Is Islam Bad for Business?

Handbook of Empirical Research on Islam and Economic Life

The turmoil left in the wake of the global financial crisis presents an opportune time to rethink the government invention/free market dichotomy that has characterized the bulk of conventional wisdom regarding the international financial system. Islamic finance, with its emphasis on reducing risk and preventing harm before it occurs rather than minimizing harm after the fact, offers a compelling approach to finance that can thwart market failures and avert crises before they start. The unique character of Islamic finance flows naturally from the example of the Holy Quran, and as such there is an unmistakable moral component to it. Islamic finance is built on a foundation of socioeconomic justice for all and sustainable growth facilitated by prudent stewardship of natural resources so that future generations may also enjoy the fruits of economic development. Islamic finance's requirement of shariah-compliance leads to a host of rules and regulations that distinguish it from conventional finance. Chief among them are the prohibition of usury (riba), gambling (maisir) and unjustified ambiguity (gharar), the prerequisite that income be derived from productive economic activities and profits be shared fairly, and the ban on investing in certain industries that are considered forbidden (haram) owing to their toxic effects on society. These idiosyncrasies of Islamic finance clearly help spread socioeconomic justice throughout society. The ban on interest protects the poor from falling victim to predatory lending which exacerbates the cycle of poverty. It also compels the wealthy to invest in projects that have actual value in the real economy rather than passively letting their money grow automatically without putting in any real effort or, worse yet, gambling with other people's money in wild speculation schemes. The often exploitative relationship between borrower and lender is thus replaced by a more equitable arrangement governed by profit-and-loss sharing (PLS) contracts. Under the terms of a PLS contract, both parties have rights and responsibilities and share in any profits or losses that may accrue. By cultivating a more sensible relationship between risk and reward, PLS contracts bolster productive economic activity and entrepreneurship. Financiers do not view borrowers as pawns to be manipulated in their endless quest to maximize profits, but rather as partners. The admonition against gharar helps to ensure that one party to an economic transaction does not exploit the other party by withholding information or giving misleading information. Transparency is of paramount importance. This helps reduce fraud and alleviates the negative effects of information asymmetries, as all parties are apprised of the risks involved and can make informed decisions about their investment. As outlined above, Islamic finance is not merely concerned with maximizing profit. It is part of a larger moral and ethical code of behavior that permeates all facets of society. This code dictates that it is better to forgo the possibility of profit all together if doing

Thunderbird International Business Review, 2005

The underdevelopment of many of the Muslim economies along the Silk Road is often ascribed to the negative effects of Islam. Yet historically, the Muslim cities along the Road were thriving centers of commerce, and since the collapse of the Soviet Union, there appears to be a revival of business as central Asia is opened up to the global economy. Islam has its own distinctive code of business ethics, and the trust this fosters can lower transaction costs and increase management efficiency. There is no inherent conflict between Islam and capitalism; indeed, it is possible to identify the emergence of a distinctive Islamic type where capital accumulation is based on noninterest forms of financing.

American Journal of Islam and Society, 1992

I consider the task of reviewing this book an honor as well as a challenge. My task is made even more difficult and the challenge moE significant when I read excellent reviews from both intellectual spectra, Western as well as Islamic. From the West, Kenneth Boulding, an eminent behavioral scientist and social economist, expresses his admiration both for the author's readable style as well as the depth and the maturity of his knowledge when he writes: This is an excellent work. .. His understanding is quite sophisticated. At the same time his style is clear and he writes with humanity and a very deep concern for the welfare of the human race. From the East, the book has already received and incorporated comments and suggestions from a number of economists at the forefront of research in Islamic economics, among them Dr. Nejatullah Siddiqui and Professor Khurshid Ahmad. The latter economist has very succinctly summarized not only his own views but also t h m of other Islamic scholars when, in the foreword, he writes: Dr. Chapra has dealt with the subject as a trained social scientist and objective Islamic scholar. His grasp of the contemporary

An Nasr Magazine, Nigeria, 2016

The paper was published in An-Nasr Magazine in August 2016 to showcase some of the classical Islamic thoughts that could bring about needed changes in the contemporary economic system. The paper discourses Islamic financial tools that could assist the 'modern' world bridge the gap between the rich and the poor thereby promoting balanced and sustainable growth

SSRN Electronic Journal, 2000

In this paper, the foundational rules governing human, economic and financial development in Islam, as understood from the Quran and from the life and traditions of the Prophet Muhammad (pbuh), are summarized. These rules pave the path to development as the basis of institutional structure, which in turn, underpin the path of economic and social progress. The essential elements in the life of a Muslim-the unity of creation, freedom and freedom of choice, economic and human development, economic system and financial practice-are developed. the President of Indonesia, the most populous Muslim country, recently wrote: "The big question for 2010-and the whole century-is whether the world's civilizations, religions and cultures will finally depart from their persistent patterns of conflict." 1 As the title of his article confirms, the anticipated conflict, real or imagined, is between Islam and the West. Others have asserted that Islam is incompatible with progress-modernization, democracy and the freedom to choose, human freedom, human development, economic development, technological change, gender equality-and insinuate that conflict between the West and those that are labeled as "Muslim" is inevitable. 2 These prognoses and predictions, and many others like them, are based on an unfounded assumption-the behavior and actions of individuals, societies and countries that are labeled "Muslim" affords an accurate picture of Islam and its teachings. In fact, there is a wide chasm between the vision of the Quran for human development and the results achieved by Muslim societies. Religious sheiks, mullahs and politicians have interpreted their own brand of Islam for the masses-brandings that invariably represent a distorted picture of Islam and its teachings. This is not to say that priests, ministers, preachers and rabbis have not done the same. In a world of mass consumerism, religion has become a consumer product like any other, differentiated and marketed the world over. For the West and Muslim countries to engage each other effectively, it is essential that both Muslims and non-Muslims have a better understanding of the teachings and foundation of Islam.

CEREM (Central European Review of Economics and Management), vol. 3 no. 4, 2019

Aim: This article takes a critical look at the claims made by advocates of an Islamic economy, in particular that it differs fundamentally from capitalism and socialism because it is built "on a superior ethical basis. The aim is to find out whether this claim can be creditably sustained and why it is made. Design: The world view behind the Islamic economy is probed into by means of a literature study encompassing publications by prominent students of Islam and Islamic economics, predominantly themselves Muslims, which have appeared in a wide range of professional books, magazines and paper series. Conclusions: It is concluded that an Islamic economic system does not differ fundamentally from mixed-economy non-Islamic ones and that there is little reason for non-Muslims to accord Islamic ethics special status. Further, it is found that important drivers of the attempts to Islamize the economy are frustration about the sorrow state of the Islamic world at least since the early nineteenth century and a wish to regain something of its former glory. In other words, identity politics is at play. There may an element of subjectivity in this conclusion, as it depends on interpretations that are hard to prove or disprove conclusively, but statements by leading Muslim advocates of Islam economists give it weight. The conclusion may help to interpret developments in the Muslim world, which is an indispensable step in finding a way to deal with them.

Kuran, Timur, The Long Divergence. How Islamic Law Held Back the Middle East, Princeton: Princeton University Press, 2011. ISBN 978–0–691–14756–7. U.S. $29.95. Even though Timur Kuran is overall convincing at laying out arguments on the backwardness of Islamic practices regarding partnerships, corporations, banks, loans with interest, waqfs (mortmain properties blocked from circulation), and contracts in general, he seems less convincing at explicating why Islamic societies were held back from competition with Europe from the middle ages up to modern times. Indeed, his main assumption that it was Islamic law that held back the economy escapes the problem rather than points at its cause in a convincing way. Legal systems in general are more an outcome of social conditions, rather than the major force that would bring social relations to a more developed level. In other words, history shows that whenever the law is “behind” social practices, whether cultural or economic, they tend to be addressed sooner rather than later. A case in point, which Kuran explains at length, is the ban on loans with interest that both Jews and Christians had to abide by in the early European middle ages, which in both instances were bypassed due to the socio-economic conditions in Europe at the time. Even in modern times, legal systems tend to struggle in order to match cultural and economic developments.

The implications ofI slam on the economic sphere

Several of the Middle East's traditional economic institutions hampered its political development by limiting checks on executive power, preventing the formation of organized and durable opposition movements, and keeping civil society weak. They include Islam's original tax system, which failed to protect property rights; the waqf, whose rigidity hampered the development of civil society; and private commercial enterprises, whose small scales and short lives blocked the development of private coalitions able to bargain with the state. These institutions contributed to features that sustain autocracies and keep democracies unstable: high corruption, low trust, widespread nepotism and high tolerance for law-breaking.

Economic Affairs, 2009

This paper examines rights to property accorded to women in Islam under direct injunctions and compares it with the state of these rights in present Muslim societies. It argues that the correct application of law will not only materially improve the status of women in Muslim societies and guarantee them economic security, it will also bring economic prosperity to such societies directly.