Islamic Banking and Financial Development: A Cross-Country Analysis

The development of Islamic finance is governed by Islamic laws (Shariah). The main principles that regulate all forms of transactions in Islamic banking activities include the prohibition of interest or usury (riba),the use of excessive risk (gharar), and gambling (maysir). The Islamic finance industry has become a prominent sector and is one of the fastest growing components of financial developments over the last decade in the global financial system. The availability of large numbers of Islamic finance products will increase significantlyas there have been a growing demand throughout the world, especially in OIC participating countries. Hence, the objective of this study is to identify the important factors that enhances financial development in the selected OIC countries (Malaysia, Indonesia, Jordan, Kuwait, Saudi Arabia, Sudan and Yemen). Three indicators of financial development were used; Islamic finance, broad money and liquid liabilities. The data used in this study is the panel data from the year 1990 to 2012 which were obtained from the International Monetary Fund, Islamic Banks and Financial Institutions Information (IBIS), and World Bank databases. This study employed pooled OLS, fixed and random effect model. The results indicate that there are significant relationships between Islamic finance and financial development. Specifically, this study found that liquid liabilities and Islamic finance are two factors that have significantly influenced financial development in the OIC countries. Furthermore, the findings suggest that the OIC governments are required to develop policies that would integrate Islamic finance into their financial system. These policies should be centred around regulatory framework and supervisory role to utilize Islamic finance for greater economic growth. Keywords: Islamic finance; financial development; OIC countries; pooled OLS, fixed effect; random effect

The year 2024 was marked by the rebranding of ISRA International Journal of Islamic Finance (IJIF) to International Journal of Islamic Finance and Sustainable Development (IJIFSD) following the collaboration between INCEIF University and the Islamic Development Bank Institute (IsDBI) for the publication of the journal. The rebranded title reflects a broader journal scope that includes not only the different segments of the Islamic finance industry but also covers the discourse on sustainability and sustainable development. Volume 16 Number 4 December 2024 presents the second issue published under the new title. This issue covers the following seven articles that address varied topics which fall within the scope of IJIFSD: ‘Navigating Credit Risk in Islamic Banks: A Multidimensional Analysis of Non-Performing Loans’ by Jaizah Othman and Dina Zaki Gabbori. This article addresses the issue of credit risk management in Islamic banks located across 30 countries, particularly examining traditional bank-specific and macroeconomic factors, along with under-researched areas such as the institutional environment, product development and AAOIFI membership, as determinants of non-performing loans (NPLs) in Islamic banks. ‘The Impact of Customer Perception and Religiosity on Satisfaction with Car Ijārah Financing in Pakistan: The Mediating Effect of Clarity and Accuracy’ by Farooq Ahmad Bajwa, Ishtiaq Ahmad Bajwa, Shabir Ahmad, Faiq Mahmood and Muhammad Usman Javed. This study extends the existing literature by incorporating religiosity into the customer satisfaction model for car ijārah It focuses on existing customers from the Islamic banking sector in Pakistan that availed of car ijārah financing compared to previous studies which considered random samples of customers who may or may not have used the product. ‘Analysing the Effects of Third-Party Funds and Financial Ratios on Muḍārabah Financing’ by Anna Zakiyah Hastriana. This research analyses Indonesian Islamic banks’ financial statements from 2014 to 2023 to investigate the relationship between some specific financial indicators such as third-party funds (TPF), capital adequacy ratio (CAR), non-performing financing (NPF), and net profit margin (NPM) and muḍārabah (profit sharing) financing. It adds value to the literature by considering factors which have not been extensively studied before. ‘Protecting the Well-Being of Households: Delineating a Social Takāful Fund Initiative for Positive Social Impact’ by Norazlina Abd Wahab, Mohamad Yazid Isa, Rosylin Mohd Yusof, and Wan Ahmad Najib Wan Ahmad Lotfi. This study examines an innovative social takāful fund (STF) initiative developed by the Islamic Business School–Universiti Utara Malaysia (IBS–UUM) in collaboration with FWD Takaful Berhad in Malaysia. This fund currently addresses the economic uncertainties and vulnerabilities of the marginalised communities in the State of Kedah before its programmes can be extended to other states. It positions takāful as a comprehensive community empowerment strategy to enhance social well-being and sustainable development. ‘A New Crowdfunding Model for Financial Inclusion Based on Donations and Interest-Free Debt: A Fuzzy Agent-Based Simulation Approach’ by Youssef Lamrani Alaoui, Adil El Fakir, and Mohamed Tkiouat. This study adds to the Islamic crowdfunding literature by introducing a new hybrid model that integrates donations with interest-free loans. It explores the impact of this design on crowdfunding platform success and the well-being of micro-entrepreneurs, using an agent-based perspective. ‘Exploring the Determinants of Financial Well-Being: An Empirical Study in Muslim-Majority Countries’ by Aneu Cakhyaneu, Mumuh Muhammad, Rofiq Anwar and Emre Selçuk Sari. This article contributes to the literature by examining the determinants that influence financial well-being in Muslim-majority countries, drawing from data from the World Values Survey. The measures of financial well-being involved factors such as feeling of happiness, financial satisfaction, religiosity, income, and education levels. ‘Islamic Framework for Sustainable Development’ by Kausar Yasmeen, Kashifa Yasmeen and Salem Al Abri. This article uses the systematic literature review approach to propose a comprehensive framework that integrates Islamic principles with the Sustainable Development Goals (SDGs). It seeks to fill the literature gaps by encapsulating the principles of Islamic economics in their entirety, drawing on environmental, social, and economic perspectives, including sustainable transport, green banking, urban planning, and conservation when examining the issue of sustainable development. To conclude, we wish all our readers a pleasant year-end and we look forward to more discussions on Islamic economics, banking, finance and sustainable development in our next issues, in sha Allah. Allah (SWT) is the Bestower of success, and He knows best.

Purpose: The purpose of this research is to conduct a comparative analysis of CAR determinants between Islamic and conventional banks.Design/methodology/approach: The analysis is conducted using GMM on annual data for 38 Islamic banks (IBs) and 75 conventional banks (CBs) in 10 MENA countries during 2009-2013. CAR is used as a dependent variable and is measured by the Basel framework. The independent variables are: profitability; liquidity risk; credit risk; bank size; deposits to assets; operational efficiency; portfolio risk; and two macro-economic variables (GDP growth rate and average world governance indicators for each country).Findings: The results show that both IBs and CBs have a significant association between CAR and (bank size, operational efficiency, and GDP growth rate) and CAR is affected retroactively on the long-run. In IBs the results show a significant association between CAR and deposits to assets ratio. However, CBs results show an association between CAR and (profitability, credit risk, and portfolio risk). Practical implications: The empirical evidence accentuates the difference between both banking systems and the importance to enforce the application of the Islamic Financial Services Board (IFSB) proposal on IBs based in different jurisdictions. This will enhance the IBs stability and efficiency; and achieve standardization of CAR calculation between IBs. Originality/value: Filling the gap in the Islamic finance literature by trying to examine whether factors influencing CAR are similar between both banking systems or to confirm on the view that they are completely different and should not adhere to the same regulatory bodies.

A strong capital adequacy ratio is crucial to a financial institution's success and helps it to survive any potential financial crisis. From Q1 2017 to Q4 2019, the influence of the Capital Adequacy Ratio (CAR) on the performance of Commercial Islamic Banks in MENA nations (Qatar, Oman, Bahrain, Kuwait, United Arab Emirates, Saudi Arabia, and Jordan) is examined. The performance measures utilized in this study are Return on Assets (ROA) and Return on Equity (ROE). The study's sample frame comprises all Islamic commercial banks in the designated MENA nations, with a sample size of 18 Islamic commercial banks. Panel data, fixed and random models, are applied in this study since there are multiple entities and time series. The findings of the study showed that the selected Islamic banks are committed to Capital Adequacy Ratio (CAR) which is defined under Basel III. This is considered the largest percentage regulated by the Basel Committee. The study also found that there is a statistically negative significant influence of CAR on both performance indicators ROE and ROA in the commercial Islamic banks in the selected MENA countries. The results of the study can be useful to a policymaker or decision-makers in the Islamic Banks industry. First, the research could be a reference to financial regulators such as central banks which may use the findings to provide regulation on optimal capital levels for local banks in terms of regulations, deregulations, and financial disruption. Next, the practice implications in the Islamic banking sector will provide them with insight as to how a bank’s capital influences its earnings. Hence, management can work towards attaining an optimal structure that maximizes their performance as well as identifying “best” and “worst” practices associated with capitalization levels.

PurposeThis paper aims to investigate the impact of regulation and market competition on the risk-taking Behaviour of financial institutions in the Middle East and North Africa (MENA) region.Design/methodology/approachThe empirical framework is based on panel fixed effects/random effects specification. For robustness purpose, this study also uses the generalized method of moments estimation technique. This study tests the hypothesis that regulatory capital requirements have a significant effect on financial stability of Islamic and conventional banks (CBs) in the MENA region. This study also investigates the moderating effect of market power and concentration on the relationship between capital regulation and bank risk.FindingsThe estimation results support the view that capital adequacy ratio (CAR) has no significant impact on credit risk of Islamic banks (IBs), whereas market competition does play a significant role in shaping the risk behavior of these institutions. This study report opposite results for CBs – an increase in the minimum capital requirements is followed by an increase in a bank’s risk level, which has a negative impact on their financial stability. Furthermore, the results support the notion of a non-linear relationship between banking concentration and bank risk. The findings inform the regulatory authorities concerned with improving the financial stability of banking sector in the MENA region to set their policy differently depending on the level of concentration in the banking market.Research limitations/implicationsThis study contributes to the literature on the effectiveness of regulatory reforms (in this case, capital requirements) and market competition for bank performance and risk-taking. In regard to IBs, capital requirements are less effective in requiring IBs to adjust their risk level according to the Basel III methodology. This study finds that IBs’ risk behavior is strongly associated with market competition, and therefore, the interest rates. Moreover, banks operating in markets with high banking concentration (but not necessarily, low competition), will decrease their credit risk level in response to an increase in the minimum capital requirements. As a result, these banks will be more stable compared to their conventional peers. Thus, regulators and policymakers in the MENA region should restrict the risk-taking behavior of IBs through stringent capital requirements and more intense banking supervision.Practical implicationsThe practical implications of these findings are that the regulatory authorities concerned with improving banking sector stability in the MENA region should proceed differently, depending on the level of banking market concentration. The findings inform regulators and policymakers to set capital requirements at levels that would restrict banks from taking more risk to increase their returns. They are also important for bank managers who should avoid risky strategies in response to increased regulatory pressure (e.g. increase in the minimum required capital level of 8%), as they may lead to an increase in the level of non-performing loans, and therefore, a greater probability of bank default. A future extension of this study will focus on testing the effect of bank risk-taking and market competition on the capitalization levels of banks in the MENA countries. More specifically, this study will investigates if banks raise their capitalization levels during the COVID-19 pandemic.Originality/valueThe analysis of previous research indicates that there is no unambiguous answer to the question of whether IBs perform differently than CBs under different competitive conditions. To fill this gap, this study examines the influence of capital regulation and market competition (both individually and interactively) on bank risk-taking behavior using a large sample of banking institutions in 18 MENA countries over 14 years (2005–2018). For the first time in this line of research, this study shows that the level of market power is positively associated with the level of a bank’ insolvency risk. In others words, IBs operating in highly competitive markets are more inclined to take a higher risk than their conventional peers. Regarding the IBs credit risk behavior, this study finds that market power has a limited impact on the relationship between CAR and risk level. This means that IBs are still applying in their operations the theoretical models based on the prohibition of interest.

PurposeThe purpose of this paper is to examine the relation “diversification-risk-performance” for Islamic and conventional banks in different financial stress levels. Also, it aims to investigate the impact of the structure of board directors, macroeconomic variables and banking specific factors on banking diversification.Design/methodology/approachThe authors use generalized least squares regressions to examine the impact of banking specific, macroeconomic and governance variables on investment diversification of 66 Islamic and conventional banks during the period from 2006 to 2018. In addition, this study uses panel threshold regressions to study the impact of banks’ profitability and risks on investment diversification in different financial stress levels.FindingsThe findings show liquidity risk, performance, credit risk and capitalization ratio are significantly related to investment diversification of Islamic banks. On the other hand, liquidity and credit risks, capital to total assets ratio and size have a significant influence on investment diversification of conventional banks. In addition, the diversification strategy of Islamic banks is less sensitive to macroeconomic indicators. As regards to governance variables, the results suggest that the board size, the executive directors and the foreign directors have significant impact on the investment diversification in Islamic banks. On the other hand, chief executive officer duality and foreign directors affect significantly the investment diversification of conventional banks. This study also found that financial stress enables us to develop a better understanding of the relation “performance-risks and diversification.”Practical implicationsIt is expected that the findings of this paper can be used by Islamic and conventional banks in Gulf Cooperation Council (GCC) region that seek to manage the diversification strategy by reducing risk-taking and maximizing profitability. This study suggests that bank managers should consider the level of financial stress during the development of diversification strategy. It provides a better understanding for bank managers about the effect of bank specific and macroeconomics factors as well as governance variables on diversification.Originality/valueThis study focuses on providing an extension of the existing literature by studying the impact of financial stress indices on the relation between banks’ risk-performance and investment diversification for Islamic and conventional banks in the GCC region.

Purpose Literature has pointed that conventional financial development theories have inconclusive role on motivating new businesses. New ventures often consider the conventional system that passes through risk and provides fixed-interest lending as a burden. Comparatively, Islamic finance contributes using participative and equitable substitute for startups and has a potential in promoting new businesses. This study aims to investigate the holistic financial development index quadratic effect on entrepreneurship and include the moderating role of Islamic financing at national level. Design/methodology/approach Islamic banks of 21 nations constitute the unbalanced panel data. Financial development and entrepreneurship indices were developed using factor analysis and panel median regression to estimate the nonlinear financial market development effects and Islamic financing moderation model. Findings The results indicated that low financial market development is entrepreneurship deterring because of interest burden effect, which could be eased with a proportional increase in the Islamic financing, which is participative. The moderating effect has led to the categorization of the sample countries into entrepreneurship promoting and entrepreneurship discouraging with respect to the current incidence of financial market development and Islamic financing, which can help policymakers in understanding the entrepreneurship promoting combination of financial development and Islamic financing. Research limitations/implications Central banks and Shari’ah advisory councils can adopt Islamic financing transition in the national financial inclusion policy for new business facilitation. Originality/value This study is instrumental in exploring the assessment of introducing Islamic financing while developing the financial sector on multidimensional entrepreneurship.

This thesis investigates several aspects concerning the financial stability of Islamic and conventional banks. This is important because the strong growth of Islamic banking, notwithstanding their marked uniqueness in operational and financing behaviour, combined with fierce global competition with the prevailing conventional bank system, raises concerns among regulators and practitioners about the long-run sustainability of Islamic banking. First, the thesis compares the level of financial stability in Islamic and conventional banks using three different methods of credit risk measurement. Second, it compares the effect of competition on stability across Islamic and conventional banks. Finally, it investigates whether efficiency significantly modulates the linkage between competition and stability in both Islamic and conventional banks. In the first research question, the thesis considers the levels of credit risk in Islamic and conventional banks, for which existing literature finds no conclusive result. One problem with existing studies is the use of accounting information alone to assess credit risk and this could be especially misleading with Islamic banking. Using a market-based credit risk measure, namely, Merton’s distance-to-default (DD) model, we evaluate the credit risk of 156 conventional and 37 Islamic banks across 13 countries between 2000 and 2012. We also calculate the accounting information-based Z-score and nonperforming loan (NPL) ratio for the purpose of comparison. The results show that Islamic banks have significantly lower credit risk than conventional banks as based on DD. In contrast, and as expected, Islamic banks display much higher credit risk using the Z-score and NPL ratio. These findings suggest that the measure chosen plays a significant role in assessing the actual credit risk of Islamic banks.

United Kingdom is a country that is predominantly by non-Muslim, but development of Islamic banking and finance is very good. This is evidenced by the operation of six full sharia bank and the sixteen banks that serve Islamic windows. Sukuk deals for investors is also growing as evidenced by the increasing demand on the London Stock Exchenge with a total of £51 billion. Likewise with takaful products, UK re/insurance markets that are transacting Islamic finance. As one of the largest insurance markets in the world, and the leading global centre for wholesale insurance and reinsurance, the UK has the potential to support the growth of takaful business in the coming years. The development of Islamic banking and finance did not escape from the multicultural population of the UK. From the research, UK residents both Muslims and non-Muslims showed 66% of respondents believe the Islamic financial system is suitable for western economic communities such as the UK. 65% of respondents understand the workings of Islamic banking differs from conventional banking workings. 60% of respondents agree Islamic banking relevant to all religions. 57% of respondents also knew of Islamic banking to give the profit, not the interest. This means that they responded positively to the products offered Islamic banking and finance. There are several factors that lead to Islamic banking and finance can be grown in the UK, there are: including the global expansion of Islamic financial, single banking and financial regulator, public policy and taxation, the establishment of the Islamic Bank of Britain, the excess liquidity in the Middle East, Islamic windows of regular banks, and the development of educational and training institutions in the UK. This paper will describe the history of Islamic banking and finance in the UK, its development, factors that support and the its future prospects for giving additional knowledge to the academics and practitioners.

Purpose – This research analyses the stability of a number of banks operating in Malaysia by using descriptive statistical analysis based on internal variables. These include the characteristics of the bank, capital adequacy ratio, ratio of profitability, liquidity ratio and the ratio of bank operations. Methodology/approach – Each bank’s stability is studied using z-score analysis. Data are sourced from the balance sheets and income statements of the banks from 2000 to 2011. Findings – The results indicate that characteristics of a bank do influence a bank’s performance. There are significant differences in financial ratios between Islamic and conventional banking. Islamic banks provide a lower loan loss of capital to cover impaired loans than conventional banks. This provides high capital based on the mean value obtained. The capital ratio allows both sets of banks to meet the capital adequacy ratio set by the Central Bank of Malaysia. Meanwhile, in profitability ratios, conventional banks have higher returns on higher assets, whereas Islamic Banking has higher returns on higher equity. Only 8 Islamic banks and 11 conventional banks are highly stable banking institutions in Malaysia. Originality/value – Islamic and conventional banking systems in Malaysia need further improvement to deal with unexpected economics crises and increased competition between the two. Hence, Islamic banking must be refined, especially for improving their stability to attract more investments for further development and performance.

The development of Islamic banking credit risk shows a downward trend. However, the existence of Indonesian Islamic banking in the world is not yet among the best ranked, even though it has the largest Muslim population. This study examines the factors that influence credit risk in Islamic banks in Indonesia by using the bank's specific characteristics and macroeconomic factors. This study uses a multiple linear regression method with monthly data on Islamic banking in Indonesia for the period 2020-2022. The dependent variable for credit risk uses Non-performing financing (NPF). Independent variables from bank-specific factors are used Capital Adequacy Ratio (CAR), Financing to Deposit Ratio (FDR), and Operating Expenses to Operating Income (BOPO). While the independent variables from macroeconomic factors use inflation and interest rates. The results showed that the CAR, FDR, and inflation variables affected the credit risk of Islamic banks. FDR has a positive effect, while CAR and inflation have a negative effect. BOPO and interest rates do not affect credit risk.

Sukuk market development and Islamic banks’ capital ratios

Background. Economic growth and financial development in Indonesia are supported by developments in the Islamic banking industry. The business continuity of Islamic banking is determined by financial performance, which is measured by the level of profitability. The profitability of Islamic commercial banks is thought to be influenced by macroeconomic variables and monetary policy interventions.Purpose. This study aims to analyze the effect of shocks on macroeconomic variables, including the real effective exchange rate and consumer price index, and monetary policy intervention through the policy instrument of the Indonesian central bank's benchmark interest rate, namely the BI Rate, and the effect of the capital adequacy ratio on the profitability of Islamic commercial banks in Indonesia in the short and long term.Method. This study employs error-correction model analysis to completely utilize secondary data from January 2015 to May 2022. Data gathered from the Financial Services Authority's (OJK) Sharia Banking Statistics and Fred Economic Data (FED)Results. The research results show that the real effective exchange rate and consumer price index affect the profitability of Indonesian commercial banks in the long term but do not have a significant effect on the profitability of Islamic commercial banks in the short term. Monetary policy does not have a significant effect in the short or long term. Meanwhile, the capital adequacy ratio has a significant influence on the profitability of Islamic commercial banks in the short and long term.Conclusion. Macroeconomic variable shocks have the ability to disrupt banking performance in the short term, and this situation shows that banking management has not put flexible policies and a strategic approach to short-term changes in place. Short-term changes are still managed from the standpoint of handling internal conditions, however management is fairly effective at controlling capital adequacy.

Günümüzde küreselleşmenin etkisiyle ticari açıklık ve finansal gelişme ekonomik gelişmenin ön koşulu haline gelmiştir. Sermaye birikimi yetersiz olan ülkelerde ekonomik büyümeyi sağlamanın temel koşullardan bazıları da bu ülkelerde dış ticaret ve finansal gelişimin arttırılmasıdır. Bu çalışmada, 1990-2017 yılları arasında Dünya Bankası’nın gelir grubu sınıflandırmasına göre üç gruba (yüksek, orta ve düşük gelir) ayrılmış 86 ülke için ticari açıklık, finansal gelişme ve ekonomik büyüme ilişkisi incelenmiştir. Çalışmada söz konusu ilişkileri incelemek için panel ARDL/PMG tahmincileri kullanılmıştır. Ampirik analizden elde edilen bulgulara göre, ticari açıklık tüm gelir düzeyindeki ülkelerde reel GSYİH’yı pozitif yönde etkilemektedir. Finansal gelişme ise orta ve yüksek gelirli ülkelerde reel GSYİH’yı pozitif yönde etkilerken, düşük gelirli ülkelerde negatif yönde etkilemektedir. Sonuçlar aynı zamanda beşeri sermaye ve brüt sermaye birikiminin tüm ülkelerde reel GSYİH’yı pozitif yönde etkilediğini göstermektedir. İş gücü değişkeni ise orta ve yüksek gelirli ülkelerde reel GSYİH’yı pozitif etkilerken, düşük gelirli ülkeler için iş gücü ile reel GSYİH arasında istatistiksel olarak anlamlı bir ilişki bulunamamıştır. Çalışmadan elde edilen bu bulgular, düşük gelirli ülkelerde finansal gelişmenin ayrıca incelenmesi gerektiği yeni çalışmalara ışık tutacaktır.

Islamic Banking and Finance in South-East Asia: Its Development and Future. By Angelo M. Venardos. Singapore: World Scientific Press, 2006. Pp. 238. Spanning more than seventy-five countries and charting an estimated average annual growth of 15 to 20 per cent, Islamic finance has emerged as a globally recognized and accepted form of financing. Southeast Asian regulators and stakeholders increasingly face challenges and opportunities in integrating the system of Islamic financing into mainstream systems of financing. With interest in Islamic finance rising rapidly worldwide, Singapore-based banker, Angelo M. Venardos's volume, Islamic Banking and Finance in South-East Asia, turns the spotlight on Southeast Asian forays into Islamic financing. In a concise volume, Venardos draws attention to the emerging Islamic financial hubs of Malaysia, Indonesia, Labuan, Singapore, and Brunei. As destinations that demonstrate considerable promise, the growth of Islamic finance in these four centres is outpacing many business segments in the global banking system. Recognizing the promise that Southeast Asia exhibits, Venardos's study covers the origins of Islamic finance, the fundamentals of its practice, and legal issues and challenges in Southeast Asia. Islamic Banking and Finance in South-East Asia is a valuable addition to the existing repertoire on Islamic finance. With much of the existing literature focused on the Gulf and the Middle East, this study is one of the early pioneers in investigating the scope of Islamic finance in Southeast Asia. Venardos's volume will be of interest to an audience keen on exploring the historical developments, techniques, and rules and regulations of Islamic financing in the region. Written in a straightforward style and organized in an easy-to-digest format, the coverage of this book is wide-ranging. Islamic Banking and Finance draws from the disciplines of politics, law, religious studies, economics, and finance to provide an overview of the characteristics and operation of Islamic banking and finance in Southeast Asia. Venardos approaches Islamic finance by setting it in the context of the underpinnings of Islam and the economic system it advocates. He delineates the major tenets of the Islamic belief system, highlights the key values in financial decisionmaking, and chronicles the spread and influence of Islam. He also considers the central questions of how Islamic principles are interpreted and applied across Southeast Asian countries. The role of Islamic beliefs and social values play in ordering financial transactions and structuring financial institutional behaviour are also important themes in this volume. The evolution of Islamic finance, as governed by shari'a law and Islamic jurisprudence, is contextualized in the development of an economic system that advances the goals of a just and fair society. Outlining the contours of Islamic commercial law, Venardos juxtaposes conventional JudaicGreco law and Islamic shari'a law. The close historical connection between Islam and commerce is an idea that is threaded through the thirteen chapters that comprise this book. The moderation of business and financial activities by spirituality is central to the practice of Islamic finance. Going beyond the well-known prohibition of paying or receiving interest (riba), Islamic commercial law also stipulates that property and its ownership are grounded in the Quran, and the Sunna are matters with which God is concerned. The inextricability of profit and loss sharing schemes from the practice of Islamic finance is also explored in depth. Business partnerships divide profits and losses in accordance with the capital share and effort, and such arrangements are not rooted in guaranteed rates of return. In contrast to interest-based financing of conventional systems, Islamic finance relies heavily on equity-based systems of financing, where the efforts and risk carried by business partners are the sole determinants of the profit and loss sharing arrangements. …