Islamic Financial Instruments and Maqasid Al-Shariah: A Conceptual Discourse for Sustainable Finance
Keywords:
Islamic Financial Instruments, Maqasid al-Shariah, Sustainable Finance, Ethical Finance, Socio-Economic DevelopmentAbstract
Financial instruments connected to Islamic financing have unique measurement challenges that diverge from traditional interest-based models. The assessment evaluates essential Islamic finance instruments, including Mudarabah, Musharakah, Murabahah, Ijarah, Sukuk, Takaful, Zakat, and Waqf, emphasising their functions in fostering risk-sharing, asset-backing, and social solidarity. A critical literature analysis of 44 peer-reviewed research papers published in the last decade was done to examine how Islamic finance contributes to fairness, social welfare, transparency, environmental stewardship, and the Sustainable Development Goals (SDGs). Despite these promises, the ethical objectives of Islamic banking are not consistently realised due to governance limits, performance assessment issues, and emphasis on profitability above social effect. Findings demonstrate substantial conceptual congruence between Maqasid al-Shariah and sustainability principles, demonstrating that Islamic finance has the potential to support just income distribution, entrepreneurship, financial inclusion, and green development. Progress varies across jurisdictions: Malaysia leads through Value-Based Intermediation (VBI); Indonesia advances via waqf-linked microfinance; while Bahrain and Oman demonstrate rising ESG integration with capacity shortages. The study recommends adopting standard Maqasid-based performance frameworks and undertaking empirical assessments of innovative instruments—such as green Sukuk and digital Zakat—to promote accountability, innovation, and sustainability outcomes in the Islamic banking ecosystem.
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