BETWEEN PERMISSIBILITY AND PRACTICE: BRIDGING THE COMPLIANCE GAP IN ISLAMIC FINANCE

Abstract
Islamic finance has grown rapidly, offering Sharīʿah-compliant and ethically grounded financial products worldwide. While its expansion in assets, products, and geography is significant, the industry faces the challenge of moving beyond procedural compliance to deliver genuine economic, social, and ethical value aligned with Maqāsid al-Sharīʿah (the higher objectives of Islamic law). Compliance traditionally focuses on avoiding ribā (interest), gharar (excessive uncertainty), maysir (gambling), and harām activities. Over time, it has evolved into a multi-dimensional framework including governance, ethical conduct, economic substance, regulatory adherence, operational integrity, and social/environmental responsibility. Together, these dimensions ensure that financial products uphold both legal validity and broader moral, economic, and societal objectives. Nonetheless, a persistent gap exists between formal permissibility and practice. Products like Murābaha, and service Ijārah often replicate conventional interest-based structures, reflecting a form-over-substance problem. This paper examines the foundations of compliance, the manifestations of the gap, and argues that Islamic finance must integrate legality, ethics, and real economic impact to become a socially impactful, values-driven system.  Download.