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Islamic Banking

Mervyn K. Lewis and Latifa M. Algaoud

The prohibition of interest is the feature of Islamic banking which most distinctly sets it apart from conventional banking. To Western eyes, this seems a strange restriction, but Christian countries themselves maintained such a ban for 1,400 years. Islamic Banking asks why Islam has been able to maintain its stand. The book explores the intricacies of Islamic law and the religious and ethical principles underpinning Islamic banking. It then considers the analytical basis of Islamic banking and financing in the light of modern theories of financial intermediation, and identifies the conceptual issues to be overcome.  
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Chapter 10: Conclusions

Mervyn K. Lewis and Latifa M. Algaoud


This, then, is a summary of what was done. A number of conclusions are suggested. There are now over 200 banks operating according to shari’a principles in five of the world’s major continents, namely Asia, Africa, Australia, Europe and North America, along with other areas such as the Caribbean Islands. This geographical diversification shows both the flexibility and adaptability of the system of Islamic banking and the sizeable market which exists for the special products that Islamic banks have to offer. 2. Three countries, Pakistan, Iran and Sudan, have sought a complete transition of their financial systems to Islamic principles, but they differ markedly in the speed of the transition and the legal and social infrastructure fashioned to facilitate the process. Funding the government budget on a riba-free basis is a central problem, which has been skirted around in Iran and remains to be solved in Pakistan. We see public sector-private sector partnerships, and the financing of infrastructure using Islamically-acceptable project finance instruments, as one way around this impasse. 3. In other countries the introduction of Islamic financing has involved establishing Islamic banks which compete openly with conventional banks (and in some cases with other Islamic institutions). But, in all cases, Islamic banks have found a market niche. In many cases, they have diversified into Takaful insurance, investment banking, fund management and offshore activities. 4. While Islamic banking is clearly feasible, and can operate successfully, Islamic banks based in a modern economy face their own set of problems. Judged in...

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