Record Details

Epistemological Foundation of Finance: Islamic and Conventional

Islamic Banking and Finance Review

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Field Value
 
Title Epistemological Foundation of Finance: Islamic and Conventional
 
Creator Abbas Mirakhor
Edib Smolo
 
Subject Epistemology
Arrow-Debreu
Conventional finance
Islamic finance
Shari‟ah-compliant
Risk-sharing
Uncertainty
Interest
Debt
 
Description The main purpose of this paper is to trace epistemological roots of conventional and Islamic and Islamic finance. Based on an extensive literature review, this paper aims to highlight, explain, and discuss an ideal conventional and Islamic financial system. The ideal conventional financial system is discussed in light of various writings by Smith and Arrow, plus based on Arrow-Debreu model. On the other hand, the Islamic financial system is discussed in light of Qur’anic verses based on which the system is built. The findings show that the present Islamic finance industry evolved from conventional finance to address a market failure in conventional finance in terms of unmet market demand for Islamic finance products. However, since most practitioners in Islamic finance were bankers and market players from the conventional background, they developed, more often than not, products that are similar to conventional ones albeit with Shari’ah compatibility. Hence, the focus was primarily on avoiding riba while ignoring the first part of the verse 275 of surah al-Baqarah which first ordains exchange contracts. A way forward, hence, would be to move towards more risk-sharing products which indicate a robust link between the strength of the financial system and economic growth.
 
Publisher Department of Banking and Finance, University of Management & Technology, Lahore, Pakistan
 
Date 2014-11-11
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier https://journals.umt.edu.pk/index.php/IBFR/article/view/159
10.32350/ibfr.2014.01.01
 
Source Islamic Banking and Finance Review; Vol 1 (2014): IBFR 1435H/2014; 01-24
2221-5239
2413-2977
 
Language eng
 
Relation https://journals.umt.edu.pk/index.php/IBFR/article/view/159/155
 
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