Navigating Modern Economic Challenges: The Islamic Economics Paradigm in Focus

Abstract

The following chapter provides a summary of the global financial crisis (GFC) and how it impacted the global financial markets generally, emphasizing the Islamic finance industry (IFI) in particular. The GFC has been a catalyst for the supporters of the Islamic economic and finance principles. Minsky’s claim (2008) that stability is the root of instability was gaining more and more supporters after the GFC, provoking more and more criticism of the conventional finance paradigm. Such shift elevated Islamic financial system as a potential alternative. Looking at the failures and lessons learned from the GFC in tandem with the relatively sound state of the Islamic financial industry implies a reexamination of this paradigm and proposal of the one based on Islamic economics and finance principles. Grounded in socioeconomic justice, introducing equality, responsibility, transparency, honesty, and morality, this paradigm can be successful if appropriately implemented. Nevertheless, a current bifurcation exists between the wings of Islamic economics and finance theory and their practical application. To tackle the current issues, innovative thinking has to be applied especially in Islamic economics and finance. Mimicking the conventional financing’s methods and incorporating them through Shari’atization process gives rise to the risks of the traditional system’s assimilation and system’s breakdown. Therefore, building a framework and offering a tangible course of action is unavoidable for the management of the complexities and the risks involved.