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Islamic banking at the crossroads: theory versus practice

Author

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  • Hasan, Zubair

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.

Suggested Citation

  • Hasan, Zubair, 2005. "Islamic banking at the crossroads: theory versus practice," MPRA Paper 2821, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:2821
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    File URL: https://mpra.ub.uni-muenchen.de/2821/1/MPRA_paper_2821.pdf
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    Citations

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    Cited by:

    1. Zubair Hasan, 2008. "Credit creation and control: an unresolved issue in Islamic banking," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 1(1), pages 69-81, April.
    2. Hasan, Zubair, 2014. "Risk sharing versus risk transfer in islamic finance," MPRA Paper 62810, University Library of Munich, Germany, revised Mar 2015.
    3. Hasan, Zubair, 2008. "Ialamic finance education at graduate level: Current position and challenges," MPRA Paper 8615, University Library of Munich, Germany.
    4. Kablan, S & Yousfi, O, 2011. "Efficiency of islamic and conventional banks in countries with islamic banking," MPRA Paper 32951, University Library of Munich, Germany.
    5. Zubair HASAN, 2016. "Nature and Significance of Islamic Economics," Journal of Economic and Social Thought, KSP Journals, vol. 3(3), pages 400-416, September.
    6. Hasan, Zubair, 2008. "Markets and the role of government in an economy from Islamic perspective," MPRA Paper 12233, University Library of Munich, Germany.
    7. Sandrine Kablan & Ouidad Yousfi, 2015. "Performance of Islamic Banks across the World: An Empirical Analysis over the Period 2001-2008," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(1), pages 27-46.
    8. Hasan, Zubair, 2016. "Evolution of Islamic Economics:Definition, nature, methodology, problems and challenges," MPRA Paper 71858, University Library of Munich, Germany.
    9. Hasan, Zubair, 2016. "Risk-sharing the sole basis of Islamic finance? time for a serious rethink," MPRA Paper 72252, University Library of Munich, Germany, revised 15 Apr 2018.
    10. Hasan, Zubair, 2008. "Islamic Finance Education At The Graduate Level Current State And Challenges," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 16, pages 1-29.
    11. Hasan, Zubair, 2014. "Risk sharing versus risk transfer in Islamic finance: revised," MPRA Paper 62826, University Library of Munich, Germany, revised Mar 2015.
    12. Hasan, Zubair, 2014. "Risk-sharing versus risk-transfer in Islamic finance: An evaluation," MPRA Paper 58059, University Library of Munich, Germany.
    13. Siddiqi, Mohammad Nejatullah, 2006. "Islamic Banking And Finance In Theory And Practice: A Survey Of State Of The Art," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 13, pages 2-48.
    14. Nazim Zaman & Mehmet Asutay, 2009. "Divergence Between Aspirations And Realities Of Islamic Economics: A Political Economy Approach To Bridging The Divide," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 17(1), pages 73-96, June.
    15. Hasan, Zubair, 2015. "Risk sharing versus risk transfer in islamic finance," MPRA Paper 62847, University Library of Munich, Germany, revised Mar 2015.
    16. Hasan, Zubair, 2008. "Islamic Banks: Profit sharing, equity, leverage lure and credit control," MPRA Paper 11737, University Library of Munich, Germany, revised Nov 2008.
    17. repec:ipg:wpaper:2014-448 is not listed on IDEAS
    18. Hasan, Zubair, 2015. "Risk sharing versus risk transfer in Islamic Finance: A critical appraisal," MPRA Paper 65028, University Library of Munich, Germany, revised May 2015.
    19. Hasan, Zubair, 2016. "Credit control instruments in a dual banking system: leverage control rate (LCR) – a proposal," MPRA Paper 65027, University Library of Munich, Germany, revised 18 Feb 2016.

    More about this item

    Keywords

    Islamic banking theory Malaysia;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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