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A Primer of Islamic Finance: Definitions, Sources, Principles and Methods by Alsadek H. Gait and Andrew C. Worthington, University of Wollongong, 2007

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Islamic finance is a rapidly growing segment in the global financial system. Despite the increasing importance of Islamic economy in regard to the developing economies in the Middle East, religious and social complexity have gone against full understanding by policy makers, regulators and researchers. This paper provides an analysis of the article concerning definitions, sources, principles and methods of Islamic economy. The article was originally written by Gait, A. and Worthington, A. C. (2007) and entitled “A Primer of Islamic Finance”. It was published by University of Wollongong, school of Accounting and Finance. 

The global proliferation of Islamic financial institutions has been associated with parallel development in Islamic financial products. Simple prohibition on investments in tobacco, alcohol, gambling and a requirement that all financial transactions should be based on real economic activities has seen Islamic financial products covering a wide range of financial services, which include funds management, asset allocation, insurance and reinsurance and risk management. There is an analogous Islamic financial product for almost all conventional financial products. For example, the Islamic securities account for forty-two per cent of the outstanding debt securities and twenty-five per cent of outstanding bonds in Malaysia. However, this rapid development and the substantial barriers that exist have acted against the wide understanding of Islamic finance. This has become a crux to a number of aspects. For instance, the regulators face the need to standardize and harmonize supervisions in systems that may include Islamic institutions and products (Gait & Worthington, 2007). National and international regulators require being involved when looking at the differences in behavioral assumptions between the Islamic and financial institutions, and between firms and products. Many developing economies are struggling with the design of the optimal supervision and regulation regimes for systems and on whether these regimes should treat Islamic finance identically or as a modification to institutions and products.

The article introduces the definition, sources, principles and methods of Islamic finance. Although several publications concerning Islamic finance concepts are already available, where nearly all cases deal with specific aspects and abstracts from the basic principles. The article starts with exploring religious and social underpins of Islamic finance and links them with the principles and methods of contemporary Islamic products. The article, therefore, provides guidance to empirical research in Islamic finance and aid to policy makers and practitioners interpreting the outcome of Islamic finance studies.

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