The Impact of Islamic Finance Contracts and Modes on Sustainable Economic Development

Abstract:
This paper is an offshoot of the increasing realization regarding the relevance and significance of Islamic finance in furthering sustainable economic development. The purpose of this study is to explore the effects of Islamic finance contracts on sustainable economic development in UAE. The design of this study is descriptive–analytical. Population of the study. The population of this study is Islamic banks operating in UAE. The data was processed by two main statistical techniques; SPSS version 29 and Smart PLS4.  The findings indicated that application of the Islamic finance contracts Murabaha, Mudarabah, and Ijarah contribute to sustainable economic development. Cash flow mediated still improves the relationship significantly. Thus, managing liquidity is essential to ensure the effectiveness of Islamic finance contracts in driving sustainability. Cash flow helps financial institutions to fund green investments and thus highlights the wider economic necessity of liquidity. As for the financial institutions’ cash outflow, the study highlighted that Islamic finance transactions inherently comply with ethics and real economy principles which at times can be also a better recourse to help them keep their cash flow away from speculative activities. The policy implications of such findings are seismic for policymakers and financial institutions alike. Policymakers are urged to build stronger regulatory frameworks conducive to Islamic finance that do not allow liquidity constraints to impede the role of these instruments in sustainable development. For Islamic banks, this suggests the importance of improving liquidity management and aligning financial strategies with the goal of sustainable development.