Volker Nienhaus, Profitability of Islamic PLS Banks Competing with Interest Banks : Problems and Prospects

Dr. Nienhaus has with a straightforward analytical method sought to provide an insight into the functioning of Islamic banks (using PLS as the only financial instrument) in competition with interest-based banks. While the lucidity of the analysis is laudable, I have some reservations about the general approach and specific analysis. Dr. Nienhaus' assertion that the model of the wholesale transformation of an Islamic system discussed by Islamic economists is irrelevant in practice is not completely accurate. Currently Iran and Pakistan provide counter examples to this statement. It needs to be pointed out that after having criticised Islamic economics theorising for its lack of realism, Dr. Nienhaus goes on to assume, for ease of analysis, that PLS is the only financial instrument used by Islamic banks when competing with interest-based banks. Empirically, hire purchase, leasing and mark-up may be the more popular financial instruments currently in use. Nonetheless, I find the assumption acceptable because from a normative perspective PLS may be the closest to the Islamic ideal