Chapter

Islamic Banking at the Crossroads: Theory versus Practice

Zubair Hasan

in Islamic Perspectives on Wealth Creation

Published by Edinburgh University Press

Published in print May 2005 | ISBN: 9780748621002
Published online March 2012 | e-ISBN: 9780748653096 | DOI: http://dx.doi.org/10.3366/edinburgh/9780748621002.003.0002
Islamic Banking at the Crossroads: Theory versus Practice

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This chapter examines the underlying reasons behind the widening gap between the conventional theory and current practice of Islamic banks, arguing that ‘No risk, no gain’ is not a sufficient general principle for organising Islamic finance. It is also not always valid to claim that Islam is averse to granting a time value for money. The overuse of deferred payment contracts in Islamic finance threatens to violate the juristic principle of sadd al-dharaī that is controlling the potential avenues for the circumvention of the law. The chapter suggests some structural changes to the Islamic financial arrangements to create a balance in the usage of profit and loss sharing contracts and deferred payment contracts in Islamic banking.

Keywords: conventional theory; Islamic banks; Islamic finance; deferred payment; Islamic financial arrangements; loss sharing

Chapter.  6811 words. 

Subjects: Society and Culture

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