Chapter

Economic Issues: Islamic Finance and Development

Ibrahim Warde

in Islamic Finance in the Global Economy

Published by Edinburgh University Press

Published in print February 2000 | ISBN: 9780748612161
Published online March 2012 | e-ISBN: 9780748653072 | DOI: http://dx.doi.org/10.3366/edinburgh/9780748612161.003.0010
Economic Issues: Islamic Finance and Development

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Promoters of Islamic finance have argued that it is not only consistent with capitalism, but that it is in many ways suited to a dynamic economy. More specifically, it is believed that Islamic finance could bring about more efficient mobilisation of savings, more equitable and just distribution of resources, more responsible and profitable lending, more stable banking systems and less volatile business cycles. This is of course a theory. The difficult part and the challenge is how to translate the broad principles of Islamic finance into a concrete reality. More specifically, in order to contribute to economic growth and development, banks must learn how to transform savings into real investments, transform small deposits into large loans, act as risk arbitrageurs among investments with different rates of return and risk levels, and devise an attractive mix of financial instruments. Following some comments on Islam and economic liberalism, this chapter discusses four sets of economic issues and challenges: the mobilization of savings; Islamic capital markets; economic development and fund allocation; and macro-economic policies. The rest of the chapter discusses the roles of Islamic finance in project finance and poverty reduction.

Keywords: economic issues; mobilisation of savings; Islamic capital markets; economic development; fund allocation; macro-economic policies; project finance; poverty reduction

Chapter.  7180 words. 

Subjects: Society and Culture

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