The Foundations of Islamic Economics and Banking
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Researchers have examined Islamic banking operations in an interest-based economy and outlined the principles and functions of Islamic economics. There has not yet been a comprehensive study dealing with the implications of abolishing interest and applying Islamic economic theory in a specific country. This book analyzes the interface between Islam and economics to exemplify the underlying theory. It adopts analytical and pragmatic approach. I wish to point out, however, that my analysis is not purely academic but embraces practical implications and suggests many paths in the implementation of an Islamic economy or the transfer from a conventional economy to an Islamic one. The book is organized into three parts. Part I presents the origins of Islamic economic thinking and its underlying principles, and reviews the teachings and background of trade transactions as well. The injunctions against riba and the pillars of Islam proves that this religion conducts and organizes the relations between God and his creatures as well as the relations among the latter and society. For this Islam organizes both the worldly and religious affairs of the people. It also highlights the objectives of Islamic economics, the economic consequences of zakat levy (a religious ordained contribution), the roles played by the public and private sectors, the demand for money in a riba-free economy and finally, the characteristics and types of riba as mentioned in both the Quran and Sunna. Part II describes the Islamic alternatives pertaining to riba-free banking theory and the prospects of implementing the new system. It analyzes Islamic and Western theories. Focusing on riba-free financing techniques and the operation of money and capital markets. Implementation of the riba-free banking with reference to Kuwait is emphasized including the pros and cons of this experiment. Part III analyzes the impact of a riba-free economy at the macro and micro levels, examining the efficiency of the Islamic financial system with respect to competition and choice, aggregate savings and investments, earning stability, fund pricing, savings mobilization, financial instruments, risk attached to traditional forms of Islamic finance, and, finally, the impact of zakat on savings and investments. The advantages and disadvantages of riba-free banking in the economy are also analyzed. This book expounds the principles of Islamic economics and banking and its underlying features for anyone who wants to probe into this evolving industry.
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About the Book
The first part of this book is designed to display the sources and principles of economics and trade transactions in the Islamic community. It analyzes the judicial injunctions against riba and proves that riba including interest is prohibited. Basing the argument on theoretical (Quran and Sunna) as well as the customary practice during the life of the messenger of God in Mekka and Al-Madina. Notably, the Islamic teachings covers both the worldly and religious affairs. This is a very revealing indication that “Islam” does not only regulate the relations of the human beings with God, but also extends to regulating (i) the relationship of the ruler with the ruled through “al-shura”, and (ii) economic and financial transactions in the market. Notable among these transactions: a) the abolition of riba and instigating interest-free economy, (b) providing the basic needs of society, (c) achieving social justice by applying zakat levy and other ordinances, and last but not least inheritance law and redistribution of State land for public benefits. The second and third part of the book explains and proves that prohibition of riba does not circumvent trade or paralyze the economy. On the contrary by eliminating injustice inherent in riba, the banking system will be liberated from discrepancies and the economy will perform more efficiently by mitigating the evils of riba.