Building Models in Islamic Economics

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’.