Law Institutionalization of Sharia Principles and Economic Performance through Financial Development
Click to verify publication status
Authors
-
Khoirul Anam
Departement Accounting, Faculty of Economic, Universitas Selamat Sri, Kendal, Jawa Tengah Indonesia
Keywords:
Sharia law, Financial development, Socio-economic freedom, Economic performance, Legal pluralismAbstract
Objective: This paper studies the effects of institutionalized Sharia principles on economic performance, including how these effects are dependent upon the level of financial development, female participation in economic activities and contract regulation; and whether socio-economic freedom mediates those effects.
Methods: This study uses a quantitative research design with primary survey data collected among professionals, entrepreneurs, and stakeholders in Indonesia's formal economy.
Results: The results indicate that any of these variables leads to more economic improvement via the institutionalization of Sharia principles, financial development, women's economic participation and contract and ownership regulation. Although socio-economic freedom directly affects economic outcomes, at least in parts of the model it serves as a partial mediator to these predictors. Therefore the mediation effect only shows how economic autonomy bridges institutional and financial reforms with growth.
Novelty: Going beyond an institutional and endogenous growth framework, this paper conceptualizes socio-economic freedom as a mediating mechanism in the legal pluralism-property rights nexus, previously not discussed within literature. It also offers insights relevant to the particular context of Indonesia's dual legal system, contrasting with findings from Sharia implementations that are more uncompromising as to their interpretation.
Implications: The results show that it is possible for Sharia-based legal reforms to co-exist with inclusive financial systems, gender empowerment policies and strong property rights, without undermining economic outcomes at the cost of socio-economic freedoms, providing a policy blueprint for transition economies.
Downloads
References
Al-Rawashdeh, R., Al-Nawafleh, H., & Al-Shboul, M. (2013). Understanding oil and mineral resources in a political economy context: the case of the Middle East and North Africa (MENA). Mineral Economics, 26(1), 13–28. https://doi.org/10.1007/s13563-013-0035-3
Al-Ttaffi, L. H. A., Bin-Nashwan, S. A., Sadallah, M., Abdul-Jabbar, H., & Benlahcene, A. (2025). Empirical analysis of MSMEs tax non-compliance from Islamic outlook. Journal of Islamic Accounting and Business Research. https://doi.org/10.1108/JIABR-10-2024-0394
Alhejaili, M. (2025). Harmonising derivatives with Shari’ah: ethical practices and regulatory insights. International Journal of Islamic and Middle Eastern Finance and Management. https://doi.org/10.1108/IMEFM-03-2024-0163
Baqir, M., Timur, A. D., & Saepudin, S. (2021). Telaah Kritis Pemikiran Ekonomi. 8(1), 9–16. https://doi.org/10.15575/am.v7i1
Buchanan, A., & Keohane, R. O. (2006). The Legitimacy of Global Governance Institutions. Ethics & International Affairs, 20(4), 405–437. https://doi.org/DOI: 10.1111/j.1747-7093.2006.00043.x
El-Hawary, D., Grais, W., & Iqbal, Z. (2007). Diversity in the regulation of Islamic Financial Institutions. The Quarterly Review of Economics and Finance, 46(5), 778–800. https://doi.org/https://doi.org/10.1016/j.qref.2006.08.010
Emmerson, D. K. (1983). Understanding the New Order: Bureaucratic Pluralism in Indonesia. Asian Survey, 23(11), 1220–1241. https://doi.org/10.2307/2644374
Gilbert, D. U., Rasche, A., & Waddock, S. (2011). Accountability in a Global Economy: The Emergence of International Accountability Standards. Business Ethics Quarterly, 21(1), 23–44. https://doi.org/DOI: 10.5840/beq20112112
Guild, J. (2020). The political and institutional constraints on green finance in Indonesia. Journal of Sustainable Finance & Investment, 10(2), 157–170. https://doi.org/10.1080/20430795.2019.1706312
Hadfi, R., Okuhara, S., Haqbeen, J., Sahab, S., Ohnuma, S., & Ito, T. (2023). Conversational agents enhance women’s contribution in online debates. Scientific Reports, 13(1), 14534. https://doi.org/10.1038/s41598-023-41703-3
Hasnat, M. A., Khandakar, H., Rahman, M. A., Islam, S. M. N., & Hasan, K. K. (2025). Capitalism in modern ignorance (jahilliyah): exploring Islamic alternatives to reshape human behaviour and provide solutions for the 21st century. International Journal of Islamic and Middle Eastern Finance and Management. https://doi.org/10.1108/IMEFM-08-2024-0393
Henderson, J. V., & Kuncoro, A. (2011). Corruption and local democratization in Indonesia: The role of Islamic parties. Journal of Development Economics, 94(2), 164–180. https://doi.org/https://doi.org/10.1016/j.jdeveco.2010.01.007
Kahler, M. (2000). Legalization as Strategy: The Asia-Pacific Case. International Organization, 54(3), 549–571. https://doi.org/DOI: 10.1162/002081800551325
Khandakar, H., Hasnat, M. A., Rahman, M. A., Aubhi, R. U. H., Babur, A., & Hasan, K. K. (2025). Reforming Islamic financial standards for inclusive and sustainable development: a Maturidi creed perspective on behaviour, equity and justice. International Journal of Ethics and Systems. https://doi.org/10.1108/IJOES-04-2025-0186
Koburtay, T., Syed, J., & Haloub, R. (2020). Implications of Religion, Culture, and Legislation for Gender Equality at Work: Qualitative Insights from Jordan. Journal of Business Ethics, 164(3), 421–436. https://doi.org/10.1007/s10551-018-4036-6
Kuran, T. (1986). The Economic System In Contemporary Islamic Thought: Interpretation And Assessment. International Journal of Middle East Studies, 18(2), 135–164. https://doi.org/10.1017/S0020743800029767
Laeven, L., Levine, R., & Michalopoulos, S. (2015). Financial innovation and endogenous growth. Journal of Financial Intermediation, 24(1), 1–24. https://doi.org/https://doi.org/10.1016/j.jfi.2014.04.001
Lattanzio, G. (2022). Beyond religion and culture: The economic consequences of the institutionalization of sharia law. Emerging Markets Review, 52, 100918. https://doi.org/https://doi.org/10.1016/j.ememar.2022.100918
Maksum, M., Muflih, M., Rohman, M. M., Injaz, F., & Sanrego, Y. D. (2025). Why do women micro-entrepreneurs adopt Islamic digital financing? Perspectives from UTAUT, trust and Sharia compliance. Journal of Islamic Marketing. https://doi.org/10.1108/JIMA-03-2023-0087
Marr, A. (2002). Studying group dynamics: an alternative analytical framework for the study of microfinance impacts on poverty reduction. Journal of International Development, 14(4), 511–534. https://doi.org/https://doi.org/10.1002/jid.890
Martin, R., & Sunley, P. (1998). Slow Convergence? The New Endogenous Growth Theory and Regional Development. Economic Geography, 74(3), 201–227. https://doi.org/10.1111/j.1944-8287.1998.tb00113.x
Maussen, M. (2015). Institutional Change and the Incorporation of Muslim Populations: Religious Freedoms, Equality and Cultural Diversity BT - After Integration: Islam, Conviviality and Contentious Politics in Europe (M. Burchardt & I. Michalowski (eds.); pp. 79–104). Springer Fachmedien Wiesbaden. https://doi.org/10.1007/978-3-658-02594-6_5
MIETZNER, M. (2007). Party Financing in Post-Soeharto Indonesia: Between State Subsidies and Political Corruption. Contemporary Southeast Asia, 29(2), 238–263. http://www.jstor.org/stable/25798830
Moussaoui, F. (2025). Axes of Resistance: Yemen’s Case BT - Iran’s Military Power Projection and the Empowerment of Ansar Allah (F. Moussaoui (ed.); pp. 129–164). Springer Nature Switzerland. https://doi.org/10.1007/978-3-031-86406-3_4
Pepinsky, T. B., Liddle, R. W., & Mujani, S. (2012). Testing Islam’s Political Advantage: Evidence from Indonesia. American Journal of Political Science, 56(3), 584–600. https://doi.org/https://doi.org/10.1111/j.1540-5907.2011.00570.x
Poerwandari, E. K., Munti, R. B., & Viemilawati, J. (2018). Pro-women’s policy advocacy movements in Indonesia: Struggles and reflections. Asian Journal of Women’s Studies, 24(4), 489–509. https://doi.org/10.1080/12259276.2018.1538646
Samuel, B. (2014). Economic calculations, instability and (in)formalisation of the state in Mauritania, 2003–2011. Canadian Journal of Development Studies / Revue Canadienne d’études Du Développement, 35(1), 77–96. https://doi.org/10.1080/02255189.2014.877878
Seddon, D. (1996). The political economy of Mauritania: an introduction. Review of African Political Economy, 23(68), 197–214. https://doi.org/10.1080/03056249608704195
Strangio, D. (2024). Formation and Transformation of Economic Systems: The Conquest of Rights and Its Impact on Women BT - Economic Systems and Human Rights: Using Socioeconomic Models and Practices to Promote Global Economic Socialization (F. Vigliarolo (ed.); pp. 65–79). Springer Nature Switzerland. https://doi.org/10.1007/978-3-031-72866-2_5
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Khoirul Anam (Author)
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Sharia Economic Law Innovation (SELI) © 2024 by Inovasi Analisis Data is licensed under CC BY-SA 4.0
