Islamic financial institutions have been growing rapidly in the past few years. Islamic finance refers to investments that are permissible in accordance with Sharia, the Islamic law. Sharia law views money as a measuring tool for value and not an “asset” itself. “It does not permit receipt and payment of riba(interest), gharar(excessive uncertainty), maysir(gambling), short sales or financing activities that it considers harmful to society” (IMF website). Interest, a form of income from money, is therefore prohibited. For example, the income obtained from banks must come from the gain or loss of the enterprises they underwrite and not from interest obtained from loans granted. Sharia-compliant finance is thus often viewed as a unique form of socially responsible investment. Islamic finance exists to further the socio-economic goals of Islam. The question is: How can Islamic finance contribute to economic development? This essay explores its contribution to economic development through microfinance and the use of sukuk(Islamic bond). It will also explore the main opportunities and challenges for Islamic finance today. In order to facilitate the following reading, all Islamic terms used in this essay will be defined in the glossary (Appendix I).

Recommended Citation

Khan, N. (2017). The role of Islamic finance in economic development. Lingnan Journal of Banking, Finance and Economics, 6. Retrieved from http://commons.ln.edu.hk/ljbfe/vol6/iss1/6