Articles on Islamic Finance

Future Research Directions in Islamic Economics

Salman Ahmed Shaikh

The recent literature on Islamic economics hardly makes use of mathematics even for expositional purposes. Mathematics is a language. It keeps argument and logic straight. Just like growth models could talk of seemingly non-mathematical concepts like public infrastructure, social infrastructure and governance, one can incorporate Islamic principles to show how they could be more welfare enhancing. For instance, the need is to show the impact and effects of Islamic principles on allocation of resources, income distribution, externalities and so on using mathematics.

Even qualitatively, other than Islamic finance, current Islamic economics literature has little unique to offer on reducing poverty, for instance. There is tremendous potential though. Islamic worldview encompasses all social systems and institutions in an Islamic paradigm. As per Islamic worldview, all species are created by one and only Creator. He created this worldly life for humans so as to judge who among them would follow His commands. This world is a place of test. Nature of this test itself necessitates economic and social relationships where people are tested for their thankfulness and patience.

How Islamic principles fill the ethical void in these relationships? How Islamic rules help in avoiding concentration of wealth and exploitation? How Islamic institutions help in achieving the desirable equitable distribution of income as well as wealth? These are questions that should be within the scope of Islamic economics. Earlier Islamic economists did very good work on these themes.

Institution of Zakat, prohibition of Riba and discouragement of lavish consumption are all important institutions that can help in addressing the welfare issues. Most definitely, that is not the exclusive end towards which we shall put all concentration, energy and resources. First and foremost, Islam as a comprehensive doctrine gives meaning to life with its worldview and belief in afterlife accountability. But, if Islamic economics as a discipline is to be established, we need to examine the economic character of these principles with regards to their economic impact and present empirical evidence if possible using primary data, secondary data, simulation, agent based modeling, experimental studies and case studies, for instance.

If we stick to mere prescriptive legal discussion of these principles and institutions, then, these are part of Islamic law and hence, there is no need for Islamic economics. Needless to say, it is not suggested that let people’s materialistic desires dictate changing laws/principles and coming up with new ones in the name of Islam. Most definitely, Islamic principles are binding, but these principles do not disallow different types of strategies, policies and organizational design for overall societal welfare in economic sense provided that these principles are not violated in letter and especially in spirit.

This discussion is based on the premise that even though the principles like prohibition of Riba and institution of Zakat are inalienable, but, on the other hand, they also have an important economic rationale and function in economic matters of an Islamic society. If this premise is considered sufficiently important, then there is indeed scope for Islamic economics.

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