Issues in theory and practice of Islamic finance and the reform agenda

الملخص EN

Despite exponential growth over the last four and a half decades, Islamic finance is facing serious challenges both in terms of credibility as a value-based system, as well as sustainability.

While many authors, forums, and research institutions have been indicating the lacuna and suggesting reforms for some years, the initiative by the Journal of King Abdulaziz University: Islamic Economics to explore the area is a welcome effort.

This analytical essay discusses the theoretical foundations of Islamic finance, and the difference of opinions and issues like the current focus on quantity versus quality and authenticity versus innovations.

It suggests a reforms agenda with the objective to make Islamic finance a sustainable discipline distinct from the conventional finance.

It also suggests a different role for the regulators, the practitioners and the jurists, and the code of ethics for the management of Islamic banking and finance institutions (IBFIs).

While the conventional institutions are moving towards value based financial intermediation (VBI), it is more a duty of the IBFIs to move to VBI by focusing on financing the real production and business sectors for shared development in the societies.

The reforms agenda also assigns a responsible role to the jurists, the practitioners, the regulators, and the governments