Islamic economy - Essay Example

Download file to see previous pages Lecturer: Islamic Economy Wealth generated by oil provided propelled Islamic jurisprudence on finance and commercial law. In the1950s and 1960s when the newly independent Muslim states were grappling to come to terms with their religious and cultural identities, several thinkers began speculating theoretical foundations for Islamic economic system. State banks of various Muslim nations held conferences to deliberate on the subject. Wealth from petrodollars in1970s saw several banks and investment houses established with a mandate to operate in compliance with sharia’a. This marked the beginning of the modern Islamic finance; however, during this period, little was clear regarding banking and operations conducted in compliance with sharia’a, since sharia’a and banking seemed unsuited to any collaboration. Throughout the Muslim nations, the comprehension was nothing was lawful about banks (Thomas 4). The modern setting of Islamic banking began in the 1960s in Egypt; nevertheless, this attempt was unfruitful and limited to certain contemporary setting. There were two events that triggered and spread the development of Islamic economy. The first event was the OPEC oil crisis as it was referred to in the west; however, unlike in the west, quotas and increased oil prices resulted in increased GDP per capita in the oil-producing Islamic nations. This resulted in increase of gross savings, consumption and most significantly demand for a banking system fit with Islamic regulations for devout Muslims. The second trigger was the Islamic revolution in Iran because it inspired the Iranian government to require a banking system that complies with Islamic sharia’a laws (Thomas 55). Recognition of non-western economic thought remedied the prevailing ignorance in the west regarding contribution of Arab-Muslim thinkers in economics. Islamic economists criticized the assumptions upon which conventional economics based and their policies. Islam emphasizes communal responsibility and harmony of the Muslim nations or Muslim community. Islamic economists associated utilitarian to hedonism, which they considered as a replacement of the moral values. Unlike Marxist approach to remuneration that considers labor as a source of value; Islamic economists identify the legitimacy of rental income together with profits. With inbuilt deepness and breadth of Islamic commercial law, current jurists find realistic and hypothetical jurisprudence upon which to draw solution when confronted with disputes of the contemporary marketplace. The initial few decades of modern Islamic economy was a period of revival and the last decade has been an era of significant innovation. Modern Muslim jurist provide sharia’a-compliant solutions to the expanding spectrum of needs. Toward the end of the 1980s, the situation began to change with Islamic and banking and economy growing beyond the expectations of Islamic economy supporters. Since then, Islamic finance has become a growth industry with several multinational banks and asset management companies taking interest in the development of Islamic economy (Thomas 5). Within the banking and finance industry significant developments began with the significant reason being the progress made by Muslim jurisprudence to, understanding the modern business of commerce and applying sharia’a principles. An additional reason was the development of facilities by sharia’a boards with normal contracts allowing Islamic economies to be at ease with the novel organization. The renewal of Islamic commercial energy led to the development of cooperation and helpful interactions between Muslims and people with different religious backgrounds. Acceptance of sharia’a in Islamic economies does not lead to rejection of tools necessary for economic analysis; rather, it implies evaluation of economic policy with moral perspective according to religious teachings (Thomas 8). Apart from oil and gas-rich states, many Muslim economies are either low or middle-income developing nations, where often corruption is widespread and exploitative conditions are visible in the industry. Islamic economists condemn such practices and consider corruption to be the cause for development failures in such nations. In the 14th century, a great Muslim philosopher, Ibn Khaldun came up with a moral theory for long-term business cycles. In just governance and rulers who respect sharia’a, worker become confident to specialize, Ibn Khaldun believed that specialization and division of labor were essential in wealth creation. Deliberations of sharia’a boards involved real issues like peoples’ money, since the establishment of Islamic states and businesses attracted input from average Muslim consumers and high net worth and institutional clients. For Muslims, Islamic economies allow them the opportunity to transact and invest in ways that leave the conscience of the Muslims clear. Moreover, development of Islamic economies is a great relief to Muslims across the world; even though, “reformers” show disdain for the entire process (Thomas 96). Part of the disdain is attributed to the missteps and mistakes taken by the system early in the development days. For instance, there was a financial scandal in Egypt in an esteemed Islamic bank giving opponents an opening for questioning the entire system of Islamic economy. Islamic economies believe economic justice is the key, since it draws moral boundaries between people’s self-interests. Sentiments and claims of economic injustice together with indignation arouse both social and political life and history via wars and revolutions. In Islamic economies, justice is a condition for peaceful, free and efficiently cooperating society, which is the first virtue of society and its institutions. The approach of Arab-Muslim economic thought was through the concept of providing a unifying factor devoid of which it would be a collection of disparate elements. The validity of economic ideas in Islam base on three models that include government of the state, administration of the city and management of the household, that enable the coverage of the Islam economic thought. Development of Islamic economies continues to grow and expand, as there are innovative ideas in the Islamic nations with the responsibility of adding variety to the existing economic network. The system of Islamic economies has been successful and received approval of its financial services; there have been calls for financial institutions to embrace Islamic rules in finance in order to restore confidence in their clients especially during the global economic crisis. Islamic economies have ethical principles on which Islamic finance bases; therefore, it has the potential of bringing close financial clients which is the spirit of financial service (Thomas 58). Work cited Thomas, Abdulkader S. Interest in Islamic Economics: Understanding Riba. London: Routledge, 2006. Print. ...Download file to see next pages Read More