Global Financial Crisis and the Link Between the Monetary and Real Sector: Moving Beyond the Asset-Backed Islamic Finance  Author: Mohammad Omar Farooq
Source: Proceeding of the 20th Annual Islamic Banking Seminar, Iran Banking Institute September 2009

A major factor behind this crisis is financialization of the system, with a growing disconnect between the monetary and the real sector. Some proponents of the Islamic finance claim such financial crisis would have been avoided, if asset-backed Islamic finance were adopted. However, while Islamic finance in form and legality is asset-backed at the micro-juristic level, it is still largely delinked from real sector at the macro level. This paper articulates the need for Islamic finance to be better embedded in the reality of the real sector and be more effective to achieve the broader economic goals that it proclaims to pursue.

The Challenge of Poverty and the Poverty of Islamic Economics  Author: Mohammad Omar Farooq
Source: Journal of Islamic Economics, Banking and Finance, Vol. 4, No. 2, 2009, pp. 35-58

In the past half century Islamic economics was eclipsed by Islamic finance movement. Gradually Islamic economics has taken a back seat without any economy to back it up empirically. Although Islamic finance emerged as an offshoot of Islamic economics and with the blessing and advocacy from Islamic economists, prevailing patterns of Islamic finance are markedly delinked from any broader developmental goals. Can Islamic economics step up to the challenge of poverty, or is Islamic economics itself suffering from poverty of substance? Those are the questions dealt with in this exploratory paper.

*Islamic Banks and Wealth Creation  Author: Abdul Ghafar Ismail
Source: International Shari’ah Research Academy for Islamic Finance (ISRA), Research Paper (No: 9/2010)

This paper aims to examine how Islamic banks create wealth: how customers as depositors invest their money through the banks; how the banks invest the funds at their disposal; and how economic agents such as individuals, firms and government use these funds. It also examines how this money generates profit, which is then distributed to Islamic banks and depositors, and hence preserves and develops the wealth (mal) of economic agents. It also raises the larger question of whether Islamic banks contribute to the well-being of society by focusing on return to depositors and to shareholders.

*The Framework of Maqasid al-Shari'ah (Objectives of the Shari'ah) and its Implications for Islamic Finance  Author: Asyraf Wajdi Dusuki, Said Bouheraoua
Source: International Shari’ah Research Academy for Islamic Finance (ISRA), Research Paper (No: 22/2011)

This article examines the concept of maqasid al-Shari'ah in Islamic jurisprudence in order to highlight its contribution to more comprehensive, rational and realistic answers to contemporary financial issues and to thereby increase awareness of the maqasid approach in structuring and developing Islamic finance products. For this purpose, the authors examine the literal and technical meanings of maqasid al-Shari'ah and scrutinise the position of the concept in Islamic law. They also present the essential elements of maqasid al-Shari'ah and explain how this approach may contribute to better solutions for various Islamic finance issues and challenges. Islamic finance has experienced phenomenal growth and success in the last three decades. It has expanded beyond its traditional markets to become a global phenomenon. Despite this encouraging development, skeptics continuously allege that Islamic finance is failing to fulfill its objectives as defined by the maqasid al-Shari'ah. These objectives, which prevail within the ambit of the Shari'ah, are to be expressed not only in the minutiae of Islamic finance operations but in the breadth of Islamic finance’s role to the Ummah as a whole. Indeed maqasid al-Shari'ah reflects the holistic view of Islam, which has to be looked at as a whole, not in parts, for Islam is a complete and integrated code of life, and its goals encompass all of life, including the individual and society, in this world and the hereafter.

*Maqasid al-Shari'ah and Islamic Financial Products: A Framework for Assessment  Author: Habib Ahmed
Source: ISRA International Journal of Islamic Finance, Vol. 3, Issue 1, 2011, pp. 151-160

Contemporary practice of Islamic finance has been criticised for not fulfilling the maqasid. The debate surrounding the practice of Islamic finance has led to the distinction between Shari'ah-compliant and Shari'ah-based Islamic products. However, there are no clear definitions as to what these terms entail. Whereas some scholars assert that Shari'ah-compliant and Shari'ah-based products are the same, there is a need to distinguish between different nuances of Islamic finance in terms of legal and social Shari'ah requirements. In this research note (note), an objective way of classifying categories of Islamic financial products is suggested. In particular, the legal and social Shari'ah requirements implied in the maqasid are used to classify Islamic financial products as Shari'ah-based, Shari'ah-compliant and pseudo-Islamic. The note also identifies the role of different stakeholders in choosing the types of products.

*Copyrighted publications of ISRA