What is Wrong with Islamic Economics?

What is Wrong with Islamic Economics?

Analysing the Present State and Future Agenda

Studies in Islamic Finance, Accounting and Governance series

Muhammad Akram Khan

What is Wrong with Islamic Economics? takes an objective look at the state of the art in Islamic economics and finance. It analyses reasons for perceived stagnation and also suggests a way forward.

Chapter 11: Assessment of the orthodox interpretation

Muhammad Akram Khan

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation, islamic economics and finance, money and banking


There are two important strands of Muslim thinking on the nature and definition of riba and its relation with modern commercial banking and finance. The first and by far the most influential (the orthodox) considers all types of interest as riba and treats present-day commercial banking as unlawful in Islam. It pleads for an Islamic model of banking and finance that does not deal in interest. The thinking of orthodox scholars has fired the contemporary movement of Islamic finance. The second strand, consisting of liberals and modernists, considers that the interest of modern banks is not riba. Both strands have taken indefensible positions in facing questions on their respective points of view. The present chapter will make an assessment of the orthodox interpretation of riba. We shall assess the position of the modernists in the next chapter. Once we equate riba with interest, the immediate question arises: why has God prohibited interest? There is no direct answer to this question either in the Qur’an or in the Traditions of the Prophet. However, Muslim scholars have dealt with this question in detail. A summary of the reasons for prohibition given by orthodox scholars with our comments is as follows.

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