In periods of financial instability and uncertainty we witness high levels of inflation, unprecedented rates of unemployment, high levels of real interest rates, exchange rate fluctuations, large balance of payment deficits, extreme poverty, and the inability of most developing countries to service their staggering debts. Financial instability has adverse implications for overall economic growth. The goal in an economy is to create and maintain maximum sustainable employment and price stability by keeping a tight religion on inflation, interest rates and other such macro economic indicators. Or so we are told. Now let's examine the other side of the coin.
To many, an Islamic economic system is synonymous with an Interest-free system - a correct assumption. Interest-free is the basis or nucleus of the Islamic economic system but it is supported by other Islamic doctrines which advocate risk sharing, individual's rights and duties, property rights, and the sanctity of contracts. While the conventional system focuses primarily on the economic and financial aspects of transactions, the Islamic system places equal emphasis on the ethical, moral, social, and religious dimensions to enhance equality and fairness for the good of society as a whole. In sharing the risks and rewards of enterprise, the Islamic financier is more thorough in appraising the viability of a transaction and anyone can access financing if he or she has a worthwhile project - a win-win situation.
Labour and capital are considered equally valuable and the focal point in any transaction is the concept of justice to all parties involved. Money does not exchange hands without there being an underlying transaction for which the parties involved share the associated risks and rewards. This prevents exploitation of the poor at the hands of the rich and ensures cooperation between the individual and community. The interest of one is not served at the expense of the other contrary to what obtains in conventional economies.
An Islamic system recognizes individuals' rights to build private fortunes and at the same time emphasizes that wealth belongs to . It has been put in custody of the individual and should be spent in the ways of . It encourages earning wealth through moral and ethical means and investing for productive and beneficial purposes. In an Islamic economic system, all factors of production are fully employed and every member of society is assured of ample subsistence.
It encourages social responsibility, increases purchasing power, reduces hoarding and ensures redistribution of wealth and income by mobilizing idle resources to more dynamic recipients. It plugs the gaping holes continuously being dug by the interest-based system. The interest based system has done more harm than good at the individual, institutional, governmental and global level. More and more economies are groaning under the huge burden of interest-laden debt, a vicious cycle of servitude to creditors. The negative effect is being felt continuously on a global scale.
The Islamic economic system offers an alternative to this turmoil by enhancing stability in the value of money, ensuring full employment, mobilizing savings to investment, an optimum rate of economic growth, equitable distribution of income and socioeconomic justice; all of which translates into financial stability, economic growth and development. Some food for thought: "Relieved of their annual debt repayments, severely indebted countries in Africa could use the funds to save the lives of 21million children in 3yrs and provide 90million girls with basic education" (UNDP Human Development Report 1997). And this is just one out of a multitude of worrying statistics out there. On a final note, « blights usury, blesses charitable deeds with multiple increase: He does not love the ungrateful sinner" (Surah AI-Baqarah 2:2 76)
This article was culled from the publications of Deen Communication Limited