Islamic banking at the crossroads

The short history of and future possibilities for Islamic banks are of note. Strong Islamic banks emerged in the 1970s and 1980s as Muslims established institutions that shun interest. Most governments in the Islamic world did not strongly support the Islamic banking movement; in fact, they were pretty indifferent. Most support for Islamic banks came from private sources, though both Pakistan and Iran resolved to establish Islamic economies. The main objective of Islamic banking is to find an alternative financial methodology that conforms to shari`a and mirrors Islam's social outlook. Interest: violates Islamic justice by forcing borrowers to pay a preset excess amount; is inflexible and inflicts deadweight losses by causing otherwise avoidable bankruptcies; reduces investment in an economy and thus promotes 'stagflation;' discourages innovation among businesses that can not afford to take risks; and limits a financier's involvement in projects. Both mudaraba (trust financing)