The Journey of Islamic Banking in Libya: An Analytical Study to Evaluate the Experience and Performance Improvement Requirements

Abstract

This study examines the trajectory of Islamic banking in Libya since the enactment of Law No. (1) of 2013 concerning the prohibition of usurious transactions. It aims to evaluate the experience and identify the key obstacles hindering the full utilization of Islamic financing and investment instruments. The study adopts a descriptive-analytical approach to examine the state of Islamic banking and the transformation models adopted by Libyan commercial banks, including partial transformation and Islamic windows. It also highlights the concentration of financing in Murabaha to the Purchase Orderer and the limited use of other investment and developmental modes, such as Musharakah, Mudarabah, and Ijarah Mawsufah fi al-Dhimmah. The study concludes that several structural obstacles continue to affect the development of Islamic banking, most notably legislative and tax deficiencies, complexities related to restructuring legacy financial transactions, and challenges in liquidity and risk management. The study presents a number of recommendations aimed at supporting the development of Islamic banking and enhancing the efficiency of the Libyan banking sector