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MY LIFE IN ISLAMIC ECONOMICS

Prof. Muhammad Nejatullah Siddiqi

have been involved in Islamic economics most of my life. At school, however, I studied science subjects, but switched to economics, Arabic and English literature for my BA degree at Aligarh Muslim University (AMU), which I joined in 1949.The decision was influenced by my reading habit. I was devoted to al-Hilal and al-Balagh magazines, published under the guidance of Maulana Abul Kalam Azad (1888–1958), poet, critic, thinker and one of the great leaders of the Independence Movement. I also read al-Tableegh, and was influenced by the Deobandi scholar Maulana Ashraf Ali Thanawi (1863–1943), the author of the famous book on belief and correct conduct (for women), Heavenly Ornaments.And, as most young people of my age and time, I studied the works of Maulana Abul Ala Maududi (1903– 1979).Two of Maududi’s works had a deep impact on me: lectures he gave at Nadwatul Ulama, Lucknow, and a scheme he proposed to Aligarh Muslim University, both in the mid-1940s, later published in a collection titled Taleemat. Under the influence of these ulamas – religious scholars – I abandoned science and the engineering career I had planned.What I wanted now was to learn Arabic, gain direct access to Islamic sources, and discover how modern life and Islamic teachings interacted. I stuck to this mission, even though I had to take a number of detours stretching over six years – to Sanwi Darsgah e Jamaat e Islami, Rampur and Madrasatul Islah in Saraimir before I arrived eventually at Aligarh to earn a PhD in economics.

The years spent in Rampur and Saraimir were distinguished by lively interaction with Ulama.We spent most of our time discussing the Qur’an, the traditions of the Prophet, commentaries on the Qur’an, fiqh (jurisprudence) and usul-e-fiqh, or principles of jurisprudence. That this happened in the company of young men of my own age, fired by the same zeal, was an added advantage. We had each chosen a subject – political science, philosophy, economics – that we thought would enhance our understanding of modern life. We were also fired by the idea of combining modern-secular and old-religious learning to produce something that would right what was wrong with the world.We received a warm welcome from Zakir Hussain (1897–1969), the former President of India, then Vice-Chancellor of Aligarh Muslim University; Mohammad Aaqil Saheb, Professor of Economics at Jamia Milliyah Islamia, Delhi; and by eminent teachers at Osmania University in Hyderabad.

Our mission was to introduce Islamic ideas to economics. These were envisaged at three levels. A background provided by Islam’s worldview, placing matters economic in a holistic framework; a set of goals to be achieved by individual behaviour and economic policy; and a set of norms and values, resulting in appropriate institutions. Maududi argued that this exercise performed in key social sciences would pave the way for progress towards an ‘Islamic society’. I was fully sold to the idea. We were also influenced by the extraordinary times through which Islam and Muslims were passing all over the world. Islam was ‘re-emerging’ after three centuries of colonisation which was preceded by another three centuries of stagnation and intellectual atrophy. The great depression had just exposed capitalism’s darker side and Russian-sponsored socialism was enlisting sympathisers. Islam had a chance, if only a convincing case could be made, we thought.

In Aligarh I attended lectures by the eminent Marxian economist, D P Mukherji. Those were heady days for socialists in India. Islam and everything Islamic was perceived as anti-socialist, even pro-capitalist.That was what the faculty thought. The student body was predominantly pro- Islamic.That provided a lively environment for discussion in the class room and at the campus.The department of economics had eminent visitors like the British economist J R Hicks and post-Keynesian economist Joan Robinson. Their talks were inevitably followed by discussions along the ideological divide of that time: socialist planning versus unregulated markets. One of my earlier books, Economic Enterprise in Islam (1972) was influenced by this controversy. What we learn and discuss is dictated by what we feel is needed and relevant at the time. With that age gone and new challenges emerging, our focus changes and emphases shift. There must be something more enduring in the book as despite its simple language and elementary approach Economic Enterprise in Islam continues to inspire students.The reason: it tries to build an Islamic behavioural model and provide a framework for Islamic economic policy in the light of the Qur’an and Sunnah. Unlike other similar publications it is not focused on critiquing capitalism and socialism. It aspires to highlight divine guidance relevant for economic behaviour and policy.The book appears incomplete and a little naïve in hindsight as it seems unaware of the problems a cooperative approach would pose with respect to information. As we pass from an agricultural to industrial to service to a knowledge based economy, the information needed for meaningful cooperation among economic agents changes in nature and quantity. It is only during the last two decades that the economics profession has made meaningful progress on that front.

At a later stage I came to realise it is also important to have a new approach in identifying economic agents. Instead of placing them in the market as buyer-consumers and seller-producers why not focus on the family or the household from where they come? One advantage of doing so would be downgrading self-interest as the motivating force behind economic behaviour. We are born into a family and benefit from loving care of the mother and other members of the household. We experience gift relationship before self-interest enters the picture. Reciprocity precedes exchange relationships. By projecting the market as the premier economic institution and obliterating the roles of family and community, conventional economics wrongly projected competition as the engine of progress, relegating cooperation to the margins. A vast amount of anthropological research has debunked this understanding of our environment. I think we, those working on Islamic economics, were duped by the ruling ethos of the mid-twentieth century. We neglected the rich Islamic literature on tadbeer e manzil (management of the household) and missed a potential pad for launching an alternative to conventional economics, eschewing the scarcity-selfishness-competition-maximisation route, which inevitably leads to aggression and is responsible for the mess in which humanity currently finds itself.

But we pushed on. Earlier I had published Islam’s View on Ownership (1968), which was seen by some as leaning towards socialism. I gave great emphasis to the limits within which ownership rights had to be exercised and the obligations the owner had towards others. In a long chapter, littered with quotations from the Qur’an and Sunnah and precedents from early Islamic history, I made a case for intervention by the authorities to ensure that such goals as meeting basic universal needs and keeping disparities in the distribution of income and wealth were kept in check. I think the book had some impact on the rhetoric of the Islamists.

In the Department of Economics at AMU, academics had serious reservations about mixing Islam with economics. When I expressed a desire to write my doctoral dissertation on interest-free banking I was persuaded to opt instead for ‘a critical examination of the recent theories of profit’ to avoid a tiff with the examiners. I went on to focus my studies on what is rightly regarded as the most significant feature of life: uncertainty. This applies to all aspects of life but its centrality for economics is beyond doubt. Even though very few in the department fully endorsed the idea of applying Islam to economics, the idea caught on. I had like-minded friends at other universities too. We came together to launch a quarterly journal, Islamic Thought (1954–1971), which took the idea to neighbouring countries earning patronage, among others, from Abdullah al Arabi, Professor of Economics at Cairo university. Books by other Muslim scholars including Maududi, Syed Qutb, Anwar Iqbal Quraishi, and Naiem Siddiqi started elaborating the idea – first popularised, two decades earlier, by the great philosopher and poet Mohammad Iqbal (1877–1938).

It all culminated with the First International Conference on Islamic Economics, held in Mecca in 1976. It was attended by vice chancellors from several universities.Among them was the Vice Chancellor of Aligarh, the eminent economist A M Khusro (1925–2003), who returning back home suggested the Department of Economics should take the initiative in teaching Islamic economics. Encouraged, I moved a resolution at the Board of Studies that an optional course on economic thinking in Islam should be introduced at the Master’s level. I lost the motion by one vote as the chairman, supported by some senior lecturers, thought adopting it would make the department of economics look like the department of theology or Islamic studies.The course was introduced two decades later. Another decade would pass before the Academic Council of AMU would adopt a resolution to establish a post-graduate diploma in Islamic banking and finance in the department of Business Administration leading to a full- fledged department of Islamic Finance.

Several international conferences and seminars enriched the field of Islamic economics during the 1980s. Many universities were now teaching Islamic economics and doctoral dissertations and the subject proliferated even in western universities. Besides the International Centre for Research in Islamic Economics at the King Abdulaziz University, Jeddah, which publishes the Journal of Islamic Economics, there were now half a dozen others focusing on research and publications. I joined the Jeddah Centre in the early 1980s. It seemed that Islamic economics and Islamic Banking had come of age.

The first recorded publication on Islamic Banking is a 21-page booklet titled An Outline of Interest-less Banking by Mohammad Uzair, published from Karachi and Dacca in 1955. Maududi’s Sood (Interest) came out in 1961; and Muhammad Abdullah al Arabi elaborated the idea of Islamic banking in a paper published in 1966. My books BankingWithout Interest and its companion volume, Banking Without Interest and Partnership and Profit- Sharing in Islamic Law, came out in the late 1960s, though they had been serialised in a magazine earlier. Practitioners had meanwhile gone ahead with a number of experiments. The Malaysian Tabung Haji, pilgrim fund board, was established in 1963 and survives up to now as does the Philippine Amanah Bank, established in 1973, with a changed name. The Egyptian experiment with Islamic banking started in 1963, with the impressive saving/investment houses, named after the town where they were first established, Mit Ghamr. Launched by Ahmed el-Najjar , the pioneer of Islamic banking in Egypt, it lives on the pages of history, while the Islamic bank established in Karachi by Ahmad Irshad is almost forgotten. But a number of institutions established in the 1970s gave a boost to Islamic banking and the finance movement. Dubai Islamic Bank in the private sector and the Islamic Development Bank as an inter- governmental joint venture, both materialised in 1975. The process continued. We had many more Islamic banks by the end of the decade. There also emerged an Islamic Insurance Company (in Sudan) working on a cooperative basis and avoiding interest in its dealings. Many of these early Islamic financial institutions tried risk-sharing rather than shifting all risk to the fund users, but found the existing legal framework inhospitable to the practice. The rescue came in the idea of Murabaha, where the seller expressly mentions the cost he has incurred on the commodities he is selling and sells it to another person by adding some profit which is known to the buyer. The idea was first given academic prestige by the late Sami Hamoud in his PhD dissertation in the mid-1970s.The trick was to absolve the bank of all risk in ‘lending’ and ensure a decent return on money, irrespective of what happened at the user end. So an exploitative idea had at last been discovered and grounded in fiqh, what we call ‘Islamic Law’ as codified by the jurists in the first four centuries of Islamic history. Islamic banking and finance was ready to reach new heights.

Two developments gave added impetus: Changes in the power-structure in Iran, Pakistan and Sudan, where authoritarian Islamic regimes had taken power and favoured Islamic initiatives; and global banks and financial giants like Citi, Standard Chartered, ABN Amro, and HSBC, who had scented big money in Islamic Finance resulting from the hike in oil prices. A team of ‘Shariah Scholars’ helped anyone who was interested with financial engineering, via commodity murabaha and tawarruq (client buys X from bank on credit and sells it for a smaller amount of cash), and replicated almost every conventional financial product available on the market.You could buy a home, take a vacation, provide for your child’s college education, insure your life and wife and buy health insurance. All ‘enjoy now pay later’ offers were now available within the framework of Islamic finance.This continued through the 1980s till the first audible voices began to be heard wondering how Islamic could be an ‘Islamic finance’ which operated within the comfort zone of capitalism with its consumerism, greed and increasing concentration of wealth.

Muslim minorities in Europe and the United States played a large part in establishing Islamic finance and banking. My own interaction with the west started in 1972 when I spent part of a sabbatical in the US. I found that interest in Islamic economics could be evoked, if at all, in the departments of Islamic studies or middle-eastern studies. Economists had no interest in the subject. The time was not yet ripe for the nascent (immigrant) American Muslim community to found Islamic cooperatives for facilitating home purchases or financing small businesses. But the ideas that later materialised as Muslim Saving and Investment (MSI) and American finance house, LARIBA, were already afloat. Later in 1979 when

 

I spent two months at the Islamic Foundation, Leicester, the Islamic economics project launched at the Mecca conference was in full swing.The two months I spent at the East West University, Chicago in 1981 also helped in mobilising talent for the project. But real progress came in the 1980s. At the initiatives of Prince Mohammad al Faisal and the Saudi businessman Sheikh Saleh Kamel a number of Islamic financial institutions were set up in Europe and the US. Meanwhile a number of Islamic financial institutions had also emerged in the Middle East and South East Asia and teaching and research in Islamic economics were spreading.These developments encouraged Muslim immigrants in the west to take similar initiatives making Islamic finance a part of their identity. Supported by Muslim money, some institutions of higher learning like Harvard, UCLA, LSE, Loughborough university and the Sorbonne started patronising the subject. Events hosted by these institutions brought together western- secular and eastern-Islamic scholarship to focus on issues of relevance to both East and West. My impression as LARIBA Senior Visiting Scholar, Center for Near Eastern Studies at the University of California, Los Angeles in 2001-02, and as a participant in Harvard and LSE events in the late 1990s, is that economists and bankers look upon Islamic economics and finance as Muslim issues at the fringe of world affairs deserving only marginal attention – they are only important as far as money can be made from them. Islamic economics is not recognised as part of the search for an alternative to capitalism. And we ourselves are partly responsible.

A main problem is that Muslim aspiration is totally out of sync with contemporary reality. Muslim aspiration to teach the world the compassionate economics preached by the Prophet Muhammad requires serious research as well as viable institution building. The International Center for Research in Islamic Economics at the King Abdulaziz University, Jeddah (now Islamic Economic Institute) was established to promote teaching and research.The Islamic Research and Training Institute of the Islamic Development Bank, the School of Islamic Economics at the Islamic University, Islamabad, and the Kulliyah of Economics at the International Islamic University, Kuala Lumpur, all share the same mission. The subject is now included in the programme of every Muslim-managed institution of higher learning. However a mist of artificiality surrounds the programmes, not to mention the superficiality of its content. There is a perception, partly thanks to the ‘Islamisation of Knowledge’ project, that we can simply graft the new on to the old. That the old may need to be rethought, modified or trimmed does not occur to the legions of researchers working the field. Indeed, to question the old Islamic economic norms is almost regarded as blasphemous.

Let me illustrate this with a few telling anecdotes. Of the students whose researches I supervised or examined, many belonged to the Ummul Qura University and Jami ‘at al Imam, both in Saudi Arabia. Many students from these universities consulted me when I was at the Jeddah Centre on a selection of subjects, research methodology and other issues related to pursing a doctorate. In one case, I suggested the concept of israf (extravagance) in Qur’an and Sunnah, the evolution of the concept over time and across regions and in different income strata.The research would involve textual studies as well as field work.The student would have to get questionnaires filled by selected families in selected places. But the idea was rejected out of hand by the authorities as both the subject and the field work was deemed unsuitable. Apathy towards empirical studies seems embedded in religious scholarship. I have had this impression in dealing with a number of Islamic institutions in India in the context of such subjects as the increasing incidence of divorce among Muslims. No one seems to be interested in empirical field work, or learn from ground reality or pays heed to how and why behaviour is changing.

About twenty years ago a professor giving a course at Harvard sent me some work sheets used in the context of discussing Islamic rules related to interest. All the Qur’anic verses dealing with riba (usury) and the main hadith on the subject were supplied asking the student to write down the rules that could be derived from them. Next the student was required to look up the appropriate sources and note down the rulings actually given by major schools of Islamic jurisprudence. Lastly the student had to comment on the differences and defend his own stand. Around the same time I sat as an examiner in the department of Islamic economics of Ummul Qura University.The student was defending his Master’s thesis on labour relations in Islam. After reporting various views on employer- employee relations, he went on to say:‘I suggest …’ Immediately, the chief examiner, who was a professor of fiqh chided the student in harsh terms, saying: ‘how dare you say I suggest. It is enough for us to learn what the great fuqaha (jurists) among the salaf (first thee generations of Muslims) have said and to transmit their opinions faithfully to posterity’.

A student who was a qualified Aalim (religious scholar) from Nadwah, Lucknow, and had earned a PhD in economics from AMU by writing a dissertation on murabaha in Islamic finance, took a course on Ifta (giving juridical opinions) conducted by a religious seminary in Hyderabad.When he completed the course I asked him how he was trained to give fatwas. ‘We were given certain queries’, he said,‘and asked to look up in certain classic texts to identify the rulings appropriate to the query in hand’.
This is how we have been teaching and researching Islamic economics. In view of the challenges we are facing, and are likely to face in the future, will the methodology taught to Ifta students at Hyderabad or the stance imposed upon students at Ummul Qura serve our purpose? Our current methods of teaching crush all independent thinking, extinguish any flicker of curiosity and kill all creativity.The absence of empirical work makes our researches hollow. We are entirely focused on texts to the total neglect of observing ground realities and learning lessons history can teach. The young minds under the tutelage of our professors and researcher are denied the benefits of a larger conversation encompassing intuition, dialogue and pragmatic considerations in dealing with their subjects of study.

Even the way we examine history is seriously flawed. A selective approach is the norm. Modern historians find serious gaps between theory and practice in the Islamic past. Muslim scholars paint an idealised picture of history where everything was rosy.Truth suffers in both cases depriving us from the real benefits of history. When I wrote the paper ‘Public Borrowing in Early Islamic History’ and submitted it to an Islamic economics journal it was sent to two referees.The paper reports, among other things, some cases of borrowing (during Abbasid rule in the ninth century) from non-Muslim lenders in order to pay salaries to the army on time. For paying back, the lenders were allowed to collect land revenue of a particular province. Sensing riba in that arrangement, one of the referees expressed great anguish insisting the story be expunged from the paper. It presented Islamic history in a bad light.We have to assume that all Muslims in history were sincere, decent and shining beacons of humanity.A variety of interpretations as well as the compulsion of circumstances cannot be recognised. Something similar to my experience with the referee happened at the Mecca Conference in 1976. One of the points vociferously made in favour of an interest-free economy was that there would be no inflation. Eminent economists participating in the conference grimaced and laughed but thought it better not to challenge the claimants. In private I confronted the late Mohammad Qutb, brother of Syed Qutb, a leading advocate of that view. I presented historical evidence refuting the absurd claim. But the Sheikh dismissed history as of no consequence when it came to the characteristics of Islamic society which must only be derived from the texts of the Qur’an and Sunnah.

A selective view of Islamic history combined with little attention to the reality around us often results in mass depression or acute frustration, which could lead to violence. This wide spread contemporary phenomenon has roots in recent history.The Islamic Economics Center at Jeddah once had some high profile visitors from an educational institution in Peshawar, Pakistan, the city which earned the reputation of being the hatching ground for the Taliban. Most questions related to Islamic economy and what changes are expected in neighbouring Afghanistan after the departure of the Russians. One question was: ‘when and how will it be possible to do what the second caliph Umar bin Khattab did, giving an annual stipend to every household?’ They insisted that was the distinguishing feature of Islamic economy, whereas modern states levied taxes the Islamic state will give stipends.

Unfortunately such naivety is not confined to the piety brigade. In one of the many closed door meetings with dignitaries visiting the Jeddah Centre I attended, Najmuddin Erbakan, then Turkish Prime Minister (June 1996 to June 1997) distributed a paper titled ‘al-ilaj’ (the cure). Outlining future Islamic economic policies, Erbakan suggested doing away with money in certain sectors of the economy as currency trade and speculation were at the root of many problems. Producers would deliver their crops to government which would issue them with receipts which they could use for buying what they needed.There were many other impractical utopian ideas in the paper. The researchers at the Centre prepared a rejoinder politely criticising the proposals and suggesting alternatives. We asked Muhammad Umar Zubair, a former President of the King Abdel Aziz University and a respected figure, to communicate our critique to Erbakan. He took it to Istanbul with the intention of handing it personally to the Prime Minister. But he did not, as he realised that the beloved leader accepted no criticism and tolerated no dissent.Whatever I know about the leadership of Islamic parties in the Arab world, the Indian subcontinent and South-East Asia this is a common malaise.There is very little tolerance of dissent. Nobody invites criticism. There is no tradition of democratic decision-making. Both naivety and intolerance are wicked, but their combination has been fatal.

As a result the theory and practice of Islamic economics and banking is flawed, full of anomalies, and have basically failed as projects. All we can do is to congratulate ourselves on having re-invented capitalism by using Islamic jurisprudence! This is a far cry from the innovative creativity of jurists in the early centuries of Islam and more in line with the frozen attitudes during the colonial era.

I realised some years back that Muslims in general and the ulema in particular had no idea how banks functioned. The role of credit and the process of money creation in a fractional reserve system were beyond their comprehension.They could understand some institution that took people’s money with the promise of doing profitable business for a share in the returns.The other possibility was a hired manager doing business on behalf of the owners of money; but they looked at financial intermediation with suspicion. My works, building on the idea of al-mudarib yudarib (the working partner obtaining people’s money to use it profitably entering into a similar relationship with another person), argued that banking was possible by replacing fixed interest payment by a share in profit. In other words it projected profit-sharing as a possible basis of financial intermediation. I demonstrated with examples that the process involved credit creation. However, the fact that banks earned on the credit they created raises new problems.This problem is further compounded by the recent realisation that banks could increase the leverage – ratio between money advanced and cash kept in reserve to meet payment obligations – at will, in view of interbank facilities and central bank’s assurances. So dealing with the issue of regulating the banking industry on the basis of analogical reasoning does not help and a consideration of consequences (ma ‘alat) and the public interest (masalih) becomes necessary. Meanwhile some scholars think it will be better to do away with banks and switch over to some other institution having roots in Islamic history, like baitulmal, the financial institution responsible for the administration of taxes in an ‘Islamic state’. The debate continues. But I am not impressed by this trend of returning back to Islamic history literally. Our Prophet retained business practices that were honest and fair. He rejected only what was harmful, like gambling and interest on loans. After all, institutions are a means for realising certain goals and operationalisation of certain values. Banking itself is not without precedents in early Islamic history. It is reported about the eminent companion of the Prophet, Zubair ibn el Awwam, that when somebody wanted to leave some money with him for safe-keeping he would say ‘make it a loan to me’ so he could use it and the depositor was guaranteed its return. The celebrated jurist Abu Hanifa, who had a flourishing business in silk, also acted as a banker.

The recent financial crisis has exposed the inequities and inefficiencies of the current system of money and finance initiating a world-wide rethink. Instead of promoting human felicity on a universal scale, it is enriching the top one percent and relegating most of humanity to the margins of poverty. But the discussion is focussed around the mechanics of banking and finance at the expense of the core issue: who are we creating wealth for and how can it reach them. Once again there are calls for separating investment banking from managing medium of exchange and doing away with fractional reserve in favour of hundred percent reserves. But the real issue is how risk is treated. I think no reform of the financial system would be effective until money and monetary policy are also radically changed. Debts carrying interest should not serve as money. Risks and uncertainties attending upon the human situation should be fairly distributed and shared. These characteristics call for the state to play a decisive role.They also call for universally shared perspectives. Economists of all shades must join hands and disciplines other than economics must be involved if we are to rescue humanity from its current predicament.

Creating a new vision of money and finance largely not based on debt, distributing risks fairly, in a manner that is universally acceptable is not an easy project.

Consider the last: the prospects of a new vision being adopted by all. Now given the unique characteristic of money and finance, you can’t have a variety of systems in a globalised world. History is rife with wishful thinking and utopian experiments. From no money to local money to gold only money, all types of ideas are afloat, with experiments to boot. But none have any chance of universal applicability. Physical money is fast yielding to bits and bytes and the state is slowly but assuredly losing the monopoly on money creation. Current debate among economists, including Islamic economists, hovers round separating the management of payments mechanism (medium of exchange function) from profit making activities of banks and replacing fractional reserve with hundred percent reserves. But innovations and creative private initiatives may soon render all these discussions irrelevant. Nobody knows what the future has in store. The risks associated with money centre around its purchasing power whose fluctuations cause distributional problems.The other risk relates to sharing any new wealth generated when one’s money is used by another. It is very difficult to pinpoint the responsibility for changes in the purchasing power of money. It is easy to blame monetary policy but there are too many other factors which could possibly have an impact: population, tastes, technology, ecology, war and peace, for example. From the viewpoint of equity it is important to ensure all risks are not piled on the user of money. Even the owner of money who would normally bear the risks may deserve protection in certain circumstances.What is important is making life possible and its burdens bearable for everyone. Implied therein is a commitment to fairness in the framework of living as a cooperative enterprise. It is this vision that is missing from the current individualistic dispensation which fails to honour the demands of cooperative living and frees the owners of money from social obligations. Money that is debt and modes of finance that leave a trail of debts have a rigidity that militates with life’s vicissitudes. Debt based money and finance does not suit the social nature of human existence.

I think it is this point which, above all, needs to be argued clearly and convincingly. Modern money is all debt. Money is created at the central bank level and injected into the economy in exchange for bonds (promises to pay later). This ‘high powered money’ enables commercial banks to create more money (demand deposits) as debts owed to them. All debts carry interest. Since the mere passage of time is no guarantee for growth to take place and not all money is used for productive purposes, default is built into the system and so is increasing inequality. More and more of the new wealth resulting from using money flows to the owners of money. A system that rewards enterprise more than it rewards mere ownership would be more efficient as well as more equitable. Such a system requires money that is not debt and debts that carry no interest.

So how do we move forward in this new and rapidly changing context? It is clear that the current system has passed its ‘sell by’ date. Teaching current textbooks in modern economics prepares the students for endorsement of capitalism. Continuing with the traditional curriculum is guaranteed to alienate the student from their environment. The confused products of our economic departments cannot make any progress towards a just and equitable society.

Economic management, especially monetary and financial arrangements, need to be put in an appropriate perspective. We have to create an environment that sustains and enhances the quality of life. First we must focus on sustenance as it makes life possible and enduring. Then comes freedom of choice and other rights without which life would be meaningless. Regulations ensuring peace and preventing exploitation, oppression and chaos are also necessary. Growth alone does not ensure that the basic and universal needs of all are fulfilled. Indeed, growth may fuel inequality, increase deprivation and foster conflict. Capitalism’s failure lies in its exclusive focus on growth without any commitment to sustenance with dignity for all. An Islamic approach can avoid this by focusing on maqasid (purpose, intent and higher objectives) of Islam that are multi-faceted.

Maqasid impacts the human situation on a number of levels. First, every rule serves some purpose; Islamic rules are neither arbitrary nor random. Second, should a rule cease to serve its purpose due to changed conditions it has to be replaced by one designed to serve the original purpose.Third, a situation not covered by existing rules is to be handled by devising a new rule rooted in the relevant maqasid. Fourth, if implementation of a rule results in a perverse or an undesirable outcome, that rule has to be abandoned in favour of one suited to the relevant maqasid.These points are well argued in the literature on maqasid. Unfortunately the current approaches to economic management, especially in money and finance, fail to take cognisance of them. They remain beholden to conventional ideals and try to operate within the framework of fiqh or jurisprudence codified a thousand years ago under different circumstances. Classical jurists gave due weight to manfi (interests), masalih ‘aammah (public interest) and ma ‘alat (consequences), but the current generation of jurists advising decision- makers do not have the courage to do so. They are endorsing financial products that flood the market with debt documents which they allow to be traded. A commitment to maqasid would have prevented such anomalies and given us Islamic models worth emulation by the rest of the world.

Maqasid are clearly stated in the Qur’an. Sustenance has to be universally ensured based on God-given provisions (7:10). A share for the have-nots is appointed in the wealth of the haves (70:24-25). Ensuring justice and fairness in all relationships is the very purpose of God’s Law (57:25 and 4:58). Chaos and disorder have to be prevented and felicity (salah) instituted (28:71; 30:41).

Traditional Shariah experts are suspicious of the idea of replacing old rules by rules designed to serve maqasid in changed situations. But this is a time-honoured methodology legitimised by numerous precedents. We could refer, as an example, to the way Umar, the second caliph, handled the conquered lands of Syria and Iraq. Despite insistence by senior companions of the Prophet like Bilal, who cited the Prophetic precedent that the conquered lands be distributed among the army responsible for the conquest, Umar let the peasants continue to operate the lands, paying kharaj (rent) to the state.

Another fear that prevents traditional ulama from direct recourse to maqasid is the diversity of opinion and practice that would be a natural outcome. They are bound to the idea that the divine pleasure lies in one course in every situation. But this is not supported by the Prophetic precedents, who adopted different strategies in different circumstances, the focus being the maqasid: communicating God’s message, protecting those from harm who accepted the message, and being merciful to humanity in general. Confined to an arid valley in Mecca, he benefited from clan solidarity. Rejected by Taif, he accepted the protection of a non- Muslim resident to be able to reside in Mecca once again. He advised his followers to seek refuge in Abyssinia, cashing in on the generosity of the Christian King. Later on he emigrated to Madina on the invitation of his small band of followers. He settled the emigrants, who had left everything behind, in Medina by instituting Muwakhat (brotherhood) between resident Ansars (helpers) and Muhajir newcomers – a novel arrangement that lasted a couple of years. He forged a federation inclusive of Jews, Christians and people of other faiths and Muslims to administer the city – yet another novelty in a tribal culture. The truce of Hudaibiyah, the general amnesty for the vanquished Meccans after the conquest and showering Meccans with all the spoils of the battle of Hunain soon after, are some of the decisions, amongst many, that the Prophet took to suit the occasion. One fails to understand the timidity of his followers facing an entirely new world in the twenty-first century.

The future of Islamic economics and finance is tied to our efforts to rethink the entire economic system as well as in promoting criticism and self-criticism and generating new ideas. The decline of the west and the shifts in power to the East provides us with an opportunity – it may be accompanied by rejection of capitalism or at the least its radical modification. The most pernicious product that western capitalism is leaving behind is inequality and the indignity that it has visited on the bulk of humanity. Islam with its emphasis on equality, human brotherhood and sharing may well succeed in building an economy that is different. But we need new ideas suited to our time. Ideas change behaviour, give birth to institutions and change the reality on the ground. Unfortunately, our record in generating new ideas is not encouraging. But I am still hopeful, waiting and watching for the formulation and popularisation of the new and innovative ideas to emerge from Islam and Muslims.

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