For about three decades, Islamic economics remained essentially an intellec tual exercise. Books and pamphlets were published for audiences of varying sophistication, mainly by religious scholars and political activists. Only grad ually did the school begin to draw in scholars trained in modern economics. It received a major boost, however, from the Arab oil boom of the 1970s. This is when Islamic economics metamorphosed into a global movement aimed at giving economic life an Islamic character.
Saudi Arabia and other Arab beneficiaries of the boom decided to share their new wealth with oil poor Arabs, essentially to buy peace. Front line states and organisations in the war with Israel, all capable of destabilising the Arabian Peninsula, were among the major beneficiaries of the consequent transfers. Oil rich countries felt obliged also to deliver more aid to non Arab Muslims and to step up their financial support to pan Islamic causes, in order to impress the wider Islamic world, parts of which were suffering from the high price of oil. The primary motive was again to pacify countries capable of sowing trouble. As their revenues mushroomed, the oil kingdoms needed also to invest their growing savings. In so far as their investments were given an Islamic appearance, so they thought, they would gain legitimacy in the eyes of the world’s Muslims. Their regimes would thus become more secure and gain political clout.24
For all of these reasons, funds started pouring into the development, dissemination and practice of Islamic economics. The 1970s saw the establish ment of the Islamic Development Bank, modelled after the World Bank but meant to operate in an interest free manner and primarily for the benefit of Muslims. The world’s first commercial Islamic banks, too, were established at this time, making Mawdtid’i’s blueprint at last a reality. Meanwhile, well funded institutes and departments of Islamic economics began springing up, academic journals ofIslamic economics were established and Islamic econom ics conferences began attracting huge numbers of participants from all across the Islamic world and beyond.
Accommodations with economic realities. People trained in Islamic economics filled positions at universities, and they started looking for new problems to address. By the late 1980s, economists with modern training, including ones educated in Europe and North America, began contributing to Islamic eco nomics. Through their works, Islamic economics began absorbing the tools and methods of modern economics.25 Contributors with a theoretical bent developed Islamic 'general equilibrium’ models that hold the price of money fixed. Those familiar with the theory of social choice tried to develop axio matic foundations for Islamic economics.26 For yet another example, special ists in the history of economic thought turned to the thinkers of classical Islam in search of Muslim precedents for ideas widely thought to have originated with the European Enlightenment.27
In the early twenty first century, certain Islamic economists are struggling with thorny practical problems, like that of structuring aid to the poor in ways to maximise the chances of making them self sufficient. Others are trying to develop interest free mortgage contracts and hedge fund instruments.28 Islamic economics has changed, then, from the days when Mawdtid’i picked a few Islamic symbols in a bid to establish cultural markers. Still, in terms of scope and substance, both the doctrine and the practices of Islamic economics retain the influence of Mawdtid’i’s initial agenda. Interest fTee banking remains by far the most popular topic of research, with zakdt a distant second; and major areas of economics still lack distinctly Islamic contributions.
As the foregoing history of the rise and subsequent evolution of Islamic economics has pointed out, neither Islamic banking nor the government operated modern zakat systems emerged in response to economic problems. Under Mawdtid’i’s guidance, the initial goal was Islamisation, and economic consequences constituted a secondary matter. The charters of Islamic banks, which required them to specialise in profit and loss sharing, were developed largely by activists eager to make a cultural statement, who knew little economics. They plunged into profit and loss sharing and learned only
25 Mohsin S. Khan and Abbas Mirakhor (eds.), Theoretical studies in Islamic banking and finance (Houston, 1987); Mahmoud A. El Gamal, 'An economic explication of the prohibition of gharar in classical Islamic jurisprudence’, Islamic Economic Studies, 8 (2001), pp. 29 58; Mahmoud A. El Gamal, Islamic finance: Law, economics and practice (Cambridge, 2006).
26 Syed Nawab Haider Naqvi, Perspectives on morality and human well being: A contribution to Islamic economics (Leicester, 2003), chs. 4 6.
27 S. M. Ghazanfar, Medieval Islamic economic thought: Filling the great gap in European economics (London, 2003).
28 El Gamal, Islamic finance, evaluates many of the recent developments.
Through experience that the preconditions for genuinely interest free banking, in the sense of the global venture capital industry, were lacking. The same pattern applies to the establishment of modern obligatory zakdt systems. At first the primary goal was to institute a redistribution system identified with Islam, and economic details were secondary. That is why critics preoccupied with the economic effects of various initiatives were ignored or silenced.
World History
