Research Summary

Islamic Financing Practices

by Samuel L. Hayes


Samuel L. Hayes III is examining (with faculty of Harvard University's Law School and Center for Middle Eastern Studies) Islamic banking and investment practices. Because the Koran prohibits the payment of fixed interest and guarantees on funds invested either with a banking intermediary or directly in an investment project, conventional western deposit and lending instruments often do not conform to Islamic religious tenets. Yet a number of Middle Eastern banks conduct business in compliance with the religious laws of Islam, and the national banking systems of Iran, Sudan, and Pakistan are founded on Islamic law. Hayes is exploring the composition of this market and the prospects for its growth in the context of the global capital market. He is also examining the structure of financings characterized as Islamic to determine how they differ from conventional Western practice. Finally, Hayes is looking at a number of financial packaging combinations made possible by the development of derivative securities to see if they might meet the investment objectives of devout Muslims.