Economics and Business

Economics and Business

Conceptualisation of the second best solution in overcoming the social failure of Islamic banking and finance: Examining the overpowering of homoislamicus by homoeconomicus

Abstract: The phenomenal growth of the Islamic banking and finance (IBF) industry has been remarkable since it came into existence just over thirty years ago. However, a closer reading of this positive development indicates that the IBF industry does not necessarily share the aspirations of Islamic economics, which aims at creating a world order in which the moral economy of Islam with its authentic value system can exist. In other words, the Islamic economic system aspires for the development of Islamic economics and financial institutions founded upon homoislamicus, agents concerned about social justice and human-centred economic growth and development. This indeed indicates the divergence between the aspiration of Islamic economics and the world of IBF. After highlighting and analysing the tension areas between the two and the reasons and sources of this apparent divergence, this paper argues that IBF needs to move into its third stage of development through the institutionalisation of social banking as a second best solution in overcoming the social failure of IBF and in creating value-added for capacity building and social justice.

Source : http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/134

Making development assistance sustainable through Islamic microfinance

Abstract: Microfinance schemes have been operational since the 1960s, however, they mostly involve conventional finance, whereas many low income Muslims would prefer to have shariah compliant finance. The aim of this paper is to explore how microfinance can be provided on a shariah compliant basis and what instruments and structures could be used. The implication of this paper is that shariah compliant microfinance is best provided by non-banking institutions, which in the case of the wakalah model, may have links to the waqf and zakah authorities.With mudharabah profit sharing microfinance, there is scope for commercial undertakings, but arguably specialized finance companies rather than banks, even Islamic banks, may be more appropriate institutions to get involved.

Source: http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/135

Fiscal policy in an Islamic economy and the role of zakat

Abstract: This study incorporates zakat into a simple macroeconomic model of an Islamic economy and analyzes the role of zakat in the national income determination. The reduced form aggregate consumption function suggests that the determinants of consumption are: Zakat expenditure, taxes, income and asset holdings of individuals. Zakat could be used as a counter-cyclical policy through discretionary and non-discretionary fiscal policy. Discretionary fiscal policy is carried out by varying the disbursement of zakat to the recipients. During the expansion phase of the business cycle, the government reduces zakat expenditure to close the inflationary gap. This action helps increase the zakat surplus, in the Baitul-Mal. Likewise zakat expenditure could be increased by using the zakat surplus accumulated during the boom periods, when the economy is in the down-swing to spur aggregate spending and economic activities. Therefore, zakat could complement taxation and government spending as tools of stablization policy.

Source: http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/121

Teaching of Economics at IIUM: The Challenges of Integration and Islamization

1. Introduction

The teaching of Islamic economics, in both theory and practice, has not been a widely discussed and debated area among Islamic economists. Islamic reforms in education have taken place in many parts of the world since the 1977 First International Conference on Muslim Education in Makkah. While the ‘theory’ and practice of Islamic economics (mainly banking and finance) has become a relatively wide-spread feature in many Muslim countries since the 1980s, discussions and debates on Islamic economics education have been rather scarce.  In fact, issues relating to curriculum and teaching of Islamic economics is at most, an internal matter, rarely discussed at international Islamic economics conferences and meetings. In this chapter, we discuss the practice of teaching modern economics, within the agenda of integration and Islamization of knowledge, including some observations on the current practice and relevant issues that need to be addressed.

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