Edited by Benton E. Gup
Chapter 14: An introduction to Islamic banking and finance
For more than half of a century, several academicians and practitioners considered the modern Islamic financial practice to be in a nascent stage. Some have in the past argued about the potential Islamic finance has for solving the socioeconomic difficulties of society. However, the recent development and progress of Islamic banking and finance have proven its ability to provide a complement to the conventional system. This was evident during the 2007–2009 financial crisis, when the resilience of Islamic finance was promising not only for absorbing financial shocks but for providing a fair and efficient alternative means of financial intermediation. Similarly, the potential contributions of Islamic finance are viewed for their ability to foster financial inclusion and support small and medium enterprises through risk sharing and asset-backed financing, and that Shariah restrictions on speculation may also reduce systematic risk (Kammer et al., 2015). Consequently, the United Nations’ paradigm shift to Sustainable Development Goals (SDGs) is another avenue that paves the way for Islamic finance to excel. This occurs from Islamic finance models’ focus on the societal well-being and environmental protections through maqasid (higher objective) Shariah realization (Ahmed et al., 2015; World Bank and Islamic Development Bank Group, 2016). The models of Islamic banking and finance have been linked with the institutional and welfarist concept of sustainability that aims to provide long-term solvency of the financial institution as well as the well-being of society (Aliyu and Yusof, 2016; Aliyu et al., 2017). However, every financial institution focuses on their business operations for a long period before they can benefit society through real economic investment.
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