Monetary policy in an interest-free islamic economy
This paper represents an attempt to highlight the role that monet- ary policy should be designed to play in an Islamic economy and to show it can be made to play its role effectively if interest is abolished and two important instruments of monetary policy in the capitalist economy, discount rate and open market operations in interest-bearing government securities, are not available. The paper also discusses the mechanism for equating the supply of money with its demand in the absence of interest as a regulating mechanism and a feasible alternative to interest-bearing government securities for financing government budgetary deficits in a non-inflationary framework. It is argued that, monetary policy has to be as important an instrument of public policy in an Islamic economy as it is in its capitalist counterpart. The objectives and tools must, however, be different because of the differences in the goals and the nature of the two systems and because of the prohibition of interest in Islam while it is a key ingredient in the capitalist system.
Money and banking in an islamic economy
The key thrust of this paper is that the money and banking system as practised in the capitalist’s world is not value free. Thus section two provides the philosophical underpinning arguing that the capitalist money and banking system has its own ideological setting and cannot serve the cause of Islamic socio-economic goals if Riba is abolished, unless some fundamental changes are introduced to set it in the ideological mould of Islam. In the light of these radical changes section three provides the institutional setting which, though it may appear to be similar to the existing framework, is radically different in its scope and responsibilities. Section four discusses the management of monetary policy in the new setting, while section five tests theoretically the proposed programme against the goals discussed in section two. Finally, section six gives some tentative suggestions for the gradual transition of the money and banking framework in Muslim countries from its present setting to the suggested scheme for realizing the objectives of Islam. The author takes cognizance of the fact that money is a public good - not a ‘pure’ public good - and hence its creation and channeling into appropriate directions necessary for the realisation of the socio-economic goals of Islam cannot be left to the whims of the ‘invisible’ hand. It must be consciously regulated. The implementation of Islamic values and institutions including profit-sharing and equity participation, along with a goal-oriented role to be played by the state, will provide the mechanism for such channeling. The paper provides some specific suggestions for the realisation of social justice and elimination of concentration of wealth. Some of the main features of the model include reduction in the power of financial institutions, increase in the equity/loan ratio, spreading of the ownership of business in society and reform of the stock market. The author advocates that capital deepening and profit-sharing could give the developing countries a big push in real terms in their early stages of development.
The islamic welfare state and its role in the economy
This paper seeks’ to examine the interrelationship between the economic and political context of the Islamic way of life and discusses the functions and nature of the Islamic state in the light of its basic imperatives within the framework of financial constraints. It is argued that the Islamic way of life, being goal-oriented, is conceivahie without an organised community governed in accordance with the tenets of Islam. Then the paper examines some of the essential economic functions which the Islamic welfare state is expected to perform. They are as follows: 1. to eradicate poverty and create conditions for full employment; 2. to promote stability in the real value of money; 3. to ensure social and economic justice through equitable distribution of income; 4. to maintain law and order; and 5. harmonise international relations and ensure national defence. However, the paper concludes by saying that although capitalism also recognises freedom of the individual, there are no spiritual constraints on this freedom. The constraints that do exist are determined primarily by the pressures of competition or the coercive power of the state, and secondarily by changing social norms without any spiritual sanctity. In an Islamic system, however, the individual is subject to involvable spiritual values in all aspects of life, including the acquisition, spending and distribution of wealth. Islam normally recognises, like capitalism, the freedom of enterprise with the institution of private property, the market system and the profit motive, but it differs from capitalism because property in Islam is a trust from God and man as trustee and vicegerent of God is responsible to Him and subject to His guiding principles. Although both socialism and capitalism recognises equitable dis- tribution of income, in capitalism this recognition is again an outcome of group pressure while in socialism it is accompanied by negation of individual freedom. Islam achieves this equitable distribution within the framework of individual freedom but with spiritual and legal imperatives to safeguard public interest, moral constraints against 7 unearned income, and social obligations to ensure a just distribution of income and wealth. The Islamic welfare state is hence neither capitalistic nor socialis- tic. It is based on its own values and guided by its own goals. It has its own identity and bears no resemblance to any other form of state.
The Islamic Welfare State and Its Role in the Economy
Basic Principles of Islamic Economic System
The Islamic Welfare State and Its Role in the Economy
Basic Principles of Islamic Economic System