Islamic economicsEconomics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
is accordance with
Islamic lawSharia is an Arabic word meaning ‘way’ or ‘path’. In Arabic, the collocation ‘Šarīʿat Allāh’ is traditionally used not only by Muslims, but also Christians and Jews, sometimes translating expressions such as Torat Elōhīm [תורת אלוהים] or ‘ho nómos toû theoû' '’...
. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. where the state does not follow Islamic law.
The former paradigm, particularly as developed by modern Shia scholars such as
Mahmoud TaleghaniAyatollah Mahmoud Taleghani was an Iranian theologian, Muslim reformer and a senior Shi'a cleric of Iran. Taleghani was a contemporary of the Iranian Revolutionary leader Ayatollah Ruhollah Khomeini and a leader in his own right of Iran's Shi'a resistance movement against the pro-western,...
, and Mohammad Baqir al-Sadr, seeks not only to enforce Islamic regulations on issues such as
ZakatZakāh or "alms giving", one of the Five Pillars of Islam, is the giving of a small percentage of one's possessions to charity generally to poor and needy Muslims individual...
,
JizyaUnder Islamic law, jizya or jizyah is a per capita tax levied on a section of an Islamic state's non-Muslim citizens, who meet certain criteria...
,
NisabIn Sharia nisab is the zakat-payable amount, which savings or capital or product must exceed in order for the Muslim owner to be obliged to give zakat. Several hadith have formulas for calculating nisab. One of the most well known states that No Zakat is due on wealth until one year passes. The...
,
KhumsKhums is the Arabic word for One Fifth . According to Shia Islamic legal terminology, it means "one-fifth of certain items which a person acquires as wealth, and which must be paid as an Islamic tax"...
,
RibaRiba means usury and is generally forbidden in Islamic economic jurisprudence fiqh.There are two types of riba discussed by Islamic jurists, that prohibited by the Quran and that prohibited in the Sunnah .-Background:Riba was forbidden in the Medinan society of...
,
insuranceInsurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known...
and
inheritanceInheritance is the practice of passing on property, titles, debts, and obligations upon the death of an individual. It has long played an important role in human societies...
, but to implement broader economic goals and policies of an Islamic society. It seeks an economic system based on uplifting the deprived masses, a major role for the state in matters such as circulation and equitable distribution of wealth and ensuring participants in the marketplace are rewarded for being exposed to risk and/or liability. Islamists movements and authors will generally describe this system as being neither
SocialistSocialism refers to various theories of economic organization advocating public or direct worker ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals with a method of compensation based on...
nor
CapitalistCapitalism is an economic and social system in which the means of production are privately controlled; labor, goods and capital are traded in a market; profits are distributed to owners or invested in technologies and industries; and wages are paid to labor...
, but a third way with none of the drawbacks of the other two systems.
The latter paradigm is of necessity more limited, revolving around a few main tenets of Islam: the payment of
zakatZakāh or "alms giving", one of the Five Pillars of Islam, is the giving of a small percentage of one's possessions to charity generally to poor and needy Muslims individual...
charity by believers, borrowing and lending without payment of fixed
interestInterest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in...
(
ribaRiba means usury and is generally forbidden in Islamic economic jurisprudence fiqh.There are two types of riba discussed by Islamic jurists, that prohibited by the Quran and that prohibited in the Sunnah .-Background:Riba was forbidden in the Medinan society of...
), and socially responsible investing. The key difference from a
financialFinance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated...
perspective is the no-interest rule since most other religions favor charitable giving and
socially responsible investingSocially responsible investing, also known as socially-conscious or ethical investing, describes an investment strategy which seeks to maximize both financial return and social good....
.
History
Traditional Islamic concepts having to do with economics included
- zakat
Zakāh or "alms giving", one of the Five Pillars of Islam, is the giving of a small percentage of one's possessions to charity generally to poor and needy Muslims individual...
- the "taxing of certain goods, such as harvest, with an eye to allocating these taxes to expenditures that are also explicitly defined, such as aid to the needy."
- Gharar - "the interdiction of chance ... that is, of the presence of any element of uncertainty, in a contract (which excludes not only insurance but also the lending of money without participation in the risks)"
- Riba
Riba means usury and is generally forbidden in Islamic economic jurisprudence fiqh.There are two types of riba discussed by Islamic jurists, that prohibited by the Quran and that prohibited in the Sunnah .-Background:Riba was forbidden in the Medinan society of...
- "referred to as usury"
These concepts, like others in Islamic law, came from the "prescriptions, anecdotes, examples, and words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method." Sometimes other sources such as al-urf, (the custom), al-aql (
reasonReason is the mental faculty that is able to generate conclusions from assumptions or premisses.Reason in this sense is often contrasted with authority, intuition, emotion, mysticism, superstition, and faith, and is thought by rationalists to be more reliable than these in discovering what is true...
) or al-
ijma Ijmā' is an Arabic term referring ideally to the consensus of the ummah .The hadith of Muhammad which states that "My community will never agree upon an error" is often cited as support for the validity of ijmā'...
(consensus of the jurists) were employed.
In addition, Islamic law has developed areas of law that correspond to secular laws of contracts and torts.
Early reforms under Islam
Some argue early Islamic theory and practice formed a "coherent" economic system with "a blueprint for a new order in society, in which all participants would be treated more fairly". Michael Bonner, for example, has written that an "economy of poverty" prevailed in Islam until 13th and 14th century. Under this system God's guidance made sure the flow of money and goods was "purified" by being channeled from those who had much of it to those who had little by encouraging
zakatZakāh or "alms giving", one of the Five Pillars of Islam, is the giving of a small percentage of one's possessions to charity generally to poor and needy Muslims individual...
(charity) and discouraging
ribaRiba means usury and is generally forbidden in Islamic economic jurisprudence fiqh.There are two types of riba discussed by Islamic jurists, that prohibited by the Quran and that prohibited in the Sunnah .-Background:Riba was forbidden in the Medinan society of...
(
usuryUsury originally meant the charging of interest on loans. This would have included charging a fee for the use of money, such as at a bureau de change. After countries legislated to limit the rate of interest on loans, usury came to mean the interest above the lawful rate...
/
interestInterest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in...
) on loans. Bonner maintains the prophet also helped poor traders by allowing only tents, not permanent buildings in the market of Medina, and not charging fees and rents there.
Capitalist market economy
The origins of
capitalismCapitalism is an economic and social system in which the means of production are privately controlled; labor, goods and capital are traded in a market; profits are distributed to owners or invested in technologies and industries; and wages are paid to labor...
and
free marketA free market describes a market without economic intervention and regulation by government except to regulate against force or fraud. The terminology is used by economists and in popular culture. A free market requires protection of property rights, but no regulation, no subsidization, no single...
s can be traced back to the
Islamic Golden AgeThe Islamic Golden Age or the Islamic Renaissance, is traditionally dated from the 9th to 13th centuries for 400 years C.E., but has been extended to the 15th century by recent scholarship...
and
Muslim Agricultural RevolutionThe period from 8th century to the 13th century witnessed a fundamental transformation in agriculture known as the Arab Agricultural Revolution, Medieval Green Revolution, Muslim Agricultural Revolution or Islamic Green Revolution...
, where the first
market economyA market economy is economy based on the division of labor in which the prices of goods and services are determined in a free price system set by supply and demand....
and earliest forms of
merchant capitalismMerchant capitalism is a term used by economic historians to refer to the earliest phase in the development of capitalism as an economy and social system. The earliest stages of merchant capitalism were developed in the medieval Islamic world from the 9th century, and in medieval Europe from the...
took root between the 8th–12th centuries, which some refer to as "Islamic capitalism". A vigorous
monetary economyThe monetary economy is that part of a society's economic system where products and services are traded in exchange for money.A monetary economy stands in contrast to an economy based on bartering or to an economy where goods are not traded, i.e. where the goods are produced and consumed by the...
was created by Muslims on the basis of the expanding levels of
circulation of a stable high-value
currencyIn economics, the term currency can refer either to a particular currency, for example the US dollar, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply...
(the
dinarThe Dinar is the name of the official currency in several countries. The Gold Dinar was a coin dating back to the early days of Islam, issued by many rulers, and the Islamic gold dinar is a modern revival of it as a coin or unit of account, separate from the currencies listed below...
) and the integration of monetary areas that were previously independent. Innovative new
businessA business is a legally recognized organization designed to provide goods and/or services to consumers. Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself...
techniques and forms of business organisation were introduced by
economistAn economist is an expert in the social science of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
s,
merchantA merchant is a businessman who trades in commodities that they do not produce themselves, in order to earn a profit.Merchants can be of two types:# A wholesale merchant operates in the chain between producer and retail merchant...
s and traders during this time. Such innovations included the earliest trading companies,
big businessBig Business is a term used to describe large corporations, in either an individual or collective sense. The term first came into use in a symbolic sense subsequent to the American Civil War, particularly after 1880, in connection with the combination movement that began in American business at...
es,
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
s, bills of exchange, long-distance
international tradeInternational trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product . While international trade has been present throughout much of history , its economic, social, and political...
, the first forms of
partnershipA partnership is a type of business entity in which partners share with each other the profits or losses of the business. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the...
(
mufawada) such as
limited partnershipA limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
s (
mudaraba), and the earliest forms of
creditCredit is the provision of resources by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources at a later date. It is any form of deferred payment...
,
debtDebt is that which is owed; usually referencing assets owed, but the term can also cover moral obligations and other interactions not requiring money. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned...
,
profitAccounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.A key difficulty in measuring profit is in defining costs...
,
lossLoss may refer to:*A negative difference between retail price and cost of production*An event in which the team or individual in question did not win.*Loss , a pitching statistic in baseball...
,
capitalIn economics, capital or capital goods or real capital are factors of production used to create goods or services that are not themselves significantly consumed in the production process. Capital goods may be acquired with money or financial capital...
(
al-mal),
capital accumulationMost generally, the accumulation of capital refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth...
(
nama al-mal),
circulating capitalCirculating capital is a term used by classical economists such as Adam Smith, David Ricardo and Karl Marx. It refers to physical capital and operating expenses, i.e., short-lived items that are used in production and used up in the process of creating other goods or services. This is roughly equal...
,
capital expenditureCapital expenditures are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life that extends beyond the taxable year...
,
revenueIn business, revenue or revenues is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. Some companies also receive revenue from interest, dividends or royalties paid to them by other companies...
,
chequeA cheque, also spelled check , is a negotiable instrument[Although cheques are regulated in most countries as negotiable instruments, in many countries they are not actually negotiable, viz., the payee cannot endorse the cheque in favour of a third party...]
s,
promissory noteA promissory note, referred to as a note payable in accounting, or commonly as just a "note", is a contract where one party makes an unconditional promise in writing to pay a sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms...
s, trusts (see
WaqfA waqf is an inalienable religious endowment in Islam, typically denoting a building or plot of land for Muslim religious or charitable purposes...
), startup companies,
savings accountSavings accounts are accounts maintained by retail financial institutions that pay interest but can not be used directly as money...
s, transactional accounts,
pawnA pawn is a peon, or other powerless person. It is often a word used to describe someone or something that is used or manipulated.It can also refer to:* Pawn , the weakest and most numerous piece in the game...
ing,
loanA loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
ing,
exchange rateIn finance, the exchange rates between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency...
s,
bankA bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money.Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds...
ers,
money changerMoney changer is a trade involving exchanges of coins in different denomination. It is thought generally to be the origin of modern banking in Europe....
s,
ledgerA ledger or lieger , is the principal book for recording transactions...
s,
depositDeposit may refer to:*Deposit account, the liability owed by the bank to its depositor*Damage deposit taken in relation to rental or an item or property*Deposit , New York*Deposit , New York...
s,
assignmentsAn assignment is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee...
, the
double-entry bookkeeping systemDouble-entry bookkeeping system ensures the integrity of the financial values recorded in a financial accounting system. It does this by ensuring that each individual transaction is recorded in at least two different nominal ledgers of the financial accounting system and so implementing a double...
, and
lawsuitA lawsuit is a civil action brought before a court of law in which a plaintiff, a party who claims to have received damages from a defendant's actions, seeks a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
s.
OrganizationAn organization is a social arrangement which pursues collective goals, which controls its own performance, and which has a boundary separating it from its environment...
al
enterprisesA business is a legally recognized organization designed to provide goods and/or services to consumers. Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself...
similar to
corporationA corporation is a legal entity separate from the shareholders and employees. In British tradition it is the term designating a body corporate, where it can be either a corporation sole or a corporation aggregate...
s independent from the
stateA sovereign state is a political association with effective internal and external sovereignty over a geographic area and population which is not dependent on, or subject to any other power or state...
also existed in the medieval Islamic world, while the
agencyAgency is an area of commercial law dealing with a contractual or quasi-contractual tripartite, or non-contractual set of relationships when an agent is authorized to act on behalf of another to create a legal relationship with a Third Party...
institution was also introduced. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.
The systems of
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
relied upon by merchants was very effective. Merchants would buy and sell on
commissionThe payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold...
, with money
loanA loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
ed to them by wealthy
investorAn investor is any party that makes an investment.The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company...
s, or a joint
investmentInvestment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. Investing is the active redirection of resources: from being consumed today, to creating benefits in the future; the use of assets to...
of several merchants, who were often Muslim, Christian and Jewish. Recently, a collection of documents was found in an
EgyptEgypt , officially the Arab Republic of Egypt, is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Western Asia...
ian
synagogueA synagogue is a Jewish house of prayer....
shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business
partnershipA partnership is a type of business entity in which partners share with each other the profits or losses of the business. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the...
s would be made for many
commercial venturesA joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise...
, and bonds of
kinshipKinship is a relationship between any entities that share a genealogical origin, through either biological, cultural, or historical descent. In anthropology the kinship system includes people related both by descent and marriage, while usage in biology includes descent and mating...
enabled
trade networkA trade route is a logistical network identified as a series of pathways and stoppages used for the commercial transport of cargo. Allowing goods to reach distant markets, a single trade route contains long distance arteries which may further be connected to several smaller networks of commercial...
s to form over huge distances. Networks developed during this time enabled a world in which
moneyMoney is anything that is generally accepted as payment for goods and services and repayment of debts. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value, and occasionally, a standard of deferred payment...
could be promised by a
bankA bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money.Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds...
in
BaghdadBaghdad is the capital of Iraq and of Baghdad Governorate, with which it is coterminous. Having a municipal population estimated at 6.5 million, it is the largest city in Iraq and the second largest in the Arab World....
and cashed in
SpainSpain , officially the Kingdom of Spain , is a country located in southwestern Europe on the Iberian Peninsula.
[The Spanish constitution does not establish any official denomination of the country, even though España , Estado español and Nación española are used interchangeably...]
, creating the
chequeA cheque, also spelled check , is a negotiable instrument[Although cheques are regulated in most countries as negotiable instruments, in many countries they are not actually negotiable, viz., the payee cannot endorse the cheque in favour of a third party...]
system of today. Each time items passed through the cities along this extraordinary network, the city imposed a
taxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
, resulting in high prices once reaching the final destination. These innovations made by Muslims and Jews laid the foundations for the modern
economic systemAn economic system is the system of production, distribution and consumption of goods and services of an economy. Alternatively, it is the set of principles and techniques by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive...
.
Classical Muslim economic thought
To some degree, the early Muslims based their
economicEconomics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
analyses on the Qu'ran (such as opposition to
ribaRiba means usury and is generally forbidden in Islamic economic jurisprudence fiqh.There are two types of riba discussed by Islamic jurists, that prohibited by the Quran and that prohibited in the Sunnah .-Background:Riba was forbidden in the Medinan society of...
, meaning
usuryUsury originally meant the charging of interest on loans. This would have included charging a fee for the use of money, such as at a bureau de change. After countries legislated to limit the rate of interest on loans, usury came to mean the interest above the lawful rate...
or
interestInterest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in...
), and from
sunnahSunnah is an Arabic word that means habit or usual practice. The Muslim usage of this term refers to the sayings and living habits of Muhammad, the main prophet of Islam....
, the sayings and doings of prophet
MuhammadMuhammad ibn ‘Abdullāh , is the founder of the religion of Islam [ إِسْلامْ ] and is regarded by Muslims as a messenger and prophet of , the last and the greatest law-bearer in a series of Islamic prophets as taught by the...
.
Perhaps the most well known Islamic scholar who wrote about economics was
Ibn KhaldunIbn Khaldūn or Ibn Khaldoun Ibn Khaldūn or Ibn Khaldoun Ibn Khaldūn or Ibn Khaldoun (full name, , , (May 27, 1332 AD/732 AH – March 19, 1406 AD/808 AH) was a North African polymath — an astronomer, economist, historian, Islamic scholar, Islamic theologian, hafiz, jurist, lawyer,...
(1332–1406), who is considered a father of modern economics. Ibn Khaldun wrote on economic and political theory in the introduction, or
MuqaddimahThe Muqaddimah, or the Muqaddimah of Ibn Khaldun , or the Prolegomena in Greek, is a book written by the North African historian Ibn Khaldun in 1377 which records an early Muslim view of universal history...
(
Prolegomena), of his
History of the World (
Kitab al-Ibar). In the book, he discussed what he called
asabiyya (social cohesion), which he sourced as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic, although there can be sudden sharp turns that break the pattern. His idea about the benefits of the division of labor also relate to
asabiyya, the greater the social cohesion, the more complex the successful division may be, the greater the economic growth. He noted that growth and development positively stimulates both supply and demand, and that the forces of supply and demand are what determines the prices of goods. He also noted macroeconomic forces of population growth,
human capitalHuman capital refers to the stock of skills and knowledge embodied in the ability to perform labor so as to produce economic value. It is the skills and knowledge gained by a worker through education and experience...
development, and technological developments effects on development. In fact, Ibn Khaldun thought that population growth was directly a function of wealth.
Other important early Muslim scholars who wrote about economics include Abu Hanifah,
Abu YusufYaqub ibn Ibrahim al-Ansari, better known as Abu Yusuf was a student of legist Abu Hanifah who helped spread the influence of the Hanafi school of Islamic law through his writings and the government positions he held.-Biography:...
(731-798), Ishaq bin Ali al-Rahwi (854–931),
al-FarabiAbū Naṣr al-Fārābi , known in the West as Alpharabius Abū Naṣr al-Fārābi (أبو نصر محمد الفارابي - Abū Naṣr Muḥammad al-Fārābi; in some sources also mentioned as محمد بن محمد بن أوزلغ الفارابي - Muḥammad ibn Muḥammad (ibn Tarḫān) ibn Awzlaġ al-Fārābi), known in the West as...
(873–950),
QabusShams al-Mo'ali Abol-hasan Ghaboos ibn Wushmgir was the Ziyarid ruler of Gurgan and Tabaristan . He was the son of Vushmgir and a daughter of the Bavandi Ispahbad Sharvin....
(d. 1012),
Ibn Sina, known as Abū Alī Sīnā or Ibn Sīnā , and commonly known in English by his Latinized name Avicenna , was a Persian polymath and the foremost physician and philosopher of his time...
(Avicenna) (980–1037),
Ibn MiskawayhAbu 'Ali Ahmad ibn Muhammad ibn Ya'qub Ibn Miskawayh, also known as Ibn Miskawayh was a prominent Persian philosopher, scientist, poet and historian from Ray, Iran. He was active politically during the Buwayhid era....
(b. 1030),
al-GhazaliAbū Ḥāmid Muḥammad ibn Muḥammad al-Ghazālī , often Algazel in English, was born and died in Tus, in the Khorasan province of Persia. He was an Islamic theologian, jurist, philosopher, cosmologist, psychologist and mystic of Persian origin, and remains one of the most celebrated scholars in the...
(1058–1111),
al-MawardiAbu al-Hasan Ali Ibn Muhammad Ibn Habib al-Mawardi, known in Latin as Alboacen , was an Arab Muslim jurist of the Shafii school; he also made contributions to Qur'anic interpretations, philology, ethics, and literature...
(1075–1158), Nasīr al-Dīn al-Tūsī (1201-1274), Ibn Taimiyah (1263–1328) and
al-MaqriziTaqi al-Din Ahmad ibn 'Ali ibn 'Abd al-Qadir ibn Muhammad al-Maqrizi ; Arabic: , was an Egyptian historian more commonly known as al-Maqrizi or Makrizi...
.
Post-colonial era
During the modern post-colonial era, as Western ideas, including Western economics, began to influence the Muslim world, some Muslim writers sought to produce an Islamic discipline of economics. Because Islam is "not merely a spiritual formula but a complete system of life in all its walks", these writers believed that it should logically follow that Islam also had its own economic system unique from and superior to non-Islamic systems. To date, however, there have been no agreement as to the methodological definition and scope of Islamic Economics.
In the 1960s and 70s Shia Islamic thinkers worked to develop a unique Islamic economic philosophy with "its own answers to contemporary economic problems." Several works were particularly influential,
- Eslam va Malekiyyat (Islam and Property) by Mahmud Taleqani (1951),
- Iqtisaduna
Iqtisaduna is a major work on Islamic economics by prominent Shia cleric Muhammad Baqir al-Sadr. Written between 1960 and 1961, it is al-Sadr's main work on economics, and still forms much of the basis for modern Islamic banking....
(Our Economics) by Mohammad Baqir al-Sadr (1961) and
- Eqtesad-e Towhidi (The Economics of Divine Harmony) by Abolhassan Banisadr
Abol-hassan Banisadr was the first President of Iran, following the 1979 Iranian Revolution and the abolition of the monarchy.-Early life:...
(1978)
- Some Interpretations of Property Rights, Capital and Labor from Islamic Perspective by Habibullah Peyman (1979).
Al-Sadr in particular has been described as having "almost single-handedly developed the notion of Islamic economics"
In their writings Sadr and the other authors "sought to depict Islam as a religion committed to social justice, the equitable distribution of wealth, and the cause of the deprived classes," with doctrines "acceptable to Islamic jurists", while refuting existing non-Islamic theories of
capitalismCapitalism is an economic and social system in which the means of production are privately controlled; labor, goods and capital are traded in a market; profits are distributed to owners or invested in technologies and industries; and wages are paid to labor...
and
MarxismMarxism is the political philosophy and economic worldview based upon a materialist interpretation of history, a Marxist analysis of capitalism, a theory of social change, and an atheist view of human liberation derived from the work of Karl Marx and Friedrich Engels; three primary aspects of...
. This version of Islamic economics, which influenced the
Iranian RevolutionThe Iranian Revolution of 1979 or 1979 Islamic Revolution refers to events involving the overthrow of Iran's monarchy under Shah Mohammad Reza Pahlavi and its replacement with an Islamic republic under Ayatollah Ruhollah Khomeini, the leader of the revolution...
, called for public ownership of land and of large "industrial enterprises," while private economic activity continued "within reasonable limits." These ideas helped shape the large public sector and public subsidy policies of the
Iranian Islamic revolutionThe Iranian Revolution of 1979 or 1979 Islamic Revolution refers to events involving the overthrow of Iran's monarchy under Shah Mohammad Reza Pahlavi and its replacement with an Islamic republic under Ayatollah Ruhollah Khomeini, the leader of the revolution...
.
In the 1980s and 1990s, as the Islamic revolution failed to reach the per capita income level achieved by the regime it overthrew, and Communist states and socialist parties in the non-Muslim world turned away from
socialismSocialism refers to various theories of economic organization advocating public or direct worker ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals with a method of compensation based on...
, Muslim interest shifted away from government ownership and regulation. In Iran, it is reported that "
eqtesad-e Eslami (meaning both Islamic economics and economy) ... once a revolutionary shibboleth, is indubitably absent in all official documents and the media. It disapperared from Iranian political discourse about 15 years ago [1990]."
But in other parts of the Muslim world the term lived on, shifting form to the less ambitious goal of interest-free banking. Some Muslim bankers and religious leaders suggested ways to integrate Islamic law on usage of money with modern concepts of ethical investing. In banking this was done through the use of sales transactions (focusing on the fixed rate return modes) to achieve similar results to interest. This has been heavily criticised by many modern writers as a means of covering conventional banking with an Islamic facade.
In 2008 an economist and former advisor to Tony Blair, Tahir Iqbal, resolved the existing issues in Islamic economics of both providing a fully shariah compliant Islamic political economy (including the problem of government borrowing and mortgages) in his book "what is the sound of an invisible hand clapping", published by maison mascara books. The foundation of this was the quard al hasana (good debt)which when introduced with zakat on all assets sets in place a new framework that solves boom and bust and implies that poverty itself could be stopped using Islamic economics.
Traditional approach
While many Muslims believe Islamic law is perfect by virtue of its being revealed by God, Islamic law on economic issues was/is not "
economicsEconomics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
" in the sense of a systematic study of production, distribution, and consumption of goods and services. An example of the traditionalist
ulamaUlama could refer to:* Ulema, also spelled "Ulama", a community of legal scholars of Islam and the Sharia* Ulama, a variety of a Mesoamerican ballgame descended from an Aztec ritual....
approach to economic issues is Imam Khomeini's work
Tawzih al-masa'il where the term `economy` does not appear and where the chapter on selling and buying (Kharid o forush) comes after the one on pilgrimage. As
Olivier RoyOlivier Roy is a research director at the French National Center for Scientific Research and a lecturer for both the School for Advanced Studies in the Social Sciences and the Institut d'Etudes Politiques de Paris . Since 1984, he has acted as a consultant to the French Foreign Ministry...
puts it, the work "presents economic questions as individual acts open to moral analysis: `To lend [without interest, on a note from the lender] is among the good works that are particularly recommended in the verses of the Quran and the in the Traditions.`"
Property
The Qur'an states that God is the sole owner of all matter in the heavens and the earth. Man, however, is God's viceregent on earth and holds God's possessions in trust (
amanat). Islamic jurists have divided properties into three categories:
- Public property
- State property
- Private property
Public property
Public property in Islam refers to natural resources (
forestA forest is an area with a high density of trees. There are many definitions of a forest, based on the various criteria. These plant communities presently cover approximately 9.4% of the Earth's surface in many different regions and function as habitats for organisms, hydrologic flow modulators,...
s,
pasturePasture is land with low-growing vegetation cover used for grazing of livestock as part of a farm, or in ranching or other unenclosed pastoral systems. Prior to the advent of factory farming, pasture was the primary source of food for grazing animals such as cattle and horses...
s, uncultivated land,
waterWater is an ubiquitous chemical substance that is composed of hydrogen and oxygen and is essential for all known forms of life.In typical usage, water refers only to its liquid form or state, but the substance also has a solid state, ice, and a gaseous state, water vapor or steam. Water covers 71%...
,
minesMining is the extraction of valuable minerals or other geological materials from the earth, usually from an ore body, vein or seam. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock salt and potash...
, oceanic resources etc.) over which all humans have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be utilized by any citizen, as long as it does not undermine the right of other citizens over it.
Some types of public property can not be privatized under Islamic law. Muhammad's saying that "people are partners in three things: water, fire and pastures", has led some scholars to believe that the privatization of
waterWater is an ubiquitous chemical substance that is composed of hydrogen and oxygen and is essential for all known forms of life.In typical usage, water refers only to its liquid form or state, but the substance also has a solid state, ice, and a gaseous state, water vapor or steam. Water covers 71%...
,
energyIn physics, energy is a scalar physical quantity that describes the amount of work that can be performed by a force, an attribute of objects and systems that is subject to a conservation law...
and
agricultural landAgricultural land denotes the land suitable for agricultural production, both crops and livestock. It is one of the main resources in agriculture...
is not permissible. Other types of public property, such as gold mines, were allowed by Muhammad to be privatized, in return for taxes to the Islamic state. The owner of the previously public property that was privatized has to pay
zakatZakāh or "alms giving", one of the Five Pillars of Islam, is the giving of a small percentage of one's possessions to charity generally to poor and needy Muslims individual...
and, according Shiite scholars,
khumsKhums is the Arabic word for One Fifth . According to Shia Islamic legal terminology, it means "one-fifth of certain items which a person acquires as wealth, and which must be paid as an Islamic tax"...
as well. In general the
privatizationPrivatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector...
and
nationalizationNationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being state...
of public property is subject to debate amongst Islamic scholars. Public property thus, eventually, becomes state or private property.
State property
State property includes certain natural resources, as well as other property that can't immediately be privatized. Islamic state property can be movable, or immovable, can be acquired through conquest, or peaceful means. Unclaimed, unoccupied and heir less properties, including uncultivated land (
mawat), can be considered state property.
During the life of Muhammad, one fifth of military equipment captured from the enemy in the battlefield was considered state property. During his reign,
UmarUmar , also known as Umar the Great or Farooq the Great was the most powerful of the four Rashidun Caliphs and one of the most powerful and influential Muslim rulers. He was a sahabi of the Islamic prophet Muhammad. He succeeded Caliph Abu Bakr as the second Caliph of Rashidun Caliphate on 23...
(on the recommendation of
Ali' was the cousin and son-in-law of the Islamic prophet Muhammad, and ruled over the Islamic Caliphate from 656 to 661...
) considered conquered land to be state property, instead of private property (as was usual practice). The reason for this was that privatizing this property would concentrate resources in the hands of a few, and prevent this property from being used for the general good of the community. The property remained under the occupation of the cultivators, but the taxes collected on it went to the state treasury.
Muhammad said "Old and fallow lands are for God and His Messenger (i.e. state property), then they are for you". Jurists draw from this the conclusion that, ultimately, private ownership takes over state property.
Private property
There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual's right to private ownership. The Qur'an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. Muhammad said that he who dies defending his property was like a
martyrShaheed may refer to:* Ash-Shaheed , one of the 99 names of Allah* Martyr , from the Arabic word شَهيد meaning both witness and martyr* Political assassination, especially in Pakistan* Shaheed, male given nameFilms:...
.
Islamic economists have classified the acquisition of private property into three categories: involuntary, contractual and non-contractual. Involuntary means are inheritance, bequests, and gifts. Non-contractual is acquisition involves the collection and exploitation of natural resources that have not previously been claimed as private property. Contractual acquisition includes activities such as trading, buying, renting, hiring labor etc.
A tradition attributed to Muhammad, with which both Sunni and Shi'ite jurists agree, in cases where the right to private ownership causes harm to others, then Islam is in favor of curtailing the right in those cases.
MalikiThe Maliki madhhab is one of the four schools of Fiqh or religious law within Sunni Islam. It is the third-largest of the four schools, followed by approximately 15% of Muslims, mostly in North Africa, West Africa, United Arab Emirates, some parts of Saudi Arabia.Madhabs are rites not sects. They...
and
HanbaliHanbali is one of the four schools Hanbali is one of the four schools Hanbali is one of the four schools (Madh'habs (rites) of Fiqh or religious law within Sunni Islam (the other three being Hanafi, Maliki and Shafi`i).Salafi creed aqeedah is based on this Madh'hab of Sunni Islam....
jurists argue that if private ownership endangers public interest, then the state can limit the amount an individual is allowed to own. This view, however, is debated by others.
Market
Islam accepts markets as the basic co-ordinating mechanism of the economic system. Islamic teaching holds that the market, through perfect competition, allows consumers to obtain desired goods, producers to sell their goods, at a mutually acceptable price.
The three necessary conditions for an operational market are said to be upheld in Islamic primary sources:
- Freedom of exchange: the Qur'an calls on believers to engage in trade, and rejects the contention that trade is forbidden.
- Private ownership (see above).
- Security of contract: the Qur'an calls for the fulfillment and observation of contracts. The longest verse of the Qur'an deals with commercial contracts involving immediate and future payments.
Interference
Islam promotes a market free from interferences such as
price fixingPrice fixing is an agreement between business competitors to sell the same product or service at the same price. Historically, such a group of businesses in price fixing was referred to as a combination....
and
hoardingHoarding is a general term for the accumulation of food or other items. The term is used to describe both animal and human behavior.-Animal behavior:Hoarding of food is a natural behaviour in certain species of animals...
. Government intervention, however, is tolerated under specific circumstances.
Islam prohibits the fixation of a price by a handful of buyers or sellers who have become dominant in the market. During the days of
MuhammadMuhammad ibn ‘Abdullāh , is the founder of the religion of Islam [ إِسْلامْ ] and is regarded by Muslims as a messenger and prophet of , the last and the greatest law-bearer in a series of Islamic prophets as taught by the...
, a small group of merchants used to meet agricultural producers outside the city and bought the entire crop, thereby gaining monopoly over the market. The produce was later sold at a higher price within the city. Muhammad condemned this practice since it caused injury both to the producers (who in the absence of numerous customers were forced to sell goods at a lower price) and the inhabitants of Medina.
The above mentioned reports are also used to justify the argument that the Islamic market is characterized by free information. Producers and consumers should not be denied information on demand and supply conditions. Producers are expected to inform consumers of the quality and quantity of goods they claim to sell. Some scholars hold that if an inexperienced buyer is swayed by the seller, the consumer may nullify the transaction upon realizing the seller's unfair treatment. The Qur'an also forbids discriminatory means of transaction.
Government interference in the market is justified in exceptional circumstances, such as the protection of public interest. Under normal circumstances, government non-interference should be upheld. When Muhammad was asked to set the price of goods in a market he responded, "I will not set such a precedent, let the people carry on on with their activities and benefit mutually."
Islamic insurance
A book by Dr Aly Khorshid "Islamic insurance, with modern approach to Islamic Banking" Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.
Interest
The Quran (3: 130) clearly condemns what it calls by the Arabic term "riba," usually translated "interest": "O, you who believe! Devour not riba, doubled and redoubled, and be careful of Allah; haply so you will prosper."
Debt arrangements
Most Islamic economic institutions advise participatory arrangements between
capitalIn economics, capital or capital goods or real capital are factors of production used to create goods or services that are not themselves significantly consumed in the production process. Capital goods may be acquired with money or financial capital...
and labor. The latter rule reflects the Islamic norm that the borrower must not bear all the cost of a failure, as "it is God who determines that failure, and intends that it fall on all those involved."
Conventional debt arrangements are thus usually unacceptable - but conventional venture investment structures are applied even on very small scales. However, not every debt arrangement can be seen in terms of venture investment structures. For example, when a family buys a home it is not investing in a business venture - a person's shelter is not a business venture. Similarly, purchasing other commodities for personal use, such as cars, furniture, and so on, cannot realistically be considered as a venture investment in which the Islamic bank shares risks and profits for the profits of the venture.
Money changers
Due to religious sanctions against odious debt,
Tamil MuslimTamil Muslim refers to members of Tamil speaking multi-ethnic Islamic community found in South Asia and South East Asia. According to the official Indian census of 2001, there were at least 2 million Tamil Muslims in the southern province of Tamil Nadu...
s have historically been
money changerMoney changer is a trade involving exchanges of coins in different denomination. It is thought generally to be the origin of modern banking in Europe....
s (not money lenders) throughout South and South East Asia.
Natural capital
Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also
sustainableSustainability, in a broad sense, is the capacity to endure. In ecology, the word describes how biological systems remain diverse and productive over time...
) use of
natural capitalNatural capital is the extension of the economic notion of capital to environmental goods and services. Natural capital is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future...
, i.e. producing land. These latter revive traditions of
haramThe Arabic term has a meaning of "sanctuary" or "holy site" in Islam.-Etymology:The Arabic language has two separate words, and , both derived from the same triliteral Semitic root . Both of these words can mean "forbidden" and/or "sacred" in a general way, but each has also developed some...
and
himaA Ḥimá "inviolate zone" refers to an area set aside for the conservation of natural capital, typically fields, wildlife and forests - contrast ḥaram, which defines an area protected for more immediate human purposes....
that were prevalent in early Muslim civilization.
Welfare
Social welfare,
unemploymentUnemployment occurs when a person is available to work and seeking work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed...
, public debt and
globalizationGlobalization describes an ongoing process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and exchange....
have been re-examined from the perspective of Islamic norms and values. Islamic banks have grown recently in the Muslim world but are a very small share of the global economy compared to the Western debt banking paradigm. It remains to be seen if they will find niches -
although hybrid approaches, e.g.
Grameen BankThe Grameen Bank is a microfinance organization and community development bank started in Bangladesh that makes small loans to the impoverished without requiring collateral. The word "Grameen", derived from the word "gram" or "village", means "of the village"...
which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern
human development theoryHuman development theory is a theory that merges older ideas from ecological economics, sustainable development, welfare economics, and feminist economics...
.
Islamic stocks
In June 2005
Dow JonesThe Dow Jones Industrial Average also referred to as the Industrial Average, the Dow Jones, the Dow 30, or simply as the Dow; is one of several stock market indices, created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
Indexes,
New YorkNew York is a state in the Mid-Atlantic and Northeastern regions of the United States and is the nation's third most populous. The state is bordered by New Jersey and Pennsylvania to the south, and Connecticut, Massachusetts and Vermont to the east...
, and RHB Securities,
Kuala LumpurKuala Lumpur , is the capital and largest city of Malaysia. The city proper, making up an area of , has an estimated population of 1.6 million in 2006. Greater Kuala Lumpur, also known as the Klang Valley, is an urban agglomeration of 7.2 million...
, teamed up to launch a new "Islamic
MalaysiaMalaysia is a country in Southeast Asia that consists of thirteen states and three Federal Territories, with a total landmass of . The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government. The population stands at over 28 million inhabitants...
Index" —a collection of 45 stocks representing Malaysian companies that comply with a variety of Sharia-based criteria. Three variables (the total debt of an indexed company, its total cash plus interest-bearing securities and its accounts receivables) must each be less than 33% of the trailing 12-month average capitalization, for example.
Popularity and availability
Today there are many financial institutions, even in the Western world, offering financial services and products in accordance with the rules of the Islamic finance. For example, legal changes introduced by Chancellor
Gordon BrownJames Gordon Brown is the Prime Minister of the United Kingdom and Leader of the Labour Party. Brown became Prime Minister in June 2007, after the resignation of Tony Blair and three days after becoming leader of the governing Labour Party...
in 2003, have enabled British banks and building societies to offer so-called Muslim mortgages for house purchase.
In 2004 the UK's first stand alone Sharia'a compliant bank was launched, the
Islamic Bank of BritainThe Islamic Bank of Britain plc is a commercial bank in the United Kingdom, established in August 2004 to offer Sharia compliant financial service products to British Muslims. The bank has six branches in London, Birmingham, Manchester and Leicester...
. Several banks offer products and services to its UK customers that utilise the Islamic financial principles; such as Mudaraba, Murabaha, Musharaka and Qard.
The Islamic finance sector was worth between 300 and 500 billion dollars (237 and 394 billion euros) as of September 2006, compared with 200 billion dollars in 2004. The number of Islamic retail banks and investment funds number in their hundreds and many Western financial institutions offer products that comply with Sharia law, including
CitigroupCitigroup Inc. , is a major American financial services company based in New York, NY. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate Travelers Group on April 7, 1998.Citigroup Inc...
,
Deutsche BankDeutsche Bank AG is an international Universal bank with its headquarters in Frankfurt, Germany. The bank employs more than 81,000 people in 76 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets.Deutsche Bank has offices in major financial centers,...
,
HSBCHSBC Holdings plc is a public limited company incorporated in England and Wales in 1990, and headquartered in London since 1993. As of 2009, it is both the world's largest banking group and the world's 6th largest company according to a composite measure by Forbes magazine.Hong Kong which served as...
,
Lloyds TSBIn January 2009, Lloyds TSB Group changed its name to Lloyds Banking Group. This article is now about the brand Lloyds TSB which is still operated as part of the Lloyds Banking Group....
and UBS. In 2008, at least $500 billion in assets around the world were managed in accordance with Sharia, or Islamic law, and the sector was growing at more than 10% per year. Islamic finance seeks to promote social justice by banning exploitative practices. In reality, this boils down to a set of prohibitions--on paying interest, on gambling with derivatives and options, and on investing in firms that make pornography or pork.
Business Method Patents
With the recent ability to
patentA patent is a set of exclusive rights granted by a state to an inventor or their assignee for a limited period of time in exchange for a public disclosure of an invention....
new methods of doing businessBusiness method patents are a class of patents which disclose and claim new methods of doing business. This includes new types of e-commerce, insurance, banking, tax compliance etc. Business method patents are a relatively new species of patent and there have been several reviews investigating the...
in the United States, a small number of
patent applicationA patent application is a request pending at a patent office for the grant of a patent for the invention described and claimed by that application. An application consists of a description of the invention , together with official forms and correspondence relating to the application...
s have been filed on methods for providing Sharia compliant financial services. These pending patent applications include:
Declining balance co-ownership financing arrangement. This discloses an allegedly Sharia compliant financing arrangement for home purchases and refinances that does not involve the payment of interest.
Controlling a Computer System Enabling Sharia-Compliant Financing. This discloses an improved computer system for carrying out Sharia compliant financial transactions.
Views
Sohrab Behada's study argued that the economic system proposed by Islam is essentially a capitalist one.
Criticism
Its popularity notwithstanding, critics of Islamic economics have not been sparing. It has been attacked for its alleged "incoherence, incompleteness, impracticality, and irrelevance;"
[Kuran, "The Economic Impact of Islamic Fundamentalism," in Marty and Appleby Fundamentalisms and the State, U of Chicago Press, 1993, p.302-41] driven by "
cultural identityCultural identity is the identity of a group or culture, or of an individual as far as one is influenced by one's belonging to a group or culture. Cultural identity is similar to and has overlaps with, but is not synonymous with, identity politics....
" rather than
problem solvingProblem solving is a mental process and is part of the larger problem process that includes problem finding and problem shaping. Consideredthe most complex of all intellectual functions, problem solving has been defined as higher-order cognitive process that requires the modulation and control of...
. Others have dismissed it as "a hodgepodge of populist and socialist ideas," in theory and "nothing more than inefficient state control of the economy and some almost equally ineffective redistribution policies," in practice.
In a political and regional context where Islamist and ulemaUlema refers to the educated class of Muslim legal scholars engaged in the several fields of Islamic studies. They are best known as the arbiters of shari‘a law...
claim to have an opinion about everything, it is striking how little they have to say about this most central of human activities, beyond repetitious pieties about how their model is neither capitalistCapitalism is an economic and social system in which the means of production are privately controlled; labor, goods and capital are traded in a market; profits are distributed to owners or invested in technologies and industries; and wages are paid to labor...
nor socialist.
Talking finance, although none of the above critics provide empirical evidence on the alleged claims; however, the so far withstanding critic of the Islamic financial practice pertains to its product’s structure. Interest-bearing (Riba) and speculation-involving (Gharar) trading are clearly prohibited by explicit canonical texts. Therefore presumably all the financial structures of all the Islamic products should be interest and speculation free. Nevertheless, some new empirical studies hypothesize that “Islamic finance products’ structure is based on the Islamic prohibitions; however, these products’ risk management is still based on revoking the underlying prohibitions”.
The most prominent case here is Islamic financial market products such as, inter alia, Salam and Istisna’ these products are used are hedging methods for the Islamic bonds Sukuk. If Sukuk’s originator or investors wish to hedge against interest rate or exchange rate risks then they have to use one of the former methods. These methods as they originally mimic the conventional risk management practice, should involve either interest-bearing or speculation-bearing trading or even both.
There have been some innovations that try to avoid falling in interest-based and/or speculation based transactions. Parallel Salam and synthetics are the most recent.
See also
- Fiqh
Fiqh is Islamic jurisprudence. Fiqh is an expansion of the Sharia Islamic law—based directly on the Quran and Sunnah—that complements Shariah with evolving rulings/interpretations of Islamic jurists....
- Law and economics
Law and Economics, or economic analysis of law, is an approach to legal theory that applies methods of economics to law. It includes the use of economic concepts to explain the effects of laws, to assess which legal rules are economically efficient, and to predict which legal rules will be...
- Ibn Khaldun
Ibn Khaldūn or Ibn Khaldoun Ibn Khaldūn or Ibn Khaldoun Ibn Khaldūn or Ibn Khaldoun (full name, , , (May 27, 1332 AD/732 AH – March 19, 1406 AD/808 AH) was a North African polymath — an astronomer, economist, historian, Islamic scholar, Islamic theologian, hafiz, jurist, lawyer,...
- Muhammad Taqi Usmani
Justice Mufti Maulana Sheikh Muhammad Taqi Uthmani is an eminent Hanafi Islamic scholar from Pakistan. He served as a judge on the Federal Shariat Court of Pakistan from 1980 to 1982 and the Shari'a Appellate Bench of the Supreme Court of Pakistan from 1982 to 2002...
- AAB Chartered Accountants
AAB is a professional services firm engaged in audit, accounting, tax and consulting services. AAB is an independent member firm of the , which is a network of 140 independently owned accounting and consulting firms in over 80 countries with 390 offices worldwide, 1,200 partners and over 14,200...
- Shahid Hasan Siddiqui
- Umar Chapra
Muhammad Umer Chapra is a Senior Research Advisor at the Islamic Research and Training Institute of the Islamic Development Bank, Jeddah who has written extensively on the issues of Islamic finance...
- Islamic philosophy
Islamic philosophy is a branch of Islamic studies, and is a longstanding attempt to create harmony between philosophy and the religious teachings of Islam .-Definition:...
- Early Islamic philosophy
Early Islamic philosophy or classical Islamic philosophy is a period of intense philosophical development beginning in the 2nd century AH of the Islamic calendar and lasting until the 6th century AH...
- Modern Islamic philosophy
Contemporary Islamic philosophy refers to the situation of Islamic philosophy in the 20th century. New movements have emerged during this time due to encounter with modernity and Western philosophy....
- Islamization of knowledge
Islamization of knowledge is a term which describes a variety of attempts and approaches to synthesize the ethics of Islam with various fields of modern thought. Its end product would be a new ijma among Muslims on an appropriate fiqh and a scientific method that did not violate Islamic ethical...
- Islamic democracy
Known as Islamic democracy, two kinds of democratic states can be recognized in the Islamic countries. The basis of this distinction has to do with how comprehensively Islam is incorporated into the affairs of the state....
- Green economics
- Economy of the OIC
- Islamic banking
Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law and its practical application through the development of Islamic economics...
- Monzer Kahf
Monzer Kahf is a Syrian American professor of Islamic economics and finance. He received his Ph.D. in economics from University of Utah in 1975 and lives in Westminster, California....
- Aly Khorshid
Dr Aly Khorshid has been involved with financial institutions for over 2 decades with his knowledge in Islamic finance. He served as consultant to central bank on establishing Islamic banking system within the Central bank regulatory policies and corporate governance. He is active member in...
- Waleed Ahmad J. Addas
Waleed Ahmad Jameel Addas is a Saudi Arabian economic methodologist. He published a first comparative study on the subject, entitled...
Torts
- A. Basir Bin Mohamad. "The Islamic Law of Tort: A Study of the Owner and Possessor of Animals with Special Reference to the Civil Codes of the United Arab Emirates, Lebanon, Tunisia, Morocco, Sudan and Iraq" in Arab Law Quarterly V.16, N.4 2001
- __________. "Vicarious Liability: A Study of the Liability of the Guardian and his Ward in the Islamic Law of Tort" Arab Law Quarterly V. 17, N.1 2002
- Immanuel Naveh. "The Tort of Injury and Dissolution of Marriage at the Wife's Initiative in Egyptian Mahkamat al-Naqd Rulings" in Islamic Law and Society Volume 9, Number 1, 2002
- Islamic law of tort Liaquat Ali Khan Niazi, 1988
- An outline of Islamic law of tort Abdul-Qadir Zubair, 1990
Further reading
External links