Islamic Finance:Sructure-objective mismatch and its consequences

Zubair Hasan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper raises the issue of an initial structure-objective mismatch in the launching of Islamic finance. The abolition of interest and promotion of growth with equity were goals of the conceived system. These goals expressed a long run vision to improve the condition of the Muslim communities across the world. However, the organizational form adopted for Islamic finance was of the existing commercial banks which provided essentially short-term loans on interest to trade industry and commerce. The choice thus involved an intrinsic mismatch between the structure and objectives of Islamic finance. The mismatch did carry some advantages, but on a more important side it exposed Islamic finance to commitments and influences which could not mostly align well with the goals the pioneers had in mind. Note that in focus here is not the reversal of the mismatch but its consequences that have forced the nascent Islamic system to convergence and competition with the mature conventional finance the West dominates. It is not the ground realities that are being adapted to Shari’ah norms; it is the norms that are being stretched to limit for meeting the demands of the conventional system. Ordinary Muslims who hoped to benefit from Islamic financing remain unattended. Thus, what Islamic finance can or cannot change will depend on where its ongoing integration with the conventional system leads it to. Currently, most merits claimed for the Islamic system defy evidence. The basic reforms financial systems require in the face of current crisis are the control of credit, leverage lure, and speculation. Islamic finance is in principle better equipped to achieve these ends.

Keywords: Keywords: Islamic finance, convergence; Shari’ah compliance, credit creation; leverage; derivatives; financial crisis (search for similar items in EconPapers)
JEL-codes: E42 E44 E50 E51 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-ara, nep-cwa and nep-mac
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/21536/1/MPRA_paper_21536.pdf original version (application/pdf)

Related works:
Working Paper: Islamic Finance:Structure-objective mismatch and its consequences (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21536

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().