16. Conclusions

In this book we have described the historical roots of Islamic financial Institutions (IFIs), the objectives they try to achieve and the formal framework developed, which allowed us to analyze whether they do in fact achieve their stated goals. We found that often the good intentions of Islamic banks and other institutions are frustrated by the law of unintended consequences. Usually the law comes into play when bankers, policymakers, religious authorities or other decision-makers fail to take into account the fact that economic actors will adjust their behavior in the light of new policies. In all these examples action of an economic actor goes against the intentinons of the policy maker. The government imposed a tax on a firm to get resources to help consumers, but an unintended result that goes against the government’s intention is the raise of the price of the good, produced by the firm. The bank may be prohibited from sharing losses with enterpreneurs in order to attract more enterpreneurs to business activities, but the banks response, descrease of the premium for success can have exactly the opposite effect. Since inability to share losses is a characteristic feature of Islamic banks, the enterpreneurs who are more likely to succeed may choose not to approach them at all, and approach conventional banks instead.