The Stability of Islamic Finance main focus is on thequestion of the sources of financial instability which seemsinherent in the conventional system. As a core component of thisfocus, the book will consider episodes of turbulence andinstability in a historical context recalling the occurrence ofsuch events from mid-19th century to the present. It will presentvarious theoretical explanations along with solutions andalternative financial systems that avoid instability provided byvarious scholars dating back to mid-19th century to present.The book then will present and discuss the architecture of anIslamic financial system and show that at its core, this systemshares many characteristics of an stable financial system proposedby Western scholars throughout history to avoid the inherentinstability of the present dominant system. Particular emphasiswill be placed on the present financial crisis and its causes aswell the financial crisis of the 1997 in Southeast Asia, Russia,and Latin America relating these episodes to the fundamentalfeatures of the dominant system. The debt crisis of the low incomecountries will also be part of this discussion. It will then arguethat these crises could be mitigated under an Islamic system or anyother system with similar architecture.

PROF. HOSSEIN ASKARI received all his university education,including a Ph.D. in economics, at MIT. He has taught at MIT, TuftsUniversity, the University of Texas at Austin and is now the IranProfessor of International Business and International Affairs atthe George Washington University. He served for two and a halfyears on the Executive Board of the IMF and was Special Advisor tothe Minister of Finance of Saudi Arabia. In the mid-1980s he wasthe director of a multinational team that developed the firstenergy plan and energy planning models for Saudi Arabia. He haswritten extensively on economic development in the Middle East,international trade and finance, agricultural economics, oileconomics, economic sanctions, and on Islamic economics andfinance.DR. ZAMIR IQBAL works as Lead Investment Officer in theTreasury of the World Bank in Washington, D.C. He earned his Ph.D.in International Finance from the George Washington University,where he also serves as adjunct faculty of International Finance.He has extensive experience with capital markets, structuredproducts, risk management, financial sector development, andfinancial modeling. His research interests include Islamic finance,financial engineering, structured finance and risk management. Heis co-author of several books on Islamic banking and finance.DR. NOUREDDINE KRICHENE received his Ph.D. in economics,University of California, Los Angeles, 1980; joined theInternational Monetary Fund (IMF) in 1986; and held the position ofadvisor at the Islamic DevelopmentBank.DR. ABBAS MIRAKHOR received his Ph.D. in Economics fromKansas State University in 1969. After teaching at variousuniversities in the USA and in Iran he joined the staff of theResearch Department of the IMF in 1984. He became an ExecutiveDirector of the IMF from 1990 until his retirement in 2008. He isthe author of a number of articles and books on Islamic economicsand finance. He is now the first holder of the INCEIF Chair inIslamic Finance.

Foreword ixAcknowledgments xiiiGlossary of Arabic Terms xvIntroduction 1CHAPTER 1 The Nature of Capital and the Rate of Return 11CHAPTER 2 The Origins of Financial Panics and Recessions 23CHAPTER 3 Monetary Policy and Financial Crises 37CHAPTER 4 The Internationalization of Financial Crises 45CHAPTER 5 The Role of the Credit Multiplier in Financial Crises61CHAPTER 6 The Inherent Stability of Islamic Finance 75CHAPTER 7 A Theoretical Model of the Inherent Stability ofIslamic Finance 83CHAPTER 8 Asset Pricing and Risk in Islamic Finance 93CHAPTER 9 Islamic Financial Intermediation and Markets 113CHAPTER 10 Risk Profi le of Islamic Financial Intermediaries131CHAPTER 11 Financial Engineering, Derivatives and FinancialStability 141CHAPTER 12 Corporate Governance and Financial Crises 163CHAPTER 13 The Performance of Islamic Financial Intermediariesand Products 183Conclusion 209Bibliography 217Index 225