Prospects of Islamic Banking

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Cardiff Law School
2003-2004

PROSPECTS OF ISLAMIC BANKING:
Legal and other Challenges and Issues

Faisal Nasim
LLM (Commercial Law)

Table of Contents
Acknowledgment…………………………………………………………….... 1 Preface ………………………………………………………………………..... 2

Glossary of Arabic Terms …………………………………………………......4

Chapter 1: ……………………………………………………………………....5 Introduction and the Basis of Islamic Banking

Chapter 2: ………………………………………………………………..……..9 Islamic Modes of Financing

Chapter 3: ………………………………………………………….………….21 Practical Application of the Islamic Modes of Finance: A Research on Islamic Project Finance

Chapter 4: ……………………………………………………………….……30 Common Law Developments: Impact of Shariah Law on Judicial Decisions and Contrariwise

Chapter 5: …………………………………………………………….………39 Legal Deliberations and Implications of Structuring and Offering ShariahCompliant Investment Products

Chapter 6: ……………………………………………………………………44 Regulation and Supervision of Islamic Banks

Chapter 7: ……………………………………………………………...……53 The Interface between Islamic and Conventional Banking: Are there any Lessons to be Learned?

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Chapter 8: ………………………………………………………………...55 Conclusion: A Realistic Evaluation of the Workings of the Islamic Banking Industry; A Few Sagacious Remarks

Bibliography ……………………………………………………………..59 Texts
Articles
Cases
Internet References

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Acknowledgment

I would like to forward my utmost gratitude to a number of
people, for their generous co-operation and assistance, in the course of preparing this monograph. Mr Howard Johnson
for reviewing my thesis plan, Professor Bob Lee for his
invaluable insight on Chapters 1-5 and finally Dr Paul
Bridges and Dr Simon Norton for their enlightening views
on several issues.
I dedicate my efforts to ‘Bhaijan’, who has always been the inspiration and my guide throughout my life.

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Preface
At present times, it would not be inappropriate to state that Muslims the world over face the dilemma that their religion, Islam, prohibits interest in stringent terms and aims at establishing an economy that is not only free from all forms and kinds of interest, but also from anything that bears any resemblance to it. The modern economy is heavily based and reliant on interest and it is hard to envisage any set of economic relations where interest does not play a part, whether directly or indirectly. Resolving the above-mentioned contradiction seems to be a challenge that Muslim intellectuals, bankers, industrialists, businessmen, policy-makers and ordinary consumers face.

In a nutshell, this monograph seeks to provide an analysis of the workings and practices of Islamic banking industry and the products it offers; covering legal, political, social and economic issues as they relate to it.

Chapter 1 commences by providing a rationale to the Islamic banking and outlining its historical journey, and ends with a discussion on the riba and its prohibition in Islam.
Chapter 2 deals with the modes of Islamic finance, which certainly requires a detailed study, as it is these products that form the cornerstone of the entire Islamic banking industry. Shariah precepts are also introduced at this stage (and are discussed throughout this monograph), as they aid the process of comprehension. This chapter would also serve to introduce a discussion on Islamic Project Finance, dealt within the following chapter.

Chapter 3 deals with Islamic Project Finance in practice, focussing on the legal and other economic issues as they relate to Shariah-Related Documentation, Construction and Lease Financing and Islamic Bonds.

Chapter 4 consists of two case-studies, highlighting the Common law developments in Shariah law, as it relates to the Islamic banking industry. Two recent judgments (one from UK and another from Pakistan) are specifically perused, reflecting the stance that the judiciary in the two countries have adopted towards Islamic precepts, its interpretation and application.

Chapter 5 raises...
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