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How 'Islamic' is Islamic Banking?


  • Khan, Feisal


Islamic Banks hold well over US $700 billion in assets and are growing at over 15% p.a. Islamic Banking and Finance (IBF) involves wider ethical and moral issues than simply 'interest-free' transactions. Its advocates argue that these make it more economically efficient than conventional banking and promote greater economic equity and justice. To what extent, then, do actual Islamic Banking practices live up to the ideal, and how different are they from conventional banking? A preliminary investigation shows that, three decades after its introduction, there remain substantial divergences between IBF's ideals and its practices, and much of IBF still remains functionally indistinguishable from conventional banking. This runs counter to claims by IBF advocates that it would rapidly differentiate itself from conventional banking. However, despite not providing an alternative to conventional banking and finance, IBF does strengthen a distinctly Islamic identity by providing the appropriate Islamic terminology for de facto conventional financial transactions.

Suggested Citation

  • Khan, Feisal, 2010. "How 'Islamic' is Islamic Banking?," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 805-820, December.
  • Handle: RePEc:eee:jeborg:v:76:y:2010:i:3:p:805-820

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    References listed on IDEAS

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    8. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
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