Islamic Banking, Theory and Practice

This module aims to introduce candidates to Islamic Banking in theory and practice.  Departing from an appreciation of bank’s financial intermediateory function, the module justifies the emergence of fixed return financing modes in the way of resolving the principal/agent problem crops in the two-tier mudarabah banking model.  The financial and investment mechansim of Islamic banking is then introduced together with interest-free monetary policy tools.  Newly arising challenges of Islamic banking are considered in terms of Shariah auditory services and financial innovation with a view to lessons from the present global financial crisis.

Core Module for MA Islamic Banking, Finance & Management

None

None

• Historical evolution of Islamic banking
• Islamic banking and the financial intermediary role
• The financial structure and balance sheet of an Islamic bank
• Retail and corporate Islamic banking; operational and management perspectives
• Off-balance sheet Islamic banking services and investments
• Monetary policy tools and interest-free central banking operations
• Shariah review services and rising challenges of Islamic banking

Knowledge and Understanding

On successful completion of this module students should be able to:

1. Appreciate the historical evolution of Islamic banking and its interest-free financial intermediary role.
2. Understand the impact of modern information theory on the practical modal structure of Islamic banking.
3. Analyse balance sheet and off-balance sheet items of a typical Islamic bank.
4. Understand the scope of Islamic banking retail management as distinct from corporate banking.
5. Appreciate the difference between conventional and Islamic monetary policy in terms of central banking operations.
6. Understand the role of Shariah supervisory and auditory service and the ensuing challenges of financial innovation.

Skills

By the end of the module students should have developed skills in:

1. Viewing Islamic banking as a progressively developing financial intermediary vehicle.
2. Analysing the impact of information asymmetry on Islamic banking instruments.
3. Structuring on-balance sheet and off-balance sheet interest-free investment accounts.
4. Analysing Islamic banking risks.
5. Structuring banking services of letter of credit and letter of guarantee in accordance with Shariah rules.
6. Presenting central banking tools within an interest-free context of monetary policy.
7. Engaging in the current debate about the importance of financial innovation in Islamic finance

Each student should participate in 150 hours of study, including lectures (6 hours), seminars (6 hours), tutorials (6 hours), plus personal guided study (132 hours).

Examination (2 hours standard closed) 40%

One assignment of 2,500 words 60%

• Mishkin, Fredric S.  ‘The Economics of Money Banking and Financial Markets’, Addison Wesley.
• Archer, Simon Karim, Rifaat, 2002. ‘Islamic Finance: Innovation and Growth’ Euromoney Books.
• Ayub, Muhammad, 2007. ‘Understanding Islamic Finance’ Wiley Publications.
• Chapra, Umar and Ahmed, Habib 2002. ‘Corporate Governance in Islamic Institutions’ IRTI/IDB.
• Durrani, Mansoor and Boocock, Grahame.  2006 ‘Venture Capital, Islamic Finance and SMEs’ Palgrave Macmillian.
• Al-Omer, Fuad and Iqbal, Munawar. “Some Strategic Suggestions for Islamic Banking in the 21^st Century” published in Review of Islamic Economics, Islamic Foundation (2000).
• Warde, Ibrahim, 2000, ‘Islamic Finance in the Global Economy’ Edinburgh University Press.

• Iqbal, Munawar, ‘Islamic Banking & Finance: Current Developments in Theory and Practice’ Islamic Foundation.

• Iqbal, Munawar and Molyneaux, Philip, 2005 ‘Thirty Years of Islamic Banking: History, Prospects and Performance’ Palgrave Macmillan.
• Iqbal, Munawar and Wilson, Rodney, 2005 ‘Islamic Perspectives of Wealth Creation’ Edinburgh University Press.
• Siddiqi, M. D. 2000 ‘Role of the State in Economy’ The Islamic Foundation.
• Cizakca, Murat. 2000 ‘History of Philanthropic Foundations’ Istanbul Bogazici University Press.
• Elashker, Ahmed & Wilson, Rodney.2006 ‘Islamic Economics: A Short History’ Brill.

Journals/articles

• The Review of Islamic Economics
• IIUM Journal of Economics and Managemen
• Journal of King Abdul Aziz University (Islamic Economics)