An Ideal Islamic Economic System: A Gone Case

Shaikh, Salman (2010): An Ideal Islamic Economic System: A Gone Case. Forthcoming in: Business Islamica , Vol. 1, No. 1 (1 January 2011)

Abstract

Islamic finance industry mostly uses LIBOR linked financial contracts which are akin to debt financing than the more preferable participatory modes of Mudarabah and Musharakah. As per the current orthodox understanding and practice of Islamic finance, the often cited preferable modes like Mudarabah and Musharakah are incapable even in a simple model economy with them as the only mode of financing. Hence, they are rarely used. The prevalent Islamic products which are linked with LIBOR are and will predominantly be used and practiced Islamic finance may remain incapable of providing egalitarian benefits it once promised. Ironically, Islamic values like justice, equality, truth, trust, kindness, honesty and responsibility are often discussed in literature and seminars on Islamic Economics; whereas, in reality, the lack of these values in practice is the major reason why preferable participatory modes remain unusable! As discussed, the current orthodox understanding of Islamic fiscal redistribution mechanisms like Zakat and Inheritance also make them incapable of contributing towards the establishment of an egalitarian economic framework. This paper proposes an alternate approach to practiced Islamic finance and orthodox understanding of Zakat and inheritance laws and shows that the alternate approach could still be sufficient to contribute towards egalitarian objectives effectively.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic Finance, Islamic Economics, Welfare Economics, Experimental Economics, Heterodox Economics, Zakat, Fiscal Redistribution
• Subjects: A - General Economics and Teaching > A1 - General Economics; H - Public Economics > H2 - Taxation, Subsidies, and Revenue; G - Financial Economics > G0 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches

References

El-Gamal, Mahmoud A. Islamic Finance: Law, Economics & Practice. Cambridge: United Kingdom.

Foster, John (2009). “How Shariah Compliant is Islamic Banking?”. BBC News. December 11, 2009.

Herwany, Aldrin, A Value at Risk Analysis on the Performance of Sukuk and Conventional Bonds: The Case of ASEAN Markets (August 16, 2010). Available at SSRN: http://ssrn.com/abstract=1659799

Jobst, Andreas A., Kunzel, Peter, Mills, Paul S. and Sy, Amadou N. R., Islamic Bond Issuance - What Sovereign Debt Managers Need to Know (July 1, 2008). International Journal of Islamic and Middle Eastern Finance and Management, Vol. 1, No. 4, pp. 330-344, 2008; Islamic Law and Law of the Muslim World Paper No. 09-63.

Osservatore. Vatican. (March 04, 2009). “Islamic Banking May Help Overcome Crisis”. Press Release.

Saleem, Shehzad (1992). “Islamic Concept of Taxation”. Renaissance. Vol 02, Issue 10.

Shaikh, Salman (2010). “Proposal for a New Economic Framework Based on Islamic Principles”. Karachi: Islamic Economics Project.

Usmani, Dr. Imran A. (2007). “Ghair Soodi Bainkari” [Interest Free Banking]. Karachi: Maktaba Ma’ariful Quran.

Usmani, Muhammad Taqi (2003). “Islam Aur Jadid Maeeshat-o-Tijaraht” [Islam and Contemporary Economy and Trade] . Karachi: Maktaba ma’ariful Quran.