The advent of Islamic finance in its modern form, which began in the early 1960s, aroused euphoria in the Muslim world and brought high hopes of seeing a “Madinahesque” system. Muslims envisaged that the new system would guarantee seamlessness of their financial dealings whilst having no sense of guilt emanating because of riba consumption or other prohibited elements according to the Sharī’ah. Similarly, an improvement in the economic well-being of Muslims formed parts of the anticipation.
Six decades on, the value of Islamic finance has surged to an outstanding level. As an industry, it has experienced tremendous growth in capital terms. As of 2021, the Islamic finance global asset, according to S&P Global Ratings, is worth approximately $2.2 trillion. Whilst the money worth is often used as the index for measuring Islamic finance success, the world reality, however, suggests that there is a need to look beyond the capital value of the industry.
Furthermore, Islamic finance is commonly presented as an alternative to conventional finance, however, the impact, which was anticipated from the Madinahesque system, appears to be opened to a pertinent question; how has the modernized form of Islamic finance fared in terms of its impact on the world, especially on those living in the Muslim world?
The conversation about the impact of Islamic finance seems to have been mainly restricted to how the global asset has increased from billions to trillions of dollars over the last two decades. The discourse often neglects a crucial aspect, which is how Islamic finance has improved the macroeconomic situations of Muslim nations and the microeconomic conditions of its citizenry.
Besides, the current available data about the Muslim world do not give a good account of the Islamic finance industry. Muslim majority nations are still considered a significant part of the list of poor nations globally. Among the last ten nations, in terms of purchasing power parity (PPP), three are Muslim majority nations; Somalia, Niger, and Chad. Should the discourse on the asset value of the industry, be continued and given more interest over its impact on the people?
Considering the current undesirable economic state of some Muslim majority nations and their citizens, which has not been significantly improved, even with the advent of Islamic finance, the need has arisen to revisit the philosophy behind the introduction of the Madinahesque system. Rethinking the Islamic finance philosophy has become crucial, as the future beckons.
To be continued…