This paper presents an economic institution which enabled eleventh-century traders to benefit from employing overseas agents despite the commitment problem inherent in these relations. Agency relations were governed by a coalition--an economic institution in which expectations, implicit contractual relations, and a specific information-transmission mechanism supported the operation of a reputation mechanism. Historical records and a simple game-theoretical model are used to examine this institution. The study highlights the interaction between social and economic institutions, the determinants of business practices, the nature of the merchants' law, and the interrelations between market and nonmarket institutions. Copyright 1993 by American Economic Association.

Contract enforceability and economic institutions in early trade: The Maghribi Traders' Coalition

It is widely believed that current disparities in economic, political, and social outcomes reflect distinct institutions. Institutions are invoked to explain why some countries are rich and others poor, some democratic and others dictatorial. But arguments of this sort gloss over the question of what institutions are, how they come about, and why they persist. They also fail to explain why institutions are influenced by the past, why it is that they can sometimes change, why they differ so much from society to society, and why it is hard to study them empirically and devise a policy aimed at altering them. This 2006 book seeks to overcome these problems, which have exercised economists, sociologists, political scientists, and a host of other researchers who use the social sciences to study history, law, and business administration. It presents a multi-disciplinary perspective to study endogenous institutions and their dynamics.

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Institutions and the path to the modern economy

This article examines the economic institution utilized during the eleventh century to facilitate complex trade characterized by asymmetric information and limited legal contract enforceability. The geniza documents are employed to present the "coalition," an economic institution based upon a reputation mechanism utilized by Mediterranean traders to confront the organizational problem associated with the exchange relations between merchants and their overseas agents. The theoretical framework explains many trade-related phenomena, especially why traders utilized specific forms of business association, and indicates the interrelations between social and economic institutions. M editerranean trade contributed much to the economic growth of southern Europe during the Middle Ages.' The spread of this trade depended, to a large extent, upon traders' ability to employ overseas agents or to let business associates function as overseas agents. The employment of overseas agents was vital during the Middle Ages, since goods were sold abroad only after being shipped to their destination.2 Since, absent contractual problems, a merchant can decrease cost by sending goods to an overseas agent rather than traveling with his goods, a large efficiency gain could potentially be achieved by employing overseas agents.3

Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders

List of Boxes and Figures. Foreword. Preface. Acknowledgements. PART I FUNDAMENTALS. 1 Introduction. 1.1 Economic Scenario in the Neoclassical Framework. 1.2 Conventional Debt: A Recipe for Exploitation. 1.3 Growth per se May not Lead to Socio-economic Justice. 1.4 Social Welfare Activities of the States. 1.5 The Main Culprit. 1.6 The Need of the Hour. 1.7 Economics and Religion. 1.8 Islamic Principles Can Make the Difference. 1.9 Regulating Trade and Business. 1.10 Islamic Finance Passing Significant Milestones. 1.11 Could it Work to Achieve the Objectives? 1.12 About this Book. 2 Distinguishing Features of the Islamic Economic System. 2.1 Introduction. 2.2 Islamic Shari'ah and its Objectives. 2.3 Why Study Islamic Economics? 2.4 Islamic Economics: What should it be? 2.5 Paraphernalia of Islamic Economics. 2.6 Summary. 3 The Main Prohibitions and Business Ethics in Islamic Economics and Finance. 3.1 Introduction. 3.2 The Basic Prohibitions. 3.2.1 Prohibition of Riba. 3.3 Business Ethics and Norms. 3.4 Summary and Conclusion. 4 The Philosophy and Features of Islamic Finance. 4.1 Introduction. 4.2 The Philosophy of Islamic Finance. 4.3 Debt versus Equity. 4.4 Islamic Banking: Business versus Benevolence. 4.5 Exchange Rules. 4.6 Time Value of Money in Islamic Finance. 4.7 Money, Monetary Policy and Islamic Finance. 4.8 Summary. PART II CONTRACTUAL BASES IN ISLAMIC FINANCE. 5 Islamic Law of Contracts and Business Transactions. 5.1 Introduction. 5.2 Mal (Wealth), Usufruct and Ownership. 5.2.1 Defining Various Related Terms. 5.3 General Framework of Contracts. 5.4 Elements of a Contract. 5.5 Broad Rules for the Validity of Mu'amalat. 5.6 W'adah (Promise) and Related Matters. 5.7 Types of Contracts. 5.8 Commutative and NonCommutative Contracts. 5.9 Conditional or Contingent Contracts. 5.10 Summary. 6 Trading in Islamic Commercial Law. 6.1 Introduction. 6.2 Bai' - Exchange of Values. 6.3 Legality of Trading. 6.3.1 Trade (Profit) versus Interest: Permissibility versus Prohibition. 6.4 Types of Bai'. 6.5 Requirements of a Valid Sale Contract. 6.6 Riba Involvement in Sales. 6.7 Gharar - A Cause of Prohibition of Sales. 6.8 Conditional Sales and "Two Bargains in One Sale" 6.9 Bai' al'Arbun (Downpayment Sale). 6.10 Bai' al Dayn (Sale of Debt). 6.11 Al 'Inah Sale and the Use of Ruses (Hiyal). 6.12 Options in Sales (Khiyar). 6.13 Summary. 7 Loan and Debt in Islamic Commercial Law. 7.1 Introduction. 7.2 The Terms Defined. 7.3 Illegality of Commercial Interest. 7.4 Loaning and the Banking System. 7.5 Guidance from the Holy Qur'an on Loans and Debts. 7.6 The Substance of Loans. 7.7 Repayment of the Principal Only. 7.8 Time Value of Money in Loans and Debts. 7.9 Instructions for the Debtor. 7.10 Instructions for the Creditor. 7.11 Husnal Qadha (Gracious Payment of Loan/Debt). 7.12 Remitting a Part of a Loan and Prepayment Rebate. 7.13 Penalty on Default. 7.13.1 Insolvency of the Debtor. 7.14 Hawalah (Assignment of Debt). 7.15 Security/Guarantee (Kafalah) in Loans. 7.16 Bai' al Dayn (Sale of Debt/Debt Instruments). 7.17 Impact of Inflation on Loans/Debts. 7.18 Summary. PART III ISLAMIC FINANCE - PRODUCTS AND PROCEDURES. 8 Overview of Financial Institutions and Products: Conventional and Islamic. 8.1 Introduction. 8.2 What is Banking or a Bank? 8.3 The Strategic Position of Banks and Financial Institutions. 8.4 Categories of Conventional Financial Business. 8.5 The Need for Islamic Banks and NBFIs. 8.6 The Issue of Mode Preference. 8.7 Islamic Investment Banking. 8.8 Islamic Financial Markets and Instruments. 8.9 Summary and Conclusion. 9 Murabaha and Musawamah. 9.1 Introduction. 9.2 Conditions of Valid Bai'. 9.3 Murabaha - a Bai' al Amanah. 9.4 Bai' Murabaha in Classical Literature. 9.5 The Need for Murabaha. 9.6 Specific Conditions of Murabaha. 9.6.1 Bai' Murabaha and Credit Sale (Murabaha-Mu'ajjal). 9.7 Possible Structures of Murabaha. 9.8 Murabaha to Purchase Orderer (MPO). 9.9 Issues in Murabaha. 9.10 Precautions in Murabaha Operations. 9.11 Musawamah (Bargaining on Price). 9.12 Summary. 10 Forward Sales: Salam and Istisna'a. 10.1 Introduction. 10.2 Bai' Salam/Salaf. 10.3 Benefits of Salam and the Economic Role of Bai' Salam. 10.4 Features of a Valid Salam Contract. 10.5 Security, Pledge and Liability of the Sureties. 10.6 Disposing of the Goods Purchased on Salam. 10.6.1 Alternatives for Marketing Salam Goods. 10.7 Salam - Post Execution Scenarios. 10.8 Salam-Based Securitization - Salam Certificates/Sukuk. 10.9 Summary of Salam Rules. 10.10 Salam as a Financing Technique by Banks. 10.11 Istisna'a (Order to Manufacture). 11 Ijarah - Leasing 279. 11.1 Introduction. 11.2 Essentials of Ijarah Contracts. 11.3 General Juristic Rules of Ijarah. 11.4 Modern Use of Ijarah. 11.5 Islamic Banks' Ijarah Muntahia-bi-Tamleek. 11.6 Summary of Guidelines for Islamic Bankers on Ijarah. 12 Participatory Modes: Shirkah and its Variants. 12.1 Introduction. 12.2 Legality, Forms and Definition of Partnership. 12.3 Basic Rules of Musharakah. 12.4 The Concept and Rules of Mudarabah. 12.5 Mudarabah Distinguished from Musharakah. 12.6 Modern Corporations: Joint Stock Companies. 12.7 Modern Application of the Concept of Shirkah. 12.8 Diminishing Musharakah. 12.9 Diminishing Musharakah as an Islamic Mode of Finance. 12.10 Summary and Conclusion. 13 Some Accessory Contracts. 13.1 Introduction. 13.2 Wakalah (Agency). 13.3 Tawarruq. 13.4 Ju'alah 13.5 Bai' al Istijrar (Supply Contract). 14 Application of the System: Financing Principles and Practices. 14.1 Introduction. 14.2 Product Development. 14.3 The Nature of Financial Services/Business. 14.4 Prospects and Issues in Specific Areas of Financing. 14.5 Islamic Banks' Relationship with Conventional Banks. 14.6 Fee-based Islamic Banking Services. 14.7 Summary and Conclusion. Appendix: The Major Functions of a Shari'ah Supervisory Board in the Light of the AAOIFI'S Shar ~ i'ah Standard. 15 Sukuk and Securitization: Vital Issues in Islamic Capital Markets. 15.1 Introduction. 15.2 The Capital Market in an Islamic Framework. 15.3 Securitization and Sukuk. 15.4 Summary and Conclusion. 16 Takaful: An Alternative to Conventional Insurance. 16.1 Introduction. 16.2 The Need for Takaful Cover. 16.3 The Shari'ah Basis of Takaful. 16.4 How the Takaful System Works. 16.5 Takaful and Conventional Insurance Compared. 16.6 Status and Potential of the Takaful Industry. 16.7 Takaful Challenges. Appendix: Fatawa (Juristic Opinions) on Different Aspects of Insurance. 17 An Appraisal of Common Criticism of Islamic Banking and Finance. 17.1 Introduction. 17.2 The Common Myths and Objections. 17.3 Appraisal of Conceptual Criticism. 17.4 Appraisal of Criticism on Islamic Banking Practice. 17.5 Conclusion. 18 The Way Forward. 18.1 Introduction. 18.2 Agenda for the Policymakers. 18.3 Potential, Issues and Challenges for Islamic Banking. 18.4 Conclusion. Acronyms. Glossary. References. Arabic/Urdu References. Suggested Further Reading. Index.

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Understanding Islamic finance

Glossary ix CHAPTER 1 Introduction 1 CHAPTER 2 The Economic System 29 CHAPTER 3 Riba vs. Rate of Return 57 CHAPTER 4 Financial Instruments 75 CHAPTER 5 Risk Sharing as an Alternative to Debt 99 CHAPTER 6 The Islamic Financial System 113 CHAPTER 7 The Stability of the Islamic Financial System 137 CHAPTER 8 Islamic Financial Intermediation and Banking 151 CHAPTER 9 Capital Markets 173 CHAPTER 10 Non-bank Financial Intermediation 207 CHAPTER 11 Performance of Islamic Financial Services 225 CHAPTER 12 Financial Engineering 245 CHAPTER 13 Risk Management 275 CHAPTER 14 Regulation of Islamic Financial Institutions 299 CHAPTER 15 Corporate Governance 323 CHAPTER 16 Globalization and its Challenges 351 CHAPTER 17 Issues and Challenges 365 Bibliography 393 Index 399

An introduction to Islamic finance: theory and practice

Partnership and Profit in Medieval Islam

partnership and profit in medieva islam , partnership and profit in medieva islam , کتابخانه مرکزی دانشگاه علوم پزشکی تهران

THE PRECISE ROLE OF CREDIT in the context of medieval economic life has been subject to dispute by economic historians. Until forty years ago, the prevalent view was that the middle ages constituted a pre-credit era, that credit transactions, to the extent that they were employed, were of minor economic importance, and that their function was restricted to consumption to the exclusion of production and trade. Accordingly, proponents of this view denied any significant relationship between credit and trade.' In an important study of medieval credit, the English economic historian M. M. Postan convincingly demonstrated that this view did not correspond to the economic realities of medieval Europe. On the basis of data found in English medieval archives, he showed that by the thirteenth century credit had already assumed a major role in the trade of Northern Europe.2 In Southern Europe, especially Italy, this was the case a century or more earlier.3 For the medieval Near East, the still unpublished commercial records from the Cairo Geniza will show that by the eleventh century credit operations formed an integral, not to say indispensable, element in the commerce of that area.4 This date can be pushed back even further. The earliest Muslim legal sources now justify the assertion that already in the late eighth century, and possibly earlier, credit arrangements of various types constituted an important feature of both trade and industry. Credit fulfilled several important functions in medieval trade. It financed trade by providing capital or goods for those who temporarily or otherwise did not have the means of carrying out trade; it provided an outlet for surplus eapital to be utilized in a productive and profitable way, and it contributed to the expansion of trade by providing merchants with a means of doing business in an age when the supply of coins was not always adequate. In long distance trade, it dispensed with the necessity of transporting large sums of money across perilous routes and, in combination with other contracts, it served as a means of sharing the risks of commercial ventures. While a full study of the role of all the above mentioned aspects of credit in medieval Islamic trade has yet to be undertaken, one fact is certain: the legal instruments necessary for the extensive use of mercantile credit were already available in the earliest Islamic period. Credit arrangements which could both facilitate trade and provide a framework for the use of credit as a means of investment in trade are already found in a developed form in some of the earliest Islamic legal works. Buying and selling on credit was an accepted and apparently widespread commercial practice, whether a merchant was trading with his own capital or with that entrusted to him by an associate. In the " Book of Partnership " of Shaybanl's 5 Kitib al-asl,6 the earliest Hanaf! code, a provision entitling each of the parties to a partnership to buy and sell on credit is included in the very text of the suggested contract formula. Furthermore, unless otherwise stipulated, neither partner requires the express permission of his colleague for the sale on credit of any of their joint property. The text reads as follows:

Credit as a Means of Investment in Medieval Islamic Trade

The Islamic Middle East, 700-1900. Studies in Economic and Social History

The once numerous and vital Jewish communities of Morocco, Algeria and Tunisia have disappeared, succumbing during the past century to the assimilating temptations of French culture, or, more recently, to the pressures of migration. Only the two communities of the island of Jerba still remain. Only they have succeeded in maintaining and reproducing their religious and social institutions, in adjusting to the new realities around them while preserving intact their cultural, communal identity. This lavishly-illustrated book, first published in 1984, portrays the life and history of two Jerban Jewish villages and explores the paradoxes of their continuity. How and why are they so fully Jewish while, at the same time, so thoroughly embedded in their Muslim, North African environment? Although its focus is one small ethnic group, the implications of this study extend to the broad subject of relations between Arabs and Jews in modern times.

Abraham L. Udovitch

Papers

Partnership and Profit in Medieval Islam

Partnership and Profit in Medieval Islam

Credit as a Means of Investment in Medieval Islamic Trade

The Islamic Middle East, 700-1900. Studies in Economic and Social History

The Last Arab Jews: The Communities of Jerba, Tunisia