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The growing influence of the Islamic law and its economic rules:
The Islamic law, the Shariah, derives mainly from the two main and fundamental roots of the law: firstly the Quran and then the Sunna. The former, the primary and authentic source, consists of the divine revelation whilst the latter comprises the authoritative rulings of the prophet in his role as the head of state in Medina.
Later, the Islamic law was codified by Muslim scholars working in the early days of the new Abassid caliphs in Baghdad and also at the same time in other Muslim centers such as Medina. European Christians should not be surprised that the Muslim holy book contains an abundance of legal rulings; the Bible is full of such admonitions, especially to be found in the book of Leviticus.
In this process two other but lesser sources of the Muslim holy law were also invoked: the ijma, the consensus of the faithful in what constituted sound Islamic jurisprudence and finally the ruling by analogy, qiyas.
To be sure there are differences in how these four derivations of the Shariah are to be applied in practice. These differences have given rise to different schools, madhab, of legal interpretation to the adherents of the majority Sunni belief and then others which affect the Shia believers .
From the four authorities cited above the principles of Islamic economics have been derived, after Price Waterhouse Coopers, 2013, in a useful pamphlet distributed at the 9th WIEF:
- Islam is approving of earning one’s living through trade and commerce provided that its subject is lawful.
- Islam emphasizes its social promise insisting upon ethics and good governance in business conduct.
- The link to fundamental economic activity: Proponents of Islamic finance believe that its rules would prohibit the kind of financial engineering that permitted such innovations as collateralized debt obligations to be counted as assets.
- The sanctity of contract: This applies to undertakings between the believers and also between Muslims and non-Muslims.
- Customer- protection and clarity/transparency in transactions.
- Other principles of Islamic economics enjoin:
- risk, profit, loss-sharing;
- prohibition of unlawful or harmful commerce: alcohol, pork etc.;
- the Shariah considers money to be merely a measuring-device of value and not an asset in itself;
- prohibition of the payment or receipt of interest, riba, on money loaned;
- as a consequence of the prohibition of usury Islamic finance is indifferent to the time value of money… this legal point was only one of the religious objections to the rule of the late Shah of Iran….his insistence on high levels of petroleum production to gain foreign exchange. This was judged to have jeopardized the patrimony of future Iranian generations;
- the prohibition of gambling which therefore disallows speculation, chance and uncertainty. This ruling could restrict certain forms of insurance and has led to the development of important takaful Sharia-compliant insurance products;
- the strong advocacy of putting money or wealth to productive use and thus the prohibition of hoarding.
In response to these requirements Islamic economics has provided certain modifications to conventional “western” financial practice but which are not intended to be used in the way of circumventions of the divinely-inspired Shariah law.