A Comparative Literature Survey of Islamic Finance and Banking

TLDR

Islamic finance has expanded rapidly worldwide over the past two decades, driven by macroeconomic reforms, capital liberalization, privatization, global market integration, and innovative products, yet remains in an early evolutionary stage with many unresolved instrument, market, and regulatory challenges. The paper offers a comprehensive comparative review of Islamic finance literature, detailing its basic features, introducing Islamic instruments for comparison with Western products, and examining associated legal challenges. The authors conduct a comparative literature review, introduce and compare Islamic instruments with Western ones, analyze legal issues, and present a preliminary empirical assessment of Islamic banking performance. Preliminary empirical analysis indicates that while Islamic banking shows encouraging performance, it still confronts regulatory, legal, and market challenges.

Abstract

There has been large‐scale growth in Islamic finance and banking in Muslim countries and around the world during the last twenty years. This growth is influenced by factors including the introduction of broad macroeconomic and structural reforms in financial systems, the liberalization of capital movements, privatization, the global integration of financial markets, and the introduction of innovative and new Islamic products. Islamic finance is now reaching new levels of sophistication. However, a complete Islamic financial system with its identifiable instruments and markets is still very much at an early stage of evolution. Many problems and challenges relating to Islamic instruments, financial markets, and regulations must be addressed and resolved. In this paper, we provide a comprehensive comparative review of the literature on the Islamic financial system. Specifically, we discuss the basic features of the Islamic finance and banking. We also introduce Islamic financial instruments in order to compare them to existing Western financial instruments and discuss the legal problems that investors in these instruments may encounter. The paper also gives a preliminary empirical assessment of the performance of Islamic banking and finance, and highlights the regulations, challenges and problems in the Islamic banking market.