In the second installment of a two-part article, Dr. Ahmed A. El-Ashker, professor of finance at the Prince of Songkla University, Thailand, investigates some aspects of Islamic economic theory
Parity and disparity with western theory
Western economic concepts may come near to the outcomes of the above analysis or may deviate, as expected, from it. But this should be regarded as ex-post outcomes and as such are not to pre-dictate a methodology or a direction of thinking on Muslim economists when reaching conceptual judgment, originating economic policies or devising practical resolutions.
As an example of the differences between the Islamic and western economic way of thinking, the deeply rooted economic concept of 'maximization' that is widely used in western economics marginal analysis is alien to Islam. This is by the force of the Islamic principle of moderation, I'tidal. 'Enlargement' may in this case be the replacement to 'maximization' when marginal analysis is used in Islamic economics. While maximization is alien to Islamic economic philosophy, enlargement is not.
Another example is the economic concept of scarcity. Scarcity is a well established western economic concept that has crucial implications for economic analysis particularly in the context of the definition of economic goods and identification of value determinants. The concept has been borrowed, or islamicized, by Muslim economists in the belief that there is no clear Islamic equivalent. This may not have to be the case. The Koranic verses 20:117 to 119 provide a perfect Islamic economic replacement when they outline the concept of economic 'suffering' in pursuit of worldly needs in contrast to life in Paradise.
The concepts of 'stake-holdings', hence 'stake-holders', as opposed to 'share-holdings' and 'share-holders', 'Hisbah' in parallel to modern 'governance', 'Zimam' registry in line with our modern Central Audit Office, are more of many examples. What is interesting is that some of these concepts and ideas have been with us in the prime source of Islam and in the secondary source of jurisprudence for many centuries, well before these concepts were further analyzed, modified and/or introduced by western scholars in modern time.
Benefits of rethinking
The importance of the need to rethink Islamic economics is not only confined to its purely academic value but it also goes beyond that to reach for its real practical effect. To put it another way, the need for an identifiable Islamic theory of economics is twofold: First, there is the need for its acceptability to the Muslim masses, as the primary users of the theory, in perceiving it as a real alternative to what has been portrayed to them as an inappropriate corrupt western economic model, and second, there is the need for its applicability to the requirements of the performing business, banking and financial institutions as a workable model and a viable alternative. A sound theory can serve both needs and help the very survival of Islamic economics with the incorporated institutions in business, banking and finance. The future survival of these institutions will depend on various factors, the following are most obvious: (a) loyal clientele based on the strong belief of the customer that the service is what the service provider says it is; this loyalty is reinforced by the degree of the customer's adherence to Islamic norms and ideals in shaping his business or economic conduct, Mu'amalat, and in his belief in the effect of that conduct on his welfare in this life and divine reward, Thawab, in the hereafter; (c) the success of the Islamic banking model as a demonstrably viable alternative; (d) the success of other Islamic businesses in the complementary industry, in addition to; (e) the favourable local and regional political environment through the encouragement of governments or ruling authorities, or, at least, the lack of hostility of governmental institutions towards the Islamic economics and business ideology. One more factor may be added giving the present international political climate towards Islam in general, the abating of extremism in the politics of some Islamic quarters and the attempt by the major political powers to understand the aspiration and the real needs of Muslims in shaping their international politics. All, and perhaps more, are important drivers for the continuity of Islamic economics in the future. But a sound Islamic theory to Islamic economics, business and finance, though is one factor, is crucially important to the continuity, let alone growth, of the Islamic business sector. It addresses the fundamental belief of the individual, as a major player, in the proclaimed business system.
The stand of Muslim jurists, Ulama'
In business and economics, innovation is inevitable. But for Islamic innovation to be permissible it should be in conformity to the divine code with no violation of its primary sources, the Koran and Sunnah. This also applies to the spirit of the law as embodied in the statutory code of Islam, in case of absence of a clear cut ruling, and the spirit of Islam itself as a religion of well-rooted values and ideals. With the faithful adherence to the primary sources, the Koran and Sunnah, Muslims jurists, Ulama', should feel free to innovate new ideas, and renovate existing ones, as the contemporary needs might be. On the business and economic side of Islam, Mu'amalat, innovation is sometimes necessary and renovation may be inevitable if Islam is to meet the contemporary needs of the modern business environment and if it is not to be projecting, or accused of projecting stagnation. Muslims should feel free to deviate from a business and economic religious opinion of a jurist of the past if they feel that a deviation is imperative to meet new economic conditions that did not prevail then. Qualified contemporary jurists, Ulama', should be assigned the task of reaching for a new ruling that while serving the new business and economic environment is still in compliance with the above three basic conditions: the Koran and Sunnah, the spirit of the law and the spirit of the religion, in a strictly descending priority. It follows that an opinion of an Islamic medieval jurist, Imam, that was based on, and meant to serve the purposes of, the business and economic circumstances prevailing then, does not have to be let to shape the set-up of our present mode of business, now and for generations to come. With the guidance of the well qualified enlightened jurists of today, Muslims should feel that they can 'own' the jurisprudence, as Muslims before them did, and may be adding to it and modifying some of its outdated 'opinions' as the contemporary needs may require, all within the strict compliance to the prime sources of Islam, the Koran and Sunnah, with no direct or indirect violation.
Summary and conclusion
To help increase the chances of continuity of Islamic economics and financial institutions in the years to come, there may be a need for further studies in three main areas. These are: rethinking the Islamic economic theory; investigating the economic practice of Muslims in Muslim and non-Muslim countries; and rethinking Islamic banking and finance. Though the first area may seem predominantly academic it can, still, help the practical application by enriching the thoughts of those in charge of policy making and implementation in providing them with hindsight into potential problems and perceived solutions. The second area is mandatory if we are to learn more about the forces that shape the customer's choice and the drivers of his purchasing behaviour. The third is a pre-requisite for the potential success of Islamic banking and finance. It will help Islamic banks and financial institutions formulate their visions and missions in the years to come.
The stand of Muslim jurists, Ulama', is crucially important in the following stage. They should feel that they could move away from the prevailing rulings of the four well established schools of thought if need be, be guided, mainly, or solely, by the prime source of Islam: the Koran and Sunnah. And God knows best. While this article has been concerned with rethinking of Islamic economics, there might be a further need in the future for a focus on rethinking Islamic banking and finance.
© Banker Middle East 2006
