This article was written by Mabid Ali Al-Jarhi (Director of IRTI, IDB). He is from Fayyoum, Egypt. His article was published in JKAU (2013).
Like many other articles on Islamic Economics that easily-catch-my-eyes, it applies to this article too. It took me twice to read and comprehend it well. In general, this article is technically a good start especially for those who are looking for some quick ideas on what is happening right now in Islamic Economics.
Yet, I have to say that even though that the title explicitly mentioned Islamic Economics, but this article actually stresses on the so-called-gaps which specifically related to Islamic Finance.
Before we go further, let us summarize the 5 out of 10 major gaps between the theory and practice of Islamic Economics as have been discussed by him. Firstly, the absence of an Islamic Economic system in real life. Secondly, the absence of general equilibrium model for an Islamic Economics. Third, is the absence of a unified and well-defined Shariah methodology. Fourth the split between monetary policy and Islamic Finance and last but not least the shyness of using model of values.
According to him, the first gap becomes clearer when Islamic Economics is compared to Capitalism and Socialism. This is demonstrated as there are still narrow area in which Islamic Economics is applied in the real life. However, he excludes this gap for certain areas like zakat, awqaf and Islamic financial products. At the same time, he states that not a few of Islamic financial products are actually a newly-dressed of conventional financial products in Islamic curbs.
Interestingly, he suggests that the reason for the second gap to happen was the way on how Islamic Economics, in particular Islamic finance was first initiated. For him, the Muslim economists during early 70s did formulate the Islamic finance by dominantly introduce the elimination of riba in the system, and this according to him is done in a pure competitive market system. In the end, Islamic finance was established under the tools of analysis of pure competitive, profit oriented market rather than developing its own paradigms. This eventually draws the problem on which he states the inability to introduce our own general equilibrium which based on our own system.
As for the third gap, he concludes that this become a major problem particularly when the Syariah scholars are having different views in coming out with rulings with regards to Islamic financial products. For him, it is above the problem of replacing interest rate with profit rate, since he views that the problem is rooted from the situation in which Syariah methodology in Islamic finance focuses more on the validity of the products over their objectives (maqasid).
The fourth gap is the split between monetary policy and Islamic finance. This idea could be understood once we understand that the federal reserve system which governs the central bank promotes money issuance for the purpose of lending trough bank money lending channel. In this scenario, he suggests that a model of Islamic bank is supposed to have two specific pillars i.e. first the central should control the money growth as to correspond to the economic growth and second is that commercial banks are to invest their deposits rather than lend them out. The profit that should be focused is on investment rather than on making money by lending out money like been practiced nowadays.
The fifth gap states that unlike the conventional economics which (some) of them might claim as value free, Islamic economics should stand differently. As economics is centrally dealing with human, thus the value related to human should be there. The idea of Homo Islamicus which apparently provides the way on how and why a Muslim should behave therefore need special attention for further discussion.
He concludes never less once he suggests some interesting ideas which I believe two of them are brilliant. First, the thesis on post graduate studies suppose to be more specific pertaining to the area that significantly contribute to Islamic economic system. For example the study on methodology, empirical studies on Muslim consumers behavior or development policies for Muslim countries. Secondly, serious effort should be taken to analyze the writings of prominent scholars in the past. I belief this is so much interesting and yet many things to be done.
He summarizes that for us to establish Islamic economic system, we should correcting our understanding, reorienting our belief and straightening our actions.
I might conclude that pertaining to my specific area of Islamic economic education, I strongly agree with the author's statement on the gap in methodology of Islamic economics. Not to mention how much I agree that Islamic education should focus on the critical analysis on the writings of prominent Muslim scholars of the past. On serious note, I have a dream to one day analyze the writings of Ibn Khaldun, a great philosopher and social scientist whom inspired many of current Muslim writings on Islamic economics.
It now time to go after primer source!