Dual banking systems' dynamics and a brief development history of Islamic finance in select emerging Islamic economies

Abstract

Major religions in the world have introduced an interest ban for different reasons. Those other than Islam have, however, made lenient changes to this ban over the centuries, ultimately completely eliminating it. As a result, the modern financial system has evolved onto the interest-based banking model which played a huge role in the development of the Western world. On the other hand, most Muslims have distanced themselves to this model for religious reasons in predominantly Muslim countries, leaving most financial sources idle. As a cure to this problem, an alternative model based on PLS principle has been offered, briefly called Islamic Finance (IF). A dual banking system has subsequently emerged with the involvement of both conventional and Islamic finance models in the system in some countries in the world.