Historical Evidence
From the very early stages in Islamic History, Muslims established a financial system without interest or mobilizing resources to finance productive activities. This was done on the basis of the PLS modes of mudârabah and mushârakah. According to Professor Udovitch, these modes helped mobilize the entire reservoir of monetary resources of the medieval Islamic world” for financing agriculture, crafts, manufacturing the long-distance trade. They were used not only by Muslims but also by Jews and Christians45 to the extent that interest-bearing loans and other overly usurious practices were not in common use.46
According to Goitein, breach of the Jewish, Christian and Islamic law against interest found “only once in the record of a judgement, even though an unusually large amount of Jeniza documents deal with credit.”47 Schatmiller has also concluded that financial capital was developed during the early period by a considerable number of owners of monetary funds and precious metals, without the supposed interdiction of riba, usury, hampering it in any way”.48
Financiers were known in the early Muslim history as sarrâfs. By the time of the ‘Abbasid Caliph al-Muqtadir (295-320 AH908-933AC), they had started performing most of the basic functions of modern banks.49 They had their own markets, something akin to the Wall Street in New York and the Lombard Street in London, and fulfilled most of the banking needs of commerce, industry and agriculture within the constraints of the then-prevailing technological environment.50 However, since these were not banks in the technical modern sense of the term, Professor Udovitch has preferred to call them “bankers without banks.”51
The extensive mobilization of savings and their accessibility to businessmen provide a great boost to the growth of output and trade from Morocco and Spain in the West, to India and China in the East, central Asia in the North, and Africa in the South. This is clearly indicated not only by the available historical documents but also by the Muslim coins of seventh to eleventh centuries which have been found in different parts of Russia, Finland, Sweden, Norway, the British Isles, and Iceland – countries which were on the outskirts of the then Muslim world.52