HARSH REALITY OF ISLAMIC ECONOMY

Quran and Sunnah have been removed from the real life of the people (Muslims and non-Muslims alike) for almost a century. Since then, the Muslims and non-Muslims in the entire world have been living under various secular systems, implementing capitalism in the economic life. Muslims continued to believe in Islam and practice those parts of Islam that pertain to the individual. However, for Islam to produce the results and objectives set forth in the Quran and the Sunnah, the full implementation of Islam is necessary. Without full implementation of Islam, the results could be counter productive. As a result of the absence of Islam, the Muslims resorted to national bonds, ethnic traditions and values. Quite often, the Muslims mix their national values, national aspirations, and methods with those of Islam. The truth of the matter though is that Islam was revealed as a set of laws regulations and systems to guide and manage the behaviour of the society as well as the individuals.

The history of the life of Prophet Mohammad saw shows that the objectives of Islam, the resolutions of Islam, and the values of Islam started to materialize only after the establishment of the Islamic State in Medinah, 13 years after the beginning of Islam. In fact, most of the laws, regulations, and systems were not revealed to Prophet Mohammad saw except after his migration to Medinah where the state was established. The laws of the Zakat, riba (usury), ownership, and wealth distribution were revealed after the state was created

ISLAMIC UNDERSTANDING OF POVERTY

I am in the midst of preparing a paper on alleviation of poverty and the more I read on the subject of poverty, the more depressed I become. I personally think that there should be rich people in the world as well as poor people. This enables the rich to support the poor through Sadaqah and Zakah. Through a Muslim point of view, there can be rich people, but they must help the poor because the Prophet saw said: 'None of you believes until he wishes for his brother what he wishes for himself.' From the times gone by of the Muslims we know that there can be wealthy people, even if there is poverty in the world. Many of the companions of the Prophet saw were very rich, but they were very generous with their wealth. They helped the poor and needy by giving away much of their wealth. They also donated a great deal for Islam, for example they donated money etc to jihad and other battles in the history of Islam.

Poverty, whether it is at the global, national or community level, is widely considered to be a multidimensional problem. New perspectives on poverty have challenged the traditional focus on income and consumption as the defining condition of poor people. Instead, poverty is a complex set of deprivations, and its definition depends on the paradigm chosen and the purpose served. Let us examine briefly some perspectives:

a) The most commonly used definition of poverty is a monetary definition. It is the estimated minimum amount of money necessary to afford basic necessities and to sustain human life.

b) The capabilities approach is based on the contention that poverty is not determined by the lack or deficiency of money income, but rather by the failure of individuals to realise their full human potential or live valued lives. This approach argues that rather than measuring income or consumption, poverty should be measured using indicators related to the freedom to live a valued life.

c) Closely tied to the capabilities approach, the concept of social exclusion is used to describe a process through which individuals or groups are excluded from full participation in the activities of their society in which they live.

d) A participatory approach to poverty aims to enable people themselves to participate in decisions about what it means to be poor.

e) Understanding poverty as a poverty of assets is to recognise that poor people have a diverse set of physical, human, social, and environmental assets. Assets can be tangible or potential and material or social, and individuals, households, and communities can draw from them in times of need or crisis. A shortfall in these assets results in individuals living in poverty.

f) Poverty as a breach of human rights is often understood, not as a form of poverty per se, but as a strategy through which poverty alleviation can be based on international law. Many agencies apply this notion through a Rights-Based Approach (RBA). RBAs hold that a person for whom a number of human rights remain unfulfilled (such as the right to food, health, education, or information), is a poor person. As such, realising human rights is not distinct from alleviating poverty.

There is no consensus and there are many definitions, most of which partly overlap. However, there is broad agreement that an interpretation of poverty that looks at monetary income alone is too simplistic. Poverty encompasses not only material deprivation (measured by income or consumption), but also forms of deprivation such as unemployment, ill health, lack of education, vulnerability, powerlessness, and social exclusion.

An Islamic understanding of poverty

In Islam, poverty is defined by five groups of activities and things which make up the human needs:

(a) religion

(b) physical self

(c) intellect or knowledge

(d) offspring and family

(e) wealth.

The fulfillment of these needs is considered one of the basic goals of Islam. These needs define the foundations for good individual and social life, and are classified into three types:

(1) necessities (dharuriyyat)

(2) convenience (hajiat)

(3) refinements (kamaliat)

Necessities consist of all activities and things that are essential to meet the five needs at the barest minimum. At this level, one has enough to live, but not enough to be in any type of comfort. People who are unable to meet the necessities are poor. People who are unable to even come halfway are considered destitute.

The Islamic perspective correlates with the broad consensus of poverty being a multi-dimensional issue, as it is based on human needs that cannot be reflected in monetary terms alone. In particular, in as far as operational measurement is concerned; the last four types of basic activities and things that make up basic human needs in Islam are similar to the indicators in the Human Development Indices developed by the United Nations, which stress the importance of income, education, and health.

SHARIAH LAW IN ISLAMIC FINANCIAL INSTITUTIONS

Shariah law is open to interpretation and religious boards frequently hold different views on key Shariah issues. Furthermore, Islamic jurisdiction is not bound by precedent and legal opinions may deviate from previous decisions made by other Shariah scholars. Thus, a Shariah board has considerable discretion in the interpretation of Islamic law and may choose any school of thought to inform its decision-making process

However, there is yet to emerge a consistent ruling of Islamic law on the religious compliance of certain assets and transaction structures in terms of Shariah law. Shariah boards from different Islamic financial institutions may have different interpretations and advise differently because, in Islam, there is no generally accepted codification of the jurisprudence. In a conventional sense, that can lead to uncertainty and confusion.

The effects of non-standardized Sharia rulings

1) Uncertainty and confusion

The absence of a universally accepted central religious authority is largely a result of the lack of uniformity in religious principles applied in different Islamic countries across the world. Shariah boards at individual banks have their own way of defining what is and is not Islamic banking. This results in different transactions being interpreted differently, hence leading to a single identical financial transaction having various interpretations across different Shariah boards. This causes uncertainty about what is the acceptable way to do business in the Islamic banking and finance system. Further, the assessment of risk for both the financial institution and the customer can become complicated. The way Shariah advisory boards of Islamic financial institutions function thus remains a source of confusion.

2) Not replicable

The difference in interpretations of Shariah laws means that one Islamic bank may not be able to “copy” another Islamic bank’s products, and this can stifle the growth and integration of Islamic finance at both national and international levels.

In order to promote a global standard for Islamic finance instruments, there are a couple of key steps that must be taken.

1) Adoption of AAOIFI standards

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has taken the lead by preparing Shariah standards. These have been adopted by a number of government authorities and Central Banks, which will form an avenue for Shariah compliance and also product innovation.

2) Cooperation and collaboration

Collective effort with international collaboration between major Islamic financial regulatory bodies such as the Islamic Financial Services Board (IFSB), AAOIFI and Central Banks in Islamic countries is important in strengthening the fabric of Islamic finance.