Islamic economic jurisprudence 177778 225303098 2008-07-12T23:59:45Z 67.170.33.167 [[WP:UNDO|Undid]] revision 225089355 by [[Special:Contributions/LadyofHats|LadyofHats]] ([[User talk:LadyofHats|talk]]) ("led" is the correct past tense spelling of the verb "lead.") {{Fiqh-Eco}} {{POV|date=May 2008}} :''This is a sub-article of [[fiqh]] and [[Law and economics]]. '''Islamic economics''' is [[economics]] in accordance with [[Sharia|Islamic law]]. 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 Mahmud Taleqani, and [[Mohammad Baqir al-Sadr]], seeks not only to enforce Islamic regulations on issues such as [[Zakat]], [[Jizya]], [[Nisab]], [[Khums]], [[Riba]], [[insurance]] and [[inheritance]], 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 [[Socialism|Socialist]] nor [[Capitalism|Capitalist]], but a third way with none of the drawbacks of the other two systems.<ref>[http://www.allacademic.com/meta/p108508_index.html Islam and Economic Justice: A 'Third Way' Between Capitalism and Socialism?]</ref><ref>[http://gemsofislamism.tripod.com/muhammad_qutb_islam.html#welfare How Do We Know Islam Will Solve the Problems of Poverty and Inequality?]</ref> The latter paradigm is of necessity more limited, revolving around a few main tenets of Islam: the payment of [[zakat]] charity by believers, borrowing and lending without payment of fixed [[interest]] ([[riba]]), and socially responsible [[investing]]. The key difference from a [[finance|financial]] perspective is the no-interest rule since most other religions favor charitable giving and socially responsible investing. The belief that the prohibition of investment with interest charges is essential for an Islamic society is widespread, though [[liberal movements within Islam]] may deny the need for this prohibition, since they see Islam as generally compatible with modern secular institutions and law. ==History== {{main|Islamic economics in the world}} Traditional Islamic concepts having to do with economics included *''[[zakat]]'' - 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]]'' - "referred to as usury" <ref>Roy, ''The Failure of Political Islam'' Harvard University Press, 1994, p.132</ref> 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." <ref>Roy, ''The Failure of Political Islam'' Harvard University Press, 1994, p.132</ref> Sometimes other sources such as [[al-urf]], (the custom), al-aql ([[reason]]) or al-[[ijma]] (consensus of the jurists) were employed.<ref>Schirazi, Asghar, ''Constitution of Iran,'' (1997), p.170</ref> In addition, Islamic law has developed areas of law that correspond to secular laws of [[contracts]] and [[torts]]. ===Early reforms under Islam=== {{main|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 [[zakat]] (charity) and discouraging [[riba]] ([[usury]]/[[interest]]) 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.<ref>Michael Bonner, "Poverty and Economics in the Qur’an", ''Journal of Interdisciplinary History'', xxxv:3 (Winter, 2005), 391–406</ref> ===Capitalist market economy=== {{main|Islamic economics in the world}} The origins of [[capitalism]] and [[free market]]s can be traced back to the [[Islamic Golden Age]] and [[Muslim Agricultural Revolution]],<ref>''The Cambridge economic history of Europe'', p. 437. [[Cambridge University Press]], ISBN 0521087090.</ref> where the first [[market economy]] and earliest forms of [[merchant capitalism]] took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".<ref>Subhi Y. Labib (1969), "Capitalism in Medieval Islam", ''The Journal of Economic History'' '''29''' (1), pp. 79–96 [81, 83, 85, 90, 93, 96].</ref> A vigorous [[monetary economy]] was created on the basis of the expanding levels of [[List of circulating currencies|circulation]] of a stable high-value [[currency]] (the [[dinar]]) and the integration of [[monetary]] areas that were previously independent. Innovative new [[business]] techniques and forms of [[business organisation]] were introduced by [[economist]]s, [[merchant]]s and traders during this time. Such innovations included the earliest [[Trading company|trading companies]], [[big business]]es, [[contract]]s, [[bills of exchange]], long-distance [[international trade]], the first forms of [[partnership]] (''mufawada'') such as [[limited partnership]]s (''mudaraba''), and the earliest forms of [[Credit (finance)|credit]], [[debt]], [[profit]], [[loss]], [[Capital (economics)|capital]] (''al-mal''), [[capital accumulation]] (''nama al-mal''),<ref name=Banaji/> [[circulating capital]], [[capital expenditure]], [[revenue]], [[cheque]]s, [[promissory note]]s,<ref>Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), ''Medieval Trade in the Mediterranean World: Illustrative Documents'', [[Columbia University Press]], ISBN 0231123574.</ref> [[trusts]] (see ''[[Waqf]]''), [[startup companies]],<ref>Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", ''American Journal of Comparative Law'' '''53''', pp. 785–834 [798–9].</ref> [[savings account]]s, [[transactional account]]s, [[pawn]]ing, [[loan]]ing, [[exchange rate]]s, [[bank]]ers, [[money changer]]s, [[ledger]]s, [[deposit]]s, [[Assignment (law)|assignments]], the [[double-entry bookkeeping system]],<ref>Subhi Y. Labib (1969), "Capitalism in Medieval Islam", ''The Journal of Economic History'' '''29''' (1), pp. 79–96 [92–3].</ref> and [[lawsuit]]s.<ref>Ray Spier (2002), "The history of the peer-review process", ''Trends in Biotechnology'' '''20''' (8), p. 357-358 [357].</ref> [[Organization]]al [[enterprise]]s similar to [[corporation]]s independent from the [[state]] also existed in the medieval Islamic world, while the [[Agency (law)|agency]] institution was also introduced.<ref>Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", ''Comparative Studies in Society and History'' '''41''', pp. 263–93. [[Cambridge University Press]].</ref><ref>Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", ''MERIP Reports'' '''68''', pp. 3–14 [8, 13].</ref> Many of these early capitalist concepts were adopted and further advanced in [[medieval Europe]] from the 13th century onwards.<ref name=Banaji>Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", ''[[Historical Materialism (journal)|Historical Materialism]]'' '''15''' (1), pp. 47–74, [[Brill Publishers]].</ref> The systems of [[contract]] relied upon by [[merchant]]s was very effective. Merchants would buy and sell on [[Commission (remuneration)|commission]], with money [[loan]]ed to them by wealthy [[investor]]s, or a joint [[investment]] of several merchants, who were often Muslim, Christian and Jewish. Recently, a collection of documents was found in an [[Egypt]]ian [[synagogue]] shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business [[partnership]]s would be made for many [[Joint venture|commercial ventures]], and bonds of [[kinship]] enabled trade [[network]]s to form over huge distances. Networks developed during this time enabled a world in which [[money]] could be promised by a [[bank]] in [[Baghdad]] and cashed in [[Spain]], creating the [[cheque]] system of today.{{Fact|date=May 2008}} Each time items passed through the cities along this extraordinary network, the city imposed a [[tax]], resulting in high prices once reaching the final destination. These innovations made by Muslims and Jews laid the foundations for the modern [[economic system]]. ===Classical Muslim economic thought=== [[Image:Ibn Khaldoun.jpg|thumb|150px|Statue of Ibn Khaldoun in [[Tunis]] ]] {{main|Islamic economics in the world}} To some degree, the early Muslims based their [[Economics|economic]] analyses on the [[Qu'ran]] (such as opposition to ''[[riba]]'', meaning [[usury]] or [[interest]]), and from [[sunnah]], the sayings and doings of [[Muhammad]]. Perhaps the most well known Islamic scholar who wrote about economics was Ibn Khaldun ([[1332]]&ndash;[[1406]]),<ref>Schumpeter (1954) p 136 mentions his his sociology, others, including Hosseini (2003) emphasize him as well</ref> who is considered a father of modern economics.<ref>I. M. Oweiss (1988), "Ibn Khaldun, the Father of Economics", ''Arab Civilization: Challenges and Responses'', [[New York University Press]], ISBN 0887066984.</ref><ref>Jean David C. Boulakia (1971), "Ibn Khaldun: A Fourteenth-Century Economist", ''The Journal of Political Economy'' '''79''' (5): 1105-1118.</ref> Ibn Khaldun wrote on economic and political theory in the introduction, or ''[[Muqaddimah]]'' (''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.<ref>Weiss (1995) p29-30</ref> 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.<ref>Weiss (1995) p31 quotes Muqaddimah 2:276-278</ref> He also noted macroeconomic forces of population growth, [[human capital]] development, and technological developments effects on development.<ref>Weiss (1995), p. 31, quotes ''Muqaddimah'' 2: 272-273</ref> In fact, Ibn Khaldun thought that population growth was directly a function of wealth.<ref>Weiss (1995), p. 33</ref> Other important early Muslim scholars who wrote about economics include [[Abu Hanifah]], [[Abu Yusuf]] (731-798), Ishaq bin Ali al-Rahwi (854–931), [[al-Farabi]] (873–950), [[Shams al-Mo'ali Abol-hasan Ghaboos ibn Wushmgir|Qabus]] (d. 1012), [[Avicenna|Ibn Sina]] (Avicenna) (980–1037), [[Ibn Miskawayh]] (b. 1030), [[al-Ghazali]] (1058–1111), [[al-Mawardi]] (1075–1158), [[Nasīr al-Dīn al-Tūsī]] (1201-1274), [[Ibn Taimiyah]] (1263–1328) and [[al-Maqrizi]]. ===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", <ref>[http://www.islam101.com/economy/economicLife.htm The Economic Life of Islam]</ref> these writers believed that it should logically follow that Islam also had its own economic system unique from and superior to non-Islamic systems. <ref>Michael Bonner, "Poverty and Economics in the Qur’an", ''Journal of Interdisciplinary History'', xxxv:3 (Winter, 2005), 391–406</ref> 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]]'' (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).<ref>Bakhash, Shaul, ''The Reign of the Ayatollahs'', Basic Books, c1984, p.167-8</ref> <ref>[http://www.international.ucla.edu/cms/files/behdadtxt.pdf Revolutionary Surge and Quiet Demise of Islamic Economics in Iran]</ref> Al-Sadr in particular has been described as having "almost single-handedly developed the notion of Islamic economics" <ref>[http://www.meforum.org/article/825 The Renewal of Islamic Law]</ref> 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." <ref>Bakhash, Shaul, ''The Reign of the Ayatollahs'', Basic Books, c1984, p.172-3</ref> These ideas helped shape the large public sector and public subsidy policies of the [[Iranian Revolution|Iranian Islamic revolution]]. In the [[1980]]s and [[1990]]s, as the [[History of the Islamic Republic of Iran#Iran's economy and human development|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, 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]." <ref>[http://www.international.ucla.edu/cms/files/behdadtxt.pdf Revolutionary Surge and Quiet Demise of Islamic Economics in Iran]</ref> 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|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. ===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 "[[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. As [[Olivier Roy]] 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.`" <ref>Roy, ''The Failure of Political Islam'' Harvard University Press, 1994, p.133</ref> ==Property== The Qur'an states that God is the sole owner of all matter in the heavens and the earth.<ref>Nomani and Rahnema quote {{cite quran|2|107|style=ref}}, {{cite quran|2|255|style=ref}}, {{cite quran|2|284|style=ref}}, {{cite quran|5|120|style=ref}}, {{cite quran|48|14|style=ref}}</ref> Man, however, is God's viceregent on earth and holds God's possessions in trust (''amanat''). Islamic jurists have divided properties into three categories:<ref name =NomaniP1>Nomani and Rahnema (1994), p. 66-70</ref> *Public property *State property *Private property ===Public property=== Public property in Islam refers to natural resources ([[forest]]s, [[pasture]]s, uncultivated land, [[water]], [[Mining|mines]], [[Ocean#Economy|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.<ref name =NomaniP1/> 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 [[water]], [[energy]] and [[agricultural land]] 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 [[zakat]] and, according Shiite scholars, [[khums]] as well. In general the [[privatization]] and [[nationalization]] of public property is subject to debate amongst Islamic scholars. Public property thus, eventually, becomes state or private property.<ref name =NomaniP1/> ===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.<ref name =NomaniP1/> 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 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.<ref name =NomaniP1/> 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.<ref name =NomaniP1/> ===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 [[shaheed|martyr]].<ref name =NomaniP2>Nomani and Rahnema (1994), p. 71-77</ref> 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.<ref name =NomaniP2/> 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. [[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.<ref name =NomaniP2/> ==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.<ref name =NomaniM1>Nomani and Rahnema (1994), p. 55-58</ref> The three necessary conditions for an operational markets are said to be upheld in Islamic primary sources:<ref name =NomaniM1/> *Freedom of exchange: the Qur'an calls on believers to engage in trade, and rejects the contention that trade is forbidden.<ref>Nomani and Rahnema cite {{cite quran|4|29|style=ref}}, {{cite quran|2|275|style=ref}} and {{cite quran|2|279|style=ref}}</ref> *Private ownership (see [[Islamic_economics#Private_property|above]]). *Security of contract: the Qur'an calls for the fulfillment and observation of contracts.<ref>Nomani and Rahnema cite {{cite quran|5|1|style=ref}}, {{cite quran|16|91|style=ref}}, {{cite quran|23|8|style=ref}}, {{cite quran|17|34|style=ref}} and {{cite quran|70|32|style=ref}}</ref> The longest verse of the Qur'an deals with commercial contracts involving immediate and future payments.<ref>Nomani and Rahnema cite {{cite quran|2|282|style=ref}}.</ref> ===Interference=== Islam promotes a market free from interferences such as [[price fixing]] and [[hoarding]]. Government intervention, however, is tolerated under specific circumstances.<ref name =NomaniM1/> 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 [[Muhammad]], a small group of merchants used 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.<ref name =NomaniM1/> 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.<ref>Nomani and Rahnema cite {{cite quran|55|9|style=ref}}, {{cite quran|26|181|end=183|style=ref}}, {{cite quran|11|84|end=85|style=ref}}. They also point out that a chapter is devoted to such fraudulent practices: {{cite quran|83|1|end=3|style=ref}}</ref><ref name =NomaniM1/> 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."<ref name =NomaniM1/> ==Banking== {{main|Islamic banking}} ===Interest=== {{see|Riba}} {{Refimprove|section|date=January 2008}} Islamic economic institutions, not just the Islamic bank but all those connected with Islamic banking operates on the basis of "zero interest." Critics of Islamic economics argue, however, that the fundamental characteristic of charging interest (i.e. charging a premium, on the principal amount of a loan, for the time value of the loaned money) is not truly eliminated in Islamic banking, but rather the interest is merely hidden and relabeled. For example, consider the practical reality of purchasing a vehicle from an Islamic bank under an allegedly "zero interest" loan. The procedure, generally, is that the client tells the Islamic bank which vehicle he or she would like to own. The Islamic bank then purchases that vehicle in its name, and sells it to the client at a marked-up price, under an agreement that the new marked-up price of the vehicle must be paid in a certain number of installments of a certain time period. Thus a $20,000 car might cost $35,000 if purchased from an Islamic bank at "zero interest," 5 year loan. Of course, the bank charges the extra $15,000 on top of the $20,000 cost of the car because money has a time value (that is to say, a payment of $20,000 5 years from now is worth less than a payment of $20,000 today). This is also why a $20,000 car could cost $35,000 if the purchase were financed by an interest bearing loan issued by a non-Islamic financial institution. This transaction utilises valid sales transactions called murabaha, but violates Islamic law by the bank usually not taking delivery or connecting two independent contracts or taking of legally enforceable guarantees from the buyer. Usually, [[time value of money]] is compensated to the lender by the lender charging the borrower interest on the principal amount of the loan. Islam prohibits time value of money in itself as producing no value - in conjunction with other value driven agreements the idea is entertained. In the case of Islamic banking, the lost time value is compensated by utilising a sales contract, charging a mark-up on the home or vehicle that the client might be seeking to purchase by way of a loan. The vehicle or mortgage usually remains in the name of the bank, until the principal loan including the mark-up has been paid. In the case of a business loan, instead of charging interest over the time that the principal amount is loaned out, an Islamic bank will demand a certain percentage of the borrower's business profits for an indefinite period of time. So it is the principle of sharing and the bank is a partner who obtains losses as profits. This is because of a law in the Islamic financial theory that you are not allowed to enjoy the profits if you did not take its risk based on the famous tradition, al-kharaj bi damaan - return is determined by exposure to risk/liability. Under a conventional interest based loan it is possible to "call" the loan if the interest rate drops and the borrower finds that he can find cheaper financing (i.e. pays off the entire loan before the end of its term, thus paying less interest). However, there is no way to call a loan issued by an Islamic bank. Thus, while the borrower from an Islamic bank is protected against interest rate increases, the borrower cannot benefit from interest rate drops. In theory, Islamic banking should be synonymous with [[full-reserve banking]], with banks achieving a 100% [[reserve ratio]].<ref>[http://faculty.capebretonu.ca/mchoudhu/money.htm A MONETARY SYSTEM WITH 100-PER CENT RESERVE REQUIREMENT AND THE GOLD STANDARD: THEORY, FACT AND POLICY] [[Cape Breton University]].</ref> ===Debt arrangements=== Most Islamic economic institutions advise participatory arrangements between [[capital (economics)|capital]] and [[labour (economics)|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. ==Natural capital== Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also [[sustainability|sustainable]]) use of [[natural capital]], i.e. producing land. These latter revive traditions of [[haram]] and [[hima]] that were prevalent in [[early Muslim civilization]]. ==Welfare== [[Social welfare]], [[unemployment]], [[public debt]] and [[globalization]] 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 {{vague|date=March 2008}} if they will find niches - although hybrid approaches, e.g. [[Grameen Bank]] which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern [[human development theory]]. ==Islamic stocks== In [[June 2005]] [[Dow Jones Industrial Average|Dow Jones]] Indexes, [[New York]], and [[RHB Securities]], [[Kuala Lumpur]], teamed up to launch a new "Islamic [[Malaysia]] 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== {{Main|Islamic economics in the world}} 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 Brown]] 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 Britain]]. They 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 fund]]s number in their hundreds and many Western financial institutions offer products that comply with [[Sharia law]], including [[Citigroup]], [[Deutsche Bank]], [[HSBC]], [[Lloyds TSB]] and [[UBS]]. [http://uk.biz.yahoo.com/24092006/323/islamic-finance-prospers-backed-non-muslims.html] ==Business Method Patents== With the recent ability to [[patent]] [[business method patent|new methods of doing business]] in the United States, a small number of [[patent application]]s have been filed on methods for providing Sharia compliant financial services. These pending patent applications include: *{{Cite patent|US|US20030233324A1}}'''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. *{{Cite patent|WO|WO06068837A2}} '''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.<ref name = Behada>Sohrab Behada, "Property Rights in Contemporary Islamic Economic Thought, ''Review of Social Economy'', Summer 1989 v.47, (pp.185-211)</ref> ===Criticism=== Its popularity notwithstanding, critics of Islamic economics have not been sparing. It has been attacked for its alleged "incoherence, incompleteness, impracticality, and irrelevance;" <REF>Kuran, "The Economic Impact of Islamic Fundamentalism," in Marty and Appleby ''Fundamentalisms and the State'', U of Chicago Press, 1993, p.302-41</ref> driven by "[[cultural identity]]" rather than [[problem solving]].<ref>"The Discontents of Islamic Economic Mortality" by Timur Kuran, ''American Economic Review'', 1996, p.438-442</ref> 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. <ref>Halliday, Fred, ''100 Myths about the Middle East'', Saqi Books, 2005 p.89</ref> <BLOCKQUOTE>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 [[capitalism|capitalist]] nor [[socialist]].<ref>Halliday, Fred, ''100 Myths about the Middle East'', Saqi Books, 2005 p.89</ref> </BLOCKQUOTE> ==See also== *[[Ibn Khaldun]] *[[Muhammad Taqi Usmani]] *[[Shahid Hasan Siddiqui]] *[[Umar Chapra]] *[[Islamic philosophy]] **[[Early Islamic philosophy]] **[[Modern Islamic philosophy]] *[[Islamization of knowledge]] *[[Islamic democracy]] *[[Green economics]] *[[Economy of the OIC]] *[[Islamic banking]] ==References== {{reflist|2}} ==Bibliography== *[[Muhammad Nijatullah Siddiqui]], ''Muslim Economic Thinking'', (Islamic Foundation, Leicester, UK) *[[Syed Nawab Haider Naqi]], ''Ethics and Economics: An Islamic Synthesis'', (Islamic Foundation, Leicester, UK) *[[Umar Chapra|M. Umar Chapra]], ''Islam and the Economic Challenge'', (Islamic Foundation, Leicester, UK) *[[Angelo M. Venardos]], ''Islamic Banking & Finance in South-East Asia: Its Development & Future'', (World Scientific Publishing, [[Singapore]]) *[[Abbas Mirakhor]], ''Theoretical Studies in Islamic Banking and Finance'', (Islamic Publications International) * [http://www.apvision.com.pk/islamic_banking_finance_economics.html Islamic Banking, Finance & Economics by Maryam Ayaz] *[http://www.halalguide.info/content/blogsection/8/54/ Fatwa Dewan Syariah Nasional - Majelis Ulama Indonesia] Fatwa about many issues in Islamic Economics *[http://www.soundvision.com/Info/money/booklistislamiceconomics.asp Islamic Economics book list] *[http://islamicity.com/finance/IslamicBanking_References.htm Islamic Banking references] *[http://www.gdrc.org/icm/islamic-banking.html Islamic Banking references (GDRC)] *Bakhash, Shaul, ''The Reign of the Ayatollahs'', Basic Books, c1984 *Behdad, Sohrab and Farhad Nomani, eds., ''Islam and the Everyday World: Public Policy Dilemmas'', Routledge, 2006, ISBN 0-415-36823-5 *Halliday, Fred, ''100 Myths about the Middle East'', Saqi Books, 2005 *{{cite book | last = Nomani | first = Farhad | authorlink = | coauthors = Rahnema, Ali. | title = Islamic Economic Systems | publisher = Zed books limited |date=1994 | location =New Jersey | pages = 7-9 | url = | doi = | id = | isbn = 1-85649-058-0}} *Roy, Olivier, ''The Failure of Political Islam'' Harvard University Press, 1994 ==== 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== *[http://www.islamicbankinglaw.com/ Islamic Banking Law] *[http://www.islamicbanking.com Islamic Banking Portal] *[http://www.hsbcnet.com/country/ae/islamic_banking.html Putting Faith into Finance] article on Islamic finance from HSBC perspective * [http://www.apvision.com.pk/islamic_banking_finance_economics.html Islamic Banking, Finance & Economics by Maryam Ayaz] *[http://gifc.blogspot.com Global Islamic Finance & Commerce] *[http://www.globalpro.com.my/ Training in Islamic Finance] *[http://zakatpages.com The Zakat Pages] *[http://www.hazariba.com/ What is Riba?], Exclusive on the subject of Riba (ar-Riba, usury, interest), answering Why Riba was prohibited? and The definition of Riba. *[http://muslim-investor.com Muslim Investor: A community site on Islamic investment, banking, finance and insurance] *[http://globalwebpost.com/farooqm/writings/islamic/riba-hadith.html Riba, Interest and Six Hadiths: Do We Have a Definition or a Conundrum?] by Dr. Mohammad Omar Farooq *[http://www.globalwebpost.com/farooqm/writings/islamic/intro_riba.doc Toward Defining and Understanding Riba] by Dr. Mohammad Omar Farooq *[http://www.dinarstandard.com/finance/CorporateIF071505.htm Corporate Islamic Finance - An Assessment] by Dinar Standard *[http://feeds.feedburner.com/zakatpodcast Zakat and a New Islamic Money System for the 21st Century - Podcast] *[http://globalwebpost.com/farooqm/writings/islamic/riba_interest.html The Riba-Interest Equation and Islam: Reexamination of the Traditional Arguments] by Dr. Mohammad Omar Farooq *[http://islamicfinancenews.wordpress.com The Islamic Finance Blog] *[http://www.thisismoney.co.uk/news/article.html?in_article_id=332585&in_page_id=8 Muslim mortgages in Britain] *[http://www.islamic-finance.com Information on Islamic Finance] *[http://www.janes.com/transport/news/jtf/jtf060829_1_n.shtml Alternative energy for funds] Extract from Jane's Transport Finance about Islamic finance, 29 August 2006 *[http://sukkook.googlepages.com/ Risk Sharing In Islamic Finance] *[http://www.globalpro.com.my/ Training,seminars and information on Islamic banking and finance] *[http://www.uga.edu/islam/islamwest.html#Liberal, Liberal and progressive Islam] from Alan Godlas' Islamic resources page at the University of Georgia *[http://www.ruf.rice.edu/%7Eelgamal/files/riba.pdf Mahmoud el-Gamal, Rice University, Houston, Texas, "An Economic Explanation of the Prohibition of Riba in Classical Islamic Jurisprudence."] *[http://islamicfinanceaffairs.wordpress.com Islamic Finance Affairs - Articles, Answers, and News on Islamic Finance] *[http://indexes.dowjones.com/mdsidx/index.cfm?event=showIslamic Dow Jones Islamic Market indexes] *[http://www.nortonrose.com/knowledge/publications/2007/pub11855.aspx?lang=en-gb Islamic finance structures] *[http://www.shariah-fortune.com Directory for Islamic Finance Companies] {{Islam topics|state=collapsed}} [[Category:Economic ideologies]] [[Category:Types of economics]] [[Category:Islamic economical jurisprudence]] [[Category:Heterodox economics]] [[ar:اقتصاد إسلامي]] [[de:Islamic Finance]] [[fa:اقتصاد اسلامی]] [[id:Ekonomi syariah]] [[it:Finanza islamica]] [[ms:Perekonomian Islam]] [[ur:اسلامی معاشیات]]