Controversies of Islamic finance

Abstract

Subject. The article focuses on discrepancies in Islamic finance, the construct of Islamic finance, its profit-generation mechanism, economic effects, unique nature and competition with traditional financial institutions. Objectives. We analyze the Islamic economic model and perform the comparative analysis of Islamic and traditional financial instruments. We also investigate conflicting issues of Islamic finance. Methods. The study involves methods of comparison, deduction, economic analysis and graphic interpretation. Results. We analyze the Islamic economic model to point out some fundamental principles of the Islamic economy, and its strengths. The article overviews types of Islamic financial instruments, compares them with traditional finance. The practical part of the study compares annual financial statements of the Abu Dhabi Islamic Bank and Russia’s Sberbank. We unfold the profit-generating mechanism of Islamic financial institutions and discover discrepancies in Islamic finance. Conclusions and Relevance. Having compared Islamic and traditional finance, we revealed some similar and different aspects. We discovered discrepancies in Islamic finance that translate into the overall nature of the Islamic economy and the performance of the Islamic financial institution above. The findings can be used for further studies into Islamic finance and outlining Islamic banking development strategies at the governmental level. Furthermore, the findings may come in handy to professional and non-professional market actors for making investment decisions.