Bringing Islamic Finance Home Through the Circular Economy Social Finance Discourse

This paper argues that the current Circular Economy and Social Finance (CESF) discourse allows discerning Islamic economists to re-iterate the view that Islamic Finance (IF) must be re-aligned to its roots, i.e. Islamic economics. Notwithstanding the impressive growth figures of Islamic Banking/Finance over the last three decades, serious reservations are voiced especially on the role and impact of IF in Muslim communities. This paper critically discusses, albeit briefly, selected tensions that have evolved over the decades. The issues have moved away from merely those focusing on contracts/instruments or the debt/equity debate of the 1980s and early 1990s to a substantive systemic focus on the role of IF in developing the real economy to enhance the welfare of society as a whole. The paper then presents briefly the CESF discourse and argues that it provides another opportunity to re-align the current direction taken by Islamic Banking/Finance. The goals of IBF must be re-aligned to the overall socio-economic goals of society. Failure to do so will limit IBF to serving outdated neoclassical economics objectives of maximizing individual shareholder welfare that does not cater for overall equity considerations in society. The paper argues that since Islamic banking (IB) still dominates the IF space, whatever direction taken by Islamic Banks, by banking authorities and by IF educators will have a significant impact on meeting the challenges faced in the global system. The paper also argues that the CESF discourse provides a golden opportunity to re-visit the theory of decision-making in economics. All decisions must include a concern for others, including its environmental impact. The paper generally uses secondary data and discourse/content analysis involving literature written over the last 3 decades.