Historical Evolution and Resilience of the Islamic Financial System: Ethical Challenges and Adaptation in a Global High-Interest Rate Environment
Keywords:
Islamic Finance, Sharia, Interbank Market, riba, interest rates, sustainabilityAbstract
The research examines the historical evolution and resilience of the Islamic financial system in the face of challenges posed by rising interest rates in the global interbank market. The richness of Islamic legal tradition in financial matters is highlighted, with contributions from Sunni, Shia, and Sufi schools of thought. Despite the challenges, the Islamic financial system has demonstrated a capacity for adaptation and innovation, developing alternative contractual structures that allow it to participate in the international financial market without compromising its fundamental religious principles. Its focus on ethics, social justice, and financial stability makes it an attractive alternative for both Muslim and non-Muslim investors in the pursuit of more sustainable models. However, the need for greater standardisation and harmonisation of Islamic financial practices at a global level is noted. The future of the system will depend on its ability to balance fidelity to its principles with innovation and adaptation to a changing financial environment. Overall, the study underscores the relevance of understanding and appreciating the complexity and richness of the Islamic financial system, which can provide valuable lessons to the global debate on ethics and sustainability in finance.
References
Abd Ghadas, Z. A., and Mohd Shahril, N. M. R. "Limited Liability Partnership (LLP): The Alternative Corporate Entity for Islamic Businesses." Proceedings–ICLG 2018, 2018, pp. 481-486.
Abdel Haleem, M.A.S., translator. The Qur'an. Oxford University Press, 2004
Abu Yusuf, Y. Kitab al-Kharaj. Dar al-Ma’rifah, 1979.
Afshari, M. "Sufism, Futuwwa, and Professional Guilds." Sufi Institutions, edited by Alexandre Papas, Brill, 2020, pp. 89-101.
Ahmed, M. M., Farooq, M., and Arsalan, M. "Running Musharakah Product of Islamic Banks: An Alternative of Running Finance." Al-Idah, vol. 33, no. 2, 2016, pp. 8-17.
Al-Attas, S. M. N. Islam and the Challenge of Modernity: Historical and Contemporary Contexts. International Institute of Islamic Thought and Civilization, 1993.
Al-Jarhi, M. A. Islamic Finance and the Challenges of the 21st Century. Springer, 2023.
Al-Marghinani, B. Al-Hidaya: The Guidance. Amal Press, 2006.
Al-Masri, R. Y. Islamic Finance: Principles and Operational Aspects. Palgrave Macmillan, 2021.
Al-Qaradawi, Y. The Jurisprudence of Islamic Economics: A Comparative Study with Modern Economic Theories. Al-Falah Foundation, 2022.
Al-Shalhoob, S. K. Islamic Banking and Finance: Principles and Practices. Edward Elgar Publishing, 2019.
Al-Shalhoob, S. K. Islamic Banking and Financial Intermediation. Routledge, 2022.
Al-Suwailem, S. I. Islamic Economics: A Primer on Markets, Money, and Mobility. Cambridge University Press, 2021.
Al-Suwailem, S. Hedging in Islamic Finance. Islamic Development Bank, Islamic Research and Training Institute, 2006.
Al-Zuhayli, W. Financial Transactions in Islamic Jurisprudence. 4th ed., Dar al-Fikr Mouaser, 2022.
Alaeddini, M., Philippe Madiès, P., and Dugdale, J. "Interbank Money Market Concerns and Actors’ Strategies: A Systematic Review of 21st Century Literature." Journal of Economic Surveys, vol. 37, no. 2, 2023, pp. 573-654.
Aleraig, M. A., and Asutay, M. "Islamic Accounting Applications of Islamic Finance." Islamic Accounting and Finance: A Handbook, edited by Khaled H. and Hidaya Lawati, World Scientific, 2023, pp. 3-41.
Aleraig, M. A., and Asutay, M. "The Impact of Islamic Worldview on Shaping the Accounting System: An Islamic Moral Economy and Historical Exploration in Rationalizing Islamic Accounting." Islamic Accounting and Finance: A Handbook, edited by Khaled H. and Hidaya L., World Scientific, 2023, pp. 3-41.
Ali, J. A. Business Ethics in Islam. Edgar Elgar, 2014.
Aliqoriev, O. F. "Conceptual & Legal Framework of Islamic Finance." Web of Scientists and Scholars: Journal of Multidisciplinary Research, vol. 1, no. 1, 2023, pp. 13-19.
Anderson, J. N. D. Islamic Law in the Modern World. New York University Press, 1959.
Asadov, A., Zulkarnain Bin, M. S., Shamser, M. R., Zaheer, A., and Shinaj Valangattil, S. "Musharakah Mutanaqisah Home Financing: Issues in Practice." Journal of Islamic Accounting and Business Research, vol. 9, no. 1, 2018, pp. 91-103.
Ashraf, M. A. "Theory of Islamic Planned Behavior: Applying to Investor’s Sukuk Purchase Intention." Journal of Islamic Accounting and Business Research, vol. 14, no. 4, 2023, pp. 554-573.
Asutay, M. "Conceptualisation of the Second-Best Solution in Overcoming the Social Failure of Islamic Banking and Finance: Examining the Overpowering of HomoIslamicus by HomoEconomicus." IIUM Journal of Economics and Management, vol. 15, no. 2, 2007, pp. 167-195.
Asutay, M. "Conceptualising and Locating the Social Failure of Islamic Finance: Aspirations of Islamic Moral Economy vs. the Realities of Islamic Finance." Asian and African Area Studies, vol. 11, no. 2, 2012, pp. 93-113.
Ayub, M., Hassam, K., & Saba, I. "Revisiting the Paradigm of Shariah Governance of Islamic Financial Institutions." Journal of Islamic Accounting and Business Research, vol. 14, no. 4, 2023, pp. 26-44.
Ayub, M. Understanding Islamic Finance. John Wiley & Sons, 2007.
Aziz, M. R. A., Fuadah, J., & Mohd, A. Y. "Cash Waqf Models for Financing in Education." The 5th Islamic Economic System Conference (iECONS 2013), 2013, pp. 835-842.
Bearman, P., Bianquis, T., Bosworth, C. E., Van Donzel, E., & Heinrichs, W. P., editors. The Encyclopaedia of Islam. Brill, 2000.
Beck, T., & Demirguc-Kunt, A. "Small and Medium-Size Enterprises: Access to Finance as a Growth Constraint." Journal of Banking & Finance, vol. 30, no. 11, 2006, pp. 2931-2943.
Bin Sattam, A. A. Sharia and the Concept of Benefit: The Use and Function of Maslaha in Islamic Jurisprudence. Bloomsbury Publishing, 2015.
Bori, C. "A New Source for the Biography of Ibn Taymiyya." Bulletin of the School of Oriental and African Studies, vol. 67, no. 3, 2004, pp. 321-348.
Bouheraoua, S. Islamic Finance and Sustainable Development. Routledge, 2020.
Burton, J. An Introduction to the Hadith. Edinburgh University Press, 1994.
Calder, N. Studies in Early Muslim Jurisprudence. Clarendon Press, 1993.
Carbó-Valverde, S., Rodríguez-Fernández, F., & Udell, G. F. "Trade Credit, the Financial Crisis, and SME Access to Finance." Journal of Money, Credit and Banking, vol. 48, no. 1, 2016, pp. 113-143.
Chapra, M. U. "Towards a Just Monetary System." The Islamic Foundation. Journal of King Abdulaziz University, 1985, pp. 112-135.
Chapra, M. U. Islam and the Economic Challenge. The Islamic Foundation, 1992.
Clement, M. H. The Politics of Islamic Finance. Edinburgh University Press, 2004.
Coulson, N. J. A History of Islamic Law. Edinburgh University Press, 1964.
Dhar, P. "Zakat as a Measure of Social Justice in Islamic Finance: An Accountant’s Overview." Journal of Emerging Economies and Islamic Research, vol. 1, no. 1, 2013, pp. 1-11.
Dutton, Y. The Origins of Islamic Law: The Qur’an, the Muwaṭṭa’ and Madinan’Amal. Routledge, 1999.
El-Gamal, M. A. "Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering." Wisconsin International Law Journal, vol. 25, no. 4, 2007, pp. 605-623.
El-Gamal, M. A. Islamic Finance: Law, Economics, and Practice. Cambridge University Press, 2006.
Elsellabi, A. B., & Zaid, A. M. A.-A. "The Method of Applying Financing in the Form of Murabaha in Islamic Banks." Journal of Humanities and Social Sciences Research, vol. 2, no. 1, 2023, pp. 32-63.
Ernest, C. W. Sufism: An Introduction to the Mystical Tradition of Islam. Shambhala Publications, 2017.
Esposito, J. L., & Voll, J. O. Islam and Democracy. Oxford University Press, 1996.
Esposito, J. L. Islam: The Straight Path. Oxford University Press, 1998.
Farooq, M. O. "Qard Hasan, Wadi’ah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking." Arab Law Quarterly, vol. 25, 2011, pp. 115-119.
Firmansyah, E. "Islamic Banks Concern with the Poor and Micro Businesses: An Evaluation on Their Al Qard Hasan (Beautiful Loan)." International Conference, Integrated Microfinance Management for Sustainable Community Development (IMM 2016), Atlantis Press, 2016, pp. 181-187.
Gaol, C. P. L. "Normative Juridical Review Regarding Bank Interest in Islamic Law." Journal of Progressive Law and Legal Studies, vol. 1, no. 2, 2023, pp. 66-74.
Gerber, H. Islamic Law and Culture, 1600-1840. Brill, 1999.
Goitein, S. D. A Mediterranean Society: The Jewish Communities of the Arab World as Portrayed in the Documents of the Cairo Geniza. University of California Press, 1967.
Habib, F. Islamic Finance and Sustainability: The Need to Reframe Notions of Shariah Compliance, Purpose, and Value. Palgrave CIBFR Studies in Islamic Finance, 2023, pp. 15-40.
Habibullah, M., & Razali, H. "Sustainable Finance: How Does Zakat Management Matter?" Islamic Sustainable Finance: Policy, Risk, and Regulation, edited by Billah, M. M., Hassan, R., Razali, H., & Mohd Zain, N. R., Routledge, 2024, pp. 160-169.
Hafeez, M. M. "Evolution of Corporate Entity in Islamic and Western Perspective." Southeast Asia Journal of Contemporary Business, Economics and Law, vol. 2, no. 3, 2013, pp. 47-71.
Hallaq, W. B. A History of Islamic Legal Theories: An Introduction to Sunnī Uṣūl al-Fiqh. Cambridge University Press, 1997.
Hallaq, W. B. An Introduction to Islamic Law. Cambridge University Press, 2009.
Hallaq, W. B. The Impossible State: Islam, Politics, and Modernity’s Moral Predicament. Columbia University Press, 2013.
Hallaq, W. B. The Origins and Evolution of Islamic Law. Cambridge University Press, 2005.
Hamidi, L., Khondker, M. Z., & Abdul Aziz, N. P. "The Role of Spirituality Dimension in the Sustainability of Islamic Banking: A Combined Structural Equation Modeling and Artificial Neural Network Approach." Environment, Development and Sustainability, vol. 25, no. 7, 2023, pp. 1-27.
Hanson, M. "The Influence of French Law on the Legal Development of Saudi Arabia." Arab Law Quarterly, vol. 2, no. 3, 1987, pp. 272-291.
Haridan, N. M., Hassan, A. F. S., & Karbhari, Y. "Governance, Religious Assurance, and Islamic Banks: Do Shariah Boards Effectively Serve?" Journal of Management and Governance, vol. 22, 2018, pp. 1015–1043.
Hassan, M. K., Muhammad, M. H., & Aishath, M. Hire Purchase Under Shirkah al-Milk (HPSM) in Islamic Banking and Finance: A Shari’ah Analysis. Springer, 2024.
Hodgson, M. G. The Venture of Islam, vol. 1: The Classical Age of Islam. University of Chicago Press, 1974.
Hourani, A. Arabic Thought in the Liberal Age, 1798-1939. Oxford University Press, 1962.
Hussain, L., & Mahbubi Ali, M. "Sharī’ah Non-Compliant Assets as Rahn (Pledge) in Islamic Banking Products: A Fiqhī Perspective." ISRA International Journal of Islamic Finance, vol. 9, no. 2, 2017, pp. 196-199.
Imber, C. The Ottoman Empire, 1300-1650: The Structure of Power. Palgrave Macmillan, 2002.
Inalcik, H. The Ottoman Empire: The Classical Age 1300-1600. Weidenfeld and Nicolson, 1973.
Iqbal, Z., & Abbas, M. An Introduction to Islamic Finance: Theory and Practice. John Wiley & Sons, 2011.
Islahi, A. A. "Intellectual Discourse." Special Issue (Supplement), Kuala Lumpur, vol. 26, 2018, pp. 403-429.
Juliyanti, W., & Yohanes, K. W. "Literature Review: Implementation of Musharakah Mutanaqisah Partnership Over the World." Bukhori: Kajian Ekonomi dan Keuangan Islam, vol. 1, no. 1, 2021, pp. 1-10.
Kahf, M. Islamic Finance: Principles and Realities. Palgrave Macmillan, 2019.
Kamali, M. H. A Textbook of Hadith Studies: Authenticity, Compilation, Classification, and Criticism of Hadith. The Islamic Foundation, 2005.
Kamali, M. H. Freedom, Equality, and Justice in Islam. Islamic Texts Society, 2002.
Kamali, M. H. Principles of Islamic Jurisprudence. University of Georgia Press, 1991.
Kamali, M. H. Shari’ah Law: An Introduction. Oneworld Publications, 2008.
Kaya, O. SME Financing in the Euro Area: New Solutions to an Old Problem. Deutsche Bank Research, 2014.
Kuran, T. Islam and Mammon: The Economic Predicaments of Islamism. Princeton University Press, 2004.
Labib, S. Y. "Capitalism in Medieval Islam." The Journal of Economic History, vol. 29, no. 1, 1969, pp. 79-96.
Lapidus, I. M. A History of Islamic Societies. Cambridge University Press, 2002.
Liebesny, H. J. The Law of the Near and Middle East: Readings, Cases, and Materials. State University of New York Press, 1975.
Lombard, M. The Golden Age of Islam. North-Holland Publishing Company, 1975.
Lustiana, F. U., Immas, N., and Titing, Suharti. "Analysis of the Effect of Financing on Profitability in Sharia Commercial Banks." Manager, vol. 6, no. 1, 2023, pp. 81-90.
Maulidizen, A. "Economic Thought of Ibn Taimiyah and Relevance to the World Economic and Community Economic System." ESENSIA: Jurnal Ilmu-Ilmu Ushuluddin, vol. 20, no. 2, 2019, pp. 131-146.
Mazandarani, S. M. S., and Mahdi Bathaie, S. M. "Capitalism From the Viewpoint of Islam and Liberalism." Journal of Contemporary Islamic Studies, vol. 5, no. 1, 2023, pp. 23-33.
Melchert, C. Ahmad ibn Hanbal. Oneworld Publications, 2006.
Melchert, C. The Formation of the Sunni Schools of Law, 9th-10th Centuries CE. Brill, 1997.
Moody’s Analytics. "Moody’s Investor Service. Global Islamic Finance Outlook 2023." Moody’s Analytics, 2023.
Moshin, M. I. A., Hisham, D., Murat, C., Syed Othmana, I., Shaikh Hamzah, A. R., Seyed, K. S., and Obaidullah, M. Financing the Development of Old Waqf Properties. Palgrave Macmillan, 2016, pp. 221-242.
Naqvi, S. N. H. Islam, Economics, and Society. Kegan Paul International, 1994.
Nasr, S. H. Traditional Islam in the Modern World. KPI, 1987.
Nouman, M., and Ullah, K. Participatory Islamic Finance: Ideals, Contemporary Practices, and Innovations. Springer, 2023.
Opwis, F. M. M. "Maslaha in Contemporary Islamic Legal Theory." Islamic Law and Society, vol. 12, no. 2, 2005, pp. 182-223.
Orhun, E. "Islamic Banking in GCC: Emergence, Growth, and Prospects." Growth and Emerging Prospects of International Islamic Banking, edited by Rafay, A., 2020, pp. 1-16.
Oumlil, R., and Errico, L. Islamic Finance and the New Financial System: An Ethical Approach to Preventing Exploitation and Profiting from Debt. Routledge, 2022.
Rahman, F. Islam, 2nd ed., University of Chicago Press, 1979.
Rahman, F. Islam and Modernity: Transformation of an Intellectual Tradition. University of Chicago Press, 1982.
Ramadan, T. Islam and the Arab Awakening. Oxford University Press, 2012.
Saad, N. M., and Dzuljatri, A. R. "Towards an Application of Musharakah Mutanaqisah Principle in Islamic Microfinance." International Journal of Business and Society, vol. 14, no. 2, 2013, pp. 221-233.
Sadique, M. A. "The Concept of Complete Equality in Mufawadah Partnership: Its Recognition and Rationale in Islamic Law." Journal of Education and Social Sciences, vol. 5, 2016, pp. 234-261.
Sairally, S. "Evaluating the Social Responsibility of Islamic Finance: Learning from the Experiences of Socially Responsible Investment Funds." Islamic Finance: Political Economy, Performance and Risk, edited by Asutay, M., and Turkistani, A., Gerlach Press, 2013, pp. 145-160.
Saleh, N. A. Unlawful Gain and Legitimate Profit in Islamic Law: Riba, Gharar and Islamic Banking. Cambridge University Press, 1986.
Sampson, R. "Contemporary Sufism: Islam without Borders." The SAGE Handbook of Islamic Studies, 2010.
Schacht, J. An Introduction to Islamic Law. Clarendon Press, 1982.
Şeker, M. "Sufism’s Contribution to Social Peace through the Spirit of Futuwwa." İnsan ve Toplum Bilimleri Araştırmaları Dergisi, vol. 5, no. 4, 2016, pp. 872-888.
Shahid, M., Yasin, A. S., Meeran, M., Mohtesham, J., and Abdullah, M. "Analyzing the Commonalities between Islamic Social Finance and Sustainable Development Goals." International Journal of Ethics and Systems, vol. 39, no. 1, 2023, pp. 42-61.
Shaikh, S. A. "Paradox of Shariah Governance and Price Competitiveness in Islamic Banking." Shariah Governance in Islamic Banking Institutions, edited by Shafiullah, J., and Muhammad, I., Oxfordshire, pp. 94-108.
Shaikh, S. A., Abdul Ghafar, I., and Mohd Shafiai, M. H. "Application of Waqf for Social and Development Finance." ISRA International Journal of Islamic Finance, vol. 9, no. 1, 2017, pp. 5-14.
Sharif, D., Amir, S., and Nurul Aini, M. "The Reasoning Pattern of Islamic Jurists’ Views on Al-Rahn (Islamic Pawn Broking) Contract and Its Ruling." Journal of Contemporary Islamic Studies, vol. 2, no. 1, 2016, pp. 1-18.
Siddiqi, M. N. Riba, Bank Interest and the Rationale of Its Prohibition. Islamic Research and Training Institute, Islamic Development Bank, 2004.
Sigmund, M., and Siebenbrunener, C. "Do Interbank Markets Price Systemic Risk?" Journal of Financial Stability, vol. 71, 2024, pp. 101-123.
Sirageldin, I. "Elimination of Poverty: Challenges and Islamic Strategies." Islamic Economic Studies, vol. 8, no. 1, 2000, pp. 1-16.
Suwailem, S. I. Islamic Economics: A Primer on Markets, Money, and Mobility. Cambridge University Press, 2021.
Syah, M. B., and Muhajirin, M. "Legality of Qiyas in Legal Terms: The Implementation in Islamic Economics and Finance." Al-Amwal: Jurnal Ekonomi dan Perbankan Syari’ah, vol. 15, no. 2, 2023, pp. 273-286.
Thomson Reuters. Islamic Finance Development Report 2018: Building Momentum. 2018.
Udovitch, A. L. Partnership and Profit in Medieval Islam. Princeton University Press, 1970.
Vogel, F. E., and Hayes, S. L. Islamic Law and Finance: Religion, Risk, and Return. Brill, 1998.
Vogel, F. E. Islamic Law and Legal System: Studies of Saudi Arabia. Brill, 2000.
Von Denffer, D. "Baraka as Basic Concept of Muslim Popular Belief." Islamic Studies, vol. 15, no. 3, 1976, pp. 167-186.
Warde, I. Islamic Finance in the Global Economy. Edinburgh University Press, 2000.
Watt, W. M. Muhammad: Prophet and Statesman. Oxford University Press, 1961.
Weiss, B. G. The Spirit of Islamic Law. University of Georgia Press, 1992.
Wilson, R. "Capital Flight through Islamic Managed Funds." The Politics of Islamic Finance, edited by Clement, M. H., and Wilson, R., Edinburgh, 2004, pp. 129-152.
Zaher, T. S., and Hassan, M. K. "A Comparative Literature Survey of Islamic Finance and Banking." Financial Markets, Institutions & Instruments, vol. 10, no. 4, 2001, pp. 1-45.
Zaïm, K. "Sufi Futuwwa: Between Individual Sanctity and Recognition of the Other." Islamology, vol. 5, no. 1-2, 2012, pp. 50-52.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Armando Alvares Garcia Júnior
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
