Book Review for Islamic Banking: Theory and Practice (2012) by *Dr. Muhammad Hanif

Book Review for Islamic Banking: Theory and Practice (2012) by *Dr. Muhammad Hanif


By: Camille Paldi


This textbook is a masterpiece on Islamic Banking combining financial theoretical, accounting, practical, and Shari’ah knowledge into a valuable tool for gaining a firm understanding of the history, core financial and accounting concepts of Islamic Banking and Finance, and Shari’ah rulings behind each concept.  The book is organized into 5 Parts including Part 1 (Islamic Banking – Islamic Banking, An Update); Part 2 (Asset Backed Financing – Murabahah, Salam, Istisna’a, and Ijarah); Part 3 (Profit and Loss Sharing – Musharakah, Diminishing Musharakah, and Mudarabah); Part 4 (Deposits – Deposits Management by IFIs); and Part 5 (Special Topics in Islamic Finance – Liquidity Management, Cash Financing, and Financial Reporting). Each chapter begins with a statement of Learning Objectives, an Introduction, a Summary of Shari’ah Rulings, The Mode of Finance or Banking Concept, the Financial Impact of the Mode of Finance or Banking Concept, and finishes with Concept Building, which includes practical applications, illustrations, and examples of how the mode of finance or banking concept works in real life.  The author then concludes each chapter with a series of multiple choice and true/false questions plus further suggested readings.  As the author has strong Shari’ah knowledge and is both a qualified accountant and has obtained a Phd in finance, the book is well-written and organized and conveys a well-rounded approach to teaching Islamic Banking and the different modes of Islamic finance and sukuk including financial and accounting theory, Shari’ah, illustrations, tables, examples, and practical applications of the academic/theoretical concept in the real world.  After reading this book, I feel that I am ready to operate an Islamic Bank.


Although the Supreme Court of Pakistan in its’ historical judgment on riba (interest) declared that “Any additional amount over the principal in a contract of loan or debt is the riba prohibited by the Holy Qu’ran in several verses,” (Usmani, 1999, para 242), the author reveals that in fact, it is the responsibility of all true believers in God (Jews, Christians, and Muslims) to give up interest based transactions from their personal lives immediately and input their energies collectively to design, promote, and implement a financial system free of interest.  This textbook and hidden treasure is indeed a roadmap for the collective effort of the People of the Book, Jews, Christians, and Muslims, to design and implement an interest free banking system.


Chapter 1 on Islamic Banking: An Update, provides a history of Islamic Banking including the salient features of the Islamic Banking System and a brief overview of the different modes of finance in Islamic Banking.  Throughout the book, Dr. Hanif makes reference to the state of Islamic Banking in Pakistan with facts, figures, tables, and illustrations.  Chapter 2 details murabahah financing while Chapter 3 explains salam finance.  Chapter 4 describes Istisna’a finance and Chapters 5 and 6 reveal the workings and methods of Ijarah and Musharakah financing.  Chapter 7 delves into the fascinating world of diminishing musharakah finance.  Dr. Hanif explains this concept so clearly with Islamic finance theory, Shari’ah, and via practical application through illustrations and accounting tables, that I finally feel I have firmly grasped this mode of finance after years of study.  Chapter 8 concludes the discussion on modes of Islamic finance with mudarabah.  Chapter 9 presents various types of deposits collected by IFIs and explains the profit-sharing mechanism.  In this chapter, Dr. Hanif also elaborates upon the concepts of daily product and the weightage based profit system. In Chapter 10 on Liquidity Management, Dr. Hanif defines liquidity management and explains how to test securities for Shari’ah compliance, the valuation methods of Shari’ah compliant securities, the Shari’ah rulings for trading of securities, sukuk, the difference between sukuk and conventional bonds, the Shari’ah rulings on the operations of sukuk, and how the sukuk process is completed.  In addition, Dr. Hanif provides an illustration of the sukuk process with the JAFZ Sukuk Limited Sukuk case-study, questions, and exercises.  In Chapter 11, Cash Financing, Dr. Hanif explains why cash financing is an essential requirement, issues in cash financing, describes what are PTCs, TFCs, and TMCLs and how they work, what is the Normal Rate of Return and how it works, and what is Inflation Based Loan Indexation.  Chapter 12 on Financial Reporting concludes with an overview and definition of what is financial reporting, it’s purpose, and how it works in Islamic Banking as compared to Conventional Banking.  In addition, Dr. Hanif explains the underlying accounting principles in the generation of financial reports, describes the quality checks on financial reports, and explores the development of a special set of financial reporting standards for Islamic Banking including why a tailored set of standards might be necessary for Islamic Banks and the Islamic Banking industry.


I recommend this textbook for anyone wishing to gain a firm understanding of Islamic Banking from an Islamic finance theory, accounting, and Shari’ah viewpoint, which is reinforced with practical applications, illustrations, accounting tables, facts and figures, and examples.  This book is useful for anyone currently working in an Islamic Bank or anyone interested in working in the Islamic finance industry including students, academics, professionals, conventional bankers, lawyers, accountants, wealth managers, investment professionals, money managers etc.  In fact, anyone who works in any kind of financial institution who signed a contract to maximize profit for shareholders has a contractual duty to explore Islamic finance and banking and examine the possible returns.  This book is available for purchase on amazon.com.


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