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Islamic economics in the world
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This is a sub-article of Islamic economic jurisprudence and Muslim world.Islamic economics in practice, or economic policies supported by self-identified Islamic groups, has varied throughout its long history. Traditional Islamic concepts having to do with economics included
- zakat - the "taxing of certain goods, such as harvest, with an eye to allocating these taxes to expenditures that are also explicitly defined, such as aid to the needy."
- Gharar - "the interdiction of chance ... that is, of the presence of any element of uncertainty, in a contract (which excludes not only insurance but also the lending of money without participation in the risks)"
These concepts, like others in Islamic law and jurisprudence, came from the "prescriptions, anecdotes, examples, and words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method." [1] Sometimes other sources such as al-urf, (the custom), al-aql (reason) or al-ijma (consensus of the jurists) were employed.[2] In addition, Islamic law has developed areas of law that correspond to secular laws of contracts and torts.
Early Islamic economics
Early reforms under Islam
Some argue early Islamic theory and practice formed a "coherent" economic system with "a blueprint for a new order in society, in which all participants would be treated more fairly". Michael Bonner, for example, has written that an "economy of poverty" prevailed in Islam until the 13th and 14th centuries. Under this system God's guidance made sure the flow of money and goods was "purified" by being channeled from those who had much of it to those who had little by encouraging zakat (charity) and discouraging riba (usury/interest) on loans. Bonner maintains the prophet also helped poor traders by allowing only tents, not permanent buildings in the market of Medina, and not charging fees and rents there.[3]
Corporate social responsibility in commerce
Social responsibility and corporate social responsibility in commerce was stressed in Islamic sociology. The development of Islamic banks and Islamic economics was a side effect of this sociology: usury was rather severely restrained, no interest rate was allowed, and investors were not permitted to escape the consequences of any failed venture—all financing was equity financing (Musharaka). In not letting borrowers bear all the risk/cost of a failure, an extreme disparity of outcomes between "partners" is thus avoided. Ultimately this serves a social harmony purpose. Muslims also could not and cannot (in shariah) finance any dealings in forbidden goods or activities, such as wine, pork, gambling, etc. Thus ethical investing is the only acceptable investing, and moral purchasing is encouraged.[4]
Legal institutions
Hawala agency
The Hawala, an early informal value transfer system, has its origins in classical Islamic law, and is mentioned in texts of Islamic jurisprudence as early as the 8th century. Hawala itself later influenced the development of the agency in common law and in civil laws such as the aval in French law and the avallo in Italian law. The words aval and avallo were themselves derived from Hawala. The transfer of debt, which was "not permissible under Roman law but became widely practiced in medieval Europe, especially in commercial transactions", was due to the large extent of the "trade conducted by the Italian cities with the Muslim world in the Middle Ages." The agency was also "an institution unknown to Roman law" as no "individual could conclude a binding contract on behalf of another as his agent." In Roman law, the "contractor himself was considered the party to the contract and it took a second contract between the person who acted on behalf of a principal and the latter in order to transfer the rights and the obligations deriving from the contract to him." On the other hand, Islamic law and the later common law "had no difficulty in accepting agency as one of its institutions in the field of contracts and of obligations in general."[5]
Waqf trust
The waqf in Islamic law, which developed in the medieval Islamic world from the 7th to 9th centuries, bears a notable resemblance to the English trust law.[6] Every waqf was required to have a waqif (founder), mutawillis (trustee), qadi (judge) and beneficiaries.[7] Under both a waqf and a trust, "property is reserved, and its usufruct appropriated, for the benefit of specific individuals, or for a general charitable purpose; the corpus becomes inalienable; estates for life in favor of successive beneficiaries can be created" and "without regard to the law of inheritance or the rights of the heirs; and continuity is secured by the successive appointment of trustees or mutawillis."[8]
The only significant distinction between the Islamic waqf and English trust was "the express or implied reversion of the waqf to charitable purposes when its specific object has ceased to exist",[9] though this difference only applied to the waqf ahli (Islamic family trust) rather than the waqf khairi (devoted to a charitable purpose from its inception). Another difference was the English vesting of "legal estate" over the trust property in the trustee, though the "trustee was still bound to administer that property for the benefit of the beneficiaries." In this sense, the "role of the English trustee therefore does not differ significantly from that of the mutawalli."[10]
The trust law developed in England at the time of the Crusades, during the 12th and 13th centuries, was introduced by Crusaders who may have been influenced by the waqf institutions they came across in the Middle East.[11][12]
After the Islamic waqf law and madrassah foundations were firmly established by the 10th century, the number of Bimaristan hospitals multiplied throughout throughout Islamic lands. In the 11th century, every Islamic city had at least several hospitals. The waqf trust institutions funded the hospitals for various expenses, including the wages of doctors, ophthalmologists, surgeons, chemists, pharmacists, domestics and all other staff, the purchase of foods and remedies; hospital equipment such as beds, mattresses, bowls and perfumes; and repairs to buildings. The waqf trusts also funded medical schools, and their revenues covered various expenses such as their maintenance and the payment of teachers and students.[13]
Classical Muslim commerce
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During the Islamic Golden Age, guilds were formed though officially unrecognized by the medieval Islamic city. However, trades were recognized and supervised by officials of the city. Each trade developed its own identity, whose members would attend the same mosque, and serve together in the militia.
Technology and industry in Islamic civilization were highly developed. Distillation techniques supported a flourishing perfume industry, while chemical ceramic glazes were developed constantly to compete with ceramics imported from China. A scientific approach to metallurgy made it easier to adopt and improve steel technologies from India and China. Primary exports included manufactured luxuries, such as wood carving, metal and glass, textiles, and ceramics.
The systems of contract relied upon by merchants was very effective. Merchants would buy and sell on commission, with money loaned to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian and Jewish. Recently, a collection of documents was found in an Egyptian synagogue shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business partnerships would be made for many commercial ventures, and bonds of kinship enabled trade networks to form over huge distances. Networks developed during this time enabled a world in which money could be promised by a bank in Baghdad and cashed in Spain, creating the cheque system of today. Each time items passed through one of the cities along this extraordinary network, the city imposed a tax, resulting in high prices once the items reached their final destinations. These innovations made by Muslims and Jews laid the foundations for the modern economic system.
Transport was simple, yet highly effective. Each city had an area outside its gates where pack animals were assembled; found in the cities' markets were large secure warehouses; while accommodations were provided for merchants in cities and along trade routes by a sort of medieval motel.
The concepts of welfare and pension were introduced in early Islamic law as forms of Zakat (charity), one of the Five Pillars of Islam, since the time of the Abbasid caliph Al-Mansur in the 8th century. The taxes (including Zakat and Jizya) collected in the treasury of an Islamic government was used to provide income for the needy, including the poor, elderly, orphans, widows, and the disabled. According to the Islamic jurist Al-Ghazali (Algazel, 1058–1111), the government was also expected to store up food supplies in every region in case a disaster or famine occurs. The Caliphate was thus one of the earliest welfare states, particularly the Abbasid Caliphate.[14]