In recent years, many books on the Islamic financial industry have been published in the English language and an immediate reaction to “Islamic Finance: Law and Practice” was whether the book was a necessary addition to the literature already available. Having ‘law’ in the title provides obvious attraction to those who have a legal interest in Islamic finance and it appears this is for whom the book is written. No clearer evidence is made than that 10 of the 14 contributors to this volume have a legal background, most of whom are practising lawyers. The remaining 4 are involved in either tax or audit (all contributed to the same chapter). The editors themselves, Craig R. Nethercott and David M.Eisenberg are partners at White & Case LLP and Latham & Watkins LLP, respectively.
Consequently, the layout of the book is characterised by the habits and preferences of those within the legal profession. The contents include a Table of Cases and a Table of Legislation. Within the text itself, each paragraph is delineated by numbers, characteristic of the numbering of clauses in a contract.
Such legalese should not detract from the achievements of this volume and discourage non-law readers. The volume reads as an excellent introduction to Islamic finance. I say introduction but the articles delve into complex and technical points of Islamic finance and explain them with a lucidity often lacking in other Islamic finance books. Moreover, there is a discernible didactic structure to the volume, taking the reader from the basis and sources of Islamic finance, guiding them through the supporting infrastructure of the industry and finally providing the interested reader with the uniqueness of its product offerings. The first chapter gives a context to the Islamic finance industry. It explores the evolution of Islamic finance since the 70s highlighting primary discussions in Islamic finance and the experience of a few countries – both Muslim and Non-Muslim with Islamic finance. The contribution ends on contemporary events, discussing the impact of the credit crisis on the industry. The reader will gauge an appreciation of the depth of the industry and its place on the global financial landscape. Chapters 2 – 5 focus on the apparatus of Islamic finance, starting with a look into the sources and principles of Islamic law. It then moves onto the overall regulation of Islamic finance, followed by a chapter on accounting and corporate governance. One could say that these initial chapters give a macro overview of the industry.
In Chapter 2, there is a thorough and quite robust explanation of usul ul fiqh as well as a historical account of the development of Islamic law up to the present day. While expediently superficial, it is nevertheless an excellent primer to Islamic law. The footnotes indicate the depth of research, with a number of references to core texts studied in the University. Moving on from epistemological concerns, the chapter then looks into the ontology of Islamic finance, paying attention to the discussions on the kernel aspects of Islamic finance: prohibition of riba, prohibition of gharar, jahl, maysir, and the Islamic rules on contract. There is also a small section on hiyal, a subtle indicator to the pervasiveness (and ambivalence) of this controversial tool in Islamic financial legal thought. The author adopts a succinctness and flow to his expose, going through classical and contemporary discussions- specifically AAOIFI opinions- on these issues, without compromising on comprehension. The chapter provides a neat segue into the next topic and chapter, regulation. Consistent references to UK regulatory bodies in the chapter reflect the author’s intent in seeing whether the regulatory principles of Islamic finance can be recognised in the UK. This focus anchors his discussion on the regulatory infrastructure of Islamic finance: the international bodies in the industry, the standards, risk management approaches and governance. A bulk of the chapter is dedicated to regulatory classification by the Financial Services Agency (FSA) in the UK of Islamic finance products. It is highly technical but shows that Islamic finance products can coexist under the same regulatory regime in a non-Muslim country. This has been a contentious issue for the Islamic finance industry, but in the FSA, there is a commendable example of a regulatory body that has attempted to incorporate Islamic finance.
From regulation, the volume moves onto accounting and taxation. Once again, the chapter takes a UK-centric approach to this topic but brings in the work of AAOIFI. A large proportion of the chapter is dedicated to IFRS accounting and UK taxation stipulations and relates it to 10 Islamic finance products. It is divided into 9 sections and runs through audit and tax treatments. For the first-time reader, this approach is concise, methodical and understandable.
Chapter 5 looks into governance and is much more discursive and less technical in its approach. The concern of the chapter fundamentally surrounds the meaning behind God’s placement of mankind as ‘Khalifah on the earth’ (Quran 2:30).
What does it mean to be a Khalifah? The chapter discusses ethical issues relating to governance in Islam from stewardship of wealth, governing under Shari’a, fiduciary duties, societal protection, punishing misconduct and monitoring compliance.
It is a sprawling chapter addressing a range of issues, even incorporating English legal cases to discuss direct and indirect corporate liability. Similar to the previous two chapters, he has utilized English law as a backdrop to the various responsibilities that Shari’a places on believers in the management of their own affairs. Consequently, he finds in the Islamic world an aversion to the Western
corporate governance framework, as within the Shari’a there is already a high moral expectation on the individual in conducting his transactional affairs. Yet, with the integration of systems compounded by extensive corruption in the Islamic world, corporate governance in Islamic finance cannot rest on idealistic expectations. Chapters 6-11 bring the reader to arguably the substantive side of Islamic finance, namely the products. Chapter 6 looks at musharaka and mudaraba; Chapter 7 is on murabaha and tawarruq; Chapter 8 focuses on the controversial topic of derivatives; Chapter 9 addresses istisna and ijara; Chapter 10 tackles sukuk while Chapter 11 gives insights into takaful. Each chapter, while not explicitly structured in the same way, roughly revolves around the same points: etymology, textual evidence from Islamic sources, contemporary applications and structures, legal issues and the occasional case study (Chapters 6, 8 and 11, however, does not provide case studies). The chapters are expectedly legalistic and grant the reader an insight into the work of the lawyer and the Shari’a board in structuring and assessing the Shari’a complianceof the products. Islamic finance’s achievement has been the ability to bring classical principles of muamalat and apply it in the modern, contemporary context. No greater testament is there than the content of the book, written not by Islamic scholars, but western trained lawyers.
The final chapter, “Dispute Resolution and Specialised ADR for Islamic Finance”, provides a suitable end to this tome. Islamic finance has descended into civil and common law legal systems which do not provide the framework for judgements according to the Shari’a. In any event, defining the Shari’a has been a perennially difficult task, given the madahib system and differences of opinion. In such a situation, many commentators have argued for the utilisation of alternative dispute resolution (ADR) methods, and this chapter is no different. However, the author argues for a corollary to the ADR methods namely Islamic Dispute Resolution (IDR). He grounds his argument in the Islamic concept of sulh, arguing that this is not similar to arbitration or mediation. IDR is not neutral and is less adversarial, therefore creating a more congenial forum to the resolution of disputes. The chapter looks into creating an IDR clause in a contract, with consideration to the parties that should be involved as facilitators and arbiters to the process.
Returning to the question as to whether the book is a necessary addition to the literature already available, the answer is both a no and a yes. The Chartered Institute of Securities and Investment (CISI) IFQ qualification primary textbook is a wonderful introduction to Islamic finance and is structured in more or less the same way as the present volume.
Supplementing the book with other texts such as Mufti Taqi Usmani’s “Introduction to Islamic finance”, Frank Vogel’s and Samuel Hayes“ Islamic law and finance: Religion Risk and Return”, and Mahmud El Gamal “ Islamic finance: Law Economics and Practice”, the interested reader will be provided with a reasonable understanding of Islamic finance. But this volume takes the central discussions of the above four respectable books and incorporates it within 333 pages. As a book on its own, it is a sophisticated and thorough overview of the many facets of Islamic finance. And while it does not, and neither does it claim to, address all facets of Islamic finance, it leaves the reader with a greater understanding and appreciation of Islamic finance.
