Social Innovations with Islamic Finance – Part I: Islamic finance principles are progressive 6

This is the first part of a three part series of articles on how the principles of Islamic finance could be applied for macro economic growth.

Social Innovation refers to new ideas that resolve existing social, cultural, economic and environmental challenges for the benefit of people and planet. A true social innovation is systems changing – it permanently alters the perceptions, behaviors and structures that previously gave rise to these challenges: http://socialinnovation.ca/about/social-innovation

I see lots of scope for fostering Social innovations through the means of Islamic finance by integrating it’s principles into New Product Development, which includes new products/ services/ processes within and outside the organization.

Islamic finance principles are progressive in their application. What do I mean by progressive?

Take the example of loan advanced to an individual or an organization or a country by a traditional interest based financial institution, like, a commercial bank.

If there is a default in payment for what ever reason, the odds of getting finances for new projects are stacked very high. In other words, the traditional system of providing finance is essentially based on the individual/ organization/ country’s past record, which, I call as a regressive means of evaluating the current capabilities of the individual/ a collective of individuals as an organization or a country.

In contrast, take the example of one of the original Islamic contracts, Mudarabah, which was in use during the days of Holy Prophet Mohammed.

In this contract, the capability of the individual is considered paramount while evaluating his/ her need to execute new projects. Since we are dealing with human beings, there is a possibility of acquiring these capabilities through various means of Learning. Hence, I call Islamic finance principles as progressive in their application.

Can we apply these Islamic finance principles for macro-economic growth, say in Greece?

The current predicament of Greece seems to be more to do with finding various means to overcome the odds in raising monies to finance their new projects or fund existing ones. One such means could be to leverage the tools of Islamic finance to address the present debt issues and restore the dignity of Greeks who have inherited a great civilization.

 

6 thoughts on “Social Innovations with Islamic Finance – Part I: Islamic finance principles are progressive

  1. Reply Kladr Gnivc Jul 30, 2016 3:34 pm

    This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. Like Bai’ al ‘inah, this concept is also used under an Islamic financing facility. Interest payment can be avoided as the customer is paying the sale price which is not the same as interest charged on a loan. The problem here is that this includes linking two transactions in one which is forbidden in Islam

  2. Reply Lucky Patcher Jul 28, 2016 1:56 pm

    It should not be surprising that early developments of financial products in the Islamic world have greatly contributed to modern conventional finance products, as it is consistent with other fields such as science and agriculture, where knowledge was also disseminated and bought back into Europe through trade as well as by the Crusaders.

  3. Reply FreeBSD VPS May 10, 2016 11:19 pm

    As the demand for business to connect with responsibility grows globally, Islamic financial and socially responsible markets have much to learn from one another.

    • Reply Srikanth T May 12, 2016 4:15 pm

      Yes! And, I would like to add my couple of cents. While the States are enacting legislation to regulate the conduct of the businesses vis-a-vis their responsibility to their respective societies – either in the form of a CSR tax or the need for environmental clearances etc…, one has to understand that the very essence of Islamic finance is to foster an egalitarian society where the human being is at the center of the whole process of wealth creation.

  4. Reply Hosting May 9, 2016 1:42 am

    Like any young endeavor, contemporary Islamic finance faces challenges. Among these is the persistent critique of its focus on transaction and cash flow structuring that is more form than substance, and the consequent inability to produce greater social balance and justice. But proponents, stakeholders, and critics of Islamic finance appear ready to take up contemporary concerns by implementing more of Islam s substantive ethical teachings.

    • Reply Srikanth T May 12, 2016 4:07 pm

      I am not sure about the “young” part in the endeavor, given the fact that the origins of Islamic finance are more than 1400 years old! The applications of Islamic finance to foster an egalitarian society could be more rewarding and visible to the common man, if the monetary policy of the state is attuned to the related teachings of Prophet Mohammad (pbuh).

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