Munich Personal RePEc Archive

Does Islamic banking help in economic development of Muslim countries?

Abdelrahman, Abdelrahman Yousri (2015): Does Islamic banking help in economic development of Muslim countries? Published in: JIBM , Vol. Vol. 6, No. JIBM, Vol.6 No.2, 2016 (December) (December 2016): pp. 19-39.

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What is the role of the banking system in economic development? Focus is placed in this paper on the Islamic banking system because the conventional Riba-based system is undesireable in Islamic law. Calling for replacement of conventional by Islamic banking is not only, however, to eliminate Riba (inteest), but because a Riba-free financial system is believed to be more capable in mobilizing and employing financial resources in Muslim countries. Hence, in theory, an Islamic banking system would efficiently help in pushing economic development.The paper attempts to evaluate the role of Islamic banking in development in four decades on bases of what was expected from this system and what was achieved. Many questions arise in this respect, but most important of them in the context of economic development is: how far Islamic banks succeeded in employing their financial resources in the Production sector, and accordingly how far they were able to help economic development? Have they done a better job than conventional banks which we are rejecting on religious bases? We have to emphasize that Islamic banking, in principle, is not an option, it is a must. Yet, we have to shed light on pros and cons of Islamic banks in practice. The paper attempts to present proposals that would ensure satisfactory performance of Islamic banking in future.

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