RESEARCH ON ISLAMIC ECONOMICS AND FINANCE AND ROLE OF FAITH IN MARKETS AND SOCIETY IN POST MODERN SCIENTIFIC AGE
This research paper examines the need for distinct accounting standards for Islamic finance. It collects primary data through interviews of respondents who are affiliated with a bank. It provides analysis in the light of this statement by International Accounting Standards Board “In assessing whether an item meets the definition of an asset, liability or equity, attention needs to be given to its underlying substance and economic reality and not merely its legal form”.
The noted author is one of the pioneer contributors in the field of Islamic economics. He has written on methodology of Islamic economics from time to time. He is an objective thinker who had made critical evaluation of both mainstream economics as well as Islamic economics on some aspects. In principle, he wants Islamic economics to be an analytical field. He expects that mainstream economics shall avoid bias against religion and should not undermine and disregard knowledge that comes from religious texts. Some knowledge that comes from religious sources dates back to centuries. However, such knowledge is still applicable today. Instead of arriving at same conclusions and reinventing the wheel, it is not unwise to pay heed toward the knowledge that emanates from religion.
This paper aims to define the parameters of the reward-risk principle in Islamic finance. The paper is a good attempt to conceptualize the Fiqh basis of risk-reward principle and to use the understanding in revisiting both Ribā-based and Islamic finance contracts.
This paper presents statistics to illustrate the economic effects of COVID-19 in the global economy. Poverty and unemployment in the informal sector of developing economies is on the rise. On the other hand, developed economies have also seen economic contraction. Capital markets have seen sharp decline in the early part of 2020. However, the author notes that Islamic equity portfolios were less affected. This finding is discovered in other empirical studies as well where Islamic portfolios are found to perform relatively better in economic and market downturns.
When a common person tries to form an opinion about Islamic banking, he hears cliché sayings about Islamic banking, such as ‘Currently, Islamic banking and finance are not truly Islamic’, ‘It is only changing of conventional terms into Islamic terms’ and ‘Islamic banking is an oxymoron as banking cannot be Islamic’. This brief article discusses some points that will help in better understanding Islamic finance and Islamic banking in particular.
Divine Economics framework provides an empirical basis of behavioural comparison between religious and non-religious agents with regards to their economic and non-economic choices. It incorporates the methodological framework of mainstream economics for the study of religion and economics in each other’s perspective. It looks at religious behaviour from the lens of ‘economic good’ and ‘economic behaviour’ in markets where the choice has economic considerations, such as relative prices, opportunity cost of time, income effect and substitution effect. However, reliance on stated preferences, overlap between religious and non-religious activities, inability to observe the motivation and intention behind choices and to judge the quality of religious activities are some of the challenges in this research framework.
In Islamic Ijarah and Diminishing Musharakah based contracts, Islamic bank charges rent for the use of asset in its ownership and risk, charges these rents after the asset has been provided to the client in usable condition and only till the asset remains in usable condition during the lease period. These differences also ensure strong links with the real economy and productive sector and limit credit creation other than for genuine value creating economic activities in the real economy.
Those scientists who believe in Scientism and hold that the experimental method is the only arbiter in all matters of life need to look no further than the field of economics where the tools and concepts of physics are applied. Even though science cannot be arbiter in morals, defining motives, public policy and politics, but it cannot even be a perfect and sufficient tool in explaining economic behaviour by taking the analogy of animal behaviour which is based on self-interest and survival instincts.
If the government wishes to align the government finances in a way that converges with IFI principles, the government may need to work to eliminate conventional debt and adopt raising funds using productive investments only.
Inclusivity, equitable distribution of resources and socio-economic mobility do not determine Shari’ah compliance or validity. However, these visionary goals are the aspirations of many people in academics and public at large. The realists contend that the visionary objectives of equitable distribution of income will be taken care of in the long run by Islamic social finance institutions, such as Zakat and Waqf. Islamic banks as one part of Islamic finance ecosystem will continue to serve the short term financing requirements of clients and for which debt based Islamic modes of financing are the suitable options.
Islamic Economics Project 