Saturday, December 22, 2012
INDONESIA: 2013 is the blooming year of Islamic insurance
Thursday, November 1, 2012
(this's real my post) 8 [EIGHT] Sectors OF CHANGE to the Advance or a Decline
do you know his monumental opus?
YEAH ... He is the moslem scientist in 14th century, the writer of Muqaddimah
Let us first knowing who was Khaldun,
Born at Tunisia as Al-Allamah Abd al-Rahman Ibn Mohammad Ibn Khaldun(1332-1395)

picture is taken from: geosetem.blogsome.com
Ibn Khaldun is the most important figure in the field of History and Sociology in Muslim History. He is one of those shining stars that contributed so richly to the understanding of Civilization. In order for one to understand and appreciate his work, one must understand his life.
He lived a life in search of stability and influence. He came from a family of scholars and politicians and he intended to live up to both expectations. He would succeed in the field of Scholarship much more so than in any other field.
Here, or you are more familiar with Machiavelli??
more you can see {here}
And about Muqaddimah, or 'Prolegomena' which identifies the psychological, economic, environmental and social facts that contribute to the advancement of human civilization and the currents of history (in contrast to political context of history). Analyzed the dynamics of group relationships and showed how group feelings, al-'Asabiyya, give rise to the ascent of a new civilization.
Inspired from al-Ghazali, as-Syatibi, Muqaddimah (by Khaldun) and the other sources,
Umer Chapra explained that there are five factors (mentioned as pillar) of society
1. Religion (sharia/ S)
2. Education
3. Law (justice/ j)
4. Economy (growth ( g) and wealth (W))
5. Politics
6. Governance (Government/ G)
7. Social interest (Nation/ N)
8. Culture
All of them influence with one another. At the mean, that when one sector is driven with an huge power toward an advance (to the right way), it moves other sectors also to the right one. Vice versa.
see Chapra, The Future of Economics: An Islamic Perspective
reference in addition to linked above:
http://records.viu.ca/~mcneil/lec/khaldun.ppt
Friday, July 13, 2012
Islamic gold dinar
Contents |
Dinar history
Umar Ibn al-Khattab established the known standard relationship between them based on their weights: "7 dinars must be equivalent (in weight) to 10 dirhams."[citation needed]
| “ | The Revelation undertook to mention them and attached many judgements to them, for example zakat, marriage, and hudud,
etc., therefore within the Revelation they have to have a reality and
specific measure for assessment of zakat, etc. upon which its
judgements may be based rather than on the non-shari'i other coins. Know that there is consensus since the beginning of Islam and the age of the Companions and the Followers that the dirham of the shari'ah is that of which ten weigh seven mithqals weight of the dinar of gold... The weight of a mithqal of gold is seventy-two grains of barley, so that the dirham which is seven-tenths of it is fifty and two-fifths grains. All these measurements are firmly established by consensus. |
” |
Value and denomination
As per the historical law slated above, one dinar is 4.44 grams of pure gold, while one dirham is 3.11 grams of pure silver. A smaller denomination, daniq, has 1/6th of dirham's weight. The value of each coin is according to their weight and the market value of the two metals. The coins may be minted at fraction or multiples of their weights and valued accordingly.Adoption
Indonesia
The currency was introduced in Indonesia in the year 2000 by Islamic Mint Nusantara and Logam Mulia. IMN also introduced Dinarfirst, an online dinar exchange system.Malaysia
Kelantan was the first state in the country to introduce the dinar in 2006, which was locally minted. In 2010, it issued new coins, including the dirham, minted in United Arab Emirates by World Islamic Mint.[3] On 25 August 2011 Kelantanese government collected and distributed zakat from people in Kelantanese dinars and dirhams in a public ceremony officiated by Chief Minister Dato Nik Aziz Nik Mat.[4]
The state of Perak followed suit, minting its own dinar and dirham, which was launched in 2011.[5]
Libya
Along with the uprising in Libya, RT News on August/September 2011 brought several stories about Muammar Gaddafi's introduction of golden dinar[6] within his "gold-for-oil plan" [7] to possibly trade Libya oil on international markets.[8]Use
Most of the coins are issued privately and do not own legal tender status. In case of Malaysia, the state government of Kelantan allows their use in transactions while it is illegal according to the federal law.Common uses of the gold dinar include:
- Buying merchandise from outlets.
- Holding accounts, and making and receiving payments as with any other medium of exchange.
- Saving, of which they do not suffer from devaluation due to inflation.
- Paying zakat and dower as established within Islamic Law.
See also
Notes
Citations
- ^ Ibn Khaldun, The Muqaddimah, ch. 3 pt. 34
- ^ The Economist, March 16th 2005, Buttonwood, Starkers
- ^ The Malaysian Insider, Kelantan launches gold dinar, August 12th 2010.[1]
- ^ Malaysia: Kelantan collects Zakat in Shariah money
- ^ New Strait Times, Silver state launches dinar, dirham coins, March 1st 2011.[2]
- ^ The Economist, October 8th 2011, Libya’s revolution, reader comments
- ^ Gaddafi gold-for-oil, dollar-doom plans behind Libya 'mission'?
- ^ Motivation For Allies May Be Black Gold And Not Humanitarian Mission
References
- Ahamed Kameel Mydin Meera, The Islamic gold dinar, Pelanduk Publications, 2002, ISBN 978-967-978-825-9
- Umar Vadillo, Return of the Gold Dinar: Study of Money in Islamic Law, Bookwork, 1996, ISBN 978-1-874216-16-2
Friday, November 25, 2011
IDX: Sharia Market of Indonesia is Big
About Sharia
Indonesia as the biggest Muslim country in the world is holds an enormous market for the development of sharia finance industry. Sharia capital market, which is part of the Sharia finance industry, has an important role in increasing the market share of Sharia finance industry in Indonesia. Although its development is still new compared to the Sharia banking, Indonesia's sharia capital market is expected experience rapid growth along with significant growth in Indonesian capital Market Industry.
As far known, sharia capital market in Indonesia is associated to the Jakarta Islamic Index (JII), which only composed of 30 sharia securities listed in Indonesia Stock Exchange (IDX), whereas Sharia Securities existed in the Indonesian Sharia capital market are not only consists of 30 shares that become the constituents of JII but also consists of various types of securities. This was become more apparent after Bapepam-LK issued Sharia Securities List (DES) in November 2007. Since then, Bapepam-LK made DES as the only reference for Sharia Securities in Indonesian capital market.
According to the Regulations of Bapepam-LK Rule No IX.A.13 concerning Issuance of Sharia Securities, item 1.a.3, Sharia Securities is Securities as defined in Capital Market Law and its implementing regulations in which its contract and issuance method fulfills the Sharia Principles in Capital Market.(Includes description about the List of Syariah Securities). Read more.
Fatwa and Legal Foundation
Different from other securities, Sharia Securities need not only beside legal foundation, both in the form of regulations or laws, but also fatwa that can be used as reference to the enactment of Sharia Securities. Fatwa are needed as a basis to establish sharia principles that could be applied in the capital market. Read more.
Sharia Capital Markets Products in Indonesia Stock Exchange
- Sharia Stock
The selection criteria of sharia stocks are based on Bapepam-LK Regulations No II.K.1 concerning Criteria and Issuance of Sharia Securities List, item 1.b.7. The regulation states that Securities in the form of shares, including sharia rights and sharia warrant, issued by Issuer or Public Company who does not declare that its business activities and management are conducted based on Sharia Principles, as long as the Issuer or Public Company fulfills. Read more.
- Sukuk / Sharia Bonds
According to Bapepam-LK Rule No IX.A.13 concerning Issuance of Sharia Securities, Sukuk is Sharia Securities in a form of certificate or proof of ownership which have the same value and represent participation unit which is not separated from or consists of. Read more.
- Jakarta Islamic Index
JII was initially launched by IDX (which was known as JSX at that time) in collaboration with PT Danareksa Investment Management on July 3, 2000. However, in order to generate longer historical data, the base date for the calculation of JII is using January 2, 1995 with index base number of 100. The methodology for JII’s calculation is the same that used in Jakarta Composite Index (JCI) that is based on the Market Value Weigthed Average Index using Laspeyres formula. Read more.
- Indonesia Sharia Stock Index
Indonesia Sharia Stock Index is an Index that has been launched by Indonesia Stock Exchange (IDX) on May 12, 2012. Constituent ISSI are all of sharia stock and listed on the Indonesia Stock Exchange, where at this time, they are 219 stock which is constituent of ISSI. Indonesia Stock Exchange has two stock based of Sharia Stock, they are ISSI and JII.
Milestones Sharia Capital Market Development in Indonesia
The Milestones of the development of sharia capital market in Indonesia was started on July 3rd, 2000 by the issuance of JII. Eventhough PT Danareksa Investment Management had priory launched a Danareksa Sharia on July 3, 1997, but due to the Self Regulatory Organizations (SRO) has not issued an official instrument related to Sharia Securities, the developments of Sharia capital market is not yet reckoned until the issuance of JII. Read more.
The real read more
Wednesday, August 17, 2011
Sharia Banking Conquers Europe
All over Europe Islamic banks are establishing branches, Western banks are offering Sharia-compliant financial services, and European governments are trying to outcompete each other in welcoming them. Proponents of banking along the lines of Sharia (Islamic law) claim that the Islamic banking system is “more ethical” than the West’s capitalist system. This is not true. Unfortunately, however, in our age of crashing financial markets, many Westerners – not just the traditional anti-capitalist European left – seem very eager to buy that argument.
Early this month, even the Vatican newspaper Osservatore Romanovoiced its approval of Sharia banking. “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the paper said in a downright stupid and “unethical” article published on March, 4.
The article, entitled “Islamic finance proposals and ideas for the West in crisis” [pdf] suggests that the basic rules of Islamic finance could relieve suffering markets and particularly international financial systems. It says that in the current atmosphere of crisis banks should take Muslims as an example and that the Islamic finance system may pave the way for the establishment of new rules in the Western world.
Islamic or Sharia banks differ from regular banks in two major ways. As commanded in the Koran, the charging of interest is prohibited in all monetary transactions. The other defining feature of Islamic banks is that they are supervised by a board of Islamic scholars and clerics whose job it is to ensure that the banks’ activities comply with Sharia law.
Its proponents argue that Islamic banking is “ethically superior” to the capitalist principles of the “materialistic” West because, as Giovanni Maria Vian, the editor of Osservatore Romano says, Sharia banks take “the human dimension of the economy” into account.
The two dirty secrets of Islamic banking, however, are that, like all banks, Sharia banks do charge interest – they just give it another name – and that the clerics supervising the banks have ties to extremist, even terrorist, groups which work towards the Islamization of Europe and world dominance.
Helena Christofi, an expert on Sharia banking, explains that Islamic banks extend a type of Islamic “credit,” called murabaha, that shifts risk to the borrower in a manner similar to interest.
“An Islamic bank granting murabaha credit to a customer for an automobile, for example, would purchase the automobile for the customer for $15,000 and the customer would owe the bank $20,000 in a year’s time. Similarly, under the ‘diminishingmusharaka’ credit, the Islamic version of a mortgage, the bank and the customer purchase the property together. The customer must make monthly payments to the bank and pay a monthly rental fee, both based on the portion of the purchase price the bank still owns. Ironically, the interest this amounts to ranges between one and two percent higher than the interest on a conventional mortgage. Although the resale price of the vehicle and the rent paid on the house are akin to simple interest charges, the banks’ sharia boards legitimate the charges by renaming them ‘commissions’ or ‘profits.’”
The Sharia boards supervising the Islamic banks and Sharia-compliant financial services offered by regular European banks are composed of members of the European Council for Fatwa and Research. This Council is headed by Sheik Yousef Al-Qaradawi, a leader of the Muslim Brotherhood and instigator and financier of terrorism in Europe and the Middle East. Both Al-Qaradawi and the Council have expressed their hope that “Islam will return to Europe as a conqueror.”
With ever larger Muslim populations there is a growing internal demand for an “ethical alternative” to conventional banking for Muslims. A 2006 poll by Lloyds Trustee Savings Bank in Britain found that over 75% of British Muslims want Sharia-compliant banking products, while in 2005Mufti Abdul Barkatullah, Sharia adviser to Lloyds TSB and an imam at a North London mosque reported that 20% of inquiries into Islamic products at Lloyds TSB came from non-Muslims who have bought the argument that conventional capitalist banking is somehow unethical.
Alun Williams, marketing director of the Islamic Bank of Britain, established in 2004 and one of the first Sharia banks in Europe, told The Guardian (April 2, 2005):
“Our biggest appeal outside the Muslim community will be to those who feel disenfranchised by, and bitter about, mainstream banks. […] Non-Muslims are fascinated by us, the more so because we intend offering […] an ethical dimension.”
That was four years ago. Meanwhile, Islamic banking has boomed all over Europe and interest from non-Muslims has grown in the wake of the financial crisis, which some, such as the Vatican paper, claim is due to the free-market model having “grown too much and badly in the past two decades.”
Sharia principles, however, not only prohibit the collection and payment of interest and investing in companies involved in gambling, alcohol, tobacco, pornography and the production of pork, but also forbid women from opening bank accounts without their husband’s approval. How “ethical” the latter is for the non-Muslims “fascinated” by Sharia banking is unclear. However, Western banks offering Sharia-compliant services to non-Muslims do not seem to insist on barring women. According to Christofi,
“The justification for replacing capitalism with the Islamic model is based on an intentional corruption of Sharia law, but the banks’ clerics don’t seem to mind undermining their theological philosophy, since the ethical image their misrepresentation has created for Islamic banking has managed to spread Islamic ideology to non-Muslims in Britain. According to Al-Qaradawi, Islam’s ideological infiltration into the West will be the vehicle through which it will establish an Islamic government over the entire globe.”
Although Al-Qaradawi and other members of the European Council for Fatwa and Research are connected to Islamist circles, the British government continues to promote the UK as a hub for Islamic banking. Western governments welcome Sharia-compliant banking because of the huge sums this attracts from Muslim immigrants, “ethically”-driven non-Muslims, and investors from Muslim countries.
In December 2008, the French Senate looked at ways to eliminate legal hurdles for Islamic financial services and products in France. French Finance Minister Christine Lagarde announced France’s intention to make Paris “the capital of Islamic finance” and said several Islamic banks would open branches in the French capital in 2009. French sources estimate this area of the financial market is worth from 500 to 600 billion dollars and could grow by an average 11 percent a year.
In July 2007, Wouter Bos, the Dutch Finance Minister (and leader of the Dutch Labour Party), said the Dutch government actively encourages Islamic banking, despite the risk that this acts as a Trojan horse in the Western banking system for groups linked to terrorists.
“In the first place because Islamic banking meets a demand from the Muslims living in the Netherlands. In the second place because we see an opportunity here for the Dutch financial sector. A third reason is that banning Islamic banking from the perspective of fighting terrorism will have a counter-productive effect. Denial of an actual need can lead to money-flows running via alternative channels out of the sight of the government.”
Switzerland, too, wants its share of Sharia banking. Years ago, Swiss banks already opened branches in the Middle East, offering worldwide Sharia-compliant financial products to wealthy Arabs.
In October 2006, the Swiss authorities granted a banking license to the first Switzerland-based bank that operates according to Sharia principles. Others have followed. “There are simply not enough financial products being created in the West for Muslim clients,” says John Sandwick, managing director of Swiss asset management firm Encore Management. “If no effort is made whatsoever, I am afraid the world will pass Switzerland by in the race to control the rich prize: which today is worth hundreds of billions, but in the future will be trillions of dollars of Islamic wealth.” Michael Fouad Chahine of Credit Suisse says “The development of Islamic banking has so far been limited to countries with a higher percentage of Muslims. But this is changing as more international regulators accept the importance of Sharia. It is now also accepted as socially responsible banking.”
How “socially responsible” and “ethical” is it to try to grab a share of the billions of dollars amassed by rich Arabs, while turning a blind eye to the fact that a substantial part of the money is used to promote terrorism and the establishment of an Islamic government over the entire globe?
In one of his sermons, Sheikh Al-Qaradhawi, one of the supervisors of the Sharia-compliant financial services offered in Britain, speaks of “the conquest of Rome.” In view of the recent article of the Osservatore Romano, Al-Qaradhawi’s words sound rather ominous:
“The city of Hirqil [Constantinople] was conquered by the young 23-year-old Ottoman Muhammad bin Morad, known in history as Muhammad the Conqueror, in 1453. The other city, Romiyya [Rome], remains, and we hope and believe [that it too will be conquered]. This means that Islam will return to Europe as a conqueror and victor, after being expelled from it twice […]. In one of my previous programs, I said that I think that this conquest [of Rome] would not be by the sword or armies, but by preaching and ideology. Europe will see that it suffers from materialistic culture, and will seek an alternative, it will seek a way out, it will seek a lifeboat. It will find no lifesaver but the message of Islam.”
Will the Vatican Bank be the next to go Sharia?
www.brusselsjournal.com
Saturday, April 30, 2011
Role of Fiscal Policy in Controlling Inflation in Islamic Framework
Introduction
A focus on inflation presumes inflation is high. The situation in the developed countries has, however, changed recently, provoking some to proclaim the death of inflation. The situation in the developing countries remains worrisome but, excepting a few countries, no longer alarming. So what is the need for discussing the role of fiscal policy in controlling inflation, in Islamic framework? Two reasons to do so. Firstly, to reassure ourselves, and those who care that this problem too can be handled in Islamic way if and when the need arises. Secondly, insofar as the Islamic developing countries are concerned inflation remains high enough to press for a solution.
In what follows we define inflation. Then we describe fiscal policy and explain what is meant by Islamic framework. We note some characteristics of fiscal policy which make it less effective in controlling inflation once it is there even though it can be an effective tool for preventing inflation from occurring. Briefly mentioning other faster acting ways of controlling inflation we also have a glance at Islamic history, how price rises were handled. In conclusion we prefer a fiscal policy oriented towards supply augmentation over the one focused on demand management.
Inflation
Inflation refers to 'a sustained upward trend in the level of prices', its most common measure being the percentage rate of change in a country's Consumer Prices Index. This is, however, regarded by some as a monetary definition, a better way to understand inflation being to focus on aggregate demand overstepping aggregate supply at full capacity. Yet what is visible to the eye remains the same: prices rise and continue rising.
A small rise in prices may go unnoticed in many countries even though it is sufficient to jolt an advanced economy which has been fairly stable in the past. But an annual rise in prices of 10 percent or more is considered serious any where and every where. But what causes real concern in developing countries is double digit inflation with no signs of slowing down.
Why the concern? Because it hurts. For most people incomes do not rise paripassu with the rise in prices. They can consume less, save less. They find planning for the future more difficult because of the greater uncertainty about future prices. The more the uncertainty about the future prices the more deleterious the effect on savings and investment. Inflation distorts the distribution of income and wealth to the disadvantage of the poor. It also stunts real growth due to its negative effects on saving and investment. Economists have established a negative relationship between inflation (even at a moderate rate) and growth of productivity.
Fiscal Policy
Fiscal policy involves government expenditure and revenue, through taxes, borrowing and printing money. Anti inflationary fiscal policy would focus on with- drawing purchasing power from the public so that they spend less, relieving the upward pressure on prices. This can be done by raising taxes and borrowing from the public without spending the proceeds. As the origin of inflation in most developing countries has been increasing government claim on productive resources (required for public sector projects), a decrease in government expenditure leaving taxes undiminished may still be more effective. Fiscal policy is regarded as 'deliberate manipulation of the relation between government expenditure and government receipts with a view to maneuvering the level of aggregate demand in the desired direction.
Manipulation of aggregate demand is not the only way fiscal policy can target inflation. Spending money in a way that increases the supply of goods and services can also help governments check the rising trend in prices.
It has been rightly observed that inflation as we know it (i.e. a sustained rise in prices) is a modern phenomenon. The price level was stable for nearly a century till 1914. But a number of factors, among which debt financing of the two world wars was only one, caused most countries to experience rising prices since the middle of the century till the eighties. The same period also saw a phenomenal rise in public spending which globally reached 43% of the GDP by 1980. As a result inflation is commonly perceived as a consequence of rising public expenditure. This, however, may not always be true. One has to examine specific cases to arrive at a conclusion.
The Islamic Framework
The Islamic framework within which this study examines the role of fiscal policy in controlling inflation is defined, in the first instance, by the goals of an Islamic economy. It is need fulfillment, justice and equity. Also included in these goals is to provide the state with the means required for defense, law and order and fulfillment of other socially obligatory duties (furud kifaya) which the private sector fails to fulfill. In the context of money, finance and government policies the Islamic framework can be further specified by prohibition of interest and gambling, minimization of hazard and uncertainty and keeping government intervention in the market limited to what is necessary for the realization of the above mentioned goals. Furthermore can be mentioned the concept of moderation in consumption and treating public money as a trust which have an impact on our subject matter. That there is a role for fiscal policy in realizing the goals of an Islamic state is quite obvious. But that is not our subject in this study. What needs emphasis is that anti inflationary fiscal policy should not jeopardize the long term arrangements for realizing the goals of Shari'ah. But before we proceed to examine the scope for such policies we have to note another dimension of the matter which shall not be discussed by us: the hypothat the full implementation of Islamic teachings, i.e. the operationalisation of the 'Islamic framework' noted above, will prevent inflation or at the least, minimize its incidence. This is due to the presence of several 'built in stabilizers' in the system.
The hypothesis is supported mainly, by four arguments.
It is not necessary to examine this hypothesis in a discussion on the role of fiscal policy in controlling inflation. Since the possibility of inflation in an Islamic economy is not denied3 and since it is very likely that an Islamizing regime inherits inflation from the earlier regime, it would be quite logical for us to narrow down our focus on control as distinct from prevention. This is still the more credible a methodology in view of a third and more compelling reason. Inflation may impose itself on an economy from outside, caused by global moves beyond its control, especially if it is a small economy. What follows is, therefore, not affected by one's acceptance or rejection of some or all of these arguments. Those who take the hypothesis skeptically due to lack to empirical evidence will, of course, find the subsequent arguments more compelling. But those who whole-heartedly support the hypothesis will also find good reason to attach due weight to them.
Prevention and Control
There are two significant differences between fiscal policies designed to control already existing inflation and those designed to prevent inflation from afflicting an economy which at the time is free of inflation. The first difference relates to time horizon and the speed at which a policy measure is carried out. The second relates to the size of the change required in the relevant variables e.g. government expenditure, taxes, etc. Policies designed to control inflation have to have an impact now. They must be fast acting showing their results in a matter of months. This in turn may require big reduction in government expenditure, large increases in taxes, huge amounts of domestic borrowing etc. Given these measures successfully implemented over a short period of time aggregate demand will decrease and the trend of prices to rise will be checked. The big question is how far it is possible and desirable to do so.
Let us have a look at the way government decides how much to spend. Part of government expenditure relates to the core of governance, no government can function without these. They can be reduced if they are inflated but there is a limit to such reduction. Expenditure on salaries and offices of the executive, legislative and judicial branches of government come under this category. Then come the expenditure on defense and law and order, both permanently mandated by Shari'ah. The volume of expenditure on these heads may be dictated by circumstances beyond the government control e.g. geopolitical situation, moral degeneration, etc.
Reduction in Public Expenditure
It is only when we come to the other public goods and the welfare activities of the government that reduction in government expenditure becomes a real possibility. But the actual scope of such reduction depends on the historical path followed by (the increase in) government expenditure. Modern day governments have shown little ability to reduce expenditure on education and health care. For an Islamic state in a developing country the idea of reducing expenditure on education and health care is still the less appealing. This is in view of the priority of these items on the Islamic agenda and the neglect from which they suffered in the past. The most a developing country can manage to do is to prevent expenditure on these items from increasing further. Reducing the current levels of expenditure on education and health care are no where a real option. In fact any attempt to do so would be economically disastrous and politically suicidal for the regime.
It has been rightly observed that public expenditure increases as the national output increases, often at a faster rate. It is very difficult to envisage a reduction in public expenditure in an economy where the real output is increasing.
There is a strong case for reducing public expenditure when it is necessary to do so for controlling inflation. But the practical scope for doing so is very limited. If there is an across the board reduction in the salaries of government employees many of them may be forced to find better paid jobs in the private sector, even abroad, affecting the quality of the bureaucracy to the detriment of public interest. Reduction in ostentatious expenses on ceremonies, etc. may not involve significant amounts. As we hinted above, reduction in the expenditure on defense and internal security may not be practical. Some relief is expected from elimination of corrupt practices, bribes and kick backs. This will reduce the cost of doing business, expanding trade and investment and, ultimately, boosting production. These reforms may also reduce the cost of public projects, reducing government expenditure.
Increase in Tax Revenues
One should also consider the possibility of an Islamic state eliminating tax evasion and even coaxing people to pay 'donations' ---- over and above taxes --- to enable their government do good things for them. The likely gains in revenue terms are however, likely to be more than counterbalanced by two other inevitable changes. There are certain indirect taxes on basic necessities of life which Islamic economists regard to be antipoor and worth scrapping. Then there is mandatory lowering of tariffs and custom duties as part of ones belonging to a world set to reduce them globally.
Let us now turn to the other policy measure, withdrawal of purchasing power from the public through increased taxation and domestic borrowing not accompanied by a corresponding rise in public expenditure. This in fact is only a textbook proposition insofar as the developing countries are concerned. These countries are not able to meet even current levels of public expenditure through all the taxes and domestic borrowing they can manage, thereby taking recourse to printing new money. As regards an Islamic economy domestic borrowing ceases to be an option as no interest can be paid to the lenders. A resort to compulsory borrowing free of interest as suggested by some1 would be hardly feasible in political terms. Additional taxation with the sole purpose of withdrawing some purchasing power and freezing it implies that the money should be paid back when the time comes to defreeze it. That makes it akin to compulsory borrowing. There is no empirical evidence of any developing country ever having adopted these policies successfully.
Increasing the Supply of Goods and Services
That leaves us with the last option noted under the heading fiscal policy: spending money in a way that increases supply of goods and services. This spending does not have to be done by the government itself, at least not all of it. Tax reduction that encourages private investment may serve the same purpose. Lowering corporation taxes and lowering or scrapping capital gains taxes, even scaling down the income taxes may boost production by increasing the incentive to work and the incentive to save. Another possible measure is to restructure the subsidies, if any, in favor of the intermediate industries whose products are needed for expanding the production of consumer goods. Building the infrastructure --- roads, bridges, irrigation systems, electricity and telecommunication, etc. --- at public cost and making them available to the private sector at affordable prices has also been a favorite policy of mid-century developmental planning. These can be adopted after due consideration of the lessons from the past.
Even though each one of these policies is slow acting and of modest impact their cumulative impact over time would be significant. There can be no surer way to check the rising trend in prices than to arrange for increasing the supply of the very things whose prices are increasing. Fiscal policy has no other way to make a durable contribution to solve the problem of inflation since the two other options examined above are limited in scope and not practical. Unlike the impact of anti inflationary monetary policy which may be immediate but temporary, the impact of supply increasing fiscal policies is slow but durable.
In seems the scope for reducing public expenditure from their current levels is very limited insofar the contemporary Muslim countries are concerned. The same applies to the possibility of withdrawing purchasing power from the public without spending the proceeds. This leaves us with the slow acting option of trying to maneuver public expenditure and taxation in a way that increases the incentives to work, save and invest and / or directly contributes to increasing the supply of goods and services.
Moderation, Abolition of Interest and Zakat
We shall now proceed briefly to examine if the three other Islamic provisions noted above, i.e. moderation in consumption, abolition of interest and gambling and Zakat can play some role in controlling inflation.
In an already inflationary situation prices of necessities and other consumer goods would be rising. In such a situation people can not be expected to spend less in money terms as that would mean drastic reduction in their living standards. In fact they have to spend more to stay where they are. If current levels of consumption are perceived to be extravagant the most that can be expected in the name of moderation is for spending not to increase in money terms. As regards luxuries some additional revenue can be raised by increasing sales taxes with a view to reducing demand. But the rich who buy these goods may be the same people who become richer due to inflation. They could afford higher prices. Then there is always the danger of excessive taxes driving goods into the black market and increasing the incentive to evade taxes. In any case there is no empirical evidence of forced moderation having contributed to controlling inflation in a free market economy.
Abolition of interest and introduction of new arrangements for financial intermediation based on profit sharing will ensure financial stability. Savings will flow from households to firms smoothly through financial intermediaries who will be able to plough back to the savers attractive returns gotten from the businessmen. Abolition of gambling and the resulting curbs on speculation will further contribute to the stability of the financial system. A stable financial system is, however, a necessary but not a sufficient condition for price stability. Changes in technology and tastes may throw whole industries out of gear causing the levels of output, employment, and incomes to change despite a stable financial system. For a single country influx of foreign capital, favorable balance of payment or similar causes originating outside may cause the prices to rise by affecting the domestic money supply. What is more important for our purpose in this study is however, the fact that the change over form debt-finance to share-based finance will not by itself bring down prices. Inflationary prices boost business profits which will translate themselves in to higher profits (though not higher ratios of profit sharing) for financial intermediaries as well as for the savers / depositors. Profit-sharing may not necessarily feed the inflationary process but it shall not check it either. More direct intervention may be needed to rectify the situation. Redirection of investible funds by sectorally different ratios of profit-sharing or out right controls on incomes, profits and prices may become necessary in certain circumstances. But these options are outside the scope of this study.
The role of Zakat in reducing inequality in the distribution of income and wealth and thereby contributing to a change in the composition of aggregate demand that would make it more stable has already been noted above. Our focus now is the possible contribution of Zakat in bringing down prices when they are high and rising. It has been rightly pointed out that advance collection of Zakat due in the future and/or delaying the expenditure of Zakat proceeds till a more appropriate time can contribute to controlling inflation. It is also suggested that aggregate supply may be manipulated by collection and distribution of Zakat in kind.
Appropriate Policy Mix
The role of fiscal policy in controlling inflation shouldn't be discussed in isolation from the role of the monetary policy and exchange rate policy. The true picture can be obtained only by considering a mix of these policies in the context of a given situation. The size of a country's economy, the relative sizes of its domestic and external economies, the historical path through which an inflationary situation has come to hold are all important aspects of the situation. Also important is whether the chief source of inflation is in the labor market and/or goods market or in the money supply. The moral standards of the people, the level of corruption, the government's credibility and the degree of the people's trust in government too are forces to be reckoned with. Bereft of these data no meaningful study can be made on the role of fiscal policy in controlling inflation in an Islamic framework. The reason in simple. All the three terms appearing in our title: fiscal policy, inflation and Islamic framework derive their meaning - operational meaning - from these data.
Epilogue
The type of inflation experienced in early Islamic history was different in nature from the one experienced in twentieth century. More often than not the rise in prices was sharp but short lived. Instances of 'a sustained upward trend in the level of prices' are rare. There are, however, instances of a gradual rise in prices at a low rate caused by continued influx of gold and silver. Also there were brief spurts of rising prices due to the same cause as happened in the third and fourth decades of Islamic history. But most of the times it was climatic conditions or disruption in transportation that caused a failure in supply leading to sharp rise in food prices. Also in later Islamic history, especially after the disintegration of the Abbasids, it was debasement of currency, excessive issue of subsidiary (copper) coins (fulus) and circulation of large quantities of counterfeit that caused spurts of inflation. These, were, generally, localized and temporary. Protests from the populace often resulted in cancellation of new issues and rectification of debasement. No special measures are reported to counter the rise in prices due to influx of gold and silver. A fast expanding economy with widespread foreign trade was able to absorb the new money without serious problems.
Price rise caused by famine and disruption in supply caused great pain and suffering. Egypt during the Mamluk period was specially afflicted by these devastations as recorded, among others, by Maqrizi. If and when the situation did evoke a response from the authorities it was in the form of arranging additional supplies of food grains at public expense. Sometimes they also tried to ensure larger imports by reducing import duties.
Putting an end to debasement of currency and meeting rise in prices by arranging for increased supply are policies rooted in Islamic tradition, the difference in the nature of inflation notwithstanding. These policies are likely to evoke public cooperation as well as endorsement by the Ulama. The two other fiscal measures noted above, reduction in public expenditure (with welfare provisions bearing most of the cut) and increased taxation (and domestic borrowing) are doubly doomed. They are not practical. They have no roots in the Islamic past, hence they do not sound familiar, neither to the populace nor to the Ulama.
By Muhammad Nejatullah Siddiqi
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Tuesday, March 8, 2011
The Economic Revelance of The Sharia Maxims (Al-Qawaid al-Fiqhiyah)
In this definition the word injunctions signifies the prescriptive and the prohibitive injunctions of the Qur'an and the Sunna. The rules of the Sharia used in the definition signify the set of principles determined with precision and their subordinate legal maxims which the great Muslim jurists have derived from the Do's and Don'ts to ensure and to determine the Islamicity of any act, institution or policy. These rules are the systematic exposition of the spirit of the legal text (nass) intended to guide man towards different situations in human society throughout the ages. They provide broad contours within which policy making can be pursued and its validity judged. The legal maxims, on the other hand, are amenable to trade-offs and substitutions.
Before reproducing these rules and applying them, as far as possible, to contemporary economic situations and problems it is necessary to take care of the following precautions that are necessary to protect one from fallacious analogy, misleading over-confidence and lapse:
1.
Recourse may be made to reasoning based on these rules only if the Qur'an and the Sunna do not provide guidance on an issue. Consensus of early jurists (Ijma) also commands priority over the legal maxims. Injunctions of the Qur'an and instructions of the holy Prophet are also to be taken as a whole. The method of deriving conclusions from them are known and should be followed. Legal decisions based on them are contained in the compilations made by great jurists and scholars.
Jurists have also recorded the judgments and the opinions that are based on the consensus (Ijma) of early' ulama'. This leaves a large number of issues that require a decision keeping within the limits of the Sharia. For example, the legal opinion in regard to profit-sharing in a joint venture is that:
"Profit is to be distributed according to the agreement but loss is to be borne in proportion to capital contribution".
In this rule the ratio of the distribution of profit according to agreement can be reviewed in light of business conditions. It may be left to the partners to decide the ratios of profit-sharing or otherwise an Islamic government or central bank may fix a range within which the partners should share profits. The government may even lay down that, like losses profit-sharing would also follow the ratio of respective capital contributions by different partners. The liability of loss, however, has to be borne strictly in proportion of capital contribution since this rule enjoys the consensus of the scholars. The government has no right to change this ratio nor can the business partners make an agreement that violates the rule. Similarly in Bay 'salam advance payment of cash is a condition that has been laid down by consensus of 'Ulama'. Deferred payment or adjustment of price against loan is not permissible. It is the consensus of 'Ulama' that business partnerships/(Shirka and Mudaraba) are treated as legal forms of joint venture. Thus there can be disagreement about forming a joint stock limited liability company, a trust, a cartel, a syndicate or a corporation but the legality of Shirka and Mudaraba may not be doubted.
2.
It has to be fully kept in mind that all the injunctions of the Sharia seek to benefit human beings and eliminate harm. But those benefits and harms are not entirely left to the judgment of man. In a large number of cases those benefits and harms have been specified in the Qur'an and Hadith and should be made the criteria of judgment. In cases where benefits and harms are not pointed out human intellect will judge the virtue or vice of any act. Thus intellect would be guided by sound reasoning, experience, prevalent practice and sound judgment of scholars who have well understood the spirit of the Sharia and are scrupulous. Whether or not state trading- should be allowed depends largely on experience. Should there be a difference in the wages of different workers and in the pay scales of different categories of employees depends upon custom and prevalent practice. Should any industry be nationalized in the interest of the community depends upon sound judgment of competent persons. The Sharia prohibits those trades and activities that involve ignorance and uncertainty since they may lead to disputes, strife and animosity. It is sound judgment that will decide which forms of present day trades and activities should be prohibited and which should be allowed and protected by law.
3.
The exigencies of the situation sometimes require that a lawful act should be disallowed for perseverance of public interest. Similarly there are situations under which an unlawful act has to be tolerated during a short period of contingency. But of the two situations, allowing an unlawful act is much more serious than banning a lawful act. The safe and preferable way is to retain the essential illegality of the act even when it is unavoidable to have recourse to it under compulsion of circumstances government, for instance, may be compelled to pay interest on credit purchases of military hardware. Despite this compulsion, however, it should not be disregarded that payment of interest is unlawful and that serious thought should be given to eliminate that situation as quickly as possible.
4.
We are attempting here to identify only a few of the vast number of rules that the great jurists have laid down. Interpretation and application of these rules require thorough knowledge of Islamic law and jurisprudence. Emphasis on a single rule ignoring the total perspective, its scope, qualifications and limitations may often lead to a blunder. Such is the case that Muslim economists are advised to ignore these rules unless they are guided by reliable experts of Sharia. Nevertheless, possibility of error in interpretation and application by the author cannot be ruled out. The readers who may like to apply them ought to discuss their problems with scholars of authoritative competence on the subject rather than building upon this discussion.
With the above precautions the rules that seem to be relevant to economic policies and institutions may be briefly reproduced in the following pages. The discussion mostly contains the examples that early jurists have adduced. In some cases, however, examples or contemporary situations have also been added.
(1) Claim and Practice:
The Qur'an insists that Muslims should demonstrate consistency in faith and practice and in words and deeds (2:208: 24:51; 30:30; 33':70: 41:30; 61:2,3). It is this basic requirement that has led to the formation of a number of rules in the Sharra to determine and judge the relationship between intention and deed and between claims and acts.
The first legal maxim in this respect reads as following:
* "The basis of every order is the intention thereof a judgment based on an order should follow the intention and purpose of that order"
The rule embodied in this maxim has been applied by early jurists mostly on acts of rituals, but it is just as equally applicable to other spheres of activity. The liability of a person who finds somebody's goods lying in the way and picks it up will be contingent upon the intention with which he has picked it up. If he intends to hand it over to the owner and has made it known to' others he will be treated as a trustee and will not be required to indemnify the owner in case the property is destroyed while in his possession. But if he has kept it as owner he would be treated as a usurper, Ghasib, and will be required to indemnify the owner in case the property is destroyed. The rule is also amenable to performance of visibly different acts leading to the achievement of the same object. Let us take an example from our own times. Nationalization of financial institutions in some countries may be the result of political ambitions while in some others it may aim at correcting mismanagement and regulating credit; and yet in some other countries it may be aimed at preventing foreign tion. Nationalization in socialist countries has a deep-rooted philosophical basis and underlying rationale quite different from the one which prompts nationalization of key industries in non-socialist countries. On the other hand, different actions by different countries by way of granting rebates on export, making available easy credit to exporters, fixation of import tariffs, laying down licensing procedures and quota restrictions in connection with imports etc., may aim at achieving a common cause of improving the balance of payments position. The relationship between intention and act could further be elaborated by the following examples:
1.
A man makes an earning:
1.
For the satisfaction of his selfish urges.
2.
For personal consumption and demonstration effects.
3.
For complying with the divine command to earn for the sake of survival and spending on noble causes.
In all above cases the act is the same but the intention/object is different.
2.
A man may grow and sell grapes to the consumer or to the manufacturer of wine.
3.
A fanner may grow poppy for sale of seeds or to prepare opium or drugs. In all these cases it is the intention that determines the legality or illegality of the act or an individual.
The same is also true in the case of public policies. Inscription of sacred words on coins may intend to symbolize a distinctive feature or the inscription may be desecration of sacred words. The former may be acceptable but the latter would be treated to be offensive.
In short it is the intention of the government in carrying out an act or in making policy that matters.
The relationship between an act and intention could take the following forms:
1.
Acts/policies that are good in themselves and are actuated by good objectives/intentions. For example, a government might seek to promote public welfare through Zakat and charity funds, donations, government revenues and just and equitable taxes.
2.
Acts and policies that are not good in themselves but are resorted to for achieving commendable objectives. The instances that immediately come to mind are winking over smuggling in order to allow some people to earn their livelihood or mobilizing funds for charity by means of games of chance and by floating interest-bearing loans and bonds.
3.
Acts and policies that are actuated by objectionable intentions but lead to good results. An example is the nationalization of an industry or of an industrial unit with a view to harassing or black-mailing one's political opponents but the step might result in providing job security to workers, reduction in the prices of products, elimination of cut-throat competition and waste, and standardization of the products and avoidance of incongruent growth of industry.
4.
Objectionable intentions with objectionable policies. The example is conniving at smuggling of wine into the country for use by Muslims.
It will be found that form No.1 (good acts with good objectives) is an ideal situation and has to be pursued. Form No.4 is to be rejected outright. In Nos. 2 and 3, the government has to make amendment of policy in the former and of objective in the latter. It should be noted that the announced phraseology of the policy sometime betrays the implicit objectives. The government may announcece its policy of providing a house to each shelter less family but in practice it could be unaffordable by a shelter less man. It is actual acts and policies rather than proclamations that determine the intention. This is so because of a sub-rule which governs contractual obligations:
"Contracts are to be understood in relation to their intention and substance, not by the words and phrases used: so a bay bi'l-wafa' will be held as a mortgage",
Surety ship (kafala) implies coextensive liability while transfer of debt (hawala) implies discharge of the principal debtor. If a contract of transfer of debt (hawala) is made with the condition to hold the principal debtor liable in case the transferee fails to discharge the debt, contract even though termed as a contract of hawala will be treated as a contract of kafala. suretyship. Similar will be the treatment of a contract of kafala in case the principal debtor is discharged after contract of suretyship is signed.
In case a government issues a license to set up an industry, or start a trade or import some merchandise it will not be lawful to sell the license because the object of the license was the authorization to set up an industry or trade or purchase of goods but not to make the license itself an article of trade.
Likewise if the banks declare their policy of financing their clients on non-interest bases it would be necessary to do so and not merely continue the same practice and seeking to rationalize it in Islamic terms by changing the relevant nomenclature such as calling it "buy-back" or "mark-up".
It will not be permissible for the banks to practice Shirka and Mlidaraba in such a way as to ensure a fixed rate of return for the banks while the liability of bearing loss or an uncertain amount of remaining profit is transferred to the working partner.
To take another case, if the government allots plots of land to individuals with the object of providing accommodation for themselves the allottee will be al1olating the implicit terms of the agreement by converting it into a commercial or industrial site or by treating it as merchandise.
In case the government allots agricultural land to a farmer for the purpose of cultivation, the land will have to be used for the purpose for which it was allotted. This allotment will not confer absolute right authorizing the allottee to claim the royalty of sub-soil wealth if it has been found on exploration, nor will he be allowed to convert it into a forest or a commercial or residential area because these objectives are not covered under the terms of allotment.. Authorizing the possession and use \would not be stretched to imply a use which the owner does not intend to allow. Leaving land unused deprives the allottee his right over land.
(2) Doubt and Certainty:
The basic rule that resolves the conflict between doubt and certainty is contained in the principle:
"A belief amounting to conviction cannot be caused to disappear by a doubt".
The rule is based on a Quranic verses: "Most of them follow naught but conjecture. Assuredly, conjecture can by no means take the place of truth" (10:37). The Prophet (peace by upon him) also rejected entertaining doubts in the face of valid ablution (wudu). The rule thus discards the effect of doubt that disturbs the original position. This provides guidance where discretion or personal judgment and subjective evidence are relied upon; the rule is of great significance in the event of controversy on rights and obligations of contending parties in the absence of a proof on either side. The benefit of doubt arising out of a controversial position can never go to a person on whom the onus of proof lies; thus the position of an indebted person even after his death will not be affected by doubt as to a probable discharge of debt.
Similarly a claim as to the discharge of a debt will not be rejected on the basis of presumption to the contrary. A contract between two parties will be treated as binding even though there may be reasons to doubt its Fait Du jour. The rule, if read with its following subrules, provides a broader canvas of its application.
(a) "As to incorporeal matters-that do not prove themselves, the basic principle (presumption) is that they do not exist" : so that if between the active partner and the financier there be a dispute as to profit, the word of the active partner will be taken, and the financier may lead evidence to prove the actual profit."
In case a firm declares a particular amount of income during the year this will have to be accepted by the income tax authorities in the absence of evidence to the contrary. Thus doubts of the assesses statement cannot be unilaterally or arbitrarily sustained unless the income statement filed by the assesses is proved to be containing discrepancies. Business partners whether individual or banks will also be required to accept it for purpose of sharing the profit. The rejection of this declaration would require convincing proof.
In the case of a dispute over defective merchandise the above sub-rule requires presumption of defect occurrence after sale unless the buyer could prove prior presence thereof.
Similarly, a partner has no right to assume a minimum rate of profit earned by his business partner and claim his share in that profit as different from the amount stated to have been actually earned by the partner. The sub-rule provides that in case the working partner declares a certain amount of profit no more will be presumed unless the contrary is proved to be a fact.
(b) The above sub-rule is further strengthened by another sub-rule that "no reliance (should be made) on mere imagination"
(c) Another rule is that of 'freedom from obligation : so that if one destroys the property of another, and they differ as to the extent of damage, the word of the person destroying may be taken, but the owner of the property may bring evidence to prove the excess.
Thus in case of loss in business a partner cannot allege willful neglect and require the latter to indemnify him for the loss. Unless he proves the contrary. Failing this proof the partner will not be personally made liable to the loss or to indemnify the other partner. Any doubt affecting his position of freedom from liability will be untenable. No arbitrary judgment of the contender would be acceptable.
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