Islamic Banking and Finance: In Search of a Pragmatic Model

Among the movements for reform arising from the global Islamic revivalist movement in the twentieth century was a call for economic and financial institutions in Muslim countries to more closely align with Islamic norms and principles. However, the realization of this ideal has proved more challenging than perhaps expected. Today, Muslims continue to seek a balance between the desire to remain true to the principles of their religious tradition and the need to be actively involved in today’s rapidly changing world of finance and commercial transactions. This chapter from the book Islamic Perspectives on the New Millenium discusses the practical realities of the revival of Islamic banking and finance in the late-twentieth and early twenty-first centuries, from idealism to pragmatism. An examination of Islamic principles is followed by an exploration of their practical application in the field of banking and finance. The views of 'pragmatic' thinkers on Islamic banking and finance regarding the concepts of riba (usury), profit, and investment in companies are explored, as well as the pragmatic shift from the profit and loss sharing model to sale-based banking. Saeed analyses the issue of whether the practical application of Islamic banking and finance actually complies with classical Islamic principles and whether, in reality, it actually varies significantly from modern conventional banking and finance. The author explores the reasons for the pragmatic approach, including the structural realities of modern commercial and financial markets, and suggests that such developments are likely to continue.