Fractional Reserve Banking and Maqasid Al-Shariah: An incompatible Practice

*Sani. M.D, **Arfah S. ***Meera A.K.M. and ****Aziuddin A.

* PhD Candidate, Graduate School of Management,

43400 Serdang, Selangor, Malaysia

H/P 0172732616 or 0103686995

Universiti Putra Malaysia

**Department of Accounting & Finance, Graduate School of Management

Universiti Putra Malaysia,

43400 Serdang, Selangor, Malaysia

***Department of Business Administration, Faculty of Economics & Management

IIUM, Gombak, 50728 Kuala Lumpur Malaysia

****Rectorate, Selangor International Islamic Universiti College,

Bandar Seri Putra, 43000 Kajang, Malaysia


This paper conceptualises the process, existence and the implications of fractional reserve banking in our present banking system (both conventional and Islamic). It then reasons the conformity of our contemporary Islamic banking, finance and investment institutions towards

achieving the objectives of Islamic law (maqasid al-shariah) operating under the FRB framework. The paper uses conceptual and logical deductions from Qur‟an and Hadith to show how fractional reserve banking violates the objectives of shariah (maqasid al-shariah).

Therefore it is impermissible in Islamic perspective. The paper also discusses some scholars‟ view in support of the system. A measurement tool which is based on the maqasid al-shariah parameters will be eventually used to measure empirically the implication of such system

(FRB) to the society. The paper concludes with the believe and hope that Islamic banking, finance and investment institutions should avoid the system and operate under a monetary system acceptable in Islam that will help attain the objectives of Islamic law (maqasid al-


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