Developing Inclusive and Sustainable Economic and Financial Systems Volume 2 Islamic Economics: Theory, Policy and Social Justice Editorial Board Dr. Hatem A. El-Karanshawy Dr. Azmi Omar Dr. Tariqullah Khan Dr. Salman Syed Ali Dr. Hylmun Izhar Wijdan Tariq Karim Ginena Bahnaz Al Quradaghi ISBN: 978-9927-118-22-7 Cover design: Natacha Fares Copyright © 2015 The Authors CONTENTS Foreword v Acknowledgments vii Preface ix Introduction xi PART 1: ISLAMIC ECONOMICS AS A DISCIPLINE Chapter 1 Crisis in Islamic economics: Diagnosis and prescriptions Asad Zaman 1 Chapter 2 First vs. second generation Islamic economists: Deviations and differences in thoughts Abdul Azim Islahi 11 Chapter 3 Methodology of Islamic economics: Typology of current practices, evaluation and way forward Hafas Furqani and Mohamed Aslam Haneef 23 Chapter 4 Islamic economics: Still in search of an identity Abdulkader Cassim Mahomedy 31 Chapter 5 Islamic economics as a new economic paradigm Necati Aydin 41 Chapter 6 The effect of scarcity thinking on human wants among Muslims: Exploring the ideological orientation of the concept of scarcity Amir Wahbalbari, Zakaria Bahari, and Norzarina Mohd-Zaharim 65 PART 2: FISCAL AND MONETARY POLICIES – AN ISLAMIC PERSPECTIVE Chapter 7 The transmission of monetary policy through conventional and Islamic banks Sajjad Zaheer, Steven Ongena, and Sweder J.G. van Wijnbergen 83 Chapter 8 The importance of the Islamic banks in the monetary transmission mechanism in Malaysia Zamrah Hasin and M. Shabri Abd. Majid 97 Chapter 9 Economic sectors sensitivity to Islamic and conventional monetary Instrument: Case study in Indonesia Raditya Sukmana 111 iii Contents Chapter 10 Public sector funding and debt management: A case for GDP-linked sukuk Abdou Diaw, Obiyathulla Ismath Bacha, and Ahcene Lahsasna 121 Chapter 11 Economic and financial crises in Fifteenth-century Egypt: Lessons from the history Abdul Azim Islahi 135 PART 3: ECONOMIC DEVELOPMENT, SOCIAL JUSTICE AND SUSTAINABILITY Chapter 12 Post-crisis economic recovery in OIC member states: Is it sustainable? Zafar Iqbal 145 Chapter 13 The Integrated Development Index (I-Dex): A new comprehensive approach to measuring human development Ruzita Mohd Amin, Selamah Abdullah Yusof, Mohamed Aslam Haneef, Mustafa Omar Muhammad and Gapur Oziev 159 Chapter 14 Islamic finance and economic growth: The Malaysian case Néjib Hachicha and Amine Ben Amar 173 Chapter 15 Distributional and poverty consequences of globalization: Are OIC countries different? Muhammad Tariq Majeed 183 iv Foreword Hatem A. El-Karanshawy Founding Dean, Qatar Faculty of Islamic Studies, Hamad bin Khalifa University, Qatar Foundation, Doha The International Conference on Islamic Economics and through such a setting that thoughts can be debated with Finance (ICIEF) is the leading academic conference in the the objective of advancing knowledge creation, facilitating discipline organized by the International Association for policymaking and promoting genuine innovation for Islamic Economics (IAIE) in collaboration with other key the industry and the markets. Disseminating research stakeholders, including the Islamic Research and Training presented at ICIEF to the greatest number of researchers Institute, Islamic Development Bank. It is the pioneering interested in the topic is important. It not only advances international conference on Islamic economics organized the discourse, but also grants those who did not have the first in Makkah Al Mukaramah, Kingdom of Saudi Arabia, privilege of attending the conference to partake in the in 1976 under the auspices of King Abdulaziz University discussion. and has since been held in numerous locations around the world. The conference as such has contributed immensely To this end, this series of five volumes (two in Arabic to to the promotion of Islamic economics and finance. Since follow) presents the proceedings of 8th and 9th conferences, 2011, the Qatar Faculty of Islamic Studies (QFIS), of which were held in Doha and Istanbul respectively in 2011 Hamad bin Khalifa University, Qatar Foundation, has also and 2013. Each volume focuses on a particular sub-theme become a key partner in organizing the conference. within the broader theme of Developing Inclusive and Sustainable Economic and Financial Systems. The global economy continues to face the perennial problems of poverty, persistent youth unemployment, The volumes are as follows: excessive inequalities of income and wealth, high levels of inflation, large macroeconomic and budgetary imbalances, Volume 1: Access to Finance – Essays on Zakah, Awqaf and exorbitant debt-servicing burdens, inadequate and aging Microfinance public utilities and infrastructure, skyrocketing energy Volume 2: Islamic Economics and Social Justice – Essays prices, and growing food insecurity. The reoccurring on Theory and Policy regional and global financial crises further intensify Volume 3: Islamic Banking and Finance – Essays on and magnify these problems, particularly for the Corporate Finance, Efficiency, and Product underprivileged segments of the world population. As a Development result, many countries are at the risk of failing to achieve Volume 4: Ethics, Governance, and Regulation in Islamic by 2015 the Millennium Development Goals (MDGs) Finance set by the United Nations. Hence the achievement of an Volume 5: Financial Stability and Risk Management in inclusive and sustainable economic and financial system Islamic Financial Institutions has remained highly illusive. We hope that this academic endeavor in partnership with The ICIEF presents an excellent opportunity for those the Bloomsbury Qatar Foundation Publishing will benefit interested in Islamic economics and finance to present their the Islamic economics and finance community and policy research and contribute to the development of an inclusive makers and that it will promote further academic study of and sustainable global economic and financial system. It is the discipline. Cite this chapter as: El-Karanshawy H A (2015). Foreword. In H A El-Karanshawy et al. (Eds.), Islamic economic: Theory, policy and social justice. Doha, Qatar: Bloomsbury Qatar Foundation Developing Inclusive and Sustainable Economic and Financial Systems Acknowledgements Tariqullah Khan President, International Association for Islamic Economics At the International Association for Islamic Economics Asutay, Moazzam Farooq, Mohamad Akram Laldin, (IAIE), we are grateful to acknowledge the unprecedented Mohamad Aslam Haneef, Mohamed Ariff Syed Mohamed, success of the 8th and 9th International Conferences on Mohammed Benbouziane, Mohammed El-Komi, Monzer Islamic Economics and Finance, which were respectively Kahf, Muhammad Syukri Salleh, Murat Çizakça, Nabil organized in the Qatar National Convention Centre, Doha, Dabour, Nafis Alam, Nasim Shirazi, Nazim Zaman, December 19–21, 2011, and in the WoW Convention Centre Necdet Sensoy, Nejatullah Siddiqi, Rifki Ismal, Rodney Istanbul, September 9–10, 2013. We greatly appreciate Wilson, Ruhaya Atan, Sabur Mollah, Salman Syed Ali, the financial, academic and logistic support provided by Savas Alpay, Sayyid Tahir, Serap Oguz Gonulal, Shamim the Qatar Faculty of Islamic Studies, Hamad bin Khalifa Siddiqui, Shinsuke Nagaoka, Simon Archer, Tariqullah University at Qatar Foundation; Islamic Research and Khan, Toseef Azid, Turan Erol, Usamah Ahmed Uthman, Training Institute at the Islamic Development Bank; and Volker Nienhaus, Wafica Ghoul, Wijdan Tariq, Zamir Iqbal, the Statistical, Economic and Social Research and Training Zarinah Hamid, Zeynep Topaloglu Calkan, Zubair Hasan, Centre for Islamic Countries. and Zulkifli Hasan. The reviewers of the Arabic papers and abstracts included Abdelrahman Elzahi, Abdulazeem We offer our sincere thanks to the sponsors of the Abozaid, Abdullah Turkistani, Abdulrahim Alsaati, Ahmed 8th International Conference on Islamic Economics and Belouafi, Ali Al-Quradaghi, Aly Khorshid, Anas Zarqa, Finance in Doha. Without their partnership and generous Bahnaz Al-Quradaghi, Layachi Feddad, Mabid Al-Jarhi, contributions, the conference would not have been Mohammed El-Gamal, Nabil Dabour, Ridha Saadallah, possible. In addition to the Qatar Foundation and the Sami Al-Suwailem, Seif El-Din Taj El-Din, Shehab Marzban Islamic Development Bank, other sponsors included: Qatar and Usamah A. Uthman. Central Bank (QCB), Qatar Financial Centre Authority (QFCA), Qatar National Research Fund (QNRF), Qatar The primary objective of the conferences is to further the National Bank, Qatar Islamic Bank, Qatar International frontiers of knowledge in the area of Islamic economics Islamic Bank, Masraf Al Rayan, and Qatar Airways. and finance. Without the hard work and creativity of the researchers who shared their work with us, the pool of We owe our deepest gratitude to the highly-esteemed knowledge generated in the form of the conference papers panel of reviewers who volunteered to dedicate their time and presentations would not have been possible. We thank and energy in reviewing all the thousands of abstracts all the authors who submitted their abstracts and papers to and papers that were submitted to the conferences. The the two conferences. reviewers of the English papers and abstracts included: Abdallah Zouache, Abdel Latef Anouze, Abdelaziz Chazi, The IAIE has always endeavored to publish most of the Abdul Azim Islahi, Abdullah Turkistani, Abdulrahim significant research papers contributed to its conferences. AlSaati, Ahmet Tabako lu, Anowar Zahid, Asad Zaman, Currently the