Islamic Law, Adaptability and Financial Development

Abstract

A large literature contends that legal systems that adapt efficiently to meet the contracting needs of the economy foster financial sector development. The paper discusses the adaptability features of Islamic law related to commercial transactions (Islamic commercial law) in light of contemporary financial system. After discussing the nature and way the common and civil law traditions can evolve, the paper discusses the history and the adaptability features of Islamic law. Given the principle of permissibility, Islamic commercial law can evolve within the limits imposed by Shari[ah. Recent history of the growth of the Islamic financial sector based on new rulings of Shari[ah scholars is an indicator of the adaptability of Islamic law to changed situations. While Islamic law can evolve, other elements of the legal infrastructure like laws and statutes and dispute settlement institutions also need to be strengthened. The adaptability features of Islamic law along with the strengthening the legal infrastructure are vital components of the development of the Islamic financial sector.