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Islamic Finance Revisited: Conceptual and Analytical Issues from the Perspective of Conventional Economics

Author

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  • Sheng, A.
  • Singh, A.

Abstract

After a brief recent empirical sketch of Islamic finance, the paper turns to its main theoretical and conceptual purpose. It seeks to relate the concepts of Islamic and conventional finance, and to examine certain important questions which arise from the interaction between these systems. The paper is written from the perspective of conventional modern economics, as the authors are students of the latter.The paper discusses the main tenets of Islamic finance, as well as those of modern economics, including the implications of zero interest rates and those of Modigliani and Miller theorems. The most notable finding of this paper is that John Maynard Keynes' analysis of employment, interest and money provides, inadvertently, the best rationale for some of the basic precepts of Islamic finance. The paper concludes that there is no inevitable conflict between the two systems and cooperation between them is eminently desirable and feasible.

Suggested Citation

  • Sheng, A. & Singh, A., 2012. "Islamic Finance Revisited: Conceptual and Analytical Issues from the Perspective of Conventional Economics," Working Papers wp430, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp430
    Note: PRO-2
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    References listed on IDEAS

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    1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Pasquale Scaramozzino & Giancarlo Marini, 2000. "Social time preference," Journal of Population Economics, Springer;European Society for Population Economics, vol. 13(4), pages 639-645.
    3. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2003. "The Impact of Corporate Governance on Investment Returns in Developed and Developing Countries," Economic Journal, Royal Economic Society, vol. 113(491), pages 511-539, November.
    4. Sheng,Andrew, 2009. "From Asian to Global Financial Crisis," Cambridge Books, Cambridge University Press, number 9780521134156, May.
    5. Chang, Ha-Joon, 2000. "The Hazard of Moral Hazard: Untangling the Asian Crisis," World Development, Elsevier, vol. 28(4), pages 775-788, April.
    6. Jared Rubin, 2011. "Institutions, the Rise of Commerce and the Persistence of Laws: Interest Restrictions in Islam and Christianity," Economic Journal, Royal Economic Society, vol. 121(557), pages 1310-1339, December.
    7. Sheng,Andrew, 2009. "From Asian to Global Financial Crisis," Cambridge Books, Cambridge University Press, number 9780521118644, May.
    8. Beck, Thorsten & Demirgüç-Kunt, Asli & Merrouche, Ouarda, 2013. "Islamic vs. conventional banking: Business model, efficiency and stability," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 433-447.
    9. Timur Kuran, 2011. "The Long Divergence: How Islamic Law Held Back the Middle East," Economics Books, Princeton University Press, edition 1, number 9273.
    10. Mirakhor, Abbas & Krichene, Noureddine, 2009. "The Recent Crisis: Lessons for Islamic Finance," MPRA Paper 56022, University Library of Munich, Germany.
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    Cited by:

    1. Zakaria Ali Aribi & Thankom Arun, 2015. "Corporate Social Responsibility and Islamic Financial Institutions (IFIs): Management Perceptions from IFIs in Bahrain," Journal of Business Ethics, Springer, vol. 129(4), pages 785-794, July.

    More about this item

    Keywords

    Islamic finance; moral hazard; zero interest rates; Keynes and usuary;

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • P4 - Economic Systems - - Other Economic Systems

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