Handbook of Empirical Resarch on Islam and Economic Life ed. by M. Kabir Hassan (review)

The Islamic financial service sector today represents approximately 1 per cent of global financial assets. Nevertheless, it has been growing strongly over the past decade. In 2011 alone, for example, Islamic financial assets expanded by US$1.086 trillion, an impressive 21 per cent growth over the previous year. Furthermore, the global Islamic finance sector has nearly doubled in size from 2007 to 2010, a period when many conventional banks across the globe were struggling. In fact, then, and even till today, as claimed by many experts in the field, not a single Islamic bank has needed to be bailed out by taxpayers’ money. This reality has increased general interest in the soundness and resilience of the Islamic finance model.

According to the latest market trend, the Islamic finance sector has gradually gained market share due to increase in demand from Gulf investors with a significant capital size. Simultaneously, demand has also expanded in regions with Muslim minorities, such as the United Kingdom, Europe, East Asian and even Central Asian countries. Until today, the sector continues to demonstrate its potential to keep rapidly growing internationally. Due to this reality, various parties in the financial sector, governments and academia are keen to explore this (not so) “new” territory with different motivations. This is also the key reason why this book was authored.

As the editor of the book, Professor M. Kabir Hassan asserts in the foreword that Islamic economics and finance (IEF) is distinct from conventional economics, not because it goes against the persuasion of individuals to be self-interested rational beings, but due to the fact that the discipline adds “soul” into the individual — by inculcating a sense of spiritual fulfilment in them. According to the paradigm of IEF, economic activities must be guided by morals and ethics according to Islamic teachings. However, a question arises here: how could such a paradigm possibly compete in the cut-throat global economic environment? To answer this question, this handbook examines the level of competency and resilience of the IEF sector through empirical research.

The title of the volume Handbook of Empirical Research on Islam and Economic Life itself explains its nature and contents. It is a continuation of the earlier volume, “Handbook on Islam and Economic Life (2014), which focussed on the guiding principles, methodology and analytical tools of Islamic economics. Unlike the former, this series has shifted from a mere normative emphasis to a positive one, and includes specification of testable hypotheses and their verification when confronted with real-world data and observations. Hence, it employs an empirical approach to assess the level of success that Islamic institutions have established to crystalize the Islamic vision of economy.

The thirty papers or chapters in this book are divided into five major categories: Religion and Growth; Islamic Social Finance; Islamic Banking and Finance; Islamic Capital Market; and Sukuk (Islamic bonds). What makes the empirical studies in this volume interesting is that the case studies are taken from various regions beyond Muslim-majority countries, and from different institutions involved in the sector. Given the wide discussions on different subjects, the hypotheses put forward for testing are too numerous to summarize in a few limited paragraphs. Nevertheless, this volume, through its chapters, contains several themes: the impact of religion on economic behaviour; the role of culture and legal traditions on financial development; the determinants of access to microfinance; the impact of zakat (alms) on poverty and human development; the hedging and performance characteristics of Islamic investment funds; and predicting financial distress in sukuk markets.

Another noteworthy feature of this volume is the emphasis on certain chapters on Islamic economic instruments beyond the conventional profit-making framework of financial institutions. The discussions and evaluations of the potential of Islamic finance to help invigorate a neglected segment of society — through microfinancing, zakat, cash waqf (endowment), mudharabah (profit-sharing venture capital) and other tools within the framework of IEF — offer a refreshing...