Abstract
This paper argues on the following two points by focusing on the financial instruments used in contemporary Islamic finance. First, I attempt to evaluate the practice of Islamic financial institutions with respect to various related theories and clarify that such an evaluation is based on their reality. Second, from such a realistic view of Islamic financial institutions, I attempt to clarify the theoretical characteristic of contemporary Islamic finance. Contemporary Islamic finance suspends the removal of riba(interest) that is prohibited by Islam. This financial system is based on the factors that lead to the reconstruction of the pre-modern financial instruments in the Islamic world. Further, it conducts theoretical innovations as per contemporary demands. Since the 1970s, the practice of contemporary Islamic finance has proliferated as an Islamic financial institution, and presently, its operation continues to extend both qualitatively and quantitatively. With the rapid growth of contemporary Islamic finance, many arguments have been made in both theory and practice, particularly on murabahah contract. On the one hand, this contract plays a big role in many Islamic financial institutions, and on the other, it is indicated that the process involved in murabahah contract resembles that involved in an interest-based loan contract, which is in conflict with the concept of ribd. To address this problem, theoretical opinions are given from two different schools: these two schools are distinguished by a difference of an opinion with regard to the implications of concept of riba in the modern context. In this paper, I attempt to evaluate the practice of Islamic financial institutions with respect to these schools by focusing on the argument regarding murabahah contract. My brief conclusion on this issue is as follows: Islamic financial institutions are placed in a "saddle point" that balances the legitimacy of Islamic law with economic rationality, while taking account of various theoretical arguments and criticism. In such a case, the practice of murabahah contract in Islamic financial institutions is concretely embodied in Islamicity and impacts conventional financial systems in a way that makes them compatible with economic rationality while intentionally aiming at success in practicing contemporary Islamic finance. With regard to my second argument, I also focus on murabahah contract in particular because of the necessity of a theoretical construction based on practice. Then, with regard to the research of the theoretical characteristic of contemporary Islamic finance, I extend my consideration to enable the clarification of the theoretical characteristic of murabahah contract; not only can this clarify the difference between murabahah contract and interestbased loan but also a commonality with other financial instruments in Islamic financial institutions, for instance, mudarabah contract and musharakah contract. From this viewpoint, I conclude that the theoretical characteristic of contemporary Islamic finance is the direct relations between finance and the real(market) economy. This characteristic can effectively clarify the difference between interest-based loans and murabahah contract. Furthermore, it is clarified that this characteristic is considerably more convincing than that in conventional studies.
