There are major differences across countries in the role, the importance, the status, and the characteristics of Islamic financial institutions. Their role in national economies ranges from essential to insignificant. Their “special character” may or may not be recognized by regulators. In some countries, they are strongly encouraged by the authorities; in others they are barely tolerated. One of the themes running through this book is that of the diversity of Islamic finance. Even those countries that have fully Islamicized their financial systems – Pakistan, Iran, the Sudan – did so under different religious, political, economic, and cultural circumstances. In most cases, Islamicization did not occur in a carefully thought out application of Islamic principles and jurisprudence, but in an ad hoc manner and as a result of situational factors.

This chapter discusses the experience of countries that have undergone full Islamicization of their financial systems. It also examines the case of Malaysia, a country that has promoted Islamic finance alongside conventional banking, and looks at those countries and territories such as Bahrain, the United Kingdom, Singapore, and Hong Kong, that have announced their intention of becoming hubs of Islamic finance.

Pioneers of Full Islamicization: Pakistan, Iran, and The Sudan

Pakistan

The Pakistani experiment in Islamic banking is nothing short of contradictory. A number of Pakistani scholars, starting with Abul Ala Mawdudi have pioneered the study of Islamic economics and finance. Pakistan was also the first country, in 1979, to embark on a program of full Islamicization of its economy and financial system. The Pakistani government went farther than most Islamic governments in recreating the concepts, language, and institutions of early Islam. This commitment has been constantly reaffirmed since, with countless measures designed to achieve that goal.