Lending, the Poor & Islamic Scripture: Islamic Finance versus Welfare Islam Pejman Abedifar Centre for Responsible Banking & Finance, School of Management, University of St Andrews, UK Email:
[email protected]; Tel.: +44 (0)1334 462795; Fax: +44 (0)1334 462812 Abstract. This paper contributes to Islamic studies literature, by exploring why many Islamic scholars believe that Islam bans conventional lending and mandates Islamic finance, and how the scriptural injunction against ribā is redefined when we consider the features of modern economic systems. The article advocates the view that ribā and charity are inextricably linked, and must therefore be considered together. The latter emphasizes helping the poor and the former prevents exploiting them. Islamic finance, however, has been incepted by erroneous juxtaposing trade with lending. The study also discusses the fallacies raised by many Islamic scholars against conventional lending. This manuscript demonstrates the necessity of modernizing our religious understanding to accelerate poverty reduction in the Muslim world. JEL Classifications: G21; G23; Z12 Keywords: Islamic Finance; Economics of Religion; Riba. Acknowledgement: I would like to gratefully thank Thorsten Beck, Kais Bouslah, David Cobham, Mohammad Omar Farooq, Laurence Lasselle, Samuel Mansell, Philip Molyneux, Philip Roscoe, Vuk Talijan, Wijdan Tariq and John Wilson for their helpful comments on the paper. I would also like to thank seminar participants from the University of St Andrews, the third annual conference of the British Association for Islamic Studies, Edinburgh conference on legal institutions and finance, Imam Sadiq University, Sharif University of Technology and the 50th Annual Conference of Money, Macro & Finance Research Group organized by Heriot Watt University for their constructive comments.