All modes of Islamic financing have risk reduction mechanisms in practice that are basically what I like to call “Shariah arbitrage”. Because implementing a financial product closest to scholarly guidelines are either highly inefficient or extremely expensive (higher cost of capital), to compete with traditional models which are efficient, Islamic financial institutions go about structuring a product that arbitrages shariah concepts to create something that is more or less the same but with slightly higher fees for bankers and lawyers to make an extra buck in the process.
Professor Lewis gives a very good overview and brief background of Islamic finance along with their potential benefits. However, he only compares the Islamic banking system to the U.S. financial system and only provides analogies in certain areas. He doesn't bring up and regulations such as Solvency II which have some similarities with Islamic banking in terms of goals of mitigating risk and which is arguably between Islamic banking and the U.S. system. He doesn't bring up mutual insurers which operate similarly to some Islamic financial institutions. He doesn't bring up how some of these developing Islamic countries have complex property rights issues which make the contract regulations a lot less powerful. He doesn't mention how much Islamic banking is integrated into the economy and to a point where we can question whether some of them are truly Islamic banks. Not bad but only the iceberg of a very complex institution.
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