Just my highlight
notes of the Monzers’ paper. I can feel his deep emotional in this writing. I
thinks its our worries too, right?. Although, now I am taking my Professional
Degree (MIFP/Master in Islamic Finance Practice), it doesn’t mean I don’t care
about the necessities to have deep knowledge of sharia. I care it a lot!!!
Please pray for me: I can understand what actually happen in this practical
world, and hope Allah bless me with His wisdom and His strengthness, so I am
able to understand His test and do my best
___________________________________________________________________________
ISLAMIC ECONOMICS, what Went Wrong?
Monzer Kahf
1. Historical
Background: Three Breeds of People
Since
then we started having publications and research on Islamic economics by three
breeds of people: 1. socio-political
activists, 2.
Shari’ah scholars with little exposure to some kind of
economics and 3.
Western trained economists with little or not so little
exposure to Shari’ah scholarship. Sorting these writings and publications is
very important to understand the development of Islamic Economics in the second
half of the past century.
The
first category of writings is normally general, political oriented and
condensed in the form of social and political slogans. The second category is
loaded with Fiqh in both methodology and focus; with extremely few exceptions
it is more of Fiqh al Mu’amalat than any economics. Lastly a considerable chunk
of the writings in the third category is based on a precept of self-proclaimed
distinctiveness. It is essentially the third category writings that should be
the focus of our study and evaluation.
2. Paradigm, discipline and
independence
Is
Islamic economics independent from economics? Does it make a paradigm of its
own? Does it depend of a set of assumptions and analytical tools that is
different from economic.
From
the point of view of the Khaldunian social science, Economics is itself Islamic
Economics without having to use the “prefix” and without shying from
criticizing the established capitalist wisdom (and/or the communist
quasi-wisdom) as being partial and inadequate.
3.
The Discipline
Accordingly,
Islamic economics is a branch of economics that studies the units and
variables within the Islamic legal and ideological framework, actual or
assumed.
4.
Over Statements
It
is natural in any new endeavor to see some professionals carried out to
different kinds/levels of exaggeration. In Islamic economics, we have our full
share of overstatements. You find such things in writings that deal with the
factors of production where terms such as ‘Islamic capital’ ‘Islamic labor’
Islamic land and ‘Islamic production function’ are used. You also find writings
that deny renting of land and physical capital because as an extension of the
prohibition of interest, being pre-determined fixed return on capital. You
will also find overstatement of the uniqueness of the Islamic market on the
ground that it is a market that is pure of cheating, fraud and monopoly, not
realizing that any reasonably competitive market is also void of such
practices. These kinds of exaggeration are usually short-lived as they
cannot stand critical evaluation.
5.
Islamic Economic System
a.
Driven by a sense of idealism, some of us attribute a special
status to the general objectives of the Islamic economic system: Full
employment, satisfaction of basic human needs, economic-cum distributive
justice, development or improvement in the quality of economic life, economic power,
etc. But a closer examination of these objectives indicates us that they are
the same for each and all economic systems as usually expressed in their
econo-political rhetoric throughout the human history. More specifically,
these objectives are also the core objectives of socialism, communism and
capitalism even anarchism and all or “isms.”
b.
This is not to deny a certain uniqueness of the Islamic economic
system. This uniqueness is founded on the principles of Islam as a revealed
religion as they strike a balance way of life that is not tilted in either
direction. A uniqueness that lies essentially in two things: The explicit
acceptance of the Divine Revelation as a source of knowledge and certain
detailed pivotal institutions such as the prohibition of Riba (interest), the
private-public mix of property/ownership, the spiritual-material mix of
success, Zakah, Awqaf, etc. in other words, while the general objectives and
the tools of analysis of Islamic economics are the same in economics itself,
the some aspects of the institutional setting of the Islamic economic system
are different, or the means this system uses to reach the common goals are not
exactly the same as in other system the utilitarian capitalist which is
generally given the name economics and the utilitarian communist which is
dictatorial by definition.
6.
Islamic Banking: Is it a System or a Beginning of a Change? Where
is it Heading?
a.
Islamic banks, whether commercial or investment, actually took
the same shape and approach that are adopted by their interest-based
counterpart, to the extend that they can be loaded with the same criticism
addressed to conventional banks, ‘they give the umbrella when it is shining
and take it back when it rains or the give the cake to the rich and nothing to
the poor.’ In fact, there are professionals, within the ranks of Islamic
economists, who still argue that the experiment of Mit Ghamr was not merely an
attempt of an early version of “banks for the poor, the Islamic way” but it was
the true form of Islamic banking that was brought to an end by the conspiracy
and conspirators.
b.
Another frustration was
the outcome of a large gap between theory and practice. Is it a disobedient
practice or a misguided theory? The problem of Islamic banks is that they
were born in a milieu of two extremely polaristic paradigms: the reality of
interest-based conventional banks that came to take its present shape after
more than four centuries of natural development, growth and boundary expansion
and the idealistic fictitious theorization that imagined a framework of Islamic
banking on the basis of a simplistic Mudarabah and two tier Mudarabah. Writings
in Islamic banking preceded the actual establishment of the first such bank by
nearly two decades.2 Throughout this period, most of our emphasis was on
Mudarabah as the “Islamic” trademark of banking, Ju’alah and Wakalah were also
presented by some writers, but when the early Islamic banks were born they had
to wait for two years to start any banking business until the “Murabahah to the
purchase orderer” was invented!3 Is it only a case of mismatch? Did Islamic
banks go astray and deviated from their presumed course? Or was the theory
wrong?
Until today, many Islamic economists insist on their
Mudarabah theory and pray to God that Islamic banks come back to their lap!
They will not. . . It is not a case of miscarriage or birth defect but of an
erroneous unrealistic pre-nuptial theory that was formulated in isolation of
banking experience. Islamic theory was born before Islamic banks and
delivered by non-specialized idealists. The first reference to the inadequacy
of Mudarabah in fund utilization came with the survey of Saudi small businesses
that indicated a preference for Murabahah; and Islamic economists started
recognizing the risk of Mudarabah and its stringy institutional requirement
only in the late nineties and the new century with the rise of concern about
risk analysis in Islamic banks! This is inspite of the tremendous success
Mudarabah encountered in funds mobilization.
This brings us close to the controversy of whether the Islamic
banks are mere financial intermediaries or direct actors in the real
(physical) market. Although many Islamic economists started to incline toward
the intermediary idea, most Islamic bankers argue for larger authority. The
nature of Islamic financing requires Islamic banks to make transactions in physical goods and services, but while many of us
like to see them done only on initiatives from businesses that need financing,
Islamic bankers cling to holding larger authority.(4. The new Islamic banking act (2003) in Kuwait admits in
its explanatory memorandum that Islamic banks are mere financial intermediaries
but the law itself allow them to initiate direct non-financial business on
their own or on behalf of their clients. The compromise came is preventing real
estates trades and in subjecting such transactions to the control and
supervision of the central bank that is granted authority to impose limitations
and restrictions). I think Islamic banks have to be restricted to an financial
intermediary role only, otherwise the conditions of competitiveness in the
market should be reconsidered and a signorage charge has to assessed for the
right to accept deposits and issue credit.
c.
There are also
writings that want to deprive the Islamic banks from the right to issue
credit through the process of demand deposits creation caused by the
partial reserve system. They argue that the demand deposits in Islamic banks
should take the legal form of ‘Wadi’ah’ as known in the Fiqh with a slight
change that is implied in physically putting all deposits in one vault and
using checks and transfers to manipulate them. Some writings reinforce their view
by the argument that since the Shari’ah calls for monopolizing the issuance of
currency (minting gold and silver coins) in the hand of the government, money
creation in all forms including the creation of credit as demand deposits
should be strictly held in the hands of the government through a 100% reserve
system.
d.
Once more, to the dismay of these writings, the short history of
Islamic banks and the development of Fiqh positions on demand deposits took a
completely different direction: Demand deposits are treated as loans in order
to justify the 100% guarantee for the principal of deposits’ and loans do not
require preserving a physical presence of lent assets. On the other hand,
central banks apply the same rules of partial reserves to Islamic conventional
banks alike. Additionally, the theoretical argument for full reserves is itself
borrowed from conventional economics; it is controversial, socially costly and
anti the trend of Fitra (that has been the actual real-life basis on which the
creation of credit relied) that is growing now toward creating electronic
credit in the form of means of payment.
e.
The last two points that I want to raise about Islamic banking are
related to justice between share holders on one hand and the depositors on
the other hand; and the effect of globalization. While the present
system of Islamic banks runs Shari’ah compatible contracts, it leaves out in
the air the effect of the negotiation power on the final products of such
contracts. In fact, banks in general and Islamic banks in particular have, much
more negotiation power than their contractors under normal circumstances This
is one of the theoretical reasons for regulating the banking industry. Islamic
banks are left alone to determine the share of profit distribution between
depositors and share holders and reap, alone too, the profit that is generated
from the investment of demand deposits. Additionally, although owners of
Mudarabah deposits share the risk with the bank they are left up in the cold
when it comes to the management of the bank. These elements together have
created a clear disparity between the rate of profit of distributed to share
holders and that given to depositors.
All
the above requires a revision of the theory of Islamic banking to reassess its
functioning and whether it is really distinct from the conventional theory!
7.
Strategic Focus of Islamic Economists, Was it correct?
For such a long time we tried to convince ourselves that the real
road to development is through the Islamization of the banking sector. We were
overtaken by making it founded on the double-tier Mudarabah to the extent that
we spent a considerable amount of ink and paper, and probably energy too, on
the issues of Murabahah and Mudarabah while the real practice of Islamic banks
has been drifting toward Tawarruq! It was a beautiful illusion for which we
neglected the main concerns of our societies as well as the core of Islamic
economics: the socio-political requisites of economic development. We even
neglected the basic institutions of the Islamic economic system.
For apparent reasons, we concentrated our effort on developing
Islamic banking, and they grew to an extent that may make them a monster that
destroys the purity of the economic thinking of our elite activists. Islamic
banks banking and finance also consumed the abilities of the elite Shari’ah
specialists as if it was the most important issue of the life of our
generation. I still remember the cry, about two decades ago, of one Islamic
economist for the need to discuss issues in the Islamic political economics, it
went with very little response!
There
is a serious need for re-examining the existing writings on Islamic economics
and to see whether it is acceptable to permit the past trend to take its hold
on the future of Islamic economics. T
The
thinking of Islamic economists must lead the Shari’ah specialists to develop
structures and rulings that motivate and regulate such reformed institutions
instead of being led by, and restrictively limited to, the boundaries developed
by scholars who applied the principles of Shari’ah to their socio-economic
atmosphere a thousand years ago!
The richness of our Shari’ah lies in its ability to respond to changing
circumstances and “modes of production” on the basis of its overwhelmingly
powerful and universal principles and guiding rulings.
8.
Islamic
economics’ Institutions:
There
are two kinds of institutions in any society:
a.
institutions that are inculcated within the souls of women and men
that make them pursue a futurist pattern of behavior construed to create more
and more material welfare for every body in one’s environment, like the
spirit of Omar Bin al Khattab who had always kept looking for improvements
in every things and on all fronts. These are the within institutions that make
a necessary condition for development. They are similar to the internal
screening of Chapra but they are developmental in nature while Chapra talked
only about a moral control screen.
b.
The other type of institutions makes the sufficient condition.
They are manifested in the external organizational setting that enables
the human element to implement its developmental ideas and plans. These
institutions include the rule of law, the right of private ownership and
private growth, role of women, the setting of the third sector, the charity,
that covers the organization of non-exchange transfers including the role of
Zakah and Awqaf. While the second type of institutions is very important and is
normally regulated by law, all of its components have internal reflects.
` In
the writings on Islamic economics over the last half a century, we’ve neglected
both types of institutions as well as the internal reflect of the latter. We did not give adequate attention to building
developmental mentality and spirit; we did not emphasize the ethics of thrift,
perfection and growth of which our religion is the richest of all religions on
earth. We’ve always thought that what matters is –by an act of law- eliminating
Riba and that will do the needed miracle, all of it.
Although
we’ve studied the minute details of the institution of the prohibition of Riba
especially from a legalistic point of view, we did not gave enough time to
studying the institution of Private ownership or the economic role of woman
in the Muslim society. We shied away from scientifically criticizing the
status qua because we did not want to be thought of as generalists or Islamic
activists. We neglected a major factor of the vicious circle of
backwardness, women left behind of development, and even some of us thought of
it as an Islamic pride!
The
external institutions of Zakah and Awqaf have recently received some of our
grace but unfortunately with very little original thinking and a lot of third
Hijri century formulation. We dared not rethinking these institutions under
contemporary setting. Instead we assimilated the traditional Fiqh of these two
institutions with little attention to changing circumstances, forms of assets,
modes of production and the changing functions and functionaries of money.
Institutional
restructuring requires fresh innovative thinking that is only restricted by the
necessary uncontroversial implication of the Revealed Truth. We need to
revitalize the functions of the two pillars of the third sector, Awqaf and
Zakah, in a way that makes them fulfill in a contemporary system, their
envisioned role as they did in a simple economy in the past; and we need to
integrate their functions within the overall framework of the Islamic economic
system and philosophy.
9.
Public Finance: Why Did we Miss Creating a Theory
Public
finance is the part of Islamic social studies that historically received more
attention than any other part of Islamic economics. Detailed discussions of
public revenues and public expenditures are available in the classical Fiqh and
Fatwa writings. Here again a question arises: Did we fail in establishing a
general theory of public finance within an Islamic economic framework? The dust
around the idea of whether taxation is permissible or not and under what
conditions is not yet settled. Also not settled are the debates of private
ownership protection against the government, rights of the poor in the public
properties and revenues, the functions of taxes, economic or financial, and the
restrictions on the economic role of the government.
10. Future
of Islamic Economics
However, when we take a closer examination at the
existing status of Islamic economics we see a mission unaccomplished.
On
the applied side, it is certainly incorrect to attribute to Islamic economics
any of the claims and ineffectiveness of political leaders and dictators of
some Muslim countries. Besides, Islamic economists did not provide any agenda
for political economics founded or derived from their branch of human knowledge
inspite of the need for such an agenda.
It
seems to me that the present generation of Islamic economists is exhausted and
already consumed in the activities of Islamic banking and finance that the best
it can do is to hand over the torch to a second generation that may carry
deeper theoretical analysis and fill the gaps left by our generation.
Di dalam islam, perumpamaan
muslim seperti anggota tubuh, yang merasakan saat yang lain sakit, dan merasa
senang, saat yang lain senang. Asuransi
syariah, justru mengajarkan konsep ini. Konsep berbagi risiko (risk sharing) bukan risk transfer. 
Salah satu manfaat asuransi syariah untuk Indonesia yang
harus difokuskan menurut saya adalah sebagai sarana belajar literasi keuangan
Mengapa memilih literasi keuangan?