Islamic banking: a market in search of an industry

The demand for Islamic banking reflects an overall Islamic revival. Interest-free banking perplexes foreign observers. Conventional banking teaches that a non-interest bank cannot flourish because it opposes the profit-maximization motive of the rest of the financial world. However, the actual situation is that Islamic financial bodies now hold an estimated $80 billion in assets. Two causes of the growth of the Islamic financial sector include: the increase in oil wealth in the Muslim world; and some government's sympathy for Islamic institutions. One must examine the Islamic ethical framework to understand Islamic banking and the movement for it. Islam is a complete way of life and emphasizes ethics like social equality at the initial steps of economics. Exploitative and oppressive tactics are unacceptable. At the core of Islamic banking is the prohibition of interest, an institution with negative social consequences. Before the advent of Islamic banks, which are involved in