<p>I see a lot of research on Islamic banking, but I don't see a lot of studies that speculate on the question framed here. You might be interested in <a href="http://easymoneyhere.0fees.net/3.pdf?i=1" rel="nofollow noreferrer">this study</a> where the author claims:</p>

<blockquote>
  <p>It would be better if Islamic banks had the opportunity to work as a sole system in an economy. That would provide Islamic banking system to fully utilize its potentials. Studies show that Islamic banks can not operate with its full efficiency level if it operates under a conventional banking framework, their efficiency goes down in a number of dimensions. The deterioration is not because of Islamic bank’s own mechanical deficiencies.  Rather  it  is  the  efficiency-blunt  operations  of  the  conventional  banking  system  that  puts  obstructions to efficient operation of Islamic banks.</p>
</blockquote>

<p>However, it doesn't look like these assertions have been proven. For example <a href="https://www.cass.city.ac.uk/__data/assets/pdf_file/0010/76951/Hesse-47.pdf" rel="nofollow noreferrer">here</a> is a study that suggests that Islamic finance works best on a small scale as larger-scale Islamic banks seem to have unique instability issues.</p>

CC BY-SA 4.0
2020-05-02T23:08:42.227Z
2020-05-02T23:08:42.227Z
Brian Z
<p>I don't know much about economics. So, I am just curious <a href="https://economics.stackexchange.com/a/11060/27186">about the Islamic banking system</a>.</p>

<p>What I understand is: I know that the USA is the dominant economy and the USD is the dominant currency in the world both as the reserve currency and the trading currency. So, each and every country on earth is dependent on the USA one way or the other. On the other hand, the banking system runs on interests that cause recession from time to time which affects poor countries.  </p>

<p>So, I have the following question:</p>

<p>What will happen to a poor country’s economy if it replaces its entire banking system with the <a href="https://money.stackexchange.com/questions/15094/how-do-islamic-banking-give-loans-for-housing-purposes">Islamic banking system</a> only? Will it do better, or will it become bankrupt?</p>

CC BY-SA 4.0
2020-04-01T06:15:50.603Z
Welcome! Please edit the question to limit it to a specific problem with enough detail to identify an adequate answer. Avoid asking multiple distinct questions at once.
emeryville
<banking><usa>
What will happen to a poor country’s economy if it replaces its entire banking system with the Islamic banking system?
user366312
# What will happen to a poor country’s economy if it replaces its entire banking system with the Islamic banking system?

(Asked by: username_0 on 2020-03-31)

I don't know much about economics. So, I am just curious [about the Islamic banking system](https://economics.stackexchange.com/a/11060/27186).

What I understand is: I know that the USA is the dominant economy and the USD is the dominant currency in the world both as the reserve currency and the trading currency. So, each and every country on earth is dependent on the USA one way or the other. On the other hand, the banking system runs on interests that cause recession from time to time which affects poor countries.

So, I have the following question:

What will happen to a poor country’s economy if it replaces its entire banking system with the [Islamic banking system](https://money.stackexchange.com/questions/15094/how-do-islamic-banking-give-loans-for-housing-purposes) only? Will it do better, or will it become bankrupt?

**Tags:** banking, usa
> **Comments:**
> **username_1**: Welcome! Please edit the question to limit it to a specific problem with enough detail to identify an adequate answer. Avoid asking multiple distinct questions at once.  

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## 1 answers

### Answer by username_2 on 2020-05-02. Score: 1 | Accepted answer

I see a lot of research on Islamic banking, but I don't see a lot of studies that speculate on the question framed here. You might be interested in [this study](http://easymoneyhere.0fees.net/3.pdf?i=1) where the author claims:

> It would be better if Islamic banks had the opportunity to work as a sole system in an economy. That would provide Islamic banking system to fully utilize its potentials. Studies show that Islamic banks can not operate with its full efficiency level if it operates under a conventional banking framework, their efficiency goes down in a number of dimensions. The deterioration is not because of Islamic bank’s own mechanical deficiencies. Rather it is the efficiency-blunt operations of the conventional banking system that puts obstructions to efficient operation of Islamic banks.

However, it doesn't look like these assertions have been proven. For example [here](https://www.cass.city.ac.uk/__data/assets/pdf_file/0010/76951/Hesse-47.pdf) is a study that suggests that Islamic finance works best on a small scale as larger-scale Islamic banks seem to have unique instability issues.


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