Islamic Finance

Islamic Finance

Principles and Practice, Second Edition

Hans Visser

This thoroughly updated and revised second edition analyses the ideas behind Islamic finance, the forms Islamic finance has taken in practice and the tension between the two that may occasionally arise. Along with an expanded section on the history of the ban on interest, this second edition contains a much more extensive discussion of investment and savings accounts, sukuk and tawarruq.

Chapter 1: Why Islamic finance?

Hans Visser

Subjects: economics and finance, financial economics and regulation, money and banking


This chapter is about the motives for Muslims to advocate the use of financial instruments that obey specific Islamic requirements. The movement for an Islamic economy and an Islamic financial system in particular, is rooted in the experience of Muslims in what they, or at least some of them, felt in the past was an unfriendly non-Muslim environment. A new impetus was given with the rise in oil wealth in a number of predominantly Muslim countries after the 1973–74 oil crisis and the success of Malaysia as a fast grower; both of which may have contributed to a formerly unknown level of self-confidence that made it possible for Muslim governments and firms to develop new financial instruments in close cooperation with Western firms, without the feelings of resentment that underlay the first attempts to Islamize the economy. The history of the movement towards Islamic finance, and Islamic economics in general, is outlined and the chapter concludes by highlighting the diversity of views among Muslims on this matter. Islamic finance is a way to put Islamic principles regarding the economy into practice. Attempts to develop a specific Islamic type of economy, based upon Islamic religious law, the sharia, can be seen as a manifestation of the wish harboured by Muslims to retain, or regain, their own identity vis-à-vis the capitalist West and, until the fall of communism, the socialist East.

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