Executive Summary
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Islamic banking and finance (IBF) is a value-oriented ethical proposition; the principles of IBF can be located in the principles and norms of Islamic moral economy (IME), which aims at human-centered economic development as opposed to the financialization of the economy.
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Social responsibility is an essential part of IBF; however, IBF institutions have been criticized for their social failure.
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Microfinance is a novel method for human-oriented economic development and a capacity-building tool, which easily fits into the IBF paradigm through social responsibility.
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The financial instruments of IBF and IME institutions can provide an important base for the development and progress of Islamic microfinance (IMF), which fulfills the aspirations of developing communities in an Islamic way.
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A number of IBF institutions have demonstrated success in IMF, particularly by overcoming the burden of interest on the poor and expanding the asset base.
Rationalizing Islamic Microfinance through Essentializing the Islamic Moral Economy
Islamic banking and finance (IBF) has become a mainstream financing method utilized by Islamic, as well as conventional, banking and financial institutions all over the world. Recently, however, IBF has been criticized for its social failure, in the sense that its operations are not different from the existing conventional tools minus the interest. An essential nature of this criticism is related to the foundational axioms and principles of IME which, as a worldview, is based on the authentic principles of Islam. Thus, IME is an authentic response to the failure of economic developmentalism in the Muslim world in constructing a human-centered development. In this attempt, IBF was considered as the financing and operational tool of the new paradigm, and consequently it is expected to fulfill the expectations and aspirational paradigm of IME.
The foundational principles and axioms of IME aimed at revealing the principles behind IBF through an ethical worldview are:
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vertical ethicality in terms of individuals as the creature of God being equal (tawhid);
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social justice and beneficence (adalah and ihsan) in terms of horizontal ethicality;
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growth in harmony (tazkiyah);
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allowing the social (individual and society) and natural environment to reach to and sustain its perfection (rububiyah);
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voluntary action but also compulsory action (fard) in serving the social interest;
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individuals, being the vicegerent of God on Earth (khalifah), are expected to fulfill and act according to these principles in their economic and financial behavior.
These foundational principles are justified by a particular methodological understanding; the maqasid al-shariah (objectives of shariah) are interpreted as human well-being, which, in this context, is achieved through a socially operating moral economy in an Islamic framework that is expected to produce a socially and economic-financially optimum solution in overcoming the socioeconomic problems of a society.
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