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Islamic Economic System

PDG in Islamic banking and financeCenter for Islamic Economics

Aug ~ Dec, 2015

Irshad Ahmad Aijaz – Chairman, Shari'ah Supervisory BoardBankIslami Pakistan Limited

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Contents

The basis for economic thoughts;► Basics of social & economic thoughts;

Ideological & theoretical differences with other economic thoughts;► Ideological base for economic system – is it really required?Conventional economics;► The basic issue;►

Positive and Normative economics;► Comparison between systems;► Islamic and conventional models;

Q & A;

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The basis for economic thoughts

Every society has set of thoughts that provide basis for social systems;The features of these thoughts reflect in features of that system, be it social economic or political;Therefore we at first try to elaborate the basic difference in approach andideology. This explains to us the root cause of other micro difference;The classical systems of economics developed in secular societies which doconsider revelation as basis of wisdom;This basic difference create a difference which widens at micro level;Therefore a question comes in front of us: what is Islamic economics and hit differs from conventional economics?

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Differences between Islamic and classical economic theories

Islamic economic guidelines provide us a basis which is different from fromconventional economics in two ways:► Basic ideological differences;

Authoritative nature of religious rules;Concept of Halal and Haram (Prohibitions and Permissions);A permissible cannot be prohibited and prohibited cannot be permitted (except under specific

► Deficiencies in practical approach (failure in achievement of results);Failure in achieving the target – free market that ultimately creates equilibrium;Mismatched distribution of wealth;Unnatural control over economic activities;

The first type is all about ideology and beliefs and the second area mostlybelongs to activities of administrative and strategic nature;

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Ideological base for economic system – is it really required?

Is it necessary to have economics with an Islamic perspective?A question may arise here: why do we need an economic system which isIslamic?A simple answer is Islamic theory of Maqasid ush Shari'ah (objectives ofShari'ah);Segregation between systems of life is a major cause of abolishment of thesocieties. Designing of a system in isolation of the other cause conflict betwsystems of the society which leads to ultimate problem in the composition othe society;

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Ideological base for economic system – is it really required?

Theory of free market and controlled market proved to have been problematheories for human beingTherefore Islamic viewpoint is coherence and interdependency betweensystems and not segregation;Till now multiple theories of life styles are discussed and implemented and of them are logic based;Human logic does not cover all the required feature in a system;Therefore it is necessary to have an absolute basis for any system of life;

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Structure of Islamic economic guidelines

Adherence to general guidelines and objectives of Shari'ah. E.g ConHalal and Haram and Maqasid ul Shari'ah i.e. theory of safeguarding(deen), life (nafs), intellect (‘aql), posterity (nasl), and wealth (maal);Whatever hurts these objectives and basics of Shari'ah is not acceptaIslam and its removal is desirable.

Adherence to guidelines of general dealings (guidelines on Mua'amlprohibition of harmful economic activities like impermissible ways ocreation (Akl Bil Baatil), compulsion of law of contract, deconcentrwealth, prohibition of bribing, hoarding and other unjust ways of de

Adherence to specific economic guidelines of Shari'ah like prohibitiRiba, Gharar, Qimar, short sale, buy back etc. etc.

Islamic Economic System

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Conventional economics

Economics is all about management of available (scares) resources to giveoptimal output;This science has developed very sophisticatedly in recent time and made greprogress;Thousands of books have been published and the topic is taught the world oThe empirical results show deficiency of world in achieving the targets;Uneven wealth distribution and its concentration in hands of few, increaseddistances between wealthy and poor and recent meltdown of giant economieand many other issues portray a different picture;

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Flaws in conventional economics

All this shows the objectives which are the actual target of economic sciencare not achieved in the manners which was claimed;The major targets of conventional economics were two:► Setting standards for economic systems to be achieved i.e socioeconomic objectives

like growth, employment, equitable distribution of wealth, stability of economy etc.etc. – normative economics;

►

Analytical study of the theoretical standards like Realization of efficiency and equityin allocation and distribution of the scare resources – positive economics;In spite of all these theoretical developments, the economic goals have not bachieved. The reason may be disharmony between the mechanism and goals

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But one try to find the basic reason behind the practical flaw and why thesystems were not coherent with the objectives?The reason was simple – pure logic based system:► The normative objectives were made on the basis of priorly set natural human values

system;► Then the economic system was designed and developed for achieving these values;►

So the target (set of human values) and method (normative objectives) were developedon pure logical basis;

According to Islam the human value system and mechanism for achieving itnot a pure logical matter;It is in fact act of creator of this world to suggest the practical aspects forachieving theoretical objectives;

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So the systems have been developed with no or less intervention of theRevelation (wahee – message of God);This conflict started in West and gradually increased through secular educatand media propagation;Moral values have been set aside of economic functions and activities and thbecame more widespread over the centuries;The world view of new West (1600 ~ 1800 centuries) totally denies theinterference of religion in design of system of life;Materialism and physical achievement are the goal now and not the spirituaachievements;The ultimate result of this proliferation of segregation between objectives anmethods has resulted very unfortunate results;

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The unequal distribution of wealth, increased ways of earning and making

money, low attention to ethical values, zero acceptability of religious guidelinartificial demand and supply, unethical marketing techniques, white collar crimand many other burning issues are the gift of such incoherent, dissonant andpurely material system of economics;

Now what is the way?

The answer is:► A system that recognize value system and humanitarian goals and is coherent withobjectives;

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Islamic alternative

This leads us to a next question: – How to design such a system? What changes are required to the existing system to makeit more objective based? How to solve problem of incoherence between system andobjectives?

The answer is 'goals and method of Islamic economics';One point should be clarified here:

– The so far developed economic science which are broad-based academic and exploratorywork of the conventional economics can not be declared a redundant work; – The difference between existing and Islamic theories is not a total difference which meaneven a single point is not acceptable to Islam. There might be some agreed upon theoriesbetween Islamic and other conventional models;

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Controlled Economy

Islamic Economy

Mixed Economy

Free Economy

Absolute freedom

1 2

4

3

567

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1110

812

Absolute control

Architecture of Islamic economic model

1. Pure capitalist theory;

2. Pure socialist theory;

3. Pure mixed economy theory;

4. Pure Islamic theory;

5. Socialist and Mixed economy com

6. Capitalist and Mixed economy com

7. Mixed economy and Islamic theory

8. Capitalist, Mixed economy and Isl

9. Socialist, Mixed economy and Isla

10. Capitalist and Islamic theory;

11. Socialist and Islamic theory;

12. Commonalities between all econom

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Q & A

lecture 02 - ies [6 sept, 15]

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