Kartika Marella Vanni, Muchlis Yahya, Ali Murtadho, Fita Nurotul Faizah

Sharia-compliant financing as fiscal policy instrument: an Islamic economic approach to budget deficit management

Introduction

Sharia-compliant financing as fiscal policy instrument: an islamic economic approach to budget deficit management. Explore Sharia-compliant financing as a fiscal policy tool for budget deficit management. This study examines Islamic financial instruments like sukuk for sustainable, ethical, and interest-free solutions.

Abstract

Budget deficits are a recurring fiscal challenge for many countries, including Indonesia, where reliance on conventional financing methods such as interest-based debt often imposes long-term economic burdens. This study explores the potential of Islamic financial instruments as an alternative solution to address budget deficits, emphasizing sustainability, fairness, and compliance with sharia principles. Using a qualitative approach through literature review and descriptive analysis, the research examines the implementation and effectiveness of instruments such as sukuk, crowdfunding, and securities crowdfunding based on sukuk. The findings reveal that these sharia-compliant tools not only provide viable financing options without the burden of interest but also foster public participation and uphold social justice principles. The study highlights the importance of strengthening regulatory frameworks and integrating Islamic financial systems into national fiscal policies to create a more inclusive, stable, and ethical financing ecosystem. The implications of this research underscore the potential of Islamic finance to contribute to sustainable economic development while adhering to ethical and religious values.

Review

This paper, "Sharia-compliant financing as fiscal policy instrument: an Islamic economic approach to budget deficit management," addresses a highly pertinent and persistent global challenge: budget deficits. The authors propose a compelling alternative to conventional interest-based debt by exploring the potential of Islamic financial instruments, particularly within the Indonesian context. The central argument posits that sharia-compliant tools offer a sustainable, fair, and ethically aligned approach to managing fiscal shortfalls, moving beyond mere financial transactions to encompass broader principles of social justice and public participation. The study's timely focus on an Islamic economic approach to a fundamental macroeconomic problem makes a valuable contribution to both public finance discourse and the growing field of Islamic finance. The research effectively outlines several key instruments, including sukuk, crowdfunding, and securities crowdfunding based on sukuk, as viable mechanisms for budget deficit management. The qualitative methodology, relying on literature review and descriptive analysis, is appropriate for an exploratory study aiming to establish the conceptual framework and potential applications of these tools. A significant strength lies in the emphasis on principles such as fairness, sustainability, and the absence of interest, which are crucial differentiators from conventional financing. By highlighting the dual benefits of financing without interest burdens and fostering public engagement, the study successfully underscores the unique value proposition of Islamic finance for national fiscal policy, particularly for a country like Indonesia with a large Muslim population and a commitment to Islamic economic principles. While the paper eloquently articulates the theoretical potential and ethical advantages, further development could strengthen its practical implications. For instance, the discussion on "strengthening regulatory frameworks and integrating Islamic financial systems into national fiscal policies" could benefit from a more detailed exploration of the specific challenges and pathways for such integration, beyond a general recommendation. Future research might also delve deeper into the *scalability* of these instruments to meet significant national budget needs, and perhaps incorporate case studies or comparative analyses that quantitatively or empirically demonstrate their effectiveness against conventional methods in real-world scenarios, beyond the stated "absence of interest burden." Nevertheless, this study lays a robust conceptual foundation, effectively making a case for the transformative role of Islamic finance in creating a more inclusive, stable, and ethical financing ecosystem, offering a promising direction for policymakers and academics alike.

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