| Abstract: |
This book provides a holistic socio-economic framework working in conformity
with the Islamic principles. Chapter 2 builds the ground for the proposed
framework by discussing the foundations of the ethical precepts of Islam. It
discusses the thesis of religion, answers some of the questions in the
comparative study of religion and tries to resolve few of the misconceptions
about the faith of Islam. Chapter 3 outlines the economic teachings of Islam
with regard to earning and spending. It discusses at length the ideals Islam
set before its adherents in the ethical sphere of life. The ethical principles
are discussed based on the study of relevant Quranic text and the narrations
of Prophet Muhammad (PBUH). Chapter 4 studies the comparative economic
systems. It analyzes Capitalism, Socialism, Mixed Economy and Islamic economic
system. Chapter 5 introduces the salient features of the proposed economic
framework with special focus on fiscal reforms. It discusses the potential of
the institution of Zakat to meet fiscal needs of the government and to assist
it in doing away with deficit financing, fiscal bleeding, crowding out private
sector and reducing deadweight loss by parting the way with private sector so
as to ensure market economy operating on its own as far as possible and
playing an active regulatory role. Chapter 6 introduces the monetary reforms.
It discusses how savings would feature despite discontinuation of interest,
how inflation will be checked with central banks not having at their disposal
conventional OMO, how liquidity will be managed in banking sector when a
central bank wants to inject liquidity or mop up funds. How and to what extent
the institution of Zakat would enable the government to meet its fiscal
targets and does not crowd out private sector with public borrowing. How
balance of payments and exchange rate stability can be managed in an interest
free economy. If in the short term, the government or central bank needs
alternative source of revenue other than Zakat, they can issue GDP linked
bonds. This could replace T-bill and provide a base instrument for OMO and
liquidity management in the banking and financial sector. Chapter 7 introduces
the currently practiced Islamic Banking and Finance. Since Islamic economic
principles have more prominently been used in banking and finance, much of the
discussion centers on Islamic banking and finance in lieu of analyzing the
existing practices and then in the next chapter, preferable alternatives in
areas where shortcoming is observed and need for improvement is felt are
suggested. Chapter 8 discusses the financial system in the proposed framework
with the role of institutions and the discussion on comprehensive need
fulfillment mechanisms to serve every major need of a sophisticated
contemporary financial system. Some important novel changes are recommended,
such as introduction of options in mortgage financing, which will allow the
bank to separate the tenancy and sale contract in a distinctive way. This will
still ensure that it locks the sale with the borrower or with the third party
without making both contracts dependent on each other. It will benefit the
bank as well as the borrower, who will have an option but not an obligation to
buy the asset at maturity. The modified role of bank entering in a Mudarabah
contract as a “Rabb-ul-maal” (investor) will ensure that the bank takes on
operational risk. It will enable the resources to go into productive avenues
rather than in financial instruments. This modification will generate
employment and productive activities in the economy in a more direct manner.
The division of Mudarabah corporate and Mudarabah consumer will target two
very distinct markets and will result in channeling of funds from saving
surplus units to saving-deficient units. Reforms in equity markets and
alternatives for insurance are also suggested. Chapter 9 introduces
feasibility and structure of Micro credit as an alternative for interest based
micro finance. It discusses how the potential obstacles in the form of lack of
trust, funding commitment, lack of collateral arrangement, lack of
documentation etc would be handled. |