Risk and Regulation of Islamic Banking

Risk and Regulation of Islamic Banking

Foundations of Islamic Finance series

Edited by Mervyn K. Lewis, Mohamed Ariff and Shamsher Mohamad

From a single product offering in 1963, the Islamic financial services industry has grown to an estimated $1.6 trillion in assets. Products must comply with profit and risk-sharing criteria and regulations preventing banks from venturing into activities with high risk and excessive uncertainty. This timely volume analyses these matters and considers the range of new products, discussing both conceptual and practical dimensions. It connects Islamic finance to the mainstream theoretical literature on financial intermediation while also exploring its differences. The expert contributors also examine why an ethical foundation is important and why the system requires well-thought-out regulations to ensure outcomes that protect the community’s well-being.

Chapter 9: Non-interest financing arrangements in three Abrahamic religions

Ahmad Kaleem and Mervyn K. Lewis

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation, islamic economics and finance, money and banking


Judaism, Christianity and Islam view wealth as a blessing from God, and see man’s appointment as custodian imposing obligations and constraints upon its rightful use. All three religions have strong views on the acceptability of usury (interest) that have been extensively analysed in the literature. Less well researched are the principles and practices of various non-interest financial instruments acceptable in the three Abrahamic religions. This chapter seeks to cover this gap by examining the principles and practices of Judaism, Christianity and Islam towards selected financial concepts, namely partnership and equity-based financial instruments, debt-based financial instruments and interest-free loans. Religion can be seen as a set of beliefs by which a person shapes his or her life ranging from spirituality to daily affairs, including financial matters. Academic research has explored how religion (beliefs, norms, values) affects the economic decisions of individuals, groups and society at large (Iannaccone, 1998). According to Rae (2002, p.6) ‘we are seeking from Scripture general principles or norms that govern economic life and can be applied to different economic arrangements’.

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