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The central theme of this study is to exhibit the economic rationale and the legal wisdom of fundamental parameters of Islamic economic system. The essential features of the system such as, its pragmatic nature and market oriented mechanisms would be critically investigated. As the market economy primarily consists of a set of economic factors; institutions that would help voluntary cooperation and mutual exchanges among individuals' economic resources, the main factors may generally include, the legal tenets, ethical framework, the economic patterns of social interactions and operational processes. Islamic financial principles emphasize the significant role of the market in the economy, to such an extent, the assessment of economic parameters is determined by natural market operations. That is, rejecting riba and gharar on one hand and permitting the pursue of profit on the other. However these elementary principles that make up the foundations of Islamic financial system have not been substantially elaborated in consistent and coherent fashion. As a result the role of the market operations in Islamic economics and its inherent features of simplistic, realistic and natural manifestations has not yet been rigorously explored. This work may be attributed to the reinterpretation of the riba doctrine and reconsideration of profit theory in Islamic perspective. It aims at discovering their neglected aspect to provide them with stronger theoretical justifications in both economic rationale and legal consistence. The approach adopted for this research, is to display relatively easy and perhaps a proper way of identifying the inherent distinctive features between the basic terms of riba and profit than their present situations. Although both of these elements establish the components of the theory of excess value, if we examine them in the context of exchange economy, the point of divergence between them would emerge as a natural phenomenon. In the sense, that riba precisely falls in the context of exchange in identical goods or services while profit entirely falls in the area of trading dissimilar ones. Probably the economic relations of goods and services constitute the central point of the theory of excess value, which, perhaps, make up, the core of Islamic price theory. Therefore, the difference has essentially economic bearing and legal perspective. In economic bearings, the riba-based activity has no benefit or no economic gain is expected to the participants as a whole, but, it leads to a general want and scarcity. However, profit represents; the values added, welfare and increase in utility through trade to both participating parties or at least in Parieto inefficiency condition, at least either party would be better off without making anybody else worse off. In legal perspective, since riba stands for a kind of squandering and devouring the property of others in vanity and faulty way, profit stands for natural growth which is permitted in Islam provided the exchange to take place in mutual willingness. These two dimensions of the subject determine the origin and eligibility of excess value in Islamic perspective. The elaborations of these aspects require a serious attempt and rigorous logical integration of Islamic teachings with the basic economic theories, in order to reformulate the microeconomic foundations for Islamic financial system. However, achieving this desired objective confronts a great challenge from two perplexing perspectives. Firstly, the complexity of underlying conventional theory of capital in the context of which the identifications and rationale of even the elementary parameters, i.e., profit, interest and rent seem to be highly ambiguous and subject of ever lasting controversies among conventional economists. Secondly, the obscurity of riba doctrine and the existence of diverse juristic interpretations of its conceptual and practical implications is historical fact. The fiqh scholars have been debating over centuries on the nature and legal implications of primary attributes of riba. In an attempt of building a theory of excess value (profit and riba) from the basics, the incorporation of these challenging perspectives is necessary adventure. Departing from the predominant view of the contemporary studies, the research intends to coin a consolidated notion and integrated concept of riba. In such a manner the term riba would cover both the riba of sale and that in loan transactions. The derivation is based on the synthesis of the available authentic Islamic injunctions and classical juristic explanations. It would establish a comprehensive view and generic meaning of the term riba in Islam which would be the key and foundational ground for the rest of the analysis. In this connection the study is designed to address primarily the need of the common Muslims by enabling them easily to comprehend the real nature of riba stained economic operations, in order to, avoid this economic evil and immoral activity. Secondly, it is to prepare a ground for solid economic theory and finance in Islam and for further research works of the development of this new economic system. Basically, this study is devised to be generally constructive, but, a systematic critique of the mainstream view of Muslim scholars may be noted. In the sense, we have come up with the conclusion that the fixity and variability of the rate of return, or the association of the natural phenomenon of uncertainty and risk bearing to economic activities have nothing to do with the origin and eligibility of both riba and profit terms. In this postulation, the factors which relate to profit sharing or entitlement to business outcomes are considered as a separate issue from those originate the profit or determine its permission. This implies that the factors that determine the sharing ratios should be distinguished from those generate the profit itself or govern its legal position. The underlying economic activity of financial modes, i.e., Mudaraba and Musharaka according to this study are related only with distributional aspect, depending on the level and nature of the participation. On the other hand, the fixity or predetermination assumption of the rate return is unable to convert what economically and legally is recognized as a justified profit into prohibited riba. As a result, the predetermination of the rate of profit, even though it may accompany certain degree of gharar (risk and uncertainty which are tolerable to some extent in Islamic jurisprudence), there is no evidence to justify its equivalence with riba. Therefore, reshaping the PLS system in the light of these findings, there is a large possibility of improving the theoretical basis of profit-sharing system and enhancing the feasibility and operational conditions of the Islamic financial system than its predominantly envisaged state.

Item Type: Thesis (Doctoral)
Uncontrolled Keywords: Biba, Profit sharing, Islamic perspective, Islamic jurisprudence, Inflation, Islamic economic system, Islamic financial principles,
Subjects: H Social Sciences > HB Economic Theory
Depositing User: Ms Maryam Saeed
Date Deposited: 25 Jul 2017 04:15
Last Modified: 25 Jul 2017 04:15
URI: http://eprints.hec.gov.pk/id/eprint/3969

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