Impediments in Developing Islamic Economics as Social Science – by Muhammad Akram Khan

May 13, 2014

Economics Finance

Islamic_column For the last three decades now, there have been significant developments in the production of research documents, books and journal articles on Islamic economics and finance. For example, the Harvard Islamic Finance Project databank had by April 2014 more than 9000 records available for free access.  A number of websites and several research journals publish material on the subject. A number of educational and training institutions now offer courses in Islamic finance.  During the last two decades literally thousands of publications and hundreds of discussion forums have been held on Islamic economics and finance. Despite significant progress in terms of literature and research, Islamic economics is yet not a social science. Generally speaking a social science studies some social phenomenon; has a clearly defined scope and boundary lines; and applies research methods to formulate theories for making predictions about the future. A literature review shows that Islamic economics does not meet the above criteria as discussed below.

We have not clearly defined the social phenomenon that is the subject of Islamic economics. We are as yet unclear whether economic problems as defined by conventional economics is the focus of our study or whether we are studying some other social phenomenon. We are uncomfortable with the expression ‘scarcity of resources’ as it seems to flout the almightiness of God who has created everything in abundance that human beings need. Once we deny scarcity of resources as a fact of life, we are left with a situation which does not have an economic problem. So, which social phenomena is the subject of our study? We have not faced this question. The scope of Islamic economics remains quite nebulous. The literature traverses a wide range of subjects that includes the economic teachings of Islam as enunciated by the Qur’an, Traditions of the Prophetand Islamic jurisprudence, writings of scholars during the last 14 centuries, alongside subjects like macroeconomics, microeconomics, money and banking, public finance, microfinance, and so on. The boundaries of the subject are yet not clearly drawn. We are also unsure about our methods of study. Some vexing questions are as follows: (a)  Should we follow, adopt or adapt the methods of conventional economics? If yes, how to go about it? If not, are there any distinctively Islamic methods to be used in Islamic economics? (b)  What exactly do we need to test when the primary sources of Islamic economics are divine and have to be taken as given? (c)   How to test our hypotheses in the absence of an ideal Islamic economy? (d)  Do we assume the existence of homo Islamicus or do we only theorize about ‘creating’ such a human species? We have paid scant attention to the study of real-life conditions in the contemporary world, although some of us think that our main business is to transform societies to Islamic patterns.  With such ambiguities about scope, approach, objectives and methods, Islamic economics could not claim the status of a social science.

What is Wrong with Islam Economics?

Muhammad Akram Khan expands on the issues discussed in this post in his book ‘What is Wrong with Islam Economics?’

Impediments One problem is that we are talking to each other to the exclusion of the wider knowledge community. This is evident from a set of definitions presented by our colleagues. Some of us say that we mainly study application of the Shari’ah in economic matter. Others think Islamic economics studies only the conditions of Muslims. Still others require some sort of faith in Islam before a person contributes to Islamic economics. Further, most of us often use the idioms and jargon, the terms and phrases and the legal dicta that can be understood easily by Muslims only. Such approaches have made Islamic economics a branch of knowledge where Muslims are talking to Muslims. Literature on Islamic economics presents a confused picture about the relationship with conventional economics. One approach is to reject everything that conventional economics offers. Another response is to develop Islamic economics on a basis similar to conventional economics by using the tools of the latter. Still another approach is to modify conventional economics by incorporating ‘Islamic’ assumptions. The issue is still far from settled. We have confused the concept of Shari’ah by mixing up human thinking with the divine guidance. The Shari’ah consists of a small number of clear and unambiguous injunctions stated in the Qur’an or Traditions of the Prophet that require compliance but no interpretation. However, we have often treated human interpretation of these injunctions as Shari’ah whichcreated road-blocks for developing Islamic economics as a social science. If we treat human thinking from the last 14 centuries as part of the Shari’ah, the question of formulating hypothesis and theories becomes irrelevant. We have not rigorously reflected on the question: “What business are we in?” Are we in the business of acquiring and developing knowledge or in the business of transforming the society? If we are in the knowledge business our main activity would be observation, analysis, and reflection on divine sources and real-life facts for formulating theories and predicting the future. However, if we are in the business of transforming the society, we are only duplicating the effort of thousands of religious activists and organizations already in this business. In fact, this has been a continuous activity of religious activists during the last 14 centuries and there is not much now to be done through the forum of Islamic economics. We do not need to reinvent the wheel of Islamic reformation. Some of us have attempted mathematical modeling under conditions of the ideal Islamic society. However, the ideal Islamic economy does not exist and will not come into being in the foreseeable future. The assumption of the ideal Islamic society became a stumbling block for developing Islamic economic theory. Surprisingly, it did not occur to us that we could handle the problem from the reverse side by asking the following question: “What will happen if the economic units deviate from the ideal Islamic economic conditions?” Data for such conditions were available easily around the world on almost all economic issues. For example, we could theorize about situations where interest was prevalent or zakah was being avoided or contracts were not honored or property rights were not respected, etc. Proceeding on this train of thought we could formulate hypothesis and test them in real life. However, we did not adopt this route. Alternatively, we could use some real-life conditions as proxies for our postulates. For example, the orthodox position on financial interest is that it is unlawful under Islamic law. We could take the real-life data of, for example, Japan where the effective rate of interest has been about zero for the several years. Similarly, we could use the real-life data of the global effective interest-rate which has been declining for the last three decades and is now close to zero. Using such data we could formulate hypotheses about results of zero or near-zero rates of interest and test them to sharpen our understanding about legality or otherwise of the financial interest rate. However, we did not follow this route.  For developing Islamic economics as a social science we should:

  • Join forces to develop a generally accepted definition of Islamic economics.
  • Couch all knowledge in general terms and on rational grounds so that it does not claim any religious sanctity.
  • Make a distinction between economic teachings of Islam, which is domain of theology, and Islamic economics which should consist of theories derived from human understanding of the divine sources and study of real-life conditions.
  • Freely use tools of economic analysis which are the common heritage of humanity.
  • Make efforts for developing generally accepted terminology.


khanprofileMuhammad Akram Khan is a Former Deputy Auditor General of Pakistan (until 2003) and Chief Resident Auditor, UN Peacekeeping Missions (2003–2007). He took post-graduate degrees from University of Punjab, Pakistan (1967) and Aston University, Birmingham, UK (1970) in Commerce and Business Administration respectively. Since 2007, he has been working as a freelance consultant and writer whilst pursuing Islamic economics as a private hobby. He has published 12 books, 36 research papers and over 90 book reviews. His latest book, What is Wrong with Islamic Economics, was published in 2013; it contains a synthesis of his life-time thinking on Islamic economics and finance.

This book is available for subscribing libraries onelgaronline_small


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