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Salman Syed Ali Khan

13. The role of IDB in Islamic capital market development Salman Syed Ali Khan 13.1 INTRODUCTION The unstated but significant hallmark of Islamic capital market development is to keep finance relevant to economic activities to maintain justice and fair play for all members of the society. By avoiding financial transactions based on a pre-agreed interest rate, unnecessary risk-taking by following the principle of gharar and by adherence to certain fair trade and exchange rules, Islamic finance provides a means for orderly financial contracting. The development and

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Munawar Iqbal

founding member countries in 1395H (1975) to 55 countries by the end of 1425H (9 February 2005). Resources The main source of its financial resources is the member country funds. Unlike other financial institutions, the bank does not receive interest-based deposits, nor does it augment its financial resources by borrowing funds from conventional world financial markets because this would involve payment of interest, which is not compatible with shari’a. Instead, the bank has developed new schemes and financial instruments which are in conformity with the principles of shari

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Umberto Santarelli

legal framework of the contractual relationships mentioned above. The occasional statutory activities, which were carried out by both secular and Church power, never questioned the main features of the framework whenever, throughout the centuries, an attempt was made to rule on the different usury practices in order to fix a ceiling price on interest rates and to sanction conduct which appeared most reprehensible. Some special rules were provided on trade activities, especially on maritime relationships: the Roman fenus nauticum2 is such a case. Arangio Ruiz pointed

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Edited by M. Fahim Khan and Mario Porzio

This timely book examines the authorization of Shari’ah-compliant intermediaries as either credit institutions or as investment companies in the European Union.
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Mervyn K. Lewis and Latifa M. Algaoud

Insurance (Takaful) 2000. riba-based, conventional insurance policies, therefore, contravene the shari’a. For example, interest-rate bonds and securities accounted for about 80 per cent of the assets of US life insurance companies in 1988 (Lewis, 1992b), and in 1998 still accounted for 65 per cent of assets (ACLI, 1999). Insurance, it must be said, remains a controversial matter within the Muslim community. Some argue that the calculation of probability involved might be seen as an act of defiance against takdir, God’s predestination of events. House insurance, for

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Frank E. Vogel

as the ideal form for Islamic credit and investment, since it defines a model for investment they consider unique to Islam: return equals a pre-agreed percentage of actual net revenues; capital losses fall solely on capital and not on labor. This model is heralded as a third way between capitalism and socialism, and as far fairer and more productive than interest-taking. But lawyers – and the historical and contemporary practice of Islamic finance – rely on sale and its derivatives as the more natural alternative to interest and the more practical medium for

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Michael T. Skully

-enhanced, Special Purpose Company (SPC). The SPC in turn raises the required funds through the sale of its own securities, which represents an interest in these assets. As this structuring is so important to its success, this activity is also known as structured finance. Islamic securitization is effectively conventional securitization modified to accommodate shari’ah principles and results in the creation of a financial asset known as sukuk. A sukuk is sometimes also referred to in the popular press as an Islamic bond, but this would be a mis-representation. A more appropriate

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M. Fahim Khan and Mario Porzio

finance in the European Union growth over the global scene. Now the institutions dealing with Islamic finance exist in more than 50 countries. The total number of such institutions is more than 275 of which 54 are reported in Europe.1 These institutions are estimated to be handling funds somewhere around $500 billion growing at a rate of more than 15 percent per annum. The emergence of these institutions is helping to bring out funds into the banking channels which were previously avoided on the grounds of the religious injunctions against interest-based banking. It is

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Mohd Ma'sum Billah

Islamic Bank, as approved by the General Secretariat of the Organization of the Islamic Conference (OIC), is as follows: An Islamic Bank is a financial institution, which applies statutes, rules and procedures that expressly state its commitment to the principles of Islamic Shari’a and prohibit the receiving and paying of interest (riba) on any of its operations. (Mannan, 1982) Islam is strongly prohibitive of riba or usury transactions as adopted in conventional bank transactions on the grounds that they would lead to injustice. The shari’a disallows riba, and there is

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Peter Casey

important to them. Regulators should at least consider whether such a representation falls within their area of interest and, if so, what their attitude towards it should be. Globally, different regulators have different views on this, ranging from an active avoidance of any religious issue to full control, typically through some form of shari’ah council.2 The first position would be typified by many Western regulators. In some instances they would consider that it would be unlawful for them to be involved in any way with religious matters, either because they had been