The Role of Islamic Banking in Achieving Economic Development

Abstract

This study examines the role of Islamic banks in supporting economic development by analyzing mechanisms of fund utilization and investment strategies adopted within these institutions. The research highlights the importance of Islamic banks, which have become active players in the global financial system due to their adherence to Islamic Sharia principles, avoidance of usurious transactions, and reliance on financing models based on profit‑and‑loss sharing. The study seeks to clarify the extent of Islamic banks’ contribution to mobilizing financial resources and directing them toward development projects by reviewing the scale of investments allocated to the economic sector. It also identifies strengths and weaknesses in the application of Sharia‑compliant investment models such as musharakah (partnership), mudarabah (profit‑sharing), murabaha (cost‑plus financing), and ijarah (leasing). In addition, the study reviews the jurisprudential framework governing banking transactions, particularly the concept of riba (usury), its types, and the distinction between it and legitimate profit in commercial activities. The research adopts a descriptive‑analytical approach, drawing on specialized literature and relevant scientific studies, to highlight the reality of Islamic banking operations and assess their capacity to meet development requirements. The findings reveal fundamental differences between Islamic and conventional banks, emphasizing the need to strengthen and diversify Sharia‑compliant investment tools, enhance transparency, and provide specialized expertise. The study recommends developing partnership‑based investment mechanisms and increasing reliance on medium‑ and long‑term financing models to improve the efficiency of the financial system and support economic growth.