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Encyclopedia > Islamic economics

Islamic economics is economics in accordance with Islamic law. Because the Qur'an spoke against usury in the context of early Muslim society, it generally entails trying to remove or redefine interest rates from financial institutions. In doing so, Islamic economists hope to produce a more 'Islamic society'. However, liberal movements within Islam may deny the need for this field, since they generally see Islam as compatible with modern secular institutions and law. Buyers bargain for good prices while sellers put forth their best front in Chichicastenango Market, Guatemala. ... Sharia (Arabic شريعة also Sharia, Shariah or Syariah) is traditional Islamic law. ... The , (Arabic: recitation, also transliterated as Quran, Koran, and Alcoran, Turkish Kuran), is the central religious text of Islam. ... Usury (pronounced //, from the Latin usuria, demanding in return for a loan a greater amount than was borrowed) was defined originally as charging a fee for the use of money. ... An interest rate is the rental price of money. ... Since the 19th century, Muslim progressives have produced a considerable body of liberal thought within Islam (in Arabic: الإسلام الاجتهادي or interpretation-based Islam; also الإسلام التقدمي or progressive Islam). These have in common a religious outlook which depends mainly on ijtihad or re-interpretations of scriptures. ...

Contents


History

For centuries Muslims have developed ways to integrate their religious beliefs with the external economic realities of the nations they live in. This has had varying degrees of compatibility with the empires and customs they encountered. Like most things in Islam, commerce adapts to al-urf, "the custom". In Islamic law (Sharia Arabic: شريعة), al-urf العرف is the custom of a given society, leading to change in the Egypt, marriage the Urfi way means to get married without offical papers issued by the state (Zawag Urfi:زواج عرفي). ...


In the 1980s and 1990s Muslim bankers and religious leaders developed ways to integrate Islamic law on usage of money with modern concepts of ethical investing. Consequently, a sophisticated economic discipline has emerged with its own concepts, analytical tools and institutions. Some of these are revived traditional micro venture capital and ethical investing frameworks that thrived in medieval times. However, they incorporated many modern techniques and technologies. Some consider the emergence of these economic practices to be part of a revival of Islam and an Islamization of knowledge. Others see them as a practical response to problems of global debt and debt slavery. A number of researchers suggest, however, the underlying causes of the genesis of modern Islamic economics was based more on the desire to reflect beliefs about Islamic identity than to establish a more ethical or religiously sound banking system[1]. 1980 (MCMLXXX) was a leap year starting on Tuesday. ... This article is about the year. ... Ethical investing, also known as Socially responsible investing or SRI attempts to ensure that invested funds are not used to violate the investors most basic moral values or ethical codes. ... Investment is a term with several closely related meanings in finance and economics. ... Micro venture capital financing invests in projects too small to attract the attention of more traditional venture capitalists. ... Ethical investing, also known as Socially responsible investing or SRI attempts to ensure that invested funds are not used to violate the investors most basic moral values or ethical codes. ... Islamization of knowledge is a term which describes a variety of attempts and approaches to synthesize the ethics of Islam with various fields of modern thought. ... Flows 2004 Global debt and equity underwriting reached a record $5. ... Debt bondage or bonded labor is a means of paying off a familys loans via the labour of family members or heirs. ...


Interest

Main article: Islamic banking

Islamic economic institutions, not just the Islamic bank but all those connected with Islamic banking, claim to operate on the basis of "zero interest." Critics of Islamic economics argue, however, that the fundamental characteristic of charging interest (i.e. charging a premium, on the principal amount of a loan, for the time value of the loaned money) is not truly eliminated in Islamic banking, but rather the interest is merely hidden and relabeled. To meet Wikipedias quality standards, this article or section may require cleanup. ...


For example, consider the practical reality of purchasing a vehicle from an Islamic bank under an allegedly "zero interest" loan. The procedure, generally, is that the client tells the Islamic bank which vehicle he or she would like to own. The Islamic bank then purchases that vehicle in its name, and sells it to the client at a marked-up price, under an agreement that the new marked-up price of the vehicle must be paid in a certain number of installments of a certain time period. Thus a $20,000 car might cost $35,000 if purchased from an Islamic bank at "zero interest," 5 year loan. Of course, the bank charges the extra $15,000 on top of the $20,000 cost of the car because money has a time value (that is to say, a payment of $20,000 5 years from now is worth less than a payment of $20,000 today). This is also why a $20,000 car could cost $35,000 if the purchase were financed by an interest bearing loan issued by a non-Islamic financial institution.


Usually, time value of money is compensated to the lender by the lender charging the borrower interest on the principal amount of the loan. In the case of Islamic banking, the lost time value is compensated by charging a mark-up on the home or vehicle that the client might be seeking to purchase by way of a loan. The vehicle or mortgage usually remains in the name of the bank, until the principal loan including the mark-up has been paid. In the case of a business loan, instead of charging interest over the time that the principal amount is loaned out, an Islamic bank will demand a certain percentage of the borrower's business profits for an indefinite period of time. The time value of money (TVM) or the discounted present value is one of the basic concepts of finance, developed by Leonardo Fibonacci in 1202. ...


Under a conventional interest based loan it is possible to "call" the loan if the interest rate drops and the borrower finds that he can find cheaper financing (i.e. pays off the entire loan before the end of its term, thus paying less interest). However, there is no way to call a loan issued by an Islamic bank. Thus, while the borrower from an Islamic bank is protected against interest rate increases, the borrower cannot benefit from interest rate drops.


In theory, Islamic banking should be synonymous with full-reserve banking, with banks achieving a 100% reserve ratio [2]. However in practice this is rarely the case. Full-reserve banking is a theoretically conceivable banking practice in which all deposits, banknotes, and notes in a financial system would be backed up by assets with a store of value. ... It has been suggested that this article or section be merged with Reserve requirements. ...


Debt arrangements

Most Islamic economic institutions advise participatory arrangements between capital and labor. The latter rule reflects the Islamic norm that the borrower must not bear all the cost of a failure, as "it is Allah who determines that failure, and intends that it fall on all those involved." Capital has a number of related meanings in economics, finance and accounting. ...


Conventional debt arrangements are thus usually unacceptable - but conventional venture investment structures are applied even on very small scales. However, not every debt arrangement can be seen in terms of venture investment structures. For example, when a family buys a home it is not investing in a business venture - a person's shelter is not a business venture. Similarly, purchasing other commodities for personal use, such as cars, furniture, and so on, cannot realistically be considered as a venture investment in which the Islamic bank shares risks and profits for the profits of the venture.


Natural capital

Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also sustainable) use of natural capital, i.e. producing land. These latter revive traditions of haram and hima that were prevalent in early Muslim civilization. Sustainability is a systemic concept, relating to the continuity of economic, social, institutional and environmental aspects of human society. ... Natural capital is a metaphor for the mineral, plant, and animal formations of the Earths biosphere when viewed as a means of production of oxygen, water filter, erosion preventer, or provider of other natural services. ... This article covers the word as used in Islamic urban planning. ... Hima means (is Arabic for) inviolate zones solely for the conservation of natural capital, typically fields, wildlife and forests (contrast haram to protect areas for more immediate human purposes). ...


Welfare

Social welfare, unemployment, public debt and globalization have been re-examined from the perspective of Islamic norms and values. Islamic banks have grown recently in the Muslim world but are a very small share of the global economy compared to the Western debt banking paradigm. It remains to be seen if they will find niches - although hybrid approaches, e.g. Grameen Bank which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern human development theory. ... An 1837 political cartoon about unemployment in the United States. ... This page is a candidate to be copied to Wiktionary. ... The International Monetary Fund defines Globalization (or globalisation) as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, free international capital flows, and more rapid and widespread diffusion of technology”. Meanwhile, The International Forum on Globalization defines it as... Grameen Bank Building, Dhaka The Grameen Bank is a microcredit organization that started in Bangladesh, which makes small loans to the impoverished without requiring collateral. ... Human development theory is an economic theory that merges older ideas from ecological economics, sustainable development, welfare economics, and feminist economics. ...


Islamic stocks

In June 2005 Dow Jones Indexes, New York, and RHB Securities, Kuala Lumpur, teamed up to launch a new "Islamic Malaysia Index" —a collection of 45 stocks representing Malaysian companies that comply with a variety of Shariah-based criteria. Three variables (the total debt of an indexed company, its total cash plus interest-bearing securities and its accounts receivables) must each be less than 33% of the trailing 12-month average capitalization, for example. 2005 : January - February - March - April - May - June - July - August - September - October - November - December- → Deaths in June June 27: Shelby Foote June 27: John T. Walton June 26: Richard Whiteley June 25: John Fiedler June 25: Chet Helms June 24: Paul Winchell June 21: Jaime Cardinal Sin June 20: Jack Kilby... The Dow Jones Industrial Average (NYSE: DJI) is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow. ... Official language(s) None, English de facto Capital Albany Largest city New York City Area  Ranked 27th  - Total 54,520 sq mi (141,205 km²)  - Width 285 miles (455 km)  - Length 330 miles (530 km)  - % water 13. ... Flag Seal Nickname: KL Motto: Maju dan makmur (Malay: Peace and progress) Location Location in Malaysia Coordinates , Government Country State Malaysia Federal Territory Establishment 1857 (Granted city status in 1974) Mayor Ruslin Hasan Geographical characteristics Area     City 243. ...


See also

There are many new trends in Islamic Philosophy and meanwhile some traditional schools are still very alive and active. ... For more information please refer to http://www. ... Islamization of knowledge is a term which describes a variety of attempts and approaches to synthesize the ethics of Islam with various fields of modern thought. ... Green economics loosely defines a theory of economics by which an economy is considered to be a component of the ecosystem in which it resides. ... Creditary economics is a broad and inclusive term for all theories of economics and political economy that drastically de-emphasize or deny altogether a role for debt and assumptions of fixed yield for such financial capital instruments. ... This is a subarticle to Islamic studies and science. ... Ibn Khaldun Ibn Khaldūn (full name ) (ابو زيد عبد الرحمن بن محمد بن خلدون الحضرمي ), (May 27, 1332/732AH to March 19, 1406/808AH) was a famous Arab historiographer and historian born in present-day Tunisia, and is sometimes viewed as one of the forerunners of modern historiography, sociology and economics. ...

References

  • Muhammad Nijatullah Siddiqui, Muslim Economic Thinking, (Islamic Foundation, Leicester, UK)
  • Syed Nawab Haider Naqi, Ethics and Economics: An Islamic Synthesis, (Islamic Foundation, Leicester, UK)
  • M. Umar Chapra, Islam and the Economic Challenge, (Islamic Foundation, Leicester, UK)
  • Angelo M. Venardos, Islamic Banking & Finance in South-East Asia: Its Development & Future, (World Scientific Publishing, Singapore)
  • Islamic Economics book list
  • Islamic Banking references
  • Islamic Banking references (GDRC)

Uma Chapra is an economist who has written extensively on the issues of Islamic finance. ...

External links


  Results from FactBites:
 
EH.Net Encyclopedia: Islamic Economics: What It Is and How It Developed (8866 words)
Their insight into some economic concepts was so deep that a number of the theories propounded by them could undoubtedly be considered the forerunners of some more sophisticated modern formulations of these theories.
Since debasement of currencies is in sheer violation of the Islamic emphasis on honesty and integrity in all measures of value, fraudulent practices in the issue of coins in the fourteenth century and afterwards elicited a great deal of literature on monetary theory and policy.
Islamic economics did not, therefore, develop as a separate intellectual discipline in conformity with the Islamic paradigm along the theoretical foundations and method laid down by Ibn Khaldun and his predecessors.
Islamic economics - Wikipedia, the free encyclopedia (1230 words)
Islamic economics is economics in accordance with Islamic law.
The Islamic bank then purchases that vehicle in its name, and sells it to the client at a marked-up price, under an agreement that the new marked-up price of the vehicle must be paid in a certain number of installments of a certain time period.
In theory, Islamic banking should be synonymous with full-reserve banking, with banks achieving a 100% reserve ratio [2].
  More results at FactBites »

 
 

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