Tools and Conditions for Achieving Sustainable Development in Islamic Finance

Islamic financial institutions have faced criticisms regarding their failure to play their expected social and developmental role. The chapter provides a comprehensive analysis of existing critiques on Islamic financial institutions concerning their indifferent attitude toward the societal advancements of the Muslim societies and for failing to support the underprivileged communities whose support would necessarily reduce the financial difference between the classes of society. After examining the extent of such responsibility and reviewing whether it is proper to assign this role to profitable institutions such as the Islamic banks, the chapter illustrates the various tools and methods through which these institutions can achieve the desired sustainable developments as well as the shariah regulations for carrying out such a role. It also shows that the failure on the part of the Islamic financial institutions to play a positive developmental role in the Muslim societies is attributable to some regulatory and governance issues, in addition to the inaccurate and hasty endorsement of some financial products, since a genuinely halal transaction is inherently beneficial or at least void of social harms. The study concludes with several recommendations for the Islamic financial institutions to adopt practices that would neither violate the shariah provisions nor constitute a financial burden on these institutions.