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Islamic banking at the crossroads: theory versus practice

Listed author(s):
  • Hasan, Zubair

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2821.

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Date of creation: 2005
Publication status: Published in Rodney Wilson and Munawar Iqbal (Ed.): Islamic perspectives on wealth creation, Edinbourgh University Press, UK (2005): pp. 11-25
Handle: RePEc:pra:mprapa:2821
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