
Zamir IqbalWorld Bank
Zamir Iqbal
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Publications (126)
Based on the moral philosophy of Islam aimed at promoting economic and social justice, the internalization of rules and virtues of Islam determine all facets of an economy ranging from the rules of market conduct, production, consumption, distribution, and redistribution. Ethics embedded in the prescribed rules and principles guarantee ethical outc...
Given the growing evidence that risk-transfer arrangements constitute an important driver of economic inequalities, there is a need for viable redistribution mechanisms based on the organizing principle of risk-sharing. Indeed, the redistribution proposals by mainstream economic thinking may not be sufficient to mitigate the ever-increasing wealth...
The stabilizing role of risk-sharing in an Iqtiṣād-driven system can be understood in relation to the nature of economic uncertainty. There is an irreducible amount of randomness in economic systems, which implies that failure to predict the future cannot be simply explained by flaws inherent to human knowledge. The notion that uncertainty and impe...
A brief critical history of political economy and an overview of the science and dogma of neoclassical economics reveals that there are fundamental flaws in the assumptions underlying economic theory. Consumer sovereignty is not consistent with the notion of resource scarcity, as acceptance of the latter logically precludes the former. The rational...
There is a unique collection of philosophical, logical, and critical arguments about the imperative for Muslims to revert to Al-Qur'ān to find solutions to economic problems. The analytic perspectives about the cycle of civilization and the problem of knowledge are provided by eminent philosophers and social critics in the past century and half, in...
Iqtiṣād, the Islamic vision of an ideal economy rests on the Qur’anic foundations of solid belief system, correct knowledge, and rules-based behaviour. Its institutional framework is based on a unique set of principles governing property rights, and contracts, which derive directly from the Islamic worldview. The institution of markets is also buil...
The foundational pillars of Iqtiṣād, Al-Qur’ān's vision of how individuals and collectivities must manage the resources gifted to them by their Creator, are shown to be so radically different from the foundational structure of Economics as to render each alien to the other. In its fundamental nature, Iqtiṣād constitutes a polar case to Economics as...
A brief critical examination of the contents and discontents of Islamic economics, and the secularization of Islamic law suggests that under the current conditions, Islamic economics can neither emerge on its own nor exist within the realm of conventional Economics. It cannot set its own agenda for the organization of an ideal Islamic economy becau...
In the last five decades, a paradigm has emerged dominating thinking about how Islam proposes humans, individually and collectively, are to manage resources that their Creator has gifted them. Adopting narrow views of the works surrounding a concept developed in the 1980s called “Islamization of Knowledge,” the paradigm proposed to “Islamize” the d...
Having developed a framework of virtues and business ethics in previous chapters, this chapter discusses the application of the ethical framework to Islamic economics and finance. An in-depth analysis of risk sharing, materiality, social and economic justice, and governance aspects of Islamic economics and finance are provided, arguing that such a...
A framework of business ethics in Islam can be developed by identifying key virtues that are the preferred character traits of a human being. This chapter discusses select virtues that have direct implications on any economic, social, business, or financial activity such that a decision taken in light of such virtues would be ethical. By embracing...
Discussion on business ethics in Islam is not new; it has been dealt with extensively since the early history of Islam, but the discussion mainly took place while developing principles underlying legal axioms. Virtues of justice, truthfulness, and benevolence were identified as the main ethical values that must be internalized by agents in any busi...
This chapter follows up on two major explanations of unethical behavior in the business community. The first focuses on the massive cultural changes originating from the rapid technological growth and globalization of the last few decades that have led to moral disorientation. The second view suggests there is a need for reorientation of education...
This chapter argues that risk-sharing finance’s features of anti-fragility and a de-leveraged economy would lead to a stable financial system that would lead to just and equitable allocation and distribution of resources in an economy. Risk-sharing finance has the potential to enhance efficiency as each party to contracts has “skin-in-the-game,” th...
Growing disparity in income distribution despite healthy growth and deteriorating opportunities for lower segments of the society has raised awareness of the importance of ethical and responsible finance for sustainable development. Whereas ethical finance calls for fundamental change in the prevailing thinking of approaches in development, respons...
Discussing the role of morals and ethics in economics and finance is not new but several developments including the financial crisis of 2007–2008 and its aftermath have led to a debate about the need to consider the role of ethics and morality in the economic and financial workings of contemporary capitalism. Financial scandals, crimes, and unethic...
This chapter discusses the differences between economic systems and the role that government plays, how the ideal Islamic system differs from the Western market capitalist system, the role of markets and how they differ in Islam and in the market capitalist system, what institutions are and why they matter for economic prosperity, and how governmen...
Chapter 7 addresses the prohibition of fixed interest-bearing debt instruments and economic management, Islamic-endorsed assets and the needed range of financial instruments for macroeconomic analysis, the return on financial instruments in the Islamic system and its link to the real sector, the link between the real and the financial sectors in th...
In this chapter, we address e evolving conventional thinking on development from Adam Smith to Mahbub ul-Haque, Amartya Sen, and Douglass North, Islam's perspective on economic and social development, why rules and institutions are the keys to development and growth, how cooperation, coordination, and trust are linked to development and growth, and...
Topics discussed in this chapter include how consumers and producers form their decisions, how these decisions differ in Islam from those in the conventional system, how supply and demand functions are determined and how price equilibrium is reached in markets, the role and importance of markets in efficient resource allocation, the role of the sta...
Chapter 2 addresses how Islam differs from other religions, the difference between individual and societal goals in Islam, the importance of rules (i.e., institutions) and rule compliance in Islam, why justice is so important in Islam, the role of Shariah in Islamic economics and finance, the meaning of maqasid-al-Shariah (objectives of Shariah), t...
Concepts covered in this chapter include the nature of risk and its economic implications, how trust mitigates uncertainty and risk, how rules are the essence of institutions, what rules are important in all economic systems, why Islam is a rules-based system, how rule compliance enhances trust and builds effective institutions, how ffective instit...
This chapter covers the common elements of development in the conventional and the Islamic system, the role of the concept of ummah in Islam, how to measure key objectives of Islamic law (maqasid-al-Shariah), and the actual performance of Islamic countries in comparison to Islam's ideal concept of economic and social justice.
This chapter goes over the goals and objectives of monetary policy in the conventional and Islamic system, the instruments, channels, and impact of monetary policy in the conventional and Islamic system, the different views regarding the effectiveness and track record of discretionary monetary policy, the monetary policy role of commercial banks in...
This chapter discusses the essential role and functions of a financial system, the link between the real and financial sector, the notion and implications of risk sharing in finance, the contrast between conventional and Islamic banking, the menu of permissible and prohibited instruments and the nature of risk-sharing financial assets, the form of...
Discussed in the chapter are the need for a comprehensive social safety net, the essential elements of safety nets, ethical principles and institutional measures, the distinguishing features of the Islamic perspective on economic and social welfare, and the role of government in providing safety nets.
Topics covered in this chapter include the importance of rules and their supervision and enforcement, the need for government intervention if individuals adhere to rules, important government functions to keep the economy, especially markets, functioning smoothly, the importance of rules (institutions) as the foundation of economic prosperity, with...
Chapter 10 addresses goals and objectives of fiscal policy in the conventional and Islamic system, the role and importance of societal welfare in Islam, the instruments of fiscal policy in the conventional system, the instruments of fiscal policy in the Islamic system, the financing (taxation and borrowing) of government expenditures in the convent...
This chapter goes over the role of justice and ethics in the Islamic system, the manifestation of justice in policies in Islam, the difference between the Islamic and conventional financial system, why interest and interest-based debt instruments are prohibited in Islam, the role of government in the Islamic and in the conventional system, the impo...
In this chapter, we will cover how economic output is measured, why economic output from the depletion of natural resources is not the same as other output of goods, how economic output is determined, the determinants of consumption and investment functions, what unemployment and inflation are, why there is unemployment and inflation, the impact of...
This book provides an introductory theoretical foundation of the ethics embedded in Islamic economics and finance, and it shows how this ethical framework could pave the way to economic and social justice. It demonstrates how Islamic finance—a risk-sharing and asset-backed finance—has embedded universal values, ethical rules, and virtues, and how t...
In policy-making, assessment of where a country stands relative to other countries is important to achieve desired goals, to understand how much the current policy implementation diverts from the target, and to understand main obstacles on reaching at the ends in the light of the comparators and the benchmark. This study evaluates relative standing...
This chapter considers financial regulation in light of previous discussions about financial instability and the properties of conventional and Islamic financial systems. It explains the economics of regulation and the traditional rationale for bank regulation and supervision. The complexity of the regulatory framework is reflective of the complex...
This chapter considers the epistemological roots of conventional and Islamic finance. The epistemology of finance explores the questions about the source and extent of related knowledge. The roots of an ideal conventional system are traced back to Adam Smith's vision of competitive economy based on The Theory of Moral Sentiments and The Wealth of N...
This chapter provides a brief review of the analytics of finance and is, by necessity, technically more demanding than previous ones. The focus is on the theory of interest, concept of time value, utility theory, optimal consumption and portfolio choices, and market efficiency. This review facilitates a better understanding of cornerstones of finan...
This chapter constitutes a natural extension of epistemological roots of Islamic and conventional finance. The morality and ethics system is fundamental to Adam Smith's vision of competitive economy, and it is also shared with Islamic finance and economics. The importance of ethics is discussed with reference to a virtue theory of ethics based on t...
This chapter deals with securitization and structured finance, and provides some critical perspectives from the theory and practice of Islamic finance. The explanation centers on the transfer of credit risk off-balance sheets through credit default swaps, which allows banks to circumvent regulatory strictures and increase liquidity. The mechanics o...
This chapter considers the usefulness of risk-hedging instruments and scope of financing engineering and derivatives in Islamic finance. It explains the properties of theoretical pricing of derivatives securities, including forward, futures, and options contracts. It is shown in particular that option pricing theory can be useful in understanding t...
This chapter examines some theoretical issues related to financial stability. The procyclicality of the financial system reflects its propensity to amplify shocks to the real economy and exacerbate business cycle fluctuations. Financial fragility is also important in light of previous discussions about the epistemological roots and risk-transfer ar...
This chapter builds upon some of the fundamental concepts introduced in previous chapters, including the utility maximization and behavior of agents in a competitive economy. The focus is on firm behavior under a dynamic Islamic economy, where the postulate of profit maximization is discussed in relation to equity. The usefulness of profit maximiza...
This chapter provides an analytical discussion of financing models based on risk sharing and their implications for ownership transfer. The focus is made on the conceptual differences in the financier's outstanding balances across conventional loans and participatory models, such as sale with deferred payments (albaý biththaman al-ājil), diminishin...
This chapter reviews some theoretical issues in equilibrium asset pricing models and capital structure from the perspective of Islamic finance. Models of asset valuation based on the pricing of risk factors are consistent with the principle of risk sharing in Islamic finance insofar that no reward can be expected without bearing common undiversifia...
How the Islamic finance approach to risk can serve as a model for global reform The recent U.S. financial debacle has affected the entire world and led to major reviews of risk management in financial institutions. Perhaps a simpler alternative is just to adopt the systems used for centuries in Islamic finance. Risk Sharing in Finance expounds upon...
In recent times the reorientation of sustainable economic development has led to increased calls for inclusive growth and 'shared prosperity'. Conventional economics is often criticised for its failure to address the increasing gap in income and wealth disparity, along with its myopic focus on GDP while ignoring the wellbeing and welfare of individ...
Before embarking upon a description of the Islamic vision of human and economic development and its rules and institutional structure, an important difference between an Islamic economy and market capitalism needs to be emphasized. In the pure market capitalist system, the goal is to maximize production and accumulate the resulting surplus—“accumul...
Capital markets in conventional finance can be broadly divided into three categories; (i) debt markets, (ii) equities or stock markets; and (iii) market for structured securities that are hybrids of either equity or debt securities. Debt markets dominate the conventional capital markets and debt is considered a major source of external funding for...
In any economic system, there is a role for the state and for government policy. While the specifics of this role, its mandate, and its extent would differ from one economic system to another, a legitimate government and its policies are, at a minimum, essential for the preservation of security, social harmony, the legal system, and sustained econo...
The concept of social capital is multidisciplinary and is not easily defined or understood. The concept has been used to explain phenomena from the growth tragedy in Africa associated with high ethnic fragmentation (Easterly and Levine, 1997) and group-based programs for environmental improvements including microfinance (Pretty and Ward, 2001) to t...
The one thing that all economists and financial experts can surely agree upon is the importance of institutions in all areas of economic activity. In the case of Islamic finance, as its operational essence is risk sharing, it is essential to promote the development of an institutional environment that is conducive for market participants to impleme...
The first principle of property rights in Islam is that Allah (swt) is the ultimate owner of all things in His creation. The most important of the property rights principles have been presented earlier and are summarized here that: (i) the Creator has ultimate property rights in all things; (ii) Allah (swt) has created resources for all humankind o...
Analysts suggest that sound public policy and strengthened institutional framework in developing countries can go a long way to reducing risk. Examples of policy improvements include better governance to reduce damage from household mismanagement and policies to achieve and sustain economic and political stability and encourage the development of t...
The industrial economies are in a serious crisis not seen since the Great Depression. Dubbed as the “Great Recession,” an aspect of the crisis that began in 2007/2008 has recently become the subject of intense debate: credit. While credit has been a source of many crises in various parts of the world for a long time, analysts have focused on it as...
A growing body of evidence suggests that financial development and improved access to finance (also referred to as financial inclusion) is likely not only to accelerate economic growth but also to reduce income inequality and poverty in a country. Despite the essential role played by financial services in the progress of efficiency and equality in...
Throughout the ages, one of the most important questions confronting mankind has been, “on what basis should economic resources be distributed?” The answer depends on the underlying concept of justice and fairness, which, in turn, depends on the belief system. In Islam, the concept of justice for humans is simple and unambiguous: justice is obtaine...
The development of desirable and targeted policies should not occur in a vacuum. Policy makers must first determine their policy goals—be they healthcare, education, nutrition, income distribution, and the like. Then they should assess where the country stands. What are the areas of success and failures? Then devise efficient policies to achieve th...
The role of the state in an Islamic economy is to ensure that everyone has equal access to resources and means of livelihood, that there are rewarding employment opportunities for all those who can work, that market rules, regulations, and supervision minimize business uncertainties so that justice is attained and transfers takes place from the mor...
In this paper, the foundational rules governing human, economic and financial development in Islam, as understood from the Qur’ān and from the life and traditions of the Prophet Muhammad (pbuh), are summarized. These rules pave the path to development as the basis of institutional structure, which in turn, underpin the path of economic and social p...
In this paper, the foundational rules governing human, economic and financial development in Islam, as understood from the Quran and from the life and traditions of the Prophet Muhammad (pbuh), are summarized. These rules pave the path to development as the basis of institutional structure, which in turn, underpin the path of economic and social pr...
Purpose ‐ Islamic finance and socially responsible investing (SRI) have been two of the most rapidly growing areas of finance over the last two decades. During this period, they have each grown at rates that far exceed that of the financial markets as a whole. The purpose of this paper is to find similarities and commonalities of both markets and i...
Introduction Banking Risk Corporate Governance Transparency Concluding Remarks Endnotes
Financial Systems: A Functional View Components of the Islamic Financial System Effect on Savings and Intermediation
Lessons from the Conventional Financial System Gaps in the Islamic Financial System and its Practice Policy Recommendations Concluding Remarks
Financial Intermediation in Islam Components of the Islamic Financial System Current State of Islamic Financial Intermediation
Defects and Possible Reforms of the International Payments System Macroeconomic Policy and Current Account Imbalances Us-Led Shocks and Beggar-Thy-Neighbor Policies Excessive Recourse to Debt Financing Pro-Cyclical Bank Capital Regulation Insufficient Financial Regulation and Supervision An Equity-Based System
The Future of Globalization The Evolution of Financial Globalization The Expansion of Risk Sharing The Likelihood of Convergence
Asset Pricing in Islamic Finance Islamic Finance has no Systemic Risk Stable Monetary Policy in Islamic Finance Conclusion
The Classical Model as a Proxy for an Islamic Financial Model Islamic Financial Intermediation in the Classical Model Islamic Financial Intermediation Integrating the Money Market Financial Intermediation Integrating Money in a Conventional System Conclusion
Trends in Conventional Financial Globalization Growth in Islamic Finance Convergence or Divergence?
A Brief History of Globalization How Complete is Globalization? A Brief Introduction to Islamic Finance Islamic Finance and Globalization: Convergence or Divergence?
The Stability of Islamic Finance main focus is on the question of the sources of financial instability which seems inherent in the conventional system. As a core component of this focus, the book will consider episodes of turbulence and instability in a historical context recalling the occurrence of such events from mid-19th century to the present....
The Development of Islamic Finance The Development of Conventional Finance Islamic and Conventional Finance: The Impact of Globalization Financial Stability and the Emerging Relationship between Islamic and Conventional Finance
Introduction The Role of Financial Systems and the Stability Characteristics of the Conventional Financial System A Different Explanation for the Financial Crisis of 2007 Islamic Financial System and Lessons from the Recent Crisis Summary
On the Nature of Capital On the Nature of Interest and Profit Capital Theory in the Qur'an and Sunnah
Over-Indebtedness and Deflation Minsky: Stability is Unstable Unbacked Credit Expansion and Money out of Thin Air Capital Flows and Exchange Rate Regimes Financial Regulation and Supervision
The Credit Multiplier in a Credit System without Securitization The Credit Multiplier in a Credit System with Securitization The Reverse Credit Multiplier Leveraging Nature of the Credit Multiplier in Islamic Finance Conclusion
Financial Engineering in the Islamic Financial System Lessons from the Financial Crisis Challenges for Financial Engineering in Islamic Finance Conclusion Appendix C Potential Applications of Financial Engineering Synthetic Currency Forward Contract Currency SWAP Rate-of-Return Swap Development of an Islamic Benchmark