Islam and Civilisational Renewal A journal devoted to contemporary issues and policy research Special Issue: The Global Financial Crisis – Economic Challenges and Prospects for Islamic Finance Volume 1 • Number 2 • December 2009 Produced and distributed by ISSN 2041–871X (Print) ISSN 2041–8728 (Online) © INTERNATIONAL INSTITUTE OF ADVANCED ISLAMIC STUDIES 2009 ICR 1-2 00 prelims 219 12/01/2010 14:16 ISLAM AND CIVILISATIONAL RENEWAL EDITOR-IN-CHIEF Professor Mohammad Hashim Kamali EDITOR Professor Emeritus Datuk Osman Bakar MANAGING EDITOR Zarina Nalla ASSOCIATE EDITOR Christoph Marcinkowski ADVISORY BOARD Mahmood Zuhdi Hj Abdul Mostafa Mohaghegh Damad, Sachiko Murata, United States Majid, Malaysia Islamic Republic of Iran Chandra Muzaffar, Malaysia Ibrahim Abu Rabi‘, Canada Ahmet Davutoğlu, Turkey Seyyed Hossein Nasr, United Syed Farid Alatas, Singapore W. Cole Durham Jr, United States Syed Othman Al-Habshi, States Mohamed Fathi Osman, Canada Malaysia John Esposito, United States Tariq Ramadan, United Amin Abdullah, Indonesia Marcia Hermansen, United Kingdom Zafar Ishaq Ansari, Pakistan States Miroslav Volf, United States Azyumardi Azra, Indonesia Ekmeleddin Ihsanoğlu, Turkey John O. Voll, United States Azizan Baharuddin, Malaysia Anthony H. Johns, Australia Abdul Hadi Widji Muthari, Shamsul Amri Baharuddin, Yasushi Kosugi, Japan Indonesia Malaysia Khalid Masud, Pakistan Timothy Winter (alias Abdal Mustafa Cerić, Bosnia Ingrid Mattson, United States Hakim Murad), United Herzegovina Ali A. Mazrui, United States Kingdom Murat Çizakça, Turkey Khalijah Mohd Salleh, Malaysia OBJECTIVES AND SCOPE • Islam and Civilisational Renewal (ICR) is an international peer-reviewed journal published by Pluto Journals on behalf of the International Institute of Advanced Islamic Studies (IAIS). It carries articles, book reviews and viewpoints on civilisational renewal. • ICR seeks to advance critical research and original scholarship on theoretical, empirical, historical, inter-disciplinary and comparative studies, with a focus on policy research. • ICR aims at stimulating creative and original contributions within contemporary Muslim and non- Muslim scholarship to further civilisational renewal. • ICR promotes advanced research on the civilisational progress of Muslims and critical assessments of modernity, post-modernity and globalisation. CONTRIBuTIONS AND Editorial CORRESPONDENCE Notes to contributors and details of submission can be found at: ICR.plutojournals.org Comments and suggestions as well as requests to contact one of the contributing authors can be emailed to the Managing Editor at: [email protected] ICR 1-2 00 prelims 220 12/01/2010 14:16 Contents Editorial 223 Mohammad Hashim Kamali Articles TheGlobalFinancialCrisis:CanIslamicFinanceHelpMinimise theSeverityandFrequencyofSuchaCrisisintheFuture? 226 Muhammad Umer Chapra TowardsaMeeting-PointBetweenIslamicFinanceandGlobalisation 246 Abbas Mirakhor Takāful:Concept,History,Development,andFutureChallengesof itsIndustry 276 Syed Othman Alhabshi and Shaikh Hamzah Shaikh Abdul Razak IslamicBankingandFinanceinthe21stCentury:SelectedIssuesin HumanCapitalDevelopment 292 Mohamed Aslam Haneef IslamicFinance:ABulwarkagainstContagionintheGlobal BankingSystem 303 Amer Al-Roubaie TheRoleofAdjustable-RateSubprimeMortgagesandCreditDefault SwapsintheGlobalFinancialCrisis 322 Abdul Karim Abdullah ‘CashWaqf’andIslamicMicrofinance:UntappedEconomicOpportunities 337 Norma Md Saad and Azizah Anuar Viewpoints IslamicResponsestotheFinancialandEconomicCrises 355 Abdul Karim Abdullah ‘BankingPanics’andIslamicFinancePrinciples:Lessonsfromthe CurrentCrisis 358 Sanep Ahmad ICR 1.2 Produced and distributed by Pluto Journals ICR.plutojournals.org ICR 1-2 00 prelims 221 12/01/2010 14:16 222 Islam and CIvIlIsatIonal Renewal Book Reviews MubinSheppardTunku: His Life and Times. The Authorized Biography of Tunku Abdul Rahman Putra Al-Haj 362 ChristophMarcinkowski FauziahMohdTaib(ed.)Number One Wisma Putra 366 ChristophMarcinkowski DavidLeveringLewisGod’s Crucible:Islam and the Making of Europe, 570–1215 367 KarimD.Crow UmerChapraMuslim Civilization: The Causes of Decline and the Need for Reform 371 IbrahimUmar MuhammadArifZakaullahThe Cross and the Crescent: The Rise of American Evangelicalism and the Future of Muslims 374 N.DoranHunter Events and Reports VisitbytheCEOandtheCOOofIAISMalaysiatoIstanbul (29May–3June2009) 380 Zarina Nalla VisitsbytheCEOandtheCOOofIAISMalaysiatoUniversities andResearchInstitutionsinNewZealandandAustralia(July2009) 382 Zarina Nalla ThreeConferencesonIntercivilisationalDialogue (Shanghai,China,28June–3July2009) 384 Karim D. Crow FifthInternationalConferenceonChildrenandYouthinMENACities: “Education,ReintegrationandRehabilitationofYouthfortheLabourMarket” (Aleppo,Syria,6–8July2009) 387 Azizah Anuar PublicSeminaronCashWaqf:“EmpowermentoftheIslamicEconomy Through Waqf”(IAISMalaysia,11March2009) 389 Azizah Anuar NotesontheContributors 391 AimsoftheJournal 396 CallforPapers 397 GuidelinesforContributors 398 TransliterationTable 399 SubscriptionRates 400 Islam and Civilisational Renewal: the Global Financial Crisis ICR 1-2 00 prelims 222 12/01/2010 14:16 eDITORIAL Forthisissue,IAIS’sjournalIslam and Civilisational Renewal(ICR)ishonoured tohavereceivedsubmissionsfromseveralrenownedscholarsandeconomists, includingMuhammadUmerChapra,AbbasMirakhor,SyedOthmanAlhabshiand ShaikhHamzahShaikhAbdulRazak,MohamedAslamHaneef,AmerAl-Roubaie, andothers.Iamgratefultoallofthemfortheirvaluablecontributions. Thevolume athandisaspecialissueonthecurrentglobalfinancialcrisisandtheperspectives andchallengeswithinthisscenarioforIslamiceconomicsandfinance. Thisissuefeaturesseven articles:Thefirst,“TheGlobalFinancialCrisis:Can IslamicFinanceHelpMinimisetheSeverityandFrequencyofSuchaCrisisin theFuture?”isbyMuhammad Umer Chapra,aleadingeconomistwiththe IslamicDevelopmentBank(IDB)atJeddah,SaudiArabia.Theauthorexplores anddeterminestheprimarycause(orcauses)ofthefinancialcrisesthathave plaguedalmosteverycountryaroundtheworldoverthelastthreedecades,arguing thatMuslimscholarsandcountriesneedtoexplainthealternativeIslamicsystem rationallytocreategreaterawarenessaboutitspotentialcontributionstoamore resilientfinancialarchitecturethatcancurborminimisethescopeandfrequency ofglobaleconomicandfinancialcrises. The next article, “Towards a Meeting-Point Between Islamic Finance and Globalisation”, isbyAbbas Mirakhor,arenownedexpertofIslamiceconomicsand aformerExecutiveDirectoroftheInternationalMonetaryFund(IMF).Theauthor discussestherulesandnormsofbehaviourprescribedbyIslamforindividuals andcollectivitiesthatmeettheconditionsformaximumrisk-sharing.Hepresents prospectsfortheconvergenceofconventionalandIslamicfinance,arguingthat theirgrowthcouldleadtoaworldwideincreaseininvestment,employment,and economicgrowth,aswellastoareductionintheinequalityofwealthdistribution andpovertythatcouldsignificantlyincreaseglobalwelfare. “Takāful:Concept,History,DevelopmentandFutureChallengesofItsIndustry” isajointcontributionbySyed Othman AlhabshiandShaikh Hamzah Shaikh Abdul Razak,twoleadingscholarsfromMalaysiaintheareaofIslamiceconomics. Astheyexplain,theArabictermtakāfuldenotestheagreementbyonepartyto indemnifyanotherforananticipatedliabilityandloss.Thecontractualagreement ICR 1.2 Produced and distributed by Pluto Journals ICR.plutojournals.org ICR 1-2 00 prelims 223 12/01/2010 14:16 224 Islam and CIvIlIsatIonal Renewal thatisreachedspecifiesthetermsofcontributionsandpayment.Thesuccessof thetakāfulcompaniesaroundtheworldduringthelastthreedecadeshasalsobeen stronglyinfluencedbytherecentupsurgeinthepetroleumpricethathasledtothe unprecedentedincreaseinsovereignandprivatewealth.Therecentemergence of‘re-takāful’companiesaddsupfurthertotherapidgrowthintakāfuloperators andfunds.Thetwoauthorsalsodiscusscurrentchallengestothetakāful industry. Thefollowingarticle,“IslamicBankingandFinanceinthe21stCentury:Selected IssuesinHumanCapitalDevelopment”,isbyMohamed Aslam Haneef,another leadingMalaysianscholar.Theauthorfocusesonacivilisationalunderstandingof Islam–includingthesharīʿah,theIslamicheritage,andagenuineunderstandingof moderneconomicsandfinance.Botharenecessarypre-requisitestoenableIslamic bankingandfinancetoplayitsrolemoreefficientlytomeetthecurrentchallenge ofcredibilitythattheindustryiscurrentlyfacinghereinMalaysiaandabroad. “IslamicFinance:ABulwarkagainstContagionintheGlobalBankingSystem”is byAmer Al-Roubaie,aseniorIraqi-CanadianscholarofIslamiceconomicsand financeandcurrentlyDeanoftheCollegeofBusinessandFinanceatBahrain’sAhlia University.TheauthorinvestigatestheperformanceofIslamicfinancialinstitutions inviewofthecurrentglobalfinancialcrisis.HearguesthatIslamicmodesof investmentcontributetosociety’swellbeingthroughthecreationofwealthand employmenttoensureeconomicstabilityandhumandevelopment. “TheRoleofAdjustable-RateSubprimeMortgagesandCreditDefaultSwapsin theGlobalFinancialCrisis”isby Abdul Karim Abdullah,aCanadianscholar whoiscurrentlyAssistantResearchFellowatIAISMalaysia.Thearticlefocuses onselectedkeyfactorsthatcontributedtothecurrentcrisis,suchastheadjustable- ratesubprimemortgagesandexcessiverisktakenbyfinancialinstitutionsinthe extensionofloansandmortgageswithscantregardtotheborrowers’abilityto makerepayment.Thiswasalsoreflectedintheirover-indulgenceinthepractice ofsecuritisationandcreationoflayersofdebt-basedinstrumentsthatburdenedthe marketbeyonditscapacityandtolerance. Thelastarticle,entitled“‘CashWaqf’andIslamicMicrofinance:UntappedEconomic Opportunities”iswrittenby Norma Md SaadandAzizah Anuar,twoscholars fromMalaysia(thelatterbeinganAssistantResearchFellowwithIAISMalaysia).