Understanding the Role of Islamic Finance in Economic Resilience

Abstract

This paper explores the role of Islamic finance in enhancing economic resilience, with a focus on Malaysia as a case study. In an increasingly uncertain global environment, financial systems must be both stable and ethically grounded. Islamic finance, based on Shariah principles such as risk-sharing, prohibition of interest (riba), and asset-backed transactions, offers a unique framework that promotes financial stability and social responsibility. Through a review of recent literature, this study highlights how Islamic financial institutions and instruments such as zakat, waqf, and sukuk have contributed to economic recovery and social protection, particularly during crises like the COVID-19 pandemic. The discussion also examines the increasing role of financial technology (FinTech) and sustainability in expanding the reach of Islamic finance. Malaysia's proactive regulatory environment and institutional development make it a valuable model for other countries seeking to build inclusive and resilient financial systems. The paper concludes with recommendations for strengthening Islamic finance through policy support, innovation, and public awareness. This review contributes to a better understanding of how Islamic finance can support long-term economic resilience in both national and global contexts.