ABSTRACT
The growth of modern Islamic banking since the 1970s has posed a dilemma for governments in the Arab world, as there was suspicion about whether those behind the movement also had a political agenda, but there was also a realization that the Islamic finance could potentially contribute to capital formation and economic development. As a consequence, while some Arab governments were openly hostile to Islamic banks, with Syria, Iraq, Libya and Algeria refusing to allow such institutions to operate, other governments, notably in Jordan, Tunisia and the Sudan saw Islamic finance more opportunistically, as a means of attracting capital inflows from the oil rich countries of the Gulf where there was greatest enthusiasm for this new form of interest-free banking.
