Islamic Economics Needs a Great Deal of Creative Thinking: Dr. Umer Chapra

By Dr. Shariq Nisar

Introduction: Dr. M. Umer Chapra is a Senior Research Advisor at the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank (IDB), Jeddah. Prior to this position, he has worked at the Saudi Arabian Monetary Agency (SAMA). He has also taught economics in various capacities at the University of Wisconsin (Platteville), University of Kentucky and Lexington etc. Dr. Chapra is well known for his seminal contributions to Islamic Economics and Finance over the past three decades. He has authored 10 books and monographs, and more than 60 papers. Many of his works have been translated into several other languages. His most outstanding contributions have been his three books: Towards a Just Monetary System (1985), Islam and the Economic Challenge (1992) and The Future of Economics: An Islamic Perspective (2000). He has received a number of awards for his academic excellence, including the Islamic Development Bank Award for Islamic Economics and the prestigious King Faisal International Award for Islamic Studies. In an exclusive e-mail interview to Dr. Shariq Nisar, Dr. Chapra provides valuable suggestions to the young researches in the field of Islamic economics and finance. What is the main message of Islamic Economics to humanity? The main message is that the humanitarian goal of achieving the well being of all members of the human family cannot be attained by concentrating primarily on the material constituents of well-being and making maximization of wealth as the main objective of Economics. It is also necessary to raise the spiritual content of well being and reduce all the symptoms of anomie, like family disintegration, conflict and tensions, crime, alcoholism, drug addiction, and mental illness, all indicating lack of inner happiness and contentment in the life of individuals. The market system as well as central planning have both failed to lead mankind to such an overall well-being. It is, therefore, necessary to lay down the contours of a new system which could help optimize human well-being. This is exactly what Islamic Economics is trying to do. In your two landmark books, Islam and the Economic Challenge and The Future of Economics: an Islamic Perspective, you have given a micro- as well as macro-framework for the future development of Islamic Economics and Finance. How would you assess the current theoretical development in this area? The current theoretical development of Islamic Economics is still far from what is desired. The development has not been balanced. Primary attention has been given so far to Islamic Finance. This has led to the false impression that interest-free finance is all that Islamic Economics has to offer. Since most of the governments in Muslim countries are not yet convinced that interest-free finance is workable, excessive emphasis on it has created a resistance in official circles against Islamic Economics. They find it to be of little value. This is unfortunate. We must blame ourselves for this. Islam is a complete way of life and is capable of solving the problems of not only Muslim countries, but also of mankind. It would, therefore, be desirable to show that Islamic Economics has much more to offer than just interest-free finance. There are a number of ways in which this may be done: 1. One way of doing this would be to concentrate on the socio-economic problems that mankind is faced with, and to show how adoption of the Islamic strategy can help solve them. It is also desirable to be realistic and balanced and to show that application of the Islamic strategy is not an easy task. It requires a great deal of theoretical as well as empirical analyses. 2. Very little work of an empirical nature seems has done so far. Without this, it is not possible to know the actual condition of the Muslim world and to suggest a strategy for the future. 3. The Islamic strategy needs to be clearly spelt out. It does not consist, as indicated earlier, in just reforming the financial system. It rather consists in reforming the individual human being and all other socio-economic and political factors that influence his or her behaviour and well being. This would take us to not only religious beliefs and values, but also to social, economic, financial, political and historical factors. The problem with the Muslim world is not just the existence of an exploitative financial system, but also illegitimate governments, moral decline, landlordism, lack of education, absence of justice, and ineffective operation of incentives and deterrents. Therefore, Islamic Economics needs to adopt a more comprehensive model than what Conventional Economics is able to offer if these problems, which are all interrelated, are to be solved. We need to take inspiration from Ibn Khaldun who presented a multidisciplinary circular causation dynamic model instead of the Neoclassical model which relies primarily on economic variables. 4. While Islamic Economics talks about the ideals of Islam, it is also necessary to know the actual position in Muslim countries – how individuals, families, firms and governments actually behave. It will then be necessary to show the extent and the causes of the gap between the ideals and the reality. Once we know the extent of the gap and the causes of deviation, we will have to figure out practical remedies in the light of Islamic teachings. 5. It would also be desirable to have studies that would address the following questions: a. Have the Muslim countries been able to improve the lot of the common man since their independence from foreign domination? If not, then what are the factors responsible for this failure? What can be done to redress the situation? b. What kinds of data are needed to evaluate the Islamization of the economies of Muslim countries. Which of these data are available and which are not, and what can be done to bridge the gap? c. What are the causes of the low rate of saving and investment in most Muslim countries? What can be done in the light of Islamic teachings to remedy the situation? Are the suggested remedies feasible? d. What are the different socio-economic, political and historical factors responsible for the low level of labour and entrepreneurial efficiency in Muslim countries? Is it possible to do something to offset the effect of these factors? e. What are the causes of Muslim decline? How far were scholars like Abu Yusuf, al-Mawardi, Ibn Khaldun and others able to present a satisfactory explanation for Muslim decline. Can the models presented by non-Muslim scholars like Gibbon, Spengler and Toynbee complete the picture? f. How did the Islamic financial system operate in the classical period? What was the role of sarrāfs and jahābidh? What is it that enabled them to operate successfully? Why did the system get displaced? g. The fuqhā’ have so far rejected options and derivatives, all of which are not necessarily speculative in nature. They are also used for managing risks. If we reject them, then we have to find other ways of managing risks. This subject has not been addressed adequately so far. h. What are the reasons for the fiscal and balance of payments deficits and high debt-servicing burden of many Muslim countries? What are the Islamically acceptable remedies for this situation? Only by addressing these and a number of other questions will Islamic Economics be able to gain the acceptability and the respect that it needs. If we do not do so, the discipline will become marginalized. Concentrating only on interest-free finance will not be very helpful. Any other message to the readers of Finance in Islam. It can be seen from the above discussion that Islamic Economics is in need of a great deal of creative thinking directed towards promoting human well being. There is little room for repeating what has already been written. It is unfortunate that a number of our writers do not read what has already been written. They seem to give the impression that they are the first ones to write on the subject. This does not add prestige to such authors. It only shows their ignorance. Some of them go to the extent of including only the writings of prominent conventional economists or classical Muslim scholars in their references. Only if they build upon what has already been contributed by modern Muslim writers, will they be able to push the frontiers of knowledge in Islamic Economics. Link: http://www.financeinislam.com/article/9/1/432