Exploring Innovations in Islamic Banking to Interrogate the Concept of Social Innovation

Since 2022, there appears to be a growing consensus as to what constitutes the social and solidarity economy (SSE) by a number of global bodies, including the International Labour Organization, the United Nations, and the Organization of Economic Cooperation and Development. These working definitions have emphasized innovative organizations and work arrangements such as cooperatives, associations, mutual societies, foundations, and social enterprises. These definitions also emphasize ‘social’ motivations that transcend profit-oriented motivations, such as the primacy of people over profits, democratic and/or participatory governance, and the reinvestment of profits to pursue the public good (OECD 2023 “What is the Social and Solidarity Economy? A Review of Concepts”).

A potential problem with this emerging consensus is that this conceptualization excludes the world’s largest cases of solidarity-like organizations seeking to pursue social objectives: the self-described Islamic economy, and particularly Islamic finance and banking. This moralized market has been measured as encompassing $2.29 trillion of annual consumer spending, with an additional $3.96 trillion of assets held in Islamic financial institutions. Rather than othering the Islamic economy as ‘neoliberalism’ (a fair description) or as ‘social entrepreneurship,’ how might we reconceptualize SSE if the Islamic economy became our modal case study? More narrowly, focusing on the topic of this session, how would case studies of financial innovation in the Islamic banking and finance industry alter our understanding of what constitutes social innovation? Conversely, how might we re-interpret Islamic financial innovation if we reconceptualized these firms through the lens of the SSE literature?

Although the paper is conceptual and seeks to improve our theorization of social innovation in the social and solidarity economy, as well as how best to conceptualize Islamic finance, it is grounded in the author’s extensive ethnographic interviews on financial innovation in Islamic banks in Malaysia, focusing on two case studies.