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Under Islamic law a partnership dissolved automatically when any partner died, and a deceased partner's share passed at once to his heirs. Merchants therefore kept partnerships small and short-lived, often limited to a single venture, so that death would not cause costly liquidation. Because firms stayed tiny, merchants never needed the organizational innovations that large, long-lived enterprises forced on Europe.
Quranic inheritance rules required a large share of an estate, at least two-thirds, to be divided among many relatives in fixed proportions. This broke up successful merchants' fortunes every generation and blocked the kind of capital concentration that primogeniture allowed in parts of Europe. The rule was meant to be fair, but it made it very hard to build enduring commercial dynasties or firms.
The waqf was an unincorporated trust. Its founder dedicated property to a purpose forever, and managers were bound to the founder's stipulations. It protected wealth from expropriation, but it could not easily adapt, pool resources, or act as a self-governing organization. It absorbed capital that might have gone into flexible corporations, and it kept civil society from developing autonomous institutions able to lobby or evolve.
The key question is why Middle Eastern institutions stood still while Western Europe's evolved through self-reinforcing feedback, not why the region declined. Rules that worked well in the medieval period locked in equilibria in which no one had an incentive to innovate. This turns a story of failure into a story of path dependence and missing endogenous change.
Non-Muslim minorities in the Ottoman Empire could choose which legal system governed their contracts. In the eighteenth and nineteenth centuries they increasingly chose Western law and foreign protection, which gave them access to modern corporate and banking forms. This helps explain why Christians and Jews came to dominate modern commerce and finance there, while Muslim merchants stayed tied to traditional institutions.