Conceptualisation of the Second Best Solution in Overcoming the Social Failure of Islamic Finance: Examining the Overpowering of Homoislamicus by Homoeconomicus
IIUM Journal in Economics and Management, Vol. 15, No. 2, pp. 167-195, 2007
29 Pages Posted: 18 Oct 2010
The phenomenal growth of the Islamic banking and finance (IBF) industry has been remarkable since it came into existence just over thirty years ago. However, a closer reading of this positive development indicates that IBF industry does not necessarily shares the aspirations of Islamic economics, which aims at creating a world order in which the moral economy of Islam with its authentic value system can exist. In other words, the Islamic economic system aspires for the development of Islamic economic and financial institution and homoIslamicus with societal concern and social justice for human-centred economic growth and development. This indeed indicates the divergence between the aspirations of Islamic economics and the real world of IBF institutions. After highlighting and analysing the tension areas between the two and the reasons and sources of this apparent divergence, this paper argues that IBF needs to move into its third stage of development through the institutionalisation of social banking as a second best solution in overcoming the social failure of IBF and in creating capacity building and social justice.
Keywords: Islamic economics, Islamic banking and finance, social failure of Islamic banking, homoislamicus, second best solution in Islamic economics
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