Introduction to Islamic Economics: Theory and Application

Gain deeper insight into the principles and theory of Islamic economics

Introduction to Islamic Economics: Theory and Application provides an overview of the organizing principles and fundamentals of an Islamic economy. With deep discussion of the characteristics, rationale, key institutions, objectives, and instruments at work, the book addresses the core economic principles underlying a system based on the foundational teachings of Islam, and examines the implications for economic policies. Social welfare, economic justice, market functionality, efficiency, and equity are explored from an Islamic perspective, and the role and instruments of fiscal and monetary policy in Islamic systems are used to illustrate contemporary applications.

Universities around the globe are offering courses on Islamic economics and finance, but despite the industry's rapid growth, most research has been focused on the financial principles rather than underlying economic principles. The first book of its kind, Introduction to Islamic Economics brings all the key concepts together into one reference volume. By outlining the ways in which Islamic finance and Islamic economics interrelate, this book can help readers to:

Develop an understanding of the Islamic economic system and its institutional scaffolding Differentiate between the major characteristics of the dominant conventional economy and one based on the fundamental sources of Islam Understand the conditions that must be met for a just, well-balanced, stable, and growing economy Clarify the role of State, public policy, and risk-sharing in the Islamic financial system

The Islamic financial system is expanding quickly, and those looking to increase their relevance in a changing economic landscape must get up to speed. Introduction to Islamic Economics provides a comprehensive overview of underlying economic system offering a deeper understanding of the feature of the system. This book is an excellent complement to Introduction to Islamic Finance, 2E by Iqbal and Mirakhor.

Acknowledgments xi

About the Authors xiii

CHAPTER 1

Economic Systems 1

What Is an Economic System? 2

Current State of the Global Economic System 9

Islamic Economics Paradigm 19

Short History of Economic Thought in Islam 20

Summary 26

Key Terms 27

Questions 27

CHAPTER 2

Foundation of the Islamic Economic Paradigm 29

Meta-Framework and Archetype of Economic Rules 31

Implications of the Agent-Trustee Relationship 33

Significance of Rule Compliance 34

Impact of Scarcity 35

Rationality and Freedom of Choice 38

Individual Obligations, Rights, and Self-Interest 39

Central Notion of Justice 41

Shariah: The Law 44

Summary 47

Key Terms 47

Questions 48

CHAPTER 3

Institutional Framework and Key Institutions 49

Key Institutions 53

Summary 72

Key Terms 72

Questions 73

CHAPTER 4

The Islamic Economic System 75

Social and Economic Justice 76

Prohibition of Interest (Al-Riba) 81

Risk-Sharing Economic System 84

Role of the State 91

Summary 93

Key Terms 94

Questions 94

CHAPTER 5

Key Microeconomic Concepts 95

Defining Microeconomics 97

Issue of Needs versus Wants 100

Consumer Behavior 102

Theory of the Firm 105

Dynamics of Demand and Supply 112

Efficiency versus Equity 116

Market Models 117

Role of the State 121

Summary 123

Key Terms 124

Questions 124

CHAPTER 6

Key Macroeconomics Concepts 125

Principal Economic Agents 126

National Income 127

Consumption, Savings, Investment, and National Incomec Determination 135

National Income and Output Determination 143

Inflation 148

Unemployment 152

Open Economy: Trade in Goods and Services with Other Countries 154

Why International Trade Is So Central to Islam 156

Summary 162

Key Terms 163

Questions 164

CHAPTER 7

Macroeconomic Equilibrium: Characteristics of an Islamic Economy 165

Models of an Interest-Free Economy 166

Summary 184

Key Terms 185

Questions 185

CHAPTER 8

The Financial System 187

Notion of Risk Sharing 190

Building Blocks of the Islamic Financial System 191

Takaful (Islamic Insurance) 210

Summary 216

Key Terms 217

Questions 217

CHAPTER 9

Role of the State and Public Policy 219

Basic Roles of the State in All Economic Systems 220

Role of the State in the Islamic Economic System 224

Policy Instruments of the State in Islam 228

Economic Justice and Public Policy 230

Role of Public Policy 232

Summary 243

Key Terms 244

Questions 244

CHAPTER 10

Fiscal Policy 247

Role of Fiscal Policy 250

Fiscal Policy in an Islamic Economy 254

Public Finance 259

Summary 267

Key Terms 268

Questions 268

CHAPTER 11

Monetary Policy 271

Role of Monetary Policy 272

Monetary Policy in an Islamic Economy 277

Summary 303

Key Terms 304

Questions 305

CHAPTER 12

Economic Development and Growth 307

Evolution ofWestern Economic Thought: From Smith to North and Sen 307

Foundation and Framework of Development and Growth in Islam 312

Islamic Perspective on Financial Inclusion 322

Summary 330

Key Terms 331

Questions 331

CHAPTER 13

Economic and Social Welfare 333

Social Safety Net Provisions 335

Concept of Safety Net and Welfare 337

Empirical Evidence on SocialWelfare from Select Muslim Countries 339

Summary 359

Key Terms 360

Questions 360

CHAPTER 14

Economic State of Affairs in OIC Countries 361

Public Policy in the Islamic Economic System 362

Dimensions of Economic and Social Achievements in Muslim Countries 364

Summary 372

Key Terms 373

Questions 373

Glossary of Arabic Terms 375

Bibliography 381

Index 393