Islamic Wealth Management
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Islamic Wealth Management

Theory and Practice

Edited by Mohamed Ariff and Shamsher Mohamad

From an Islamic perspective, although the ownership of wealth is with God, humans are gifted with wealth to manage it with the objective of benefiting the human society. Such guidance means that wealth management is a process involving the accumulation, generation, purification, preservation and distribution of wealth, all to be conducted carefully in permissible ways. This book is the first to lay out a coherent framework on how wealth management should be conducted in compliance with guiding principles from edicts of a major world religion.
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Chapter 10: Benchmarks for Islamic asset pricing

Abbas Mirakhor


Benchmarks serve a critical role in financial markets for pricing the riskiness of a financial security, to indicate the relative value or opportunity cost of capital and to serve as a performance yardstick. The Islamic finance industry globally has yet to develop appropriate benchmarks and currently use LIBOR as the reference benchmark in determining expected rate of return in shariah-compliant securities. This chapter explains the significance and the critical role of LIBOR as a financial benchmark in current conventional banking and financial markets, and discusses the issues arising from the use of LIBOR as a compliant investment. A linkage between the concept of benchmarking and the doctrine of market price in Islam is established and contrasted from the perspective of wealth management in Islam. The risk of using an interest rate-based benchmark by Islamic financial institutions is highlighted and there is an urgent need to create an interest-free benchmark in place of LIBOR is explained.

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