The Emergence and Institutionalisation of Islamic Banking and Finance (IBF)

Until the mid-1970s, Western and Western-style institutions whose practices go against Islamic law on interest and risk dominated the financial systems of Muslim-majority countries. In the next two decades, the field of Islamic banking and finance (IBF) diffused rapidly from the Arabic-speaking world to other regions of the world. Branches of sharia-compliant financial institutions can now be found in a vast territory that extends from Muslim regions in the southern Philippines, across Asia and the Middle East, and into Muslim immigrant communities in Western European and North American cities. The principal aim of this paper is to discuss the origins, development, and institutionalisation of IBF. This paper focuses on the role of Egypt and Malaysia in the evolution of the IBF sector. This research on non-Western countries answers calls for more research on the business histories of non-Western countries (Scranton and Fridenson, 2013). In our paper, we explore the historical forces that contributed to the rapid growth of this sector. Our focus is on the efforts to establish a common global standard for sharia-compliant financial practices. This issue was crucial for Islamic financial institutions since the rise of Islamic finance was founded on the desire of Muslim individuals, particularly those in the wealthy Gulf countries, to invest in ways consistent with Islamic teachings. Although several majority-Muslim countries, such as Pakistan and Iran, passed laws in the 1980s that required all financial institutions to abide by some interpretations of sharia law, most Muslim countries did not mandate the Islamisation of all financial institutions. The rise of the Islamic financial sector resulted from key actors who had the vision to provide Shariah-compliant banking and finance services to the larger global Muslim communities. Their efforts were complemented by the decisions of many Muslim communities worldwide to bring their financial practices in line with their religious commitments. Our paper is based on extensive primary source research. It should interest all business historians interested in religion and business, including those who study industry self-reg