Modern Islamic finance and banking is a little more than half a century old compared with interest-based conventional banking that has been around since the 14th century, originating in Florence. Over these few decades, Islamic finance and banking has been able to make a place for itself in the global finance industry, showing considerable growth.

Islamic finance and banking is based on the rules and regulations arising from Shariah or Islamic law, which is an indispensable part of the Muslim faith. Its striking difference from the well-established conventional finance and banking lies in the prohibition of interest as a basis for financial intermediation, as well as other prohibitions on trading in financial risk, speculations, gambling, as well as any dealings with alcohol, pork, adult entertainment or immoral media, etc.

Religiously oriented Muslims constitute its major customers, though this niche alternative finance and banking sector has aroused the interest of non-Muslims as well, since Islamic banks profess to be more conservative and have ethical and social responsibility objectives. The oil boom and the establishment of OPEC brought affluence to many Muslim-majority countries, along with a renewed awareness of their need to conduct their financial dealings within the Shariah rules, and this served as a major catalyst for the establishment of Islamic financial institutions in Muslim-majority countries in the Middle East, South and South-East Asia and Africa.

The global Muslim population constitutes a quarter of the total world population, and some of them belong to the rich oil-producing nations. To meet their demands, several major players in the conventional finance industry have shown interest and entered the Islamic finance and banking sector in Europe, North America and Australia.

As Islamic finance and banking moves forward and aims to compete as a reliable alternative to the centuries-old conventional banking, its biggest challenge is the significant lack of knowledge about this unique banking system among stakeholders – customers, competitors, employees, regulators and the public. Customers, both Muslim and non-Muslim, do not fully understand Islamic banking: how it operates, what are its uniqueness and benefits, and how it differs from conventional banking.

From the Islamic finance and banking industry's perspective, a major hurdle is the shortage of manpower, both in respect of employees with Islamic banking as well as conventional banking skills and Shariah scholars with some knowledge of finance and banking. Educational initiatives and training opportunities are of the utmost importance to drive growth further. Major challenges in Islamic finance education and training are the lack of institutions offering specialized programmes and courses designed for Islamic finance and banking and the shortage of well-developed curricula, teaching resources and trained teachers with knowledge of the Arabic language and Shariah law. Modern textbooks geared towards tertiary education, as well as in-house training of finance professionals aiming to work in – or already working in – the Islamic finance and banking sector are also in short supply. The aim of this book is to meet this need. This book includes 12 chapters.

Chapter 1 lays down the foundation for learning about Islamic finance and banking by discussing Islamic finance and its features. It covers the core concepts of Islamic economics based on which the structure of Islamic finance and banking is developed. The chapter also discusses the evolution of Islamic finance from the birth of Islam to current times.

Chapter 2 is about the parts of Islamic Shariah law that design the products and processes of the Islamic finance and banking industry, highlighting the prohibitions and guiding principles. This chapter also elaborates the role of the Shariah scholars in ensuring the industry meets its religious requirements through the Shariah Supervisory Boards and Shariah governance.

After the first two chapters have laid down the basis of the subject, Chapter 3 moves towards the industry and discusses the Islamic banks in comparison with conventional banks and elaborates financial intermediation conducted by the Islamic banks and their sources and applications of funds, as well as the major challenges faced by Islamic banks. This chapter further covers the major international Islamic regulatory and standard setting bodies that are working to enhance the acceptability of the Islamic finance and banking industry in the global arena.

The next six chapters (Chapters 4–9) cover the six main Islamic banking products available in the industry: Murabaha, Mudaraba, Musharaka, Ijara, Salam and Istisna. Each chapter defines the instrument, discusses its key features and Shariah-compliance principles, the practical application of the products, problems faced in implementing them and their comparison to their conventional counterparts.

Chapter 10 is based on Takaful, the Islamic version of insurance, discussing the historical background of the product, its Shariah-compliance rules and general principles. This chapter also discusses the Takaful structure and models, compares Takaful with conventional commercial insurance as well as with mutual insurance, and finally touches on Retakaful, the Islamic alternative to reinsurance.

Chapter 11 covers Islamic investment products and markets, especially Sukuks, which are the Islamic substitutes for bonds. The chapter elaborates on Shariah-screened stocks, various Islamic investment funds, Islamic real estate investment trusts and compares them with their conventional counterparts. The chapter moves ahead with a discussion of Sukuks, their characteristics, the types of Sukuks, controversies related to Sukuks, their trading, rating and the comparison of Sukuks with traditional bonds.

Chapter 12 concludes the book with a discussion of Islamic finance and banking in comparison with conventional finance and banking and the global development of Islamic finance and banking amongst the Muslim community, in the Middle East, South and South-East Asia. The chapter also elaborates the opportunities, challenges and social responsibilities of this niche segment of the finance industry as it moves forward.