E-Book, Englisch, 245 Seiten
ISBN: 978-1-4835-5704-5
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Introduction A central tenet of Islam, and thus of an economic system based on Islamic principles, is the unequivocal prohibition against the payment and receipt of interest. The Quran explicitly states that the charging of interest will draw a declaration of war from Allah and His Messenger and promises total destruction of an economy which allows interest-based transactions. Banking and financial operations must, therefore, be conducted in the absence of interest, and Islam suggests ways and means by which interest and the economic institutions that accompany it can be replaced. Historical research has shown that early Islamic societies were able to develop financial instruments and institutions that were consistent with religious strictures. These developments facilitated the economic operations of Islamic systems for nearly a millenium. The growth in power of European nations, however, which brought Muslim countries under the direct and indirect control of the West, led to a period of neglect of Islamic rules and norms regarding economic relations that lasted some four hundred years. By the middle of the present century almost all of the economies of Muslim countries had been transformed into capitalistic systems in which interest played a central role. The decades of the second half of this century, which also marked the beginning of the 15th century of the Islamic era, witnessed a truly impressive upsurge in the desire to return to fundamental Islamic values in many parts of the Muslim world. In this process Islam’s views on how individuals and nations must behave in the economic arena have not been ignored. A number of Islamic countries, notably the Islamic Republics of Iran and Pakistan, have moved towards transforming their economic systems to conform more closely with the precepts and conditions of Islam. Because of the uncompromising stance of Islam against interest, this transformation process has begun in these countries with the eradication of the institution of interest from banking and financial transactions. In the last ten years there has also been a rapid expansion of financial institutions that can be characterized as Islamic, in that they do not conduct interest-based transactions. At present, about 45 countries, encompassing most of the Muslim world, have some type of Islamic banking or financial institution. Islam proposes that the banking systems that operate on the basis of an ex ante fixed rate of interest be replaced by a profit-sharing system in which the rate of return to the financial resources is not known and is not fixed prior to the undertaking of the transaction. While in Islam interest is forbidden, trade and profits are permissible and in fact encouraged. An uncertain rate of return based on profits would thus be consistent with the Shariah. From this distinction between a certain rate of interest and an uncertain rate of return it follows that, if a banking structure could be evolved in which the return for the use of financial resources would fluctuate according to actual profits made from such use, the resulting system would be in conformity with Islamic rules and guidelines. The replacement of an interest-based system by an alternative profit-sharing system raises a number of fundamental theoretical, practical, and policy questions. It would be fair to argue that the interest-free banking aspect of Islamic economics has received the most attention by economists, and most of the research conducted has focused on this subject. Even though such research is in many respects in its infancy, it is still possible to detect certain patterns and trends. The earlier papers were concerned primarily with historical-doctrinal issues and with questions of what the system was and how it could be implemented. In the second stage we are seeing the emergence of papers that delve more deeply into the theoretical aspects of the system. Such work, which is designed to complement the writings of Islamic scholars, brings to bear modern analytical tools and concepts on questions such as: a. What is the theoretical framework underlying Islamic banking and finance? b. Will the Islamic system be more or less stable than the traditional interest-based system? c. What will be the effect of the adoption of an interest-free Islamic system on important macroeconomic variables like saving and investment? and d. Will monetary policy have a role to play in such a system? The papers in this volume all address one or more of these basic questions at the theoretical level. As experience with the practice of Islamic banking grows, we will undoubtedly see studies where the empirical properties of the system will be examined. The papers here represent a start in the attempt to introduce rigor into the analysis of Islamic banking and finance, thereby clarifying the nature of the basic relationships underlying the system. In the first paper, Mohsin Khan and Abbas Mirakhor present a brief overview of the structure and practice of Islamic banking. The authors start by stressing that the abolition of interest is only one aspect of Islamic economics. Islam provides precise guidelines and rules governing individual rights, property rights, contracts, work, the accumulation and distribution of wealth, and the role of the State. Islamic banking has to operate within the overall framework of the system defined by these codes, in addition to respecting the injunction against interest. The authors discuss reasons why interest is prohibited, specifically using the argument that interest represents an unjustified creation of instantaneous property rights. The paper then goes on to describe how the financial system would be expected to function in an Islamic setting, dealing specifically with the sources of funds and lending operations of banks, the role of the central bank, and the conduct of monetary policy. The final part of the paper covers the practice of Islamic banking around the world, with special emphasis being given to the examples of Pakistan and the Islamic Republic of Iran. The authors are careful to highlight the problems that policymakers and banks face in these countries, and the attempts that are being made to overcome them. The next four papers examine the underlying theoretical framework and stability of the Islamic system, namely questions a and b. Mohsin Khan takes the view that the replacement of interest by some type of profit-sharing arrangement makes the Islamic system an equity-based system, as opposed to a traditional interest-based system. Using this concept of equity participation, a relatively simple theoretical model is developed in the paper to examine the workings of the Islamic banking system. It is shown that the Islamic system may well turn out to be better suited than the interest-based banking system to adjust to shocks that can lead to banking crises. In an equity-based system, shocks to the asset positions of banks are immediately absorbed by changes in the nominal values of shares (deposits) held by the public in banks. Therefore, the real values of assets and liabilities would be equal at all points in time. In the traditional banking system, since the nominal value of deposits is guaranteed, such shocks can cause a divergence between real assets and real liabilities, and it is not clear how this disequilibrium would be corrected and how long the process of adjustment would take. On the basis of the analysis, the paper yields the important insight that from an economic standpoint the principal difference between the Islamic and traditional banking systems is not that one allows interest payments and the other does not. The more relevant distinction is that the Islamic system treats deposits as shares and accordingly does not guarantee their nominal value, whereas in the traditional system such deposits are guaranteed either by the banks or by the government. In his paper, Mabid Al-Jarhi investigates the theoretical implications of introducing information and transaction costs into the classical model of supply and demand for fiat means of exchange (defined as assets that yield no direct real rate of return). The paper derives behavior rules for the government, producers, households, and the banking system under varying postulates about the production, pricing, and distribution of fiat money. The main conclusion of the paper is that, among the alternative institutional configurations considered, the “optimal” arrangement is one in which: (i) the government produces fiat money and provides it to the economy at no cost; (ii) there is no interest charged on borrowing; and (iii) the government imposes a 100 percent reserve requirement on banks. The last feature has been considered somewhat controversial, since the introduction of a 100 percent reserve requirement eliminates bank multiple creation of money. Waqar Masood Khan uses the theory of contracts to compare the Islamic banking system with the alternative interest-based system. The paper shows that because the Islamic system spreads the risk of an economic enterprise it is superior to the traditional system if both investors and lenders have the same information. If the assumption of symmetric information between investor and lender is relaxed, the traditional debt contract then becomes superior because it reduces the cost of monitoring. These costs of monitoring can be sufficiently reduced, however, if the possibility of dishonest behavior on the part of either parties is excluded. The author’s argument that dishonesty is a function of the incentive structures existing in society is particularly meaningful. The driving force of a truly Islamic society is the existence of a strong ideological consensus that the success of the society and its members depends on...
