March 2013



The distinctive nature of Islamic economics is emphasized, based as it is on sharing and cooperation while recognizing the role of self-interest and competition. Compassion, moderation and balance are projected as chief behavioral and social characteristics of an Islamic economy. In the light of current information and experiences we add sustainability as a desired feature. We need fresh intellectual, behavioral and regulatory initiatives to bring ground reality closer to Islamic economic aspirations. Lessons to learn from the experiences over the last fifty years are noted. A research agenda of learning from fiqh contributions in the light of historical developments in Muslim economies in various regions is proposed. The objectives of Islam (maqasid al-Shariah) require Muslims to work for betterment of the lot of humanity in general, hence a reaching out to other civilizational communities is recommended with a willingness to innovate and create new ways of realizing old aspirations.



All is not well with the economy of man. The feeling has become universal as evidenced by furious self- doubt and anxious re-examination afflicting economists and social scientists the world over. The chief worries have been increasing inequality within and between nations, persistent deprivation and poverty in some parts of the world, recurrent crises accompanied by loss of jobs for millions of peoples, rising levels of anxiety caused by threats to world  peace and internal security, and widespread perceptions of environmental degradations. A sense of failure pervades the academia and politicians are at a loss how to regain credibility. For Muslim peoples in general and for those sponsoring Islamic agendas in particular, the last decade has been like going through an ordeal. All the euphoria of liberation from colonial past and the good intentions behind the developmental efforts that followed have crashed against rocks of false dreams, mutual discards and age-long suspicions towards, and deep prejudices harbored by other  peoples. Economic crises being the most visible part of the civilizational breakdown, Islamic economics has been hit by the storm full blast. The frustration of friends who looked up to it as a panacea for all ills of the ummah is matched only by the jeers of outsiders who never believed in its promises or its claims to being distinct. Our deliberations today, as many that preceded it and those yet to follow, are expected to address this problem.

It is routine to review the past of a project focusing on the origins, before an examination of the current situation leads to a program for the future that includes a research agenda. But we also need to take into consideration the future, insofar as we can surmise it. It is not very unusual for projects conceived three quarters of a century ago to unfold in an unexpected way. It will be very frustrating, however, to reform with an eye on a bygone world to the neglect of the one about to dawn. Part of our predicament lies in the fact that we fail to envision how to realize eternal values in changing temporal and spatial settings, taking the easier course of assuming continuation of the  same settings in which the values were revealed/realized in the first place.

Since our criteria are values or the desired state of the world, it will be appropriate to begin with describing them. We do so in Section one below. Section two continues the discussion of Islam’s moral economy, paying attention to means as different from the ends discussed in section one. Section three focuses on the gap between the desired state of the world and the current state of the world. This provides the vantage point from which to ask: Why; and How? This is done in section four, bringing in the author’s perception of the state of the world in the sixties of the last century as seen from the vantage point of 2012. In the next section, Section five, the original aspirations are compared with what actually happened with especial focus on Islamic finance. In the subsequent section we focus on some shortcomings of the original vision, e. g, dissonance with the social and political realities of the Muslim peoples, and plead for giving the sociological imperatives priority consideration in our thinking. We proceed in Section seven, to look at fiqh and Islamic history as possible sources of enlightenment on the issues under discussion. In Section eight we emphasize how different the future is going to be from the past and suggest a viable approach to facing the challenges of the future. The research agenda that emerges out of the discussion is presented in Section nine. The concluding section sums up the discussion.


SECTION ONE: The Economy of Islam

Allah has launched mankind on planet earth for a test, providing for an environment suitable for that purpose. Says the Quran:

For He it is Who has appointed you vicegerent over the earth, and has exalted some of you over others in rank that He may try you in what He has bestowed upon you. Indeed your Lord is swift in retribution and He is certainly All-Forgiving, All-Compassionate.[6:165]

Blessed is He in Whose Hand is the dominion of the Universe, and Who has power over everything, Who created earth and life that He might try you as to which of you is better in deed.[67:1-2]

To be able to live with dignity man is prompted to avail of the resources found around him:

We assuredly established you in the earth and arranged for your livelihood in it. Little give you thanks.[7:10]

As for the earth, We have stretched it out and have cast on it firm mountains , and have caused to grow in it everything well-measured .And We have provided sustenance for you on it and also for those of whom you are not the providers.[15:19-20]

Individual availing of resources has to be accompanied by sharing with others. The haves owe something to the have-nots:

And those in whose wealth there is a known right for those that ask and those that are dispossessed [70:24-25].

Universal need fulfillment, assuring dignity and ensuring fairness, peace and order, are features of living together integral to the state of the world Allah wants to obtain:

Human beings, We created you all from a male and a female, and made you into nations and tribes so that you may know one another. Verily the noblest of you in the sight of Allah is the most God-fearing of you. Surely Allah is All-knowing, All-aware.[49:13]

Indeed, We honored the progeny of Adam, and bore them across land and sea and provided them with good things for their sustenance, and exalted them above many of Our creatures.[17:70]

There is no compulsion in religion. The Right way stands clearly distinguished from the wrong. Hence he who rejects the evil ones and believes in Allah has indeed taken hold of the firm, unbreakable handle. And Allah (Whom he has held for support) is All-Hearing, All-Knowing.[2:256]

The desired state of the world is a Just and balanced one:

Indeed We sent our Messengers with Clear Signs, and sent down with them the Book and the Balance that people may uphold Justice. And We sent down iron, wherein there is awesome power and many benefits for people, so Allah may know who, without even having seen Him, helps Him and His Messenger. Surely Allah is Most Strong, Most Mighty.”[57:25]




SECTION TWO: Nobility of Means

Allah has ruled out coercing people into right beliefs and good behavior. Basic freedoms must obtain for the divine purpose of testing to go through. Coercion and violence are ruled out as means for realizing desired ends.


There shall be no coercion in matters of faith. Distinct has now become the right way from [the way of ] error: hence, he who rejects the powers of evil and believes in God has indeed taken hold of a support most unfailing, which never give way: for God is al-hearing al-knowing.[2:256]


Persuasion and setting good examples is the way to call people to Islam:

(O Prophet), good and evil are not equal. Repel (evil) with that which is good, and you will see that he, between whom and you there was enmity, shall become as if he is a bosom friend( of yours).  But none attains to this except those who are steadfast; none attains to this except those endowed with mighty good fortune.[41:34-35]

The desired state of the world is free of oppression (zulm) and corruption (fasad) and full of justice (‘adl).

And Unto [the people of] Madyan [We sent] their brother, Shu’ayb. He said: “O my people! Worship God alone: you have no deity other than Him. Clear evidence of the truth has now come unto you from your Sustainer. Give, therefore, full measure and weight [in all your dealings], and do not deprive people of what is rightfully theirs; and do not spread corruption on earth after it has been so well ordered:[ all] this is for your own good, if you would but believe.  [7:85]

Woe unto those who give short measure: those who, when they are to receive from [other] people, demand that it be given in full, but when they have to measure or weigh whatever they owe to others, give less than what is due![83:1-3]

Good individual behavior, a social milieu conducive to fairness and compensatory state regulation should ensure a balanced society.

Indeed We sent our Messengers with Clear Signs, and sent down with them the Book and the Balance that people may uphold Justice. And We sent down iron, wherein there is awesome power and many benefits for people, so Allah may know who, without even having seen Him, helps Him and His Messenger. Surely Allah is Most Strong, Most Mighty.”[57:25]


Among people there is a kind whose sayings on the affairs of the world fascinate you: He calls Allah again and again to bear testimony to his sincerity; yet he is most fierce in enmity. Whenever he attains authority, he goes about the earth spreading mischief and laying to waste crops and human life, even though Allah (whose testimony he invokes) does not love mischief[2:204-205]

Self- interest tempered by care for others and moderation in material aspirations is the norm.


Competition for the good things in life needs being complemented by cooperation for social felicity.

We assuredly established you in the earth and arranged for your livelihood in it. Little do you give thanks.[7:10]

Jarir Ibn-e Abdullah reported to us that the Prophet, peace be upon him, said, ‘Allah would not be merciful to one who is not compassionate towards humans’ [Tirmizi, al-Jami’, Hadith # 1922]

Abu Hurairah reports that the Prophet, peace be upon him, said, ‘one who is not grateful to people did not express gratitude to Allah.[Tirmizi, al-Jami’, Hadith # 1954]


SECTION THREE: Ideals and Realities; recent history of the idea of Islamic Economics

Theorizing on Islamic economics started on the eve of Muslim peoples coming out of the colonial domination and taking charge of their traditional territories in South Asia, North Africa and the Middle East around the middle of the twentieth century.  The proponents of Islamic economy were not those in power in the newly independent Muslim countries. Insofar as the models of Islamic economy were built in order to be operational, their authors must have felt themselves in opposition to the rulers of their respective countries. Some of the advocates belonged to countries where Muslims were in a minority unable to influence the shape of the economy .They were not addressing their rulers but the people in general, intervening in the ideological war between capitalism and socialism/communism. The predicament of the Muslim masses was unique: They felt religiously obligated to shun interest, pay zakat and manage awqaf wherever they lived, irrespective of the attitude of the rulers. This explains the enthusiasm with which the earliest contributions to Islamic Economics, Banking and Finance were received all over the Muslim world. By the late sixties models of interest-free financial institutions were available in print in all the major Islamic languages and zaka/waqf based services proliferated in all Muslim communities. The historical phase in which some of the rulers obliged their peoples with pro-Islamic economics legislation, in Pakistan, Iran and Sudan, followed the popular grass root initiatives in the Indian sub-continent, the Philippines and  Egypt. But the international monetary and financial system left little room for national maneuvers much as the national systems constrained the local initiatives. Also, there were more than systemic constraints to limit the scope for Islamic economic projects: the failure at the behavioral front. Few if any were seen internalizing the Islamic behavioral norms briefly summarized in the sections above. Was it human perfidy?; Conspiracy by the Other?; Rulers slavishly following their Western (or Eastern) masters? Or, was it merely apathy on part of the largely ignorant Muslim masses that explained the failure? Diagnoses differed, but the one line of approach that found most adherents (as fitted with the ethos and temper of the age, and often the place, as in case of India and Egypt) was : Reach for political power in order to be able to implement the Islamic economic agenda.

We will be digressing too far from our subject if we follow this line of argument further or attempt its critique. It is prudent, therefore, to shift our focus to the decades that followed the initial launching of the Islamic economic projects. The developments in the last two decades of the previous century were prompted by a number of factors. Firstly, though the Power First approach would still be popular for a while, its naivety and fruitlessness had become too apparent for it to be credible, hence the flowering of the private initiatives like the Mit Ghamr societies and the Tabung Haji project in early sixties followed by Dubai Islamic bank in early seventies. Secondly, the behavioral failure paralyzed a section of the sponsors who were wont to treat Islamic economy as an ideology comparable to capitalism and socialism/communism. Unable to revisit the project in the framework of the Islamic view on life as a test, some continue to behave like ideologues bent on realizing certain ends, no matter what. Third, there is a failure of Ijtihad, resulting from centuries of sclerosis in Islamic legal studies and divorce of religious scholarship from modern social and scientific thought. The failure to perceive the objectives of Islamic economy through the thicket of context bound rules of individual conduct and measures of public policy enshrined as fiqh in our heritage led to the anomaly of financial products like tawarruq masquerading as Islamic finance as a new century dawned. An Islamic scholarship shying away from creative thinking, a generation of Muslim entrepreneurs fearful, in the name of Islam, of innovation and men in power lacking the self-confidence necessary for reaching out to realize the objectives of Islam (maqasid al-Shariah), failed to meet the challenges of modernity. At a more technical level, Islamic economists failed to sponsor a viable scheme of monetary management. We still lack a workable model of risk-sharing that does not leave a trail of unpaid (often un-payable ) debts. Even the attention currently paid to Islamic finance in the wake of the cataclysmic crisis of financial capitalism seems to pass away uneventfully. Last but not the least, we still lack a vision of the market that would combine the vitality of innovative competition with compassion-driven cooperation for the good of humanity.

SECTION FOUR: A Personal Story 

As evidenced by my earliest writings, especially Economic Enterprise in Islam (1972) and Islam Ka Nazariya e Milkiyat [Islam’s Theory of Property](1968) I emphasized the spiritual and moral dimensions of the Islamic economic project. At the same time, I did perceive that finding a way to do banking and finance without interest was the highest priority task in that project from a practical point of view. My works related to interest free banking were published in Urdu before the above-mentioned works. (Their translations into English and other languages came later.)That was more than a decade before murabaha and other debt-creating modes of financing were inducted into Islamic finance. At that time Islamic banking catered only to a niche market of conscientious Muslims. It was not in competition with conventional banking. The few Islamic banks that had come up by the end of the seventies of the last century did not depend on brand name Shariah Advisories for getting business. All that came during the eighties when, feeling the wind had started blowing the familiar way, giants of the conventional financial industry like City, HSBC, ANB AMRO…entered the field of Islamic finance. The eighties also saw the rise and fall of Islamic banking and finance at the state level in Pakistan, Iran and Sudan. Since then the territorial expansion of the Islamic finance industry has been accompanied by growing unease about the increasing gap between aspirations and realities.

Revisiting my vision of the sixties I see many ingredients of a robust recipe missing. First, there was hardly any reference to the then ground situation. The gap between how economic agents; producers, consumers, investors, … were actually behaving and the way texts from Quran and Sunnah quoted in my works envisaged them to behave, was wide enough. But there was little discussion of why it was so, or of how the gap could be bridged, and how intermediate states of the world( between the ideal and the reality) could be accepted and sustained. If the assumption was that it was all a matter of will-power/conviction it was never argued out. Nobody asked the awkward but obvious question: how to create a will strong enough to transform weak preferences into strong motives. Second, the clearest parts of the project were those involving fiqh rules, relating, for example, to ihtikar (hoarding; monopoly) or distribution of profit between mudaraba-partners. But the problems involved in transmitting the centuries-old rules to a modern rule book were not touched. Third, insofar as historical instances were cited in favor of altruistic or socially responsible behavior, they tended to belong to select periods of Islam’s long history, often of a particular region. No attempt was made to trace the evolution of an Islamic economic concept or precept through time and across regions. There is also a tendency to over-estimate the power of good intentions and ignore the tenacity of material incentives. The net result has been unrealistic utopias rather than workable agendas.

I like to pause here to narrate an experience belonging to the nineties. By then I had become aware of these shortcomings and wanted to rectify the situation. To a would be PhD. Student in Ummul-Qura university (Makkah Mukarramah) I suggested a subject requiring some field work as well as some textual studies: Evolution of the concept of israf over the ages and across regions. In accordance with the established practice in modern universities I wanted the student to do some field work in his city of residence by getting questionnaires filled by members of various income groups. But the proposal was turned down by the fiqh scholar supervising the research. Apparently nobody is willing to acknowledge the truth that the answer to what is israf would differ as the temporal, geographical and other material conditions differ. In other words, our jurists refuse to acknowledge the context-bound nature of the interpretations of many Islamic norms of behavior. This refusal would lead to confusion relating to what is amenable to regulation and what must be left to individual choice. This may apply to many Islamic economic concepts and precepts and result in diverse views on what constitutes an Islamic economy. It is time we face such issues squarely.

Lately many economists have focused on the role of information and how asymmetric information affects the principal agent relationships. The issue is central to a moral economy but we did not pay any attention to it. I can offer no excuses for the writers half a century back, including myself. About the information issue itself, I think the problems involved are not intractable. Lack of adequate knowledge is part of the human situation, overcoming it is the essence of civilization. It is also an aspect of the test that is life, which involves knowledge as well as intention.

Another significant deficit in the Islamic economics project as conceived by the founders is its being divorced from the sociology of the populations among whom it was first launched. No people, among them Muslims, are mere summations of individuals free to choose and acting rationally. Everyone operates as part of an intricate web of relations, traditions, obligations and emotions. People live and act as members of families, tribes, interest-groups, races, etc. Those out to transform and reform people can ignore these webs only at their own peril. Unfortunately for the Islamic economic project, the founders were not sensitive to this truth, neither in their readings of early Islamic history from which they drew inspiration nor in their understanding of their own peoples in their time and place. We press this point further in section six below.

It seemed natural at that time to focus our attention on the market and its functioning under influence of Islamic morality. By hindsight I now feel it would have been better to start with the family where man first appears and interacts with others before entering the market. The family is characterized by caring, gift relationship and altruism before reciprocity, exchange and contracts take over. More importantly, family relations are personal, full of warmth, mostly sincere, unlike the cold impersonal nature of the market given us by economics.          Could a more humane model of economy be built starting from the family before focusing on the market? Research along this line would provide a fitting antidote to the commodification of family relations currently in progress.

SECTION FIVE: Finance, Shariah- compliant versus maqasid- inspired?

Each and every contract currently used by Islamic financial institutions is certified by a Shariah scholar, often a team of scholars. Barring a few exotic speculative products like Debt Default Swaps, every product currently available in the conventional financial markets is also available, or can be readily made available, in the Islamic financial market. Islamic finance as currently practiced is Shariah-compliant. However there is a growing body of Muslim public opinion that is dissatisfied and refuses to recognize the whole exercise as Islamic. Most of the skeptics refer to the goals Islamic society seeks in economic life and argue that these goals are not being served under the current dispensation of Islamic finance. Moreover, the well documented ills of conventional finance are accompanying Shariah-compliant Islamic finance also. It is not inclusive, bypassing the majority of Muslims in the areas it is operating, it helps moving wealth upwards towards top of the pyramid like its conventional counterpart and it is barely contributing to the economic development of the Muslim countries and communities.

This is not the occasion for going into further details. But the anomaly of something conforming to rules failing to realize the goals deserves attention. It is not something new to Islamic legal development. A look at Imam Malik’s  approach to maslaha (good cause  ) or Imam Abu Hanifa’s concept of istihsan (preferring the good option  ) tells us that  it  takes more than following a set of rules to realize the objectives of Shariah. Even intuitively,    nobody is impressed by the claim that compliance with a set of fiqh rules ensures maqasid realization. The goals are God-given while the rules are man- made. As a matter of fact, the founders of the Islamic economics project emphasized goals not rules. As the texts quoted in earlier sections tell us, Allah will be pleased by men who strive for a certain state of the world to obtain. This state of the world is characterized, among other features, by universal need fulfillment, human dignity and basic freedoms for all and a distribution of income and wealth that maintains a balance between the rich and the poor by keeping inequality in check. Its hallmark is justice and equity and elimination of oppression and corruption while ensuring need fulfillment and sustainability. The task of the model builders is to align incentives with the desired behaviors. I sympathize with the perception of the common man that monetary management and financial markets in an Islamic set-up should help attain these goals. I am one with those who feel current arrangements fail to serve this purpose.

The disjunction between Islamic and conventional capitalistic finance is not trivial. The conventional system of money, banking and finance is based on debts, and the debts carry interest. As the real economy of goods and services is not growing with an accelerated rate due to long term environmental constraints and short term resources constraints, debt defaults are endemic .Money sucks in more money leaving the real economy of production starved of resources and resulting in unemployment. As profit-making productive opportunities shrink, profit-seekers turn to rent seeking [i.e. snatching away wealth already created from the one who owns it as distinct from producing new wealth, thereby enjoying a profit].Society’s God-given resources meant to support life for all (amwalakum allati ja’alallaha lakum qiyaman [Quran,4:5] ) become concentrated in the hands of the few resulting in destitution of the many.

Speculative trading in debts proliferates and the financial sector assumes a life of its own delinked from the real economy. Increasing inequality in the distribution of income and wealth is accompanied by instability. Debt-financing does not fit in with Islam due to prohibition of interest. It has to be replaced by sharing in actual profit as the basis of money creation as well as of banking and finance .The contributions to the subject prior to induction of murabaha in late seventies of the last century all revolved around the principle of sharing. Even after admitting a number of other debt creating modes such as ijarah and , salam/istisna into the Islamic financial arrangements it was emphasized they had to have only a limited scope. The addition of ‘trade based modes of finance’ had the backing mostly of Shariah scholars, not of trained economists. In Pakistan it was done in haste without considering its long term consequences, to enable President Ziaul Haq to claim having introduced Islamic banking.

Capitalism tried to meet the problem of increasing concentration of wealth and the resulting deprivation at the bottom of society by introducing progressive taxation and publicly funded welfare schemes. But high taxes (necessitated mostly by the need to pay interest on the growing public debt) create more problems than they solve. Publicly funded welfare projects are vulnerable to corruption and inefficiency. In the Islamic framework the voluntary third sector, historically represented by awqaf (charitable endowments) delivered welfare services more efficiently. As regards the problem of systemic imbalance, the Islamic approach would be to prevent inequalities from assuming uncontrollable momentum by purging interest and gambling-like speculation from the system.

SECTION SIX: The pull of sociology

The pioneers of Islamic Economics addressed the whole world, challenging their perceived rivals: capitalism and socialism/communism, which were attracting big chunks of Islamic peoples. Barring a few local experiments, bulk of the literature on Islamic economics and Islamic banking had a universalistic air, paying little attention to the nitty-gritty of applying the proposed models in a particular community or country. Could profit-sharing models of financial intermediation take root in an environment of low levels of trust and absence of appropriate legal framework? Such questions were neither raised nor answered in works like this author’s Banking Without Interest or Al-Bunk al La Rabwi by Baqir al-Sadr.  On the other hand, some who tried the two tier Mudaraba model in the early seventies but failed to continue, ascribe the failure to lack of proper legal cover for profit-sharing arrangements under the existing laws.

Those who proposed debt-creating models later on failed to see that debt-finance would lead them straight into the capitalist financial markets. Their contention that a ban on sale of debt would prevent proliferation proved wrong as debts for sale entered as minority components in for sale bundles of Sukuk, a process blessed and practiced by the Islamic Development Bank. When country-specific Islamic financial legislations came in the eighties they aimed more at scoring political points and acclaim from the masses rather than responding to the realities on the ground in Pakistan, Iran and Sudan. This is evidenced by the top-down approach adopted, with little input from the entrepreneurial classes and from those dealing with monies, their transfer and use. With populations whose overwhelming majorities were too poor to attract bankers’ interests the initial wave of Islamic financial initiatives failed to discover microfinance or cooperative venture capital.

More than a third of world Muslims live as citizens of countries whose majorities are not Muslims. In these countries, especially in India, small scale enterprises and self-employment is the mainstay of Muslim economics. Financing these sectors has special problems which large commercial banks have not been able to handle properly. Cooperatives and microfinance institutions are designed to serve these sectors. Islamic finance has been very slow to size up to this reality. Many small but prosperous Muslim communities on the Malabar Coast in India, Yemen, Zanzibar, some other parts of South Africa and around the Malacca straits in South East Asia have been successfully practicing interest-free finance for centuries. Trust and tradition forms the basis of credit and cooperation in these communities. There has been little realization, back in the sixties and even now in the second decade of the twenty-first century, that Islamic finance could learn a lot from these grass-root organizations. Financial intermediation through commercial banks does not have to be the only choice for Islamic finance.

Over the years I have come across many well- meaning persons, including   Shariah scholars, who do not believe in financial intermediation. They want Islamic banks to do profitable business directly and share the profits with their depositors. I do not think that is a good idea. The idea has lost credibility after a number of Islamic financial institutions, including the Kuwait Finance House, sustained heavy losses in the real-estate market.

Islamic economics movement inspired many fresh initiatives of mobilizing zakat and energizing awqaf, especially in the Muslim minority countries. But these fields remained the preserve of social activists. Trained economists and Muslim social scientists paid little attention. Their potential role in global Muslim regeneration remains unrealized due to lack of adequate data and workable models based on proper analysis. The issue links up with Muslim demography and possible future scenarios. Unfortunately these long term researches needing heavy investment   have yet to find sponsors in the Muslim world.


SECTION SEVEN: Sources of inspiration; Fiqh versus history

In launching the Islamic economics project, the writers in mid-twentieth century were largely inspired by Texts in Quran and Sunnah emphasizing tawheed (one-ness of God), human brotherhood, cooperation, sharing of God-given resources, etc., some of which we have quoted in the opening sections. They also looked back to the years under rule of the Prophet, peace upon him, and the pious Caliphs, and drew inspirations from selected periods of Islamic history. Their references to fiqh were few and far between. As the Islamic financial industry expanded and Islamic financial institutions felt obliged to rely on fatwas to gain credibility, fiqh became the main-stay of the project. Unfortunately for the project of Islamic economics, fiqh as practiced lately lacked the creativity and comprehensiveness that characterized fiqh during its hey-day, in the first five centuries of Islamic history. To be more specific it had long lost the nerves to translate Islam’s cherished goals in socio-economic affairs into operable norms of behavior, rules of conduct and frameworks of public policy in changing circumstances. Despite the century long efforts to restore to fiqh its original vitality, its modern practitioners failed to guide Islamic banking and finance onto ways leading to the realizations of Islamic economic goal of building an efficient, just and equitable society. Even after four decades of practice the regions claiming about twenty-five percent market share for  Shariah-compliant Islamic finance, the Gulf area and South-East Asia, retain gross inequities and poor efficiency levels.

A greater recourse to Islamic history would have given us an idea of how and to what extent Muslims in various regions of the world were able to realize the Islamic economic goals. Even the instances of failure would have lessons to teach. But as in the case of ignoring sociology, neglect of history has deprived Islamic economics movement of the realism, gradualism and flexibility needed to make progress while protecting its identity. The fiqh-based strategies of emulating current conventional practices have resulted in erosion of the distinctive identity of Islamic finance.

There is a great role fiqh is destined to play in any effort to create a modern Islamic society. But the right way of doing so would be reading of fiqh not as a set of timeless rules valid for all locations but a context-bound exercise of doing God’s will. This requires analogical reasoning being given a second place in comparison to consideration of public purposes (masalih ‘ammah), social consequences (ma’alat)  and private benefits( manafi’ ) in arriving at a ruling. Micro- and macro- economic analyses, sociological and psychological studies and impact on environment are better guides to reach the right decision in new situations than logical arguments linking current issues to thousand-year old rulings given in a different locale. This major revamp of Islamic legal methodology is still awaited.

It takes time. Meanwhile, let analogy-focused fiqh be moderated by a sense of history. Fiqh rulings of the great Imams, and those cherished by different schools of fiqh, need to be reported, taught and discussed along with full disclosure of when , where and under what socio-political circumstances the rulings were given. With particular reference to financial arrangements, the evolution through history and across geographical regions of various practices, like qard e hasan, trade credit, ‘arbun, suftajah, sukuk ,etc. need being studied to understand how well-meaning Muslims as guided by their fiqh scholars handled the changing needs of business. The same needs being done with respect to zakat, its coverage, rates and uses. Awqaf, the mainstay of welfare services in Islamic societies over the ages, also deserve extensive studies. The more detailed and clear a picture we have of how Muslims tried to do God’s will in economic affairs under changing times and locations, the more our current economic thinking will be on mark. Unfortunately it has not been so in the past.


Our greatest asset is our distinctive identity that has the capacity to sustain norms of behavior of an Islamic economy characterized by balance and equity. The biggest loss during the last two decades has been erosion of identity and danger of assimilation into mainstream capitalism. The future of the Islamic economics project depends on whether its responses to the coming technological and psychological changes strengthen its identity or weaken it.

It has always been difficult to guess the future, but current pace of change makes it almost impossible to do so. From the economic viewpoint the biggest changes may occur in money, monetary management and industrial organization. With the decline of state, private initiatives in production and exchange of wealth may gain  in strength and their amenability to control and regulation may be very low.     Financial options are likely to widen with increasing possibilities of direct finance limiting the need for financial intermediation. Some are also talking about economics of abundance, to the extent of abolishing poverty. But plentiful resources have never been a guaranty against deprivation caused by mal-distribution. Increasing inequality, leading to indignity for the people at the bottom of the pyramid, and the consequent economic instability, is caused by moral failures more than market failures. Scarcity or abundance has little to do with moral failures. A failure on part of the state to intervene to rectify the situation, though apparently a political deficit, is also rooted in moral failure. This heightens the importance of psychological factors. On the one hand, supremacist Islamic exceptionalism could be counter-productive, even destructive. On the other hand, divinely inspired morality rooted in spirituality and the sense of a universal mission has been an essential feature of the Islamic movement that out-poured Islamic economics. Losing it may cause a collapse of the whole enterprise of a distinct way of life. Self-doubt bordering on skepticism could be a killer.

Whether a single world currency will materialize is doubtful but disappearance of physically existing money seems to be a possibility. Physical money as we know it now may dissolve into bits and bytes, barter and reciprocal gift relationships may resurface, and novel methods hard to imagine at the present may replace current financial arrangement. Fortunately for us, Islam never tagged its destiny to any particular form of money or its creation and management. Its focus is on fairness in exchange not on forms and physical characteristics of money.

The threats to human survival from outside, environmental and ecological threats, may force greater cooperation between peoples. Nation states as we know them may well yield to more cosmopolitan arrangements; the local and the global may attain more importance than the national. This will be an advantage for the cosmopolitan ummah of Islam which has never been at ease with nation states.

The list of possible future scenarios may go on and on. Its relevance for this paper is to shake us out of too much brooding about the past. Yes, the Islamic economics project as conceived more than half a century ago did not unfold into practice as envisioned. True, its current performance is disappointing. But its future cannot be secured by a return to the original vision. Rather we need a new vision, a vision more in tune with the shape of things to come. That requires the ability to make new rules and evolve new institutions that could realize the goals of Islam in economic life: Justice and fairness tempered with equity and compassion, need-fulfillment and human dignity for all, within the framework of a peaceful world that is free to choose.



Islamic Economics Project promises an economy built on freedom, enterprise and compassion. For a world sick of increasing inequality, of development for the few and anxiety for all, exposed to the dangers from environment as well as from within societies, these promises matter. Their realization calls for creative thinking for operationalizing moral values and harnessing them in the service of the common good. While allowing full play to innovative competition, Islamic economics provides the philosophical framework for cooperation needed to fill the information deficit and face the uncertainties embedded in the human situation. Its time has come!




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