Prof. Muhammad Kabir Hassan is a Professor of Finance in the Department of Economics and Finance in the University of New Orleans. He currently holds three endowed positions of Chairs-Hibernia Professor of Economics and Finance, Hancock Whitney Chair Professor in Business, and Bank One Professor in Business in the University of New Orleans. Professor Hassan is the winner of the 2016 Islamic Development Bank (IDB) Prize in Islamic Banking and Finance. Professor Hassan has done consulting work for the World Bank, International Monetary Fund, African Development Bank, Transparency International-Bangladesh (TIB), Islamic Development Bank, United Nations Development Program (UNDP), Government of Turkey and many private organizations. Professor Hassan has over 350 papers published as book chapters and in refereed academic journals. For his outstanding research and scholarly work, Prof. Dr. Hassan has been recognized with Lifetime Achievement Award by UNO Research Council in 2019. We got an opportunity to get his insights on Islamic economics and finance and hope that these insights will introduce new ways of thinking for young economists and social scientists aspiring to contribute in this field.
Q1: Your educational background in USA was in Economics and Finance. What made you interested in Islamic economics and Finance?
I have not graduated from a religious school. But, as a Muslim, I got basic education about Islam in my native country, Bangladesh. I migrated to USA at young age and completed my university education over here. I got education in both economics and finance. But, my interest was more in economics as it is a mother of all social sciences and finance is only a part of it.
I had this feeling that there should be a connection and bridge between secular and spiritual or faith based approach to looking at economics and economic issues. Living early years of my life in a Muslim majority country like Bangladesh and then having migrated to USA, I got exposure to different cultures and ways of looking at things.
One of the first books that I read in Islamic economics and finance literature was by Prof. Abdul Mannan, who was one of the pioneer scholars in the field from Bangladesh. I also got the chance to interact with Prof. Dr. Masudul Alam Chowdhury, who encouraged me to present a paper in Penang, Malaysia in one of the conferences.
I was open to diverse readings. In fact, one of the serious readings that got me interested in Islamic finance was by Mervyn Lewis. So, I had a general interest in economics and finance and had an early exposure to research literature in Islamic economics and finance. When I joined University of New Orleans, fortunately, there was no restriction on what research interests you may pursue. So, despite of the fact that in my university of employment, there is no program on Islamic economics and finance, I was able to pursue my research interest in Islamic economics and finance without any hindrance.
Q2: After four and half decades of research in Islamic economics and Finance since mid-70s, what are the key success stories and outstanding issues which need attention of current breed of researchers?
Islamic economics has prescriptive focus and a normative vision based on Islamic worldview. Just like economics started with a political economy orientation, Islamic economics also blends philosophy, culture, institutions and issues of morality, justice, fairness and development.
Among the success stories, we can say that we have articulated our vision well and are able to explain Islamic worldview and teachings related to economics and finance. Some have done it using the technical jargon of economics and through analytical works employing mathematics. However, in terms of statistical and empirical methods, we chiefly rely on mainstream economics tools.
There is some uniqueness in datasets with the inclusion of some new variables, such as non-compliant income, dividend purification and differentiation between interest free and interest based leverage in corporate finance and proportional levies and minimum exemption limits in public finance in the context of Zakat. In theoretical foundations, there is differentiation made between entrepreneurial capital that can earn risk based profit and money capital which cannot be compensated in intertemporal exchange without the transformation of money capital to physical capital together with ownership and risk transfers.
However, due to similar ways of financial reporting and economic statistics, many of the datasets are similar and sometimes it becomes a hindrance in research where there are limited and unsuitable proxies available for Islamic precepts.
Q3: On the methodological front, there are few (if any) distinct analytical tools developed in Islamic economics. Empirical studies in Islamic Finance can very well be accommodated under mainstream economics. Then, is there a solid case of distinct analytical economic field based on culture and faith alone?
Some of the main currents in methodology of Islamic economics in contemporary literature include: circular economy approach, moral economy approach, institutional approach and pure transformative approach.
Circular economy approach borrows the idea from mainstream economics that resource utilization shall avoid waste and ensure recycling for sustainability. In its vision and aims, it is not a novel concept unique to Islamic economics, but some of the norms and institutions for achieving circular economy objectives are unique in Islamic economics.
Moral economy approach favors dualism in policy and institutional design of products and organizations whereby the moral aspect is imbued with the commercial or economic aspects. Again, it is similar in vision to social economics to lay more or equal emphasis on issues of morality, fairness and equity.
The institutional approach takes a more practical stance to develop products and structures to deliver those products through markets. Islamic banking and financial institutions have come about by the efforts in that direction.
The pure transformative approach almost disregards the notion of descriptive and positive analysis and lays complete focus on transformation. For making its case, it favors discarding all theoretical edifices of mainstream neoclassical economics and adopts a rather preaching style way of transformation of behaviour through Islamic-founded education.
All these approaches are neither entirely correct nor incorrect. But, the major lacking is in lack of vision, direction and coordinated work. A serious review of literature in these approaches to describe intellectual and analytical progress will hardly be able to find much from the past and present literature.
Q4: There are various viewpoints in Islamic economics research. Practitioners think of Islamic economics as juristic application of Islamic precepts in financial markets. Earlier literature attempted to present Islamic economics as a third alternative to Capitalism and Communism as an economic system or framework. Often, these viewpoints come in apparent conflict where one focuses on Shari’ah Compliance and the other focuses on excellence with regards to creating socioeconomic impact through original and distinct Islamic institutions. Are both approaches valid? Is it time to give priority to one approach over the other?
It is indeed a valid concern. There shall be more coordination between the Shari’ah experts as well as the experts in economics, finance, law, taxation and marketing. Product development in Islamic finance has to ensure Shari’ah compliance, but it is a necessary and not a sufficient condition for success. The concerns of sustainability, distributive justice and equity are equally important.
Ideally, we should develop products which are based on original Islamic contracts rather than mimicking conventional finance product by product. It is understandable that commercial financial institutions with smaller size and meager market share cannot be too flexible in a regulatory environment which is tough and at best neutral to Islamic finance. However, social finance is an important part of overall Islamic finance. There is need for more focus and investment in developing social finance institutions so that it can be shown that Islamic finance caters to all and that all the talk in Islamic economics about distributive justice, social welfare and equity is not just lip service or wishful thinking.
Q5: In recent times, special issues on Islamic economics and Finance were published by mainstream economics and finance journals. But, yet it seems that we could not develop and present Islamic economics as a distinct economic field. Either normative precepts are listed without mathematical or empirical analysis or empirical analysis of performance of IFIs is done. Do you agree with this concern?
The quality of research has not simultaneously improved unfortunately as much as is the proliferation of various research journals. Earlier, it could be said that Islamic economics does not have access to high quality Ivy League journals. But, despite having the opportunity to publish Islamic economics research exclusively in special issues of top mainstream journals in recent years, there has been very limited research that can be considered as original and unique. Empirical papers take similar datasets and explore a narrow set of research questions again and again. Even more unfortunate is the quality of writing and compliance with academic norms, ethics and standards. We can work with small number of publications, but important point is that we have to come up with research that is analytical, rigorous and which contributes new knowledge rather than repetition of same description or empirical analysis of same datasets over and over again.
Q6: Markets exist in real world both in Muslim and non-Muslim societies. Mainstream economics tries to understand economic behaviour of agents in markets using self-interested framework. Some Muslim economists treat self-interested behaviour as selfish pursuit. Some have an accommodative attitude towards these tools for descriptive analysis if adjustments are made in choice set and if non-economic resource allocation is kept outside the decision choice. What is your view on these two attitudes towards economic analysis in the context of Islamic economics?
I think we need to have more analytical studies. There is emphasis on transformation of behaviour in Islamic economics, but it does not mean that ideal behaviour as we hypothesize or preach about will always perfectly reflect in reality. Therefore, we should avoid one-eyed focus on behaviour and choice from the lens of self-interested homo economicus.
At the same time, we need to avoid dogmatism and making an impression to the objective and neutral reader that Islamic economics is not more than a literature of saintly proverbs and idealism.
There are pitfalls in mainstream economics tools and methods. We should be wary of them, but also try to play our part in improving them. Our reluctance to use mathematics and empiricism shall not be absolute and based on dogmatism alone. We can use mathematics and empirics as language where appropriate and avoid them where they misfit.
Q7: As an accomplished researcher and author, what advice would you give to young researchers who want to pursue research in Islamic economics and finance currently?
The young researchers need to take education seriously. In contributing to Islamic economics and finance, they shall be well grounded in economics and finance as well as in Islamic knowledge. Ideally, we need an integrated curriculum that caters to this need. Right now, we have Madarsa based education which is producing Shari’ah experts who are not equally well versed in economics and finance. On the other hand, we have economics and finance experts who lack knowledge about Islamic sources of knowledge or can only read the translated and derived literature. Until such a curriculum is made, the researchers shall themselves try to engage in meticulous search of knowledge, especially in the knowledge areas which they did not study formally. Secondly, there shall be strong and serious collaboration between economists and religious scholars so that they complement their strengths synergistically.
To the researchers, I will also advise that do not just go after quick and easy ways of publishing. More substantive and analytical work will give them better recognition in the long term. Therefore, difficult topics which take time should not be avoided in quest of publishing quickly. There are many outstanding issues which require analytical research. Researchers shall not just pose empirical questions, but rather explain the Islamic economics perspective deftly using mathematics, simulation, and experiments, where applicable. And I advise the young scholars to be perseverant and patient!