The efficiency of a financial intermediation system is assessed by its ability to achieve allocative efficiency, asset transformation and the subsequent economic development. In case of an Islamic Banking and Finance as an alternate financial intermediation system adherence to the injunction of Islam is also critical. A critical appraisal of the state of contemporary Islamic Banking and finance (IBF) reveals that IBF has neither been able to achieve the aspirations of Islamic rhetoric, nor has been efficient in terms of asset transformation and economic development. This paper is an intuitive pursuit to explore the economic sense of established principles of IBF, and the reasons of the persistent divergence of IBF, being accused to be based on ruses and sophistry. Disentangling the varying viewpoints, the underdevelopment of IBF has been attributed to misinterpretation of Ribā, which has been explicated through a narrow fiqhi and legally deterministic approach. Deeming ‘a collaborative and dynamic Ijtihād’ as the elixir, this paper insists on the exigency of revisiting the definition of Ribā through a dynamic and collaborative Ijtihādi effort – i.e. a definition that incorporates the modern modes of economic cooperation and the contemporary financial intermediation ecosystem. The paper articulates Ribā in an agency theoretic framework to eschew expropriation of wealth, and assure protection of property rights, to sustain financial stability and economic development.
Financial Intermediation and Economic Development in Nigeria from 1980-2019
