Islamic banking and finance — the industry built around avoiding interest and other financial practices found in violation of sharia (Islamic law) — has been both praised and criticized by observers.
The industry has been praised for turning a "theory" into an industry that has grown to about $2 trillion in size; for attracting banking users whose religious objections have kept them away from conventional banking services, drawing non-Muslim bankers into the field, and (according to other supporters) introducing a more stable, less risky form of finance.
However, the industry has also been criticized for ignoring its "basic philosophy" and moved in the wrong direction over the decades — leading both outsiders and rank and file Muslims to question it. This has happened first by the sidelining the original finance method advocated by promoters — risk-sharing finance — in favor of fixed-markup finance of purchases (particularly murabaha), and then by distorting the rules of that fixed-markup murabaha, effectively delivering conventional cash interest loans following conventional interest rates, but disguised with "ruses and subterfuges" and burdened with "higher costs, bigger risks".
Other issues/complaints raised include a lack of effort by the industry to help small traders and the poor; the question of how to deal with inflation, late payments, the lack of hedging of currencies and rates or sharia-compliant places to park short term funds for liquidity; the non-Muslim ownership of much of Islamic banking, and the concentration of what ownership is in Muslim hands.
Compliments and defense
According to Muhammad Taqi Usmani, a leading scholar in contemporary Islamic finance, Islamic finance has turned a "theory" into "a reality", "asserting" Islam into international financial markets. It has "enriched" the Islamic legal system with shariah-compliant solutions developed in response to the practical business questions put to it by the industry. Abayomi A. Alawode, head of Islamic finance for the World Bank, praises it as "ethical, sustainable, environmentally- and socially-responsible", emphasizing "financial inclusion and social welfare". Its popularity has drawn conventional banks into Islamic finance in search of Muslim customers. Positive sum effect A study on the size and market share of Shariah-compliant Islamic banking in Muslim countries found "strong and consistent empirical evidence" that the development of Islamic banking leads to "higher banking sector development" rather than attracting money and existing customers away from conventional banking as measured by "the amount of private credit or bank deposits scaled to GDP." Stability Proponents (such as Zeti Akhtar Aziz, the head of the central bank of Malaysia) have argued that Islamic financial institutions are more stable than conventional banks because they forbid speculation and their two main types banking accounts — "current account" and mudarabah accounts — carry less risk to the bank. This is because in a current account the customer (in theory) earns no return and (in theory) the bank is not supposed to invest the account funds. The alleged stability in a mudarabah account comes from the smaller risk of loan defaults because that risk is shared with the depositor. If the borrower cannot pay back part or all of the money lent to them by the bank, the amount going to the depositor is cut by an equivalent amount, whereas in a conventional bank the depositor is given fixed interest payments whether or not the bank's earnings decline from loan defaults. Ibrahim Warde credits the supervision of Shariah Boards for preventing Islamic banking from following the following conventional banks into the excesses that led to the financial crisis of 2007–2008. Defence While the industry has problems and challenges, these can be explained by the industry's relative youth and its position in the early stages of a "learning curve" that will solve the challenges over time; (In 1993 Ausaf Ahmad defended the industry as early in its transition from conventional banking.) unless and until the industry operates in an Islamic society and environment it will be hindered by non-Islamic influences and won't "operate in its essence".
Customers and the industry
The majority of Islamic banking clients are found in the Gulf states and in developed countries. Studies of Islamic banking customer in Malaysia and Pakistan found customer satisfaction was connected to service quality. A study of Islamic banking customers in Bangladesh found "most customers" between 25–35 years, "highly educated" and having a "durable relationship" with the bank, more knowledgeable about account than financing products.