1

Islam, its Worldview and Islamic Economics

• Islam

definition of Islam : iman, amal, ihsan;

• The Islamic Worldview

god, man, nature/universe, religion; the nature and characteristics of man; man's role as `abd and khalifah; nature/universe in Islam; the concept of din and its significations to economic activity;

• Islamic Economics

definition of economics; scarcity and choice and the economic problems; definition and scope of Islamic economics;

Nasr (1993),

Chapra (1992),

Khan (1989)

2

Methodology of Islamic Economics

• Methodology

Importance of knowledge; epistemology - definition and scope; sources and channels of knowledge in Islam; definition; Shari'ah, - definition, scope, sources and issues;

• Methodology of Islamic Economics

Fiqh, usul al-fiqh and Islamic economics; stages in Islamic economic methodology - issues; comparison with western economic methodology.

Kamali (1989),

Khan (1994),

Arnold (2001),

Notes on  `Knowledge'

3

The Islamic Economic System

• Economic System - Definition; Components; Classifications/ Characteristics; Islamic Economic System - General Introduction, Philosophical Foundations; Operational Principles and Goals;

• Property Ownership - Definitions and Types; General Principles and Types of Ownership in Islam and Implications for the Economic System;

• Motivation/Incentives - Definition, Types and Importance; Relationship between Islamic Worldview and Motivation; Implications for `rational' Behaviour;

• Organization of Decision Making - Definition and Types; The Concept of Shura and Implications in Economic Decision Making;

• Coordination Mechanism - Definition and Types; The Importance of Markets and the Importance of Planning;

Gregory/Stuart (1992), Kahf (1989), Ali (1986)

4

Allocation of Resources in an Islamic Economic System

• Importance of Resource Allocation; The Role and Limitations of Markets; Markets Under Islam; Supply and Demand; The Role of the State; The Institution of Al-Hisbah: Functions in an Islamic Economic System.

• Normative and Technical Aspects of Resource Allocation and their Application in Consumption and Production from an Islamic perspective.

Baumol & Blinder (1997),

Khan (1982),

Kahf, Siddiqi,

Siddiqi, All from Sayyid Tahir (1989, eds.)

5

Distribution

• Goals and principles of distribution in Islam; Types/categories of distribution in economics; Equity, Equality and Justice; Provision of Basic Needs and the Reduction of Poverty;

• Pre-Production/Initial Distribution; Concepts of khilafah and amanah and the Ownership of natural resources-arguments for public and private ownership;

• Post-production distribution; Returns to Factors of production; Arguments on minimum wage rate and minimum standard/quality of living.

• Redistribution; Rationale; positive, voluntary and preventive measures;

Iqbal, Siddiqi,

Zarqa, All from Munawar Iqbal (1986, ed.)

6

Issues in Islamic Financing: Riba, Contracts and Islamic Banking

The financial system provides mechanism to transfer funds from individuals and groups who saved money to individuals and groups who want to use the money.  In Islam, the system prohibits riba or interest as the incentive to save and invest.  Topic 6 will discuss the financial market where investors directly or indirectly obtain capital from savers through financial intermediaries such as banks that help channel funds from savers to investors.  At the end of the topic, students are expected to understand the following issues: interest and riba, Islamic contracts in banking such as mudarabah, musharakah, murabahah, bai-bithaman-ajil, ijarah, etc.

Ahmad (1989),

Rosly (1994),

Man, Chapra (1992)

Required

Ali, S. A. (1986). Islamic economic system. Readings on Islamic Economics. Islamabad.

Arnold, R. A. (2001). Economics. 5^th Edition. (Chapter 1, pp. 11-18). USA: South-Western College Publishing.

Baumol, W. J. & Blinder, A. S. (1997). Economics: Principles and Policies. 7^th Edition. (Chapter 13). Dryden Press.

Chapra, M. U. (1992). Islam and the economic challenge. (Chapter 5). Leicester: Islamic Foundation.

Chapra, M. U. (1992). Riba in the Qur'an, Hadith and Fiqh. In S. Ghazali et. al. (Eds), Introduction to Islamic Finance. Appendix 1 (pp. 379-391).

FIE Course packets in Main Library. (Controlled Access Section)

Gregory, P. R., & Stuart, R. C. (1995). Comparative economic systems. 5^th Edition. Boston: Houghton Mifflin Company.

Kahf, M. (1978). Theory of production. In The Islamic Economy - An Analytical Study of the Functioning of the Islamic Economic System (pp. 29-38). Plainfield, Indiana: The Muslim Student's Association of the United States and Canada.

Khan, M. A. (1989). An introduction to Islamic economics. (Chapter 2, pp. 34-44). Islamabad: IIIT and Institute for Policy Studies.

Kahf, M. (1989). Islamic economics system - A review. In A. Ghazali & S. O. Agil (Eds.). Readings in Islamic Economics. Kuala Lumpur: Longman.

Kamali, M. H. (1989). Source, nature and objectives of the Shari'ah. Islamic Quarterly.  4th Quarter.

Khan, M. A. (1982). Al-Hisba in Ibn Taymiyyah's Public Duties in Islam. Translated by Muhtar Holland. Leicester: Islamic Foundation.

Khan, M. A. (1994). An introduction to Islamic economics. (Chapter 3). Islamabad: IIIT & Institute of Policy Studies.

Nasr, S. H. (1993). A young Muslim's guide to the modern world. (Chapter 1). Cambridge: Islamic Texts Society.

Notes on ‘Knowledge' (pp. 10, source not specified).

Siddiqi, M. N.  (1992) Islamic Producer Behaviour. In A. M. Sadeq & A. Ghazali (Eds.), Readings in Islamic Economics. Kuala Lumpur: Longman.

Siddiqi, M. N. (1992). Islamic Consumer Behaviour. In A. M. Sadeq & A. Ghazali (Eds.), Readings in Islamic Economics. Kuala Lumpur: Longman.

1

Philosophy of Islamic Banking and Finance

• Why banks exist?
• Financial Intermediation and Markets
• Understanding Maqasid al-Shariah and its implication to Islamic Banking and Finance
• The prohibition of riba and gharar, and its rationale
• Concept of ‘iwad in relation to Islamic Banking and Finance.

2

History, Development and Regulatory Framework

• History of Islamic banking and finance
• Development of Islamic banking and finance in Malaysia
• Development of Islamic banking and finance in other countries
• Regulation and Supervision
• Shari'ah advisory council
• Full-fledged vs. windows

3

Concept of Money

• Definitions and Functions of Money
• How money derive its value
• Time value of Money
• Role of the Central Bank

4

Sources of Funds

• Al-wadiah savings account
• Al-mudarabah investment account

5

Uses of Funds

(i) Home financing

• Bay' bithaman ajil (BBA)
• Issues and critics in the use of BBA
• Musyarakah mutanakisah and other alternatives
• Ijarah

(ii) Vehicle financing - al-ijarah thumma al-bay'  (AITAB)

• Other ijarah-based financing

(iii) Consumer credit

• OD/personal financing- Bay' al-‘inah, ar-rahn
• Islamic credit card

(iv) Trade financing

• Al-murabahah
• Bay' al-dayn - Islamic factoring, Islamic accepted bills

 (v) Agricultural financing - bay' salam

(vi) Manufacturing financing - istisna'

(vii) Equity-based financing

• Mudarabah
• Musyarakah
• Muzara'ah

6

Takaful

• Basic Concept and philosophy

• Taawun
• Tabarru' versus Muawadat

• Differences between Takaful and Conventional Insurance
• Basic Models and operation

• Pure Mudarabah model
• Pure Wakalah model
• Hybrid model
• Waqf model

• Types of Takaful - General and family takaful

Required

Iqbal, Z. and Mirakhor, A. (2007) An Introduction to Islamic Finance: Theory and Practice. Wiley Finance, Singapore.

Mohammad Obaidullah, Islamic Financial Services, Islamic Economics Research Center, King Abdulaziz University, Jeddah, Saudi Arabia, 2006 (http://islamiccenter.kau.edu.sa/english/publications/Obaidullah/ifs/ifs.html)

Muhammad Taqi Usmani, An Introduction to Islamic Finance, Kluwer Law International, 2002.

Recommended

Bank Islam Malaysia Berhad, Islamic Banking Practice, 1^st Edition, 1994.

Fuad al-Omar & Mohammad Abdel-Haq, Islamic Banking - Theory, Practice and Challenges, Oxford University Press Karachi, 1988.

Muhammad Imran Ashraf Usmani, Meezanbank's Guide to Islamic Banking, Darul Ihaat Urdu Bazar Karachi, 2002.

Muhammad Nejatullah Siddiqi, Banking Without Interest, Islamic Foundation, 1983.

Muhammad Nejatullah Siddiqi, Issues in Islamic Banking, Islamic Foundation, 1983.

Saad Al-Harran, Leading Issues in Islamic Banking and Finance, Pelanduk Publications, 1995.

Saiful Azhar Rosly, Critical Issues on Islamic Banking and Financial  Markets, Dinamas Publishing, 2005.