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The Stability of Islamic Finance: Creating a Resilient Financial Environment for a Secure Future

The Stability of Islamic Finance: Creating a Resilient Financial Environment for a Secure Future

Hossein Askari, Zamir Iqbal, Noureddine Krichenne, Abbas Mirakhor

ISBN: 978-1-118-17893-5

Nov 2011

256 pages



The Stability of Islamic Finance main focus is on the question of the sources of financial instability which seems inherent in the conventional system. As a core component of this focus, the book will consider episodes of turbulence and instability in a historical context recalling the occurrence of such events from mid-19th century to the present. It will present various theoretical explanations along with solutions and alternative financial systems that avoid instability provided by various scholars dating back to mid-19th century to present. 

The book then will present and discuss the architecture of an Islamic financial system and show that at its core, this system shares many characteristics of an stable financial system proposed by Western scholars throughout history to avoid the inherent instability of the present dominant system. Particular emphasis will be placed on the present financial crisis and its causes as well the financial crisis of the 1997 in Southeast Asia, Russia, and Latin America relating these episodes to the fundamental features of the dominant system. The debt crisis of the low income countries will also be part of this discussion. It will then argue that these crises could be mitigated under an Islamic system or any other system with similar architecture.

Foreword ix

Acknowledgments xiii

Glossary of Arabic Terms xv

Introduction 1

CHAPTER 1 The Nature of Capital and the Rate of Return 11

CHAPTER 2 The Origins of Financial Panics and Recessions 23

CHAPTER 3 Monetary Policy and Financial Crises 37

CHAPTER 4 The Internationalization of Financial Crises 45

CHAPTER 5 The Role of the Credit Multiplier in Financial Crises 61

CHAPTER 6 The Inherent Stability of Islamic Finance 75

CHAPTER 7 A Theoretical Model of the Inherent Stability of Islamic Finance 83

CHAPTER 8 Asset Pricing and Risk in Islamic Finance 93

CHAPTER 9 Islamic Financial Intermediation and Markets 113

CHAPTER 10 Risk Profi le of Islamic Financial Intermediaries 131

CHAPTER 11 Financial Engineering, Derivatives and Financial Stability 141

CHAPTER 12 Corporate Governance and Financial Crises 163

CHAPTER 13 The Performance of Islamic Financial Intermediaries and Products 183

Conclusion 209

Bibliography 217

Index 225