Islamic Law 6
However Toyne(1989,1) argues that the lack of consensus concerning the domain of
international business is due to a misplaced emphasis on the firm as unit of analysis. Whereas, if
“Exchange were made the unit of analysis,”” it would make it possible to define the field on a
more acceptable basis.
Toyne idea of International business revolves around three characteristics:
International business involves the exchange of goods and/or services across or within
national boundaries between two or more social actions in different countries or
commercial reasons.
International business is an exchange process involving relationships, inputs and outputs,
between social actions located in different countries.
International business may be influenced by non-commercial (social and political)
considerations.
International Business---Islamic Law 8
The issues involved in international business are indeed complex as are the variety of national
cultural elements interacting in the process. It’s a multi dimensional process with a host of
factors including international economic issues, political realities, trade patterns, international
policies and many other activities involved in the process of buying and selling throughout the
community of nations. Figure below tells about some of the complexities.
International Business---Islamic Law 9
What is LAW?
As such, there is no single or correct answer to this question. In past no one really questioned
lawmakers, law distributors, or the laws themselves. But of late, society has begun to question
most legal activities as to their effectiveness and competence. The cause of these reviews has
emerged by changing times, changing thoughts, understanding, beliefs, as well as the
development of technology and other such new developments within societies.
There are 2 sources of law – parliament (legislation) and court (case) made law. These laws can
be regarded as being purely formal, irrespective of whether they are good or bad.
Law can be ‘positivist’ in nature – meaning no judgement is made in regards to the quality of
that law - implement it regardless if it is a good or bad. Such a theory does not look at the moral
implications of the laws – it’s a amoral view of law. Natural law on the other hand, is the idea
that ‘God’ makes laws. This theory originates as far back as early Greece and the ‘Gods’. The
most complete account of natural law doctrine can be found by Aquinas St. Thomas. For
instance – "Nothing else than the rational creature’s participation of the eternal law", "Every
human law has just so much of the character of the law as it is derived from the law of nature.
But if in any point it differs from the law of nature, it is no longer a law but a corruption of a
law", "…that positive law is a determination of natural law". One natural theorist is Kant
Emmanuel – "No law can be right merely by convention", "Laws, as such, are to be regarded as
necessary a priori – that is as following of themselves from the conceptions of external right
generally – and not as merely established by statues".
Bentham Jeremy
• He accepted Hobber’s identification of law – A law is what a sovereign commands (This
approach can be associated to the case of Hitler and his power).
• Principle of utility – the ability to way up the benefits of a product or situation and make
decisions about it based on its usefulness or cost.
• Suggested that certainty in the law could not be had without codification.
In 1832, Austin John published his theory that sought to clarify the distinction between law and
morality. He stated that 'commands' are expressions of desire that another shall forbear, which is
accompanied by a threat of punishment (the "sanction") for disobedience.
International Business---Islamic Law 10
the Golden Age (if it ever really existed) when social harmony will be attuned to the natural
goodness of man unimpeded by such environmental snares as the institution of private property.
But it can be seen that the introduction of Marxist socialism has always been closely followed by
the implementation of more laws and legal repression, rather than having them abolished.
It is fact, that even in the simplest of societies, some form of legal rule and guidance is without
doubt needed to control the anarchist like environment – which ironically counteracts the entire
purpose of a lawless society.
What is ISLAMIC LAW?
Islamic law - the code of law derived from the Koran and from the teachings and example of
Mohammed; "sharia=islamic law is only applicable to Muslims"; "under Islamic law there is no
separation of church and state"
The Sharia (literally: "the path leading to the watering place") is Islamic law formed by
traditional Islamic scholarship, which most Muslim groups adhere to. In Islam, Sharia is the
expression of the divine will, and "constitutes a system of duties that are incumbent upon a
Muslim by virtue of his religious belief".
Over the years there have been changing views on Islamic law but many such
as Zahiri and Jariri have since died out. Islamic law covers all aspects of life, from matters of
state, like governance and foreign relations, to issues of daily living. However,
these prescriptions and prohibitions may be broad, so their application in practice varies. Islamic
scholars(known as ulema) have elaborated systems of law on the basis of these rules and their
interpretations.
Fiqh, or "jurisprudence", is defined as the knowledge of the practical rules of the religion. The
method Islamic jurists use to derive rulings is known as usul al-fiqh ("legal theory", or
"principles of jurisprudence"). According to Islamic legal theory, law has four fundamental roots,
which are given precedence in this order: the Qur'an, the Sunnah (actions and sayings of
Muhammad), the consensus of the Muslim jurists (ijma), and analogical reasoning (qiyas).
means “doing one’s utmost” (to reach the most appropriate ruling). Earlier juristic methods of
approbation (istihsan, mainly in the Hanafi school), benefit analysis (istislah, mainly in the
Maliki school), and reliance on local customs (urf ) were thus denounced by Al-Shafi as
illegitimate forms of human legislation.
Strict adherence to reasoning by analogy has played an important role in the development of an
inefficient Islamic finance industry focused on pre modern nominate contracts. However, careful
examination of classical jurisprudence shows that many of the best classical jurists based their
rulings mainly on benefit analyses that were guided by their economic understanding.
For Islamic societies to go beyond formalistic adherence to pre modern jurisprudence, they
needed to revive the substance of classical Islamic jurisprudence in an enlightened modern
manner. Some contemporary jurists have made efforts in that direction, such as Al-Qaradawi
(1996). His and similar proposals for renewed juristic inference have centered mainly on the
notion of “collective ijtihad,” in order to overcome classical taxonomies of jurists and their
authorities. In the classical hierarchy of jurists, the two top categories of unconstrained-
independent and unconstrained-dependent jurists (the difference being that the former type
develops their own legal methodology) are generally restricted to the great Imams of the golden
age of jurisprudence. Thus, the only recognized categories of jurists today require varying
degrees of dependence on classical jurisprudence. However, proponents of reviving ijtihad
argued, groups of jurists may attain sufficient modern authoritativeness through collaboration.
Hence the research requires International Business to be seen in the parameters of Islamic
Law. In this regard, it is useful to recall the following statement of Ali ibn Abi Talib, the fourth
Caliph. When asked to let the Quran arbitrate his political dispute with Muawiyah ibn Abi
Sufyan, he said famously: “The Quran does not speak; men [claim to] speak on its behalf.” Legal
content of the Quran thus required explanation through Prophetic Sunna, as well as juristic
analyses in later centuries.
Hence we pose our study on the basis of a hypothesis;
Ho: International business can be conducted in the parameters of Islamic Law
H1: International business cannot be conducted in the parameters of Islamic Law.
International Business---Islamic Law 13
Capitalism; as a system:
From the very beginning of mankind development, several questions have been raised about the
methods, systems, sciences, techniques and tactics with which the economy ought to be run.
There have been many schools of thoughts and most of the time each school of thought
contradicts or conflicts with the other. Human beings find themselves very confused about which
method to choose and not to choose. They developed many political systems each of them
facilitates the companies and organizations in a very different and unique way. The most
prevalent systems that have been devised are as follows:
o Totalitarianism
o Socialism
o Communism
o Democracy
o Anarchism
o Liberalism
o Capitalism
Over the period of centuries, different political entities pursue different systems to run the
economies and many of them were successful, but in the end all of them turned out be failures.
Socialism, which guarantees the just distribution of wealth and promises that each and every
person would be better off, also proved to be a failure. It turned out that socialism is a system
through which each and every person in the economy is in as much misery as the other persons
and no one is better off. In a Socialist Society, the government takes all the private enterprises
from the people and run it under its control. Only few or, no enterprise, runs under the private
sector. A socialist society doesn’t provide any motive to the people of its nation to work harder
and bring their best to their economy. This is probably, the reason why the socialist ideology of
Russia, China and US brought them to a downfall. The opponents of the Socialism, argues that
the ideology itself is of no defect. But the problem lies in the fact that it can never be adopted
International Business---Islamic Law 14
completely by the mankind and this causes failure. The human beings are not designed in a way
that they could adopt it thoroughly.
The most popular or may be the most successful ideology or system known to the western-
nations is “Capitalism”. USA, UK and many successful nations have adopted Capitalism and it is
proved very beneficial for their economies. Their GDPs are growing at a drastic and surprising
rate and people are getting huge earnings. In a capitalist society, everyone works for their own
good and all their actions, plans and strategies are designed and driven by the profit motive. It
helps and facilitates a person to stretch its capabilities beyond his expectations and if he proves
himself successful, he and only he will reap out all the benefits of his work and earn profits. This
is a huge motive for society and, obviously, it is perceived a very great and rational technique to
run the system. In this system, organizations devise techniques and plans to fulfill the growing
unlimited demands of the individuals using the limited resources. In designing and planning the
strategies and goals only individual satisfactions, which are most beneficial for the organizations,
are the matter of concerned and all other things are irrelevant to the company. This way, they
could stay focus and could only concentrate on their benefits. Due to capitalism, the concept of
international business, international trade and globalization started to emerge and it provided
huge benefits to people across the globe. To be more succinct and brief, it provides the freedom
the people to do anything as long as they do not infringe on the freedom of the other people. To
infringe on the other people’s freedom is regarded legally wrong and the person is legally
penalized for that. Hence it gives birth to the free market and competition.
In the free-market and competition, the government does not interfere or intervene in the matters
of the organizations ,as long as they are operating in the legal framework, and let the market
decide who will survive and who will not. The organization which is competitively strong,
accepted by the people and successful in fulfilling the individual needs will be rewarded in
abundance. And the organizations which are not accepted by the society will automatically
disappear from the market and there is nothing the government could or would do about it. The
price of a commodity, good, or service is simply a matter of demand and supply. The price of a
commodity will be determined by the extent how much it is demanded and how much its supply
is in the market. Everything will run smooth and clean as long as the competition is there.
International Business---Islamic Law 15
The GDPs of US, UK and European countries are showing a huge growth and it is all because of
capitalism.
From the above discussion, we have found out the Capitalism is very beneficial and self-
evolving system. Now let us see what the Islamists think about the Capitalism. After so much
research and work we have found out the Islam does not support the Capitalism system and it
rather recognize it as an inherently wrong and incorrect system. Muslims believe that Capitalism
does not do any good to the society and it rather creates a catastrophe for the people.
Here, the question that comes to our minds is that, Capitalism has proven to be one of the most
successful systems in the history of mankind why would Muslims not approve of it. To find out
what is wrong with the Capitalism ideology, let us break down the above discussion in parts and
let us look at each and every characteristic of a capitalist society more closely.
In the above discussion, we said that after adopting the capitalism system “their GDPs started to
grow at a drastic and surprising rate”
The most important index of economic well being under capitalism is the index that monitors the
growth of the nation’s health as a whole. DOW Jones, NASDAQ, NIKO, NYSE and other
indices monitor the status of the nation’s most powerful companies.
A steady increase of these indices does not record, reflect or impact the status of the poor in the
nation. In fact, statistics shows that poverty and hunger persist despite the steady increase of
economic indices over the years. The daily report of the economic indices prove that capitalism
is inherently concerned about the growth of products, about the big companies and enterprises
and it is not concerned about the well-being of the poor of the country. It only shows the success
of the individual companies and its individuals, it does not have anything to do with the welfare
of a particular society, minority, race, groups. People of these countries are turning against
capitalism and protesting everyday to change the system. This is why they are making
International Business---Islamic Law 16
documentaries which show the adverse impacts of capitalism on different people. “The
Corporation” by Jennifer Abbot & Mark Achbar and “Capitalism: A Love Story” by Michael
Moore are one of the many documentaries which are made against the capitalism. Ultimately, we
can say that under capitalism “a poor is becoming poorer and a rich is getting richer”. However,
in an Islamic State the economic strength and growth will be measured by the actual well being
of the individuals, rather than by the well being of NASDAQ or DOW JONES. What good
would it do to the stomach of a poor person, if the NASDAQ gains or losses points? The Islamic
Economic Index is based on the food that is available to each and every human soul in the
society. One or more companies under Islam for example, will not own the oil. The fact that a
certain company was able to drill and exploit oil fields in Saudi Arabia, does not give those
people the right of the oil. The oil exists in fields that go beneath the houses and lands of
millions of people. In Islam, the oil belongs to all the people in the state.
We also said in the above discussion that “Under Capitalism an individual works for his own
good and only he will reap out the benefits of his work. All the actions and plans of an
organization are driven with the profit motive”
The former characteristic i.e. an individual works for his own good and only he will reap out the
benefits of his work, could and has been proven dangerous and catastrophic for the economy.
When an individual works for his own well and not for others, he/she becomes so selfish that he
totally ignores or forgets his God’s Pleasure. All his deeds and actions are surrounded with
greed. They would only work on those commodities or services which satisfy some particular
human needs and bring them most earnings. The Fulfilment of God’s will is disregarded and it is
not given any weight in the study of economies. The drive of profits will separate the state affairs
with the religious affairs. People will become materialistic and any intangible thing like honour,
glory, prosperity disappears from the economy. and if a person, by God’s Will, does invent
something good that could bring a positive change in the life of the people, he would charge
premium on it, he will create a monopoly in the market, he would have copyrights, trademarks,
patents for his brand and restrict the positivity of that thing to go to the poor of the world.
In the latter part that says “All the actions and plans of an organization are driven with the profit
motive”
International Business---Islamic Law 17
When everything is planned for the profit, this plan would stain the sanctity of it. However, if it
was planned for the well-being of society and environment then it would have proven really
beneficial for the people. The drive for profits makes the people of the organisations go crazy.
The entrepreneurs will exploit the labours as much as they could and squeeze out every penny
from them without giving any share from the profits they are providing to the entrepreneur. This
is why, large organisations like Nike, Levi’s, Shell, Honda have production departments in the
third world countries because there, they pay approximately ten times less than what they would
pay in their countries for instance In the US the average value of an hour of labor is around $150
while they pay third world people in cents. The products that they make are sold in hundreds of
dollars while the labors only get few cents. The organizations come up with new ideas that a
normal person would not believe. For instance, Nike has developed the science of exploitation.
Nike has designed a very special time frame. They do not give wages according to how many
minutes a worker works. They break the time frame into ten thousandth of a second. It takes
around 6.6141 minutes for a worker to make a shirt. At the rate of seventy cents an hour, 6.6
minutes is equal to 8 cents. And these same shirts are sold at 20 times higher prices. This shows
us that how unconcerned these people are for other people progress and development.
We all know that, as the petrochemical era grew and grew, warning signs also started to emerge
that some of the chemicals pose hazards in the areas where they are experimented, produced and
tested. Gradually, a huge body of data started to accumulate and now we all know that synthetic
chemical industries pollutes our air, our water, our work place, our houses. Moreover, when
these chemical industries dispose of their wastes, this waste produces cancer, birth defects and
some other toxic effects in different species. Followings are the pictures of a victim plant, a
victim bird and a human being.
The demonstration obliged us to believe that these profit-oriented organizations have a reckless
disregard for others safety. An Islamic State would never allow this to happen it rather motivates
the organizations and teach its students that the safety of others comes before any kind of
personal advantage, earning or profit. And in case of such a disregard it punishes them severely.
In the discussion about the capitalism we also said that “It helps and facilitates a person to stretch
its capabilities beyond his expectations”
International Business---Islamic Law 18
But it turns out that greed and profit is not the only force that helps a person stretch his
capabilities. There are other motives and incentives which could help a person stretch his
capabilities. It’s only a matter of a person’s concept of happiness. In an Islamic society a person
is grown up in such a way that he not only works and endeavors for worldly satisfactions but he
also works to make his God happy. He works for the benefit, prosperity, welfare and benefit for
his Muslim brothers and sisters. A true Muslim is never a greedy person and all his actions are
for the Pleasure of God. Not only Muslims there are people in other religions too who have given
away their life time work just for the benefit of mankind. For instance, Dr. Jonas Edward Salk
(1914-1995), U.S.A. virologist who developed the first successful polio vaccine against polio
(the Salk vaccine). When he invented the vaccine, instead of using it to make a ton of money, he
decided to give it away for free. Dr. Salk could have been rich many times over, had he sold his
vaccine to a pharmaceutical company. But he thought his invention should be used for a greater
good and the decent salary he makes as a doctor and as a research professor is enough for him to
live a comfortable life. On an interview, he was asked “who owns the patent on this vaccine?” he
replied “well, the people I’d say. There is no patent”.
In the advantages of Capitalism we also said that “organizations devise techniques and plans to
fulfill the growing unlimited demands of the individuals using the limited resources and they find
ways to fulfill all the satisfactions of individuals”
When one deeply takes a look at the world, he comes to know that the resources in the world
aren’t really scarce. Economists have over-rated the scarcity of the resources. We see that the
nature has provided us everything in abundance but it just so happened that some of the people
have taken it all and the remaining are left with only a little. When we look at the wealth
distribution of the total world we see that 7o % of the world’s population is poor, 20 per cent
belongs to middle-class and 10 per cent is rich. If we take all the money from the entire world
and distribute it evenly we’ll see that no one would be poor and everyone would lead a
comfortable life.
And when it comes to the unlimited demands, yes people do have unlimited demands but in an
Islamic State, they are grown up in such a way that they learn how to overcome and suppress the
demands which are extravagant, ethically or morally wrong and for that matter displeasing to
their God. There is another major defect in the capitalism system which is that it provides
International Business---Islamic Law 19
motivation to the organizations to fulfill the satisfactions of the individuals no matter how wrong
or unethical they are. For Instance, many organizations realize that Sex and Alcohol has an
unlimited and ever growing demand in the market so they will go and make innovations in the
areas like pornography, prostitution, beers, wines, cocktails and earn huge profits. If you look at
the financial record of the companies which provides such services you’ll come to know how
financially strong they are. The objective to tell all this is that, the profit motive makes an
organization, so called an “artificial person”, to do such harmful and wrong things that they
wouldn’t do otherwise. But in the Islamic society a person would bring his moral and principle
before the profits and then make his decisions.
We also said that, due to capitalism the trend of globalization started to emerge and people from
the across the world earned huge profits. But there is a catch here. People do not know that why
the people make huge profits due to globalization. People make profits because the globalization
makes it possible for different companies to diverse the risk or to put it another way, to spread
the risk onto more people. This way when the risk is divided, each person gets a little risk on his
part and this makes the organizations to go into deals which are associated with more and more
risk. This is how the mortgages in the US really expanded. Organizations started to take more
and more risk by giving away prime mortgages, subprime mortgages. Millions of dollars had
been given away using easy initial terms (with-out checking the credibility of the loan taker).
This is true that people earned huge profits out of these deals. But, in 2008, when the interest
rates went up and the houses prices went down, those people incurred millions of losses. And
this gave birth to Global Recession. It is reported that this is the worst recession since the Great
Depression of 1930s. And it had its adverse effects not only on USA but also on many other
countries. So many companies had to do retrenchments, thousands of people had to lose their
jobs, many successful companies had to go bankrupt and Lehman Brothers is one of them.
So in the light of above discussion we can say that capitalism urges people to accumulate virtual
wealth and go blind for it. The Capitalism, as tempting as it is, it is also proven to be harmful for
the mankind.
There was another advantage mentioned about the capitalism that it creates “Perfect
Competition” in the market and let the market decide who will survive and who will not and
which direction it may take. Also, the government cannot make any kind of intervention in the
International Business---Islamic Law 20
market. But we all know that the efficient market hypothesis and the perfect competition don’t
really exist. The conditions required for the perfect competition doesn’t exist and could never be
made available. The conditions for perfect competition are as follows:
c) Perfect Information
f) Homogenous Products
By looking at the above conditions, you’d figure out easily that the conditions of perfect
competition do not exist.
Let’s look at the each condition and see how it cannot be made available.
First of all, Infinite Buyers and Sellers but it is very clear that no market has infinite participants.
There is always a limited no. of participants in a market.
Secondly, Zero Entry/ Exit Barriers is also not possible because there is always a cost attached
for the preliminary expenses of starting a business or there is always a loss associated in exiting a
business.
Perfect Information, it is evident that all the participants couldn’t have perfect information and
this is why arbitrage exists in the market.
Transactions are costless, we all know that each and every transaction, we make, has a cost
attached to it which could be sales commission, fee, service charge etc
Firms Aim to Maximize Profits; we all know that there are organizations which do not work for
profits e.g. Non-profit Organizations.
International Business---Islamic Law 21
Lastly, Homogenous Products, the concept is also incorrect, for we all know that markets consist
of heterogeneous products rather than homogenous.
Hence, we have proven that the market system on which the western economies totally rely on is
full of defects. And no matter how hard one tries, he might get some unjust treatment and there
will be no one to do anything for him. But in the Islamic States, Government does regulate the
economies and put regulations in the market. Governments put their hundred per cent focus to
eliminate the evil urge or desire to make unlimited profits and limit unjust markets actions e.g.
the Islamic Governments takes out a proportion of companies incomes in the form of Zakat and
give it to poor people. And if any company make donations voluntarily, the government
appreciates it and do not take away part of its earnings for the purpose of Zakat.
So, in the light of above discussion we can conclude the following things:
Islam, as a religion and ideology, needs to be revisited by both Muslims and non-Muslims alike.
As an ideology, Islam should be viewed as one that provides economic, political, and social
systems that do not belong to the ideologies of materialism (both capitalism and socialism).
After the fall and collapse of socialism, the people of the world took capitalism as their only
alternative.
It is the responsibility and the duty of the people of the world to examine Islam with serious and
sincere considerations, in order to consider it as the only viable alternative.
International Business---Islamic Law 22
English and American lawyers have found business and financial engineering within the context
of Islamic jurisprudence to be a natural exercise. Indeed, many Islamic finance lawyers have
found Islamic and English common law sufficiently similar that they decided to make most
Islamic transaction an financial structures subject to the latter. A student of Islamic law
expressed his realization of similarities between the two legal systems as follows:
In the course of studying Islamic law in its everyday practice I have been increasingly struck
with its similarities to the common law form in which I have also been trained in the United
States.
This inherent familiarity with the modes of analysis in Islamic jurisprudence stems from its close
relationship with Anglo-American common law. Although most historical studies trace the
origins of common law during the reign of Henry II to Roman and canon laws, some recent
historical scholarship has traced the roots of some parts of the common law of financial
transactions to Islamic origins.
One of the earliest studies in this area traced the British system of trusts to the Islamic institution
of waqf. More recently, John Makdisi traced the origins of many innovations in British contract
law to Islamic origins. Indeed, similarities extend to the very methodology of legal inference
based on case studies of legal precedents and reasoning by analogy.
This explains the relative success of Islamic finance in the Anglo-American world and in Islamic
countries that have had a history of British rule (e.g., Gulf Cooperation Council (GCC) countries
International Business---Islamic Law 23
Islamic finance thrives mainly in Islamic countries with officially adopted civil laws, but it is
driven primarily by a canon-law-like interpretation of Islamic scriptures. However, one can
readily see that the canon-like nature of Islamic jurisprudence is mostly rhetorical. The true
nature of Islamic jurisprudence of financial transactions is very similar to Western-style
common law. In particular, contemporary developments in Islamic finance owe more to juristic
understandings of the canonical texts and previous juristic analyses than they owe to the canon
itself.
According to one of the most prominent jurists working in this field:
It must be understood that when we claim that Islam has a satisfactory solution for every
problem emerging in any situation in all times to come, we do not mean that the Holy Quran and
Sunna of the Holy Prophet or the rulings of Islamic scholars provide a specific answer to each
and every minute detail of our socioeconomic life. What we mean is that the Holy Quran and the
Holy Sunna of the Prophet have laid down the broad principles in the light of which the scholars
of every time have deduced specific answers to the new situations arising in their age. Therefore,
in order to reach a definite answer about a new situation the scholars of Shariah have to play a
very important role. They have to analyze every question in light of the principles laid down by
the Holy Quran and Sunna as well as in the light of the standards set by earlier jurists
enumerated in the books of Islamic jurisprudence. This exercise is called Istinbat or Ijtihad.
[T]he ongoing process of Istinbat keeps injecting new ideas, concepts and rulings into the
heritage of Islamic jurisprudence.
International Business---Islamic Law 25
Islamic Finance:
In fact, there are numerous instances wherein reporters begin by stating that the distinguishing
feature of Islamic finance is the prohibition of interest and then proceed to report the interest rate
that Islamic instruments pay (sakuk).
Such discrepancies between rhetoric and practice are not only problematic from an intellectual
standpoint. They also lead to disillusionment with the industry for many educated Muslims, who
may otherwise be its primary customers.
(3) trading foodstuffs for larger amounts of future foodstuffs would lead to shortages in spot
markets for those foodstuffs (presumably because many traders would withhold the goods in the
hope of getting more in the future!).
But even the most conservative contemporary jurists do not consider all forms of what
economists and regulators call interest to be forbidden riba. A simple examination of riba-free
Islamic financial methods such as mark-up credit sales (murabaha) and lease (ijara) financing
shows that those modes of financing are not “interest-free.” Indeed, truth-in-lending regulations
in the United States force Islamic and conventional financiers to report the implicit interest rates
they charge their customers in such financing arrangements. Thus, the practice of Islamic finance
itself illustrates the fact that some forms of interest (e.g., in credit sales and leases) should not be
considered forbidden riba.
has played a very important role for contemporary Islamic finance, by determining the market
interest rates for various borrowers, based on creditworthiness and security of the posted
collateral.
Here, benchmarking the implicit interest rate in Islamic credit sales and leaseto- purchase
transactions to conventional interest rates is quite appropriate. Indeed, if, for instance, the market
interest rate for a particular borrower and particular collateral was 6 percent, but customer and
financier agreed on a credit sale at 10 percent implied interest, one would object that this clearly
violates the spirit
of Islamic prohibition of riba, even if it uses a sale-based ruse to stay clear of the ancient
forbidden form. In this regard, Al-Misri (2004) has argued that Islamic banks are well advised to
abandon characterizing their mark-up in credit sales as “profit,” and list it instead as “interest,”
since the former is potentially unlimited whereas the latter is capped by various contemporary
anti-usury laws that protect those in need of credit against predatory lenders.
Prohibition of Ghara
The best literal and juristic translation for “bay-al-gharar” is “trading in risk.” In this regard, the
Encyclopedia of Islamic Jurisprudence also lists cheating (tadlis) and fraud (ghubn) as special
cases of gharar. Thus, gharar incorporate uncertainty regarding future events and qualities of
goods, and it may be the result of one-sided or two-sided and intentional or unintentional
incompleteness of information.
We have argued that the prohibition of riba may very well be based on the potentially addictive
nature of borrowing and living beyond one’s means. In this section we deal with the prohibition
International Business---Islamic Law 30
of gharar, which was characterized by prominent jurists in light of its similarity to gambling. In
this regard, the late Professor Mustafa Al-Zarqa defined the forbidden bay-al-gharar as “the sale
of probable items whose existence or characteristics are not certain, the risky nature of which
makes the transaction akin to gambling.
[The Prophet’s] prohibition of gharar sales (bay-al-gharar) render such sales defective. The
meaning of “gharar sale,” and God knows best, is any sale in which gharar is the major
component. This is the type of sale justifiably characterized as a gharar sale, and it is
unanimously forbidden. However, minor gharar would not render a sales contract defective,
since no contract can be entirely free of gharar. Consequently, scholars differ in opinion
regarding which contracts are thus rendered defective, based on their assessment of the extent of
gharar in the contract. Thus, each scholar would invalidate a contract if he deems its gharar
component substantial, and would otherwise declare the contract valid if the gharar is deemed
minor.
Islamic financial institutions, wherein the financial institution must own a property in order later
to sell or lease it to its customer. As noted above, this requirement results in additional legal
costs for the extra sale and establishment of SPVs, as well as potential additional sales taxes,
licensing fees, and the like. Interestingly, although the Shafis and Hanbalis listed the seller’s
ownership of an object of sale as a condition of conclusion of the sale contract, Hanafis and
Malikis deemed it only a condition of execution of the sale. Thus, the latter two groups of
scholars deemed sales by an “un-commissioned agent” (known in Arabic as bay ˘ al-fuduli)
concluded but suspended pending the [ultimate] seller’s approval.
General Lease:
Retired Justice M. Taqi Usmani – one of the foremost leaders in Islamic finance, chairing
multiple Sharia boards – argued that the sale of a lease-backed security transfers material
ownership rights and obligations from one lessor to another, and hence the purchaser of such a
security is entitled to collect rent thereof. Needless to say, conventional asset-backed securities,
whether lease or sale based, are often merely financial claims, with little material distinction
between the two. Thus, commenting on common legal structures of lease-backed securities,
Justice Usmani wrote:
It should be remembered, however, that the certificate must represent ownership of an undivided
part of the asset with all its rights and obligations. Misunderstanding this basic concept, some
quarters tried to issue ijara certificates representing the holder’s right to claim certain amount
of the rental only without assigning to him any kind of ownership in the asset. It means that the
International Business---Islamic Law 32
holder of such a certificate has no relation with the leased asset at all. His only right is to share
the rentals received from the lessee. This type of securitization is not allowed in Shariah.
equally binding to a promise to sell the property at lease end. However, this position seems
potentially controversial in light of classical juristic analysis of uncompensated gifts (hiba) and
offers (jiala) .
Classical rules in this regard seem to agree with common-law provisions, which lean toward
making uncompensated transactions nonbinding.9 It would thus be more appripriate to use a
unilateral promise to sell the property at lease end for some financial consideration, even if
minimal or symbolic, and despite concerns regarding same-item sale-repurchase (bay-al-ina).
Flexible-Rate Financing
Contemporary jurists have also found lease contracts to be particularly useful for flexible-rate
financing. In this regard, murabaha financing requires that the amount of debt established upon
the buyer is fixed at contract inception, hence restricting the contract to financing at fixed or
predetermined interest-rate schedules.
In contrast, with the exception of Shafi jurists, most jurists allowed longterm leasing on month-
to-month or other periodic bases. In this regard, Shafi jurists based their ruling on the conditions
of sale, which would require that the entire lease period (during which usufruct, the object of
sale, may be consumed) must be specified at contract inception. However, jurists of other
schools argued that lessor and lessee can agree to a longer-term periodically renewable lease,
whereby the lease is binding on both parties for each period that it is extended with mutual
consent.The mutual consent provision, however, could have been problematic for juristic
arguments in the long term, since lessor and lessee have conflicting interests as interest rates rise
or fall. To avoid such problems, contemporary jurists took the additional (somewhat heroic) step
to link the rent to a flexible-rate benchmark (e.g., LIBOR + spread), ignoring the fact that
classical jurists who allowed automatic renewal of lease, possibly at different mutually
acceptable rents, did not make the lease binding on any one party. In contrast, Justice Usmani
seemed to argue that – in contemporary financial terms – both parties are exposed to interest-rate
risk, and hence the demarcation criterion for permissibility may be ex ante acceptance of the
benchmark, rather than ex post agreement at each renewal period.
As an example, we shall consider the largest issuance in 2003: that of the seven-year, $700
million Qatar global sukuk. The basic structure of that transaction was illustrated in December
2003 by Mr. Robert Gray, chairman of HSBC’s (co-lead manager for the issuance) Debt
Financing Advisory.
The steps of this transaction are essentially the same as those of the Tabreed structure discussed
in the introduction, with the exception that the underlying asset (in this case a parcel of land) is
not sold back at lease end, but given back as a gift. In general, the SPV, in this case a trust,
utilized for issuing lease-backed securities needs to obtain short-term funding in one of two basic
ways: (1) by obtaining a bank loan or some substitute thereof, including the possible deferment
of price payment until proceeds are collected from sukuk buyers, or (2) by selling the sukuk prior
to purchasing the property to be leased back. The rest of the transaction is straightforward, with
lease payments (in this case covering both principal and interest) passed through to sukuk
investors. The other potentially thorny issue is the bindingness of a unilateral promise to give the
property (land parcel) back as a gift at lease end.
Partnerships Business
Simple partnership forms existed in Arabia prior to the advent of Islam and were recognized and
legalized both in the Quran and in Prophetic traditions.In this regard, a number of simple
partnership types were recognized by classical jurists.
credit purchases, followed by spot-market sales of the same properties. Profits and losses are
distributed among the partners according to their ownership shares in the objects of the initial
credit purchases.
A fourth recognized classical partnership form was called labor partnerships (known variously as
sharikat al-amal, sharikat al-abdan, and sharikat al-sani), wherein a group of workers
collaborated on projects (e.g., building some structure) by contributing labor of various types.
Classical partnership forms are then later declared unreliable and unstable – instability increasing
montonically with the number of partners. Hence classical partnership forms were ill-equipped to
take advantage of economies of scale in the preindustrial and industrial ages. Even if heirs to one
partner wished to continue the business, the first partnership – in which the deceased took part –
was dissolved, and a new partnership needed to be formed. In part building on the seminal
historical work of Abraham Udovitch (1970), contemporary economists such as Avner Greif and
Timur Kuran have argued that this fundamental characteristic of Islamic partnerships limited
them severely, in terms of both size and longevity, in comparison to Western-style limited-
liability corporations that retain their own legal personality.
as agent is paid a flat fee rather than a profit share). Of course, the ruling based on analogy to
either of those contracts would have been problematic based on the prohibition of gharar (since
the profit share characterized as wage or agency fee is uncertain).
Thus, classical jurists had to rely on prophetic tradition to legitimize the contract under a separate
name (as they had done, for instance, for salam) despite that gharar.
Profit-Sharing Conditions
Most jurists, classical and contemporary, insisted that returns to the investor and entrepreneur
must be specified as unidentified shares in profits. Some leniency was allowed if the shares were
not known explicitly, in which case most jurists reverted to a default rule of equal sharing in
realized profits (recall that all financial losses are borne by the investor). We have also noted that
if profit shares were specified, but at extreme values, the contract is deemed a loan if the entire
profit was assigned to the entrepreneur, and a voluntary agency if it was all assigned to the
investor. On the other hand, the vast majority of classical and contemporary jurists unequivocally
rejected silent partnerships wherein one party is promised a fixed amount of money, including as
a percentage of provided capital (interest).
The vast majority of classical and contemporary jurists claimed that the rules for profit sharing
must be strictly followed in silent partnership. Thus, debtlike instruments such as corporate
bonds, which promise a fixed amount of money equal to the invested capital plus interest, were
forbidden. Moreover, hybrid equity instruments such as preferred shares were deemed
impermissible. However, as we shall see in Chapter 8, some contemporary jurists have argued
that classical consensus over the rules of silent partnership may not be very relevant for
contemporary practice. They alluded to rules of defective silent partnerships, which entail
recharacterization of the contract in terms of other permissible ones. They also argued that
contemporary practices need not be limited to classical contract forms, and classical conditions
thereof.
Common-Stock Ownership
Equity investments in Islamic finance started with simple mutual funds that applied standard
portfolio management techniques to a limited universe of stocks, which excluded, for example,
companies with Islamically illegitimate lines of business. In recent years managers have begun to
International Business---Islamic Law 37
use more advanced trading techniques, including trading on margin and short sales, to boost
investor returns in an increasingly competitive Islamic finance market.
Line-of-Business Screens
The first set of screens is qualitative, based on the corporation’s line of business. Those screens
are easier to define in the abstract but more difficult to implement, requiring constant monitoring
of company activities by Sharia supervisors. For instance, it is easy to say that businesses that
serve alcoholic drinks should be excluded (possibly excluding certain hotel chains, airlines,
restaurant chains, etc.). However, the issue of degrees of separation, which we have raised
repeatedly throughout the book, allows jurists many degrees of freedom.
For instance, fatwa #18 by the Sharia board of the Dallah Al-Baraka group stipulated that leasing
airplanes to airlines that are known to serve alcoholic drinks is permitted. Their reasoning was
that the primary business of the airline is transportation of passengers, rather than serving or
transportation of alcoholic beverages, and hence any sin for serving those beverages would
accrue to the operator of the planes and not to their lessor. The Sharia board of Kuwait Finance
House issued a similar opinion in their ruling #384, within the context of leasing real estate to
embassies of foreign countries, wherein alcoholic beverages will be served. The list of activities
that lead to exclusions of various companies vary significantly from one Shari ˘a board to
another. Some may exclude companies that engage in certain types of genetic research,
depending, for instance, on their potential contribution to human-cloning programs, while others
International Business---Islamic Law 38
may not. The issue in all cases is whether an activity is forbidden and the extent to which it is a
primary activity of the company under consideration. This approach allows for a number of
Sharia-arbitrage opportunities. For instance, instead of purchasing a restaurant chain, one can
create an SPV that buys all the assets of the chain, excluding their wine cellars, wine bottles and
glasses for serving wine, and the like. Then shares in the newly created company would be
permissible, since the primary usage of its capital (e.g., real estate, tables, chairs, kitchens) is
serving food rather than alcoholic beverages. With sufficient accounting acumen, one can thus
separate ownership of the impermissible part from ownership of the permissible part and sell the
latter as “Sharia-compliant” securities.
lacking. In such cases, the terms at which a small investor can borrow from the market may be
prohibitive.
the practice of Islam and it is quite misleading to equate the religion of Islam with the word
Syariah.
Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called fiqh
muamalat (Islamic rules on transactions). The rules and practices of fiqh muamalat came from
the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions
collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal reasoning
(ijtihad).
Recently the debate erupted once more with a high-profile fatwa from the prestigious Azhar
Islamic Research Institute, which deemed the collection of interest on conventional bank
deposits permissible (by characterizing it as a fixed profit rate in investment agency). This fatwa
reiterated an earlier issued fatwa in the late 1980s by the current rector of Al-Azhar, Tantawi,
who was then the Grand Mufti of Egypt.
International Business---Islamic Law 41
Wadiah (Safekeeping)
Wadiah means custody or safekeeping. In a Wadiah arrangement, you will deposit cash or other
assets in a bank for safekeeping. The bank guarantees the safety of the items kept by it.
Know the Shariah concept used and be clear of your rights and Responsibilities.
1) You place money in a bank and the bank guarantees to return the money to you.
2) You are allowed to withdraw the money anytime.
3) Bank may charge you a fee for looking after your money and may pay hibah (gift) to you if it
deems fit.
4) This concept is normally used in deposit-taking activities custodial services and safe deposit
boxes.
Mudharabah (Profit sharing)
Mudharabah is a profit sharing arrangement between two parties, that is, an investor and the
entrepreneur. The investor will supply the entrepreneur with funds for his business venture and
gets a return on the funds he puts into the business based on a profit sharing ratio that has been
agreed earlier. The principle of Mudharabah can be applied to Islamic banking operations in 2
ways: between a bank (as the entrepreneur) and the capital provider, and between a bank (as
capital provider) and the entrepreneur. Losses suffered shall be borne by the capital provider.
1) You supply funds to the bank after agreeing on the terms of the Mudharabah arrangement.
2) Bank invests funds in assets or in projects.
3) Business may make profit or incur loss.
4) Profit is shared between you and your bank based on a pre agreed ratio.
5) Any loss will be borne by you. This will reduce the value of the assets/ investments and hence,
the amount of funds you have supplied to the bank.
Example: In savings operated under Wadiah, banks will normally pay their Wadiah depositors
hibah although the accountholders only intend to put their savings in the banks for safekeeping.
Home insurance
Liability insurance
Credit insurance
Accident, sickness and unemployment insurance
Apart from these types of insurances, many different companies offer many different types of
insurance plans.
All these types of insurances are used worldwide under a specific law. The insurance law has
two types; one is under which insurance business is held and second is the law how claim
handling is done.
Islamic finance has developed mainly in two directions namely Islamic banking and Islamic
insurance (Takaful). Under Islamic law this concept of insurance that is worldwide used is
slightly different. Under Islamic law insurance is said to be “Takaful”. Takaful is Arabic word
meaning guaranteeing each other or joint guarantee. The Tabarru system is the main core of the
Takaful system making it free from uncertainty and gambling. Tabarru means donation; gift;
contribution. Each participant that needs protection must be present with the sincere intention to
donate to other participants faced with difficulties. Therefore, Islamic insurance exists where
each participant contributes into a fund that is used to support one another with each participant
contributing sufficient amounts to cover expected claims. The objective of Takaful is to pay a
defined loss from a defined fund. Muslim jurists conclude that insurance in Islam should be
based on principles of mutuality and cooperation; having the elements of shared responsibility,
joint indemnity, common interest and solidarity.
The principles of Takaful insurance are as follows:
Policyholders cooperate among themselves for their common good.
Every policyholder pays his subscription to help those that need assistance.
Losses are divided and liabilities spread according to the community pooling system.
Uncertainty is eliminated in respect of subscription and compensation.
It does not derive advantage at the cost of others.
Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain
sum of money to a common pool. The purpose of this system is not profits but to uphold the
principle of “bear one another’s burden.”
International Business---Islamic Law 46
The contract of Takaful provides solidarity in respect of any tragedy in human life and loss to the
business or property. The policyholders (Takaful partners) pay subscription to assist and
indemnify each other and share the profits earned from business conducted by the Company with
the subscribed funds. Takaful companies normally divide the contributions into two parts, i.e.,
donations for meeting mortality liability or losses of the fellow policyholders and the other part
for investment. Accordingly, the clause of Tabarru´ is incorporated in the contract. How much of
the contribution is meant for mortality liability and how much for investment account is based on
a sound technical basis of mortality tables and other actuarial requirements. Both the accounts
are invested and returns thereof distributed on Mudarabah principle between the participants and
the Takaful operators. The profit attributable to the participants is credited into the two accounts
separately. To describe from another angle, a Takaful contract may comprise clauses for either
protection or savings/investments or both the benefits of protection as well as savings and
investment. The protection part of Takaful works on the donation principle according to which
individual rights are given up to indemnify the losses reciprocally. In the Savings part, individual
rights remain intact under Mudarabah principle and the contributions along with profit are paid
to the policyholders at the end of policy term or before, if required by them.
The types of Takaful are:
Family Takaful
Investment linked Takaful
Child Education Takaful
Medical and health Takaful
Home Takaful
Car Takaful
And Personal accident Takaful
The Islamic law prohibits from a contract with a commercial insurance company. The distinction
between the conventional insurance and Takaful business is more visible with respect to
investment of funds. While insurance companies invest their funds in interest-based avenues and
without any regard for the concept of Halal-o-Haram, Takaful companies undertake only
Shariah compliant business and the profits are distributed in accordance with the pre-agreed
ratios in the Takaful Agreement. Likewise they share in any surplus or loss from the pool
International Business---Islamic Law 47
collectively. Takaful system has a built-in mechanism to counter any over-pricing policies of the
insurance companies because whatever may be the premium charged, the surplus would
normally go back to the participants in proportion to their contributions.
“Commercial insurance is originally Haram as agreed upon by most contemporary scholars. It is
well known that in most non-Islamic countries there are cooperative and mutual insurance
companies. There is no harm from the Shariah point of view to participate in these services. So,
it is unlawful for a Muslim living in a country where there is such a cooperative insurance
company to make an agreement with a commercial insurance company. But, if a cooperative
insurance company is not found one may enter into a contract with a commercial insurance
company only by way of necessity. If a person is forced by law to insurance or by way of need, it
is obligatory for him to be content with the minimum proportion of insurance that covers his
need or to the minimum of such transaction he’s being forced to carry out.” - European Council
for Fatwa and Research.
needed in these regions because of its growing popularity and because of the growing Muslim
population.
Hence this was the concept of insurance under Islamic law which is called Islamic Insurance or
Takaful which is growing very rapidly worldwide especially in the Middle East countries.
overall management quality needed to compete successfully. Companies that perform better with
regard to these issues can increase shareholder value by, for example, properly managing risks,
anticipating regulatory action or accessing new markets, while at the same time contributing to
the sustainable development of the societies in which they operate. Moreover, these issues can
have strong impact on reputation and brands, an increasingly important part of company value.
Elaborating on this idea of brand-name value based on social and environmental agendas, the
report’s authors argued that ESG [environmental, social, and corporate governance] issues can
have a strong impact on reputation and brands, an increasingly important part of company value.
It is not uncommon that intangible assets, including reputation and brands, represent over two
thirds of total market value of a listed company. It is likely that ESG issues will have an even
greater impact on companies’ competitiveness and financial performance in the future.
Conclusion
Once the people of the world examine Islam system with serious and sincere considerations, they
will realise that it’s the only viable system. Although Islamic financing system is most viable
and has everything but its true representation is still needed.
In all areas be it business, finance, social and corporate governance, Islamic finance has golden
opportunities to redefine the brand name in a manner that enhances its providers’ profitability
and market value; increases access to the fast-growing potential market segment of middle-class
Muslims, and enhances its ability to recruit top-drawer talent from that same market segment for
its products.
However, multinational as well as large indigenous Islamic finance institutions are not directly
capable of engaging in the poverty alleviation, microfinance, and other socially beneficial
International Business---Islamic Law 50
activities that are necessary for establishing this new identity and brand name. A network of
mutual financial institutions with close ties to religious establishments can perform the necessary
intermediation between those institutions’ world of high finance and those required social
functions.
Hence, it is clear that once Islamic finance outgrows its formulaic current mode of operation, and
assumes a new identity based on substantive and ethical religious tenets, it will no longer need to
hide behind the “Islamic” brand name, just as Luther’s cobbler needed only to make a good shoe,
and to sell it at a fair price, without the need to make or market a “Christian shoe”.
I though accept Ho on the basis of my research but since we know that practice is different from
theory. And Islamic law for International business has a long challenging way to go.
To be sure, while the world's first Islamic bank was founded back in 1975, it is only in the last
five years or so that Islamic finance has surged. Sniffing opportunity, conventional banks are
now scrambling to set up Shari'a-compliant operations; and there has been a flurry of all-Islamic
start-ups, from full-service investment banks to specialist advisory firms. Products have moved
beyond lending, insurance and investment funds to include sukuk, hedge funds, currency swaps,
and more.
Despite this boom – largely concentrated in the Middle East and South-East Asia – it's plain the
Islamic finance industry still lacks global scale. Professor Rodney Wilson of the Institute for
Middle Eastern and Islamic studies at Durham University in the UK estimates Islamic banking
assets speak for less than 0.5% of the world's total. And worldwide sukuk debt outstanding
amounts to perhaps USD 100 billion – just 0.1% of the global bond market.
For certain, industry practitioners are making progress. Earlier this year the International Capital
Market Association and the IIFM agreed to develop standard contracts and common best practice
for secondary trading of sukuk and other Islamic instruments. And it may help, too, that global
banking giants are putting their weight behind Islamic finance. (Deutsche Bank, Barclays Capital
and BNP Paribas are already among the world's top five issuers of sukuk.)
The Islamic business and finance industry needs to work on innovation, too. Shari's-compliant
products can be more complex than conventional ones because every transaction is backed a
International Business---Islamic Law 51
non-financial trade. Many instruments are still lacking, including corporate treasury and
derivatives products. As UIB's Pace points out: "We [in the industry] need to change our
perception of R&D, and view it as a core ingredient of success." But at the same time, innovation
is hampered by the limited number of Islamic scholars able to vet financial products for Shari'a
compliance.
The question whether Islamic finance has reached critical mass or shall ever will remains open,
of course. But Johnson of Calyx Financial is optimistic: "The tipping point may already have
arrived," he ventures. Even if Johnson is wrong in his optimism, it seems unlikely history will
prove him to have been very far wide of the mark.
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