Foreword
Islamic finance is one of the most credible areas of Islamic banking that emerged three decades back. Since the mid-1970s, and more particularly in the 1980s, we see enormous developments in theory and practice of Islamic banking system At the beginning, the practitioners of Islamic finance were looked at with suspicion as it was considered a transient phenomenon related to influx of 'petrodollars'. Even Islamic banks operating individually in Muslim countries could not get the support of their own governments. Today, Islamic banking and finance is being linked with the Central Banks of most Arab countries as well as in Malaysia and Indonesia. The Islamic financial market represents the further development of this segment and its ramifications can be witnessed at the global level in the form of frequent conferences and workshops where scholars, Islamic bankers and Islamic fund managers meet regularly to sort out the difficulties facing the Islamic finance industry.
Theoretical justification of Islamic banking on the principles of variable rate of return, under the Islamic interest-free modes of financing such as mudaraba, musharaka, murabaha, has attracted the attention of professional economists, particularly in Western universities. One can find now considerable numbers of scientific papers dealing with the efficiency, viability and stability of Islamic financial system in comparison with the conventional commercial banks, which operate on the mechanism of fixed rate of return in the form of interest. As a matter of fact, during these three decades, the theoretical and practical aspects of Islamic financial market have been discussed so much in academic journals that it has become irrelevant to go into the details of the Quranic concept of riba and the commercial interest. Successful operation of Islamic banks has now turned attention towards Islamic equity and mutual funds market where more attention is paid to the Islamic funds which are the major part of the growing Islamic financial market. The investors in Islamic finance industry are no longer confined to put their money in banks to earn interest, in real estate to earn rental return, or into the trade finance of receivables and commodities to earn a mark-up or spread between buy and sell prices. Islamic investors are now demanding far more creativity from the bankers and investment managers to the extent that project finance and private equity become far more attractive options. As a result, scholars and fund managers are busy creating sophisticated Islamic financial products for the institutional Muslim investors that will be fiercely competitive with similar Western financial products.
What are the basics of Islamic financial market? How far its modes of investment and financial instruments are attuned to the modern needs of Muslim investors? What are its drawbacks? And, more importantly, what is being done by way of devising Shariah-compatible financial products for the contemporary needs of Muslim investors and depositors? For these complex issues one can find meticulous researches and discussions among scholars with regard to financial engineering of Islamic products with more emphasis on its being competitive and acceptable to the international regulatory system. For, it is quite noteworthy that Islamic financial market still comprises short-term financing. With such a vast, expanding Islamic finance industry running under some $220 billion worldwide, it is interesting to know as to how scholars and fund mangers are engaged in the development of sophisticated Islamic financial products that will also be competitive against similar products in the interest-based commercial banks.
Dr Mohammed Obaidullah, one of our young Islamic economists has been engaged in the academic and theoretical formulation of an efficient Islamic financial market. His efforts to create a globally-utilised website www.ibf.net - is at present one of the most authentic online information centres on the various aspects of Islamic economics and finance. However, more worthwhile in my view is his present work where he has gone into the details of Islamic financial market, and I can confidently say that his book is one of its kind, with greater focus on the applicability of Islamic modes of finance. He has illustrated clearly as to how legal and regulatory obstacles can be overcome for the future development of Islamic finance industry. His analysis of the equity and stock market, debt and money market, derivative market and foreign exchange market is quite illuminating as it explains the juristic position keeping in view its relevance to the contemporary market position. I hope researchers in these areas will find here the basic insights while investigating the problems and prospects of Islamic financial market.
I believe this work will invite researchers and finance professionals to channelise the Islamic funds towards Muslims living as minority in a secular country like India, where a majority of the Muslim population has been aspiring since last five decades to run business and finance on Islamic principles and where Islamic fund industry has already opened its doors. Through various conferences, seminars and workshops under the aegis of Institute of Objective Studies, we in India have found that the potentials of Islamic finance market are high. This is more so because India has strong economic fundamentals, a stable political system, an educated middle class with high saving rates, and a market that is largely untapped.
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