Islamic banking and financial development

The most crucial financial institutions in developing nations are their commercial banks. Development occurs well if banks use individuals' savings productively. Typically, conventional banks lure deposits with interest rates. Islamic banks, by contrast, do not guarantee a fixed return. While a majority of the world's economists link savings behavior with the offer of positive interest rates, Islamic economists link savings with income. It has even been suggested that there are religious motivations for saving. Muslims are of three sorts. The first sort believes that interest is completely haram and keeps its assets in precious metals and the like. This group would only deposit in Islamic banks; conventional ones are out of the question. The second sort keeps its funds in conventional banks because no alternatives exist, but either does not claim interest or distributes it charitably. The third kind of Muslim does not view bank interest as forbidden and thus takes interest f