The idealistic vision of Islamic banking and finance that existed in the literature before 1970 has changed significantly in practice. The 1950s and 1960s saw the development of models of Islamic banking and finance that adhered closely to ideas developed by the classical jurists. However, the reality of operating in contemporary financial markets, in a context very different from the classical period, has challenged modern scholars to reconsider these conceptions. Although the ideal models still exist, other more pragmatic approaches have been developed.

Overall, three approaches to Islamic banking and finance have emerged that can be placed on a continuum: from idealistic to pragmatic to liberal.

The idealistic approach seeks to maintain the original vision of Islamic banking in the 1950s and 1960s and to remain faithful, as much as possible, to the instruments and contracts developed in classical fiqh.

At the opposite end of the continuum is the liberal approach, consisting of Muslim scholars who argue that interest is not inherently evil and that riba does not include modern bank interest. This approach even makes the case that there is no need for Islamic banks and financial products at all.

Between these two extremes lies the pragmatic approach. This is realistic enough to see that idealistic models of Islamic banking have significant problems in terms of practicality and feasibility, but at the same time it maintains the interpretation of riba as interest.

It is possible to argue that the majority of Islamic bankers can be classified as pragmatists, prepared to balance practical realities with traditional Islamic principles. These bankers and their Shari'ah advisors have opted for a more pragmatic form of Islamic banking, interpreting relevant texts using an eclectic approach to the sources of Islamic law and principles of Islamic jurisprudence. Here the practical and feasible is given priority over the idealistic and impractical, even though this has led to a somewhat questionable outcome in terms of moving toward a so-called Islamic banking and finance system.

The use of eclectic ijtihad in a pragmatic approach is discussed later in regard to sukuk structures, and this pragmatic approach is contrasted to the idealistic approach.


The Arabic word sukuk is the plural of the word sakk, meaning "certificate" or "order of payment."[1] Documentary evidence confirms the use of the word sakk in the early Islamic caliphates.[2] The Muslim societies of the premodern period used sukuk as papers that represented financial obligations originating from trade and other commercial activities.[3] In the earlier theoretical legal works, written instruments of credit were present. Such written instruments are encountered frequently in genizah documents.[4] A genizah is a storage place in mosques and synagogues for documents that may not be put in the garbage because they have God's name written on them.

Documents in the Cairo Genizah contain fragments that indicate the existence of the sakk in the 12th century ce, and this money order was remarkably similar in form to a modern check.[5] It stated the sum to be paid, the name of the payee, the date, and the name of the issuer.[6]

During the Middle Ages, a sakk was a written vow to pay for goods when they were delivered, and it was used to avoid having to transport money across dangerous terrain.[7] As a result, these sukuk were transported across several countries and spread throughout the world.

Jewish merchants from the Muslim world transmitted the concept and the term sakk to Europe.[8] The outcome of the trade and transport of these sukuk is that they were a source of inspiration for the modern-day check, which has a British background.[9] Yet the modern

English word check appears to have been derived from the Arabic word sakk.[10]

Today, sukuk are known as instruments of the Islamic capital markets. In modern-day Islamic finance, sukuk refer to Islamic securities with rather distinctive features. One of the very first definitions of modern-day sukuk was given in February 1988 during the fourth session of the Council of the Islamic Fiqh Academy in Jeddah, Saudi Arabia. Resolution No. 30 of the council dealt with investment certificates and, more specifically, with mudarabah (partnership) sukuk.

The council defined these sukuk as "investment instruments which allocate the [mudarabah] capital by floating certificates, as an evidence of capital ownership, on the basis of shares of equal value, registered in the name of the owner, as joint owners of shares in the venture capital or whatever shape it may take, in proportion to . . . each one's share therein."[11]

This is arguably the first description of sukuk in present times. Shortly after this description, in 1990 one of the first sukuk was issued by Shell MDS in Malaysia.[12] After this, there were no more active issuances by other sukuk issuers until the beginning of the 21st century. In 2000, a number of institutions started issuing sukuk, and the sukuk market took off from there.[13]

The immense growth of the market required certainty in regard to Shari'ah-related matters and standardization. Hence, the AAOIFI issued its Shari'ah standard number 17 on investment sukuk in May 2003, which became effective on January 1, 2004. This standard defines investment sukuk as "certificates of equal value representing undivided shares in ownership of tangible assets, usufruct, and services or (in the ownership of) the assets of particular projects or special investment activity."[14]

The AAOIFI standard on sukuk describes 14 different sukuk structures of Islamic financial contracts, such as musharakah, mudarabah, ijarah, and murabahah. In the first decade of the 21st century the market witnessed several sukuk issuances in different forms and structures. In 2007, the sukuk market reached its peak in terms of issuance volume.[15] The AAOIFI standard number 17 also provides specific rules to safeguard the Shari'ah-compliance of each sukuk structure.

  • [1] M. A. Khan, Islamic Economics and Finance: A Glossary (London: Routledge, 2003), 163; S. Cakir and F. Raei, Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk? (Washington, DC: International Monetary Fund, 2007), 3.
  • [2] Adam and Thomas, Islamic Bonds, 43.
  • [3] N. J. Adam and A. Thomas, "Islamic Fixed-Income Securities: Sukuk," in Islamic Asset Management: Forming the Future for Shari'a-Compliant Investment Strategies, ed. S. Jaffar (London: Euromoney Books, 2004), 73; A.Thomas, "What Are Sukuk}", American Journal of Islamic Finance, vol. 2; Khan, Islamic Economics, 163.
  • [4] A. L. Udovitch, "Bankers without Banks: Commerce, Banking, and Society in the Islamic World of the Middle Ages," in The Dawn of Modern Banking, ed. UCLA Center for Medieval and Renaissance Studies (New Haven, CT: Yale University Press, 1979), 268-74.
  • [5] A. Z.J. ben Josef, "Cheques," document T-S Ar. 30.184, Taylor Schechter Collection, Cambridge University Library,
  • [6] Ibid. Some sources even suggest that the ancient Romans used an early form of check known as praescriptiones in the first century се. During the third century ce, banks in Persia and its territories also issued a letter of credit known as a sakk. Hence, it is believed that the Arabic word sakk comes from the Persian language. However, the first evidence of sakk dates from the Middle Ages. StateMaster, "Cheque," Encyclopedia,; A. Markels, "The Glory That Was Baghdad," U.S. News, April 7, 2008, .html; M.Wright, "Just Write Me a 'Sakk'," Sunday Mirror, February 22, 2009, www
  • [7] P. Vallely, "How Islamic Inventors Changed the World," Independent, March 11, 2006,
  • [8] F. Braudel, The Mediterranean and the Mediterranean World in the Age of Philip II, vol. 2 (New York: William Collins Sons, 1973), 817.
  • [9] English banks started using checks in the 17th or 18th century in order to counteract the issuance monopoly of the Bank of England. P. de Vroede, De cheque: De post-cheque en de reischeque (Antwerp, Belgium: Kluwer 1981), 3; J. A. F. Geisweit van der Netten, De cheque (Utrecht, Netherlands: Utrechtsche Stoomdrukkerij, 1892), 5; H. Cabrillac, he cheque et le virement, nr. 2; J. van Ryn and J. Heenen, Principes de droit commercial, nr. 2976.
  • [10] G. W. Heck, Charlemagne, Muhammad, and the Arab Roots of Capitalism (Berlin: Walter de Gruyter, 2006), 217-218; Udovitch, "Bankers without Banks," 268-74; A. L. Udovitch, "Trade," in The Dictionary of the Middle Ages, ed. J. R. Strayer, vol. 12 (New York: Charles Scribner's Sons, 1989), 105-108; "1001 Inventions: Discover the Muslim Heritage in Our World," a British-based educational project and exhibition exploring the Muslim contributions to building the foundations of modern civilizsation,; Vallely, "How Islamic Inventors Changed the World."
  • [11] International Islamic Fiqh Academy, Resolutions and Recommendations of the Council of the Islamic Fiqh Academy, 1985-2000 (Jeddah, Saudi Arabia: Islamic Development Bank, 2000), 61-62.
  • [12] A. W. Dusuki, "Challenges of Realizing Maqasid al-Sbari'ab (Objectives of Shari'ah) in the Islamic Capital Market: Special Focus on Equity-Based Sukuk," paper presented at the International Islamic Management Conference on the Islamic Capital Market, Penang, Malaysia, October 2009.
  • [13] R. Haneef, "From 'Asset-Backed' to 'Asset-Light' Structures: The Intricate History of Sukuk," International Journal of Islamic Finance 1, no. 1 (2009): 103-126; Dusuki, "Challenges," 8-9.
  • [14] Accounting and Auditing Organization for Islamic Financial Institutions, Bhahrain, Bahrain.
  • [15] The prevailing sukuk structures in 2007 were the equity-based ones. S. Mokhtar, "A Synthesis of Shari'ah Issues and Market Challenges in the Application of Wa'd in Equity-Based Sukuk," International Journal of Islamic Finance 1, no. 1 (2009):139-145; Dusuki, "Challenges," 8-10. In 2008 the ijarah sukuk started to dominate the sukuk market because of a drop in equity-based sukuk structures resulting from a resolution issued by the AAOIFI that year. O. Salah, "Islamic Finance: The Impact of the AAOIFI Resolution on Equity-Based Sukuk Structures," Law and Financial Markets Review 4, no. 5 (September 2010):507-517.
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