Nexus between higher ethical objectives (Maqasid Al Shari’ah) and participatory finance

Abstract

Purpose This paper aims to conceptualize the nexus between the participatory finance and the higher ethical objectives within the Islamic moral economy, also termed as Maqasid al Shari’ah. Design/methodology/approach Insights from the extant Islamic economics and finance literature are integrated through an interpretative systematic review using the principles from critical interpretative synthesis (CIS). Findings A coherent framework is synthesized comprising the typology of the Maqasid al Shari’ah, the axioms of participatory finance and their nexus which is formulated by theorizing the common thread of meaning through the axioms of participatory finance and Maqasid al Shari’ah at the interpretative level. This framework postulates that the participatory finance fits well in the ethos and the value system of Islam. Moreover, “social well-being” invariably provides the nexus between the Maqasid al Shari’ah and participatory finance. Originality/value This study contributes to the Islamic economics and finance literature by integrating the dissenting views from the divergent literature related to the basic philosophy of Shari’ah and participatory finance and provides grounds for policy implications, particularly, for designing the financial products. Moreover, it demonstrates an application of interpretative systematic review in Islamic banking and finance research.

The impact of participatory Islamic finance on Shari'ah banks' profitability

“…Islamic banks have a strategic role in bridging the gap between investors and the industry (Ng & Ariff, 2019) as well as making money more efficient and effective as it goes to the real economic sector and increasing economic value at the macroeconomic level (Budiandru, 2021). Participatory financing is widely accepted and considered the real style of financing that truly presents the actual nature of Islamic finance (Nouman & Ullah, 2023a). However, Shari'ah banks need to carefully evaluate participatory financing transactions to avoid the risk of non-performing financing contacts (Budiandru, 2021).…”

Debt Financing Vs. Equity Financing in the Context of Maqasid Al-Shari'ah in Islamic Finance

“…Profit-sharing interest rates may be greater than market rates to reflect the creditor's participation. Profit sharing helps the debtor and creditor equally (Nouman et al, 2021).…”

“…Iqbal and Molyneux (2006) found two problems in the premise that banks should not use PLS financing. Proponents of this position provide weak arguments (Nouman et al, 2021). While investigating the assertion that PLS financing is too risky for banks, they found two flaws.…”

Interest rate volatility and financing of Islamic banks

“…Islam is a complete code of life [ 1 ]. In the Islamic society, the framework for all activities is provided by Islamic rules and laws known as Shari’ah [ 2 , 3 ].…”

“…It governs all aspects of Islamic matters including faith, worship, social, cultural, political and economic concerns of Islamic societies [ 2 – 4 ]. Shari’ah also permeates financial transactions within the Islamic economic system and provides basic tenets for a unique Islamic financial system to ensure wellbeing of the overall society [ 1 ]. The Prohibition of Riba (lit.…”