The Paradox of Prosperity: Interest-Based Finance, Inequality, and Islamic Risk-Sharing as a Framework for Sustainable Development

This paper develops a conceptual analytical framework to explain the coexistence of economic growth with rising inequality, financial fragility, and social exclusion in contemporary interestbased financial systems, a phenomenon described as the Paradox of Prosperity. Drawing on development economics, financial instability theory, and Islamic economic principles, the study examines how debt-driven financial deepening can promote aggregate growth while undermining distributive justice and systemic stability. The paper advances Islamic risk-sharing finance as an institutional alternative capable of addressing these structural contradictions. Rather than presenting Islamic finance solely as a normative critique, the study positions risk-sharing arrangements as a macro-financial framework with implications for stability, inclusion, and sustainable development. By linking Islamic finance principles to broader debates on financialization, inequality, and institutional quality, the paper extends Islamic finance analysis beyond micro-level instruments to system-level financial design. The study contributes to the literature by introducing the Paradox of Prosperity as a unifying conceptual lens, advancing Islamic finance theory through an emphasis on institutional design and risk-sharing, and offering policy-relevant insights aligned with the objectives of Shariah (maqasid al-Shariah) and the Sustainable Development Goals, particularly in Muslim and developing economies.