ISLAMIC ECONOMIC STUDIES Vol. 21 No. 2 Muharram 1435H (November 2013) Advisory Board Articles Khurshid Ahmad Ziauddin Ahmad Fiscal and Monetary Policies in Islamic Economics: Contours of Mohamed Ariff an Institutional Framework M. Umer Chapra Seif I. Tag el-Din Sayyid Tahir Abbas Mirakhor John R. Presley Are Islamic Banks Sufficiently Diversified? An Empirical Mohamed Ali Elgari Analysis of Eight Islamic Banks in Malaysia M. Nejatullah Siddiqi Rodney Wilson M Ali Chatti, Sandrine Kablan and Ouidad Yousfi Abdel-Rahman Yousri M. Anas Zarqa Trade and Human Development in OIC Countries: A Panel Data M. Umar Zubair Analysis Tariqullah Khan Zarinah Hamid and Ruzita Mohd Amin Economic and Financial Crises in Fifteenth-Century Egypt: Lessons from the History Abdul Azim Islahi Events and Reports Book Review In Focus: IRTI’s Recent Publications Abstracts of Articles Published in Dirasat Iqtisadiah Islamiah Cumulative Index of Papers List of IRTI Publications Islamic Research & Training Institute (IRTI) Establishment The Islamic Research and Training Institute (IRTI) was established by the Board of Executive Directors (BED) of the Islamic Development Bank (IDB) in conformity with paragraph (a) of the Resolution No. BG/14-99 of the Board of Governors adopted at its Third Annual Meeting held on 10th Rabi-ul-Thani, 1399H corresponding to 14th March, 1979. The Institute became operational in 1403H corresponding to 1983. The Statute of the IRTI was modified in accordance with the resolutions of the IDB BED No.247 held on 27/08/1428H. Purpose The Institute undertakes research for enabling the economic, financial and banking activities in Muslim countries to conform to Shari[ah, and to extend training facilities for personnel engaged in development activities in the Bank’s member countries. Functions The functions of the institute are to: A. Develop dynamic and innovative Islamic Financial Services Industry (IFSI). B. Develop and coordinate basic and applied research for the application of Shari[ah in economics, banking and finance. C. Conduct policy dialogue with member countries. D. Provide advisory services in Islamic economics, banking and finance. E. Disseminate IFSI related knowledge through conference, seminars, workshops, apprenticeships, and policy & research papers. F. Provide learning and training opportunities for personnel engaged in socio-economic development activities in member countries. G. Collect and systematize information and disseminate knowledge. H. Collaborate to provide policy advice and advisory services on the development and stability of Islamic Finance and on the role of Islamic institutions in economic development to member government, private sector and the NGO sector. I. Develop partnership with research and academic institutions at OIC and international levels. Organization The President of the IDB is the President and the Legal Representative of the Institute. The Board of Executive Directors of the IDB acts as the supreme body of the institute responsible for determining its policy. The Institute’s management is entrusted to a Director General selected by the IDB President in consultation with the Board of Executive Directors. The Institute has a Board of Trustees that function as an Advisory body to the Board of Executive Directors. The Institute consists of two Departments, each with two Divisions: Research & Advisory Services Department Training & Information Services Department Islamic Economics & Finance Research Division Training Division Advisory Services in Islamic Economics & Finance Division Information & Knowledge Services Division Headquarters The Institute is located at the headquarters of the Islamic Development Bank in Jeddah, Saudi Arabia. P.O. Box 9201, Jeddah 21413 Kingdom of Saudi Arabia Tel: (00966-2) 636 1400 Fax: (00966-2) 637 8927 Home page: http://www.irti.org Email: [email protected] © Islamic Research and Training Institute Member of Islamic Development Bank Group Copyright by Islamic Research & Training Institute, a Member of the Islamic Development Bank Group. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the copyright holder, except reference and citation, but must be properly acknowledged. The view expressed in this publication are those of the authors and do not necessarily reflect the view of the Islamic Research and Training Institute of the Islamic Development Bank. King Fahd National Library Cataloging-in-Publication Data Islamic economic studies – Jeddah, 2012 Vol. 21, No. 2; 17 x 24 cm ISSN: 1319/1616 1-Islamic economics I. Title ISSN: 1319/1616 LDN : 14-0721 Published by The Islamic Research and Training Institute A Member of the Islamic Development Bank Group P.O. Box 9201 – Jeddah 21413 Saudi Arabia Tel: (+96612) 6361400, Fax: (+96612) 6378927 Email : [email protected] Website: http://www.irti.org Islamic Economic Studies (IES) is published biannually, in the months of Muharram and Rajab, according to the Islamic Hijra calendar. Islamic Economic Studies is a refereed journal that maintains high academic standards. It is included in the Abstracting Services CD-ROM indexing of the Journal of Economic Literature published by the American Economic Association. _____________________________ Subscriptions: First class mail is US $35.00 for one year (two issues). The price of a single issue is US $20.00. Subscriptions should be mailed to the following publisher address: The Islamic Research and Training Institute A Member of the Islamic Development Bank Group P. O. Box 9201, Jeddah 21413 Saudi Arabia Tel: (+96612) 6361400, Fax: (+96612) 6378927 E-mail: [email protected] ISLAMIC ECONOMIC STUDIES Vol. 21 No. 2 Muharram 1435H (November 2013) Editor CONTENTS Salman Syed Ali Articles Co-Editor Hylmun Izhar Mohammed Obaidullah Editorial Board Mohamed Azmi Omar Sami Al-Suwailem Fiscal and Monetary Policies in Islamic Economics: 1 Tariqullah Khan Contours of an Institutional Framework Osman Babiker Mohammed Obaidullah Sayyid Tahir Salman Syed Ali Are Islamic Banks Sufficiently Diversified? An Empirical 23 Analysis of Eight Islamic Banks in Malaysia M Ali Chatti, Sandrine Kablan and Ouidad Yousfi Trade and Human Development in OIC Countries: A 55 Panel Data Analysis Zarinah Hamid and Ruzita Mohd Amin Economic and Financial Crises in Fifteenth-Century 71 Egypt: Lessons from the History Abdul Azim Islahi Events and Reports th 95 - 8 IDB Global Forum on Islamic Finance - 9th International Conference on Islamic Economics and 98 Finance - Mid-Term Review of the Islamic Financial Services 103 Industry Development Ten-Year Framework and Strategies Book Review 109 In Focus: IRTI’s Recent Publications - Occasional Paper 119 Abstracts of Articles Published in Dirasat Iqtisadiah 131 Islamiah Cumulative Index of Papers 137 List of IRTI Publications 147 ARTICLES Islamic Economic Studies Vol. 21, No. 2, November, 2013 (1-22) Fiscal and Monetary Policies in Islamic Economics: Contours of an Institutional Framework ∗ SAYYID TAHIR Abstract This paper summarizes salient features of the existing thinking on fiscal and monetary policies in the Islamic economics literature. It outlines institutional framework for these policies from the Islamic economics perspective. The nature and role of government, in the light of the Shari[ah principles, are revisited. The general goals for macroeconomic policies are discussed along with separate goals for each of the two policies. The argument is capped with a look at practical considerations in the actual working of both the policies. The following are the main points in the paper. (1) Roles of both the policies shall be complementary in the context of the overall objectives at the state level. (2) Thrust of both policies would be different from that presently recognized. These conclusions are drawn in the context of the government’s role being limited to prudent governance and the society’s economic and distributional concerns being addressed as much as possible without adopting the budgetary channel. Keywords: Fiscal Policy, Monetary Policy, the Shari[ah, Government JEL classifications: E62, E52, H11. 1. Introduction Islamic economics project was launched by Muslim economists in 1976 with the holding of the first international conference on the subject in Makkah. The main constituency of this initiative was the Muslims. Speedy development and ∗ The author is Professor of Economics at the International Islamic University Malaysia. An earlier version of this paper was presented at the 8th International Conference on Islamic Economics and Finance (19-21 December 2011) held in Doha, Qatar. The author is thankful to anonymous referees of this journal for their useful comments. 1 2 Islamic Economic Studies Vol. 21, No.2 quick recognition required focus on issues of practical significance for Muslim countries at that time. Accordingly, economic development, income distribution, poverty and macroeconomic policies were part of the initial research agenda. Fiscal and monetary policies were thus among the subjects that attracted attention of Islamic economists quite early. This happened when contour of the subject of Islamic economics were yet to be defined. Two international seminars on monetary and fiscal economics of Islam were held at Jeddah and Islamabad in 1978 and 1980, respectively. Since then the discourse on these themes coincides with the development of Islamic economics