Foundations of Islamic Finance series
Edited by Mervyn K. Lewis, Mohamed Ariff and Shamsher Mohamad
Chapter 17: Development needs of the Islamic banking industry
In this concluding chapter, we summarize some of the main themes and ideas in the preceding chapters before considering the challenges the Islamic financial services industry is facing in the second decade of the twenty-first century. The first contribution of this book is that we have sought to connect the Islamic banking theories to the rich conceptual framework already developed over some five decades that form the basis of research (and graduate courses) on conventional banking and financial intermediation, in particular, information asymmetries, adverse selection, moral hazard, agency theory, optimal contract design and incentive structures. A second contribution is an analysis of the risk-and-profit-sharing aspects of Islamic finance as well as the specific regulatory developments on the operational matters to manage Islamic banking. The latter discussion points to distinctive differences in the way Islamic banks price products without using interest rates, which form the core of conventional finance as the latter developed particularly over two-and-half centuries ago as a fractional banking system.
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