The Current Model of Islamic Banking and Concentration of Wealth

Abstract

The eradication of the concentration of wealth is one of the prime objectives of Islamic finance. Many scholars have written on this issue, who claim that by eradicating interest from the society, we will be able to minimise the concentration of wealth in an economy. This study conjectures that interest-free finance is a necessary but not sufficient condition for the eradication of concentration of wealth. The sufficient condition is to bring change in the objective of the Islamic banks that is, switching the moto from the maximisation of the profit to the maximisation of welfare of society. This paper states that the main focus of Islamic banks is to transform the current models of interest based transactions to interest free transactions. However, merely changing the transactions from interest based to interest free might not be enough to achieve the main objective of Islamic finance. The study compares the assets side of Islamic and conventional banks to provide support in favour of the hypothesis that with current objective of profit maximisation, the Islamic banks are less likely to play any role in the eradication of the concentration of wealth.