Economic Development and Islamic Finance

Abstract

This book highlights the strong synergies between the current thinking in development economics and an Islamic economic and finance approach to development based on the inherent inclusivity of Islamic financial instruments; the two share a common goal of balanced and equitable growth.Following a description of the conceptual similarities in principles and approach, including income distribution and redistribution, financial inclusion, and growth, the book suggests possible lessons from Islamic economics and finance for policy makers and development economics researchers.It challenges readers to learn from Islamic capital market instruments in a global context, arguing that the risk-sharing approach of Islamic finance is more stable than conventional capital markets' practices, which are inherently unstable because of their bias toward leverage-creating debt-based instruments.Questions of distribution of wealth are very much at the forefront of today's social and economic debates.The authors of this book point to ways in which the Islamic economic system approaches these issues.The book introduces new theoretical ground based on the analysis of John Maynard Keynes on employment, interest, and money, which inadvertently provides the best rationale for some of the basic precepts of Islamic economics.The book also explains how the emphasis of Keynesian analysis on profit and loss sharing encourages investment, which contributes to growth and full employment, as does its emphasis on redistribution of wealth.This book establishes an excellent link between finance and economic development.It highlights poverty eradication as the principal objective of an Islamic economic system; thus, institutions providing financial services can play an important role in achieving this goal.It also shows how redistribution elements in the Islamic financial system, such as Zakat (alms giving), Qard al-hassan (benevolent loans), and Waqf (charitable endowment), can be integrated into Islamic inclusive finance to resolve problems of outreach and sustainability.This is in addition to serving as complementary vehicles to poverty alleviation efforts.I would like to commend the work of Professor Abbas Mirakhor and Dr. Zamir Iqbal, as well as the contributions of the distinguished team of authors, for this addition to the literature on the application and use of Islamic finance xii