Islamic banking at the crossroads: theory versus practice

Hasan, Zubair (2005): Islamic banking at the crossroads: theory versus practice. Published in: Rodney Wilson and Munawar Iqbal (Ed.): Islamic perspectives on wealth creation, Edinbourgh University Press, UK (2005): pp. 11-25.

Abstract

This paper examines the reasons for a widening gap between the conventional theory and current practice of Islamic banks. It finds fault at both the ends. ’No risk, no gain’ is inadequate as a general principle for organizing Islamic finance. It is also not always valid to say that Islam is averse to granting of a time value for money. The overuse of deferred contracts in Islamic finance threatens to violate the juristic principle of sadd al-dhara’i i.e. controlling the potential avenues for circumvention of the law. Some structural changes in Islamic financial arrangements are suggested to create a balance in the use of PLS and deferred contracts in Islamic banking.

• Item Type: MPRA Paper
• Institution: International Islamic University of Malaysia
• Language: English
• Keywords: Islamic banking theory Malaysia
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services