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.