Islamic banks – Current Practices

It is sometimes argued against the Islamic financial system that the Islamic banks and financial institutions, working since last three decades, did not bring any visible change in the economic set-up, not even in the field of financing. This indicates that the boastful claims of creating 'distributive justice' under the umbrella of Islamic banking are exaggerated.


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This criticism is not realistic, because it does not take into account the fact that, in proportion to the conventional banking, the Islamic banks and financial institutions are no more than a small drop in an ocean, and therefore, they cannot be supposed to revolutionise the economy in a short period.

Secondly, these institutions are passing through their age of infancy. They have to work under a large number of constraints, therefore, some of them have not been able to comply with all the requirements of Shariah in all their transactions, therefore, each and every transaction carried out by them cannot be attributed to Shariah.

Thirdly, the Islamic banks and financial institutions are not normally supported by the governments, legal and taxation system and the central banks of their respective countries. Under these circumstances, they have been given certain concessions, on the grounds of need or necessity, which are not based on the original and ideal principles of Shariah.

Islam, being a practical way of life, has two sets of rules; one is based on the ideal objectives of Shariah which is applicable in normal conditions, and the second is based on some relaxations given in abnormal situations. The real Islamic order is based on the former set of principles, while the latter is a concession which can be availed at times of need, but it does not reflect the true picture of the real Islamic order.

Living under constraints, the Islamic banks are mostly relying on the second set of rules, therefore, their activities could not bring a visible change even in the limited circle of their operations. However, if the whole financing system is based on the ideal Islamic principles, it will certainly bring a discernible impact on the economy.

The ideal Islamic principles of finance have been elaborated  in this section and later on we will discuss the best possible concessions that may be availed of in the transitory period where the Islamic institutions are working under pressure of the existing legal and fiscal system. Shariah has specific principles about such concessions as well, and their basic purpose is to avoid clear prohibitions by adopting a less preferable line of action. This may not serve the basic purpose of establishing a true Islamic order, yet it may help one refrain from a glaring sin and save him from the evil fate of disobedience, which, in itself, is a cherished goal of a Muslim, though at individual level.

Source: Mufti Muhammad Taqi Usmani, An Introduction to Islamic Finance. Republished with permission.