Conceptualization of the Real Economy and Islamic Finance: Transformation Beyond the Asset-Link Rhetoric

Thunderbird International Business Review (2018 Forthcoming)

28 Pages Posted: 12 Sep 2017 Last revised: 1 Jul 2018

See all articles by Mohammad Omar Farooq

Mohammad Omar Farooq

affiliation not provided to SSRN

Mohammed Salim

University of Bahrain - Department of Economics and Finance

Date Written: June 1, 2017

Abstract

A key factor behind the chronic crises in modern economies is the growing dominance of financialization and the resulting disconnect between the real economy and the financial sector, to which conventional financial industry is a key contributor.

In contrast, Islamic finance claims to be real-economy-oriented, as all transactions must be asset-linked (asset-backed or asset based). However, is Islamic Finance based on proper conceptualization of the real economy? What is the real economy and its dynamics? How Islamic finance is interfaced with the real economy?

In this paper the claimed real-economy-orientation is examined by presenting a conceptualization of the real economy and then evaluating the related discourse accordingly. The analysis presented, especially for non-economists, exposes serious gap between the claims about Islamic finance and the real economy it is supposed to advance. Appropriate conceptualization of the real economy can help the industry to be relevant and effective for broader socioeconomic transformation.

Keywords: Islamic finance; Islamic banking; financialization; real economy; asset-backed; Shariah-compliance

JEL Classification: A1, A29

Suggested Citation

Farooq, Mohammad Omar and Salim, Mohammed, Conceptualization of the Real Economy and Islamic Finance: Transformation Beyond the Asset-Link Rhetoric (June 1, 2017). Thunderbird International Business Review (2018 Forthcoming). Available at SSRN: https://ssrn.com/abstract=3034628 or http://dx.doi.org/10.2139/ssrn.3034628

Mohammad Omar Farooq (Contact Author)

affiliation not provided to SSRN

Mohammed Salim

University of Bahrain - Department of Economics and Finance ( email )

Sakhir
Bahrain

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