Achievement of social justice through zakat and prohibition of interest

Prohibition of interest or Riba

One of the distinguishing characteristics of Islamic economic system is the prohibition
of interest.

The Holy Book Quran uses the word 
Riba for interest and defined as excessive interest or usury. 
Islam has categorically prohibited the
giving or receiving of interest in any form. 

Allah said that  “O you who believe! Fear God and give up what remains of your demand for usury, if you are indeed believers” [Al-Baqarah 2:278].

One of the Hadith the Prophet condemns the person who gives, receives, bears, witness or records any transaction that involves Riba.

As Ibrahim (2000) quoted from the Islamic Law
Academy‟s declaration, that forms of Riba can be in: 

 i) “any increase or profit on a loan which has matured in return for an extension of the maturity date, in the case where the borrower is unable to pay, 

ii) and any increase or profit on the loan at the inception [beginning] of the loan agreement”


Ibrahim (2000) also briefly discusses some of the reasons why interest or Riba is against the Islamic spirit of justice and equity. 

Here they are:

👎It discourages innovation by small businesses.

👎It leads to bankruptcy and results in loss of productive potential for the society as a
whole and causes unemployment.

👎The debt burden makes it difficult for a depressed economy to recover, bringing
additional suffering to the whole society.

👎Banks working in this system has no incentive to participate a venture. That is, they have no interest in the venture except in so far as there are possibilities of recovering their capital and earning interest, any investment plan put to them is evaluated on the basis of this criterion.

Reference : Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-200 V.9 Is.31

Achievement of social justice through zakat and prohibition of interest

ZAKAT

Zakat is a religious tax and an act of worship to please the God Almighty.

According to Rakiya Ibrahim (2000), :

The idea behind zakat “is to purify wealth and enhance its redistribution within the society and to prevent its hoarding.” 

Certain categories of people are eligible to receive zakat:

👍the poor, 

👍the needy, 

👍debtors,

👍new converts, 

👍slaves, 

👍wayfarers, 

👍zakat officials 

👍and those that fight in the cause of God). 

The types of assets that are subject to zakat are not specified. 

 Mohammed B. Sadr have a point of view according to this matter that “instances of zakat and Nisb [exemption limit] and their amount in each period are determined by ijitihad with regard to the condition of time and place” (Taheri, 2000, quoted from Sadr, 1994: p.237)

Reference: Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-200 V.9 Is.31

BASIC PRINCIPLES OF ISLAMIC ECONOMY (CONTINUE)

2. The principle of economic freedom within a define limit 

The second basic component of the Islamic economy is to allow individuals, at the economic level, a certain freedom, within the limits of the spiritual and moral values of Islam. 
Two ways of the implementation of this principle in Islam: 
👣 Islamic law provides the textual stipulation ➔ to forbid a group of social and economic activities such as usury, monopoly, and so on.
👣 Islamic law in principle lays down the supervision of the ruler over general activities and the intervention of the state to protect and safeguard public interest ➔ through the limitation of freedom of individuals in their actions.


     Ⅰ. Self-Interest

⇰ According to Islamic view, balancing between spiritual and materials need of man means the success of both individual and the society. 
⇰ Man does not have the right to possess as much as he desires or to obtain wealth in anyway he likes because he is neither the absolute owner nor the total possessor of the earth and its resources. 
⇰ Man is the vicegerent of God and this vicegerency belongs to all
people, each individual is a guardian of the public trust. 
⇰ When the spiritual life is separated from the economic struggle of man, the required balance will be deteriorated. 
⇰ Therefore, the maintenance of such a constructive balance is very crucial to economic stability as well.

     Ⅱ. Rationality

Difference between Western thought and Islamic thought with respect to the meaning of rationality concept is: 
          
➽ Western thought - rational action as delimiting characteristics in terms of the ways adopted to reach the ends are specified which values or emotions are not considered as rational.

➽ Islamic thought - the life of a Muslim in this world is a temporary phase in his permanent life the Hereafter so his success in the Hereafter is dependent on the utilization of the resources of this world in the best and right way.

💓 We should also note that while seeking the abode of the Hereafter, we could not neglect his share of the world. A right balance between the material and spiritual needs is necessary to accomplish this end. 💓

     Ⅲ. Free market 

💫 Markets played an important role as distinctive places for transactions in Islamic economic history and regulated by price mechanism. 
💫 The forces of supply and demand to bring the market in equilibrium have been well recognized.
💫 People are left free to transact and exchange goods and services.
💫 The state authority can only intervene if a transgression is illegally committed against one party.
💫 Shari'ah calls for fair and free trading, fully complying with principles.
💫 Price controls merely with the aims of justifying this freedom and fighting corruption are reasonably accepted. 

🔴 Islam has recognized the market system because of the freedom it offers to individuals. However, this system is not considered to be inviolable and unchangeable. 
🔴 The goals of the Muslim society are more important and the hoarding and profiteering of people's urgent needs for particular commodities, especially for imperative ones are absolutely prohibited.


3. The principle of social justice

Social justice is embodied in Islam by the elements and guarantees, which Islam provided for the system of distribution of wealth in the society. The Islamic image of social justice contains two general principles:
🌈 principle of general mutual responsibility. 
🌈 the principle of social balance.

Three elements necessary for the execution of social justice are
tawhid, Ijitihad, and ethics.

a) Tawhid (monotheism)

➤ Man believes that Allah is the only one need to be worship.
➤ Man believes that what happened in this world is by Allah desires and power.
➤ Also define as man-God relationship. 
➤ The key of Islamic social justice lies in man's relationship with God, people, nature, universe and the purpose of man's life on the earth. 

b) Ijtihad

➠ Technical term of Islamic law that describes the process of making a legal decision by independent interpretation of the legal sources, the Qur'an and the Sunnah.
➠ An Islamic scholar who is qualified to perform ijtihad is called a mujtahid. 
➠ Ijtihad can be use to solve Muslim's problems in political, economical and social, particularly issues for which, there are no clear injunction in Qur‟an or Hadith (i.e., Prophet‟s actions or sayings). 

c) Ethics

📍 Western view ⇝ those who tried to connect economics with ethics considered it in a purely humanistic vein created by man.
📍 Islamic view ⇝ economics is related to ethics and ethics in turn is related to religion in Islamic view.  


Reference : Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-200 V.9 Is.31

Capitalism as Economic System

Generally, Capitalism is a free market system where individuals in the system pursuit for their self-interest and the legal framework is not very regulated by the government. The market will only listen to the dollar. Capitalism promotes functional distribution as if you work hard, you will get the reward.
Islam supports the functional distribution as long as it is equitable to the community. The income and wealth should not only be concentrated in the rich people hands rather the distribution should take consideration of poor people.

Here, a short video attached regarding the history of Capitalism.

https://www.youtube.com/watch?v=dIuaW9YWqEU

Example of Economic System : Traditional Economic System

 

Traditional economy means an economy where customs, traditions, and beliefs prescribe the principles of economic organization for the production of goods and services.

The sectors of economic activity include agriculture, hunting, fishing, and gathering. 

In many situations, a traditional economy may have no official currency.

A primitive barter trade is used instead of money,

The next possible development of a traditional economy is a farmer’s economy centered on stable agrarian production structures (Rosser et al., 1999).

References: Mamedov, O., Movchan, I., Ishchenko-Padukova, O., Grabowska, M. (2016), Traditional Economy: Innovations, Efficiency and Globalization, Economics and Sociology, Vol. 9, No 2, pp. 61-72. DOI: 10.14254/2071-789X.2016/9-2/4

BASIC PRINCIPLES OF ISLAMIC ECONOMY

According to Mohammed B. Sadr, (1980) three basic principles of Islamic economy are multi-faceted ownership, economic freedom within a certain limit, and social justice. 

These are the three basic components of Islamic economic doctrine, according to which its theoretical content is defined. Islamic economics can also be distinguished from other economic regimes in terms of the broad lines given by these components.

1. Multi-faceted ownership 

Islamic economic doctrine acknowledges different forms of ownership at the same time. Ownership is accepted in a variety of forms instead of only one kind of ownership, that's why it adopts the principle of multi-faceted ownership. 

Types of ownership are: 

✉ Private ownership 

✉ Public ownership 

✉ State ownership 

Private ownership is for a number of kinds of property and means of production. Also, public ownership and state ownership are allows for some kinds of wealth and property. All three of the ownership are three parallel forms in Islamic law (Shari‟ ah).

(Surah Al-Baqarah: 284)

Based on verse above, it can be simplify that real ownership belongs to Allah and man holds property in trust for which he is accountable to him, in accordance with the rules clearly defined by the Shari‟ ah. Therefore, absolute ownership of man is an alien concept in Islam, as it belongs to God alone.

(Surah Al-Imran: 189)

He is the real owner of everything. 💖 

Reference: Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-2010 V.9 Is.31

Historical and Ideology Background had Influence Economic System

     Historical and ideology background has influenced the development of the economic system. Before the era of capitalism, the social system in Europe was dominated by feudalism. Feudalism works when the king divides a country into pieces of land and a landlord will take over the land. The king will impose a tax on the landlords and the landlords will pass the tax to the workers. In the feudal society, people at one level of society will receive land from the higher rank people to live and work on. In return, they have to work for them and give food that had produced to them.


     However, in Islamic Economic system, the history of the economic system can be found in the seerah during prophet time.Islamic Economic also based on the principle of tawheed and shariah legal framework.


Reference : Dr.Mohd Nahar Mohd Arshad, A manual for foundation of Islamic economics basic Principles and illustrations.

THEORY APPRAISAL IN ISLAMIC ECONOMIC METHODOLOGY: PURPOSES AND CRITERIA

The main objective of methodological query is to develop criteria of acceptance and rejection of a theory and providing rationalizations and guidelines in the process of theory appraisal and evaluation.

The purpose of theory appraisal in Islamic economics

Methodology of Islamic economics is developed in accordance with:

• the needs and requirements of the subject-matter (object of study) of discipline
• the provisional sources of knowledge to solve that subject-matter (discipline’s body of problem).


The economic theory appraised from those multiple sources of economic knowledge does three tasks: 


• links the doctrine and practical reality
• explains realities and their relationship in a holistic way
• helps in goal realization

The criteria for theory appraisal in Islamic economics

- This methodological process aims at producing “good theory”; differentiating fit theory fromthe unfit one; and ensuring further progress in theoretical (nazariyyah) and practical (‘amaliyyah) aspects of the discipline.

1. The criteria of internal-integrity.

2. The criteria of relational-unity; Unity perspective in understanding realities ; Unity of doctrine and practical realities

References : Hafas Furqani, Mohamed Aslam Haneef, (2012) "Theory appraisal in Islamic economic

methodology: purposes and criteria", Humanomics, Vol. 28 Issue: 4, pp.270-284, https://

doi.org/10.1108/08288661211277335

ISLAMIZATION OF ECONOMICS?

The Islamization of economics seems to be done ‘dichotomously’ between the conceptual (theoretical) and the empirical dimensions.

•   In the conceptual part, Islamic economists attempt to find Islamic justification based on Quranic verses over certain theories.

•   While in the empirical part, Islamic economists just utilize and apply the common statistical methods into an Islamic/Muslim case, assuming no contradiction to Islamic heritage.

Syed Farid Alatas (2006) observed, Islamic economics as empirical theory has not done  much. It remains within the fold of Western modernist discourse in terms of theoretical concerns and methodology, and has therefore failed to offer alternative princples to modernization and dependency on the dominant paradigm.

Sardar (1988; 2002)  also warned that, “Islamic economics is little more than one huge attempt to cast Islamic institutions and dictates, like zakāh and prohibition of interest, into a western economic mould. The dominant models guide the analysis and shape the inquiry: everything is compared and contrasted with capitalism and socialism, highlighting the fact that there is an underlying apologia at work.”

 Islamic economists often get trapped into the conventional paradigm. They may actually be contributing to the ‘westernization of Islam’, by fitting Islamic teachings into the neo-classical framework rather than the opposite.

(Haneef, 2005) At most, the current development of Islamic economics is working within the boundaries of neoclassical theory, with some adjustments to incorporate teachings/norms/values that reflected certain requirements of Islam.

Choudhury (1999, 1) also argues that: “In recent years when Muslim scholars wrote on Islamic economics, they had to turn to mainstream economic theories and clothe these up with a palliative of Islamic values. But no new challenge was posed on the epistemological beginnings of a new field of analytical and scientific study. There was no demand from the Muslim scholars to well-define a distinctive field of Islamic economics. The Muslim scholars thus approached the study of Islamic values in neoclassical economic models of behaviour and resource allocation without questioning either the value-orientation of neoclassicalism or the possibility of treating Islamic values in such otherwise value-free models of economic behavior, pricing and allocation.”

As a result, Islamic Economics has become almost a sub-discipline of conventional neoclassical economics, without Islamic justification.

References : methodology of Islamic economics :Overview of present state and future direction. International Journal of Economics, Management & Accounting 19, no. 1 (2011): 1-26

CHARACTERISTICS AND PURPOSES OF USUL AL-IQTISAD AS THE METHODOLOGY OF ISLAMIC ECONOMICS

-include knowledge of areas such as the Islamic worldview, its Islamic economic vision, philosophy, including its ontology, axiology, and especially epistemology (including methodology) relevant for Islamic economics and other social/human sciences (Haneef and Furqani, 2007).

USUL means “origin”, “roots”, “principles”, “fundamentals”, “rudiments” or “elements” of a particular thing.

IQTISAD literally means “moderation”, “in the middle” and also means economics. Nowadays, economic science is translated into Arabic as ilm al-iqtisad.

1. Usul al-iqtisad is an integration of methodology developed in our Islamic heritage (including usul al-fiqh and other usul of sciences developed in our heritage) and contemporary economics (which may involve the whole spectrum of conventional economics and not just the neoclassical school).

•     Usul al-iqtisad would have to deal with the primary sources of Islam (naqliyyah/revealed); Qur’ān and Sunnah as well secondary sources ( aqliyyah/reason); reasoning, experimentation and observation of both our legacy and of modern economics.

2. As a methodology of Islamic economics, usul al-iqtisad aims at delineating the principles that could be used to appraise Islamic economic theories. 

• It would have to develop principles that would have to deal simultaneously with both types of knowledge, naqliyyah and  aqliyyah. Rather than treating the heritage and modern economics separately, these principles must be integrated through a methodological dialectic and creative synthesis.

3. One thing should also be noted is that Islam has revealed sources (Quran and Sunnah) and non revealed sources, such as analogical reasoning (qiyas), consideration of public interest (istislah), juristic preference (istihsan), presumption of continuity (istishab), and so forth. Whereas the revealed sources may have clear injunctions and command permanent validity, their interpretation via usul al-iqtisad and its non-revealed sources are not permanent, for they are mainly the product of an ijtihad.

References : methodology of Islamic economics :Overview of present state and future direction. International Journal of Economics, Management & Accounting 19, no. 1 (2011): 1-26

ANALYSIS OF SCHOLARS’ APPROACH TO MODEL/THEORY BUILDING AND ITS IMPLICATIONS FOR METHODOLOGY OF ISLAMIC ECONOMICS

There might be some common ground where

• (some) conventional theories might be accepted as long as they are not in conflict with the logical structure of the Islamic worldview (Chapra, 1996)

• They are not against the explicit or implicit injunctions of Islam (Mannan, 1984)

• They do not contradict with the principles of Islamic teachings and should be evaluated within an Islamic framework and using Islamic criteria (Haneef, 1997)

 Integrative approach of Islamization of economics.

Anwar (1990) proposes to contrast the components of conventional economic theories with components of an Islamic corpus and nucleus in order to “classify” the components of conventional economic theories into Islamic and neutral elements and to then “accept” the Islamic economic theories while ‘rejecting’ the un-Islamic theories. 

Kahf (2003) proposes takhliyah, (identification and isolation of the biased postulates of conventional economics) and tahliyah (incorporation in economics of positive postulates derived from Sharīah) in order to revise the conventional economic theories.

Zarqa (2003)  argues that if we replace those values on which the science of economics should be based by Islamic values, and if we ‘add’ to the secular statements, then Islamic economic theories can be produced. 

Hasan (1998) accepts the positives ideas of conventional economics so long as “the process of Islamization may take conventional economics in manageable segments in the same vein: it can be sifted, pruned, and modified, where possible, to conform to the Sharīah tenets”. 

Naqvi (1981) opines that Islamic economics should integrate what relevant knowledge is already available and then transmute it into a ‘new frame of thought’ where Islamic economics can selectively assimilate elements in modern economics that are not contradictory to Islamic economic axioms. 

Choudury (1992) starts with developing original concepts, with unique meanings that represent a ‘reality’ that encompasses both the physical and spiritual realms. A new math, a new symbolic logic and formalism is needed. 

The implication for the development of Islamic economics 

the integration of Islamic economics and conventional economics will be in two areas of the discipline

(1) the substantive dimension of the discipline, which includes economic concepts, principles and theories in modern economics and economic teachings or views on economic matters in the Islamic heritage.

 (2) the technical dimension of the discipline, which includes methodology of modern economics and ulul studies in the Islamic heritage (Haneef and Furqani, 2007).

References : methodology of Islamic economics :Overview of present state and future direction. International Journal of Economics, Management & Accounting 19, no. 1 (2011): 1-26

METHODOLOGY OF ISLAMIC ECONOMICS: WHAT AND WHY?

Methodology can be seen as a specific part of that branch of philosophy called epistemology.

Definition of methodology according to:

Blaug (1993) defines the methodology of economics as the branch of economics where we study how economists justify their theories, and the reasons they offer for preferring one theory over another.

Safi (1996) - is the field of scientific inquiry into the justification, description, and explanation of the rules and procedures which constitutes scientific methods.

Fox (1997) - sees methodology as dealing with theory appraisal.

Haneef (2005) - views methodology of economics as including discussions and analyses of the process of building models, developing theories, testing hypotheses (where necessary), as well as establishing and using criteria to evaluate the process.

 Reasons why methodological knowledge of Islamic economics is important

a) Without a proper methodology of Islamic economics task could not be done properly.

b) Distinguish between what is false and true in appraising and evaluating Islamic economic theories.

c) Concerned about formulation of theories that are workable and can be applied in real life.

d) Important to link the ontological aspects of Islamic economics, which constitute the ideals and principles of Islamic economics, to the axiological aspect (ethics) that is a practical application of Islamic economics.

e) Aims to lay down the scientific operational process of Islamic economics as a discipline so that the ‘gaps’ in Islamic economic studies — as termed by Siddiqi (1982), Khan (1989) and Zarqa (2003) — between those who are well-versed in Islamic legacy but lack modern economics on the one hand, and those who have understanding of modern economics but are lacking in Islamic legacy, could be eliminated.

References :  methodology of Islamic economics :Overview of present state and future direction. International Journal of Economics, Management & Accounting 19, no. 1 (2011): 1-26

MASUDUL ALAM CHOUDHURY- ISLAMIC ECONOMICS AS SOCIAL SCIENCE

It can be summarized as below...

Compartmentalization of Knowledge in Western Social Sciences

- The field of social sciences comprising in the main the disciplines of economics, political science, sociology, anthropology, but secondarily also of social psychology, religion, law and history, is a product of the eighteenth century

-  The Physiocratic school upheld the primacy of agriculture as the principal productive activity of the nation. The ethical meaning in it are as follows ;
 a) satisfaction of basic needs was the primary goal of the social economy.

 b) it showed that agricultural production was upheld in favor of maximizing employment and use of labor intensive technology.

 c) sectorial linkages with agriculture would result in price stability in the product and factor markets.

 d)  full capacity utilization in labor intensive production with the primacy of agriculture, meant stable wages for the producers.

Continuing Insulation of the Social Science Disciplines in the Twentieth Century
-  there has been specialization in the area of developmental-ism, explaining the social and economic developmental processes; there have been works in the direction of developing social systems and interaction-ism.

The Evolution of Economics as a Social Science in the Twenty-First Century: The Mixed Economy and the Re-emergence of Political Economy.

A mixed economy is defined as the environment conducting the distribution of wealth and resources under menus of production and consumption that are either evolved in the market system or the command type economic system.

The factors that gave rise to the emergence of the mixed economy are:

(1) the importance of government investment, planning and control of large sectors of the economy.

(2) the changing role of profits in relation to economic growth.

(3) labor and capital market imperfections in the hands of powerful labor unions and stock markets.

(4) the existence of the welfare state in Western nations; (5) the international division of labor and sharing of resources.

The emergence of the mixed economy points to the dawn of a re-emergence of political economy.

Political economy is defined here as the integrated study of social phenomena in their widest variety, with the assumptions, social and moral conditions, and methodology, capable of providing both an analytical as well as an institutional examination of the social problems.

Difference in definition from textbook is due to two factors 


a) There is the absence of a predetermined causal relation in Marxist Dialectic.

b) In the institutionalize framework there is the absence of analytical requirement of the underlying methodology, within which the study of institutions is to be subsumed.
Future Evolution of Economic Science


- The treatment of the study of economics in the future as a mixed economy, investigated within the methodology of political economy.

- In the field of economics, institutional economics, mixed economy and political economy are penumbras of each other with a common core.
https://www.emeraldinsight.com/doi/pdfplus/10.1108/03068299010006367

THE ECONOMISTS- HOW SCIENCE GOES WRONG?

Here are few points that i'd like to extract from -

- " But success can breed complacency. Modern scientists are doing too much trusting and not enough verifying- to the detriment of the whole of science, and of humanity" . It makes sense to me. Modern scientists nowadays are of few new findings and they seem to just support the evidence of old research and refute them. Hence, they need to produce new findings.

- competitiveness of science. 

- careerism encourages exaggeration and the cherry picking of results. Only most striking findings have the greatest chance.

- failure to prove a hypothesis are rarely even offered for publication,let alone accepted.

- research protocols should be registered in advance and monitored in virtual notebooks.

- most enlightened journals are already becoming less averse to humdrum papers.

Read here for more - https://www.economist.com/news/leaders/21588069-scientific-research-has-changed-world-now-it-needs-change-itself-how-science-goes-wrong

ISLAMIC ECONOMICS- definition, methodology, usul al fiqh

Test yourself about usul al-fiqh down below !

www.quizyourfriends.com/take-quiz.php?id=1804141704401493&lnk&

• Al-Qur’an and as-sunnah
• Consensus of opinion (ijmà’)
• Analogical deduction, qiyàs 
• Istihsan (Juristic preference) 
• Public interest, maslahah or istislah, 
• Custom or 'urf

Islamic economics

1. 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. knowledge and application of injuctions and rules of Shariah that prevent injustice in the application and disposal of material resources in order to provide satisfaction to human beings and enable them to perform their obligations to Allah and society (Hasanuz zaman, 1404)

3. study of Muslim behavior who organizes the resources, which are trust, to achieve falah ( Muhammad Arif,1405)

HOW ISLAMIC ECONOMICS WORKS??

M.A. MANNAN - 3 METHODOLOGICAL ISSUES OF ISLAMIC ECONOMICS AS SOCIAL SCIENCE

At the end of this post, there"ll be a quiz for this...



1.  Is Islamic economics a positive or a normative science or both

Some Muslim economists tried to maintain distinction between positive and normative science, thereby molding Islamic economic analysis in an intellectual framework of the West. Other positivists simply say that Islamic economics is a normative science. To me, it is neither a positive nor a normative science. In Islamic economics, normative and positive aspects of science are so interlinked that any attempt to separate them could be misleading and counter productive. This is not to suggest that Islamic economics will not have any distinguishable normative and positive components. In fact, the Qur'an and Sunnah which are treated primarily as a source of normative statements, have many positive statements. This does not, however, qualify us to declare Islamic economics either as a positive or normative science.

2. Do we need an Islamic economic theory in view of the absence of an actual Islamic economy?

My categorical answer is: Yes. It is the plea of the positivists that there is no need to develop Islamic economic theory because of the absence of an actual Islamic economy where ideas could be tested against actual problem. It is argued that the theory must explain the facts as they are. As such it is said that there is no case for an Islamic economic theory, as it has nothing to explain and predict from the existing socioeconomic reality of contemporary Muslim societies. To them, the test of a theory lies in its ability to explain and illuminate reality, although every theory distorts reality by simplifying it.

3. Is Islamic economics a "System" or a "Science"?

To me, it is both. Although it is essentially a part of a "system", a fine case can, however, be made for Islamic economics as a "science". The word "system" is defined as a "complex whole: a set of connected things or parts and "science" as "systematic and formulated knowledge" (Oxford Pocket English Dictionary). In a similar vein, the word "science is defined in the New Columbia Encyclopedia as the organized body of knowledge concerning the physical world, both animate and inanimate. but a proper definition would also have to include the attitudes and methods through which this body of knowledge is formed. Following the definition of a "system we can easily say that Islamic economics is certainly a part of a complete code of life based on four distinct parts of knowledge: "revealed knowledge" (i.e., the Qur'an), the then existing practices of the society as adopted by the Prophet (be peace on him) and his actual sayings (i.e., Sunnah and Hadith) subsequent analogical deductions, interpretations and consequent consensus of the community or doctors of religion (i.e., ijma).

Note that the above explanation are just the summary. Do click here to understand better -https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3126914


So here's the quiz !😛
www.quizyourfriends.com/take-quiz.php?id=1804130758294395&lnk&

7 STEPS IN THE DEVELOPMENT OF ISLAMIC ECONOMICS AS A SCIENCE

They're interlinked with each other.

Step 1:  We have identified three basic economic functions - consumption, production and distribution common to all economic systems irrespective of their differences in ideologies.

Step 2: Some of the fundamental principles governing these basic functions seen from the timeless Islamic perspectives rooted in the Shari'ah. Take the example of "moderation" in consumption. This principle of "moderation" is to be reflected in the consumption behavior of Muslims both at micro and macro level. This principle has, no time dimension: it is essentially based on the Islamic worldview in economic matters (i.e., normative values).

Step 3: Now there is a need to identify the method of its operation (i.e., process); this "knowledge" needs to be formulated or conceptualized. This is where the development of the theory starts and Islamic economic science begins. Thus the choice of variables or the use of ethically-based economic reasoning is to be directed to infer behavior patterns appropriate for the achievement of pre-selected objectives (i.e., moderation). Thus in explaining consumption function in an Islamic economy it should be possible to identify variables rooted in the Shari'ah. This theoretical formulation has time dimension. It can be replaced or modified by a superior theoretical formulation. They are value-loaded indeed.


Step 4: It follows that once this concept of "moderation" is formulated, we need to prescribe a definite basket of goods and services to achieve the goal of "moderation" either at individual or at aggregate levels. Its contents and composition are changeable; it depends on the level of social and economic conditions of the society concerned.


Step 5: This step refers to implementation of the policy chosen in step (4). This implementation can be done either by exchange through price mechanism or by transfer payments. This is where we need the development of institutions for the implementation of policy.


Step 6: This step indicates the need of evaluation in terms of predetermined or perceived goals or targets, which aim at maximizing our welfare within the over-all framework of principles set out in step (2) as well as dual notion of return, economic and non-economic thereby making positive and normative considerations relatively indistinguishable and unimportant.


Step 7: This step gives the results of evaluation. This feedback is needed to determine the gap between actual implementation of policy step (5) and perceived achievement. This is where the interpretation of principles (as indicated in step 2) on which the Islamic economic system is based begins. This is where the reconstruction of Islamic economic theory on which development of the policy and institution is based starts (as stated in steps 3, 4 and 5).

References from : Shafey, Erfan, M.A. Mannan, Islamic Economics as a Social Science: Some Methodological Issues (1984). Journal of King Abdulaziz University: Islamic Economics, Vol. 1, No. 2, 1984. Available at SSRN: https://ssrn.com/abstract=3127496

HOMO ECONOMICUS VS HOMO ISLAMICUS

AN OVERVIEW OF HOMO ECONOMICUS

Is Homo Economicus A Psychopath?

Click here to read more -> https://www.forbes.com/sites/peterubel/2014/12/15/is-homo-economicus-a-psychopath/#220a9af71604

 Homo Economicus is “the human species in its capability to rationally decide, that is, essentially that people will act in their own best interest when making decisions without moral consideration. One of the characteristics of Homo Economicus is selfishness. For instance, unwilling to give charity as it seems not profitable for them.

( Farooq, Mohammad Omar, Self-Interest, Homo Islamicus and Some Behavioral Assumptions in Islamic Economics and Finance (2011). International Journal of Excellence in Islamic Banking and Finance, Vol. 1, No. 1, pp. 52-79, January 2011. Available at SSRN: https://ssrn.com/abstract=1740729)

Conversely, Homo Islamicus is individuals who is guided by commonly shared Islamic values in his or her decisions. A society with Homo Islamicus participants would act both individually and collectively within the framework.Islam recognizes that every human being has an inherent tendency to maximize material well-being. The ultimate objective is maximization of maslahah .

The main distinction between those two is altruism .

Read further : http://www.hurriyetdailynews.com/homo-islamicus-needed-to-cure-problems-in-modern-economy-business-leader-says-66736

THE ISLAMIZATION OF THE ECONOMY AND THE DEVELOPMENT OF ISLAMIC BANKING IN PAKISTAN.