This book provides researchers and students with an understanding of the basic legal tenets of
the Islamic finance industry studying the real economic effects of those tenets using the
tools of the modern economic theory. Split into four parts the book begins with an
introduction to the history and a legal framework for Islamic banking covering typical Islamic
financial products such as Sukuk and Takaful and examining the structure of Islamic financial
institutions. It then analyzes and discusses the Miller-Modigliani Theorem which is of direct
relevance to Islamic banks which are prohibited to charge interest and often have to rely of
profit-loss sharing agreements. Part III of the book introduces the reader to modern mechanism
design theory paying particular attention to optimal contracting under hidden action and
hidden information and final part of the book applies the tools of economic theory to
understand performance of Islamic financial institutions such as Islamic banks and Takaful
operators. Islamic Finance in Light of Modern Economic Theory brings together all the necessary
technical tools for analyzing the economic effects of Islamic frameworks and can be used as an
advanced textbook for graduate students who wish to specialize in the area as a reference for
researchers and as a tool to help economists improve the design of Islamic financial
institutions.
