Debt Instruments in Islamic Finance: A Critique

This paper assesses the employment of the traditional Islamic debt instrument, by contemporary Islamic banks, from an economic efficiency perspective. We highlight the fact that the performance of the bulk of the instruments pales in front of the modern facility of Participating Preferred Ijāra. Thus, the shortcomings of the traditional instruments illustrate that the future does not augur well for neither the ‘Islamic’ banking industry nor the emerging Muslim economies. For the Muslim world to move forward, it is imperative to scientifically restructure its financial intermediation system consistent with the Sharīca.