Islamic Accounting
Journal of Economic Behavior & Organization 76 (2010) 805–820
Contents lists available at ScienceDirect
Journal of Economic Behavior & Organization journal homepage: www.elsevier.com/locate/jebo
How ‘Islamic’ is Islamic Banking?
Feisal Khan ∗
Dept. of Economics, Hobart and William Smith Colleges, 300 Pulteney Street, Geneva, NY 14456, United States
a r t i c l e
i n f o
a b s t r a c t
Islamic Banks hold well over US $700 billion in assets and are growing at over 15% p.a. Islamic Banking and Finance (IBF) involves wider ethical and moral issues than simply ‘interest-free’ transactions. Its advocates argue that these make it more economically efficient than conventional banking and promote greater economic equity and justice. To what extent, then, do actual Islamic Banking practices live up to the ideal, and how different are they from conventional banking? A preliminary investigation shows that, three decades after its introduction, there remain substantial divergences between IBF’s ideals and its practices, and much of IBF still remains functionally indistinguishable from conventional banking. This runs counter to claims by IBF advocates that it would rapidly differentiate itself from conventional banking. However, despite not providing an alternative to conventional banking and finance, IBF does strengthen a distinctly Islamic identity by providing the appropriate Islamic terminology for de facto conventional financial transactions. © 2010 Elsevier B.V. All rights reserved.
Article history: Received 3 June 2008 Received in revised form 20 September 2010 Accepted 20 September 2010 Available online 29 September 2010 JEL classification: P48 E44 G21 N25 Keywords: Islamic Banking Murabaha ¯ Riba Interest-free finance
1. Introduction 1.1. Size and extent of Islamic Banking Worldwide Commonly synonymous with ‘interest-free’ banking, Islamic Banking has become a growing force in global financial circles over the past three decades, with Islamic
Contents lists available at ScienceDirect
Journal of Economic Behavior & Organization journal homepage: www.elsevier.com/locate/jebo
How ‘Islamic’ is Islamic Banking?
Feisal Khan ∗
Dept. of Economics, Hobart and William Smith Colleges, 300 Pulteney Street, Geneva, NY 14456, United States
a r t i c l e
i n f o
a b s t r a c t
Islamic Banks hold well over US $700 billion in assets and are growing at over 15% p.a. Islamic Banking and Finance (IBF) involves wider ethical and moral issues than simply ‘interest-free’ transactions. Its advocates argue that these make it more economically efficient than conventional banking and promote greater economic equity and justice. To what extent, then, do actual Islamic Banking practices live up to the ideal, and how different are they from conventional banking? A preliminary investigation shows that, three decades after its introduction, there remain substantial divergences between IBF’s ideals and its practices, and much of IBF still remains functionally indistinguishable from conventional banking. This runs counter to claims by IBF advocates that it would rapidly differentiate itself from conventional banking. However, despite not providing an alternative to conventional banking and finance, IBF does strengthen a distinctly Islamic identity by providing the appropriate Islamic terminology for de facto conventional financial transactions. © 2010 Elsevier B.V. All rights reserved.
Article history: Received 3 June 2008 Received in revised form 20 September 2010 Accepted 20 September 2010 Available online 29 September 2010 JEL classification: P48 E44 G21 N25 Keywords: Islamic Banking Murabaha ¯ Riba Interest-free finance
1. Introduction 1.1. Size and extent of Islamic Banking Worldwide Commonly synonymous with ‘interest-free’ banking, Islamic Banking has become a growing force in global financial circles over the past three decades, with Islamic
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