Publication: Economic Development and Islamic Finance

Thumbnail Image
Files in English
English PDF (5.21 MB)

English Text (1.2 MB)
Iqbal, Zamir
Mirakhor, Abbas
Islamic finance has been practiced in some form since the inception of Islam, its practice in modern financial markets became recognized only in the 1980s, and began to represent a meaningful share of global financial activity only around the beginning of this century. In recent years, significant interest in Islamic finance has emerged in the world's leading conventional financial centers, including London, New York, and Hong Kong, and Western investors are increasingly considering investment in Islamic financial products. The organizing principle of Islamic finance in an Islamic economy is transaction based on exchange, where real asset is exchanged for real asset. By focusing on trade and exchange in commodities and assets, Islam encourages risk sharing, which promotes social solidarity. The features of an Islamic economy will change the behavior of society. There will be greater consultation; hence there will be no impulsive-compulsive reaction in financial dealings. At the same time, the labor force in an Islamic economy will work under a rule of trust and full understanding of contracts and obligations. Workers also share in the gains achieved through the risk, based on productive efforts, which is a better incentive system than a fixed wage. Workers will be treated with respect, which reflects the importance of human dignity in Islam. This paper is organized as follows: chapter one discusses the epistemological roots of conventional and Islamic finance. Chapter two provide a perspective of conventional modern economists. Chapter three provides a brief taxonomy of the foundational Islamic market principles and evaluates them in the context of institutional and behavioral economics in the context of Knightian uncertainty. Chapter four accounts for finance and development in Islam from a historical perspective. Chapter five discusses the evolution of the concept of economic development. Chapter six provide an Islamic perspective on financial inclusion and argue that the core principles of Islam place great emphasis on social justice, inclusion, and sharing of resources between the haves and the have-nots. Chapter seven addresses financial inclusion. Chapter eight provide insight into Islam's perspective on social safety sets and social insurance. Chapter nine examines Islamic capital markets in a global context. Chapters ten examines the problems of primary and secondary aspects of the conventional stock markets and their critiques of corporate governance. Chapter eleven give a realistic view of the current state of affairs in Organization of Islamic Conference (OIC) countries. Chapter twelve addresses key economic policy challenges in the context of the Islamic economic and financial system.
Iqbal, Zamir; Mirakhor, Abbas. 2013. Economic Development and Islamic Finance. Directions in Development--Finance;. © Washington, DC: World Bank. License: CC BY 3.0 IGO.
Report Series
Other publications in this report series
  • Publication
    A Primer on Policies for Jobs
    (World Bank, 2012) Nallari, Raj ; Griffith, Breda ; Wang, Yidan ; Andriamananjara, Soamiely ; Chen, Derek H. C. ; Bhattacharya, Rwitwika
    A primer on policies for jobs is based on materials and input provided during the labor market courses conducted during the past 10 years. Its objective is to provide government policy makers, researchers, and labor market practitioners and other specialists with a practical guide on how to strengthen labor market institutions, especially in light of the global financial crisis. This primer emphasizes six pillars of labor market institutions: global trends, job creation, labor market policies, education, entrepreneurship, and globalization. Chapter one addresses current labor market trends and job creation, particularly in tough conditions. Chapter two examines channels of job creation and ways to strengthen labor market institutions to ensure sustainable job growth, considering factors such as investment climate, job policy, industrial policy, social protection, and other labor market issues. Chapter three focuses on labor market policies in developing countries. Chapter four highlights the impact of education and skills on labor market outcome. Chapter five discusses entrepreneurship along three key dimensions: development and growth, job creation, and female entrepreneurship. Finally, chapter six addresses the relationship between jobs and globalization.
  • Publication
    Government Guarantees : Allocating and Valuing Risk in Privately Financed Infrastructure Projects
    (Washington, DC: World Bank, 2007) Irwin, Timothy C.
    Government guarantees can help persuade private investors to finance valuable new infrastructure. But because their costs are hard to estimate and usually do not show up in the government's accounts, governments can be tempted to grant too many guarantees. Drawing on a diverse range of disciplines, including finance, history, economics, and psychology, Government Guarantees : Allocating and Valuing Risk in Privately Financed Infrastructure Projects aims to help governments give guarantees only when they are justified. It reviews the history of government guarantees and identifies the cognitive and political obstacles to good decisions about guarantees. It then develops a framework for judging when governments should bear risk in an infrastructure project (seeking to make precise the oft-invoked principle that risks should be allocated to those best placed to manage them); explains how guarantees can be valued; and discusses how aspects of public-sector management can be modified to improve the likely quality of government decisions about guarantees.
  • Publication
    Knowledge, Productivity, and Innovation in Nigeria : Creating a New Economy
    (World Bank, 2010) Radwan, Ismail ; Pellegrini, Giulia
    Harnessing knowledge for development is not a new concept. Knowledge has always been central to development and can mean the difference between poverty and wealth. The knowledge economy is not just about establishing high-tech industries and creating an innovative and entrepreneurial culture. Economic literature indicates that simply adopting existing technologies widely available in developed countries can dramatically boost productivity and economic growth. This paper highlights the knowledge economy (KE) issues that confront Nigeria and offers policy prescriptions that will allow the country to take advantage of the opportunities available in moving toward a knowledge-based economy. The Knowledge Assessment Methodology (KAM) developed by the World Bank considers four pillars: a) skills and education, b) business environment, c) information and communications infrastructure, and d) innovation system.
  • Publication
    Understanding and Measuring Social Capital : A Multidisciplinary Tool for Practitioners
    (Washington, DC: World Bank, 2002-06) Grootaert, Christiaan ; Van Bastelar, Thierry ; Grootaert, Christiaan ; Van Bastelar, Thierry
    The importance of social capital for sustainable development, is by now well recognized. Anthropologists, sociologists, political scientists, and economists have in their own ways, demonstrated the critical role of institutions, networks, and their supporting norms and values, for the success of development interventions. This success often hinges on accurate assessments of social capital in target communities. But the nature, and impact of social capital - the institutions, relationships, attitudes, and values that govern interactions among people - are not easily quantified. "Understanding and Measuring Social Capital" provides a conceptual review, and measurement tools, in a form readily available for development practitioners. The book discusses the respective value of quantitative, and qualitative approaches to the analysis of social capital, illustrating the discussion with examples, and case studies from many countries. It also presents the Social Capital Assessment Tool, which combines quantitative, and qualitative instruments to measure social capital at the level of household, community, and organization, drawing on multidisciplinary, empirical experiences, an application which can provide project managers with valuable baseline, and monitoring information about social capital in its different dimensions.
  • Publication
    Building a Sustainable Future : The Africa Region Environment Strategy
    (Washington, DC, 2002) World Bank
    This environment strategy outlines the current thinking in the World Bank Group Africa Region about priorities and actions for the institution in the environmental arena. The Africa Region Environment Strategy (ARES) outlines the Bank's commitment to help its clients achieve sustainable poverty reduction through better environmental management. It identifies the most urgent issues at the interface of environment and poverty and discusses targeted actions for addressing them. It reviews the lessons from experience to date and proposes new approaches. The strategic context in which the ARES has evolved and will be implemented is defined by the Bank's mission statement and operational policies, the World Bank Environment Strategy (WBES), and by the Bank's broader objectives, priorities, and strategies in the Africa Region. Like the WBES, the ARES approaches environment through a "poverty lens" and targets four main objectives: a) ensuring sustainable livelihoods, b) improving environmental health, c) reducing vulnerability to natural disasters, and d) maintaining local, regional, and global ecosystems and values. Key elements of the ARES include integrating environment into development and poverty reduction strategies; building an enabling environment and the institutional and human capacity for sustainable environmental management; promoting environmentally sustainable and equitable private sector-led economic development; improving governance; and encouraging decentralization.
Journal Volume
Journal Issue