A Critique of Islamic Economics, Finance, and Banking (Concluding Part)

The multidimensionality feature of complexly interrelated system between multivariates is denoted by the circular causation relations between the variables in evaluating the financial wellbeing index. Purposefulness of the financial wellbeing system is represented by the sustainability of Tawhidi Law by the pervasive continuity of organically unified nature of the financial-cum-real sector as a complementary system. Such extended sustainability attained by way of interaction, integration, and evolutionary learning as features of the system holism explains the systemic interconnected continuity of ever-expanding attributes of the maqasid as-shari’ah. This conveys a substantive philosophy of the maqasid as-shari’ah that has not been abundantly studied in the literature and among so-called Islamic scholars.

Extending the Islamic ethical financing vector in social wellbeing
An example of a generalized system of Islamic financing for the common good at the grassroots is to include Islamic charity (zakat, sadaqah, infaq) with endowment (waqf). These aggregate levels of financing are further combined with various Islamic financing instruments along with many diversities in each of these categories of spending. The Islamic financial wellbeing assumes the objective of poverty alleviation using productive ways that can generate entitlement and empowerment at the grassroots.

Firstly, we need to know how these various variables, all of which are conducive of wellbeing, are commonly related with each other so as not to violate the maqasid as-shari’ah in terms of claims and disbursement to specific groups of recipients. Common grounds of inter-causal relations between the variables can be identified to formulate the wider form of the wellbeing index. For instance, waqf can be willed to provide for services of the zakat-receiving poor. Such waqf when once willed by the donor to remain in perpetuity can utilize the zakat fund to provide school and training service for human resource development and the like for the benefit of the zakat-receiving poor. In the same interactive way of feedback relationship, sadaqah and infaq as charities can be organized along the same lines as zakat to collect and disburse funds with inter-activity reinforcing between them. Thereby, the financing linkage with waqf is established for human resource development. Waqf financial and real physical resources can rotate around Islamic pooled funds to finance charitable projects in perpetuity. Consequently, charity, waqf, and financial resources get interrelated by circular causation through their diversity of disaggregate categories.

The Islamic financial wellbeing objective criterion is now established: It is to evaluate the degree of complementary relations between the maqasid as-shari’ah variables in terms of their inter-variable circular causal relations. Certain waqf variables, such as of self-appointed family beneficiaries by donors, do not play their ethical role in poverty alleviation, entitlement, and empowerment at the grassroots. Thereby, such variables do not satisfy the ethical objective of poverty alleviation, and entitlement and empowerment of the zakat-recipients. They may therefore be excluded from the multidimensional variables of the social wellbeing index, subject to inter-variable circular causation relations. 

Example relating to the inverse relationship between trading financing instruments and the rate of interest in the Qur’an
This relationship is not simply a differentiated view of the consequences caused by trade and interest separately as in the partial equilibrium study. Rather, there is a universe of causations that emanate from these two activities and connect with each other in a generalized system of oppositely endowed relations. To explain the imminent generalized system dynamics between trade and interest we need to invoke several verses of the Qur’an. As an example, we use the that when taken together, convey the comprehensive meaning underlying the opposing inter-causality between trade and interest and within each of these activities. 

Such relations reflect the Tawhidi episteme of unity of knowledge and the unified multidimensional activities in generalized system perspective. In this multidimensional sense, consider different forms of trade. Domestic market exchange makes up private goods and public goods. In Islamic context, all such goods make up uniquely the social goods basket, such as life-sustaining goods and services (halal at-tayyabah) in the extended Imam Shatibi basket. Add to these goods the services of education, human resource development, health, public services, security, water resources, capital flows and investments, and the like. 

On the side of international trade, all good things of life enter the basket of goods and services. Technology, information exchange, merchandise, foreign capital, Gross Domestic Product, price level, employment and so many all-inclusive national, global, and extensive market-centered activities for example, have always been items of international trade in the good things of life. The Qur’an (2:164) declares: “Behold! In the creation…; in the sailing of the ships through the Ocean for the profit of mankind.”

When we turn to the contrary interest-bearing activity, the dark face of abstention from spending in the good things of life arises. The conflict between spending, real economic production, and the Tawhidi manifestation of ‘paired’ (complementary by relational unity underlying intra- and inter-dependent interrelationship between the financial and real economic activities are withheld from social wellbeing. The above-mentioned kinds of activities and many such ones that can be included in the ever-expanding vector of variables enter the functional relations of interest rate, as of trade. But the results are contrary in the two cases: positively related consequences in the case of trade; negatively related in the case of interest transactions. 

Contrary to the growth and development rates of the real economy with trade, interest rates have its spectrum of simple and compound rates of interest, long and short-term interest rates, term structure of interest rates, mortgage interest rates, nominal and real interest rates, and interest rates associated with every different kind of conventional financing instruments and bank savings as financial withdrawal, and debt burden linked with debt servicing. An expanding field of financial and real sector debilities are the consequences of interest transactions, contrary to the incessant and sustained wellbeing contribution of trade related activities in the good things of life.

In the light of qur’anic verses, we read several process-oriented relational orders in respect of trade, interest, and wellbeing. The generalized system approach points out that such consequences take up the following forms in the least. The Qur’an has thus pointed out interest transactions (riba) to be the soul of universal misery. The Qur’an has pointed out trade and thereby wellbeing inducing transactions in the good things of life as the centerpiece of existence arising from God-consciousness. 

Firstly, the process-oriented exegesis of verses, points out two separate system of circular causation relations, one with interest rates and the mentioned socioeconomic activities in the economy at large. Secondly, a similar process-oriented relationship explains the wellbeing contribution of the good activities and contrary effects of the withholding relationship between finance and the real economy in the good things of life at any and every point of space, time, and evolutionary learning conveying perpetually sustainable continuity. The third kind of process-oriented perspective that is read off the qur’anic verses (36:36) is one of opposite social transformation between trade and interest transactions. 

Between social and economic justice as attributes of wellbeing, and thus of the riba-free world-system; and the regime of financial abundance, and thus, of the riba-ridden world-system, the moral self-actualization rises from the riba-world to the trade-based (productive) world. This great expectation has been projected by Keynes. He wrote in this regard: “The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.”