CH2_reviewed-33 [PRF].pptx

Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA). https://ifikr.isra.my/library/pub/10296 © International Shari'ah Research Academy for Islamic Finance (I...

Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA). https://ifikr.isra.my/library/pub/10296 © International Shari'ah Research Academy for Islamic Finance (ISRA). To cite the book: Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Chapter Objectives Reviewing the different definitions suggested by many Islamic economists. Providing detailed discussions on the characteristics of Islamic economics that make the discipline different from its conventional counterparts. Exploring the scope of Islamic economics to provide some insight on its components and to analyse the discipline from various perspectives. Discussing Islamic economics as a social science, political science and multidisciplinary science. Discussing the relationship between economics and fiqh (Islamic jurisprudence). Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Definition of Islamic Economics Attempts by modern Muslim thinkers in defining Islamic economics have placed greater emphasis on its philosophical dimension, namely attainment of equity and justice in economic activities. However, despite the many noble attempts to define Islamic economics, till today, there is no consensus on a suitable definition. Debated issues range from:  Articulating the objectives of Islamic economics.  Invoking the Islamic ethical precepts in economics.  Formulating its methodological stance.  Presenting it as an economic system.  Examining ideas and thoughts of early Muslim scholars. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Definition of Islamic Economics Economics is: A social science that studies aspects of production, consumption, distribution and exchange of commodities. The science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. The study of how society manages its scarce resources. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Selected Definitions of Islamic Economics Hasanuzzaman (1991) Islamic economics is the knowledge and application of its functions and the rules of Sharīʿah that prevent injustice in the acquisition and disposal of material resources to provide satisfaction of human beings and enable them to perform their obligations to God and society. Chapra (1996) The branch of knowledge which helps realise human well-being through an allocation and distribution of resources that is in conformity with Islamic teachings without unduly curbing individual freedom or creating continued macroeconomic and ecological imbalances. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Selected Definitions of Islamic Economics Siddiqi (1996) Islamic economics is ‘the Muslim thinker’ response to the economic challenges of their times. They were the resource persons in the endeavor aided by the Qurʾān and Sunnah as well as by reason and experience. Zarqa (2003) It is economics which is guided by the Sharīʿah. It covers all humans (Muslims and non-Muslims) in their behaviour, institutions and policies related to economic life, even when such behaviour is not Sharīʿah compatible. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  The diversity of definitions should not surprise once we remember that Islam's approach to all human issues, including economic ones, is holistic or multidisciplinary. Islamic economics could be a study of choice considering relative scarcity rather than absolute scarcity. It is apparent that wealth maximisation and utility optimisation in general may not be a primary concern in Islamic economics. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Generally, Islamic economics could be defined as: A social science that studies the economic problems of humanity, and evaluates their solutions from the perspective of the Islamic world view and values, as well as human reasoning and experience. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Characteristics of Islamic Economics Rabbāniyyah (Divine Origin) Insāniyyah (Humanness) Akhlāqiyyah (Ethicality) Wasaṭiyyah (Moderation) Wāqiʿiyyah (Practicality) Ālamiyyah (Universality) Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  1 Rabbāniyyah (Divine Origin) The concept of rabbāniyyah means that Islamic economics has a divine origin and is built upon the Islamic world view confirming that God being the sole creator, owner and provider of resources. The initiation of economic activities in Islam has its metaphysical roots in the Holy Qurʾān. As such, Sharīʿah rules that are derived from the Qurʾān and Sunnah, shall be applied in all aspects of economics, business and financial deliberations taking place in society. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  2 Insāniyyah (Humanness) Islamic economics is also concerned with the role of insān (human being) who possesses both physical and spiritual attributes to attend to the problems of resource allocation, distribution and growth. Humankind is responsible for managing the economy, and any attempt made to understand human behaviour in the market place requires an investigation of the concept of human being as an individual and as a member of the community. An individual makes decisions on what to consume and produce, and is held accountable in the hereafter for the choices made and actions conducted. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  3 Akhlāqiyyah (Ethicality) The role of humankind as Allah’s (SWT) vicegerent in establishing a moral and social order on earth is difficult as they are being constantly attacked by Satanic forces that reel them back to their bestial self. This requires an individual to exercise the power of intellect in dealing with economic problems and choices where the likelihood of falling into error cannot be overlooked. The sole purpose of humanity on this earth is to enslave themselves to Allah (SWT) by following His guidance and teachings. Accordingly, they become closer to Him and are rewarded with the beautiful gardens of paradise. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  4 Wasaṭiyyah (Moderation) The need for balance is fundamental in any form of conduct as without it extremism emerges that often leads to injuries, discontent and unhappiness. The fact that Islam upholds moderation as a principle of good conduct implies that the benefits arising from such behaviour are manifested in all aspects of livelihood including economics. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  5 Wāqiʿiyyah (Practicality) While the Sharīʿah rules give rise to the equitable nature of Islamic economics, some activities may need no explicit divine guidance but must follow the law of nature. This includes considering the realities of life and the importance of being efficient in using and handling of the resources entrusted to humankind by God. Islamic economics uses reasons and facts to understand and explain the realities (Example: increasing sales by doing market research). One could refer to the 2007–2008 global financial crisis as a situation arising from humanity's neglect of reference to divine revelations and values in the pursuit of economic activities. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  6 ʿĀlamiyyah (Universality) Islamic economics is not only for Muslims. It is for the entire humanity. This imposes a serious challenge to Muslim economists to successfully deliver the message of Allah (SWT) to humanity and positively contribute to world economic stability and prosperity. One implication of this universality is the need to study economic life of Muslims and non-Muslims in their economic behaviour, institutions, policies and thought. It should also study and critically review all accumulated human economic knowledge. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Scope of Islamic Economics Three Conceptual Components of Economics: 1 Economic System 2 Economic Analysis 3 Economic Policies The three components are conceptually distinct but there are several channels of influence whereby one affects the other. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  1 Economic System The economic system comprises the ‘normative’ elements, that is, what ought to be, the do's and don’ts, the right and wrong, the legal and illegal, the ḥalāl (permissible) and ḥarām (impermissible), and the goals in economic life. It is the conceptual repository of the normative components of any form of economics. A system comprises a society’s world view, goals, rules and institutions that the society prefers to live up to and follow in managing its economic life Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  2 Economic Analysis It consists of descriptions of economic reality and statements about stable relationships among variables or causes and effects. This is the ‘what is’, or the ‘positive’ or descriptive component in economics. In addition to policy, values influence economic analysis through two channels:  The choice of topics or questions to be studied.  The choice of variables to be used in explaining economic phenomena. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  3 Economic Policies These policies consider how we move from where the economy is, to where it should be: to change the present economic reality to make it closer to our ideals or goals. An economic policy always comprises both goals and means. The goals are normative and ‘imported’ from the system component, and the means are positive and ‘imported’ from the analysis component. Policy uses knowledge of causes and effects as a tool to reach goals. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Islamic Economics as a Social Science As a social science, Islamic economics seeks to examine the conduct of individuals collectively in social settings including the market place and the established economic relationships to assure fairness and justice. Islamic economics is also associated with social undertakings by the state where the institution of zakāh and other collective and voluntary spending activities take place. The concept of the individual shall not be confined only to the mundane physical-being that is merely driven by material impulses but must be seen as a social individual who interacts with the community. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Islamic Economics as a Social Science As a way of life, Islam is not a religion that isolates economic activities from the worship of God but sees all human activities as an act of worship. Aql (mind/intellect), rūḥ (soul), qalb (heart) and nafs (self) of the individuals have an impact on determining economic choices. The economic decision of the individual does not affect only oneself, but the society one lives in as well. As such, immoral economic decisions may seek only to benefit a few of the rich and the elite with catastrophic effects on social and economic welfare of nations. Since the problem deals with the individual in his or her management of resources in a social context, the study of Islamic economics shall include the study of the individual conduct (that is driven by his philosophical, psychological and theological inclinations) within a social context. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Islamic Economics as a Political Science Political economy deals with the role of markets and government in determining the performance of economy. This does not only include the relation between the market and the government, and the coordination and cooperation between them, but also the preference for regulation and deregulation of the market. Actions in the market shall be governed by a set of sound legal rules as well as ethical principles to ensure justice and fair dealings. Otherwise, the market may not be able to police itself, leading to people indulging in corrupt business practices such as price-fixing, hoarding, outbidding, trickery, concealing of defects and cheating. Therefore, Islamic economics shall also deal with this aspect. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Islamic Economics as a Multidisciplinary Science Islamic economics is a discipline which has relations with Islamic metaphysics, ontology, epistemology, theology and ethics. Some scholars view Islamic economics as a multidisciplinary science that combines the disciplines of science, religion and ethics. Though this may make the scope of Islamic economics too wide, acknowledging the close relationship between the mentioned disciplines and Islamic economics is undeniable. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Objectives of Islamic Economics as a Discipline 1 Study & Discover Islamic economics includes normative statements and positive statements. In Islamic economics, normative statements should follow value principles of Islamic behavior. A positive statement provides observable economic facts assessed without any value judgement, while a normative statement describes the ideal state of the economy based on certain value principles. On the positive side, Islamic economics shares with conventional economics the professional duty of studying all human economic reality and accumulated knowledge related to it, and to ‘discover’ and ‘verify’ new positive knowledge, both descriptive and analytical. Islamic economics should make special effort to seek the wisdom of Divine instructions, including their short- and long-term consequences, expected hurdles and ways to implement them to achieve their full intended benefits for humanity. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Objectives of Islamic Economics as a Discipline 2 Assess and Reform Islamic economics should critically analyse every issue it studies from the perspective of an Islamic economic system as well as the realities of time and place, and formulate policies to reform the present and move closer to the system goals (objectives of the Sharīʿah in economic life). Islamic economics shall maintain a universal outlook; hence, it shall study, assess, review all accumulated human economic knowledge and use available analytical tools. Islamic economics has a comparative advantage over conventional economics as the former has access to the divine guidance of the Sharīʿah. This makes for fundamental contributions and possible paradigm shift in economics. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Methodology of Islamic Economics Methodology is generally defined as a system of broad principles or rules from which specific methods or procedures may be derived to interpret or solve different problems within the scope of a discipline. Economic methodology is concerned with how economic knowledge is pursued. In order for Islamic economics to become a reality, a methodology which incorporates Islamic values is necessary to be included. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Three-pronged Approach of Islamic Economics Islamic economics may follow a three-pronged approach involving: Negation: Involves the rejection of any conventional economic concept, theory, value or model if it contradicts the world view of Islam and its fundamental elements. Integration: involves the incorporation of any economic concept, theory or practice that is in line with the Islamic world view. Value-addition: involves such exclusive additions made to economics because of the unique values within the Islamic world view. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Interpreting Economic Phenomena Conventional economists are convinced that the explanation of economic phenomena is based on observing them the way they are or the way they occur in an economy. This form of observation and interpretation is called ‘positive economics’. (Example: The establishment of the law of demand) Generally, the Islamic world view is in agreement with positive economics and its scientific forms of observation and analysis. Islamic epistemology in fact, acknowledges sense perception, sound reasoning and the scientific method as sources of knowledge to observe natural phenomena, including economic phenomena. Empirical evidence is accepted in Islamic epistemology as a means of validation of knowledge. Though the Islamic world view approves empirical evidence as a means of discovering knowledge, it also accepts the unseen and metaphysical beings who directly or indirectly influence the natural phenomena of economics. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Example of Normative Vs. Positive Economics Distinguishing between positive statements concerning facts (what is), and normative statements concerning values (what ought to be) is an important part of methodology in which the link between positive economics and normative economics must be preserved. The economic phenomenon (inflation, for example) is an aspect of positive economics, but avoiding it or managing it is part of normative economics, because it is based on a value judgement of inflation. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  In Summary Conventionally, economics has been defined as the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. However, this is found to be unfitting as a definition of Islamic economics. Going through various definitions of Islamic economics and analysis of divine guidelines provided in the Qurʾān and Sunnah, it is noticed that different definitions are not contradictory; rather they refer to different aspects Although Islamic economics studies choices made by people within the Sharīʿah boundaries, sources of knowledge are not limited to divine revelation but include empirical and rational sources as well. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  In Summary The main characteristics of Islamic economics are defined in terms of its rabbāniyyah (divine origin), insāniyyah (humanness), akhlāqiyyah (ethicality), wasaṭiyyah (moderation), wāqiʿiyyah (practicality) and ʿālamiyyah (universality). One could also view ‘Sharīʿah boundaries’ as a key characteristic of Islamic economics. Islamic economics is not only concerned about individuals; it also seeks as a social science to examine the conduct of the individuals collectively in social settings including in the market place, and their economic relationships that are established to assure fairness and justice. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  In Summary Islamic economics has a wide scope in which it could be seen as a social science, political science and multidisciplinary science that has a very close relationship with fiqh (Islamic jurisprudence). Islamic economics aims to discover and study economic reality and accumulated knowledge to assess and reform the present and formulate policies in line with the Sharīʿah objectives in economic life. Islam acknowledges sense perception, sound reasoning and the scientific method as sources of knowledge to observe natural phenomena, including economic phenomena. Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA).  Thank you © International Shari'ah Research Academy for Islamic Finance (ISRA). To cite the book: Abojeib, M., Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis.