Recovery of Authentic Islamic Economics, Finance and Banking

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Amid the inflationary and disruptive socio-economic circumstances caused by contemporary general economic and financialization practices, alternative philosophical and, in particular, Islamic, economic and financial thoughts have proven to be a valid solution with potential yet unleashed. As much as many would point out that the root causes of contemporary socio-economic circumstances are the cumulative result of the evolutionary attempts and failures of economic and financial applications over the last centuries, particularly the 20th, we can also trace the philosophical alternative and a thought economic and financial peculiar to the first centuries of Islam. While the philosophical underpinnings of recurrent economic and financial practices are flawed, Islamic economics, finance and banking have perpetuated a replication of this trend to such levels that critics, including even proponents, have begun to see no real alternative in it.

The global growth trend of Islamic economics, finance and banking reveals a decline from 28.64% in 2008 to just 12.71% in 2020 according to Cambridge Global Islamic Finance Report 2021. Meanwhile, this corresponds to the growth of assets under management from $639 billion to $2.94 trillion. At first, it might seem like things are going well and going according to plan, but the realities on the ground aren’t so bright and the coronavirus has exposed all of the industry’s systematic inadequacies and the urgency of guarantee the basic needs of humanity. Nonetheless, the industry is trying to reclaim its original vision and mission amidst multi-dimensional challenges and to root its practice and services in solid philosophical foundations as espoused in the teachings of the early centuries of Islam or grounded in the sources of knowledge of Islam.

Aspirations to reclaim the true foundations of the industry are largely complemented by the global determination to achieve the Sustainable Development Goals (SDGs) or Environmental, Sustainable and Governance (ESG) investments, compliant with Sharia (or Islamic law) and responsible. This alone, however, will not instil the proper vision or weltanschauung in people’s minds. This reflects a rather quantitative technical realization of criteria refurbished by global regulatory bodies instead of a qualitative realization of a higher vision of improved mental and spiritual well-being emanating from within individuals. This would ensure a higher level of Shariah compliance within the Islamic economy, finance and banking industry as a whole compared to the current lower level of Shariah compliance. Lower level compliance is known throughout the industry due to the multiple challenges it faces ranging from buying fatwa, financial engineering in contracts like Sukuk (the Arabic name for financial certificates ), structured products, etc. These have raised questions about true Sharia compliance since the 1970s and have repeatedly urged authorities to revisit and refurbish recurring practices. At the time, the industry was in its infancy with many conventional institutions offering Islamic banking and finance windows through which Islamic economics, finance and banking services catered to the growing demand of Muslims and non-Muslims alike. -Muslims for an alternative approach to economics, banking and finance.

In tune with modern times

Today, however, we live in an exponential technological age where age-old paradigms are being disrupted, including Islamic economics, finance and banking. So, it’s time to integrate the best practices of legacy with those of modern times. It represents an opportunity to embrace real change and recalibrate established practices and services. Although the industry of Islamic economics, finance and banking was preceded by the Islamization of Knowledge (IOK) reform and renewal movement, it demands the paradigm shift towards the integration of Learn (IoK), where a synthesis of innovative and creative best practices has the real potential to achieve SDGs, ESG or higher Sharia-compliant goals.

Adopting this narrative means that the IoK not only evaluates the idea of ​​recovering the true foundations to develop Islamic economics, finance and banking, but it provides the framework on the basis of which we can systematically achieve it. The essence of the IoK is the recognition, respect, reference and understanding of the metaphysical and physical sources of knowledge in Islam, namely the Quran, the Sunnah, the ijma (consensus), the qiyas ( analogy), etc., including reason and intuition. Intense debates based on the historical accounts of the Islamic scientific tradition revealed a rivalry between the use of reason and tradition and often led to extreme results which, in the long run, never produced a greater welfare. Extreme positions have generally disappeared and become unpleasant archives of history. It is strongly discouraged today such practices and inclinations. On the other hand, the IoK promotes the synthesis of the two and a discursive approach with reference to the sources of knowledge in Islam to overcome or harmonize the differences. The IoK framework promotes a dialogue between text and context specialists and a collective methodology oriented towards legal reasoning. Researchers could be experts in different fields, which is very suitable for the multidisciplinary needs of our times. Lawyers, economists, politicians, lawyers, environmentalists, engineers and others can express their views and exchange comments to understand the nuances of the problems that humanity faces in different contexts before operationalizing the solution. The potential results are increased ESG and SDG scores and greater Shariah compliance globally through the ability to communicate and share know-how through technological means. The rise of fintech already indicates the emergence of such scenarios. Therefore, the focus on the philosophical underpinnings of the industry worldview of Islamic economics, finance and banking is crucial and timely.

An important fact in the process of recovering the philosophical foundations of Islamic economics, finance and banking in contemporary times are its characteristics of inclusiveness and universal appeal. Inclusiveness refers to the unconditional possibility of non-Muslim practice and the development of Islamic economic, financial and banking products and services, while universal appeal implies that the results have an impact on well-being and meet the needs non-Muslims as well as Muslims. The UN has recognized these characteristics of Islamic economics, finance and banking in addition to its apparent greater resilience and stability during crises than its conventional counterpart. Therefore, increased leadership shaped by the IoK contours of the development of Islamic economics, finance and banking is commensurate with the global carbon reduction movements or various green initiatives. While these united efforts promise scientifically proven wellness results, they also do a great service to Islam as a religion of peace and factually corroborate the Prophet Muhammad as mercy to the world.

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