Table Of ContentHandbook of Ethics of Islamic Economics and Finance
De Gruyter Studies in Islamic
Economics, Finance and
Business
Edited by
Abbas Mirakhor and Idris Samawi Hamid
Volume 5
Handbook of Ethics
of Islamic Economics
and Finance
Edited by
Abbas Mirakhor, Zamir Iqbal, Seyed Kazem Sadr
ISBN 978-3-11-059042-5
e-ISBN (PDF) 978-3-11-059341-9
e-ISBN (EPUB) 978-3-11-059054-8
ISSN 2567-2533
Library of Congress Control Number: 2019956377
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Preface
In the Name of God – The All Merciful, The All-Compassionate
Islam created a major world civilization that spread from China to Europe and in which
there was ample activity that today would be called economic activity. In Islamic lan-
guages the Latin word oeconomicus (itself derived from Greek) was identified, as it was
in the in the Greek and Latin worlds, with running of the household and managing
one’s private affairs and called hence tadbīr al-manzil in Arabic. The contemporary
word iqtisād, when used in classical Islamic languages, did not convey the modern
meaning given to it as one sees in the famous book of al-Ghazzālī, al-Iqtisād fi’l-iytiqād
which deals with theology and principles of faith. But many aspects of Islamic thought,
practice and law have always dealt with what is now called economics. The Qur’ān
and Hadīth are themselves full of injunctions that would now be said to be concerned
with economic matters. In the Islamic context, laws governing economic activity were
always in the context of the Sharī’ah and wed to Islamic ethics. It is not accidental
that throughout most of Islamic history the bazaar has been also the arena in Islamic
society where religious piety has been most strongly present and this fact remains true
to this day in most Islamic urban environments. Devout Muslims have never forgotten
that the Prophet himself was a merchant when God chose him as His messenger.
With the penetration of modernism into the Islamic world in modern times, grad-
ually the attention of some Muslim scholars was turned to the task of creating “Islamic
economics.” Such men had good intentions but were for the most part unaware that
Western economics developed in a secularized ambiance in which the mechanized
world view of 17th and 18th century physics was dominant and in which spiritual
and religious elements were considered to be merely subjective realities bereft of
any objective reality. Without critically appraising the philosophical foundation of
modern economics, early Muslim scholars, trying to develop an Islamic economic
theory, concentrated their attention mostly on the question of ribā’ and related issues.
Some did write against the shortcomings and errors of both capitalism and Marxism
but hardly anyone provided a cogent criticism of the very world view upon which
modern economics, both capitalist and socialist, is based.
Fortunately a number of scholars of Islamic economics have appeared during the
last few years who are fully aware of the truth that Islam is based on a world view
https://doi.org/10.1515/9783110593419-202
VI Preface
very different from that of modern economics, a world view in which economics is
never divorced from ethics and Islamic Law, nor is it Islamic if it does not consider the
reality of spiritual and non-material aspects of both nature and human beings. Such
scholars have brought to light again the primary and not secondary importance of
nature as nourisher of the human soul as well as body and the principle significance
of charity, karāmah, īthār and yes truthfulness even if they be materially unprofitable
for those Muslims who want to follow their religion fully.
The Muslim scholars whose works appear in this volume belong to this category.
They hail from different areas of the Islamic world as well as of the West. Some have
been educated in modern universities and others in traditional madrasahs. Some are
young scholars and others of an older generation. Yet, they all share the concern for
the centrality of ethics in Islamic economics and think about the issues of relevance in
this subject from within the Islamic world view. This trait renders the present volume
especially valuable for those seeking real Islamic responses to present day economic
challenges.
Dr. Abbas Mirakhor, Prof. Seyed Kazem Sadr, and Dr. Zamir Iqbal, who have done
so much already for the propagation of serious Islamic economics, on both the practi-
cal and theoretical level, are to be congratulated for producing this volume. I hope
that this book will have wide dissemination especially in the Islamic world itself
and that those who are in a position to implement Islamic economic teachings in an
authentic manner will benefit from it.
wa’Lla¯hu a‘lam
Seyyed Hossein Nasr
Washington, D.C.
Rabī‘ al-Awwal, 1444 AH
October, 2019 AD
Introduction
Since the financial crisis of 2007/2008, discussion on the ethics and finance has
attracted attention in academic research as well as in public policy debates. This topic
is being examined from different dimensions – finance for good society, responsi-
ble finance, ethical finance, and financial repression. The principal objective of this
Handbook on Ethics of Islamic Economics and Finance is to provide a deeper under-
standing of the ethical underpinning of Islamic economics and finance.
The undertaking of this project was inspired by two factors. First, given the
renewed interest in the study of ethics in economics and finance since the 2007/2008
financial crisis and rapid growth of Islamic finance, a need was felt to understand
and develop the knowledge about the embedded ethics in the teaching of Islam and
particularly the implication on Islamic economics and finance. Second, although
extensive research has taken place in Islamic economics and finance in the last four
decades, most of the mainstream research has not benefitted from the research on the
topic in the languages of Islamic societies such as Arabic, Bahasa, Farsi, and Urdu.
This project provided an opportunity to attract scholars from different parts of the
World with diverse backgrounds and perspectives. Therefore, the reader will notice
that the Handbook reflects a diversity of views on the subject of economic and busi-
ness ethics in Islam across the intellectual spectrum of Muslim thought.
Before describing different parts of this Handbook and the contributions of the
collaborators it might be instructive to pose some questions concerning the definition
and characteristics of the ethical system in Islam. What is its goal and how do its rules
and practices ensure welfare for individuals and society? Are the moral principles
universal and invariable or do they change and adapt with the social changes of com-
munities and progress in science and technology? Is the present generation account-
able for the welfare of future generations? Where is the boundary between law and
ethics and who guarantees their adoption and implementation?
Before these questions are entertained, it might be helpful to review briefly the
evolution of thinking of Muslim scholars on ethics. Discussion on business ethics in
Islam is not new but has been dealt extensively since the early history of Islam. Signif-
icant discussion and analysis of the positions of the Qur’an and the Sunnah on moral-
ity and ethics were provided by 4th Caliph Imam Ali in a compiled book, titled Nahjul
Balaghah, and by his grandson, Imam Zayn al-’Abedin in his book, Risalah al-Huquq
(Treatise on Rights) covering moral and ethical behavior towards others according
to the Qur’an and Sunnah.1 Another important early work on morality and ethics in
1 One of the sources of Imam Ali teachings on ethics that is extant and is an authentic reference for
ethical studies is the letter that he wrote, as his last will and testament, to his elder son Imam Hasan.
This letter and others that Ali wrote to his followers are reported by Kolaini in his Ar-Rasael book. The
first written book on the subject in the second Hijri century belongs to Ismail ibn Mahran Sokuni who
was one of the companions of Imam Ali ibn ar-Redha(as) who titled his book Attributes of Believers
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VIII Introduction
Islam is by Abu Ali ibn Mohammad ibn Ya’qub Miskawayh (born 320 AH, died 421).
His work is considered to have influenced the thinking of leading thinkers such as
Al-Ghazali and Nasiruddin Tusi on this topic. Subsequently, the discussion mainly
took place while developing principles underlying legal axioms. For example, schol-
ars such as Al-Ghazālī (2005) dealt with ethics of earning and living as he dedicated
one full chapter in his classical work Iḥyā’ ‘Ulūm al-Dīn (Revival of Islamic Sciences).
Definition and Essence of Ethics
Core of ethics is doing good and avoiding evil. Empowering the human will to behave well
and refrain from doing harm to others is the foundation of ethics. For instance, helping a
blind person to find his way is positive form of ethical behavior while restricting a child
from an activity in the playground for his/her safety is negative form of ethical deeds.
Taking up any initiative to enhance the wellbeing of the community and mitigating
hardship born by its members is another example of an ethical act. Even taking care of
one’s health by exercising and abandoning consumption of narcotics is practicing ethics.
Overall contributing to the creation of good and elimination of evil is the essence of ethics.
Some critics argue that the concepts and practice of good and evil are relative and
depend on social and economic conditions of human communities as well as their
belief systems. In a developed economy with full employment conditions, government
intervention to boost aggregate demand would instead create inflation. However, in a
developing economy suffering from high unemployment, government intervention to
boost aggregate demand is an advisable policy provided the public debt is on sustain-
able path (i.e. fiscal space or primary fiscal balance is positive). The effectiveness of
the same policy is dependent on the conditions of the economy. Financial assistance
to the unemployed in a developed economy may not enhance work incentives while it
could be effective in doing so in a developing economy. Therefore, the changes in the
stages of economic growth and social and political regimes will dictate what is good
or bad for the economy. Ethical ideals and measures, according to this view, are not
absolute and fixed; they vary according to time and place.
The Greek philosophers maintained that human intellect is the basis of ethics.
People judge goodness and badness of principles and practices by their own wisdom
which is a common attribute of all human beings. Critics claimed that peoples’ intellect
is not invariable and so are their views and understanding. Disputes among groups,
parties and nations are cited as examples. The philosopher and Islamic scholar
Motahhari (1365/1986) disagrees that intellect is the basis of ethics. To him, ethics
and Depraved (Sadr, Hasan, 1375/1996,P.404,). According to S. R. Sadr, the best compilation prior to
the fifth century is by the renowned scholar Ibn Miskawyeh (2014) called Purification of Ethic which
is also called Virtues of Morality (Tahzibol Akhlaq). The great Naseeruddin Tusi has benefitted from
this work in his invaluable book Naseri Ethics (Tusi,1397/2018).
Introduction IX
is the power of controlling and ordering instincts. Medicine regulates different body
organs, which is not an intellectual process. Neither is organizing human instincts a
rational process. The basis of ethics is safety of spirit. Ethics means that people can
control their habits by their will and raises the question whether there are general and
absolute ethical principles or “musts” that all human beings cognate and accept? If
there are such principles, how could their existence be rationalized and explained?
The discussion of ontology and epistemology of ethical norms is not complete
unless the above questions are addressed. Philosophers classify knowledge into pure
reason and practical reason. The former investigates ontology and causal relationship
among the phenomena that exist independent of human beings while the latter deals
with those phenomena that are made by men. The “ought”, “must” or “necessity”
concepts, which belong to phenomena that are made or created by human decisions,
are facts and not abstract concepts. They are derived through logical judgments.
When they are included in describing phenomena that are volitional, they are called
“ought or necessity” copula. When they are applied in non-volitional descriptions
they are “is” predicate. Clearly, all ethical statements fall in the “ought” category.2
To illustrate the logical derivation of ethical concepts from the external real
facts, Hairi (1982) explains the process by presenting two logical deductions. The first
deduction is a general apprehension related to pure reason as stated below:
Minor premise: Poverty-reducing policies are viable economic policies.
Major premise: All viable economic policies deserve adoption.
Consequence: Poverty-reducing policies deserve adoption.
In this deduction, the two premises and the conclusion are general and belong to
pure reason, not the practical reason as far as the form and conditions of syllogism is
concerned. To arrive at a specific deduction stemmed from this general deduction, we
constitute the following deduction:
Minor premise: Investment promotion policies reduce poverty.
Major premise: All poverty-reducing policies deserve adoption.
Consequence: Investment policies deserve adoption.
The conclusion of this latter deduction, which is derived from the previous one,
implies that governments should boost investment activities. As this conclusion
stems from a general pure theoretical premise, it belongs to pure reason and is an
intellectual inference. However, this special deduction has a practical consequence
that falls under practical reason. Thus practical reason outcomes and events are log-
ically derived from pure reason.
The concluded facts of the pure reason deductions and the concluded decisions of
practical reason are both actual beings. The only difference between the conclusions
2 Hairi (1982)
