The Evolution of Islamic Finance: Contractual Continuity, Institutional Transformation, and the Search for Sharia Substance (OpenAlex (recherche mondiale))

Summary

• Global Sharia-compliant financial assets have expanded into an architecture with total assets exceeding US$3 trillion.p.1
• Classical institutional mechanisms such as sakk, hawala, and bay' al-salam developed during the 8th–14th centuries Islamic Golden Age to facilitate long-distance trade without interest.p.4
• The revival of Islamic banking in the 1970s led to pioneering institutions such as Dubai Islamic Bank and the Islamic Development Bank adapting classical contracts into commercial products.p.5
• The foundational economic principles rest upon the Quranic imperative permitting trade while forbidding interest in Surah Al-Baqarah 2:275.p.3
• Non-bank community models like the Akhuwat Foundation provide interest-free benevolent micro-loans (Qard al-Hasan) to demonstrate alternative financial inclusion.p.10
• The study introduces a five-dimensional analytical framework comparing classical foundations, modern forms, continuity mechanisms, transformation dynamics, and Sharia implications.p.1

Key insights

1. Modern Islamic financial engineering maintains formal legal contractual continuity while shifting structurally toward fixed-income debt equivalents such as organized Tawarruq.p.9
2. Commercial market pressures since the 1970s led institutions to shift product focus away from equity-based partnership models toward synthetic debt instruments.p.5
3. International regulatory frameworks like Basel III impose heavy capital charges on unhedged equity holdings, discouraging commercial Islamic banks from taking direct equity stakes.p.9
4. Islamic financial institutions utilize Profit Equalization Reserves (PER) to smooth profit distributions to depositors and prevent commercial displacement risk.p.9
5. A majority of modern Sukuk issuances are structured as asset-based rather than asset-backed, leaving investors with credit rights rather than direct asset recourse.p.10
6. The prevailing practice of pricing Islamic trade and lease contracts against conventional interest rate benchmarks like SOFR aligns returns with conventional borrowing costs.p.10
7. Blockchain architecture and smart contracts offer technological pathways to disintermediate bank balance sheets and restore direct peer-to-peer risk-sharing.p.11