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The Institutionalization of Islamic Finance: Historical Context, Current Developments, and Future Directions

Author

Listed:
  • Ahmet Faruk Aysan

    (HBKU - Hamad Bin Khalifa University [Doha, Qatar])

  • Ibrahim Musa Unal

    (HBKU - Hamad Bin Khalifa University [Doha, Qatar])

Abstract

Islamic finance, based on ethical investing principles and socio-economic justice, has the potential to tackle worldwide financial difficulties and advance sustainable development. This article examines Islamic finance's historical background, present condition, and prospects, focusing on its compatibility with Environmental, Social, and Governance (ESG) standards and sustainable development goals (SDGs). Throughout its history, Islamic finance has developed from its initial focus on fairness and societal accountability to become a complex business that includes Sukuk, Islamic banking, and Takaful. The industry encounters obstacles such as discrepancies in regulations and fluctuations in the economy while also having prospects for expansion and incorporation into the global financial system. Global uncertainties, such as technological upheavals and socio-political dynamics, require Islamic finance to possess resilience and adaptation. The future of Islamic finance hinges on its ability to incorporate ESG (Environmental, Social, and Governance) and sustainability factors. This can be achieved by utilizing novel financial instruments such as Green Sukuk and Social Impact Sukuk, which aim to raise funds for projects with positive environmental and social impacts. Strategic measures such as standardization, increasing awareness, improving regulations, and creating capacity are essential for promoting the integration of ecological, social, and governance (ESG) factors. The capacity of Islamic finance to appeal to socially aware investors and promote sustainable economic growth highlights its crucial role in establishing a fairer and more robust global financial system. This article offers valuable insights and suggestions on utilizing Islamic finance's ethical principles to promote sustainable development and enhance economic resilience.

Suggested Citation

  • Ahmet Faruk Aysan & Ibrahim Musa Unal, 2024. "The Institutionalization of Islamic Finance: Historical Context, Current Developments, and Future Directions," Post-Print hal-04669980, HAL.
    • Handle: RePEc:hal:journl:hal-04669980
    Note: View the original document on HAL open archive server: https://hal.science/hal-04669980
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    References listed on IDEAS

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    1. Yasin Akçelik & Ahmet Faruk Aysan & Arif Oduncu, 2013. "Central Banking in Making during the Post-Crisis World and the Policy-Mix of the Central Bank of the Republic of Turkey," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(2), pages 5-18.
    2. Ahmet F. Aysan & Mustafa Disli & Huseyin Ozturk & Ibrahim M. Turhan, 2015. "Are Islamic Banks Subject To Depositor Discipline?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-16.
    3. Tamy Al-Binali & Ahmet Faruk Aysan & Hasan Dinçer & Ibrahim Musa Unal & Serhat Yüksel, 2023. "New Horizons in Bank Mergers: A Quantum Spherical Fuzzy Decision-Making Framework for Analyzing Islamic and Conventional Bank Mergers and Enhancing Resilience," Sustainability, MDPI, vol. 15(10), pages 1-37, May.
    4. Aysan, Ahmet F. & Ozturk, Huseyin, 2018. "Does Islamic banking offer a natural hedge for business cycles? Evidence from a dual banking system," Journal of Financial Stability, Elsevier, vol. 36(C), pages 22-38.
    5. Ahmet Faruk Aysan & Abdelilah Belatik & Ibrahim Musa Unal & Rachid Ettaai, 2022. "Fintech Strategies of Islamic Banks: A Global Empirical Analysis," FinTech, MDPI, vol. 1(2), pages 1-10, June.
    6. Ahmet Faruk Aysan & Bekir Sait Ciftler & Ibrahim Musa Unal, 2024. "Predictive Power of Random Forests in Analyzing Risk Management in Islamic Banking," JRFM, MDPI, vol. 17(3), pages 1-19, March.
    7. Aysan, Ahmet F. & Disli, Mustafa & Duygun, Meryem & Ozturk, Huseyin, 2018. "Religiosity versus rationality: Depositor behavior in Islamic and conventional banks," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 1-19.
    8. Ahmet F. Aysan & Mustafa Disli & Huseyin Ozturk, 2018. "Bank lending channel in a dual banking system: Why are Islamic banks so responsive?," The World Economy, Wiley Blackwell, vol. 41(3), pages 674-698, March.
    9. Ahmet F. Aysan & Mustafa Disli & Meryem Duygun & Huseyin Ozturk, 2017. "Islamic Banks, Deposit Insurance Reform, and Market Discipline: Evidence from a Natural Framework," Journal of Financial Services Research, Springer;Western Finance Association, vol. 51(2), pages 257-282, April.
    10. Ahmet Faruk Aysan & Fouad Bergigui & Mustafa Disli, 2021. "Using Blockchain-Enabled Solutions as SDG Accelerators in the International Development Space," Sustainability, MDPI, vol. 13(7), pages 1-24, April.
    11. repec:cbk:journl:v:2:y:2013:i:1:p:5-18 is not listed on IDEAS
    12. Disli, Mustafa & Aysan, Ahmet F. & Abdelsalam, Omneya, 2023. "Favoring the small and the plenty: Islamic banking for MSMEs," Economic Systems, Elsevier, vol. 47(1).
    13. Aysan, Ahmet F. & Disli, Mustafa & Ng, Adam & Ozturk, Huseyin, 2016. "Is small the new big? Islamic banking for SMEs in Turkey," Economic Modelling, Elsevier, vol. 54(C), pages 187-194.
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