Economics and Business

Divergence between aspirations and realities of Islamic economics: A political economy approach to bridging the divide

Abstract: Early writings in Islamic economics depicted a grand and, some would say, utopian image of the type of societal development that would result from implementing Islamic social and economic theory. However, despite the emergence of Islamic economics in a modern sense in the 1960s, we now find that the only manifestation that represents an Islamic alternative to mainstream neo-classical development is the Islamic banking and finance industry (IBF). However, the developments in the IBF industry indicate that it has converged towards conventional finance. Consequently, it has failed to fulfill the institutional and policy aspirations of Islamic economic system. This paper, thus, attempts to identify how such divergence has taken place, presents a conceptual model of development in Islam that goes beyond mere economics and fiqh considerations and suggests a political economy approach to demonstrate that the foundational axioms in fact rely wholly on major institutional implementation. It also identifies the pre-requisites for achieving this that includes political vision, will and leadership.

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Conceptualisation of the second best solution in overcoming the social failure of Islamic banking and finance: Examining the overpowering of homoislamicus by homoeconomicus

Abstract: The phenomenal growth of the Islamic banking and finance (IBF) industry has been remarkable since it came into existence just over thirty years ago. However, a closer reading of this positive development indicates that the IBF industry does not necessarily share the aspirations of Islamic economics, which aims at creating a world order in which the moral economy of Islam with its authentic value system can exist. In other words, the Islamic economic system aspires for the development of Islamic economics and financial institutions founded upon homoislamicus, agents concerned about social justice and human-centred economic growth and development. This indeed indicates the divergence between the aspiration of Islamic economics and the world of IBF. After highlighting and analysing the tension areas between the two and the reasons and sources of this apparent divergence, this paper argues that IBF needs to move into its third stage of development through the institutionalisation of social banking as a second best solution in overcoming the social failure of IBF and in creating value-added for capacity building and social justice.

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