The evolution of the necessary institutional infrastructure and infrastructure for communities and economies is a continual process where, we may utilize Islamic understanding for development as a standard for measuring the desired change? The goals of Shariah (Maqid Al-Shariah) and its manifestation in the concept of complete human development (CHD) serve as the model for Islamic economics and finance. However, the linear economy paradigm, which was influenced by Hotelling’s renowned 1931 framework based on the economics of exploiting natural resources and which does not acknowledge the ecological environment as a resource, drives the free-market economies in the real world. The linear economic paradigm is safeguarded and preserved by the global financial infrastructure so, Islamic finance has continued to be a Halal subset of this system in practice.
In the pre-modern history, all authority over individuals, public affairs, and politics in general had been cemented by religion, represented by the church, and the state, represented by rulers. Politics and religion have, however, since the birth of the “nation-state” and the European experience of the renaissance, politics and religion have been experiencing different sets of relationships, e.g., mistrust, conflict and even different trajectories of influences. The Muslim world was plagued by the syndrome of equating westernization with modernization, which resulted in the dislocation of Muslims from local development models. Reviving faith-based development models that are underpinned by civil society is key for achieving sustainable development and human dignity. Roughly one-third of those suffering from extreme poverty worldwide live in member states of the Organization of Islamic Cooperation (OIC). In 21 of those 57 countries, fewer than half of the population has access to adequate sanitation, 4% of infants born in these countries die before they reach the age of five so, many OIC nations are struggling to achieve widespread growth. Many countries confronted with the fabled “resource curse, while ineffective leadership and failing institutions are blaming each other and unfortunately, almost 71% of the 125 million people impacted by conflicts and natural disasters live in OIC where, national budgets are severely strained by instability.
Nonetheless, these nations do have choices. Particularly if Islamic finance is utilized to its full potential, the cash that has amassed in some of the OIC nations’ financial systems might play a significant role in aiding them in achieving their development goals. Comparing Islamic financing to traditional financial goods, there are significant benefits. The approach to profit- and loss-sharing, the ban of interest, and the requirement that investments be connected to the actual economy all contribute to the stability of the financial industry. Islamic finance may also increase financial inclusion since it includes those who are not included in the mainstream financial system due to cultural or religious beliefs which was possibly one of the factors that generates Islamic finance’s 10-12% annual growth rate over the past few years.
But acquiring benefits to achieve SDGs from Islamic finance require government intervention through implementation of significant changes which revive and diversify the economy. The most important item of implementation is the requirement of robust legal systems that safeguard property rights and guarantee contract enforcement. Furthermore, the sector has to be standardized and controlled if customers are to have complete faith in Islamic financial goods. To avoid prejudice against Islamic financial products, national tax rules will also need to be adjusted.
Compliance with local aspirations (Maqasid Al Shariah) is also a very broad and high-level policy requirement in the national context, whether it is in the juristic, educational, health, media, cultural, financial domains, and so on. In the context of Islamic finance, internal process must be carried out by Islamic financial institutions (IFIs) where, Shariah governance (SG) is a regulatory requirement prompted by the eventuality of systemic risk of Shariah non-compliance. Recognition of systemic significance of Shariah non-compliance necessitates a two-tier SG system. Tier one of SG is at the level of the regulator, who needs to oversee and have surveillance on the second-tier, the service provider. In most other jurisdictions, where there are practices of Islamic financial services (IFS), the systemic significance of Shariah non-compliance is not recognized. In such jurisdictions, service providers implement the SG voluntarily as a financial engineering, product development, and behavioral marketing strategy.
In the existing scenario, SG implies the application and assurance of the principles of Shariah at these two levels. However, the focus of SG has thus far been at the micro-level, covering the Shariah permissibility of products and services offered by the IFIs. The purpose of the SG as such is to establish the Halal paradigm in financial services covering business conduct and the earning of permissible income. This is done within the overall framework of the conventional capitalistic linear economy paradigm.
It is concluded with the fact that, the linear economy paradigm is transforming into the circular economy paradigm, especially driven by SDGs and through active policy support and strategic targets. The global financial architecture is transforming because of the responses of businesses to the various UN initiatives. The ways that companies had been doing businesses is also changing and reporting is becoming more comprehensive covering SDGs and ESG concerns where, the transformative global scene provides an excellent opportunity to contribute to transforming economies to become more responsible, inclusive, and resilient and to ensure shared prosperity and wellbeing.
The Author is a MD IRP/Faculty Department of H&SS, Bahria University Karachi.