ISLAMIC FINANCE AND RELIGION

Economists have been debating the impact of religion on economic performance for many years. This aspect will be discussed in detail in the next chapter. Here, a brief introduction will suffice. Whether economics should be mixed with religion is a significant question these days. More specifically, can Islam be helpful in economic development or it is a drag on economic growth? Any detail on this aspect is not within the remit of this book, which has to focus on finance, the most strategic part of any economic system. A large number of scholars have blamed the relative poverty of Muslims today on their religious beliefs. But Marcus Noland, an eminent economist, maintains that this long-standing view is wrong: “There is nothing inherent about these [Islamic] societies that they have to perform poorly,” says the economist with the Institute for International Economics in Washington, “If anything, Islam promotes growth While discussing the role of religion in economics one must distinguish economics as a science from an economic system. An economic system has to be discussed as a thought based upon any ideology, while economic science should be considered as a science which deals with the creation of wealth. An economic system relates to management of wealth distribution in a society that tends to solve economic problems of various groups by enabling or restricting them from utilizing the means of production and satisfaction. Thus, the system comprises the following three main elements:

1. Ownership of property, commodities and wealth.
2. Disposal of ownership.
3.  Distribution of wealth among the people.

Image Courtesy: AIMS Institute of Islamic banking and finance image taken from Islamic finance training and diploma in Islamic finance books

Commodities are possessed for their benefits, which represent the suitability of a commodity to satisfy any human need. Goods/assets are possessed as a result of work, inheritance, purchasing/obtaining property for sustenance, governments granting possession of something to the citizens and transfer payments or goods granted as gifts (without giving anything in exchange). From this perspective, the Islamic economic system is different from the other systems only to the extent of ownership and distribution of resources among the factors of production and various groups of society, with a defined role of the State to ensure that injustice is not done to any of the individuals, parties or groups. Islamic economics, in fact, can promote a balance between the social and economic aspects of human society, the self and social interests and between the individual, family, society and the State. It can effectively address issues like income distribution and poverty alleviation, which capitalism has not been able to address. At the global level, it may be helpful in eliminating the sources of instability, thus making the world a happier place with harmony among followers of various religions.

Note: The reason of posting this blog is lots of people asked me that why Muslims follow their religion in every aspect of life?  So I thought to give answer on my blog and I decided to start it from Islamic finance this tells itself that Islam have its own finance system and now a days its growing to.

Most of the questions are asked from my students in institute of Islamic banking and finance of different classes some of them are Islamic finance qualification teachers believe it or not and they asked me that basic question about Islamic finance system and guess what they are teachers of Islamic banking courses and Islamic finance course. And some of them are my students of Islamic finance training so that’s my duty to give all of the answers of my students until they will complete their Islamic banking certification, Islamic finance certificate or diploma in Islamic banking.

In the contemporary world, we have macro-level evidence of distributive justice and development. The trickle-down theory (TDT) adopted in Malaysia during 1957–1970 failed miserably and resulted in the tragedy of 13th May (1969) race riots in the country. Then the Malaysian government adopted a policy which applied the core value of Islam, i.e. justice with fairness that has contributed significantly to the country’s miraculous achievement in the last three decades. Although the government could not fully apply the Shar¯ı´ah principles, it adopted a pragmatic policy (New Economic Policy) that had the twin objectives of eradicating poverty and restructuring society to ensure justice with fairness. This policy of higher growth with distributive justice emerged as a direct response to the failure of the growth alone development policy (TDT) pursued during the 1960s. Success at the macro level did act as a contributory factor to compensate the failure of some institutions and values at the micro-level.

Based on the principles laid down in the Holy Quran and the Sunnah of the Prophet, Muhammad (pbuh), the Islamic system played a strategic role in the development of human society from the second half of the seventh to the tenth century AD. The early Muslims excelled in all the fields of knowledge of their times, besides understanding and practicing the tenets of Islam.