Institutionalism and Islamic Finance

This chapter develops an original institutional theory-based framework that reconceptualises Islamic finance as a multi-level governance ecosystem shaped by the dynamic interplay of global standard-setters, Shari’ah regulatory authorities, and national supervisory institutions. Moving beyond normative or faith-based explanations, it advances a novel paradigm of institutional hybridity to theorise how Islamic finance both internalises and differentiates itself from global financial norms. The analysis integrates the influence of the Basel Committee on Banking Supervision, IFRS Foundation, and Financial Accounting Standards Board with that of Islamic standard-setting bodies such as Accounting and Auditing Organization for Islamic Financial Institutions and the Islamic Financial Services Board, as well as central banks and national regulatory frameworks that mediate between international compliance and Shari’ah governance. Employing a rigorously constructed analytical synthesis, the chapter identifies how these institutional layers generate multi-scalar legitimacy pressures, shaping the evolution of ethical finance and organisational conformity. Conceptually, it is formative in reframing standard-setting, regulatory oversight, and Shari’ah governance as interdependent institutional processes that actively construct, rather than merely regulate, the field. By theorising the institutional interlocks between global and Islamic governance regimes, this work establishes a primary reference point that advances institutional finance scholarship and redefines the analytical boundaries of Islamic financial regulation