THE ESSENCE OF ISLAM It is difficult to examine the workings of Islamic banking without some knowledge of the economic and legal principles underlying an Islamic banking system. The first thing which has to be eschewed is the notion that Islamic economics is a new paradigm. Certainly, Islamic economic thought has come to the fore in recent years in a number of Muslim states. But as noted in Chapter 1, the ideas can be traced back to the message of the Holy Qur’an in the seventh century, and in this sense Islamic economics is as old if not older than the theoretical foundations of most Western economic systems, especially modern capitalism.1 Those who pioneered Islamic economic thought developed rules for carrying on banking and finance from Islamic law or the shari’a (formally shari’a Islami’iah but generally abbreviated to shari’ah or shari’a). The literal meaning of the Arabic word shari’a is ‘the way to the source of life’ and, in a technical sense, it is now used to refer to a legal system in keeping with the code of behaviour called for by the Holy Qur’an and the hadith (the authentic tradition). Muslims cannot, in good faith, compartmentalise their behaviour into religious and secular dimensions, and their actions are always bound by the shari’a. Islamic law thus embodies an encompassing set of duties and practices including worship, prayer, manners and morals, marriage, inheritance, crime and commercial transactions: that is, it embraces many aspects that would not necessarily be considered as law...
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