Debt Instruments in Islamic Finance: A Critique

This article assesses the employment of traditional Islamic debt instruments 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 either the Islamic banking industry or the emerging Muslim economies. For the Muslim world to move beyond its current malaise, it is necessary to scientifically restructure its financial intermediation system in such a way as to meet the challenges of the modern age also conforming to the spirit of the Sharīʿa.