These are the general steps taken in the process of building models in Islamic economics.
1. Understanding the Islamic worldview.
Since worldview shapes the ideology, and ideology shapes the system, we have to understand what is Islam and its worldview in order to build Islamic economics.
2. Establish visions of Islamic economics. Basically, the visions, aims and objectives of Islamic economics must be coherent with the maqasid as-shari’ah (objectives of the shari’ah). All economic goals in policy making such as to achieve economic growth, full employment, price stability, economic efficiency, economic freedom, economic stability and income equitability are all acceptable as these are supportive towards achieving the maqasid (we will discuss this later). To achieve all those goals, the tools and mechanisms must be compliance with the shari’ah.
3. Refer to primary sources
Al-Qur’an and hadith are the main sources of knowledge. These two must be referred as guidance in life. All economic theories, principles or laws must be parallel with the injunctions of the Qur’an and hadith. In the case of inconformity between man-developed theories and the primary sources, the latter hold the absolute prerogative to nullify the former.
4. Refer to past and present scholars of Islam and Islamic economists.
This is the next stage of literature review that we have to conduct in order to develop Islamic economics. Works by past scholars (like Ibn Taymiyyah, Ibn Khaldun, al-Ghazali etc.) especially those related to economics, play a crucial role to guide present scholars in the process of developing Islamic economics. Nonetheless, the works by contemporary scholars (like Siddiqi, Chapra, Mannan etc) are also as important as the previous works because they shed lights to the current dynamism of economics.
5. Refer to works of scholars in economics and finance.
Basically, most of economics applications have to be derived. This mainly involves the positive economics. However, only positive aspects which are inconformity with the shari’ah can be used in Islamic economics. Hence, works by the non-Muslim scholars that fulfill this criterion can be referred to in the process of building Islamic economics.
6. Establish assumptions, hypotheses, laws and principles based on step one until step five.
7. Test the hypotheses and models
Empirical work is usually required to prove the hypothesis. It is important to note that sometimes the empirical findings could be misleading in a case where a sample taken does not represent the correct behavior as urged by the shari’ah. For example, Islam clearly prohibits riba or usury but there are a lot of empirical facts that show the link between interest and economic activities. Due to these erroneous findings, it has come to a point that the present economic system is run under the interest-based economic mechanism.
The model building process in Islamic economics still applauds the scientific method of study. At the same time, we have to be cautious because not all phenomena could be explained scientifically. This is because the scientific method of study as widely being practiced today is only within the cosmos of mankind. We must remember that there are some other cosmoses like the angelic cosmos and the godly cosmos which could totally be out of our ability to comprehend.
To guide mankind, Allah SWT has sent down the revelations. In revelations, the normative aspect (what should be) of the system is explained. Hence, in testing the hypothesis:
i. If ‘what is’ ≠ ‘what should be’, go to step 8.
ii. If ‘what is’ = ‘what should be’, go to step 9.
8. Recheck the model
9. Put forward the hypotheses into theories, theories into policies to change ‘what is’ to conform with ‘what should be’.
Monday, March 21, 2005
Friday, March 18, 2005
Introduction to Methodology of Islamic Economics
Islamic economics is relatively a new area of study. It is ‘new’ in the sense of how modern disciplines are developed. Although the Islamic way of conducting economic activities was established since the time of Prophet Muhammad SAW, and then further developed during the realm of the Islamic empires, but never any label or name was given to the economic conducts as Islamic economics.
From 1924 (the end of the caliphate system) until the end of World War II, the world was busy with wars. After that, when many countries got their independence, some of Muslim scholars started the blueprint of Islamization of knowledge. This includes the project of Islamic economics.
With that brief history, our focus now is to understand how to develop Islamic economics in the modern context? This is a pertinent question because, in the area of epistemology, for any discipline to be developed, certain methodologies must be followed.
Methodology is crucial because it concerns about finding the ‘truth’. To find the truth, correct methods are indispensable. Especially in Islam, the primary sources of knowledge (al-Qur’an and as-sunnah) cannot be neglected since the revelations come from Allah the Almighty, Creator of the universe who knows everything. Undoubted truth is definitely in the revelations (2:2).
Because of this, the process of building model in Islamic economics is different from the conventional approach. In Islam, revelation is central and prerogative in defining and determining the truth. For instance, even if all people did not follow or behave against the revelation, this would not change the fact of good and evil as describe in the Qur’an and the hadith.
From 1924 (the end of the caliphate system) until the end of World War II, the world was busy with wars. After that, when many countries got their independence, some of Muslim scholars started the blueprint of Islamization of knowledge. This includes the project of Islamic economics.
With that brief history, our focus now is to understand how to develop Islamic economics in the modern context? This is a pertinent question because, in the area of epistemology, for any discipline to be developed, certain methodologies must be followed.
Methodology is crucial because it concerns about finding the ‘truth’. To find the truth, correct methods are indispensable. Especially in Islam, the primary sources of knowledge (al-Qur’an and as-sunnah) cannot be neglected since the revelations come from Allah the Almighty, Creator of the universe who knows everything. Undoubted truth is definitely in the revelations (2:2).
Because of this, the process of building model in Islamic economics is different from the conventional approach. In Islam, revelation is central and prerogative in defining and determining the truth. For instance, even if all people did not follow or behave against the revelation, this would not change the fact of good and evil as describe in the Qur’an and the hadith.
Thursday, March 17, 2005
Factors of Production as an Amanah (Trust)
In conventional economics, resources are categorized into four, which are land, labor, capital and entrepreneur. These resources are said to be scarce and within this constraint, they are utilized to fulfill the unlimited wants of man.
As far as resources are concerned, we can divide them into two major categories. The first category is labor and entrepreneur and the second is land and capital. The former is man, himself while the latter is the universe (exclude mankind). We make these divisions because in our discussion on Islamic worldview before, we had seen the Islamic worldview views on man and the universe/nature.
Obviously, from an Islamic perspective, man is not simply a factor of production. Man is a servant and a vicegerent of Allah who bears the responsibility to manage this universe according to the divine laws. He is also responsible for his deeds and actions in this world.
Then, the universe is created to serve mankind (45:13). However, this does not mean we are allowed to explore and exploit the resources to fulfill our wants. In fact, the universe serves us in there broad manners:
First, the universe is created as a gift from Allah, the Most High to His servants. For this, we must be thankful and always glorify Him for His greatness and mercy upon us (1:2).
Second, Allah also has created the universe as a sign for mankind to know Him. From our observation and study of the universe, we could realize His power, greatness and attributes (67:3). This is how Allah wants us to know Him (6:101, 21:30, 51:47). Apart from that, the universe and the resources available in it are also function as the source of knowledge to us – another form of sign. From our observations of the environment, there we derive various forms of disciplines in science and social science.
Third, the universe is also the place where we get our resources and sustenance to maintain our existence (2:168, 67:30). We get food, air, water and material to build our civilization from the universe.
Therefore, in Islamic economics, the resources are not merely to be utilized for man’s material well-being. Resources are amanah from Allah, the Almighty and from this amanah Allah knows whose among us are the best in their deeds (67:2).
As far as resources are concerned, we can divide them into two major categories. The first category is labor and entrepreneur and the second is land and capital. The former is man, himself while the latter is the universe (exclude mankind). We make these divisions because in our discussion on Islamic worldview before, we had seen the Islamic worldview views on man and the universe/nature.
Obviously, from an Islamic perspective, man is not simply a factor of production. Man is a servant and a vicegerent of Allah who bears the responsibility to manage this universe according to the divine laws. He is also responsible for his deeds and actions in this world.
Then, the universe is created to serve mankind (45:13). However, this does not mean we are allowed to explore and exploit the resources to fulfill our wants. In fact, the universe serves us in there broad manners:
First, the universe is created as a gift from Allah, the Most High to His servants. For this, we must be thankful and always glorify Him for His greatness and mercy upon us (1:2).
Second, Allah also has created the universe as a sign for mankind to know Him. From our observation and study of the universe, we could realize His power, greatness and attributes (67:3). This is how Allah wants us to know Him (6:101, 21:30, 51:47). Apart from that, the universe and the resources available in it are also function as the source of knowledge to us – another form of sign. From our observations of the environment, there we derive various forms of disciplines in science and social science.
Third, the universe is also the place where we get our resources and sustenance to maintain our existence (2:168, 67:30). We get food, air, water and material to build our civilization from the universe.
Therefore, in Islamic economics, the resources are not merely to be utilized for man’s material well-being. Resources are amanah from Allah, the Almighty and from this amanah Allah knows whose among us are the best in their deeds (67:2).
Wednesday, March 16, 2005
Falah as a Goal
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. Falah, according to al-Ghazali means eternal happiness and it can be divided into falah in this world and falah in the hereafter.
As a Muslim, our ultimate goal is to achieve falah in the hereafter because this is the eternal place where all of or deeds in the present world will be evaluated accordingly by Allah for us to receive reward or punishment. The most important criterion for our good deeds to be accepted by Allah is first, we must testify that there is no other gods but Allah and Prophet Muhammad SAW is His messenger. This is because Allah does not accept the good deeds done by the non-believer (Ali-‘Imran:91)
By stressing the importance of falah in the hereafter, it does not mean that we must neglect this world (al-Qasas:77). Muslims must also be successful in this world because this is the place and now is the time for us to put our ‘investment’ (in the form of good deeds and virtues) to be brought before Allah, the Almighty in the hereafter. To guide our economic activities, this is where Islamic economics is significant. It guides us on how to manage the resources which are given as a trust by Allah, for us to utilize them as a mean to achieve falah in the hereafter.
For a Muslim, success in this world is not the ultimate aim in life. Success in this world is a mean to achieve the eternal happiness in the hereafter. All material well-being, power, position, honor and glory that we have in this world as a result for our good deeds are just the ‘by-product’; not the ultimate purpose of our excellent efforts. They also could be a form of test upon us.
Therefore, in order to achieve falah, we need to make sure that our soul and body are both in a peaceful condition. To secure peace of the soul, we need divine guidance, while peace of the body could be achieved by good health, beauty, wealth, influence and good family.
As a Muslim, our ultimate goal is to achieve falah in the hereafter because this is the eternal place where all of or deeds in the present world will be evaluated accordingly by Allah for us to receive reward or punishment. The most important criterion for our good deeds to be accepted by Allah is first, we must testify that there is no other gods but Allah and Prophet Muhammad SAW is His messenger. This is because Allah does not accept the good deeds done by the non-believer (Ali-‘Imran:91)
By stressing the importance of falah in the hereafter, it does not mean that we must neglect this world (al-Qasas:77). Muslims must also be successful in this world because this is the place and now is the time for us to put our ‘investment’ (in the form of good deeds and virtues) to be brought before Allah, the Almighty in the hereafter. To guide our economic activities, this is where Islamic economics is significant. It guides us on how to manage the resources which are given as a trust by Allah, for us to utilize them as a mean to achieve falah in the hereafter.
For a Muslim, success in this world is not the ultimate aim in life. Success in this world is a mean to achieve the eternal happiness in the hereafter. All material well-being, power, position, honor and glory that we have in this world as a result for our good deeds are just the ‘by-product’; not the ultimate purpose of our excellent efforts. They also could be a form of test upon us.
Therefore, in order to achieve falah, we need to make sure that our soul and body are both in a peaceful condition. To secure peace of the soul, we need divine guidance, while peace of the body could be achieved by good health, beauty, wealth, influence and good family.
Tuesday, March 15, 2005
Defining Islamic Economics
Islamic economics is different from the conventional economic system. From our discussion on Islamic worldview, it is now clear that the frameworks of Islamic economic system must be within those parameters. Thus, the philosophy, aims and objectives, methodology and tools of policy of the system are clearly governed by and built based on, the principles of shari’ah.
Then, what is Islamic economics? Because of its dynamism, Muslim economists have different ways to define Islamic economics. Some of the definitions are:
1. Islamic economics aims at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation (Akram Khan, 1404)
2. Islamic economics is the knowledge and application of injunctions and rules of the shari’ah that prevent injustice in the application and disposal of material resources in order to provide satisfactions to human beings and enable them to perform their obligations to Allah and the Society (Hasanuz Zaman, 1404)
3. Islamic economics is the study of Muslim behavior who organizes the resources, which are a trust, to achieve falah (Muhammad Arif, (1405)
4. Islamic economics is an approach to, and process of, interpreting and solving man’s economic problems based on the values, norms, laws and institutions found in, and derived from the sources of Islam” (Aslam)
5. Economics, from the Islamic (Khaldunian) view point studies the behavior of men and women, individually and in their association and socialization, in order to understand the patterns and modes of this behavior, its motives and incentives, as well as its goals and objectives, and responses and reactions, with and without being restricted to a specific situation, norms, set of moral values, or legal, political, religious, etc. framework.(Monzer Kahf)
Basically, from the definitions given, we can highlight few important points that each of the abovementioned scholars would have in their respective definition of Islamic economics. First, it is clear that the objective of Islamic economics is to achieve falah. Second, in doing so, the resources must be managed, preserved, conserved and utilized according to the rules of shari’ah.
Obviously, Islamic economic system is very different from the conventional definition of economics which only focuses on the way how we utilize the limited resources to fulfill man’s unlimited wants.
Then, what is Islamic economics? Because of its dynamism, Muslim economists have different ways to define Islamic economics. Some of the definitions are:
1. Islamic economics aims at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation (Akram Khan, 1404)
2. Islamic economics is the knowledge and application of injunctions and rules of the shari’ah that prevent injustice in the application and disposal of material resources in order to provide satisfactions to human beings and enable them to perform their obligations to Allah and the Society (Hasanuz Zaman, 1404)
3. Islamic economics is the study of Muslim behavior who organizes the resources, which are a trust, to achieve falah (Muhammad Arif, (1405)
4. Islamic economics is an approach to, and process of, interpreting and solving man’s economic problems based on the values, norms, laws and institutions found in, and derived from the sources of Islam” (Aslam)
5. Economics, from the Islamic (Khaldunian) view point studies the behavior of men and women, individually and in their association and socialization, in order to understand the patterns and modes of this behavior, its motives and incentives, as well as its goals and objectives, and responses and reactions, with and without being restricted to a specific situation, norms, set of moral values, or legal, political, religious, etc. framework.(Monzer Kahf)
Basically, from the definitions given, we can highlight few important points that each of the abovementioned scholars would have in their respective definition of Islamic economics. First, it is clear that the objective of Islamic economics is to achieve falah. Second, in doing so, the resources must be managed, preserved, conserved and utilized according to the rules of shari’ah.
Obviously, Islamic economic system is very different from the conventional definition of economics which only focuses on the way how we utilize the limited resources to fulfill man’s unlimited wants.
Sunday, March 13, 2005
Islamic Worldview: View on Knowledge
In Islam, there are two sources of knowledge. The first one is known as the primary sources of knowledge. In the methodology of deriving any knowledge in Islam, the Qur’an and the sunnah of Prophet Muhammad SAW are the main references for guidance. These two sources are authentic and must be accepted even if the wisdom behind the rulings sometimes is inconspicuous.
The second source of knowledge is known as the acquired knowledge. Here we have to exert our reasoning to understand the wisdom of God’s creations. The knowledge here can be established through inductive or deductive frameworks. Part of the processes would involve observation, collection of data, experiment and hypothesis testing before certain conclusive principles, laws or theorem can be established. However, the empirical evident or fact derived from those process must not go against the primary sources of knowledge in Islam.
Many theories in science such as physics, chemistry and biology come from acquired knowledge. This also applies in social science like economics.
Another important note to make is that, ijtihad is categorized under the second source of knowledge which deals with the process of deriving the shari’ah law. Ijtihad is part of method of developing knowledge through reasoning which is very important next to Qur’an and Sunnah.
Ijtihad literally means striving or self-exertion in any activity which entails a measure of hardship. Technically, ijtihad is the total expenditure of effort made by a jurist in order to infer, with a degree of probability, the rules of shari’ah from their sources – al-Qur’an and as-sunnah.
Ijtihad is important because it is a continuous process of development whereas divine revelation and Prophetic legislation discontinued upon the demise of the Prophet SAW. In this sense, ijtihad continues to be the main instrument of interpreting the divine message and relating it to the changing conditions of the Muslim community.
The second source of knowledge is known as the acquired knowledge. Here we have to exert our reasoning to understand the wisdom of God’s creations. The knowledge here can be established through inductive or deductive frameworks. Part of the processes would involve observation, collection of data, experiment and hypothesis testing before certain conclusive principles, laws or theorem can be established. However, the empirical evident or fact derived from those process must not go against the primary sources of knowledge in Islam.
Many theories in science such as physics, chemistry and biology come from acquired knowledge. This also applies in social science like economics.
Another important note to make is that, ijtihad is categorized under the second source of knowledge which deals with the process of deriving the shari’ah law. Ijtihad is part of method of developing knowledge through reasoning which is very important next to Qur’an and Sunnah.
Ijtihad literally means striving or self-exertion in any activity which entails a measure of hardship. Technically, ijtihad is the total expenditure of effort made by a jurist in order to infer, with a degree of probability, the rules of shari’ah from their sources – al-Qur’an and as-sunnah.
Ijtihad is important because it is a continuous process of development whereas divine revelation and Prophetic legislation discontinued upon the demise of the Prophet SAW. In this sense, ijtihad continues to be the main instrument of interpreting the divine message and relating it to the changing conditions of the Muslim community.
Thursday, March 10, 2005
Islamic Worldview: View on Aim in Life
What is the purpose of our existence? Since Allah has given us great responsibilities to be His vicegerent and servant in this world, the success in undertaking those responsibilities is a great accomplishment of divinity mission of man. Allah has promised paradise to these people as mentioned in al-Qur'an in surah Al-Mukminun 23:10-11 and this is the ultimate definition of success to mankind.
Achieving falah is the ultimate aim in our life. As defined by Al-Ghazali, falah means ‘eternal’ happiness. The only place possible to achieve this is in the paradise. This world cannot be the place because our life in this world is short (life expectancy rate around 70-80 years). Furthermore, within this short period of life in this world, we are constrained by the process of aging, limitation of resources, time constraint, sickness and many more. Thus, pleasure in this world is mixed with pain, agony, sorrow etc.
Basically, we can say that the real success to man is when he enters the paradise of Allah, the Almighty in the hereafter.
Nonetheless, Islam does not neglect the importance of success in this world. In fact, this world is the place where we are being tested by Allah (Al-Mulk 67:2) to see whose among us are the best in deeds and conducts.
We are reminded not to forget our portion in this world (Al-Qasas 28:77). Islam, in fact, encourages material pursuit with the condition that material well-being must not divert us from our main purpose of existence – to achieve falah. This is suitable with the inherent nature of man who loves material well-being (Ali-'Imran 3:14). However, we must remember that wealth and success that we gain in this world are not the ultimate aim and definition of success. Striving for them is part of ibadah and they must be used as means to achieve the real success in the hereafter.
Achieving falah is the ultimate aim in our life. As defined by Al-Ghazali, falah means ‘eternal’ happiness. The only place possible to achieve this is in the paradise. This world cannot be the place because our life in this world is short (life expectancy rate around 70-80 years). Furthermore, within this short period of life in this world, we are constrained by the process of aging, limitation of resources, time constraint, sickness and many more. Thus, pleasure in this world is mixed with pain, agony, sorrow etc.
Basically, we can say that the real success to man is when he enters the paradise of Allah, the Almighty in the hereafter.
Nonetheless, Islam does not neglect the importance of success in this world. In fact, this world is the place where we are being tested by Allah (Al-Mulk 67:2) to see whose among us are the best in deeds and conducts.
We are reminded not to forget our portion in this world (Al-Qasas 28:77). Islam, in fact, encourages material pursuit with the condition that material well-being must not divert us from our main purpose of existence – to achieve falah. This is suitable with the inherent nature of man who loves material well-being (Ali-'Imran 3:14). However, we must remember that wealth and success that we gain in this world are not the ultimate aim and definition of success. Striving for them is part of ibadah and they must be used as means to achieve the real success in the hereafter.
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