Islamic Banking and Finance: Concept and Reality

By  Ruslan Sabirzyanov and MohamadHaidirHashim

Abstract

The aim and focus of the foundations and principles of the modern Islamic finance is to revive the justice and equity in the society, and that formulates the core objective of the Islamic system. However, in the current situation, Islamic banking and finance (IBF) is apparently mixing up the concept of social welfare and the conventional ideology of wealth maximisation altogether due to the unavoidable need to compete with the conventional financial system and the force of convergence between those two. There are many Islamic finance scholars who now argue that ‘banks are not for poor’, which clearly shows that the need for the new institution is necessary. Therefore, establishment of new institutions and reformation and improvement of present ones will bring complete and solid Islamic financial system, which then will contribute to enhancement of the distributive and social justice in the society, which will be one step closer to the completion of the true Islamic economic system. This paper studies the emergence of IBF, its relationship with maqasid al-Shari’ah, meaning, proper comprehension and appropriate application of Shari’ah objectives, as well as challenges facing in realising these divine objectives. The paper analyses current practices of IBF showing examples of social failure and deviations of IBF from the concept of maqasid al-Shari’ah and provides some practical solutions, implementation of which should bring IBF back on its course to achieve maqasid al-Shari’ah.