ABSTRACT
This chapter covers the necessity of financial intermediation, the defects of the fractional reserve banking, nature of Islamic banking, risk sharing: a main principle of Sharia finance. It also covers capital markets as a pillar of Islamic finance, on the stability of conventional and Islamic stock markets and toward a regulatory framework conducive to Islamic finance. Debt money caused economies to navigate from booms to recessions; it evicted the gold standard. In the pursuit of income from interest on loans, banks kept issuing debt money, in multiple of their reserves, until they reach a financial crisis. Risk-sharing investment banking is another main component of Islamic banking. Investment banks do not emit or destroy money. The development of Islamic finance should emphasize, besides the promotion of investment banking, the development of capital markets. Stock markets, a main component of capital markets, essentially involve non-interest-based financing and should constitute a priority area in a strategy for developing Islamic finance.
