Does Islamic Banking Contribute to Sharia Law: Critical Issues on Libyan Banking and Financial Markets

Abstract

The purpose of this study is to develop a better understanding of how Islamic development policy making and makers have made meaning of the central issues of development and progress as expressed in the body of theory and practice that makes up the development field. Interestingly, this study takes the reader through the principles of Islamic finance and compares. Its ideals to those of the western venture capitalists were already criticising the Euro-centric nature of the development discourse in the 1950s and 60s. They proposed an Islamisation of knowledge, particularly in the field of economics, as a way of overcoming a perceived Western domination.

Islamic banking is an experiment in finding innovative ways to regulate a financial system under Islamic Sharia (or Islamic law). The Libyan Islamic bank has only very recently been established, in 2012, as a major step in the development of the country’s Islamic finance reform. Its presence will facilitate a better operation of a valuable resource through the development of sound capital investment. Libya is a particularly interesting centre for Islamic finance, as Islam is the state religion, and about 97 per cent of all Libyans are Sunni Muslim. Due to the former regime’s chronic inability to diversify the economy away from the oil and gas sectors, Libyan fiscal policy continues to be dominated by oil revenues generated to support the huge burden of the bloated civil service and the extensive subsidy system. This study’s results will be useful in reaching regulators, policy-makers, researchers and practitioners to develop Islamic finance in order to increase economic growth in developing countries and/or emerging economies in general, and within Libya in particular.

Keywords: Islamic finance, Islamic banking, Sharia Law, Libya

JEL Classification: E5; G1; G20; N25; P40; Z12