Master of Science in Islamic Finance

With the increasing instances of malfeasance and frauds coming to light in the financial services industry, trust has become a key concern for customers. Fortunately, in the case of Islamic Finance, trust is a central tenet, and its importance can be seen through the emphasis of Amanah or trustworthiness that should be present in every financial transaction. However, it has been argued that the principle of trust has not been truly realized in Islamic Finance, or that there are still issues of distrust regarding anything which is obtrusively branded as “Islamic”.

Standard economics and policy prescriptions adopt the modernization thesis as its base, which says that developing countries can modernize by undergoing secularization and westernization. However,

Despite the huge amount of wealth in the hands of Muslims, most countries with a Muslim majority population fall in the category of developing nations.

Due to the global financial crisis of 2008, the economic performance of OIC member states was adversely affected in 2009 in terms of decelerating economic growth and deteriorating current account balances. However, in the post-crisis period, the OIC member states have recovered rapidly. In the medium-term scenario (2011–2015), the economic recovery in OIC states is projected to be robust but real GDP growth and is likely to remain below the level achieved in the pre-crisis period (2000–2007).

The last few decades have seen a phenomenal growth of the emerging discipline of Islamic Economics and Finance. In this paper I trace the origins and birth of this nascent science, examining the various factors that gave impetus to its emergence and development. I contrast the different characterisations of the discipline as it has developed within the broader sociopolitical context and the reasons thereof.

The purpose of monetary policy is to affect the economic activity through various channels  of monetary transmission. One of the transmission channels is via Islamic banking through financing to various sectors of the economy. The change of monetary instruments certainly affects economic sectors differently. Given the dual monetary system (Islamic and conventional) in Indonesia, it is interesting to see how those rates influence each of the economic sectors.

Starting from the fundamental principles, whether a designed contract implies a clean bay’ rather than riba is central to our discussion.

Over the past decades much effort and research has gone into establishing a viable set of Islamic financial institutions. An area of utmost importance, which still has gaping holes, is the development of instruments for government financing on a global level. Most

Banks avoid participatory financing due to serious information asymmetries, adverse selection and moral hazard problems resulting in negative impacts for the return on capital provided. Even financing instruments with a participatory legal form such as musharakah sukuk have been stripped of their risk sharing substance and become functional equivalents of interestbearing bonds.

On the deposit side, Islamic banks work on a mudaraba (partnership) contract, where the depositor and the bank are business partners.