Abstract:

The Libya’s revolutionary government after the Gaddafi regime legislated the prohibition of all dealings that involve interest (riba). Commercial banks were then obliged to convert to Islamic banking from January 1, 2015. This law was practically difficult to implement, which led to the extension of its implementation until 2020. This paper traces the origin of this transformation process right from the independence of Libya in 1951 to identify the motives, obstacles and underlying issues in the transformation process to Islamic banking. There is still no full-fledged Islamic bank operating in Libya because of these problems. Some of the key problems include inadequacy of a framework for Islamic banking and lack of skilled manpower in Libyan banks regarding Islamic banking products. Other problems are lack of knowledge about the theory and practice of Islamic banking among stakeholders and their unawareness and negative perceptions on Islamic banking system. The banks in Libya are also not willing to set strategies that will aid in a successful conversion due to resistance to change attitude especially among bank managers. Indeed, the current political, economic and social environment is in a dearth that seriously affect the progress of the transition program. Key Words: Libya, Islamic Banking, Transformation Process, Literature Review, Islamic Financial System.

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