Islamic Economics & Finance at a Glance

islamicmarket1Though generally thought as a phenomenon of modern times, a notion of Islamic economics/economy must have existed since the ancient times when the first economic activities began because Islam brought genuine perspectives and regulations into every aspect of life.

The theoretical foundations of Islamic economics date back to the time of Ibn Khaldun and Ghazzali. The practices of Muslim societies throughout the history contributed to the development of genuine institutions and systems. However, this field was not quite a distinct discipline then as we understand today. It was rather considered as a part of Islamic philosophy or fiqh (Islamic jurisprudence). In fact, the modern-time-classification of sciences did not existed in those times anyway. What’s more, Islamic perspective or understanding already dominated the mainstream science, as many Muslim scholars were building the foundations of sciences. Therefore, there was no need to add “Islamic” prefix to any discipline to identify its “Islamic” version.
The economics, once defined by ancient and medieval Western thought as Oikonomia (home administration), was adapted by Islamic literature under the name İlm-i Tedbir-i Menzil. Later in the mercantilist period this discipline turned into Economy-politique or Political Economy, indicating that this discipline involves the administration of the city beyond the home. Islamic literature once again adopted the counterpart of the term: İlm-i Tedbir-i Medîne.

The positivist paradigm in the post-“enligthment” period caused the econislamic coins1omy to turn osmanli-vakiflariinto “economics” in which the methodology of Newtonian physics were adopted. The social, cultural and political aspects became irrelevant in the new definition of economy. Namely, it became a value-free, non-normative discipline. Economics, as its name implies, tried to explain all economic phenomena through pure mathematical models. New production modes in the aftermath of industrial revolution, along with other developments in the World politics and financial system caused the Neo-classic economics to become the “mainstream” understanding of this science.

Nevertheless, the models based on the Neo-classic economics were failed many times to explain the economic and financial behavior of human being and predict the crises. It has been even accused to be the main cause of the crises, unjust income distribution, social unrests and environmental catastrophes.

However the Marxist/Socialist economics that opposed the market economy was thought an alternative, it was based on the same paradigm as well. In fact, it became history without providing a success story to the World. That’s why the search for a new, sustainable, value-based, participative, collaborative economic paradigm that synthesizes sharing and growth has continued especially after the economic and financial crises

Today, “Islamic economics/economy” is considered as the only satisfactory response to this search, with its well-developed moral and legal foundations and the historical experience.

The modern-time Islamic economics literature that came out at the beginning of 20th century constituted an important catalyst for Muslim countries (especially in India-Pakistan) in their independence and identity building process. These studies aimed to bring about an Islamic perspective to modern time economics, rather than following the classical fiqh methodology.

islamic-businessThe importance of Islamic economy arises from not only the rise of “Islamic finance” that showed better resilience after the 2008 crisis compared to conventional financial institutions, but from its potential to provide countless prosperity to the World. Today we cannot talk about a manifestation/implementation of Islamic economy with all the aspects. The process of conceptualization and institutionalization of Islamic economy from 1900s to 1960s (Mith Ghamr Bank in Egypt for instance) have been substituted by efforts to find interest-free channels within the fractional reserve/deposit banking paradigm following to the fast accumulation of oil money in 1970s. This process caused the perception of “Islamic economics/economy” to narrow down to “Islamic finance” as it put much more emphasis on financial sector. As a result, it has put back the development of genuine financial institutions and studying Islamic economics as a whole beyond the Islamic finance.

albarakaHowever Islamic finance happens to be the flagship of Islamic economics today, it is necessary to understand Islamic economy as a whole, to develop genuine institutions and implementations in order to provide sustainable and universal prosperity that the World needs.