Editing Islamic banking and finance (section)

===Other Sharia-compliant financial instruments===
==== Sukuk (Islamic bonds) ====
{{Main|Sukuk}}

''[[Sukuk]]'', (plural of صك Sakk) – often called "Islamic" or "sharia compliant" bonds – are financial certificates developed as an alternative to conventional bonds. Different types of sukuk are based on different structures of Islamic contracts mentioned above (''murabaha'', ''ijara'', ''wakala'', ''istisna'', ''musharaka'', ''istithmar'', etc.), depending on the project the ''sukuk'' are financing.<ref name="FJIFD2012:214">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:214</ref>

Like conventional bonds, ''sukuk'' have expiration dates. But instead of receiving interest payments on money lent as bonds do, ''sukuk'' holders are given "(nominal) part-ownership of an asset" from which they receive income "either from profits generated by that asset or from rental payments made by the issuer".<ref name="Economist-8-10-2014"/>
The part ownership element and (at least in theory) the lack of a guaranteed repayment of initial investment resembles [[Equity (finance)|equity]] instruments.<ref name="IFSE">{{Cite web|url=https://www.ft.com/content/cec38bf2-440b-11df-9235-00144feab49a |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/cec38bf2-440b-11df-9235-00144feab49a |archive-date=10 December 2022 |url-access=subscription |url-status=live |title=Islamic finance's sukuk explained |last=Hayat|first=Usman |date=11 April 2010|website=ft.com |language=en-GB|access-date=29 March 2017}}</ref> However, in practice, most ''sukuk'' are "asset-based" rather than "asset-backed"—their assets are not truly owned by their [[Special-purpose entity|Special Purpose Vehicle]], and (like conventional bonds), their holders have recourse to the originator if there is a shortfall in payments.<ref name="FJIFD2012:210">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:210</ref>

The ''sukuk'' market began to take off around 2000 and as of 2013, ''sukuk'' represent 0.25 percent of global bond markets.<ref name="IMF-2015-15">{{cite book|url=https://www.imf.org/external/pubs/cat/longres.aspx?sk=42816.0|title=Islamic Finance: Opportunities, Challenges, and Policy Options|last2=Kammer|first2=Alfred|last3=Norat|first3=Mohamed|last4=Piñón|first4=Marco|last5=Prasad|first5=Ananthakrishnan|last6=Zeidane|first6=Zeine|date=April 2015|publisher=IMF|page=15|last1=Towe|first1=Christopher|access-date=13 July 2016}}</ref> The value of the total outstanding ''sukuk'' as of the end of 2014 was $294 billion, with $188 billion from Asia, and $95.5 billion from the countries of the [[Gulf Cooperation Council]].{{#tag:ref|According to data published by the Islamic Financial Services Board.<ref name=sukuk-market-size>{{cite news| url=http://www.islamicfinance.com/2015/05/size-islamic-finance-industry/#Breakdown_of_Islamic_Finance_Segments_by_Region | work=Islamic Finance | title=Islamic Finance Market Size| date=21 May 2015 | first=Naveed | last=Mohammed}}</ref>|group=Note}} Demand for ''sukuk'' should able to support further growth.<ref name="IMF-2015-7">{{cite book|last1=Towe|first1=Christopher|last2=Kammer|first2=Alfred|last3=Norat|first3=Mohamed |last4=Piñón|first4=Marco |last5=Prasad|first5=Ananthakrishnan |last6=Zeidane|first6=Zeine |title=Islamic Finance: Opportunities, Challenges, and Policy Options |date=April 2015 |publisher=IMF|page=7 |url=https://www.imf.org/external/pubs/cat/longres.aspx?sk=42816.0 |access-date=13 July 2016}}</ref>

==== Takaful (Islamic insurance) ====
{{Main|Takaful}}
''Takaful'', sometimes called "Islamic insurance", differs from conventional insurance in that it is based on [[Mutualism (movement)|mutuality]] so that the risk is borne by all the insured rather than by the insurance company.<ref name="DBTCI"/> Rather than paying premiums to a company, the insured contribute to a pooled fund overseen by a manager, and they receive any profits from the fund's investments.<ref name="Economist-8-10-2014"/>
Any surplus in the common pool of accumulated premiums should be redistributed to the insured. (As with all Islamic finance, funds must not be invested in ''[[haram]]'' activities like interest-bearing instruments, enterprises involved in alcohol or pork.)<ref name="DBTCI">{{cite web|title=Difference between Takaful and Conventional Insurance|url=http://www.takaful.com.pk/TakafulVsConventional.html|website=Takaful Pakistan|access-date=21 July 2016|date=c. 2009|archive-url=https://web.archive.org/web/20160722213627/http://www.takaful.com.pk/TakafulVsConventional.html|archive-date=22 July 2016|url-status=dead}}</ref>

Like other Islamic finance operations, the ''takaful'' industry has been praised by some for providing "superior alternatives" to conventional equivalents;<ref name="PfEoTit21C">{{cite web |author1=Omar Fisher |author2=Dawood Y. Taylor |date=April 2000 |url=http://ifpprogram.com/login/view_pdf/?file=Prospects%20for%20the%20Evolution%20of%20Takaful%20in%20the%2021st%20Century.pdf&type=Project_Publication |title=Prospects for Evolution of Takaful in the 21st Century: Origins of Takaful |work=[[President and Fellows of Harvard College]] |access-date=18 January 2018 |archive-date=2 August 2020 |archive-url=https://web.archive.org/web/20200802012313/http://ifpprogram.com/login/view_pdf/?file=Prospects%20for%20the%20Evolution%20of%20Takaful%20in%20the%2021st%20Century.pdf&type=Project_Publication |url-status=dead }}</ref> and criticized by others for not being significantly different from them in its use of the "[[law of large numbers]]" to spread risk,<ref>Siddiqui, Mohammad Najatuallah "Islamic banking and finance in theory and practice: A survey of the state of the art." ''Islamic Economic Studies'', 13 (2) (February): 1–48</ref> or its use of conventional corporate (not mutual) management practices.{{sfn|Khan|2013|p=409}}<ref name="MeGIFLEP2006:170">[[Murabaha#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.170</ref>

The industry is projected to reach $25 billion in size by the end of 2017.<ref name="bi.com">{{cite web|title=Global takaful industry to reach $25 billion: Research |url=http://www.businessinsurance.com/article/20170106/STORY/912311289/Global-takaful-industry-to-reach-$25-billion-Research|website=BusinessInsurance.com|date=6 January 2017 |access-date=6 September 2017}}</ref>

====Islamic credit cards====
While a number of scholars (Manzur Ahmad, Hossein Askari, Zamir Iqbal and Abbas Mirakhor) have cast doubt on the shariah compliance of any kind of credit card – or at least cards that "can offer the same service as the conventional credit card"<ref name="Ahmad_2008:83-124">Ahmad, Manzur. 2008. Credit cards ki shari'i hathiyat [Legal position of credit cards]. Urdu. ''Fikro Nazar'' (Islamibad) 45 (4)(April–June): 83–125.</ref>{{sfn|Khan|2013|p=255}}<ref name="Askari_Iqbal_Mirakhor_2009:135">Askari, Hossein, Zamir Iqbal and Abbas Mirakhor (2009. ''New Issues in Islamic finance and economics: Progress and challenges.'' Singapore: John Wiley & Sons (Asia) p.135)</ref> – there are credit cards claiming to be shariah-compliant (particularly in Malaysia, where as of about 2012 they were offered by Bank Islam Malaysia Berhad, CIMB Islamic Bank Berhad, HSBC Amanah Malaysia Berhad, Maybank Islamic Berhad, RHB Islamic Bank Berhad, Standard Chartered Berhad, Am Islamic Bank Berhad.<ref name="basri-7-8">{{cite web|last1=Binti Hasan Basri|first1=Maryam Nasuha|last2=Nor|first2=Normadalina Mohamad|last3=Binti Abdul Haklif|first3=Siti Zubaidah|last4=Binti Hashim|first4=Mastura|title=ISLAMIC CREDIT CARDS: ISSUES AND CHALLENGES IN ACHIEVING MAQASID SHARIAH|url=https://www.academia.edu/11334804|website=academia.edu|access-date=27 September 2017|pages=7–8|date=n.d.}}{{Dead link|date=February 2023 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>),<ref name="basri-3">{{cite web|last1=Binti Hasan Basri|first1=Maryam Nasuha|last2=Nor|first2=Normadalina Mohamad|last3=Binti Abdul Haklif|first3=Siti Zubaidah|last4=Binti Hashim|first4=Mastura|title=ISLAMIC CREDIT CARDS: ISSUES AND CHALLENGES IN ACHIEVING MAQASID SHARIAH|url=https://www.academia.edu/11334804|website=academia.edu|access-date=27 September 2017|page=3|date=n.d.}}{{Dead link|date=February 2023 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>
These generally following one of a number of arrangements:

#''ujra'' (The client simply pays an annual service fee for using the card);<ref name="Paxford-2010-19"/>
#''ijara'' (Card is used as a leased asset. Ownership of whatever is purchased to card user after installments payments are complete.);<ref name="Paxford-2010-19"/>
#''kafala'' (The bank acts as a kafil (guarantor) for the transactions of the card holder. For its services, the card holder is obligated to pay ''kafala bi ujra'' (fee));<ref name="Paxford-2010-19"/>
#''qard'' ( The client acts as the borrower and the bank as a lender.);<ref name="Paxford-2010-19"/>
#''bai al-ina/wadiah'' (The bank sells the customer some item/commodity at a certain price and then shortly thereafter repurchases from the client at a lower price. The difference between the two prices is the income of the bank for its trouble administering the card. The customer's initial payment to the bank serves as the account balance for the credit card and ceiling limit of what can be spent. The bank's repayment to the customer constitutes whatever balance is left over after purchases.)<ref name="Paxford-2010-19">{{cite journal|last1=Paxford|first1=Beata|title=Questions of price and ethics: Islamic banking and its competitiveness|journal=Newhorizon|date=April–June 2010|issue=175|pages=18–19|url=http://www.islamic-banking.com/resources/7/NewHorizon%20Previouse%20Issues/NewHorizon_Apr-Jun-10.pdf|access-date=27 September 2017|issn=0955-095X|archive-url=https://web.archive.org/web/20180219024157/http://www.islamic-banking.com/resources/7/NewHorizon%20Previouse%20Issues/NewHorizon_Apr-Jun-10.pdf|archive-date=19 February 2018|url-status=dead}}</ref>
#cards that act much like [[debit card]]s, with any transaction "directly debited" from the holder's bank account.<ref name="FJIFD2012:107">[[Sukuk#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:107</ref>

==== Islamic funds ====

Islamic funds are professionally managed investment funds that pool money from many investors to purchase securities that have been screened for sharia compliance. They include mutual funds holding [[Stock|equity]] and/or [[sukuk]] securities,<ref name="cpivsmf-2005-2">{{cite book|last1=Elfakhani|first1=Said|last2=Hassan|first2=M Kabir|last3=Sidani|first3=Yusuf |title=Comparative Performance of Islamic Versus Secular Mutual Funds|date=November 2005 |page=2 |url=https://www.isfin.net/sites/isfin.com/files/comparative_performance_of_islamic_versus_secular_mutual_funds.pdf |access-date=11 October 2017}}</ref><ref name="pwc-2009">{{cite web |url=https://www.pwc.com/gx/en/financial-services/islamic-finance-programme/assets/shariah-compliant-funds.pdf |title=Shariah-compliant funds: A whole new world of investment |date=2009 |publisher=Price Waterhouse Cooper |access-date=17 January 2018}}</ref> but also Islamic "alternative" funds deal in "anything from private equity and real estate to infrastructure and commodity asset classes."<ref name="Kamso">{{cite book|last1=Kamso|first1=Noripah|title=Investing in Islamic Funds: A Practitioner's Perspective|publisher=Wiley|url=https://books.google.com/books?id=E9xvQgNQoNAC&q=islamic++funds+and+reits&pg=PT71|access-date=6 November 2017|isbn=9781118638880|date=2013-05-13}}</ref> They began growing fairly rapidly in about 2004,<ref>{{Cite web|url=https://www.pwc.com/gx/en/financial-services/islamic-finance-programme/assets/shariah-compliant-funds.pdf |title=Shariah-compliant funds: A whole new world of investment* |date=2009 |website=pwc.com|access-date=19 January 2017}}</ref> and as of 2014 there were 943 Islamic mutual funds worldwide and as of May 2015, they held $53.2 billion of assets under management,<ref name="Reuters-2015">{{cite news|last1=Vizcaino|first1=Bernardo|title=Islamic mutual funds fall short of global demand -study |url=https://www.reuters.com/article/islam-financing-funds/islamic-mutual-funds-fall-short-of-global-demand-study-idUSL5N0YA04I20150519 |access-date=7 September 2017 |work=Reuters|date=19 May 2015}}</ref> with "latent demand" for considerable growth.<ref name="Reuters-2015"/>

For equity mutual funds, companies whose shares are being considered for purchase must be screened 
#to exclude those that are involved in alcohol, tobacco, pork, adult entertainment industry, gambling, weapons, etc., but also 
#those that are "engaged in prohibited speculative transactions (involving uncertainty or gambling), which are likely leveraged with debt", by examining the company's "financial ratios" to meet "certain financial benchmarks".<ref name="dummie-types">{{cite web|title=Types of Islamic Financial Products|url=http://www.dummies.com/how-to/content/types-of-islamic-financial-products.html|website=For Dummies|access-date=6 August 2016}}</ref>

Creators of benchmarks to gauge the (equity) funds' performance include the Dow Jones Islamic market index series<ref>{{cite web |url=http://us.spindices.com/index-family/shariah/dow-jones-islamic-market |title=S&P Dow Jones Indices » DOW JONES ISLAMIC MARKET |access-date=12 February 2015}}</ref> and the FTSE Global Islamic Index Series.<ref>{{Cite web |url=http://www.ftse.com/japanese/Indices/FTSE_Global_Islamic_Index_Series/index.jsp |title=FTSE Global Islamic Index Series |access-date=13 April 2013 |archive-date=15 January 2012 |archive-url=https://web.archive.org/web/20120115172808/http://www.ftse.com/japanese/Indices/FTSE_Global_Islamic_Index_Series/index.jsp |url-status=dead }}</ref>

At least from 2000 to 2009, Islamic equity funds under-performed both Islamic and conventional equity benchmarks, particularly as the [[2008 financial crisis]] set in (according to a study by Raphie Hayat and Roman Kraeuss).<ref name="Hayat">{{cite journal|last1=Hayat|first1=Raphie|last2=Kraeussl|first2=Roman|title=Risk and return characteristics of Islamic equity funds|journal=Emerging Markets Review|date=June 2011|volume=12|issue=2|pages=189–203|doi=10.1016/j.ememar.2011.02.002|s2cid=6820282}}</ref>

====Islamic derivatives====
{{See also|Sharia and securities trading#Use in Islamic finance}}
As mentioned above (see Islamic laws on trading), "almost all conservative Sharia scholars" believe [[derivative (finance)|derivatives]] (i.e. securities whose price is dependent upon one or more underlying assets) are in violation of Islamic prohibitions on ''gharar''.<ref name="Mills and Presley 1999"/>{{sfn|Khan|2015|p=111}}<ref name="dummies-FMTaIF">{{cite web|title=FINANCIAL MARKET TRADING AND ISLAMIC FINANCE |url=http://www.dummies.com/personal-finance/islamic-finance/financial-market-trading-and-islamic-finance/ |website=Dummies.com |publisher=Wiley |access-date=18 May 2017}}</ref> This, however, has not stopped the Islamic finance industry from using some of these instruments, and derivative permissibility in Islam is a subject of "heated debate".<ref name="Kettell-2010"/>

As of 2013 the Islamic derivatives market was "in its infancy" and its size was not known. 
Contracts or combinations of contracts for derivatives<ref name="FJIFD2012:183">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:183</ref> include swaps and options:

=====Swaps=====
Faleel Jamaldeen describes the Islamic swap market as being of two kinds of swaps: 
*profit rate swap: "based on exchanging fixed for floating rate profits".<ref name="FJIFD2012:183"/> (Similar to interest rate swaps of conventional finance. As of 2007, this kind of swap had the largest market of any variety of swaps.)<ref>BIS Semiannual OTC derivatives statistics at end-December 2008</ref> According to Harris Irfan, the Islamic finance market is "awash" with "profit rate swap" contracts,<ref name="HIHB2015:174-5">[[#HIHB2015|Irfan, ''Heaven's Bankers'', 2015]]: p.174-5</ref> including a global standard developed by the IIFM and [[International Swaps and Derivatives Association]].<ref name=HIHB2015:174-5/><ref name="launch">{{cite web |title=IIFM and ISDA Launch Tahawwut (Hedging) Master Agreement |url=http://www.isda.org/media/press/2010/press030110.html |website=ISDA |access-date=12 October 2017 |date=1 March 2010 |archive-url=https://web.archive.org/web/20171014083539/http://www.isda.org/media/press/2010/press030110.html |archive-date=14 October 2017 |url-status=dead }}</ref> In Malaysia, the "Islamic Profit Rate Swap" (IPRS) hedging tool is popular.<ref name="IBRC">{{Cite news|url=https://islamicbankers.me/islamic-banking-islamic-contracts/in-focus-islamic-profit-rate-swap/|title=Treasury : Waad in Islamic Profit Rate Swap|date=17 August 2011|work=Islamic Bankers Resource Centre|access-date=25 October 2017|language=en-US}}</ref>
*cross-currency swap: These are used by investors to "transfer currency fluctuation risk among themselves."<ref name="FJIFD2012:183"/>

=====Put and call options=====
The Islamic finance equivalent of a conventional [[call option]]{{#tag:ref|[[Option (finance)|options]] are a "common form" of a derivative).<ref name="OCaP">{{cite web|title=Options: Calls and Puts|url=http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/options-calls-puts.asp|website=Investopedia|access-date=7 September 2017}}</ref>| group=Note}} is known as an ''urbun'' (lit. "down payment"), the equivalent ofr,fgff a [[put option]] is known as a "reverse ''urbun''".<ref name="Ayub 2007:209-210">{{cite book |last1=Ayub |first1=M. |year=2007 |title=Understanding Islamic Finance |location=Chichester |publisher=John Wiley and Sons}}</ref> In each the seller has the right but not the obligation to either buy (in the case of a call or ''urbun'') or sell (in the case of a put or "reverse ''urbun''") at a pre-determined price by some point in the future. These two Islamic options also have a different name for a "premium", (called a "down-payment") and for the "strike price" ("preset price").<ref name="MeGIFLEP2006:181">[[#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.181</ref><ref>{{cite book|last1=Kureshi|first1=Hussein|title=Contracts and Deals in Islamic Finance: A User s Guide to Cash Flows, Balance Sheets, and Capital Structures by|chapter-url=https://www.safaribooksonline.com/library/view/contracts-and-deals/9781119020585/c10.xhtml|chapter=10. Bai al Urbun}}</ref> The options' Islamic distinctiveness has been questioned by analysts,<ref name="MeGIFLEP2006:92">[[#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.92</ref><ref name="Ayoub_2014:119">{{cite book |last1=Ayoub |first1=Sherif |year=2014 |title=Derivatives in Islamic Finance: Examining the Market Risk Management Framework  |location=Edinburgh |publisher=Edinburgh University Press |page=119 |url=https://books.google.com/books?id=wFurBgAAQBAJ&q=islamic+finance+reverse+urbun&pg=PA119 |access-date=26 October 2017|isbn=9780748695713  }}</ref> and its use has been criticized by conservative scholars.<ref name="Ayoub_2014:119"/>

====Microfinance====
[[Microfinance]] seeks to help the poor and spur economic development by providing small loans to entrepreneurs too small and poor to interest non-microfinance banks. Its strategy meshes with the "guiding principles" or objectives of Islamic finance, and with the needs of Muslim-majority countries where a large fraction of the world's poor live,{{#tag:ref|("Half of global poverty reside in Muslim world ..."<ref>{{Cite web|url=http://www.alhudacibe.com/imhd/news22.php|title=Islamic Microfinance A Real Hope for Poor|access-date=18 January 2018|archive-date=15 January 2018|archive-url=https://web.archive.org/web/20180115130250/http://www.alhudacibe.com/imhd/news22.php|url-status=dead}}</ref>|group=Note}} many of them small entrepreneurs in need of capital, and most unwilling or unable to use formal financial services.<ref name="Honohon-2007">Honohon, Patrick. 2007. "Cross-Country Variations in Household Access to Financial Services." Presented at the World Bank Conference on Access to Finance, Washington, D.C., 15 March., p.1</ref>

According to the Islamic Microfinance Network website (as of {{circa|2013}}),<ref>{{cite web|url=http://imfn.org/|title=Islamic Microfinance News |work=imfn.org}}</ref>{{sfn|Khan|2013|p=301}} there are more than 300 Islamic microfinance institutions in 32 countries,<ref name="AHCIBE">{{cite web|last1=Mughal|first1=Muhammad Zubair|title=Funding Sources for Islamic Microfinance Institutions |url=http://www.alhudacibe.com/imhd/news43.php|website=alhudacibe.com|publisher=AlHuda Centre of Islamic Banking & Economics|access-date=6 August 2015|archive-date=2 January 2016|archive-url=https://web.archive.org/web/20160102064100/http://www.alhudacibe.com/imhd/news43.php|url-status=dead}}</ref> The products used in Islamic microfinance may include some of those mentioned above – ''qard al hassan'', ''musharaka'', ''mudaraba'', ''salam'', and others.<ref name="microworld.org">{{cite web|title=What is islamic Microfinance ?|url=https://www.microworld.org/en/news-from-the-field/article/what-islamic-microfinance|website=microworld.org|access-date=7 September 2017|date=17 April 2013|archive-date=14 September 2017|archive-url=https://web.archive.org/web/20170914035646/https://www.microworld.org/en/news-from-the-field/article/what-islamic-microfinance|url-status=dead}}</ref>

A number of studies<ref name="NKIM2008:1">[[#NKIM2008|Karim, "Islamic microfinance", 2008]]: p.1</ref><ref name=Dar_2012:184/>{{sfn|Khan|2013|p=301}} have found "very few examples" of microfinance institutions "operating in the field of Islamic finance" and few Islamic banks "involved in microfinance".<ref name="Segrado-2005-4">{{cite book|last1=Segrado|first1=Chiara|title=Case study "Islamic microfinance and socially responsible investments"|date=August 2005|publisher=MEDA PROJECT. Microfinance at the University. University of Torino|page=4}}</ref> 
One 2012 report<ref name="Dar_2012:184">Dar, Humayon A. Rizwan Rahman, Rizwan Malik and Asim Anwar Kamal, ed. 2012. Global Islamic finance report 2012. London: Edbiz Consulting.</ref> found that Islamic microfinance made up less than 1 per cent of the global microfinance outreach, "despite the fact that almost half of the clients of microfinance live in Muslim countries and the demand for Islamic microfinance is very strong."{{sfn|Khan|2013|p=301}}