Journal of Islamic Business and Management

Does Islamic Banking help in Economic Development of Muslim Countries?

Abdelrahman Yousri Ahmad
Published Online: December 2016
DOI: 10.1111/jibm

Islamic banking has developed all over the world but on approach different from what it was visualized. The objective of this paper is to analyse the role that current Islamic banking practices play in development of economies of the Muslim countries. As interest based banks are rejected by people in Muslim countries, Islamic banking was expected to play role by financial inclusion and providing of finance to agriculture, industry and exports sectors. The paper argues that the performance of Islamic banking in four decades has been unsatisfactory. A ribā-free banking system should prove that financial resources are mobilized and employed efficiently through profit/loss sharing and Islamic business and investment criteria. A better future role of Islamic banking in economic development is expected with urgent corrections of errors like total elimination of non-compliant Sharī‘ah products like tawarruq, engineering a new mu╔ārabah contract based on Sharī‘ah compliant restrictions and mechanisms, adopting new production-oriented policy in murāba╒ah by using it increasingly in financing promising SMEs and exports oriented activities, and employment of resources through Non-Banking Finance Companies (NBFCs) which would be of particular importance for ijārah, muzāra‘ah, and salam operations.


Islamic Banking; Muslim Countries; Economic Development.