Islamic Economics: Approaches to Bridging the Divergence

By: Ezry Fahmy B. Eddy Yusof

INCEIF

I. Introduction

Nowadays, people should not question whether Islamic economics ever exist; rather people (for

Muslim individuals) should ask what their contribution towards the realization of Islamic

economics is. Scholars in Islamic economics have work hard for the past few decades with their

literatures, but yet the question still arises, is Islamic economics framework ready to be an

alternative system to the current crisis? This is due to Islamic economics nowadays that much

more represent by Islamic banking and finance rather than itself as a whole system. It is

important to view Islamic economics from a 360 degree perspective to evaluate and manipulate

the particles that contains unique elements in it from its meaning, up to it concepts and practices

that understood by the Muslim scholars from the peak success of economic when it lead by the

Prophet and then the companions. This paper tends to explore some of the uniqueness of Islamic

economics in its practices of maslahah approach, al-hisbah institution and also voluntary sector,

it is in need to revive these particles inside Islamic economics correctly to help all Muslim

countries towards achieving the Islamic economics goals.

II. Islamic economics

Islamic economics is defined differently by all renowned Muslim economists. But all the Muslim

economist agreed that Islamic economics is a religious-based system of laws set forth according

to the al-Quran and as-Sunnah and imbued people with the values of Islam (Hasanuzzaman,

1984, p.52; Mannan, 1986, p.18; Siddiqi, 1992,p.69; Chapra, 1996,p.33; Aslam, 2005).

Addas (2008) successfully differentiate secular and Islamic system in several aspects regards to

methodology, worldviews, epistemology and sources of knowledge in economics of these two

systems. Islamic system clearly covers all aspect of life and being inclusivity, obviously different

than secular system where it tries to separate or not to include any religious aspect as well as

being exclusivity in its structural frameworks. The secular system or this secularization process

is very much a western European experience and may not be universally applicable, unlike

Islamic economics system that argued the concept of ad-deen which means ‘whole way of life’

provides an all-encompassing ethos for man, including that of economics. Religion of Islam is

seen as a source of ethics for economic behavior (Aslam, 2005).

Thus Islamic economics is totally different than secular system because it is clearly a system that

encourages and preoccupied with the welfare of a community where every individual behaves

altruistically and according to religious norms. It is based primarily on justice, benovelence,

expediency, wisdom and welfare as well as ensuring the well being and success in this world and

the life hereafter (Akhtar, 1981, p.26). Here where the system bridging the gap between religion

and economics especially when the paradigm of knowledge is seen as human reason aided or

rather guided, by revealed knowledge mainly the al-Quran and as-Sunnah.

The aims of Islamic economics system is mainly depends solely in its two dimensional utility

function, in this worldly life and life of hereafter. This according what creates Homo islamicus

individuals, an ideal person who is adhering to the guidance of Islam, brings distinctive moral

and ethical dimension to the economic sphere of life. This is obviously different than the secular

system that views human as a Homo economicus, the Economic Man or agent, represents a

rational human being formalized in certain social science models, especially in economics, who

acts in self-interest to achieve in a goal-oriented manner. (Kuran, 1995; Warde, 2000; Asutay,

2007). Moreover, Kay (2002) explains that Homo economicus as rational economic man that self

interested, materialistic, and obsessed with calculating his worth.

In addition, the structural framework of Islamic economics does forbid unjust transactions, plus

not only that but the religion of Islam also encourage risk sharing along with the availability of

credit for primarily the purchase of real goods and services and restrictions on usury (riba), the

sale of debt, short sales, excessive uncertainty (gharar), and gambling (maysir) where it is surely

could help to inject a greater discipline into the economic system.

III. Maslahah approach

Maslahah is one of the sources in Islamic jurisprudence, it is usually defined as an interest that

not supported by an individual text, but is upheld by the texts considered collectively. There are

many verses in the Quran which grasp the essence of the maslahah. Maslahah is acknowledged

by all four Sunni schools, in principle, that all genuine which do not conflict with the objective

(maqasid) of the Lawgiver must be upheld (Kamali, 1998, p.267-281).

Goals of Islamic economy is interpreted differently by the muslim scholars, however majority of

them hold view that Islamic economics objectives are to achieve social justice and economic

development (of all well-being of God’s creatures), or so called establishment of a just social

order (Chapra, 1996, Sanusi, 2008). The objectives not only cover worldly affairs but also the

life in hereafter. Thus maslahah plays an important role that differentiating Islamic economics

than others because it lays to an action taken to protect any one of the five basic objectives of the

Shari’ah, namely protection of faith, life, progeny, property and reason. The preservations of

objectives of Shari’ah parallel with the two major Islamic principles which are removing

hardship (raf` al-haraj) and preventing harm (daf` aldarar).

These underlying principles according to Asid, Asutay and Khawaja (2008) changing the

framework of how Islamic economics view on all economic theories such as the theory of

consumption, the theory of distribution and the theory of production when it includes maslahah

and “no-injury” (avoiding mafsadah) as the basic principles in the system.

Maslahah is about securing greater interest of the society could be is exercise when a situation

arises where procuring one’s interest implies the loss of another, then greater interest should be

pursued in preference to the lesser. On the other hand, anything regards to loss or injury the

reverse will apply where the greater will be avoided by tolerating the lesser (Kamali, 1998, p.

267-281).

It is obviously shown that the spirit of maslahah prefers the interest of society rather than the

individual. Different than other systems, Islamic economics give the government a special role to

play not likes any other system where the government cannot intervene the market or being a

dictatorship by imposing centralized the decision making. As a comprehensive and al-

wasatiyyah system, based on the maslahah principle, that in a situation of social loss there

should be involvement of the government for fixing prices.

Among the explaination given by Asid, Asutay and Khawaja (2008) where they believes that

according to maslahah principle:

“The state has the right to fix the floor price and secure resources, which are

becoming economically obsolete. It is also the duty of the government to estimate

the input-output coefficients for each of the vintages, which will guide the policy

makers for the formulation of their policies regarding the degree of economic and

physical obsolescence”(p. 64).

These are some of the example where the maslahah principle can be applied when the

Qadi or the state could save the public from the harm, underutilization of resources, or

any action that could deprive the poor as well as realization of the goals of Islamic

economy to social justice and economic development (of all well-being of God’s

creatures). Since the economy cover so many aspects of theories, the maslahah approach

is seen as the problem solver as what mentioned by Ahmad (2003), where all the

problems of imperfection economic approach could readily have avoided through

Maslahah approach.

IV. al-hisbah Institution

Human characteristic that was most responsible for the credit crunch recently is human greed.

This opinion is not only according to The Archbishop of Canterbury, Dr Rowan Williams but

also agreed by most of the Muslim scholars like Nejatullah Siddiqi (2006), Umer Chapra (2008),

Hussein Shehatah (2009) and so forth. Human greed come into picture when the absence of

ethics and morality lead the investors, bankers, and people in the market becoming greed to

maximize profit, wealth and consumption by any means in keeping with the mores of the

prevailing secular and materialist culture. Thus the collapse of some important financial

institutions like Lehman Brother, Merill Lynch, AIG and so forth lead the market towards

awareness of the existence of corrupt regimes due to the lack ability of regulatory authorities.

The U.S administration themselves believes that they have an inadequate regulatory structure

when the Fed opted not to use their power to prevent the growth of the housing bubble which to

believe the starting point that lead the whole financial system went frozen (Barker, 2009).

However, Islam as a comprehensive religion may have the solution through the idea of al-hisbah

institution to suit current crisis face by most of the financial institutions. Hisbah literally means

reward, calculation. Technically, it refers to an institution that existed through most of Islamic

history for implementing what is proper and preventing what is improper (al-’Amr bil Ma’ruf wa

al-nahy ’an al-Munkar). The main role of al-hisbah was the regulation and supervision of

markets to ensure proper market conduct by all concerned (towards any malpractices or criminal

activities (Siddiqi, 1996, Sanusi, 2008, Amalina, 2009).

As a moral as well as a socio-economic institution, al-hisbah plays an important role in Islamic

economics system. Sanusi (2008) and Amalina (2009) both agreed that the institution of al-

hisbah has been practiced by Muslim society since the early years of Islam, when the Prophet

Muhammad (pbuh) has acted as the first muhtasib,or person that responsible for the maintenance

of the institution of hisbah. However, in today’s world, the institution of hisbah has been

separated into different institutions with different names lead by various peoples, even some of

the institutions not lead by qualified muhtasib (Mohamed, 2009).

In addition, Sanusi (2008) believes that the classical economic role of muhtasib can be further

expanded into current corporate affairs such as financial institution such as the banking sector.

This kind of supervision could ensure that financial institutions performance and its operations

are strictly on ethical basis. Besides that, he further suggests that the staffs in the financial

institutions to be a whistle blower, by further expanding the concept of hisbah testimony where

this action could help to develop social consciousness and responsibility to block the means to

evil acts (Sanusi, 2008, p.256; Amalina, 2009, p.372). The act of whistle blower in the financial

institutions by disclosing important information voluntarily is an appropriate act which abides by

the Islamic jurisprudence called blocking the means (Sadd al-dhara’i ), Sanusi (2008) and al-

Kashif (2009) both viewed that it is an obligation for every Muslim to prevent any act against

morality and must also be vigilant against any future threats to public interest. In addition, al-

Kashif (2009) further explains that the obligation not only confined to individuals but also

institutions regardless it is public or private owned.

On the other hand, the current existence of Shari’ah Supervisory Board practice by the Islamic

banks is deem to hold the spirit of al-hisbah when it is a board that supposed to direct, supervise

and review the activities of the Islamic Financial Institution (IFI) to ensure it is Shari’ah

compliance in all its activities and products offered. However, the scholars behind the scene that

lead the Shari’ah Supervisory Board must be jurists in fiqh a-lmua’malat (Islamic commercial

jurisprudence) or usul al-Fiqh (Islamic jurisprudence). The Shari’ah Supervisory Board may

follow certain guidelines provide by the Central Bank to execute any rules and regulations or

enforcement. Therefore this is a good example of how the spirit of al-hisbah works in the

modern approach in financial institutions, especially the Islamic financial institutions (IFIs).

Through the existence of al-hisbah institution to supervise the financial institutions, this could

help the financial industry from prohibited activities like carrying out illegal economic

transactions, political corruption or social mischief. Among the problems that relates to financial

institutions that should be supervise by the al-hisbah institution that categorize as financial

crimes under Islamic law are such as fraud, bribery, money laundering, insider trading, usury,

gambling and so forth (al-Kashif, 2009). Thus with the revival of al-hisbah institution, it could

helps the Muslims to achieves Islamic economic goals as a whole as this is already proven during

the Prophet time.

V. Voluntary sector

Voluntary sector is acknowledged in Islam and also other religions. Courtney (1994) sees a

bigger picture of voluntary sector as something enormously powerful, motivating and distinctive

about the voluntary sector that should be preserved and promoted. However, there are

differences in understanding the term voluntary sector between Islam and other religion because

Islam emphasize it more than any other religions when one of the pillars in Islam categorize it as

an obligation action that should be exercised by all Muslims, thus some voluntary activities is

seen as part of faith because it is included in the pillars of Islam. This is due to the important

aspect of voluntary sector where it could play a major redistributive role by affecting a transfer

of resources from the rich to the poor.

Siddiqi (1996) categorize voluntary activities in Islamic society onto several categories which are

obligatory family support, zakah, ‘ushr, sadaqat al-fitr, gift or grants in cash, kind or usufruct,

voluntary social service and also charitable endowments (waqf). Among the voluntary activities

that could contribute directly to the development of an economy are the voluntary activities such

as sadaqat, zakah, waqf and gift (hibah).

Sadaqat or gift (hibah) is an act of giving alms for the sake of Allah (fi sabilillah), the elements

of sadaqat and gift (hibah) relates to micro dimension that combine beneficial and ihsan form of

an individual or organization to others. Sadaqat and gift (hibah) are unilateral transfer that may

be in cash, kind or usufruct of certain things. The system of Sadaqat or gift (hibah) ensures

equitable distribution of wealth in the Muslim community and makes it certain that the wealth

does not remain hoarded in idle channels. Circulation of wealth in productive channels is ensured

by enhancing the purchasing power of the poor. Concentration of wealth in few hands is

discouraged and the gap between the rich and the poor is bridged.

The Sadaqat or gift (hibah) may go to social institutions like mosque, orphanage, school,

hospital and so forth. It also may sometimes go to individual or a family in an emergency that

caused by war, famine, flood, epidemic and etcetera regardless in period of happiness or sadness.

The sadaqat and gift (hibah) could help the state in response to an appeal funds since it is

decentralized sector and not under the state or government controlled. These voluntary activities

could also help to ensure the fulfillment of basic individual needs and essential social needs.

Besides that, according to Sareshwala (2008), zakah is universal in its scope can be seen in the

manner in which it is collected and distributed. After providing for the needs of eligible kin, the

zakah fund is designed to cover the needs of those who live in the community where zakah is

collected and then to those eligible recipients living in the county, state, country, and finally the

world at large. Through accumulation of surplus in zakah funds during prosperous years, the

institution of zakah provides necessary contingency funds during depressed economic conditions

when zakah revenues may not be sufficient to meet the required needs of the society. The levy of

zakah, particularly on the idle portion of an individual’s wealth, induces the zakah payer to seek

a return on his wealth at a rate at least as high as the rate of zakah, so as to be able to pay zakah

without reducing his or her wealth. The institution of zakah in its fully operational would become

a fountain of economic harmony and contentment since it could helps in eradicating the poverty

as well as providing an economic safety net to the society.

Charitable endowments (waqf) is also a unique practices since the early days of Muslim society

where it have some special features to be distinguish from private or public properties. Waqf

concept turns the ownership of the property in the way of Allah, thus making it neither a state

property nor a private property. It is permanent and irrevocable (Zuhayli, 2006). This act

according to Siddiqi (1996) could “serve to mitigate the ill effect of inequality in the distribution

of income and wealth” (p.147). Moreover, Goh Chok Tong (2007) realizes that waqf practice

may able to stimulate the economy and provided additional fund to the state and therefore less

demand for commercial or financial organizations in the form of corporation is needed for sake

of boosting tax revenue. Therefore, waqf administration is changing nowadays where it is not

restricted to religious building only but some revenue from waqf in several Muslim countries has

been used to build hospitals, universities and commercial and office complexes. Such innovative

financial uses from this voluntary sector help to unlock the economic potential of waqf (Goh

Chok Tong, 2007).

Both voluntary sector namely zakah and waqf is widely used in generating the Islamic economy.

However, these words cannot be used interchangeably, but the function of both of them for

financing poverty projects are often used together or to complement each other. Islam has

declared that the poor and destitute have due share in the wealth of the rich and the rich are

bound to return the share of the poor without stint.

Last but not least, Zaman and Asutay (2009) agreed that the voluntary sector reflects justice,

tazkiyah and rububiyah that included in the body of huquq ul ‘ibad (rights of the people) and

nourish the voluntary sectors with ethics of care as part of huquq ul ‘ibad within huquq Ullah (rights

of the Allah) within the tawhidi paradigm. The voluntary sector from Islamic perspective completes

the essence of the doctrine of social obligatory duties (fard al-kifayah) as well as contributes to the

development of an economy, directly or indirectly.

VI. Conclusion

In a nutshell, these approaches may seem trifling, but do play an important role for a state to suit

in the Islamic economics system as a whole. It is in need to complement the juristic/fiqhi

approach by the maqasid approach in order to deliver a meaningful agenda. With the passage of

time the constraining influence of the detailed rules and regulations of fiqh seems to have all but

extinguished the spark of maqasid-inspired thinking. The fiqhi approach, understanding maqasid

shariah it highly important to grasp and dealing with the management side of other important

sector in economics. There may be other important elements or particles that should be taken

seriously besides what has been discuss in this paper, thus every aspect should be taken seriously

without disparage any other aspect.

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