Islamic economics

See also: History of Islamic economics

Islamic economics (Arabic: الاقتصاد الإسلامي), is a term used to refer to Islamic commercial jurisprudence or fiqh al-mu'āmalāt (Arabic: فقه المعاملات), and also to an ideology that takes a middle ground between the systems of Marxism and capitalism, based on the teachings of Islam.

Islamic commercial jurisprudence entails the rules of transacting finance or other economic activity in a Shari'a compliant manner, i.e., a manner conforming to Islamic scripture (Quran and sunnah). Islamic jurisprudence (fiqh) has traditionally dealt with determining what is required, prohibited, encouraged, discouraged, or just permissible, according to the revealed word of God (Quran) and the religious practices established by the (Islamic) Prophet (sunnah). This applied to issues like property, money, employment, taxes, along with everything else. The social science of economics, on the other hand, studied how to best achieve certain policy goals, such as full employment, price stability, economic equity and productivity growth.

In the mid-twentieth century, campaigns began promoting the idea of specifically Islamic patterns of economic thought and behavior. By the 1970s, "Islamic economics" was introduced as an academic discipline in a number of institutions of higher learning throughout the Muslim world and in the West. The central features of an Islamic economy are often summarized as: (1) the "behavioral norms and moral foundations" derived from the Quran and Sunnah; (2) collection of Zakat and other Islamic taxes, (3) prohibition of interest (riba) charged on loans.

Advocates of Islamic economics generally describe it as neither socialist nor capitalist, but as a "third way", an ideal mean with none of the drawbacks of the other two systems. Among the claims made for an Islamic economic system by Islamic activists and revivalists are that the gap between the rich and the poor will be reduced and prosperity enhanced by such means as the discouraging of the hoarding of wealth, taxing wealth (through zakat) but not trade, exposing lenders to risk through Profit sharing and venture capital, discouraging of hoarding of food for speculation, and other sinful activities such as unlawful confiscation of land.

Definitions and descriptions

• "that branch of knowledge which helps to realize human well-being through an allocation and distribution of scarce resources that is in conformity with Islamic teachings without unduly curbing individual freedom or creating continued macroeconomic and ecological imbalances." (Umar Chapra)
• "the study of an ... economy which abides by the rules of the Shariah", i.e. an Islamic economy. (A definition used by some, according to M. Anas Zarqa)
• "a discipline that is guided by the Shariah and studies all human societies" (A definition used by others, according to M. Anas Zarqa)
• "restatements of Islamic economic teachings", using "modern economic jargon". (What most of the knowledge content in the body of Islamic economics amounts to according to economist Muhammad Akram Khan)
• an ideology
  • "a revolutionary ideology" to change "the corrupt reality ... into a pure one", and "not a science of political economy" or "an objective analysis of existing reality". (Ayatollah Murtaza Mutahhari)
  • an "ideological construct" developed by 20th century Islamists (by Abul A'la Maududi, Ayatollah Muhammad Baqir al-Sadr, Abolhassan Banisadr, etc.) taking basic prescriptions from sharia (Islamic law), and systematizing and conceptualizing them "to construct a coherent and functional ensemble offering a middle ground between the two systems of the twentieth century, Marxism and capitalism." (Social scientist Olivier Roy)

History

Further information: History of Islamic economics

Fiqh

Traditional Islamic concepts having to do with economics included:

• Zakat—the "charitable taxing of certain assets, such as currency, gold, or harvest, with an eye to allocating these taxes to eight expenditures that are also explicitly defined in the Quran, such as aid to the needy."
• Gharar—"uncertainty". The presence of any element of excessive uncertainty, in a contract is prohibited.
• Riba—"referred to as usury (modern Islamic economists reached consensus that Riba is any kind of interest, rather than just usury)"

Another source lists "general rules" include prohibition of Riba, Gharar, and

• Qimar (gambling) and
• the encouragement of Taa’won (mutual cooperation),
• "the overriding doctrine of fairness in commercial dealings is established."

These concepts, like others in Islamic law, came from

As always in Muslim law, these [economic] concepts are constructed on the basis of isolated prescriptions, anecdotes, examples, words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method."

Sometimes other sources such as al-urf (custom), or al-ijma (consensus of the jurists) were employed.

While Islamic law does distinguish between ibadat (ritual worship such as prayer or fasting) or muamalat (acts involving interaction and exchange among people such as sales and sureties), a number of scholars (Olivier Roy, Timur Kuran, Omar Norman) have noted the recentness of reflecting on economic issues in the Islamic world, and the difference between economics the social science, and Islamic economics, i.e. Islamic law or jurisprudence pertaining to economic issues.

Works of fiqh, (such as The Essential Hanafi Handbook of Fiqh by Qazi Thanaa Ullah) are typically divided into different "books" (The Book of Imaan, The Book of Salaat, Book of Zakaat, The Book of Taqwa, The Book of Hajj) but not a book of economics. Olivier Roy states that as late as the 1960s, Islamic scholar Ayatollah Ruhollah Khomeini in his work of fatawa Tawzih al-masa'il, did not use the term `economics` or `economy`, or combine questions on economic issues in one heading. He approached the subject of economy

"as the classical ulamas do ... the chapter on selling and buying (Kharid o forush) comes after the one on pilgrimage and present 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 in the Traditions.`"

Pre-modern Muslim thought on economics

Classical Muslim scholars did however, make valuable contributions to Islamic thought on issues involving production, consumption, income, wealth, property, taxation, land ownership, etc. are Abu Yusuf (d. 798), Al-Mawardi (d. 1058), Ibn Hazm (d. 1064), Al-Sarakhsi (d. 1090), Al-Tusi (d. 1093), Al-Ghazali (d. 1111), Al-Dimashqi (d. after 1175), Ibn Rushd (d. 1187), Ibn Taymiyyah (d.1328), Ibn al-Ukhuwwah (d. 1329), Ibn al-Qayyim (d. 1350), Al-Shatibi (d. 1388), Ibn Khaldun (d. 1406), Al-Maqrizi (d. 1442), Al-Dawwani (d. 1501), and Shah Waliyullah (d. 1762).

Perhaps the most well-known Islamic scholar who wrote about economics issues was Ibn Khaldun, who has been call "the father of modern economics" by I.M. Oweiss. Ibn Khaldun wrote on what is now called economic and political theory in the introduction, or Muqaddimah (Prolegomena), of his History of the World (Kitab al-Ibar). He discussed what he called asabiyya (social cohesion), which he cited as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic, although there could 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 capital development, and technological developments effects on development. In fact, Ibn Khaldun thought that population growth was directly a function of wealth.

Development of "Islamic Economics"

According to (Timur Kuran), "not until the mid-twentieth century" was there a body of thought that could be called "Islamic economics", that was "recognizable as a coherent or self-contained doctrine". But around 1950 "campaigns launched to identify self-consciously, if not also exclusively, Islamic patterns of economic thought and behavior". Famous 20th Century Muslim nationalist and author Muhammad Iqbal, for example, did not refer to religion in his treatise on economics.

Islamic scholars who considered Islam to be a complete system of life in all its aspects, rather than a spiritual formula believed that it logically followed that Islam defined economic life, unique from and superior to non-Islamic systems. "Islamic economics" "emerged" in the 1940s according to the Encyclopedia of Islam and the Muslim World.

More conservative salafi have shown less interest in socioeconomic issues, asking the question, "the prophet and his companions didn't study `laws` of economics, look for patterns, strive for understanding of what happens in commerce, production, consumption. Why should we?"

1960, 70s

In the 1960s and 1970s, Shi'a thinkers worked to describe Islamic economics' "own answers to contemporary economic problems." Several works were particularly influential:

• Eslam va Malekiyyat (Islam and Property) by Mahmud Taleqani (1951),
• Iqtisaduna (Our Economics) by Mohammad Baqir al-Sadr (1961) and
• Eqtesad-e Towhidi (The Economics of Divine Harmony) by Abolhassan Banisadr (1978)
• Some Interpretations of Property Rights, Capital and Labor from Islamic Perspective by Habibullah Peyman (1979).

Al-Sadr in particular was 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 capitalism and Marxism. This version of Islamic economics, which influenced the Iranian Revolution, called for public ownership of land and of large "industrial enterprises," while private economic activity continued "within reasonable limits." These ideas informed the large public sector and public subsidy policies of the Iranian Revolution.

Sunni cleric Taqiuddin al-Nabhani proposed economic system (Nidham ul-Iqtisad fil Islam (The Economic System of Islam) by Taqiuddin Nabhani (1953)) combined public ownership of large chunks of the economy (utilities, public transport, health care, energy resources such as oil, and unused farm land), with use of the Gold Standard and specific instructions for the gold and silver weights of coins, arguing this would "demolish ... American control and the control of the dollar as an international currency."

In the Sunni world the first international conference on Islamic economics was held at the King Abdulaziz University in Jeddah in 1976. Since then the International Association for Islamic Economics in collaboration with the Islamic Development Bank has held conferences in Islamabad (1983), Kuala Lumpur (1992), Loughborough (2000), Bahrain (2003), Jakarta (2005) and Jeddah (2008), Iqbal (2008). In addition there have been hundreds of seminars, workshops and discussion groups around the world on Islamic economics and finance. In the U.S. a small number of patent applications have been filed for Sharia compliant financial service methods.

Khomeini era

What has been called one of "two versions" of "Islamic economy" existed during the first ten years (1979-1989) of the Islamic Republic of Iran during the life of Supreme Leader (and revolution founder) Ayatollah Ruhollah Khomeini. This was an "Islamist socialist, and state-run": It was "little by little supplanted" by a more liberal economic policy.

Post-socialist trend

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 socialism, Muslim interest shifted away from government ownership and regulation. In Iran, "eqtesad-e Eslami (meaning both Islamic economics and economy) ... once a revolutionary shibboleth, is indubitably absent in all official documents and the media. It disappeared from Iranian political discourse" about 1990. During the era of Zia-ul-Haq, several Islamic economic concepts and practices were introduced into the domestic economy, as part of Zia's Islamisation reforms (see Islamic economics in Pakistan).

In other parts of the Muslim world, however, 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 support investing without interest-bearing debt. Many modern writers have strongly criticized this approach as a means of covering conventional banking with an Islamic facade.

As an academic discipline

Achievements

As of 2008 there were:

• Eight magazines recently started "exclusively devoted to Islamic economics and finance",
• 484 research projects in various universities of ten countries including the US, the UK and Germany.
• 200 Ph.D. dissertations completed at different universities of the world, literature published English, Arabic, Urdu, Bhasa Malaysia, Turkish and other regional languages.
• "Over a thousand unique titles on Islamic economics and finance" in IFP databank
• 1500 conferences (whose proceedings are available in IFP databank)
• One school—the Kulliyyah of Economics and Management Sciences of International Islamic University Malaysia (IIUM) -- has produced over 2000 graduates in 25 years as of 2009.

King Abdulaziz University, Jeddah hosted the first international conference on Islamic economics in 1976. Thereafter the International Association for Islamic Economics in collaboration with the Islamic Development Bank has held conferences in Islamabad (1983), Kuala Lumpur (1992), Loughborough (2000), Bahrain (2003), Jakarta (2005) and Jeddah (2008) Iqbal 2008).

Challenges

Along with these achievements, some Islamic economists have complained of problems in the academic discipline: a shift in interest away from Islamic Economics to Islamic Finance since the 1980s, a shortage of university courses, reading materials that are "either scant or of poor quality", lack of intellectual freedom, "narrow focus" on interest-free banking and zakat without data-based research to substantiate claim made for them—that interest causes economic problems or that zakat solves them.

A number of economists have lamented that while Islamic Finance was originally a "subset" of Islamic Economics, economics and research in pure Islamic economics has been "shifted to the back burner". Funding for research has gone to Islamic Finance despite the lack of "scientific knowledge to back" the claims made for Islamic Finance. Enrollment has subsided in classes and second and third generation Islamic economists are scarce, some institutions have "lost their real direction and some have even been closed". and interest of economists in the field's "grand idea" of providing an alternative to capitalism and socialism has "yielded" to the "needs" of the "industry" of Islamic Finance.

According to economist Rasem Kayed, while a number of universities and institutes of higher learning now offer courses on Islamic economics and finance "most of the courses offered by these institutions pertain to Islamic finance rather than Islamic economics." Surveying Islamic economics and finance courses being offered as of 2008 by 14 universities in Muslim countries, Kayed found 551 courses in conventional economics and finance, and only 12 courses in Islamic economics and finance (only 2% of the total). This "appalling and intolerable ... negligence" was made worse by the curriculum of the courses which failed to debate "the issues" the discipline or give "due thought to ... the future development of Islamic financial industry" but rather attempted "to squeeze as much abstract information" as possible in their courses, according to Kayed.

Another economist (Muhammad Akram Khan) lamented that "the real problem is that despite efforts for developing a separate discipline of Islamic economics, there is not much that can be genuinely called `economics`. Most of Islamic economics consists of theology on economic matters." Another (M.N. Siddiqi) notes Islamic economics has been teaching "conventional economics from an Islamic perspective", rather than Islamic economics.

Despite its start in 1976, Islamic economics has been called still in its infancy, its "curricula frames, course structures, reading materials, and research, "mostly anchored in the mainstream tradition", "lacking sufficiency, depth, coordination and direction," with teaching faculties in many cases ... found short of the needed knowledge, scholarship, and commitment." "Distinct textbooks and teaching materials" required have been found to "neither exist" nor be "easy to create." Despite shortcomings in academic writing—most of the books are "not cohesive" and are "at best no more than extended papers on specific topics"—constructive evaluations are not common and response to what there is even less common. The lack of an Islamic economics textbook "looms large" for Muslim economists and scholars. Despite the holding of a workshop in November 2010 to arrange the writing of a such a textbook, the participation of "a number of eminent Muslim economists", (at the International Institute of Islamic Thought in London) and the appointment of "a noted Muslim economist" to coordinate the production of the textbook, as of 2015 "no standard textbook of Islamic economics was available."

Islamic economic institutes are not known for their intellectual freedom, and according to Muhammad Akram Khan are unlikely to allow criticism of the ideas or policies of their founding leaders or governments. The Centre for Research in Islamic Economics, an organ of the Jeddah University in Saudi Arabia, for example, "cannot allow publication of any work that goes against the orthodox thinking of the influential" Saudi religious leadership. Despite "tall talk about ijtehad", Islamic economists "are shy" about "suggesting innovative ideas" for fear of antagonizing religious clerics.

Use of Islamic terminology not only for distinctive Islamic concepts such as riba, zakat, mudaraba but also for concepts that do not have specific Islamic connotation -- adl for justice, hukuma for government—locking out non-Muslim and even not Arabic speaking readers from the content of Islamic economics and even "giving legitimacy" to "pendantry" in the field.

Islam and economics

According to economist Muhammad Akram Khan the "main plank" of Islamic economics is the "theory of riba", while "another landmark" is zakat, a tax on wealth and income.

According to contemporary writer Salah El-Sheikh, "Islamic economic principles" are grounded upon the ethical teachings within the Qu'rān, while utilizing the Faqīh (Islamic jurisprudence) as supporting material, in what he calls a "FiqhiConomic model". Sharīah's basic tenets involve gharar and (fadl māl bilā 'iwad). Gharar insists all knowledge about a trade or transaction is known before two individuals complete a transaction and (fadl māl bilā 'iwad) warns against unjustified enrichment through trade and business. These tenets were "among the first economic regulations" and their philosophy can be seen today in modern Capitalism. Within Sharīah, El-Sheikh states, Gharar functions as a divine deterrent against asymmetric information and allows trade to prosper. Riba, ensures each transaction is conducted at a fair price, not allowing one party to benefit exceedingly, which shares a parallel philosophy with Karl Marx "Das Kapital": seeking a greater outcome for the community.

Property

According to authors F. Nomani and A. Rahnema, the Qur'an states that God is the sole owner of all matter in the heavens and the earth, but man is God's viceregent on earth and holds God's possessions in trust (amanat). Islamic jurists divide properties into public, state, private categories.

Some Muslims believe that the Shariah provides "specific laws and standards regarding the use and allocation of resources including land, water, animals, minerals, and manpower."

Public property

Scholars F. Nomani and A. Rahnema state that public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) to 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 used by any citizen, as long as that use does not undermine the rights of other citizens, according to Nomani and Rahnema.

Muhammad's saying that "people are partners in three things: water, fire and pastures", led some scholars to believe that the privatization of water and energy is not permissible. Muhammad allowed other types of public property, such as gold mines, to be privatized, in return for tax payments to the Islamic state. The owner of the previously public property that was privatized pays zakat and, according to Shi'ite scholars, khums as well. In general, the privatization and nationalization of public property is subject to debate amongst Islamic scholars.

Perhaps due to resource scarcity in most Islamic nations, Islamic economics emphasizes limited (and some claim also sustainable) use of natural capital, i.e. producing land. These latter revive traditions of haram and hima that were prevalent in early Muslim civilization.

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, and 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, Umar (on the recommendation of Ali) considered conquered land to be state rather than private property (as was usual practice). The purported reason for this was that privatizing this property would concentrate resources in the hands of a few, and prevent it from being used for the general good. The property remained under the occupation of the cultivators, but taxes were collected on it for 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 martyr.

Islamic economists classify the acquisition of private property into involuntary, contractual and non-contractual categories. Involuntary means are inheritances, bequests, and gifts. Non-contractual 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'a jurists agree, in cases where the right to private ownership causes harm to others, then Islam favors curtailing the right in those cases. Maliki and Hanbali 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.

When Muhammad migrated to Madinah many of the Muslims owned agricultural land. Muhammad confirmed this ownership and allocated land to individuals. The land allotted would be used for housing, farming or gardening. For example, Bilal b. Harith was given land with mineral deposits at 'Aqiq Valley Hassan b. Thabit was afforded the garden of Bayruha and Zubayr received oasis land at Khaybar and Banu Nadir. During the reign of caliph Umar, a vast expanse of Persian royal family terrain had been acquired, this lead his successor Caliph Uthman to accelerate the allotment of land to individuals in return for a portion of the crop yield.

Markets

According to Nomani and Rahnema, Islam accepts markets as the basic coordinating mechanism of the economic system. Islamic teaching holds that the market, given perfect competition, allows consumers to obtain desired goods and producers to sell their goods at a mutually acceptable price.

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.

Another author (Nima Mersadi Tabari) claims that the general doctrine of fairness in sharia law creates "an ethical economic model" and forbids market manipulation such as "inflating the price of commodities by creating artificial shortages (Ihtekar), overbidding for the sole purpose of driving the prices up (Najash) and concealment of vital information in a transaction from the other party (Ghish)".

Further, "uninformed speculation" not based on a proper analysis of available information is forbidden because it is a form of Qimar, or gambling, and results in accumulating Maysir (unearned income). Commercial contracting under conditions of "excessive uncertainty" (however that is defined) is a form of Gharar and so also forbidden.

Interference

Nomani and Rahnema also contend that Islam promotes a market free from interference such as price fixing, hoarding and bribery. Government intervention, however, is tolerated under specific circumstances.

Another author (Nima Mersadi Tabari) states that in Islam "everything is Halal (allowed) unless it has been declared Haram (forbidden)", consequently "the Islamic economic model is based on the freedom of trade and freedom of contract so far as the limits of Shari’ah allow".

Nomani and Rahnema say that Islam prohibits price fixing by a dominating handful of buyers or sellers. During the days of Muhammad, a small group of merchants met agricultural producers outside the city and bought the entire crop, thereby gaining a 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.

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 transactions.

Bribery is also forbidden in Islam and can therefore not be used to secure a deal or gain favor in a transaction, it was narrated that Muhammad cursed the one who offers the bribe, the one who receives it, and the one who arranges it.

Nomani and Rahnema say government interference in the market is justified in exceptional circumstances, such as the protection of public interest. Under normal circumstances, governmental 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 with their activities and benefit mutually."

Banking and finance

Main article: Islamic banking

Interest

The Quran (3: 130) clearly condemns riba (which is usually translated as "interest"): "O, you who believe! Devour not riba, doubled and redoubled, and be careful of Allah; but fear Allah that you may be successful."

Public finance (Bayt-al-Mal)

The concept of a collective or shared bank played a historic role in the Islamic economy. The idea of state collected wealth being made available to the needy general public was relatively new. The resources in the Bayt-al-Mal were considered God's resources and a trust, money paid into the shared bank was common property of all the Muslims and the ruler was just the trustee.

The shared bank was treated as a financial institution and therefore subjected to the same prohibitions regarding interest. Caliph Umar spoke on the shared bank saying: "I did not find the betterment of this wealth except in three ways: (i) it is received by right, (ii) it is given by right, and (iii) it is stopped from wrong. As regards my own position vis-a-vis this wealth of yours; it is like that of a guardian of an orphan. If I am well-off, I shall leave it, but if I am hard-pressed I shall take from it as is genuinely permissible."

Debt arrangements

Most Islamic economic institutions advise participatory arrangements between 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.

Savings and investment

An alternative Islamic savings-investment model can be built around venture capital; investment banks; restructured corporations; and restructured stock market. This model looks at removing the interest-based banking and in replacing market inefficiencies such as subsidization of loans over profit-sharing investments due to double taxation and restrictions on investment in private equity.

Money changers

Due to religious sanctions against debt, Tamil Muslims have historically been money changers (not money lenders) throughout South and South East Asia.

Hybrids

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. Hybrid approaches, which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern human development theory.

Popularity and availability

Main article: History of Islamic economics

Today many financial institutions, even in the Western world, that offer financial services and products in accordance with Islamic finance. For example, Chancellor Gordon Brown in 2003 introduced legal changes that enabled British banks and building societies to offer so-called Muslim mortgages for house purchase.

In 2001, the US's first Sharia-compliant home financing institution, Guidance Residential, was launched based on the concept of diminishing musharaka, growing to the largest Islamic home financing company in the US. . In 2004 the UK's first standalone Sharia-compliant bank was launched, the Islamic Bank of Britain. In 2006, the Bank of London and the Middle East (BLME) was founded, and as of July 2013 is the largest Islamic bank in Europe. Several banks offer products and services to UK customers that adopt the Islamic financial principles; such as Mudaraba, Murabaha, Musharaka and Qard.

The Islamic finance sector was worth 300–500 billion dollars (237 and 394 billion euros) as of September 2006, compared with 200 billion dollars in 2004. Islamic retail banks and investment funds number in the hundreds and many Western financial institutions offer compliant products, including Citigroup, Deutsche Bank, HSBC, Lloyds TSB and UBS. In 2008, at least $500 billion in assets around the world were managed in accordance with Islamic law and the sector was growing at more than 10% per year.

Views

Sohrab Behada's study argued that the economic system proposed by Islam is essentially a capitalist one.

In Shia Islam, scholars including Mahmoud Taleghani and Mohammad Baqir al-Sadr developed an "Islamic economics" emphasizing the uplifting of the deprived masses, a major role for the state in matters such as circulation and equitable distribution of wealth, and a reward to participants in the marketplace for being exposed to risk or liability.

Criticism

Islamic economics has been attacked for its alleged "incoherence, incompleteness, impracticality, and irrelevance;" driven by "cultural identity" rather than problem solving. 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 ulema 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 capitalist nor socialist.

Detractors allege it is little more than a mimicry of conventional economics embellished with verses of the Quran and sunnah, that its prescriptions are an "invented tradition" that has "been spared critical scrutiny out of ignorance, misguided tolerance", and because they are considered "too unrealistic to threaten prevailing economic structures". In an evaluation of goals of Islamic economics—abolishing interest on money, achieving economic equality, and establishing a superior business ethic—academic Timur Kuran finds it unsuccessful on each count.

While Muslims believe Islamic law is perfect by virtue of its being revealed by God, Islamic law on economic issues was/is not (and not intended to be) "economics" in the sense of a systematic study of production, distribution, and consumption of goods and services. An example of the traditionalist ulama 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.

Muhammad Akram Khan notes that many universities in Muslim countries offer courses on conventional economics and finance but very little on Islamic economics and finance. He quotes an Islamist writer (Rasem N. Kayed) outraged by this "negligence" but notes that

"the real problem is that despite efforts for developing a separate discipline of Islamic economics, there is not much that can be genuinely called `economics`. Most of Islamic economics consists of theology on economic matters."

Criticizing the importance of the approval by Islamic scholars for Islamic banking transactions (or "fatwa shopping"), journalist John Foster, quotes an "investment banker based in Dubai" as saying,

"We create the same type of products that we do for the conventional markets. We then phone up a Sharia scholar for a Fatwa [seal of approval, confirming the product is Shari'ah compliant]. If he doesn't give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance. Then we are free to distribute the product as Islamic."

Foster explains that the fee for services provided by "top" scholars is "often" in six-figures, i.e. over US$100,000.

On the issue of zakat, Khan complains that "the insistence of Muslim scholars in implementing it in the same form in which it was in vogue in the days of the Prophet and first first four caliphs ... has made it irrelevant to the needs of a contemporary society."

See also

• Islamic economics in Pakistan
• Islamic philosophy
• Economy of the OIC
• Law and economics

People

• Muhammad Taqi Usmani
• Nathif Jama Adam

References

• Addas, Waleed (2008). Methodology of Economics: Secular versus Islamic. IIUM. ISBN 978-983-3855-28-5. {{cite book}}: Invalid |ref=harv (help)
• Al-Amine, Muhammad al-Bashir Muhammad (2008). Risk Management in Islamic Finance: An Analysis of Derivatives Instruments in Commodity Markets. Leiden: Brill. ISBN 978-90-04-15246-5. {{cite book}}: Invalid |ref=harv (help)
• Bakhash, Shaul (1984). The Reign of the Ayatollahs. Basic Books. {{cite book}}: Invalid |ref=harv (help)
• Behdad, Sohrab; Nomani, Farhad, eds. (2006). Islam and the Everyday World: Public Policy Dilemmas. Routledge. ISBN 0-415-36823-5. {{cite book}}: Invalid |ref=harv (help)
• Chapra, M. Umar. Islam and the Economic Challenge. Leicester, UK: Islamic Foundation. {{cite book}}: Invalid |ref=harv (help)
• El-Gamal, Mahmoud, 2009. "Islamic finance," The New Palgrave Dictionary of Economics, Online Edition. Abstract.
• Khan, Muhammad Akram (2013). What Is Wrong with Islamic Economics?: Analysing the Present State and Future Agenda. Edward Elgar Publishing. Retrieved 26 March 2015.
• Koehler, Benedikt (2014). Early Islam and the Birth of Capitalism. Lexington Books. {{cite book}}: Invalid |ref=harv (help)
• Halliday, Fred (2005). 100 Myths about the Middle East. Saqi Books. {{cite book}}: Invalid |ref=harv (help)
• Khan, Muhammad Akram (2013). What Is Wrong with Islamic Economics?: Analysing the Present State and Future Agenda. Edward Elgar Publishing. Retrieved 26 March 2015.
• Kuran, Timur (1997). "The Genesis of Islamic Economics: A Chapter in the Politics of Muslim Identity," Social Research, 64(2), p pp. 301–338.
• _____ (2008). "Islamic economic institutions," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
• Mirakhor, Abbas. Theoretical Studies in Islamic Banking and Finance. Islamic Publications International. {{cite book}}: Invalid |ref=harv (help)
• Naqi, Syed Nawab Haider. Ethics and Economics: An Islamic Synthesis. Leicester, UK: Islamic Foundation. {{cite book}}: Invalid |ref=harv (help)
• Nomani, Farhad; Rahnema, Ali. (1994). Islamic Economic Systems. New Jersey: Zed books limited. pp. 7–9. ISBN 1-85649-058-0. {{cite book}}: Invalid |ref=harv (help)
• Presley, John R., and John G. Sessions (1994). "Islamic Economics: The Emergence of a New Paradigm," Economic Journal, 104(424), [pp. 584–596.
• Roy, Olivier (1994). The Failure of Political Islam. Harvard University Press. pp. 132–47. {{cite book}}: Invalid |ref=harv (help)
• Siddiqui, Muhammad Nejatullah. Muslim Economic Thinking. Leicester, UK: Islamic Foundation. {{cite book}}: Invalid |ref=harv (help)
• Venardos, Angelo M. Islamic Banking & Finance in South-East Asia: Its Development & Future. Singapore: World Scientific Publishing. {{cite book}}: Invalid |ref=harv (help)
• Weiss, Dieter (1995). Ibn Khaldun on Economic Transformation. Vol. 27. {{cite book}}: |journal= ignored (help); Invalid |ref=harv (help)

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

External links

• Economic Insaf, An Islamic Economics Framework from GrandeStrategy.
• Putting Faith into Finance, HSBC article on Islamic finance.
• Shamshad Akhtar et al., "Understanding Islamic Finance: Local Innovation and Global Integration", Asia Policy, July 2008.
• Mohammad Omar Farooq, Riba, Interest and Six Hadiths: Do We Have a Definition or a Conundrum?
• Mahmoud el-Gamal, "An Economic Explanation of the Prohibition of Riba in Classical Islamic Jurisprudence", Rice University, Houston, Texas.
• Methodology of Economics: Secular versus Islamic
• Islamic Economics booklist