The Iranian Association of Islamic Finance held an international webinar on “How can Islamic Finance Lead Capital to Production?” on the 4th of March, 2025 at 2:00PM Iran Standard Time.

Speaker: Dr. Nasim Shah Shirazi, Professor of Economics and Finance at Hamad Bin Khalifa University, Qatar.

He said this presentation explores the distinctive role of Islamic finance in channeling capital toward productive economic activities, fostering sustainable growth and financial stability. The central theme addresses how Islamic financial systems, through their foundational principles, redirect financial resources away from speculative cycles and into sectors that generate tangible economic value. Unlike conventional finance, which often prioritizes short-term gains and disconnected financial markets, Islamic finance mandates that every financial transaction be linked to tangible assets or productive services such as manufacturing, agriculture, housing, and infrastructure. This real-asset backing ensures that capital deployment is transparent, accountable, and directly tied to material output, reducing financial bubbles and systemic instability risk.

Key mechanisms of Islamic finance include the prohibition of interest (riba) and speculative uncertainty (gharar), alongside the promotion of risk-sharing partnerships (Musharakah and Mudarabah). These structures incentivize careful project evaluation and foster long-term investment horizons, as financiers and entrepreneurs share profits and losses. Asset-backed instruments such as Murabaha, Ijarah, Istisna, Salam, and Sukuk further operationalize this linkage by financing real goods, services, and infrastructure projects. Sukuk, in particular, exemplifies this approach by enabling investors to own a share in tangible assets, with returns linked to the performance of underlying projects rather than mere debt obligations.

Empirical evidence demonstrates the resilience and inclusivity of Islamic finance, especially during financial crises, as its risk-sharing and asset-backed nature mitigate systemic risks and promote broader financial inclusion. Case studies from Malaysia, Indonesia, and Saudi Arabia illustrate the successful application of Islamic finance in funding large-scale infrastructure, green energy, and industrial projects, thereby supporting national development agendas and social welfare.

Islamic finance offers a coherent financial architecture that aligns capital allocation with economic development, financial stability, and ethical investment. By prioritizing real sector growth, risk-sharing, and transparency, Islamic finance not only corrects many of the shortcomings of conventional finance but also serves as a model for inclusive and sustainable economic progress.