Historical Analysis and Dynamics of Global Islamic Banking Development

Abstract

This research examines the history of banking development in the world as well as the background of the establishment of Islamic banks, focusing on the importance of understanding the history of banking from the era of the Prophet Muhammad Saw. to the modern era. This study aims to reveal the nature of banking and the urgency of establishing banking institutions in accordance with Sharia principles. The research method used is a qualitative approach based on a literature review of the works of leading economic figures as well as references to the history of banking. The results show that, first, during the time of the Prophet Muhammad, there was no formal banking institution, but banking functions were performed individually and separately. Second, in the era of the Bani Abbasiyah, the three banking functions began to be managed by one individual. Third, with the implementation of banking functions by individual jihbiz, formal banking institutions began to emerge. Fourth, the practice of usury in conventional banking institutions encouraged the need for Islamic banks. Fifth, the micro Islamic banking movement began in 1940. Sixth, the development of Islamic banks in Indonesia began in 1960 with the encouragement of the Islamic Development Bank (IDB) initiated by the Organization of Islamic Cooperation (OIC). The results of this study provide an in-depth understanding of the development of Islamic banking functions and institutions in response to the needs of the people for a Shariah-based economic system.