ISLAMIC ECONOMIC INSTITUTIONS

The economic institutions of the classical Islamic world include Islamic contract law and the waqf, a form of trust. Until modern times, these two institutions were generally beneficial to economic performance. However, each had limitations that eventually blocked modern economic growth. Islamic contract law discouraged the formation of large and long-lived partnerships, thus obviating the need for business techniques and organizational forms associated with economic modernization. The waqf, designed as a rigid organization, locked capital into inefficient uses. Not until modern times has the corporation, a more flexible organizational form, entered the legal systems of the Islamic world. Prior to the 18th century, the Islamic world did not appear economically underdeveloped to outside observers. Comparative studies by economic historians confirm that it became ‘poor ’ in relation to Europe during the Industrial Revolution. Until that point, economic institutions grounded in Islamic law had afforded a respectable level of wealth by standards of the day. They had also facilitated the spread of Islam acros