The Stability of Islamic Finance

The Stability of Islamic Finance main focus is on thequestion of the sources of financial instability which seemsinherent in the conventional system. As a core component of thisfocus, the book will consider episodes of turbulence andinstability in a historical context recalling the occurrence ofsuch events from mid-19th century to the present. It will presentvarious theoretical explanations along with solutions andalternative financial systems that avoid instability provided byvarious scholars dating back to mid-19th century to present.The book then will present and discuss the architecture of anIslamic financial system and show that at its core, this systemshares many characteristics of an stable financial system proposedby Western scholars throughout history to avoid the inherentinstability of the present dominant system. Particular emphasiswill be placed on the present financial crisis and its causes aswell the financial crisis of the 1997 in Southeast Asia, Russia,and Latin America relating these episodes to the fundamentalfeatures of the dominant system. The debt crisis of the low incomecountries will also be part of this discussion. It will then arguethat these crises could be mitigated under an Islamic system or anyother system with similar architecture.

Foreword ixAcknowledgments xiiiGlossary of Arabic Terms xvIntroduction 1CHAPTER 1 The Nature of Capital and the Rate of Return 11CHAPTER 2 The Origins of Financial Panics and Recessions 23CHAPTER 3 Monetary Policy and Financial Crises 37CHAPTER 4 The Internationalization of Financial Crises 45CHAPTER 5 The Role of the Credit Multiplier in Financial Crises61CHAPTER 6 The Inherent Stability of Islamic Finance 75CHAPTER 7 A Theoretical Model of the Inherent Stability ofIslamic Finance 83CHAPTER 8 Asset Pricing and Risk in Islamic Finance 93CHAPTER 9 Islamic Financial Intermediation and Markets 113CHAPTER 10 Risk Profi le of Islamic Financial Intermediaries131CHAPTER 11 Financial Engineering, Derivatives and FinancialStability 141CHAPTER 12 Corporate Governance and Financial Crises 163CHAPTER 13 The Performance of Islamic Financial Intermediariesand Products 183Conclusion 209Bibliography 217Index 225