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Cambridge Finance

 

It is envisaged that this paper will first come out as a CBR Working Paper before being sent to professional journals.

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

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.
JEL codes: A10, A13, B10, B40, P4
Keywords: Islamic finance, moral hazard, zero interest rates, Keynes and
usuary

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