Financial inclusion of the poor requires a different approach in product design, pricing and delivery. This requires innovation, flexibility, efficiency and committed leadership. Fintech can be a key catalyst in increasing the penetration and outreach of Islamic banking in Muslim majority countries.
On the social equality front, the one paying interest becomes a slave of those who lent him money since the burden gets bigger over time. This leads to dependency and leaves self-empowerment as mere fantasy and ultimately leads towards loss of self-identity, self-honor and destruction of humanity.
The two most important problems identified in a post-financial crisis look back are perverse incentives and de-linking of financial sector growth and activities with the real sector of the economy. Islamic finance principles by basing all financial products with real assets fill the gap and this feature alone is a very important risk management tool inbuilt into the system.
Interest based financial system discourages investment in socially optimal profitable projects, but which are not favored because of relative cost comparison from the market interest rate. If sales do not increase, it may lead to business cycle fluctuations with unplanned increase in inventories. With increased pressure to service debt, the environmental degradation and human resource exploitation may become common and secondary concerns.
The question arises that if people are generally risk averse, are interest based investments and lending not the safest option to these people in which except from default risk, people are safe from fluctuations in payoffs and there is less uncertainty in payoffs. This article discusses how Islamic economic framework incorporates diversity in risk preferences.
Salman Ahmed Shaikh Capitalism, the way it is practiced as an economic system, has largely allowed and provided legal cover to certain exploitative institutions and their operations based on free market philosophy. […]
Resources are scarce as compared to unlimited wants. But, the economics of non-rival ideas creation has proved that resources are ample and that physical resources could be used in ways that keeps fulfilling the basic needs of society through the creation of ideas that augment and bring multiplier effect to the availability of given physical resources.
To some scholars, it seems that practiced Islamic banking is yet to incapsulate the ideals of Islamic economic principles. These scholars caution against mimicking conventional banking products and using the same paradigm to make these products somehow conform to Islamic legal framework.
Time value of money is the problem for the investor to avoid keeping his/her money idle and to avoid forgoing the use of money that may bring positive value to his/her investment. However, it does not mean that the investor can demand an arbitrary increase as the cost of using money without taking the risk of a productive enterprise.