While the popular press, pundits and even academics, continue to say that Islam is anti-developme... more While the popular press, pundits and even academics, continue to say that Islam is anti-development, nothing could be further from the truth. The authors set the record straight in an admirable piece of true scholarship. Islam promotes development, not the development that economists talked about fifty years ago but what economists today espouse as sustainable and comprehensive development.
Financial development and improved access to finance (also referred to as financial inclusion) is... more Financial development and improved access to finance (also referred to as financial inclusion) is likely not only to accelerate economic growth but also to reduce income inequality and poverty in a country, a growing body of evidence indicates. Despite the essential role played by financial services in the progress of efficiency and equality in a society, 2.7 billion people (70 percent of the adult population) in emerging markets still have no access to basic financial services, and a great many of the them come from countries with predominantly Muslim populations (Demirgüç-Kunt, Beck, and Honohan 2007). In conventional finance, financial access is especially an issue for the poorer members of society, including potential entrepreneurs. They are commonly referred to as “nonbanked” or “unbankable,” and in the case of potential entrepreneurs, they invariably lack adequate collateral to access conventional debt financing. While access to finance may be important for economic growth, th...
The main purpose of this paper is to trace epistemological roots of conventional and Islamic fina... more The main purpose of this paper is to trace epistemological roots of conventional and Islamic finance. Based on an extensive literature review, this paper aims to highlight, explain, and discuss an ideal conventional and Islamic financial system. The ideal conventional financial system is discussed in light of various writings by Smith and Arrow, plus based on Arrow-Debreu model. On the other hand, the Islamic financial system is discussed in light of Qur’anic verses based on which the system is built. The findings show that the present Islamic finance industry evolved from conventional finance to address a market failure in conventional finance in terms of unmet market demand for Islamic finance products. However, since most practitioners in Islamic finance were bankers and market players from the conventional background, they developed, more often than not, products that are similar to conventional ones albeit with Shari’ah compatibility. Hence, the focus was primarily on avoiding riba while ignoring the first part of the verse 275 of surah al-Baqarah which first ordains exchange contracts. Although the crisis had limited impact on IFI, it is due to the similar nature between the two that IFI is also subjected to the shocks in the conventional financial system. A way forward would be to move towards more risk-sharing products which indicate a robust link between the strength of the financial system and economic growth.
Sen has called for a theory of justice that responds to the “deprivations from which human beings... more Sen has called for a theory of justice that responds to the “deprivations from which human beings suffer.” It is difficult to place the state of justice in the world today in proper perspective without looking at the past and all the wrongs of colonialism. Today global inequalities and injustices are multifaceted. Injustice has permeated the most important agreement to stem nuclear proliferation. Inequalities and injustices are also alive and well in the financial and commercial world. The powerful also use the military threat to subdue their adversaries. National injustices abound in most countries. The deplorable state of justice in Muslim countries is due to the fact that Muslims, individually and collectively, throughout history have not internalized and practiced the rules detailed in the Qur’an, resulting in devastating consequences.
The 2007/2008 global financial crisis, according to Shoshana Zuboff in a Businessweek piece “Wall... more The 2007/2008 global financial crisis, according to Shoshana Zuboff in a Businessweek piece “Wall Street’s Economic Crimes Against Humanity,” was driven by a sense of “remoteness and thoughtlessness, compounded by a widespread abrogation of individual moral judgment.” The “self-centered business model” allowed those who perpetrated the financial crimes to operate “without the usual feelings of empathy that alerts us to the pain of others and define us as humans” (Zuboff, 2009). The absence of “moral compunction” of those who engaged in practices that led to the financial crisis speaks volume of a “moral bankruptcy” (Stiglitz, 2010). There is now a sense of moral panic concerning systemic assault upon human dignity, trust, contracts, and property, of which all are the fundamental institutional pillars of societies.
In recent years, the appropriate level and structure of interest tates have come to be seen as ma... more In recent years, the appropriate level and structure of interest tates have come to be seen as major issues in connection with stabilization programs undertaken by members. These issues arise from consideration both on the demand side, as interest rates affect the magnitude of aggregate demand, and on the supply side, as they influence the volume and quality of investment and, thus, the growth of output.Developing countries;
The mission of Jesus was in line of prophets who focused on justice as compliance with rules pres... more The mission of Jesus was in line of prophets who focused on justice as compliance with rules prescribed by the Creator. This teaching was removal of injustices that had led to exclusion, social segregation, widespread poverty and oppression by a select minority. His message is to love the Lord God with all your heart and your neighbor as yourself. After Jesus, the major contributions to Christian thought came from Paul, built on the foundation of the Love, Mercy and Justice of the One and Only Creator reflected in the totality of His human creation. Then came Augustine who interpreted Jesus and Paul through reliance on Greek thought and the Hebrew Bible. Much later, Thomas Aquinas considered justice as a virtue. Although there are differences, the essential element is love, for the Almighty and love for the self, transferred to love of others.
The Kur’an is the source of all Islamic paradigms in all fields of knowledge and provides the fra... more The Kur’an is the source of all Islamic paradigms in all fields of knowledge and provides the framework for envisioning all relevant conceptions of reality. It is the source for rules prescribed by the Creator applicable to all societies at all times. The collectivity of these rules constitutes the Metaframework, which the Prophet operationalized. The resulting economy is considered the Ideal model, the Archetype model of the Islamic economy. The Archetype model is composed of time-and-place invariant rules, because they were promulgated based on the Messenger’s authoritative operationalization of the rules prescribed in the Kur’an. There were also rules that were time-and-place dependent which, while maintaining their underlying principles, methods of their application change. The Archetype model articulates the operational form of these rules by demonstrating how these rules are operationalized in a human community. The network of rules and norms are important as they play vital roles in the society and in its economy.
While the popular press, pundits and even academics, continue to say that Islam is anti-developme... more While the popular press, pundits and even academics, continue to say that Islam is anti-development, nothing could be further from the truth. The authors set the record straight in an admirable piece of true scholarship. Islam promotes development, not the development that economists talked about fifty years ago but what economists today espouse as sustainable and comprehensive development.
Financial development and improved access to finance (also referred to as financial inclusion) is... more Financial development and improved access to finance (also referred to as financial inclusion) is likely not only to accelerate economic growth but also to reduce income inequality and poverty in a country, a growing body of evidence indicates. Despite the essential role played by financial services in the progress of efficiency and equality in a society, 2.7 billion people (70 percent of the adult population) in emerging markets still have no access to basic financial services, and a great many of the them come from countries with predominantly Muslim populations (Demirgüç-Kunt, Beck, and Honohan 2007). In conventional finance, financial access is especially an issue for the poorer members of society, including potential entrepreneurs. They are commonly referred to as “nonbanked” or “unbankable,” and in the case of potential entrepreneurs, they invariably lack adequate collateral to access conventional debt financing. While access to finance may be important for economic growth, th...
The main purpose of this paper is to trace epistemological roots of conventional and Islamic fina... more The main purpose of this paper is to trace epistemological roots of conventional and Islamic finance. Based on an extensive literature review, this paper aims to highlight, explain, and discuss an ideal conventional and Islamic financial system. The ideal conventional financial system is discussed in light of various writings by Smith and Arrow, plus based on Arrow-Debreu model. On the other hand, the Islamic financial system is discussed in light of Qur’anic verses based on which the system is built. The findings show that the present Islamic finance industry evolved from conventional finance to address a market failure in conventional finance in terms of unmet market demand for Islamic finance products. However, since most practitioners in Islamic finance were bankers and market players from the conventional background, they developed, more often than not, products that are similar to conventional ones albeit with Shari’ah compatibility. Hence, the focus was primarily on avoiding riba while ignoring the first part of the verse 275 of surah al-Baqarah which first ordains exchange contracts. Although the crisis had limited impact on IFI, it is due to the similar nature between the two that IFI is also subjected to the shocks in the conventional financial system. A way forward would be to move towards more risk-sharing products which indicate a robust link between the strength of the financial system and economic growth.
Sen has called for a theory of justice that responds to the “deprivations from which human beings... more Sen has called for a theory of justice that responds to the “deprivations from which human beings suffer.” It is difficult to place the state of justice in the world today in proper perspective without looking at the past and all the wrongs of colonialism. Today global inequalities and injustices are multifaceted. Injustice has permeated the most important agreement to stem nuclear proliferation. Inequalities and injustices are also alive and well in the financial and commercial world. The powerful also use the military threat to subdue their adversaries. National injustices abound in most countries. The deplorable state of justice in Muslim countries is due to the fact that Muslims, individually and collectively, throughout history have not internalized and practiced the rules detailed in the Qur’an, resulting in devastating consequences.
The 2007/2008 global financial crisis, according to Shoshana Zuboff in a Businessweek piece “Wall... more The 2007/2008 global financial crisis, according to Shoshana Zuboff in a Businessweek piece “Wall Street’s Economic Crimes Against Humanity,” was driven by a sense of “remoteness and thoughtlessness, compounded by a widespread abrogation of individual moral judgment.” The “self-centered business model” allowed those who perpetrated the financial crimes to operate “without the usual feelings of empathy that alerts us to the pain of others and define us as humans” (Zuboff, 2009). The absence of “moral compunction” of those who engaged in practices that led to the financial crisis speaks volume of a “moral bankruptcy” (Stiglitz, 2010). There is now a sense of moral panic concerning systemic assault upon human dignity, trust, contracts, and property, of which all are the fundamental institutional pillars of societies.
In recent years, the appropriate level and structure of interest tates have come to be seen as ma... more In recent years, the appropriate level and structure of interest tates have come to be seen as major issues in connection with stabilization programs undertaken by members. These issues arise from consideration both on the demand side, as interest rates affect the magnitude of aggregate demand, and on the supply side, as they influence the volume and quality of investment and, thus, the growth of output.Developing countries;
The mission of Jesus was in line of prophets who focused on justice as compliance with rules pres... more The mission of Jesus was in line of prophets who focused on justice as compliance with rules prescribed by the Creator. This teaching was removal of injustices that had led to exclusion, social segregation, widespread poverty and oppression by a select minority. His message is to love the Lord God with all your heart and your neighbor as yourself. After Jesus, the major contributions to Christian thought came from Paul, built on the foundation of the Love, Mercy and Justice of the One and Only Creator reflected in the totality of His human creation. Then came Augustine who interpreted Jesus and Paul through reliance on Greek thought and the Hebrew Bible. Much later, Thomas Aquinas considered justice as a virtue. Although there are differences, the essential element is love, for the Almighty and love for the self, transferred to love of others.
The Kur’an is the source of all Islamic paradigms in all fields of knowledge and provides the fra... more The Kur’an is the source of all Islamic paradigms in all fields of knowledge and provides the framework for envisioning all relevant conceptions of reality. It is the source for rules prescribed by the Creator applicable to all societies at all times. The collectivity of these rules constitutes the Metaframework, which the Prophet operationalized. The resulting economy is considered the Ideal model, the Archetype model of the Islamic economy. The Archetype model is composed of time-and-place invariant rules, because they were promulgated based on the Messenger’s authoritative operationalization of the rules prescribed in the Kur’an. There were also rules that were time-and-place dependent which, while maintaining their underlying principles, methods of their application change. The Archetype model articulates the operational form of these rules by demonstrating how these rules are operationalized in a human community. The network of rules and norms are important as they play vital roles in the society and in its economy.
The question of the logical and philosophical coherence of the concept " Islamic Economics " and ... more The question of the logical and philosophical coherence of the concept " Islamic Economics " and that of the extension of that concept as a scientific discipline involve a dilemma in urgent need of clarification and address[1]. Two points of attack stand out. 1) In the context of the current zeitgeist which absolutizes a discontinuity between religion and science, it appears that each side belongs to a distinct universe of discourse[2], and that the range of application of the properties belonging to one does not include the objects belonging to the other. This appears to entail the theoretical incoherence of " Islamic Economics " from the outset. 2) The context of the primordial Islāmic uses of expressions such as 'iqtiṣād' (and its cognates), as well as related expressions in the Qurʾān and the Ḥadīth, entail a universe of discourse of spiritual value, viz., taqwā, that appears to be distinctly different from that of contemporary economics. Even if one were to articulate taqwā as a scientific discipline[3], this second point appears to entail the theoretical discontinuity of " Islamic Economics " – in the strict sense of 'Islāmic' – from contemporary economic science. A coherent conception of Islamic Economics hinges in part upon a critical examination of the civilizationally-conditioned categories " religion " and " science ". This paper will contend that Islām is not a mere religion in the narrow sense, but also advocates a framework of science in the broad sense. It is also our contention that this broad sense of 'knowledge' and 'science' is more concrete than that of the current paradigm of science in the narrow sense, although it absorbs the latter as a special case. A closely-related and theoretically prior challenge for grounding a coherent philosophy and scientific foundation of Islamic Economics lies in the alleged discontinuity between economics and value (in an axiological sense)[4]. Overcoming this discontinuity will involve explicit use of objective logic, a formal discipline developed within contemporary mathematical category theory to i) subserve scientific transformations between two or more universes of discourse (= categories, toposes), with a view to ii) progressively develop the conceptual content of those universes[5]. Within this framework the authors will establish 1) the logical coherence of Islamic Economics; and 2) the scientific absorption of the universe of discourse of contemporary economics within that of Islamic Economics to constitute an objective-logical scale of forms[6].
Paper deals with an current state and a possible trajectory of Islamic finance. It argues that th... more Paper deals with an current state and a possible trajectory of Islamic finance. It argues that the essence of Islamic finance is risk sharing
Handbook of Analytical Studies in Islamic Finance and Economics, 2020
This is a preprint draft of paper published in 2020:
Chapter 1: On the Logical Character and Coh... more This is a preprint draft of paper published in 2020:
Chapter 1: On the Logical Character and Coherence of Islamic Economics. Volume: Handbook of Analytical Studies in Islamic Finance and Economics Edited by: Zamir Iqbal, Tarik Akin, Nabil El Maghrebi and Abbas Mirakhor De Gruyter Studies in Islamic Economics, Finance and Business Edited by: Abbas Mirakhor and Idris Samawi Hamid
For scholarly/academic citation, kindly use the published version of the paper, available here:
ABSTRACT There has been an intensifying rise of consciousness regarding Islam’s vision of the economy and economics and, on the other hand, there is also the emergence of a wilderness of logical incoherence with a rapidly developing “echo-chamber” mentality that retards intellectual discourse and saps the energies needed for advancement of this nascent discipline. A necessary, if not sufficient condition, for defining the concept “Islamic Economics” involves a determination of the logical, philosophical, and/or scientific parameters that govern i) the movement of consciousness and action within the particular sphere associated with the extension of that concept, as well as ii) the interrelation of that sphere with other general, relevant domains of human experience (e.g., realms of economic consciousness and action). This necessary condition involves, in part, determining whether the concept “Islamic Economics” is even coherent. Does the range of applicability of “Islamic” intersect with that of “economics” (in the contemporary sense of ‘economics’)? If not, then the concept “Islamic Economics” has no material extension and remains in the realm of shadows. Determining some exact sense in which “Islamic Economics” is coherent depends, in large part, on fulfilling the necessary condition sketched above.
This paper is inspired in part by the work of ʿAllāmah Shahīd M. B. Ṣadr. Based on his work on logic, he understood that the axiomatic structure of the “science” of the contemporary, dominant paradigm of economics is in direct contradiction with the logic of an Islamic Economics based, first and foremost, on the Qurʾān. For example, the logic of the Qurʾān demands an overcoming of the Cartesian dualism that dominates much of current discourse around Islamic Economics, as well as the ensuing scientism and fideism that it entails. The part of the logic of Islamic Economics that overcomes this dualism may be articulated in terms of objective logic, in both an informal manner (scale of forms) or a formal manner (category theory).
This paper includes the following sections: 1 Background 2 Universes of Discourse and Categorical Coherence 3 Science, Intrinsic Value, and Self-Transcendence 4 Objective Logic and Phenomenology of Consciousness and Action 4.1 Objective Logic and Subjective Logic 4.2 Two Dialectical Lynchpins 5 Two approaches to Objective Logic: Informal and Formal 5.1 Informal Objective Logic: Scale of Forms 5.2 Formal Objective Logic: Functors and Natural Transformations 6 Transcending Cartesian Dualism: the Monism of the Qurʾān 7 Towards a Science of Iqtiṣād
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Chapter 1: On the Logical Character and Coherence of Islamic Economics.
Volume: Handbook of Analytical Studies in Islamic Finance and Economics
Edited by: Zamir Iqbal, Tarik Akin, Nabil El Maghrebi and Abbas Mirakhor
De Gruyter Studies in Islamic Economics, Finance and Business
Edited by: Abbas Mirakhor and Idris Samawi Hamid
For scholarly/academic citation, kindly use the published version of the paper, available here:
https://www.degruyter.com/document/doi/10.1515/9783110587920/html
ABSTRACT
There has been an intensifying rise of consciousness regarding Islam’s vision of the economy and economics and, on the other hand, there is also the emergence of a wilderness of logical incoherence with a rapidly developing “echo-chamber” mentality that retards intellectual discourse and saps the energies needed for advancement of this nascent discipline. A necessary, if not sufficient condition, for defining the concept “Islamic Economics” involves a determination of the logical, philosophical, and/or scientific parameters that govern i) the movement of consciousness and action within the particular sphere associated with the extension of that concept, as well as ii) the interrelation of that sphere with other general, relevant domains of human experience (e.g., realms of economic consciousness and action). This necessary condition involves, in part, determining whether the concept “Islamic Economics” is even coherent. Does the range of applicability of “Islamic” intersect with that of “economics” (in the contemporary sense of ‘economics’)? If not, then the concept “Islamic Economics” has no material extension and remains in the realm of shadows. Determining some exact sense in which “Islamic Economics” is coherent depends, in large part, on fulfilling the necessary condition sketched above.
This paper is inspired in part by the work of ʿAllāmah Shahīd M. B. Ṣadr. Based on his work on logic, he understood that the axiomatic structure of the “science” of the contemporary, dominant paradigm of economics is in direct contradiction with the logic of an Islamic Economics based, first and foremost, on the Qurʾān. For example, the logic of the Qurʾān demands an overcoming of the Cartesian dualism that dominates much of current discourse around Islamic Economics, as well as the ensuing scientism and fideism that it entails. The part of the logic of Islamic Economics that overcomes this dualism may be articulated in terms of objective logic, in both an informal manner (scale of forms) or a formal manner (category theory).
This paper includes the following sections:
1 Background
2 Universes of Discourse and Categorical Coherence
3 Science, Intrinsic Value, and Self-Transcendence
4 Objective Logic and Phenomenology of Consciousness and Action
4.1 Objective Logic and Subjective Logic
4.2 Two Dialectical Lynchpins
5 Two approaches to Objective Logic: Informal and Formal
5.1 Informal Objective Logic: Scale of Forms
5.2 Formal Objective Logic: Functors and Natural Transformations
6 Transcending Cartesian Dualism: the Monism of the Qurʾān
7 Towards a Science of Iqtiṣād