Islamic finance crossing the 40-years milestone – the way forward

Abstract

Islamic finance has experienced considerable growth worldwide in
terms of deposits and assets of Islamic banks over the last 40 years, but shows
little signs of achieving maturity. Almost all Islamic finance products currently
is use are mere replicas of their conventional counterparts. This study follows
the archival research strategy of Bryman (1989), and analyses the literature
on Islamic finance theory and products and practices in order to ascertain
the reforms needed for the maturity goal. The paper proposes adoption of
a new law regarding money, different policy approaches, new structures of
finance for shifting to risk-based financing, new models, procedures and some
fresh thought in order to relate banking and finance to the real economy. It
recommends a leading role for Islamic economists for effective reforms in the
monetary and credit system in order to ensure that all financing is based on
goods, services, stocks or securities representing real assets in line with
the Shariʽah principles. The suggested policy measures are expected to lead
to social inclusion and harmony in the interests of all stakeholders in business
and finance transactions.