Essay

A Basic Guide to Contemporary Islamic Banking and Finance

Mahmoud Amin El-Gamal1 Rice University June 2000

c 2000 by Mahmoud El-Gamal, All rights reserved. The author is Professor of Economics and Statistics, and holder of the Chair in Islamic Economics, Finance and Management, at Rice University, Houston, TX 77005. elgamal@rice.edu.

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elgamal

Preface

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In the Name of Allh, The Bene cent, The Merciful a

I was asked by ISNA to produce a short guide to Islamic Banking and Finance for the Muslims of North America. To keep this guide short, we had to de ne our target audience rather carefully. This introductory guide is meant to address the Muslim who is familiar with the fundamental tenets and sources of legislation in Islam. The reader is not assumed to have elaborate prior knowledge of Islamic nancial contracts, but a certain degree of nancial sophistication will be required. This is not a full survey of the eld, and it is not a religious guide. It is the work of a single individual, who does not claim any religious authority beyond that which is derived from quoted texts. I tried my utmost to steer away from issues which are or may become controversial. Therefore, I have been careful to limit the discussion of recent fatws and decisions of jurists and a juristic councils. In that sense, this guide falls short of providing the reader with full information about state of the art" Islamic nancial instruments. This apparent shortcoming is intentional. The eld of contemporary Islamic nance is rather young, and marred by a number of shortcomings of its own. It is easy for an economist such as myself to fall prey to the temptation of claiming religious authority from translated texts and quoted opinions. It is also easy for specialized jurists to assume that they understand both the religious and the nancial aspects pertaining to a speci c contract or transaction. In both cases, there is a great danger for...