Universal banking is one of the main components of Islamic banking. Islamic banks provide finance to enterprises through either sharing directly in the net results of their activities or financing their purchases of assets, goods and services on credit. We can therefore expect Islamic banks to hold equity in corporations and sit on their boards of directors. This paper aims to put forward the case of universal banking as a part of Islamic banking. A large amount of literature is surveyed that comes from banking theory, macroeconomic and monetary theory, as well as empirical studies about banking practices. The conclusion is that universal banking on its own is a sound practice that can offer developing countries special advantages. Such a conclusion is rather important because many of the Islamic countries where believers in Islamic banking reside are developing. It would therefore be helpful to see that Islamic banking as it contains universal banking would give a helping hand in the process of development that would not be easily obtained from conventional banking.

We argue that regulation can improve the performance of conventional banks up to a limit, but cannot eliminate the inefficiencies resulting from the use of the conventional loan contract. Islamic finance requires complicated and costly procedures compared to conventional finance. Yet, it has significant macroeconomic benefits, which cannot be internalized by individual banks. Therefore, Islamic bankers tend to mimic conventional finance in order to cut costs and maximize short-term profits. Regulation can modify bankers' incentives in order to capture the benefits of Islamic finance.

The paper "Enhancing corporate governance in Islamic financial institutions" presented at Islamic Research and Training Institute-AAOFI Conference on Transparency, Governance and Risk Management in Islamic Financial Institution, Beirut, Lebanon.

After a generation of non-professional writers in Islamic economics, professional economists entered the stage with an important ambition, which has been to introduce a third alternative to humanity in addition to capitalism and socialism that would answer some of the inadequacies of each. Moreover, the analysis of human (individual and collective) behavior towards scarcity under the teachings of Islam was itself worth pursuing. The intellectual effort is yet to produce significant practices of Islamic economics. The exceptions include some application of Islamic finance that raises many questions, and a few applications of zakah and awqaf. The most serious challenge of Islamic finance is the rise of products of ill repute that result from determined refusal to adhere to the decisions of the International Islamic Fiqh Academy. This paper identifies several gaps in Islamic economics and proposes ways to fill them, placing such responsibility squarely on Islamic economists.

Reforming the contemporary monetary and financial system has come under the limelight with the onset of the last international financial crisis. Zarlenga and Poteat focus on the elimination of credit money and the return of the exclusive right of issuing money to the government as a key to reforming the system. In this comment, I argue that they are right, but reform should be wider and more comprehensive. My arguments are inspired by al-Jarhi's model of an Islamic monetary system (1981).

Repeated failure of banks led some economists to believe that the banking and financial system may be suffering from structural problems and is in need of fundamental reform. The Islamic monetary system is known to consider demand and investment deposits as two distinct contracts. Demand deposits are merely loans that are fully guaranteed by banks and must be returned on demand. Investment deposits are given to banks on a profit-and-loss sharing basis. They are clearly associated with risk-taking and have specific maturities which, in principle, are not revocable. Compared to conventional finance, this sounds like narrow banking. Garcia, Marino and Cibils (2000) find similarities between narrow banking and Islamic banking. As narrow banking seems to be an uncommon concept among specialists in Islamic economics, this comment is rather expanded to explain the what and why of narrow banking. The paper concludes that narrow banking bears similarities with Islamic banking. Under narrow banking, the role of investment banks would carry features similar to Islamic banking when the relationship between savers and banks are considered. However, when it comes to financing investment, Islamic banks avoid trading future for present money, while conventional investment banks stick to the interest-based modes of finance.

Islamic finance has several comparative advantages over conventional finance. Since they are related to efficiency, stability and other macroeconomic benefits, they cannot be easily internalized by Islamic bankers. Islamic bankers have no incentive to stick to the Islamic finance paradigm and instead tend to mimic conventional finance. Regulation is therefore required to modify their behavior in order to allow the Islamic finance industry to enjoy its advantages. This paper attempts modify the economic theory of bank regulations towards that aim.