An insider’s account raises uncomfortable questions about whether Islamic banking has remained faithful to the principles it was created to uphold.
For millions of Muslims around the world, choosing an Islamic bank is more than a financial decision; it is an act of faith. The promise is simple yet profound: financial services that avoid riba (interest), promote ethical investment, and remain consistent with the teachings of Islam.
“Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, ‘Trade is [just] like interest.’ But Allah has permitted trade and has forbidden interest…” (2:275) 
“O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal – [thus] you do no wrong, nor are you wronged.” (2:278-279)
Over the past five decades, Islamic finance has transformed into a global industry worth more than US$4 trillion, operating across over 80 countries. Governments have introduced legislation to support it, multinational banks have created Islamic finance divisions, and dedicated Islamic banks have become household names from the Gulf to Southeast Asia.
Yet one uncomfortable question refuses to disappear:
Has Islamic banking remained true to the spirit of Islam, or has it merely repackaged conventional banking in Arabic terminology?
It is a question that few insiders are willing to ask publicly.
One of those exceptions is Harris Irfan, a man who helped build the modern Islamic finance industry before becoming one of its most outspoken critics.
As the former Global Head of Islamic Finance at Deutsche Bank, former CEO of Deutsche’s Islamic finance subsidiary, former Global Head of Islamic Finance at Barclays, and founder and CEO of London-based corporate finance advisory Cordoba Capital Markets, Harris Irfan occupies a unique position in the evolution of modern Islamic finance.
He is also the author of Heaven’s Bankers, an insider’s account of the industry’s rise. Unlike critics observing from the sidelines, Irfan helped design, structure, and launch many of the financial products that came to define contemporary Islamic banking. His critique, therefore, is not theoretical; it comes from someone who played a central role in building the very system he now believes has drifted from its ethical foundations.
Today, however, he, along with many others, argues that Islamic banking has drifted dangerously away from the ethical foundations it claims to represent.
The criticism is not aimed at Islam itself, nor at sincere scholars working within the industry. Rather, it is directed at a financial system which has prioritised legal compliance over genuine Islamic values.
The Birth of Modern Islamic Finance
The orthodox argument is that there’s no such thing as ‘Modern Islamic Finance ’. Islam has proposed straightforward and clear instructions for Islamic Finance, which revolves around trade and partnerships on a risk-sharing basis. It must not be confused with an attempt to fit in or imitate conventional banking.
“O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful. And fear the Fire, which has been prepared for the disbelievers. And obey Allah and the Messenger that you may obtain mercy.”
Its earliest experiments were rooted in community development and genuine risk-sharing.
One of the first modern examples emerged in Egypt during the 1960s, where the Mit Ghamr Savings Project sought to mobilise local savings and invest directly into productive businesses. Depositors shared in profits generated by real economic activity rather than receiving guaranteed interest payments.
The model reflected classical Islamic commercial principles.
Capital was connected directly to enterprise.
Risk was shared.
Profits were earned through trade rather than through lending money for predetermined returns.
These ideas later inspired institutions such as Dubai Islamic Bank and the Islamic Development Bank, laying the foundations of what would become today’s global Islamic finance industry.
However, according to Irfan, an important shift occurred as Islamic finance entered the mainstream financial system.
To compete with conventional banks, Islamic institutions accepted the same regulatory frameworks, banking licences and monetary systems that underpin modern commercial banking.
It is here, he argues, that the industry’s deepest contradiction began.
The Flawed Financial System Beneath the Products
Most discussions surrounding Islamic banking focus on contracts.
Is the mortgage structured as Murabaha?
Is the financing based on Ijara?
Has a recognised Shariah board approved the documentation?
According to Irfan, these questions overlook something far more fundamental.
The issue is not merely the contract.
It is the financial system that makes the contract possible.
At the heart of the modern financial system lies fractional reserve banking — a mechanism that allows banks to create money by issuing loans far in excess of their actual deposits. According to critics of the current monetary system, including Harris Irfan, this practice forms the bedrock of today’s debt-based economy, fuelling excessive money creation, inflation, financial instability and widening wealth inequality. They argue that many of the systemic flaws associated with modern finance originate not from individual banking products, but from this very model of money creation itself.
This mechanism is neither unique to Islamic banks nor hidden from regulators. It forms the foundation of virtually every modern banking system across the world.
For Irfan, however, this raises a serious theological concern.
If Islamic banks depend upon the same mechanism of money creation as conventional banks, can their products truly claim to represent an alternative to interest-based finance? Another recurring concern among consumers is that Islamic home and car financing rarely reflects the principle of genuine risk-sharing. Instead, the repayment structure often resembles conventional lending, where monthly instalments are initially weighted towards the bank’s profit component, leaving the outstanding principal to reduce more gradually over time. In many cases, financing costs are also subject to periodic revisions, increasing the customer’s financial burden.
Critics argue that such structures disproportionately favour the lender, raising fundamental questions about whether these arrangements embody the Islamic ideals of fairness, shared risk and mutual benefit—or merely replicate conventional finance under different contractual terminology.
Similarly, Irfan’s conclusion is stark.
He argues that while Islamic contracts may comply with specific legal rulings, they remain embedded within a monetary framework that, in his opinion, conflicts with the broader prohibition of riba.
Not everyone within Islamic finance agrees with this interpretation. Many contemporary scholars maintain that properly structured Islamic financial contracts remain permissible within existing banking systems. Nevertheless, Irfan believes the industry has largely ignored the deeper philosophical questions surrounding money creation itself.
Compliance Versus the Spirit of Islam
Perhaps the most significant distinction Irfan draws is between following the letter of Islamic law and fulfilling its broader objectives.
Islamic jurisprudence has always recognised that legal contracts alone cannot define ethical behaviour.
The Maqasid al-Shariah are the higher objectives of Islamic law—to preserve justice, wealth, dignity, society and human welfare.
Financial transactions, therefore, should not simply avoid prohibited clauses; they should actively contribute to a healthier society.
This distinction became deeply personal for Irfan. Financial professionals often become so focused on structuring legally compliant transactions that they fail to ask a more important question:
Should this project be financed at all?
In other words, something may satisfy technical legal requirements while still conflicting with the ethical spirit that Islamic finance was originally intended to protect.
When Finance Becomes an Industry Serving Itself
Another recurring theme in Irfan’s critique is the growing separation between finance and the real economy.
Historically, finance existed to support commerce.
Businesses produced goods.
Farmers cultivated crops.
Manufacturers built products.
Finance simply enabled those activities to flourish.
Today, many economists argue that the relationship has reversed.
Financial markets increasingly generate profits through financial instruments themselves rather than through productive economic activity.
Irfan believes Islamic finance has unintentionally followed the same path.
Rather than creating fundamentally different financial institutions, many Islamic banks have focused on replicating conventional products using alternative contractual structures.
Islamic mortgages resemble conventional mortgages.
Corporate financing often mirrors conventional debt.
Investment products frequently deliver returns that are almost identical to those of their conventional counterparts.
The Arabic terminology changes.
The commercial outcome often does not.
For ordinary Muslim consumers seeking a genuinely ethical alternative, this creates understandable scepticism.
Many customers openly question whether replacing the word “interest” with “profit rate” truly changes the underlying economic reality.
The industry’s challenge is therefore no longer one of technical compliance alone.
It is one of trust.
If Islamic banking wishes to distinguish itself from conventional finance, it must demonstrate that its differences extend beyond documentation and legal formality.
It must show that its principles genuinely reshape how capital is raised, invested and shared across society.
That, according to Irfan, remains the unfinished mission of modern Islamic finance.
