Paper short abstract:

The central argument of this paper focuses a number of social risks, beyond the traditional financial and market risk such as legitimacy, credibility, trust and sustainability risks indicating the potential difficulties of sustainability of Islamic finance in its authentic paradigmatic nature

Paper long abstract:

This paper aims at examining the consequences of the observed convergence of Islamic finance with conventional finance, as through such convergence each of the professed features of Islamic finance has been compromised. Therefore, the central argument of this paper is that due to the nature and principles of Islamic finance, the observed convergence creates a number of social risks, beyond the traditional financial and market risk, including legitimacy risk, credibility risk, trust risk and sustainability risk indicating the potential difficulties of sustainability of Islamic finance in its authentic paradigmatic nature.

In evidencing the stated emergent social risks categories, this study aims to test the presence and articulation of IME in the case of Islamic banking and finance by exploring social risks - beyond financial and market risks - articulated through substantive morality of Islam. In addition, considering increasing convergence from Islamic finance to conventional finance, this paper aims to examine and explore the role of financialisation in this convergence. Thus, this paper tests the central principles of IME, namely embeddedness to investigate whether Islamic finance is embedded in real economy and non-economic factors, such as the cultural and religious values and norms; and whether Islamic banking and finance is based on real economy away from fictitious commodities and de-commodification. Thus, in evaluating the socio-economic performance of IBF, this paper locates IBF as an operational function of IME to implement the various features of Islamic substantive morality into their operational strategy for producing and enhancing sustainable development, economic stability and overall welfare.