Islamic Finance at the Crossroads

Evaluating the New Future Vision for the Post-capitalist Era Proposed by the Heretics

Abstract

The commercial practice of Islamic finance, which is based on religious beliefs, started in the 1970s, and has since rapidly penetrated all over the world. Prior to the rise of this practice, those who desired the revival of the Islamic economic system in the modern world formulated two agreements on the practice as an ideal structure of the Islamic financial system. One is “mudaraba consensus,” that is, all financial products should be provided through profit-loss sharing modes; the other is “interest-riba consensus,” that is, any rates of interests should be prohibited in Islamic finance because interest and riba are considered synonymous. However, when we trace back the history of Islamic finance, it is clear that both agreements have not been fully implemented in practice. Islamic finance has always struggled with a gap between ideas and reality. Recently, some “heretical” scholars started a new discussion that reconsiders these agreements for bridging the gap. Such an attempt has great potential to open up a new horizon for Islamic finance in the post-capitalist era, although it could break the very identity of Islamic finance.