By Dr. Hussein Shehatah
Islamic Economics
The current financial crisis debunks the myths of Capitalism, opening the way for alternative economic systems to emerge, among which is the Islamic finance and economy.
Yet, instead of just reacting to the crisis, scholars of Islamic economics ought to explain the concepts and principles of the Islamic financial and economic system and present its reference and applications to wider audience.
The Islamic economic and financial system is based on a set of values, ideals, and morals, such as honesty, credibility, transparency, clear evidence, facilitation, co-operation, complementarity ,and solidarity.
These morals and ideals are fundamental because they ensure stability, security, and safety for all those involved in financial transactions. Furthermore, the Islamic Shari`ah prohibits the economic and financial transactions that involve lying, gambling, cheating, gharar (risk-taking), gahalah (unawareness), monopoly, exploitation, greed, unfairness, and taking people’s money unjustly.
In addition, Islamic economy promotes participation in profit, loss, and actual exchanges of money and assets. In fact, there should be real interaction between the wealthy, employers, the employees, and financial experts.
There is no party who is a constant winner or a constant loser; yet profit and loss is mutually shared.
Based on Shari`ah regulations, economic contracts entail mudarabah, sharing, murabaha, istisnaa`, salm, igarah, and sharecropping. Shari`ah prohibits all forms of investment-based contracts of funding that involve interest loans forbidding financial transactions that involve gharar (risk-taking) and gahalah (unawareness).
Actually, economic experts assert that the system of financial derivatives can not bring about real development. Financial derivatives create only money, with no real value, causing inflation and price rise ,as well as moral decadence. For example, financial derivatives caused quick collapse of East Asian financial institutions.
Regarding debts, Shari`ah prohibits all forms of selling debts, like discounting promissory notes and checks with postponed payments. Also forbidden under the Shari`ah is the scheduling of debts at a higher interest rate. Prophet Muhammad (peace and blessings be upon him) forbade the sale of debts. In fact, economists contend that selling debts has exacerbated the financial crisis.
Actually, the Islamic economic and financial system makes it easier for the borrower to repay debts. Almighty Allah says: “And in case any person is under difficulty, then he should (be granted) a respite to (the time of) ease…” (Chapter 2: Verse 280).
Shari`ah allows for a system of funding and investment based on participation in both profit and loss and interaction between capital and labor. Shari`ah calls on the parties involved in transactions to behave in a truthful, honest, clear and transparent way by prohibiting gharar, gahalah, cheating, gambling, lying, rumors, exploitation and taking people’s money unjustly.
In a word, the only way out of this crisis can be found in the principles and regulations of the Islamic economics.”
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