The case for respecting the status quo in Islamic finance

الملخص EN

There are repeated calls for the reform of Islamic banking and finance from academic economists.

Critics assert that Islamic financial institutions are simply replicating conventional banks and ignoring Sharīʿah teachings.

There is a very critical rhetoric on Islamic banking practice, but this is expounded without examining the facts on the ground.

In contrast, in this evidence-based investigation the activities of three leading Islamic banks are examined, Al Rajhi Bank, Maybank Islamic, and Meezan Bank.

All three are found to have reputable scholars on their Sharīʿah boards to ensure compliance with Islamic law.

These institutions are incorporated as listed companies rather than being mutual or co-operative organizations as some Islamic economists advocate.

Being a limited liability company ensures they can raise risk capital and conform to international regulations which are enforced by central banks.

The three case studies reveal that the banks have been innovative in the deposit facilities offered as well as in their financing methods.

Much of their financing is through leasing for vehicle acquisition and residential mortgages.

Although focused on retail customers, the banks also provide commercial and investment banking services for companies and finance for small and medium sized enterprises.

In summary, far from being broken, Islamic banks provide helpful financing for modern economies.