Due to oil exporting and financial instruments that are characteristic of Islamic nations (mostly loans and mortgages that are interest free,) this is now an important part of the world economy. The results may be significant and could amount to something very important; in fact, Islamic law may really become a competitive system that may overthrow traditional capitalism. Its defenders state that this could be a great thing due to it being divine inspired and in the best interest of the people.
Timur Kuran wrote a great book about about Islam, Islam and Mammon, while he was Professor at the University of Southern California. Back then, with heavy support from the government of Saudi Arabia, he was the “King Faisal” Professor, teaching Islamic thought and culture. He is now at Duke and states that the whole concept of Islamic economic systems does not originate with the Qur'an or with Muhammad but in India in the mid-twentieth century. He has said that the concept of Islamic economics would have been completely foreign to Muslim scholars from even as recently as a hundred years ago. The idea of an economic system that is completely ruled by laws that are compatible with the Qur'an and the Hadith is a very new concept that is more nationalistic than religious.
Islamic economics has its origin in Abul-Ala Mawdudi, a Muslim scholar from the first half of the twentieth century. He wanted to strengthen the collective idea of a Muslim nation while at the same time keeping trade and commerce among Muslims. His main idea was to take Islam into an area in which it had not had much involvement previously without it becoming Western or secular.
During the 1970's, during the years in which Saudi Arabia and other Muslim countries started increasing their oil exporting business, the idea of Islamic economics truly took hold and become institutionalized. Vast amounts of cash were poured into the research and conception of an economic system that was compatible with Islam. After all, with all the money that was pouring into the Muslim economy during those times it was necessary to find an outlet, a way to use it in the modern world.
The main argument of those that defend Islamic economics is that traditional capitalism has failed and that Islamic law is a solution. The three principal claims that Islamic economics proponents make are that it has completely abolished interest on cash assets, it has helped put all people on an equal economic level and that it provides a much needed ethic and moral framework to business practices around the world. However, economic thinkers have debunked these claims and say that Islamic economics does not deliver on any of them.
In regards to interest free economic growth, Timur Kuran claims that there is nothing Islamic about the way it works. There are many economical techniques, like mudabara and ijara, that are nothing more than interest payments, but veiled. Most so-called Islamic banks are simply regular financial institutions in which many of the transaction simply have different names. In fact, most of the deposits that are compliant with Islamic law are hosted on some of the worlds largest banking corporations, such as Citibank, rather than in banks that purport to be specifically Islamic in nature.
The zakat, a tax that all Muslims are obliged to pay to help the poor has also failed in bringing economic equality in Muslim countries. In fact, it serves the opposite purpose since they are also taxed in turn. It is instead used by corrupt religious figures of authority for their own personal gain. It is more common for the zakat to be used in Islamic objectives that have nothing to do with helping the poor. The ethic and moral framework that Islamic economics could bring to traditional economics is also unproven. The economic agenda, much like communism and socialism, is quite unrealistic and clashes with human's baser instincts. While utopian, it lends itself to corruption very easily.
The whole concept of Islamic economics is really a myth, and is not specifically in the financial practices but in the cultural identity, in the religion of those who practice it. It has backfired in that it has blocked progress and modernity in Muslim nations and also promotes an aura that is not healthy in an environment in which extremism can blossom relatively easily. It is a dangerous political idea, more based on rhetoric than on reality. The mere fact that it prohibits interest would have isolated Muslims from the rest of the modern world a long time ago.