PHILOSOPHY AND PRACTICE OF ISLAMIC FINANCE  by Shaikh A. Hamid  Associate Professor of Finance 
  Southern New Hampshire University 
  ISLAMIC ECONOMICS AND FINANCE 
  This article is for those who are uninitiated about Islamic economics and finance. It contains the 
  Following sections: 
  I. INTRODUCTION 
  II. PHILOSOPHY OF ISLAMIC ECONOMICS 
  III. ISLAMIC FINANCE 
  IV. FINANCIAL PRODUCTS AND CONTRACTS 
  V. PROMISE AND PERFORMANCE 
  VI. PROBLEMS AND CHALLENGES 
  VII. CONCLUSION 
  VIII. APPENDIX 
  PHILOSOPHY AND PRACTICE OF 
  ISLAMIC ECONOMICS AND FINANCE 
  I. INTRODUCTION
  To gain understanding of Islamic economics and finance, one has to firstly understand what Islam 
  Connotes. In a very comprehensive sense, Islam is the way of life ordained by the Creator for 
  Mankind through all of His Prophets (peace be upon them). This way of life gained its finality 
  With the message of Prophet Muhammad (peace be upon him). A Muslim is one who submits to 
  The Will of the Creator. Islam is rooted in belief in an unseen system.1 
  1. Belief in the unseen system
  A Muslim believes in an unseen system that includes: 
  • Allah and His manifold attributes 
  • The Angels on whom He has entrusted various functions 
  • The Books He revealed 
  • Prophets or Messengers He sent 
  • The Day of Judgment 
  • Fate: Good and evil as ordained by Allah 
  • Eternal life after death 
   All of Man’s actions should be guided by the belief that he has been created by Allah 
  Who will cause him to die and will resurrect him after death and hold him accountable for all his 
  deeds -- done openly or secretly, individually or collectively. So it is a belief in the Unseen. Life 
  does not end here. For a Muslim, life continues into the eternal Hereafter. This belief influences 
  All spheres of a Muslim’s life – private, public, individual, collective, family, social, economic, as 
  Well as the political sphere. Reward and punishment does not end in this life, but the real reward 
  and the real punishment are in the eternal life to come. 
  2. Religion and economics 
  Michel Mayer, in “Instructions Morales et Religieuses, lére lesson,” defines religion as “the set of 
  beliefs and precepts which must guide us in our conduct toward God, other people and toward 
  Ourselves.” 2 Religion has also been termed as “a chart of conduct.”3 These and other definitions 
  of religion imply that it encompasses human behaviour in all its facets and aspects. 
  As we know, economics is the study of human behavior in relation to how scarce 
  Resources should be allocated for producing goods and services and distributed for consumption. 
  That is to say, economics deals with a subset of religion. Thus, religion will have its say on how 
  Man deals with his economic activities.4 As one author puts it, “Every religion has its own 
  ‘Economic Ten Commandments’.”5
  In the Holy Qur’an, Allah mentions about teachings of earlier Prophets - teachings that 
  had to do with economic affairs of men; this underscores that economic behavior is a concern of 
  religion. 
  A primary focus of religion is justice and equity. Through economic exploitation injustice 
  and inequity can reign supreme. It is therefore logical that religion will have economic 
  commandments to rein in the possibility of economic exploitation. 
  II. PHILOSOPHY OF ISLAMIC ECONOMICS
  1. Islam and economics
  (i) A verse in the Qur’an states: 
  “Woe to those who deal in fraud – those who, when they have to receive by measure from men, 
  exact full measure, but when they have to give by measure or weight to men, give less than due. 
  Do they not think that they will be called to account on a Mighty Day, a Day when (all) mankind 
  will stand before the Lord of the Worlds?”6
   
  This and other related verses condemned economic behavior that prevailed fourteen 
  centuries ago at the time of Prophet Muhammad (peace be upon him) and provide a glimpse of 
  the economic system to be divinely ordained soon thereafter. Economic behavior is tied to 
  accountability before the Almighty on the Day of Judgment. 
  (ii) Economic activities help man in fulfilling his responsibilities on earth.7 
  • Piety is not a positive function of economic unproductivity. 
  • The more pious one is, the more productive he should be. 
  • The more economically productive he is, the better he should be, provided life is kept 
  balanced. 
  One way of getting an appreciation of the Islamic concept of economics and finance would be to 
  understand from the Islamic perspective the concepts of success, wealth and goods, permissible 
  consumption, motives of production, objectives of production, the goals of the firm, the right of 
  ownership, responsibility and freedom, cooperation versus competition, government involvement 
  in the market. After presenting these concepts, we will outline the Islamic economy’s ‘Rules of 
  the Game’. Thereafter, we will sketch out Islamic finance, highlight major financial products and 
  contracts, briefly evaluate performance of financial institutions, and highlight problems and 
  challenges before concluding. 
  To be continued  from the concept of success to a Muslim.
   
   

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