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

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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
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    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 - Political Economy and Comparative Economic Systems - - Other Economic Systems

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