Between Theory and Practice: Islamic Banking and the Realisation of Maqāṣid al-Sharīʿah

Abstract

This article examines the gap between the theoretical ideals of Islamic banking and its practical realisation of maqāṣid al-sharīʿah. Islamic banking was established as a Shariah-based alternative to conventional banking, grounded in the prohibition of riba, ethical investment, asset-backed transactions, risk-sharing, and socio-economic justice. In theory, Islamic banks are expected to promote fairness, welfare, transparency, financial inclusion, and real-sector development. In practice, however, Islamic banking has often been criticised for relying heavily on debt-based contracts, particularly murābaḥah, and for resembling conventional banking in pricing, risk transfer, and profit orientation. This article conceptually explores whether Islamic banking has moved beyond formal Shariah compliance toward substantive maqāṣid-oriented outcomes. It discusses the foundations of Islamic banking, the role of maqāṣid in Islamic finance, the theory–practice gap, social impact, and institutional challenges. The discussion argues that Islamic banking cannot be evaluated solely by contract validity or legal form, but must also be assessed through its contribution to justice, inclusion, poverty alleviation, entrepreneurship, and ethical economic transformation. The article concludes that realising maqāṣid requires stronger governance, product innovation, social performance indicators, and institutional commitment to ethical substance.