CONCEPTUALISATION OF THE SECOND BEST SOLUTION IN OVERCOMING THE SOCIAL FAILURE OF ISLAMIC BANKING AND FINANCE: EXAMINING THE OVERPOWERING OF HOMOISLAMICUS BY HOMOECONOMICUS

Abstract

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 the IBF industry does not necessarily share 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 economics and financial institutions founded upon homoislamicus, agents concerned about social justice and human-centred economic growth and development. This indeed indicates the divergence between the aspiration of Islamic economics and the world of IBF. 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 value-added for capacity building and social justice.

JEL classification: G10, Z12

Key words: Islamic finance, Islamic Economics