Islamic Finance

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Estimates about the world's total Muslim population range between 1.2 and 1.6 Billion. Most countries in the Islamic world are, on average, less developed than non-Muslim countries, with only a small percentage of all Muslims living in those which can be considered developed, the wealth of which countries depends to a large extent on oil (such as Saudi Arabia) and other natural resources or have undergone a period of significant secularisation (such as Turkey). There may be various complex and historical factors involved, arguably including those relating to religion.

Haram (prohibited) institutions

Illegal trades

Alcohol, pork and gambling are agreed upon to be forbidden under Islamic law and Islamic financial institutions avoid investing in such activites. Similarly prohibited is the charging and collecting of interest.

Interest-based practices

Of the economic practices prohibited by Islamic law, the prohibition on interest is the most consequential, since all banking, financing and investing in the world´s economy depends on interest.

Islam traditionally prohibited interest, as Muhammad feared usury leading to debt-slavery and other undesired social problems. However, modern laws increasingly prohibit and secure against debt-slavery, and it would appear that interest has a net-positive effect on the global economy today, as it enables every sort of loan.

Nevertheless interest remains forbidden in many Islamic countries and many small or medium sized companies cannot find any investor to expand their business.

Halal alternative institutions

There are, however, Islamic banks existing in many Muslim (and Western) countries from which financing is available. These include savings accounts which return a share of invested profits instead of interest.

Alternatives to mortgages are offered in which the property is owned jointly with a bank, in what is called a musharaka (partnership) contract, gradually repaying the bank for its share of the property and paying fees in the meantime. Business loans can also take the form of musharaka contracts in which the bank does not charge interest but gets shares in the business to share in the profit (and risk of loss) resulting from the loan. However, many companies would prefer a western bank to fulfill their financial needs and stay independent from an investor with such requirements.

Production in Muslim-majority nations

Many Islamic economies depend on agriculture, raw materials or textile products, with little or no production or design of high value-added products.

Malaysia is the only Muslim-majority country with a significant electronic industry. Most products produced in Malaysia derive from production facilities built by foreign manufacturers. Thus, capital and technology are imported from western or East Asian multinationals.

There may be opportunity for economic growth and prosperity to improve in the long term with improved education, the growing Islamic finance industry, loosened restrictions on women and fast-growing, youthful populations.

Economic influence of non-Muslim minorities

In some countries with a Muslim majority, such as Indonesia and Malaysia, minorities enjoy a significant influence on the national economy. Many Islamic governments are suppressing such minorities to keep limited their influence upon their national economies.

Economically detrimental factors


World Statistics reveal that many Islamic countries face serious problems regarding education. Many Islamic countries suffer from considerably high rates for illiteracy. High population growth rates make public education unaffordable.

Many young boys do not attend school but only "Qur'an-Schools" where they are forced to memorize the Qur'an without understanding anything of it. Many Muslim women are illiterate as a result of patriarchal education laws that prioritize the education of Men. The result is that women cannot pass-on any knowledge to their children, worsening the situation further.

In some cases, Sharia-inspired laws do not allow even well educated women to work or inhibit their careers.

Gender segregation

Some Islamic societies fail to harness the economic power of the female half of their populations. Some common restrictions include:

  • Women cannot meet male teachers directly.
  • Women cannot move or travel anywhere alone.


Further readings

  • Iran's Economic Morass: Mismanagement and Decline Under the Islamic Republic, ISBN 978-0944029671