Understanding Islamic Finance

Islamic scholars have been critically examining the modus operandi of modern commercial
banks ever since their establishment in the Muslim world in the last decade of the nineteenth
century. As time passed, the consensus emerged among the scholars that the system was
against the principles of Shar¯ı´ah, mainly because of paying/charging returns on loans and
debts. Keeping in mind that direct or indirect intermediation between resource surplus and
resource deficit units was necessary to fulfil the growing needs of human societies and for
the development of business and industry, Islamic scholars and economists started offering
conceptual models of banking and finance as a substitute for the interest-based financial
system by the middle of the twentieth century.