Cfa institute – primer on Islamic finance Summaries the book, each chapter, 10 pages double space and easy words

Book Review: A Primer on Islamic Finance
Introduction
Combination of economics and religion creates scope for moral and ethical values in the
economic system. Various aspects of modern Islamic Finance incorporate the
spontaneous features of both – economic and religious values. Due to the combination
of religious values in the economic or financial system several moral values got
incorporated in the Islamic Finance. Rise of Islamic Finance, in different parts of the
world, has motivated academicians, researchers and finance professionals to explore
the core functionalities of it and combine its products and services with conventional
banking or financial systems.
Many of the researchers and scholars have expressed their findings and opinions
in different research papers, books, journals, etc. Most of such literatures lacks in user-
friendly writing style and wide scope coverage to enhance understanding of different
aspects of the Islamic Finance, but the book A Primer on Islamic Finance written by
Bala Shanmugam and Zaha Rina Zahari, incorporates basic Islamic financial concepts
(like descriptions of gharar and riba), financial or banking products (like bank accounts,
sukuk, and equity funds), various markets (capital markets, banking, insurance, etc.)
and different issues like risk management, corporate governance, etc.
This specific book helps users in understanding the Islamic Finance and global
Shari’a standards, which defines the regulatory policies compliant and non-complaint in
different parts of the world. As Islamic Finance is gaining market share and attention
from overall world thus this book helps in creating extensive understanding about
Islamic Finance theories and how it differs in situation of applied form or practical
policies.
Chapter One: Overview of Contemporary Islamic Finance
The basic principles, on which Islamic Finance operates, are highly influenced of
the Shari’a (Islamic Law) guidelines, which restrict incorporation of riba (interest in any
part of Islamic finance transactions) and involvement of gharar (any kind of risk
uncertainty and speculation. In lieu of incorporation of riba and gharar, Islamic Finance
induces incorporation of risk and reward sharing among the contracting parties, where
the degree of sharing the risk and reward varies as per the contract specifications.
Islamic Finance incorporates specific types of risks like credit risk with money lending
and ownership risk with installment credit sales of assets, which comply with the Shari’a
guidelines of investment and funding.
This specific chapter of book describes about the origin of the Islamic banking
and finance, emergence of contemporary Islamic Finance, basic tenets of Islamic
Finance, objective of Shari’a in Islamic Finance, comparison of Islamic Finance and
conventional banking, various principles of Islamic Finance and forces strengthening
Islamic Finance. As per the analysis of the fats it has been propounded that Islamic
Finance activities are mostly based on the profit-sharing and partnership venture based
financial transactions. Shari’a restrictions on usury (excessive interest) and riba (give
and take of interest) have helped in promotion of faith based Islamic Finance functions.
Priciples of Islamic Finance promotes freedom from riba, risk and return sharing,
Shari’a approved activities, avoidance of gharar, sanctity of the contract, etc. As per the
authors opinion, there exists certain factors which helps in strengthening the growth and
development of Islamic Finance, such factors are growing liquidity and economic
growth, investor’s interest in Shari’a compliant instruments, foreign direct investment
(FDI) and privatization, diversification, regulatory changes and globalization.
Chapter Two: Islamic Law and Financial Services
Shar’a. the Islamic Law, acts as the foundation of the Islamic Finance principles,
where the basic objective incorporates promotion and maintenance of fairness and
equality in society through upliftment of moral, social ethical and religious factors. As
per authors the foundation of the Islamic law is considered to be based on three basic
elements, such as akhlaq (ethical code of personal conduct), aqidah (excludes doubts
and suspicion on believer’s part) and Shari’a (practices and activities). In which Shari’a
is considered to be influencing the major parts of Muslim’s lifestyle, such as social
norms, worship, politics, family, criminal or civil law, economic conventions and personal
conduct and attitude.
Shari’a is considered to be base of Islamic Finance guidelines, which comprises
principles from various religious customs and literatures, such as Quran, Sunnah, Ijma,
Qiyas, Istihsan, Istislah, Itjihad, Urf, etc. In consideration to Islamic Commercial law
specific contracts are formed which incorporates deals with contract and legal
ramification of contracts. Such contracts comprises offerer and offeree, offer and
acceptance, subject matter and consideration, etc., and also exist in various types such
as unilateral, bilateral and quasi contract.
Authors have provided detailed description of the type of contracts applicable in
Islamic Finance, such as contract of exchange (Murabahah, Bai’ Bithaman Ajil, Bai’
Salam, Bai’ Istisna, Bai’ Istijrar, Bai’ Inah), contract of usufruct (Ijarah, Al-Ijarah
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