Qatar, Malaysia, Kuwait, Bahrain, China (Hong Kong), UK, Mauritius, ... in order for innovative financial products to be successful requires a sound judiciary.
A New Financial Dawn: The Rise of Islamic Finance
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Book Review : A New Financial Dawn: The Rise of Islamic Finance The Reviewers Mohammad Hudaib, Essex Business School, Colchester, UK RR 2010/1 Review Subject: A New Financial Dawn: The Rise of Islamic FinanceJoseph DiVanna and Antoine Sreih Publisher Name: Leonardo & Francis Press Ltd Place of Publication: Publication Year: 2009 ISBN: 978-1-905687-10-7 Article type:Review Pages: 178 pp. Keywords: Emerald Journal: Journal of Islamic Accounting and Business Research Volume: 1 Number: 1 Year: 2010 pp. 75-76 Copyright: © Emerald Group Publishing Limited ISSN: 1759-0817 This publication joins the steadily growing trend promoting Islamic finance. However, unlike other publications which tend to be descriptive, this book offers a number of strategies that Islamic banks (IBs) should adopt in order to meet the challenges and be an integral part of the global financial markets. The strategies are mainly built around two aspects: financial engineering (locally saleable sukuk, Islamic credit card, various types of takaful, shari'ah-compliant derivatives and profit rate swap) and marketing. However, this would be feasible with macroeconomic changes such as privatisation of government-run businesses, trade liberalisation, removal of exchange controls but with governmental stabilisation through inflation controls. The book consists of five chapters with an introduction and conclusion. In Chapter 1, the authors discuss the historical development of Islamic finance industry through three stages: fragmented effort (pre-industry or amorphous age), initial codification and development (age of discovery) and codification and standardisation (age of innovation). During the three stages, the industry responded to the demand in the market for religiously-based ethical products (shari'a compliant products). However, the industry now needs to enter a new phase, i.e. “age of innovation” if it wants to be part of the global financial system and serves both Muslim and non-Muslim communities. Chapter 2 provides a review of current offering of products and their problems and suggests a number of innovative products through financial engineering. To achieve the goal of market growth, there also need to be macro-structure changes. In Chapter 3, the authors discussed the important role of emerging financial hubs in countries such as UAE, Qatar, Malaysia, Kuwait, Bahrain, China (Hong Kong), UK, Mauritius, Australia and France as financial gateways to Muslim populations around the world. However, this must be coupled with government efforts to create the market conditions and social infrastructures for shari'a-compliant banks to flourish and become viable corporate entities in the long run. Chapter 4 presents a comparison between Islamic economic system with capitalist and socialist economic systems in terms of factors of production, single currency, risk management and interest-free theory and their implications on the emerging forms of shari'a-compliant business. In Chapter 5, the authors proposed strategies for developing products and markets within the political, economical, social and technological constructs. Overall, the book provides good insight of the current problems faced by IBs. However, the proposed strategies using financial engineering (a capitalist driven mechanism) to grow without proper governance may actually do more harm to the image of the IBs. It is a known fact that financial engineering used by the conventional banks was one of the courses for the financial meltdown. If financial engineering is to be used for innovation purposes, there need to be safety nets such as full transparency and good governance and this issue has been completely neglected in this book.
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A New Financial Dawn: The Rise of Islamic Finance
Page 2 of 2
Another weakness is the lack of discussion of the reality of the macro structures in countries where most IBs operate. For instance, in order for innovative financial products to be successful requires a sound judiciary system as well as an efficient capital market to protect investors but these were not adequately addressed. Furthermore, the authors highlighted the weakness of the US dollars and the need for alternative but unfortunately did not include any discussion on the potential of Islamic dinar and Islamic central bank. In summary, while the book makes good reading for marketing and strategic purposes, it is rather disappointing in its contribution towards theories and practices of Islamic finance.
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