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Islamic Economics & Finance Solutions for Today’s World Problems

Islamic Economics for a World in Turmoil: The Need for a Sustainable System

Islamic Economics for a World in Turmoil: The Need for a Sustainable System
Social and economic justice is a core teaching in Islam.

Our world is in turmoil. The 2008-2009 financial crisis destroyed the lives of tens of millions of people around the world.

In the USA alone, millions of people saw their homes and properties repossessed by the banks and other millions saw their savings dwindling and evaporating in the finance markets, thousands of companies went bankrupt and closed.

Since then, the world economy has not really recovered.

Extreme poverty is widespread with very high unemployment levels especially among the youth.

Finding a sustainable job today is becoming very difficult, and millions of people are forced to leave their countries and migrate in search for work.

On the other side of the coin, recent statistics reveal that 26 individuals own wealth equivalent to the wealth of the poorest 50% of the world population. That is equivalent to what is owned by about 4 billion people!

Can you visualize that amazing imbalance?

What went wrong?

What is the real problem causing this turmoil?

The answer to this question can be found in the way the world’s global financial system operates.

In one word: it is a rigged gambling system that favors the rich and makes them richer and causes the poor to become poorer.

Towards Sustainable Socio-Economic Justice

For justice to prevail in today’s world, the economic and financial system must be a fair, sustainable system to give equal opportunities for all people in society, rich and poor.

It is actually in the best interest of the rich that the poor escape the poverty trap, as the concentration of wealth is very dangerous for the world economy as well as its socio-political coherence.

If citizens living in poor countries are able to grow in wealth and prosper, they would not need to migrate to the rich countries in the north.

Rather than building new walls to stop this unwanted migration, we should focus on making them stay in their countries by helping them prosper in their own lands.

We need a new era of world reform that is based on a win-win approach, and this series of videos is meant to offer a glimpse of an alternative socio-economic model that could help us achieve justice and prosperity for all.

What Islam Has to Offer

Social and economic justice is a core teaching in Islam. Men and women should act as trustees, not real owners, of the wealth God has bestowed on them.

As such, they are required to use the wealth they have in a responsible way, that benefits not only themselves but also their societies, their fellow men and women and the world as a whole.

With clear ethical guidelines that prohibit earning without creating real added value and dealing with finance as a gambling process aiming at grapping other people’s money, Islam offers a comprehensive socio-economic system at the society’s level as well as at individuals’ levels, with operative instruments of its financial system, as summarized in the following features:

1- Free markets functioning on the laws of demand and supply and based on strong commitment to private ownership, economic freedom and private initiatives and creativity for increasing the wealth producing activities.

2- The financial system in Islam connects directly to the real sector of production and exchange. By channeling finance through real market contracts of sale on credit, leasing and venture contributions, it firmly establishes a simple but fundamental principle of justice that is “earning by owning wealth-creating assets or properties.” And by removing lending from the finance sector it eliminates any potential use of credit for non-productive activities such as pure speculation and debt circulation.

3- At the same time the Islamic finance system does not give room to virtual assets, virtual finance products or virtual transactions. It renders all the huge amounts of money, presently invested in the virtual markets such as options, non-spot commodity futures, credit and insurance derivatives, to the real sector of production and exchange to work on producing more goods and services instead of sticking in the virtual markets.

4- It also removes all harmful things from the basket of accessible things whether for consumption, production or finance. Harmful things are determined according to the state of scientific knowledge. For example, intoxicant of all their kinds, tobacco and any substance that is scientifically confirmed harmful to the human being or its environment are excluded from the finance and production basket of goods and services.

5- Entrepreneurship is at the Heart of the Islamic Economic System by requiring investors to always associate with owning productive morally-screened assets/goods as a condition to earn any return and returning all financial and human resource to support the real sectors of production and exchange away from all kind of virtualities.

6- Real Profit & Risk Sharing between investors and entrepreneurs for production and exchange activities, while at the same time finance is available for both consumers and producers by ways of credit sale and leasing as long as loans are avoided because they separate the finance activities from owning real value-adding assets/goods. In such a way that tightly incorporates finance with the real market.

7- The social Justice dimension of the Islamic economic system is expressed in revising and adjusting the functional distribution of income (and wealth) by incorporating income and wealth redistribution internal mechanisms. For income redistribution, the Zakah and Awqaf schemes aim at continuously redistributing income from the rich to the poor, providing a systemic approach to personal redistribution that takes into consideration the personal circumstances of individual human beings.

8- On the other hand, the inheritance system aims at continuously redistributing wealth in a manner that avoids wealth concentration in a few hands without affecting the size of the firm or fragmenting enterprises. By only distributing ownership right to all potential heirs.

Conclusion

The following parts in this series will give more details of each of these features and explain the main dimensions of the Islamic economic and financial model.

Please stay tuned…

 



About Prof. Dr. Monzer Kahf

Dr. Monzer Kahf is a professor and consultant/trainer on Islamic banking, finance, Zakah, Awqaf, Islamic Inheritance, Islamic estate planning, Islamic family law, and other aspects of Islamic economics, finance, Islamic transactions (Mu'amalat). Dr. Monzer Kahf is currently Professor of Islamic Finance & Economics at the Faculty of Economics and Management, Istanbul Sabahattin Zaim University, Turkey

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