Chapter 5: Economic Functions of Ethical and Responsible Modes of Business and Finance

This chapter discusses the basic functions of Islamic finance institutions and their role in enhancing social and financial intermediation in the economy. It elaborates upon the economic functions of Islamic modes of business and financing with their broader structure and categories. The analysis of micro- and macrolevel impact of the modes and techniques includes household consumption – savings choice, firms’ investment decision-making, risk-bearing by finance provider in different modes, growth, development and economic stability, inflation, equity, income distribution, poverty alleviation, availability of risk-free finance as a cause of non-adoption of equity finance and the need for moving to value-based finance. It also discusses the preference given to various categories of products over others by scholars and practitioners and the implications of the same in terms of economic role for efficiency, equity, income distribution, and poverty alleviation. It also analyses the risk-bearing by the finance providers in different modes and the comparative role of different modes in business and the economy.