Transcript Introduction - University of Michigan

Islamic Economics
R&W Chapters 12, 14
Choudhury “Introducing Islamic Political Economy”
Siddiqi “The Growing Popularity of Islamic Banking,”
Link to syllabus
Ibn Khaldun
Tunis 1332- Cairo 1406
Muslim historian and sociologist
Born into an elite family in
what is now Tunisia, he was
a judge, teacher, and diplomat.
In his muqaddama, he wrote
that societies go on three
generation cycles. Is judged
one of the first to have placed
economic factors as major
causes. Taught at Al-Azhar
in Cairo. Left no school of
Followers.
Analytics of an Islamic Macroeconomic System
Source: Choudhury, Principles of Islamic Political Economy
Link to Choudhury’s web page
Average Cost Pricing in Islamic Economics
Source: Choudhury, Principles of Islamic Political Economy
Timur Kuran: “Why the Middle East is
Economically Underdeveloped,” 2004 article in JEP
Kuran, born in Turkey, was for many years a professor at USC, and now is
at Duke. His important recent book is The Long Divergence: How Islamic
Law Held Back the Middle East, (Princeton, 2011).
Institutiaonl Delavy
Source: Kuran (2011) The Long Divergence
Institutional Limits
Source: Kuran (2011) The Long Divergence
Summary of article in EJ on IE and riba
Links to newspaper articles on Islamic mortgages in
Detroit area
FREEP 1
FREEP 2
FREEP3
Ad for living without
interest (riba).
Muslim Observer, June, 2010
Examples of Islamic Financial Agreements
Source: Siddiqi (1999) “The Growing Popularity of Islamic Banking,” Middle East
Global body writes standards for Islamic derivatives
SINGAPORE – Bloomberg KATRINA NICHOLAS
Tuesday, October 27, 2009
Global standards for Islamic derivatives contracts may be published as soon as
December, helping companies and investors manage risk more effectively, according
to the International Swaps and Derivatives Association.
The New York-based ISDA, which represents more than 830 organizations active
in the $592 trillion derivatives market, started working on its Shariah-compliant
master agreement with the Bahrain-based International Islamic Financial Market
in 2006. The first version of their framework will focus on swaps for profit-rate and
currency transactions, Shirvani said.
Islamic finance is the fastest-growing segment of the global financial system with
$919 billion of assets under management, including $114 billion of Shariahcompliant bonds, known as sukuk, Prudential Financial said on Oct. 7. Assets
will grow to as much as $1.1 trillion this year, Kuwait Finance House KSC forecast
in July, as the world emerges from recession and a recovery in oil prices boosts
Arab wealth.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies
and commodities, or linked to specific events like changes in the weather or
interest rates.
Estimated size
of the Sukuk
market
Source: Int’l Islamic
Financial Market:
Sukuk report
Leading examples
in the domestic
GCC market
Source: Int’l Islamic
Financial Market:
Sukuk report
Sukuk examples from
Malaysia
Source: Int’l Islamic
Financial Market:
Sukuk report
Islamic Banking Grows, With All Sorts of Rules
Hugh Pope. Wall Street Journal. May 3, 2005.
In the past decade, Islamic banking has matured from a
tiny, sometimes controversial backwater into an important
current of global finance, especially as Western bankers
and borrowers compete for the new funds gushing into the
Persian Gulf because of higher oil revenue. A Citigroup
Inc. unit now operates what is effectively the world's largest
Islamic bank in terms of transactions. Some $6 billion of
Citibank deals now have been structured and marketed in
conformance with Islamic laws since starting out in 1996.
HSBC Holdings PLC, Deutsche Bank AG, ABN Amro
Holding NV, Societe Generale SA, BNP Paribas and
Standard Chartered also have established Islamic banking
units in the past few years.
WORLD ISLAMIC BANKING COMPETITIVENESS REPORT 2005' RELEASED
Al Bawaba. London: Dec 11, 2005
In 2004 Islamic Banks continued to grow much faster than their
respective conventional counterparts. However, despite some
improvements, the profitability of Islamic banks generally
remained below that of their conventional peers. This gap will
increasingly be high on the agenda of Islamic Bank CEOs: the
current high valuation of Islamic banks indicates strong market
expectations for future growth and profits.
If Islamic banks are to capture this opportunity, appealing to a
broader consumer base will be key. So far Islamic banks have
managed to capture customers who have a strong preference
for Shari'ah- compliant products. Going forward, they will have
to broaden their appeal to customers who are interested in
Shari'ah-compliant products but are not ready to sacrifice
returns, service or convenience.
Islamic Banks’ share of commercial bank deposits, late 1990s
Algeria
Bahrain
Egypt
Iran
Jordan
Kuwait
Lebanon
Qatar
Saudi A.
Sudan
Tunisia
Turkey
UAE
Yemen
Malaysia
1
9
6
100
7
16
0.1
18
14
28
1
4
8
4
2
These numbers do not include the ‘Islamic window’
in other (conventional) banks.
No Islamic banks in Iraq (under S. Hussein), Libya,
Morocco, Oman, and Syria, apparently because the
government owned all banks.
No mention of Pakistan, Bangladesh, India,
Indonesia, Philippines
Source: Henry and Wilson (2004) The Politics of
Islamic Finance (p. 7) UMD HG 187.4 P6 2004
Islamic Share of Commercial Banks, by GDP/cap
Source: Introduction to Henry and Wilson, eds. (2004) The Politics of
Islamic Finance
Conclusion on efficiency of Islamic Banks
Source: Iqbal and Molyneux, Thirty Years of Islamic Banking, p.104.
Efficiency of Islamic Banks Malaysia
Source: Saiful Azhar Rosly and Mohd Afandi Abu Bakar, “Performance of Islamic and
Mainstream Banks in Malaysia,” Int’l Journal of Social Economics 2003 #11/12
Efficiency of Islamic Banking Malaysia
Source: Saiful Azhar Rosly and Mohd Afandi Abu Bakar, “Performance of Islamic and
Mainstream Banks in Malaysia,” Int’l Journal of Social Economics 2003 #11/12
Faisal Bank, Cairo
Faisal Bank, Cairo
Link to Islamic Development Bank
The Islamic Development Bank (IDB) is a Multilateral Development
Bank (MDB), headquartered in Jeddah, Saudi Arabia, established in the
early 1970s to foster the economic development and social progress of
its 56 member countries and Muslim communities in non-member
countries in accordance with the principles of Shari'ah (Islamic Law).
In 2010, its authorized capital amounted to 15 billion Islamic Dinars
(one ID = one SDR), and it has been involved in project financing of
about US$ 1 billion/year. Its menu of activities combine those of the
World Bank and the IMF.
http://www.isdb.org/irj/portal/anonymous
Muhammad Yunus
Born in a village in Bangladesh in 1940
Studied in Dacca, and in the US
Taught in Tennessee, and at Chittagong
In the 1970s he became involved in rural
development, which led to the Grameen
Bank, based on microcredit, lending
especially to women.
Awarded the Nobel Peace Prize in 2006
In 2011, the government of Bangladesh
banned him from the Bank’s directorship –
he claims it was politics.
Link to Grameen Bank
http://www.grameen-info.org
Web resources
Zakat fund online.
Islamic-American Zakat Foundation online
USC-MSA compendium of Muslim Texts on Islamic Banking online
International Islamic Financial Market online
Journals accessible through UM-D’s library:
International Journal of Islamic and Middle Eastern Finance and
Development
Islamic Banking and Finance
Islamic Business and Finance
Ibn Khaldun in his study
Evolution of Islamic Banks
Source: Introduction to Henry and Wilson, eds. (2004) The Politics of Is