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also no concrete evidence of cooperatives, or benevolent funds that could be the prototype of modern-day insurance. We would have to wait until the libraries of Istanbul reveal these secrets to come to any conclusion.

      However, with vast stores of grain coming from different parts of the Empire where different currencies were employed it is not difficult to imagine that some informal structures of commodity exchanges must have existed, some mechanisms must have been developed to hedge risks of price volatility, and some mechanisms must have existed to raise capital and borrow capital. Development comes in times of peace, and unless one were to buy Kinross's version of Ottoman history, the Empire offered its citizens a period of respite for close to 500 years. Media headlines tend to focus on atrocities alone, but that is another matter. Another element of genius within the fabric of the Empire was that Christians, Jews, Indian Muslims, Arab Muslims, Italians, and Venetians alike were allowed to serve the Empire and to develop trade, commerce, and institutions of law in a manner not seen at any other phase of at least Islamic history. Humans, whether Muslims or non-Muslims, must have developed innovative commercial contracts, mechanisms of trade, financial products, and even derivatives over a period of time within the boundaries of the Empire. It is no surprise therefore that the first formal codification of commercial law is found in the Mejelle, which was a Hanafi document developed in the seventeenth and eighteenth centuries within the Ottoman Empire.9

      So, how far back does Islamic finance go? One can say the contracts of sale of murbahah, bai al inah, bai al wafa, bai al dayn, or bai al sarf even predate Islam. Islam just eliminated certain features of these contracts and retained others depending on whether certain features contradicted any legal maxims. The application of these sale contracts to financial intermediation in a fractional reserve system is far more recent and can be first seen in the 1970s in places like Egypt, Sudan, Iran, and other pockets of the Muslim world.10

      However, one must note that the past 200 years for every Muslim country has been one of colonial domination, with many countries gaining formal political independence in the latter half of the previous century, and all after World War II. As such, almost all Muslim countries have inherited legal systems from the times of their colonial rulers, and other institutions of rule, government, and commerce. We must not forget that much of the Muslim world did not experience the Industrial Revolution in the manner that Europe and the United States did, nor could many wonderful inventions and advancements in the sciences be attributed to a Muslim world that still predominantly had pockets of agricultural economies and trade-based economies. The Muslim world also inherited a dollar-based and an interest-based global financial system.

      The need for oil in the twentieth century put the Muslim world into prominence again with much of the natural resource being found under the sands of the ancient cities that were once home to peoples of prehistory.

      It is also important to keep in mind that the Muslim world is divided in its interpretations of the religion and in the social structure of their societies, with certain countries adopting monarchies, or constitutional monarchies, and others adopting a democratic form of government. Military dictatorships have been common in the Muslim world until the recent demise of such figures as Saddam Hussein and Qaddafi. Iran has a unique theocratic form of government, where religious clerics are key stakeholders in the running of the government. Some Muslim countries have a large percentage of non-Muslims as their citizens as well. All these factors influence not only the exchange of ideas within the Muslim world but also the development of any consensus of issues of importance within the sphere of political and commercial life. Needless to say there is need for convergence and unity among the Muslim countries in their understanding of the religion and in coordinating efforts to serve the needs of close to 1.3 billion Muslims across the globe.

      Modern Phase of Islamic Finance

      The modern phase of Islamic finance may have been the brainchild of political ideologists that saw the post–World War II world economic system built on the principles of interest. Efforts were made to develop in theory and in practice an economic and a financial system that did not depend on riba, but any such attempt could only meet with limited success when the currencies of each Muslim country were pegged to the U.S. dollar. The U.S. dollar system is based on interest. Had the Muslim world adopted a more isolationist attitude to international trade the results may have be different, and ironically two economies, China and India, that during the 1970s and 1980s had turned their back on international trade are now leading exporters on the global economic stage.

      Nevertheless, the Muslim world developed institutions to collaborate, the first of its kind being the Islamic Development Bank (IDB), which possibly embodies the aspirations of many Muslims in fulfilling the goals of a Muslim society.11 The IDB is unique in that its capital is provided by its member states, which are Muslim countries, and it funds projects related to infrastructure development, poverty alleviation, access to education, and clean water and such. The IDB is dedicated to providing funding on a sustainable basis to various segments of the Muslim world to improve the well-being of the ummah in general. One may think of it as a world bank for Muslim countries. The existence of IDB created a unique problem of providing funds to member countries not on an interest basis but on shariah-compliant basis, and it is likely that within the halls of IDB meetings the first financial products were developed.

      Institutions such as Accounting and Auditing for Islamic Financial Institutions sprang up when the idea of offering shariah-compliant financial products took germ as a commercially viable proposition for the private sector to adopt. Since 1971, when IDB was set up, other countries, like Pakistan, Malaysia, and Indonesia, also took the mandate to move their financial systems away from a riba-based structure to a more shariah-compliant alternative. Shariah advisors were placed within central banks and other regulating bodies to come up with a framework for “Islamic Banking and Islamic Insurance.” No other country took this task more seriously than Malaysia, which saw it as an opportunity to become a global hub for Islamic finance. Malaysia is surrounded by some of the major financial and business capitals of the world, such as Shanghai, Singapore, Hong Kong, and Tokyo, cities that are destinations of billions of dollars of foreign direct investment and international capital flows. Malaysia saw an opportunity to be the routing point for the flow of capital within the Muslim world and made great strides in making necessary changes in its regulatory system by acts of Parliament, changes in its taxation system and its legal system to bring Islamic finance in the mainstream of financial transactions. Capital markets were restructured and a methodology of shariah screening of asset classes was developed. The first shariah-compliant index was proposed in Kuala Lumpur.

      The Malaysian government funded research institutions to develop the infrastructure of Islamic banking products and also to set up training institutes to train its own bankers and those around the world in what it believed was a viable alternative to conventional banking and insurance.

      Bank Negara Malaysia, Securities Commission Malaysia, soon to be followed by Bank Indonesia, and Securities Commission Indonesia made formal announcements of issuing licenses to Islamic Banks, takaful companies, and Islamic asset management companies, and slowly the rest of the Muslim world followed.

      Malaysia followed a prudent approach to developing Islamic banks allowing existing banks to first begin with Islamic windows. Windows operations offered customers shariah-compliant asset and liability products as part of a conventional banks framework. The window operation functioned with its own balance sheet, but shared the infrastructure of the conventional bank to save on costs. The Islamic banking window had to have a team of shariah advisors to endorse products and processes. These products had to be approved by a shariah board placed at the central bank. The window operation was phased into subsidiaries, which had to maintain separate economic capital and report separate financial statements. Foreign banks were given the leniency to maintain Islamic banking divisions where a limited product menu was on offer, and capital only had to be lien marked in the bank's balance sheet to fund the assets of the Islamic banking business.

      Similarly, changes were made to the capital markets and rules were developed for screening asset classes and for offering shariah-compliant

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