An Academic and Research-Based Review of the Council of Islamic Ideology Recommendations Regarding Interest-Free Banking

Abstract

Since long, elimination of interest (riba) from financial systems has been of the foremost concern in Islamic economic thought. In this academic and research based review of recommendations of the relevant council of Islamic Ideology regarding the implementation and operationalization of the interest free banking system this study is offered. So as many Muslim-majority countries have battled with finding ways to make modern financial practices fit Shariah principles, councils and regulatory bodies have helped financial institutions find ways to do business islamically. This paper analyzes, in particular, the structure, rationale and practical implications of council recommendations over time and evaluates how these proposals respond to the challenge of developing Shariah compliant mechanisms to replace conventional interest based ones. The philosophical and jurisprudential bases of interest free banking are investigated based on classical and modern Islamic sources, as well as the comparative financial systems. Further, the technical feasibility of the recommendations is evaluated from a financial sustainability, regulatory compliance, risk management and customer engagement perspective. This research employs a combined qualitative content analysis and comparative methodology to discover the core themes found in the council’s proposals (PLS, mudarabah and murabaha), in addition to discussing the practical limitations related to adoption of policy, market competitiveness and institutional resistance.In addition, this paper outlines successful global case studies in Malaysia, Iran and Pakistan where policy intervention inspired by council recommendations has dramatically shifted the banking landscape. The research shows that while the theoretical frameworks proposed by the councils are broad and grounded in the principles of Islamic finance, the implementation of these theories is impeded by a lack of institutional preparedness, insufficient awareness of the public and legislative gaps. Additionally the study is able to assess the extent to which political will, economic pressures and globalization influence the implementation of such reforms. The paper ultimately arrives at the conclusion that Islamic councils' recommendations lay out a blueprint for the transformation of the interest bearing banking system to an interest free system. These proposals, however, necessitate stronger integration strategies, stakeholder education and a macroeconomic alignment to realize their complete potential. Further research must be devoted to developing dynamic models that integrate religious ethical imperatives and the need for modern financial requirements to achieve both religiosity compliance and efficient economic outcomes. Thus, this review functions both as an evaluative critique and forward looking roadmap for those in the scholarly, policy making or practitioner communities interested in helping further development of authentic Islamic financial systems.

Keywords: Interest-Free Banking, Islamic Finance, Council Recommendations, Shariah Compliance, Profit-and-Loss Sharing, Riba-Free Economy, Islamic Banking Reforms