This study aims to investigate the challenges hindering the adoption of contemporary Islamic finance mechanisms to support the implementation of Islamic welfare state (IWS) economics.
This paper is conceptual in nature, conducting a thorough examination of the existing literature to delve into the difficulties encountered when deploying contemporary Islamic financial mechanisms in the context of an IWS. This study delves into the challenges rooted in the economic framework of the welfare state while also exploring potential complications that could arise when implementing this system within the current Islamic finance context. Thereafter, potential remedial routes to address the identified challenges are outlined.
Although there is an apparent alignment between the principles of Islamic finance and welfare economics, real-world integration of these concepts frequently falls short of expectations. This research indicates that several factors contribute to this practical delay, with some factors rooted in welfare economics and others specifically related to the contemporary mechanisms of Islamic finance.
This research is confined to Islamic primary legislation sources, Qur’an and Sunnah, in defining Islamic finance instruments. The theoretical implications of analyzing the relationship between Islamic finance mechanisms and welfare economics may contribute to developing policies that promote the use of Islamic finance instruments to address socioeconomic inequalities, which encourages the integration of Islamic finance principles into mainstream economic models to create more inclusive and ethical economic systems. The practical implications reveal the inherent limitations and shortcomings of the contemporary Islamic finance mechanisms used by most Islamic financial institutions. These mechanisms, owing to their pragmatic simulation of conventional finance techniques, may intensify rather than alleviate welfare state challenges. Furthermore, the practical implications offer profound insights into the procedural sequence for implementing an IWS. The process should commence with a supportive political framework.
This study breaks new ground by tackling both the conceptual and practical obstacles encountered in implementing IWS economic models. Unlike the existing literature, which primarily focuses on aligning Islamic finance mechanisms with welfare state economics in theory, this study addresses the practical difficulties of implementing such an economic model. This study presents a comprehensive analysis – comprising ideological, inherent and implemental perspectives – to effectively examine the gap between the theoretical foundations and practical implementation of integrating Islamic finance mechanisms with welfare state economics.
