Comments on Masudul Alam Chuodhury: 'Islamic critique and alternative to financial engineering issues'

This review questions Chuodhury's use of topological spaces for criticising the risk-return issues in mainstream financial literature. It highlights the failure of the work in producing an understandable Islamic alternate framework for the purpose.Financial engineering, Risk return analysis; scarcity of resources

Money creation and control from Islamic perspective

This paper deals with familiar facts in monetary economics from an unfamiliar angle. It argues that it is not factual to regard the legal tender money and bank credit as of different genus: they work in tandem to the same ends in an economy, conventional or Islamic. Also, it does not matter what serves as money – solid gold or flimsy paper – for keeping its value stable; only the blind would argue that staff is indispensable for walking. Money is just an instrument: it was never nor can ever be classified into Islamic and non-Islamic. What it does – good or bad – depends on how we use it. Money does not generate crises; its mismanagement does. It follows that the refuge the world is searching today from recurring financial crises does not lie in money substance: history testifies that national economies could not remain turmoil-free during the centuries of the yellow metal sway over the monetary scene. The paper concludes that it is the human factor that has been the source of good or evil for mankind including money matters. And the quality of human factor true religion can alone improve: morality without faith is rudderless.Key words: Monetary policies; Gold standard, managed currency; Islamic banking; Central banks

Riba in La-riba contracts:where to turn in Islamic home financing?

Even as the BBA model has not made a complete exit from Islamic home financing, the musharkah mutanaqisa partnership (MMP) model is fast gaining popularity with the jurists and the bankers alike as a truly interest free alternative. This paper reproduces our earlier evidence that the MMP model is no different from the conventional home financing involving interest. In this context it refers to actual cases from some countries, especially the US, where MMP is gaining ground. We shall reiterate that our Diminishing Balance Model (DBM) in several ways over the MMP..Key words: Islam; home finance; interest based model; MMP model; DBM

Macro Consumption Function in an Islamic Framework by Fahim Khan: Comments

This is a critique of an article of M. Fahim Khan pulished in an earlier issue of the same journal It argues that in other economic systems including capitalism too play an important role to mitigate the hardships of the poor but unlike the Islamic system they do not show their impact on income determination. Transfer of income to the poor via zakah will reduce the saving potential of the economy. To what extent this will be neutralized by the rich abstaining from frivolous spending due to the fear of God is uncertain. Hence the macro model of the author to demonstrate the superiority of the Islamic system is not convincing.Islam and consumption; zakah; israf

Labor as a source of value and capital formation:Ibn Khaldun, Ricardo and Marx – A Comparison

Exclusive writings on the contribution of Ibn Khaldun to economics in the English language have not been many, the references to his work also remain scanty and far between. Even in what little is available mostly authors talk about his views on professions, markets and the cloud he castes on merchants. The present paper avoids treading the familiar tracks. It sees close similarities between the views of Ibn Khaldun (1332 – 1406), David Ricardo (1772 – 1823) and Karl Marx (1818 -I823) in regarding labour as the measure of value and source of capital formation in the course of economics maturing to an academic discipline. The three intellectuals agree, directly or indirectly, that labour creates economic surplus which it does not receive. Even so, the policy implications each derives from this conclusion are interestingly much different. Ibn Khaldun did not -- indeed imbued with Islamic faith he could not – think of workers’ predicament becoming a source of social turmoil. Ricardo implicitly saw labour exploitation in a free enterprise system of organizing production but himself being a great capitalist he could not swallow the pill and once tended to regard cost of production – wages plus profit – as the measure of value. Marx regarded exploitation of labour as the intrinsic vice of capitalism that revolution alone could obliterate.Labor; Capital formation; Value,Ibn Khaldun,Ricardo; Narx

Dubai turmoil before and after the bailout

This note explains the circumstances that created the recent economic turmoil in Dubai. It analyses the consequences of the bailout the government ultimately enforced. It questions the role rating agencies play in such crises and suggests regulation of their activities. Finally, it warns of challenges Dubai is likely to face in years ahead.Dubai; turmoil;bailout;rating agencies

Scarcity, self-interest and maximization from Islamic angle

This paper clarifies some misinterpretations of three foundational concepts in mainstream economics from Islamic viewpoint. These are scarcity of resources, pursuit of self-interest and maximizing behavior of economic agents. It argues that stocks of resources that God has provided are inexhaustible. But important is the availability of resources out of stocks to mankind. Availability is a function of human effort and the state of knowledge about resources over time and space. In that sense resources are scarce in relation to multiplicity of human wants for Islamic economics as well. Self-interest must be distinguished from selfishness. The motive operates on both ends of human existence: mundane and spiritual. Its pursuit does not preclude altruism from human life. Counter interests keep balance in society and promote civility. Islam recognizes the motive as valid. Maximization relates to quantifiable ex ante variables. Uncertainty of future outcomes of actions makes maximization a heuristic but useful analytical tool. The concept is value neutral. What is maximized, how and to what end alone give rise to moral issues. Modified in the light of Shari’ah requirements the three concepts can provide a firmer definition for Islamic economics centered on the notion of falah.Scarcity; self-interest, maximization, Islamic Economics, israf; Shri'ah, heuristics

What makes Malaysia sail?

This brief paper updates the factual information provided in an earlier paper of the author “Fifty years of Malaysian economic development: policies and achievements” of 2007 and modifies its argument at several places.Economic vision; Planning; Structural transformation; Capital controls; Islamic finance

Sustainable development from an Islamic Perspective: meaning implications and policy concerns

Abstract This paper examines the debate on the meaning of sustainable development and the policy implications of different approaches from an Islamic perspective. It integrates mainstream and Islamic positions on the subject and argues that to whatever definition of sustainable development one might subscribe, eventually, each ends in an environmental concern. This paper attempts to show that the continuous increase in output of goods and services worldwide imposes a trade off between material prosperity on the one hand and pollution poisoning of human beings on the other. It engages in the intensifying debate about how the benefits of the former and the negative impact of the latter could be more evenly distributed. The paper takes inspiration from the maqasid (objectives) of the Shari’ah and verses of the holy Qur’an that indicate a way out of this impasse. It holds that the worldview differences of secularism and Islam are the basic reason of divergence between their approaches to development. It argues that the Islamic approach is more agreeable to environmental protection and concludes that issues surrounding sustainable development have moral, ethical, social, and political complexities and that economics or economists alone cannot resolve the problem.Sustainable; Development; Islamic perspective; Policy concerns

Islamic Finance:Structure-objective mismatch and its consequences

This paper raises the issue of an initial structure-objective mismatch in the launching of Islamic finance. The abolition of interest and promotion of growth with equity were goals of the conceived system. These goals expressed a long run vision to improve the condition of the Muslim communities across the world. However, the organizational form adopted for Islamic finance was of the existing commercial banks which provided essentially short-term loans on interest to trade industry and commerce. The choice thus involved an intrinsic mismatch between the structure and objectives of Islamic finance. The mismatch did carry some advantages, but on a more important side it exposed Islamic finance to commitments and influences which could not mostly align well with the goals the pioneers had in mind. Note that in focus here is not the reversal of the mismatch but its consequences that have forced the nascent Islamic system to convergence and competition with the mature conventional finance the West dominates. It is not the ground realities that are being adapted to Shari’ah norms; it is the norms that are being stretched to limit for meeting the demands of the conventional system. Ordinary Muslims who hoped to benefit from Islamic financing remain unattended. Thus, what Islamic finance can or cannot change will depend on where its ongoing integration with the conventional system leads it to. Currently, most merits claimed for the Islamic system defy evidence. The basic reforms financial systems require in the face of current crisis are the control of credit, leverage lure, and speculation. Islamic finance is in principle better equipped to achieve these ends.Keywords: Islamic finance, convergence; Shari’ah compliance, credit creation; leverage; derivatives; financial crisis