IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Theory of Islamic Banking: from Genesis to Degeneration

Listed author(s):
  • Muhammad Zahid Siddique


    (Quaid-i-Azam University & S3H, NUST)

  • Mazhar Iqbal


    (Quaid-i-Azam University)

Registered author(s):

    Islamic banking was launched as an alternative of interest based banking. Pioneers of Islamic banking defined profit-and-loss sharing as the desirable alternative. As far modes involving fixed return, they were either not considered by the pioneers or were deemed only permissible but not desirable. But the practice of Islamic banking did not follow this ‘idealist theory’ and relied heavily on ‘undesirable’ contracts. Later on, pragmatic approach to Islamic banking questioned the priority associated with pls business forms and justified the modeling of Islamic banking using even controversial contracts. The paper shows that these developments in Islamic banking theory were not meant to overcome the problems that hindered the practice of its first best theory but to accommodate Islamic banking transactions according to the needs of interest based system. This academic approach could not result in the alternative of the conventional system rather leads to integration within it. Thus, Islamic banking theorists adopted a strategy that is largely responsible for the current state of affairs in Islamic banking. To take industry out of it, a shift in its approach from accommodationist to transformationist strategy is required.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Fabrizio Serra Editore, Pisa - Roma in its journal History of Economic Ideas.

    Volume (Year): 24 (2016)
    Issue (Month): 2 ()
    Pages: 75-110

    in new window

    Handle: RePEc:hid:journl:v:24:y:2016:2:4:p:75-110
    Contact details of provider: Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:hid:journl:v:24:y:2016:2:4:p:75-110. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mario Aldo Cedrini)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.