From Riba-Free to Risk-Sharing to Regenerative: The Evolution of Value-Based Islamic Finance

Islamic finance has undergone a significant evolution—from its foundational prohibition of riba (interest) to the development of risk-sharing models ( Mudarabah, Musharakah ), and now toward regenerative finance, which emphasizes ecological restoration and social equity. This paper examines how Islamic finance aligns with global ethical and sustainable finance movements, addressing two key research questions: (1) To what extent does Islamic finance’s value-based framework converge with contemporary ESG (Environmental, Social, and Governance) and impact investing principles, as measured by alignment scores in sustainability reports and conceptual synergies? (2) Can regenerative finance, a paradigm focused on systemic healing rather than mere sustainability, strengthen Islamic finance’s socio-economic impact through enhanced equity metrics and ecological outcomes? Through a mixed-methods approach combining literature review, case studies (e.g., green sukuk, waqf-based sustainability initiatives), and conceptual framework development, the study proposes a pathway for Islamic finance to transition from risk-sharing to regenerative models. The findings highlight synergies between maqasid al-Shariah (higher objectives of Islamic law) and regenerative finance, suggesting that Islamic finance is uniquely positioned to advance a finance system that prioritizes justice, equity, and ecological resilience. The research contributes to ethical finance theory while offering practical insights for policymakers and Islamic financial institutions seeking to integrate regenerative principles. Limitations include reliance on hypothetical data for statistical illustrations and a geographic focus on Southeast Asia and the Middle East.