Islamic Banking from the Ideal ‘Two-Tier Mudarabah’ to a Fixed Returns Model – Rationalizing the Blatant Divergence

12 Pages Posted: 24 Oct 2015

See all articles by Muhammad Arsalan Aqeeq

Muhammad Arsalan Aqeeq

University of Newcastle (Australia); Durham University - Durham Islamic Finance Program; Institute of Business Management (IoBM) - College of Business and Management (CBM)

Date Written: October 22, 2015

Abstract

The four decades old Islamic Banking Industry (IBI), despite of its double digit growth, efficiency and resilience, has attracted a lot of censure from scholars owing to its departure from the utopia of profit and loss sharing (PLS) and an equitable social-oriented institution, turning in to a profit maximizing debt based financial intermediary. We find plethora of research, anguished with sarcastic phrases like Shariah Arbritrage (Elgamal 2006), old-wine in new bottle, marriage of Convenience’ (Samers M., 2015) broadly due to its divergence from initially conceived two-tier Mudaraba structure to a fixed return asset and liability of an IB(Khan F. 2010).

This paper takes a pragmatist approach to contextualize and rationalize this deviation by highlighting the key internal and external challenges and anomalies that IBs are dealing with, and sets out the way forward to address them.

Suggested Citation

Aqeeq, Muhammad Arsalan, Islamic Banking from the Ideal ‘Two-Tier Mudarabah’ to a Fixed Returns Model – Rationalizing the Blatant Divergence (October 22, 2015). Available at SSRN: https://ssrn.com/abstract=2677690 or http://dx.doi.org/10.2139/ssrn.2677690

Muhammad Arsalan Aqeeq (Contact Author)

University of Newcastle (Australia) ( email )

University Drive
Callaghan, NSW 2308
Australia

HOME PAGE: http://https://www.linkedin.com/in/arsalanaqeeq/

Durham University - Durham Islamic Finance Program ( email )

Durham, DH1 3HP
United Kingdom

Institute of Business Management (IoBM) - College of Business and Management (CBM) ( email )

Karachi
Pakistan

HOME PAGE: http://https://www.linkedin.com/in/arsalanaqeeq/

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