Circular Economy, Sustainable Development and the Role of Islamic Finance

Based on an extract-produce-consume-waste mechanism, the conventional linear economy requires enormous extraction and wasteful production & consumption. This results in several tribulations and threats to the earth’s climate such as rising global warming due to greenhouse gas emissions, erosion of the ecosystem, diminution of natural resources, and the release of toxic waste into natural habitat. To mitigate these challenges and to rescue the earth’s climate from the devastation caused by the linear economic system, the importance of introducing and implementing a circular economic model is inevitable. A circular economy is based on a closed loop/cycle of production through consumption which facilitates limited use of materials and resources, minimal emission of hazardous elements into the nature, and a highly efficient waste management system to ensure recycling and reuse of residuals into further production. The Islamic financial system, being a pioneer in financing Sustainable Development, can be a major driver in the transformation towards a circular economy. The principles of Islamic finance, accompanied with Shari’ah regulations and Sustainable Development Goals (SDGs), will provide a solid guideline and framework as well as ample amount of funding sources for effective transition of the linear economy into the circular paradigm. as well as their ability and effectiveness to ensure environmental and social sustainability. They suggest that the fundamental edges of circular economic models,