Munich Personal RePEc Archive Islamic Economics: A Survey of the Literature Zaman, Asad International Islamic University of Islamabad (IIUI) June 2008 Online at https://mpra.ub.uni-muenchen.de/11024/ MPRA Paper No. 11024, posted 11 Oct 2008 03:29 UTC Islamic Economics: A Survey of the Literature Asad Zaman International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan 1 Islamic Economics: A Survey of the Literature Asad Zaman International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan Preprint of a survey prepared for Religion and Development Research Program Lead Research Institution: International Development Department, University of Birmingham 2 Contents Table of contents Acknowledgements Glossary of non-English words…………………………………………………………………. 1. Preface..................................................................................................................... 6 1.1 Self-knowledge and knowledge of others ........................................................... 6 1.2 Contrasting historical experiences with religion.................................................. 7 1.3 The transition to secular thought and its consequences .................................... 8 1.4 The emergence of economics in Europe........................................................... 10 1.5 Outline of the paper ........................................................................................... 14 2 The origins of Islamic economics .......................................................................... 16 2.1 Historical roots of Islamic economics ................................................................ 16 2.2 Emergence of Islamic economics in the post-colonial era................................ 18 3. Fundamentals of an Islamic economic system ..................................................... 24 3.1 The Islamic view of human beings .................................................................... 24 3.2 Wealth and freedom .......................................................................................... 26 3.3 Contrasting principles of Islamic and neoclassical economics......................... 26 3.4 Detached observation vs. passionate engagement.......................................... 27 4 The framework: Shari’ah or Islamic law ................................................................. 29 4.1 Objectives of the Shari’ah.................................................................................. 29 4.2 Property rights ................................................................................................... 31 4.3 Islamic rules of business ................................................................................... 33 4.4 Labour................................................................................................................ 35 5. Islamic states .......................................................................................................... 37 5.1 Political structure ............................................................................................... 37 5.2 Public finance .................................................................................................... 40 5.3 Justice................................................................................................................ 43 5.4 Economic security and welfare.......................................................................... 44 5.5 Other functions of an Islamic state.................................................................... 46 6 The role of Islamic institutions................................................................................ 48 6.1 Islamic financial institutions ............................................................................... 48 6.2 Takaful (insurance)............................................................................................ 52 6.3 Waqf (endowment/trust) ..................................................................................... 55 6.4 Hisbah (audit or accountability) .......................................................................... 57 6.5 Environmental protection, ecology and natural resources................................. 58 7 The role of Muslim individuals ................................................................................ 61 8 Concluding remarks............................................................................................ 64 References.............................................................................................................. 66 Acknowledgements I am deeply indebted to Carole Rakodi, Director of the Religions and Development Programme, for putting up patiently with earlier expositions of this material, which sometimes appeared to fall short of customary academic standards of courtesy and diplomacy. Her extraordinary forbearance and her uncanny ability to look through the form and grasp the spirit were invaluable to me in arriving at my present views, reflected in the current version. I have learned a lot from this effort to communicate across radically different worldviews. Personally I had considered this to be an impossible task, and would not have undertaken it at all, had it not been for the encouragement of many 3 of the members of the Religions and Development Research Programme. I would like to thank all of those who commented on earlier versions of the paper, especially Abbas Mirakhor, M. N. Siddiqui, Akram Khan, AbdelRahman Yousri, Uzma Qureshi, Meryem Zaman, Arshad Zaman and an anonymous reviewer. Many others whom I cannot name individually have commented and contributed to the development of the paper. Glossary of Arabic words References to the Quran are given in form [Qxx:yy], where xx is the number of the Surah and yy is the number of the Ayah. These can easily be looked up from many sources, including the website http://www.islamicity.com/QuranSearch/ . Unless otherwise indicated, Hadeeth that are cited can be looked up from http://www.muhaddith.org . The Islamic Calendar is a lunar calendar which starts from the date of emigration (Hijra) of the Prophet Mohammad (May Allah shower his peace and blessings upon him)1 from Mecca to Medina, which took place in 622 AD. Since the lunar year is about 11 days shorter than solar, for a very rough conversion, multiply the Islamic year number by 0.97, and then add 622 to get the Gregorian year number Farz: Compulsory, according to Islamic Law. Actions are classified as being farz, or obligatory, and nafil, or optional acts of worship. Then there is the haram, or prohibited category. Among the nafil acts, there can be varying grades of compulsion or necessity. Farz-e-Kifayah: Collective responsibility of a community. If not fulfilled, it becomes farz (compulsory) for everyone individually. If it has been fulfilled by some members, then others are absolved of the responsibility. Fiqh: Rules of derivation (and the methodology for development of such rules) used to apply Islamic law to situations not directly covered by source materials for Islamic law. Gharar: uncertainty or ambiguity about price or product, which renders a sale invalid according to Islamic law. Hadeeth: A report of a saying or action of the Prophet Mohammad (May the peace and blessings of Allah be upon him). Such a report must be accompanied by a list of narrators. Halal: Permissible, according to Islamic law. Haram: Forbidden, according to Islamic law. Ijtihad: The process of deriving rulings of Islamic law in new situations not covered by traditional rulings. Infaq: Giving money or property for the betterment of society, in order to earn the pleasure of Allah. 1 It is part of Islamic etiquette to invoke peace and blessings upon the prophet Mohammad whenever his name is mentioned. 4 Jihad: Struggle. Refers to holy war, waged solely for purposes sanctioned by Islam, and without any mingling of worldly purposes, such as material gain, conquest, or glory. It also refers to spiritual and moral struggle for self-purification, and this has been referred to as the greater Jihad in Islamic tradition. Kharaj: A tax on landholding which may be based on land value or on production. Khilafat-e-Rashida: The rightly guided Caliphate. Refers to a period of about 30 years following the death of the Prophet Muhammad (May peace and blessings of Allah be upon him), where the rule of the Islamic world was in the hands of people trained by the Prophet. These people had both temporal and spiritual authority, and hence established ‘the Kingdom of God’ upon earth. After this period temporal and spiritual authority were separated (as predicted in Hadeeth), and Muslim rulers were no longer regarded as spiritual authorities by the public. Riba: Literally, increase, but in Islamic law, any pre-agreed excess against grant of time in sales on deferred payment, or on loans; or as a premium (e.g. for quality) in the exchange of six commodities (gold, silver, wheat, barley, dates, and salt) in which unequal exchange is prohibited. Shari’a: ‘Islamic law’ is the usual translation, but the meaning is broader. Shari’a is the set of rules which govern behaviour of Muslims in all realms of life, from internal states of heart and personal affairs to social and political and global affairs. These rules may be directly specified in Islamic source materials, or else deduced from such sources. Shoora: The process of consultation for decision making by Muslim groups, recommended