Summary and Conclusions

Islamic banks emerged on to the financial scene in early 1970s. During the last 30 years the Islamic financial industry has shown remarkable progress both from a theoretical and practical perspective. Even though Islamic banks emerged in response to market needs of Muslim clients, they are not religious institutions. Like other banks, they are profit-seeking institutions. However, they follow a different model of financial intermediation. The most important distinguishing feature of the Islamic banking model is the use of risk-sharing modes of finance. Islamic scholars working with practical bankers have developed a number of such modes, including

muḍārabah, mushārakah, murābaḥah, salam, istiṣnā‘

, leasing and

ṣukūk

. Salient features of all of these modes have been discussed in this book. In the Islamic theory of contracts of exchange, the general rule is that of permission. Every contractual arrangement is permissible unless expressly prohibited by

Sharī‘ah.

There are very few prohibitions. Basically, these are covered under two categories:

ribā

and

gharar.

These terms have been described in detail. Based on the Islamic theory of financial contracts, guidelines for Islamic financial engineering have been derived. These can be summarized in what we have called the four Cs of Islamic financial engineering: consciousness, clarity, capability and commitment:

Consciousness: the parties should consciously and willingly agree on the conditions of contract without compulsion or duress. An implication of this is that any agreement made in a state of unconsciousness (such as under the influence of intoxicants or imposed by force is not valid).