The Inefficacy of Islamic Banking

Mohamed Aslam Haneef and Amreen Sultan

The last twenty-five years, rife with numerous banking and financial crises, has re-emphasised two factual realities. First, that the current banking/financial system is inherently unstable. Second, that the system is unjust. However, we live in postnormal times, where the old system no longer works, but where newer systems have not yet replaced the dysfunctional ones. Hence, we are living in a transition period in which contradictions, paradoxes, ironies, and chaos prevail. The result is a disillusionment among the masses. 

This state of affairs is unprecedented. According to the 2022 World Inequality Report, ten percent of the global population owns 76 percent of all the wealth and 52 percent of global income. The bottom 50 percent earns 8.5 percent of the global income and possess a mere two percent of the total global wealth. To say poverty has run rampant is beyond an understatement as we struggle to define its metrics. Those barely able to attain any semblance of a ‘middle ground’, whatever that seemingly arbitrary label may actually be, are almost made invisible by the pockets of the rich and super-rich. To try to balance the field, we even try to target what has been called the ‘super-poor’, an almost comical label that exists to give policymakers a sliver of hope that they have something close to a handle on the situation.

The Covid pandemic only laid bare the deeper realities of our economic malaise. According to Oxfam, ‘the 1,000 richest people on the planet recouped their Covid-19 losses within just nine months’. Oxfam also pointed out that it could take more than a decade for the poorest to recover from the economic waves of the last couple years. The economic dismay of the pandemic was complimented by simultaneous crises which, thanks to our increasingly complex world, left much of the globe in an untenable position. Food insecurity, which is being faced by no less than fifty-three countries, aggravates this. Approximately 193 million people are in extreme need of food assistance. At the same time, more people are dying of obesity than malnutrition for the first time in history. Around 4 million people die annually due to obesity. According to the 2022 World Obesity Atlas, by 2030, one billion people are estimated to be living with obesity. Meanwhile, natural resources are depleting at an unsustainable rate and global temperatures are rising at historic levels. A climate crisis abounds as numerous reports emphasise our need for a swift and rapid action plan to transform our industries, particularly transportation, construction, food, and even our financial systems to avoid disaster. Meanwhile across the globe, states are failing to meet their targets as per the 2016 Paris Agreement that hopes to keep global warming below a 2°C increase. Social and political crises add on top of this with no signs of slowing down. The Russian-Ukraine War, a less bilateral war than it would appear on paper, has intensified food and energy costs while also adding humanitarian emergencies and a furthering of the global refugee crisis to the mix.

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