| Abstract: |
After more than 40 years of practice, the Islamic finance industry is riddled
with products that have a camouflage of Islamic form, but lack Shari'ah
validity of purpose. The increasing tendency to mimic conventional finance,
had the industry converging to its conventional counterpart. It is therefore
seriously threatened with increasing cynicism and popular decline in interest.
The paper looks into the essence of Reba prohibition from an economic
perspective, using a concise classification of transactions, and how popular
monetary theory looks on a positive rate of interest with disfavor. It
evaluates Shari'ah scholars approach to the validation of contracts as well as
the attitude of monetary authorities towards the Shari'ah content of Islamic
finance transactions. It reviews the macroeconomic advantages of Islamic
finance within an Islamic macroeconomic environment. Then it tries to explain
why managers of Islamic banking and finance institutions, IBFI, mimic
conventional products despite such advantages. The paper surveys the
literature that measures the extent of conversion as well as provides an
alternative explanation. The study finds that IBFI violate the true paradigm
of Islamic finance, because its advantages are all external and impossible to
internalize. It lists several pieces of empirical evidence on increasing
convergence. The paper concludes by drawing a plan composed of regulatory
actions, research agenda as well as a series of dialogues with stakeholders. |