Islamic Finance and Global Capitalism: An Alternative to the Market Economy
Islamic Finance and Global Capitalism an Alternative to the Market Economy – Sample Book
The Emergence of Islamic Finance
Nobody can hope to understand the economic phenomena of any, including the present epoch, who has not an adequate command of the historical facts and an adequate amount of historical sense or of what may be described as historical experience.
Islamic finance cannot be understood in a vacuum.
The sophisticated legal structures and the vibrancy of the contemporary Islamic finance market is based upon the wider history and faith of Islam.
It is this history and the understanding of religion that enables us not only to ascertain the very genesis of Islamic finance but also how the sector has changed and grown since its modern incarnation in the 1960s. The American economist, Joseph Schumpeter recognised that historical factors impacted upon economic trends. Consequently, when we consider the future direction of Islamic finance through the 2020s and beyond, we would be at a loss of analysing this trend without a clear historical and theological understanding of the premises which lie behind Islamic finance.
This is not to say that Islamic finance does not have wider significance for businesses and consumers from all nations and for people of all back- grounds. We will consider the role of Islamic finance as part of the wider mutual economy debate and how adherents to laissez-faire economics as well as supporters of social democracy can connect to different aspects of Islamic finance to advance their theoretical perspectives.
Though Islamic finance is viewed as a niche product by many partic- ipants in the global money markets, in countries such as Saudi Arabia, Iran, Pakistan and Malaysia, Islamic finance plays a significant role in the operation of the political economy.
In other countries such as my own—the United Kingdom—where Islamic finance is seen as a specialist area when compared to the larger conventional investment and retail banking institutions, the sector has a number of lessons which can help nations attract patient capital and invest in technologies which require long-term finance.
As Schumpeter rightly observed, the “fundamental phenomenon of economic development ” can disrupt the “circular flow of economic life as conditioned by given circumstances ” to transform how an economy operates and performs.
Islamic finance has that potential to change the “business as usual ” approach at a time, following the 2008 global financial crisis and the economic implications flowing from the 2020 COVID-19 outbreak, where national and multilateral institutions are seeking new ways to jump start business activity and to engender sustainable economic growth.
Islamic finance is a subset of Islamic economics where a whole system of economics has been devised whereby monetary, trade, fiscal and financing policies are designed to serve the wider good. It is Islamic finance, though, in our era which is the most successful branch of Islamic economics in terms of successfully reaching out to consumers across the globe.
However, before we jump to the lessons that Islamic economics and Islamic finance afford all of us, let us first consider the very earliest basis of this model—the revelation as received by the Prophet.
Formation of the Faith
The seventh-century desert plains of Arabia may not seem the obvious starting point to consider the complexities of urban-based twenty-first- century capitalism.
However, the Prophet Muhammed had much to say on the economy whether it was to do with taxes, trade or prices policy. The holy Qur’ran contains a range of business-related stipulations.
It would be wrong to presuppose that the world’s other great reli- gions do not refer to economic themes as well. In fact, as this and the next chapter will demonstrate, from Judaism to Christianity and from Hinduism to Buddhism to Sikhism, religions do stipulate proper conduct when it comes to business affairs.
Mahatma Gandhi (1869–1948) famously called for a “true economics ” as part of his non-violent struggle against British colonialism in India. Speaking from a Hindu perspective, individuals were urged to live a “decent life” based on dharma (righteousness), artha (material wealth), kaam (happiness) and moksha (spiritual enlightenment).2
However, it could be argued that Islam has a particular focus upon economic issues. The Prophet was a trader and his wife, Khadija, was an investor in various trade missions. The revelation that the Prophet received from Allah and the experiences of the Prophet is imbued with this socio-economic understanding.
There are five pillars of Islam (which literally means “submission to God”) which Muslims (literally means “one to submit to the faith”) should adhere to. One of these is zakat—whereby a believer with discre- tionary resources would provide a percentage of these funds for charitable good works. Therefore, the very basis of Islam reflects the economic responsibilities which individuals should adopt.
With interest banned in all Islamic finance practices, it could seem that there is a disconnect between Islamic finance and conventional macroe- conomic practices. However, I will posit the approach that in a number of crucial areas, Islamic finance has distinct synergies with laissez-faire economics whilst, with some of its legal constructs, Islamic finance shares some of its thinking with social democracy and East Asian developmental capitalism.
The Prophet and the Emergence of Islamic Economics
Mecca had always been an important centre of trade and pilgrimage before the advent of Islam. Worshippers performed the rite of tawaf or circumambulation around the holy Kaa’ba with its sacred stone and the Well of Zamzam. The city was home to a range of businesses and various belief systems coexisted within Mecca.
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