The recent attention that Islamic finance has received in the news media—for reasons that include its rapid growth—has led to the publication of numerous books on the subject. Nevertheless, there is neither a standard textbook on Islamic finance nor a book that provides the relevance, comprehensiveness, and rigor that generalists in the finance profession might reasonably expect.

In the Handbook of Islamic Banking, M. Kabir Hassan, a professor of economics and finance, and Mervyn K. Lewis, a professor of banking and finance, have assembled 25 articles on various aspects of Islamic finance written by some of the leading authorities in the field. (Considering that the articles cover more than banking, the book’s title is somewhat misleading.) Most of the authors of the articles in this book are academics, and some have published extensively on the subject. Spanning areas such as banking, capital markets, and Takaful (Islamic insurance), the Handbook of Islamic Banking traces Islamic finance from its foundations to current practice. Although the book is fairly comprehensive, it does not directly address Islamic private wealth. The articles offer intellectually stimulating analysis to finance professionals at the intermediate or advanced level.

The book’s five parts, each containing four to six articles, address the following topics: (1) foundations of Islamic finance, (2) operations of Islamic banks, (3) markets and instruments, (4) Islamic banks and development, and (5) globalization of Islamic finance.

A recurring theme in the book is the adaptation of Shari’a (Islamic religious law) to modern financial practices. For example, Lewis notes that although Hinduism, Judaism, Christianity, and Islam all opposed usury in the past, Islam remains the only major religion to prohibit the charging of interest. Pointing out similarities between modern Islamic financial practices and techniques used to circumvent the Roman Catholic Church’s opposition to usury in medieval times, Lewis questions whether Islam can sustain its ban.

Habib Ahmed and his colleagues examine the nature of risks (e.g., credit risk, market risk, liquidity risk, and operational risk) in Islamic banks and the unconventional means by which they are managed. These devices, which include parallel contracts, have arisen because certain conventional risk management tools (e.g., credit derivatives) are prohibited by Shari’a. Mohammed Obaidullah explains how securitization could be achieved without involving riba (which includes conventional bank interest) and explores the issues surrounding the compliance of underlying structures with Shari’a.

Said M. Elfakhani and his coauthors explain the governance, marketing, and distribution of Islamic funds. They state that the risk-adjusted performance of Islamic funds does not differ significantly from that of conventional funds. Volker Nienhau discusses the sensitive issue of conflicts of interest facing the religious scholars who serve on corporate Shari’a supervisory boards. He offers the establishment of independent, national boards as a possible solution.

Finally, M. Umer Chapra asserts that justice is one of the primary objectives of Islam and, therefore, of Islamic finance. He argues that in a financial context, justice requires risk/reward sharing and equitable distribution of credit. According to Chapra, however, progress on both counts has not been significant.

Neither glorifying nor disparaging Islamic finance, all the articles give a balanced perspective. Each article includes references for additional readings on the subject. A brief glossary makes finding the meanings of unfamiliar Arabic terms easy.

Not all the contributions are equally insightful or relevant for finance professionals. Some chapters—for example, “Incentive Compatibility of Islamic Financing” and “Operational Efficiency and Performance of Islamic Banks”—have limited appeal. Another disadvantage of the Handbook of Islamic Banking is that it was published in 2007, and thus, some of its data have already become outdated in a rapidly evolving market. Finally, the book’s most obvious drawback is its price.

Taking into account all its strengths and weaknesses, the Handbook of Islamic Banking is one of the best books available to finance professionals who seek an intermediate or advanced text on various aspects of Islamic finance.

—U.H.