The first Islamic financial institution was a mutual savings bank formed in the Egyptian town of Mit Ghamar in 1963. Since then, Islamic finance has evolved into an adaptive system of international practices and regulations capable of harmonizing classical religious precepts, social responsibility, and traditionalism with the modern exigencies of globalized banking. Today, according to the International Monetary Fund, there are over 300 Islamic financial institutions in more than 75 countries with total assets worldwide exceeding $250 billion and growth rates exceeding 15 percent a year.1 As of June 2006, Moody's estimated that there are over 250 Islamic mutual funds, with a total of $300 billion in assets.2
Despite this scope and imprint on the global economy, Islamic finance remains poorly understood at both the theoretical and practical level. Moreover, despite a number of recent optimistic trends, Islamic finance faces several ideological and structural challenges to full integration in the globalized economy. This Article aims to illuminate these challenges and provide a general overview of contemporary Islamic financial theories and practices. The first section concentrates on the size of the world's Muslim population, the size of Muslim economies, and concepts of Islamic finance itself. The second section examines Muslim beliefs related to contemporary corporate finance. The third section looks at the challenges of Islamic finance. Security issues in Islamic finance, with a particular focus on the financial theories of the radical Salafi movement, are an important development and need to be understood clearly in terms of the challenges facing Muslim financial instruments and law. Specifically, we examine the fundamental paradox of the Salafi's particular interpretation of Islamic finance. While Salafi-jihadist writings impose a sort of economic apartheid between Muslims and non-Muslims, their calls for economic jihad against the West (divestiture and boycott) try to exploit the very same interdependence and forces of globalization they decry.
II. SCOPE OF MUSLIM POPULATION AND SIZE OF ECONOMIES
Muslim people comprise over 20 percent of the world's population. Countries with Muslim-majority populations are distinguished by significant economic and political statistics. As a group they generate over 10 percent of global GDP and constitute 10 of the 11 members of OPEC. One member of this group, Turkey, also belongs to NATO. These countries are clustered mostly in the second and third quartiles of the Heritage Foundation/Wall Street Journal Index of Economic Freedom3 and receive an average rank of 111 out of 177 countries in the United Nation's Human Development Index (but include the lowest 5 in the index).4
These statistics demonstrate the economic and political importance and diversity of countries where Muslims are the majority. But juxtaposed against this complex tapestry is the common faith of Muslims, which is based primarily on two literary works. The most authoritative work is the Holy Qur'an, consisting of divine revelations by the Prophet Muhammad. Another primary source is the Sunnah, a collection of books organized into narrations of the life and lessons of the Prophet Muhammad. Among other things, these works establish the laws of daily social life for Muslims, collectively called Shari'ah. Rules are prescribed for marriage, diet, religious observation, dress, family obligations, and other issues that shape societal behavior.
III. IMPACT OF MUSLIM BELIEFS ON MODERN CORPORATE FINANCE
Shar'ah prescribes certain rules that apply to business practices, perhaps the best known being the Islamic ban on riba (interest or usurious interest). But Islamic finance is complex and is broadly defined as business practices with a base of rules that are generally consistent with Muslim beliefs.
There are numerous ways that Shari'ah impacts business from a Western perspective. …