An Introduction to Islamic Finance: Book Review

Name       : An Introduction to Islamic Finance

Author     : Muhammad Taqi Usmani

Publisher: Kluwer Law International

Language: English

Genre       : Reference work

Review of An Introduction to Islamic Finance

Introduction

Today we live in a society where interest-based economical finance permeates every pore. Even as Muslims, despite knowing the dire consequences of this interest, we are openly involved in interest-based financial transactions. Although Islam is the name of a holistic way of life, a larger Muslim community is completely ignorant of its economic values. However, Islam has a beautiful economic discipline. Therefore, as Muslims, it is our absolute duty to acquire knowledge about Islamic economics. Because only through proper knowledge and practical application, we can be freed from the net of this interest-based economy. To implement this great goal, Mufti Muhammad Taqi Usmani wrote the book An Introduction to Islamic Finance.

Author’s Profile

Mufti Muhammad Taqi Usmani is one of the famous Pakistani Islamic religious scholars and leaders who was born on October 5, 1943, in Deoband. He is the vice president and Hadith professor of the Darul Uloom Karachi and the current president of the Wifaq ul Madaris Al-Arabia. This great scholar pioneered the concept of Islamic Banking in Pakistan by establishing a bank named Meezan Bank. Muhammad Taqi Usmani has authored 143 books on Hadith, Fiqh, Sariah, Tafseer, Islamic finance, etc. in Urdu, Arabic, and English. Among his works, An Introduction to Islamic Finance, Islam and Modernism, Takmilat Fath al-Mulhim, Tauzeeh Al-Qur’an, The Authority of Sunnah, Uloomu-l-Qur’an, etc. are famous worldwide. An Introduction to Islamic Finance is a book written by him that remains one of the gateway publications on Islamic finance and banking.

Book Discussion

The Author states in the introduction of this book that it is a compilation of various articles and conference papers of him. The introductory chapter of An Introduction to Islamic Finance begins by presenting the characteristics of Islamic economic thought, the relationship among humans, the divine and the money, and a critique of the capitalist economy. It also presents Muslims to reform their financial institutions to bring them to adjust to the indications of Shari’ah as a great challenge in the economic field in such an environment where the entire financial system is based on interest. The author firmly states financial activities for commercial purposes are a profit and loss-sharing concept instead of interest makers. This part of the book also mentions the various inconsistencies of recent Islamic banks and financial institutions with the guidance of Shari’ah.

Before the detailed discussion, the author feels necessary to explain some points concerning the basic principles that govern the whole economic setup in the Islamic way of life. That’s why An Introduction to Islamic Finance explains some Preliminary points like belief in divine guidance, the basic difference between capitalist and Islamic economy, asset-backed financing, capital and entrepreneur, and the present practice of Islamic banks in its first chapter.

In the concept of business and trade, An Introduction to Islamic Finance presents the Arabic word Musharakah in the next chapter to mean a profit and loss sharing joint enterprise with all the partners as an ideal alternative for interest-based financing. The book clears the differences between Islamic and modern-day principles for the financier both in business and commercial investments. This chapter consists of the concept of Musharakah, the basic rules of Musharakah, the nature of capital, the management of Musharakah, and the termination of Musharakah with a clear discussion. The termination of Musharakah without closing the business is one of the most important points in this chapter indeed. Here you will find the system of distribution of profit, the ratio of profit, and sharing of loss inside the topic of the basic rules of Musharakah.

The very next chapter of An Introduction to Islamic Finance discusses Mudarabah as a special kind of partnership where a partner gives money to another for investing in a commercial enterprise. The chapter also presents the differences between Musharakah and Mudarabah with a clear discussion. The author includes several topics like the business of the Mudarabah, the distribution of the profit, the termination of Mudarabah, and the combination of Musharakah and Mudarabah in this chapter.

An Introduction to Islamic Finance explains the traditional concept of Musharakah and Mudarabah as modes of Finance and the basic principles of Shari’ah governing them in the next chapter. This chapter consists of project financing, some objections on Musharakah finance, and diminishing Musharakah with some important points. The author gives a clear idea of the risk of loss, dishonesty, the secrecy of the business, etc. key points in the section of Some Objections on Musharakah Finance.

The author of An Introduction to Islamic Finance clears the original concept of Murabahah finance as a term of Islamic Fiqh in the very next chapter. Here, this chapter presents some basic rules of sales and sales on a deferred payment basis in its introduction section. Murabahah as a mode of financing and Basic features of Murabahah financing are the topics of the Murabahah section. The next section discusses some issues involved in Murabahah finance like different pricing for cash and credit sales, the use of interest rates as a benchmark, promise to purchase, the penalty of default, securitization of Murabahah, etc. this chapter also includes an important section named Some Basic Mistakes in Murabahah Finance.

The author has nicely introduced the concept of Ijarah finance with some effective examples in the next chapter of An Introduction to Islamic Finance. The chapter discusses the basic rules of leasing, lease as a mode of financing, securitization of Ijarah, and head lease in this section of the book. The following chapter SALAM AND ISTISNA comes as one of the basic conditions for the validity of a sale in Shari’ah. Here, the author clears the concept of Salam and Istisna as two kinds of sales. Some important topics like the conditions of Salam, Salam as a mode of Finance, some rules of parallel Salam, the difference between Istisna and Salam, etc. are also discussed cleanly in this chapter.

The next chapter of An Introduction to Islamic Finance presents Islamic investment funds to mean a joint pool wherein the investors contribute their surplus for investment to earn halal profits in strict sequence with the precepts of Islamic Shari’ah. This chapter discusses several Islamic investment funds like the equity fund, Ijarah fund, commodity fund, Murabahah fund, and mixed fund. The following chapter presents the principle of limited liability by discussing some important relevant topics like Waqf, Baitul-Mal, Joint stock, etc. The Limited Liability of the Master of a Slave is an extraordinary topic in this chapter to focus on. The book comes to the end by focusing on the performance of Islamic Banks in a realistic evaluation.

Critical Analysis

In my point of view, An Introduction to Islamic Finance is a complete solution to the concept of Islamic finance and the banking system which urges banks and businesses to develop their own culture of finance in light of the Islamic perspective. The author has taken care to cover all the aspects of Islamic finance with some dedicated articles to complete this book. Every chapter explains its legal regime in classical Islamic law and its use and role in Islamic banking and finance. The language of the book is easy to understand even for a reader who is not familiar with the financial world. So, I found this book as a great introductory work of Muhammad Taqi Usmani to the idea of Islamic finance. Therefore, I would like to recommend this book to all students in finance, management, and economics to learn the basic concept of Islamic finance and banking.

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