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Islamic Finance and Limited Purpose Banking (LPB): Two Sides of the Same Coin

Islamic Finance and Limited Purpose Banking (LPB): Two Sides of the Same Coin

Edib Smolo
Copyright: © 2020 |Pages: 17
ISBN13: 9781799816119|ISBN10: 1799816117|ISBN13 Softcover: 9781799834724|EISBN13: 9781799816126
DOI: 10.4018/978-1-7998-1611-9.ch006
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MLA

Smolo, Edib. "Islamic Finance and Limited Purpose Banking (LPB): Two Sides of the Same Coin." Growth and Emerging Prospects of International Islamic Banking, edited by Abdul Rafay, IGI Global, 2020, pp. 100-116. https://doi.org/10.4018/978-1-7998-1611-9.ch006

APA

Smolo, E. (2020). Islamic Finance and Limited Purpose Banking (LPB): Two Sides of the Same Coin. In A. Rafay (Ed.), Growth and Emerging Prospects of International Islamic Banking (pp. 100-116). IGI Global. https://doi.org/10.4018/978-1-7998-1611-9.ch006

Chicago

Smolo, Edib. "Islamic Finance and Limited Purpose Banking (LPB): Two Sides of the Same Coin." In Growth and Emerging Prospects of International Islamic Banking, edited by Abdul Rafay, 100-116. Hershey, PA: IGI Global, 2020. https://doi.org/10.4018/978-1-7998-1611-9.ch006

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Abstract

The saying that “history repeats itself” is best manifested in capitalist financial system operating worldwide. It seems people are not learning lessons from the history of financial crises. Leading economists and capitalist gurus are warning about an inherently fragile capitalist financial system and about an urgent need to do something about it before it is too late. After the recent global financial crisis, Kotlikoff proposed the most radical and the most comprehensive reform of the existing financial system. His proposal became known as the Limited Purpose Banking (LPB). Kotlikoff's proposal runs hand in hand with the aspirations of the pioneers of Islamic finance. He envisioned a financial system that is based on risk sharing, cooperation, and overall public interest (maslahah). In short, the idea of the LPB – after certain modifications and minor adjustments – can be applied in developing a true Islamic financial system. Thus, it can be said that the LPB and Islamic finance are two sides of the same coin.

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