The Logic of Financial Westernization in the Middle East

Posted: 21 Jul 2003

See all articles by Timur Kuran

Timur Kuran

Duke University - Department of Economics


In the nineteenth century the steps taken to modernize the Middle East's financial system included the legalization of interest, the establishment of secular courts open to both actual and juristic persons, and new banking regulations based largely on Western models. Exploring why they involved the transplant of foreign institutions, this paper shows that certain elements of Islamic law blocked evolutionary paths that might have generated a modern financial system through indigenous means. These sources of rigidity included (1) the Islamic law of commercial partnerships, which limited enterprise continuity; (2) the Islamic inheritance system, which restrained capital accumulation; (3) the waqf (pious foundation) system, which inhibited the pooling of resources; and (4) the Islamic legal system's aversion to the concept of juristic personality, which limited the capabilities of private organizations. Even before the financial advances of the nineteenth century, the region's non-Muslim minorities had come to dominate key economic sectors, including finance. Non-Muslim merchants and financiers improved their relative positions because, unlike their Muslim counterparts, they could operate under the jurisdiction of Western courts.

Keywords: Islam, Islamic world, Middle East, development, modernization, finance, interest, bill of credit, bill of exchange, banking, partnership, inheritance law, cash waqf, minorities

JEL Classification: N25, N23, N85, P51, O53

Suggested Citation

Kuran, Timur, The Logic of Financial Westernization in the Middle East. Journal of Economic Behavior and Organization, Vol. 56, pp. 593-615, April 2005, USC CLEO Research Paper No. C03-14, Available at SSRN: or

Timur Kuran (Contact Author)

Duke University - Department of Economics ( email )

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Box 90097
Durham, NC 27708-0204
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