NOTES OF ISLAMIC ECONOMICS

1. I SLAMI C
ECONOMI CS
WEEK # 2:
DEFINITION, NATURE
AND SCOPE OF
ISLAMIC ECONOMICS-
A REVIEW

2. DEFINITIONS AND NATURE OF ISLAMIC
ECONOMICS
Views can be classified into TWO categories.
Group 1
• The first category regard Islamic Economics as a branch of general science of
Economics.
• Islamic Economics should not be considered an independent discipline.
• They recommend that a Muslim Economist should try to explain how exogenously
given, ends can he realized within the framework of scarce means and unlimited
ends.
• His job is to explain the behaviour of economic agents and processes as they
emerged in the market place.
• Laliwala, Haq, and Siddiqui are the main exponents of this viewpoint.

3. DEFINITIONS AND NATURE OF IE (CONT.)
• Laliwala’s viewpoint
• He integrate Islamic Economics with the secular science of Economics.
• Islamic definition of economics should not be separated from the
general definition of economics.
GROUP #1

4. DEFINITIONS AND NATURE OF IE (CONT.)
• Criticism of Laliwala’s
• Muslim economists do not agree to both secular concepts of scarcity
of means amid excess of wants.
• Similarly, the substitution of ’Islamic values are most likely to affect
the thinking process of the economic agents leading to a different
economic behaviour.
GROUP #1

5. DEFINITIONS AND NATURE OF IE (CONT.)
• Haque views
• the new disciplines is a fruitless effort of the Muslim Economists because
he finds a clear dichotomy between religion and modern sciences.
• The progress of science critically depends upon formulation of testable
and refutable hypotheses while religious faith implies absolute certainty
of final truth.
• Hence, he contends that efforts to develop the new discipline cannot
succeed.
• He says, “This seems to be the reason that Islamic Economics, in spite of
the scholarly efforts of Islamic Economists, governmental support, and
the rapid progress of its literature, has not flowered into a scientific
discipline in the sense of a modern social science”2
GROUP #1

6. DEFINITIONS AND NATURE OF IE (CONT.)
• Critcism of Haque
• Islam is not a religion in the sense understood in the West it is a complete Deen
which guides all aspects of human life including rituals, social, political and
economic.
• Both fixity and flexibility features are built into all aspects of life.
• The material part of life is amendable to temporal adjustments on the basis of
observations and experimentation’s in the light of Islamic teachings.
• Haque traces the origin of Islamic Economics in the political, process of Pakistan
during 1977-88. He notes that “Islamic Economics emerged as a discipline
separate from the general science of economics in the wake of the political
process of Islamization of Pakistani society and economy during 1977-88”3.
• In fact, the First International Conference on Islamic Economics which marks the
turning point in the history of the discipline was held in 1976 in Makkah.
GROUP #1

7. DEFINITIONS AND NATURE OF IE (CONT.)
Group 2
• Supporter; Mannan, Khurshid, Hasanuz Zaman, Akram Khan and Arif
are articulate advocates of this group.

8. DEFINITIONS AND NATURE OF IE (CONT.)
• Mannan defines Islamic Economics as
• a “Social Science which studies the economic problems of people imbued with the values of Islam”.
• Mannans definition tries to bring back the focus of Islamic Economics to the right direction.
• Islamic economics studies economic behaviour in the ordinary business of life of the Islamically
inspired and practicing Muslims.
•
• Critique
• This definition, however, creates unnecessary boundaries of practicing and non-practicing Muslims.
• Another deficiency which ties in his definition relates to identifying economic problems in the same
way as in secular economics. i.e., as relationship between unlimited wants and scarce means.
GROUP #2

9. DEFINITIONS AND NATURE OF IE (CONT.)
• Ahmad’s view
• He considers Islamic Economics as a growing social discipline whose
concern is to reformulate economic Principles and propositions in
accordance with Islamic values and ideals.
• He notes, there is a new quest to discover the true meaning and
message of Islam by drawing upon the original sources of Islam
GROUP #2

10. DEFINITIONS AND NATURE OF IE (CONT.)
Hasanuz Zaman’s view point
According to him “Islamic Economics is the knowledge and
application of its functions and rules of Shariah that prevent injustice
in the acquisition and disposal of material resources in order to
provide satisfaction to human beings and enable them to perform
their obligations to Allah and the society”.
GROUP #2

11. DEFINITIONS AND NATURE OF IE (CONT.)
Limitations of definition
• Firstly, it reduces economic problem to acquisition and disposal of
resources -which may broadly be interpreted as production and
distribution activities. In other words, it does not cover the consumption
and exchange aspects of economics.
• Secondly, the terms, ‘acquisitions” and “disposals are inappropriate
phraseology.
• Thirdly, this definition does not include those situations of economic
activities which can be generalized from Islamic history through inductive
reasoning.
• Fourthly, it tends to limit the overall scope of the science of Islamic
Economics.
GROUP #2

12. DEFINITIONS AND NATURE OF IE (CONT.)
• Chaudhry’s view point
• He emphasizes on the social aspects of Islamic Economics in which
individuals interact on the basis of Islamic ethics.
• He identifies Taqwa (i.e. God consciousness) and Ibadat (i.e. worship) to
be the key element influencing the micro-economic behaviour of the
individuals which can be aggregated to form an Islamic Economy.
• He writes: ‘When these two fundamental elements (i.e. Taqwa and
Ibadat) of individual Islamic behaviour are fully understood at the micro
economic levels, and are fully mobilized by certain basic micro and macro
economic instruments peculiar tint to the Islamic economy, then an
integrated general equilibrium Islamic system can be formulated”.)
GROUP #2

13. DEFINITIONS AND NATURE OF IE (CONT.)
• View point of Akram and Arif
• Both offer quite similar interpretations of the subject matter
of Islamic Economics.
• Akram says that, “Islamic Economics, aims at the study of
human falah achieved by organizing the resources of earth
on the basis of cooperation and participation”.
• Arif notes, “Islamic Economics is the study of a Muslims
behaviour who organizes the resources which are a trust, to
achieve falah”.
GROUP #2

14. DEFINITIONS AND NATURE OF IE (CONT.)
• both of the above definitions center around the Quranic term, falah
which basically refer to the salvation of aI-Akhira (i.e. hereafter )
• how we will evaluate the behavior of a consumer motivated by utility
maximization rather than falah. Considerations.
GROUP #2

15. DEFINITIONS AND NATURE OF IE (CONT.)
• Iqbal’s view point
• discusses in detail the Islamic approach towards the economic
problem.
• He writes, “Economic problems arise because of lack of effort or
mismanagement of God-given resources on the one hand and
unbridled human wants on the other. Islam ensures a permanent
solution for the problem through its two split attack”.
GROUP #2

16. DEFINITIONS AND NATURE OF IE (CONT.)
• Chapra notes
• that without Islamic values the ideal pattern of behaviour becomes
one of conspicuous Consumption and ostentatious life style which
demands ever increasing command over resources.
• With the help of the banking system, it becomes possible to live
beyond one’s means thus causing economic frictions and poverty.
• The active role of the moral factor tends to conserve scarce resources
and makes it possible to satisfy needs of all in spite of their scarcity.
GROUP #2

17. DEFINITIONS AND NATURE OF IE (CONT.)
• Baqar al-Sadr
• makes an important contribution in delineating the nature of the subject
matter of Islamic Economics and the identifying causes for the economic
problems.
• Islamic Economics, in his opinion, is an integral part of the overall Islamic
way of life. Therefore, it is intimately connected with socio, cultural,
moral, and political aspects of life.
• He opines that economic life consists of two actions: Production and
distribution. Both of these activities give rise to a particular relationship;
in production man confronts the physical world and benefits from it and
in distribution he has to deal with other individuals.
GROUP #2

18. DEFINITIONS AND NATURE OF IE (CONT.)
• He notes that economic problems arise due to injustice and blocks in
production .
• He says that, “Allah has filled the whole universe with the matter and
provisions for utilities which are sufficient to cater to the need of man
but he has lost these opportunities and has turned aggressor and
unthankful.
• This means that unequitable distribution of wealth and in optimal
exploitation of productive resources are two basic causes of all types
of economic problems”
GROUP #2

19. CONCLUDING REMARKS
• Islamic Economics is an infant discipline.
• Its relatively new material has not so far produced a concise definition truly
reflect its subject-matter.
• A lot of confusion about the nature, definition, and scope of this discipline is
prevailing in the literature.
• Existing efforts have mostly produced literature on interest-free financial
system which is previously considered to be the Islamic Economics system.
Hence an erroneous impression is generally prevailing that the former
reflects major features of the latter— which in fact is not the case.
• Secondly, it has constrained the audience of the discipline by limiting its
analyses and solutions to an Islamic economy.
• Therefore, there is an urgent need to reformulate the nature, definition, and
scope of Islamic Economics in a form convincing to the economic profession
and to general readers.

20. NOW LET’S TOWARDS
THE NEXT TOPIC
“Toward a Definition of Islamic
Economics: Some Scientific
Considerations”.
Muhammad Arif
Research Department, State Bank of Pakistan
(Currently a Ph.D Candidate in Economics, Clark University,
Worcester, MA 01610, U.S.A.)

21. T O WA R D A
D E F I N I T I O N O F
“ I S L A M I C
E C O N O M I C S ”
[ S O M E S C I E N T I F I C
C O N S I D E R A T I O N S ]
A U T H O R : M U H A M M A D A R I F
R E S E A R C H D E P A R T M E N T, S TAT E B A N K
O F P A K I S TA N

22. DEFINITION
• Here we will discuss definition of two scholars only
1- Hasanuz Zaman’s view point
According to him;
“Islamic economics is the knowledge and application of its
functions and rules of shariah that prevent injustice in
the acquisition and disposal of material resources in
order to provide satisfaction to human beings and
enable them to perform their obligations to allah and
the society”.

23. DEFINITION…
2- Akram’s view point
“Islamic Economics, aims at the study of human
falah achieved by organizing the resources of
earth on the basis of cooperation and
participation”

24. • It need a scientific traditions that can be helpful in
presenting the definition of Islamic economics in a clear,
concise and convincing way so that our position is well
understood
• The basis of our efforts to develop Islamic economics lies
in the fact that the paradigm of Islamic economics is
different from the other economics paradigms.

25. • We start with acknowledging the fact that economics is a
normal science. “Normal science”.
• Within a community of scientists involved in research in a
given normal science there may exist different paradigms.

26. • The term paradigm is defined as, "some accepted
examples of actual scientific practice - examples which
include law, theory, application, and instrumentation
together - provide models from which spring particular
coherent traditions of scientific research.“

27. • In the context of the science of economics, two widely known
paradigms at present are:
1. the Marxian paradigm of socialism and
2. the market economy paradigm of capitalism.
And the 3rd one is Islamic Economic system. which is
fundamentally different from the above two.
3. The paradigm of Islamic economic system is the Shari’ah
• Every paradigm in economics is based on certain philosophic
foundations and is a system of belief.

28. • Economic system is the outcome of the paradigm that it
follows
• The choice of the paradigm is reflected by the behavioral
pattern of the individual units in the society.
• The behavior of the individual units is, in fact, the basis of
the micro foundations of the system.

30. The choice of the paradigm is
reflected by the behavioral pattern
of the individual units in the
society.

31. 1- MARKET ECONOMY
PARADIGM
• Philosophic foundations of capitalism are in laissez faire (the policy of
allowing private businesses to develop without government control).
• The behaviour of the members of a society that believes in laissez
faire is symbolized by the `economic man'.
• The economic man believes in utilitarian rationality. The behaviour
of the economic man is the basis of the micro foundations that
logically lead to the market economy paradigm.
• Using this paradigm the conventional economic theory builds the
economic system known as capitalism.

32. 2- SOCIALIST ECONOMY
PARADIGM
• micro foundations lies in the fact that private ownership of the factors
of production is not allowed.
• The resulting relationships lead to the Marxian paradigm of
economics.
• This paradigm builds the economic system called socialism

33. 3- ISLAMIC ECONOMY
PARADIGM
A society whose members adopt Islam as their way of life will develop
the Islamic economic system
Philosophic foundations of Islamic economic system
1. Tawhid: God's Unity and Sovereignty.
2. [Oneness of Allah's Lordship] Rububiyyah: Divine arrangements for
nourishment and directing things towards their perfection.
3. Khilafah: Man's role as God's vicegerent on the earth.
4. Tazkiyah: Purification plus growth.
5. Accountability: Belief in accountability on the day of judgement and
its implications for the life in this world and in the hereafter

34. CONCLUSION
• As a result of these philosophic foundations the behavior of the
representative economic agent in an Islamic society can best be
characterized as the "Muslim, i.e., one who submits to Allah“
• The behaviour of the Muslim man is very different from that of the
long celebrated `economic man’.

35. THE BASIS
OF THE
MICRO
FOUNDATI
ONS AND
ITS
IMPLICATI
ONS FOR
THE
ECONOMIC
SYSTEM

36. • Qur'an's position on the economic mans attitude towards life is very
clearly stated:
• "Some say, `Our Lord, give us all the good things here in this world.
Such people shall have no share in the Hereafter.', (2: 200)*
• Qur'an also gives a clear description of the behavior of a Muslim:
• "Then there are those who say, `Our Lord, give us what is good in this
world and also what is good in the Hereafter and save us from the
torment (torture) of Fire.' Such people will have their due share (in
both worlds) according to what they earn. And Allah is swift at
settling accounts." (2: 201-202).

37. • Qur'an frequently mentions that the individual who
believes in Islam and practices it as well, shall have only
one course of life i.e., obedience to Allah and His prophet
Muhammad (peace be upon him).
• The references of some of the verses emphasizing this
are: (3:32), (3:132), (5:92-93), (8:1), (8:20-21), (9:71),
(24:54-56), and (58:13).

38. • A Muslim is the one whose purpose in life is to achieve
falah by being successful in his role as the vicegerent of
God on this earth. His success in this role depends among
many other things, on the acquisition, allocation and
disposition of the resources, which are a trust, according
to the consent of Allah.

39. • Thus it is the Muslim man's behaviour which serves as the basis of the
micro foundations that logically lead to the Shari'ah paradigm.
• This micro foundations' link between the human behaviour and the
Shari'ah paradigm (in an Islamic society) is the scientific basis of our
efforts to develop Islamic economic system.
• Our efforts to develop Islamic economic system based on Shari'ah
paradigm are fully consistent with the scientific traditions of
paradigm building.

40. WHILE DEVELOPING THE CONCEPT
OF ISLAMIC ECONOMICS
1. we should differentiate between the definition of Islamic
economics and that of its paradigm
2. we should develop an appropriate terminology which describes
the concept unique to Islamic economics without any ambiguity
3. our proposed definition of Islamic economics should state basic
economic problem as a built-in phenomenon of human life; and
not as an exogenous scenario being imposed upon the economic
agents.

41. 1. Defining Islamic Economics and not its Paradigm:
– We should be aware of the fact that there is a difference between
Islamic economics and its paradigm.
– The definition of Islamic economics is the Statement of the Basic
Economic Problem and it need not explicitly mention the paradigm
involved.
– The paradigm involved should be defined separately.
– According to the structure of a normal science, anything that involves
the law, theory, instruments and practices concerning the solution of the
problem is included in the paradigm
– In the case of Islamic economics Shari'ah is the paradigm.

42. 2. Use of the Appropriate Terminology
– Appropriate terminology plays a key role in the smooth development of
a paradigm
– enables the reader to clearly distinguish the nature and characteristics
of this paradigm from that of the other competing paradigms.

43. 3. Constructing the definition of Islamic economics which states the
basic economic problem as abuilt-in phenomenon of human life;
and not as an exogenous scenario being imposed upon the
individual.
– Islamic economics should express economic problem in such a way that
the statement of the problem itself leads the individual to a logical
approach for its solution

44. CONCLUSION
Islamic economics is not a sub-discipline or sub-part of the
western economics. It is a separate discipline due to its
micro foundations which comes from the Islamic paradigm
i.e., al-Shar`iyyah.