Islamic Finance in the Global Economy

Islamic Finance in the Global Economy, by Ibrahim Warde. Edinburgh, Scotland: Edinburgh University Press, 2000. 252 pages. Notes. Gloss. Index. $90. Reviewed by Clement M. Henry Ibrahim Warde has written a forthright and scholarly survey of a subject that deserves the attention of both international bankers and area specialists who are interested in Islamic culture or political economy. Islamic Finance in the Global Economy documents the evolution of Islamic banking over the past quarter of a century, from the go-go era of abundant oil revenues that readily supported a new commercial adventure to the current decade of accelerated globalization, especially of financial institutions. It offers a much-needed introduction to a highly complex set of economic, cultural, and political phenomena. Dr. Warde's definition of Islamic financial institutions is that they be "based, in their objectives and operations, on Koranic principles. " Typically they will have a religious board that decides what is properly Islamic, although Warde notes that there are exceptions and that "no definition. is entirely satisfactory" (p. 5). Throughout his survey, the author is at pains to emphasize that Islam admits of many interpretations, that Islamic banking should not be confounded with Islamist politics, and that political Islamism comes in many shapes and forms. He cites Aziz al-Azme's "Islams" approvingly (p. 17) but, perhaps for the benefit of his banker readers, devotes more space than they deserve to criticizing journalists like Steven Emerson who conjure up pictures of terrorism and money-laundering (pp. 218, 222). Warde himself has an excellent command of the serious literature on political Islam, including scholars like Olivier Carre, who should be better known in the United States. References to Richard Bulliet and Ernest Gellner might have further enriched his discussion of contemporary Islamism and its possible convergence with economic liberalism. After an initial take-off in the late 1970s and early 1980s, Islamic banks stagnated. Declines in oil revenues, coupled with a financial crisis in Kuwait, put many of these new banks at risk. Unlike the anti-Islamic propaganda of the popular press or the equally uninformative apologetics written by dedicated Islamists, Warde frankly discusses issues of Islamic "moral hazard" and financial mismanagement that have plagued a number of these institutions. Host governments have been obliged to bail out a number of them, including the Kuwait Finance House in 1984, the largest Islamic bank at the time, and, in 1998, the most venerable of them, Dubai Islamic Bank, which was founded in 1974. Despite their growing pains and although oil revenues stagnated until quite recently, after this book went to press, Islamic financial institutions got a second wind (or "aggiornamento" as the author calls it) with the intensified pressures on the region to integrate into the global economy. As times became more difficult, with the poorer, heavily indebted countries in the region obliged to engage in financial structural adjustment, Islamic financial institutions paradoxically took off once more. Warde highlights the congruence between the new international financial environment and these culturally specific banks. …