Islamic Finance Practices

Experiences from South Eastern Europe

Velid Efendic

• Publisher: Palgrave Macmillan
• Year: 2020
• Print ISBN:
  9783030344191
• eBook ISBN:
  9783030344207
• Topic: Business
• Subtopic: Financial Services
• Index: Business

Offers experience from real-life Islamic finance practices in Eastern Europe

Features practically-oriented Islamic finance topics such as risk management and accounting based on the empirical evidence

Showcases country-specific and critical issues 

© The Author(s) 2020

V. Efendic (ed.)Islamic Finance Practiceshttps://doi.org/10.1007/978-3-030-34420-7_1

Begin Abstract

1. History of Economic Thought Hidden Within the Archives of Abrahamic Religions

Fawad Khaleel¹ and Alija Avdukić¹

(1)

Edinburgh Napier University, Edinburgh, UK

Fawad Khaleel

Email: [email protected]

Keywords

Abrahamic faithsMorality and market regulations

End Abstract

Key Topics

• Abrahamic Faiths
• Morality and Market Regulations

1 Introduction

The set of epistemological transformations which revolutionised the methodology of investigation by introducing empiricism marks the era of scientific revolution (Hooker, 4 August 2009). This methodology led to the construction of new ideas and theories inevitably contradicting and refuting previous doctrines through the manifestation of empirical evidence. The scientific revolution led to the ‘Age of Enlightenment’, which is also known as ‘Age of Reasoning’ with its strong focus on critical thinking and reasoning based on evidence rather than relying on the transcendental justifications of religion (Hackett, 4 August 2009). The English, German and French philosophers and intellectuals showed a very sceptical and captious approach towards religion. Furthermore, the French Encyclopaedism resulted in an understanding of religion as: ‘an eternal hindrance to intellectual progress and … incapable of founding a genuine morality and a just social and political order’ (Cassirer 1979: 136). This apparently detached religious ideology from social and economic spheres of life. It also diminished the impact of religious scripture, along with works of Aristotle, away from the locus of intellect and rationalism. This epoch also affected the nineteenth and twentieth centuries, when seen through the lens of philosophical positions adopted by many scholars. The practice of separating religion from the public sphere is elaborated by Nietzsche as cited in Schacht (1985: 443):

‘The whole of European morality’ is a part of ‘what must now collapse’ … ‘When one gives up the Christian faith [ or any other religion], one pulls the rights to Christian [ or respective religion’s] morality out under one’s feet,’ … it stands and falls with faith in God.’ … The very conditional character of its [Religious value judgement’s] right to existence is no longer felt,’ and its …now reflected in people’s ‘intuitions’ of ‘what is good and evil’. Fundamentally it has the status of ‘a command,’ which ‘has truth only if God is the truth’.

A religion’s morality and its interpretation of ‘good and evil’ cannot act as a benchmark for a society, until the respective religion is perceived to be both divine and the most suitable direction towards securing a normative society. With the separation of religion in this epoch, morality and ethical guidance derived from religious teachings were also rejected by society. The licitness to authority was inherited by reason from the religion, and religious morality was replaced by ‘methodological naturalism’. Kurtz defines methodological naturalism as a procedure for explaining natural phenomena concerning natural causes through the testing of hypotheses (as cited in Forrest 2000: 8). Religious ideology, on the other hand, was replaced by ‘philosophical naturalism’, which emphasised that ‘nature is best accounted for by reference to material principles’ rather than pneumatological explanations (Forrest 2000: 8). Galileo further elaborated this philosophy by explaining that ‘nature never violates the terms of the laws imposed upon her’ (numbers as cited in Lindberg and Numbers 2003: 267).

The approach detailed above resulted in bringing out more defined and structured market concepts and revolutionary methods of regulation and control, coinciding with the epistemological transformation of society. The Age of Enlightenment further proved to be the breeding ground for the progression of many disciplines, including the study of economics. It further opened the doors for the development of political and economic liberalism and prepared the foundations for modern secularism. The further technological and scientific advancements of civilisation during the following centuries, resulted in a general conclusion that from a psychological perspective, an individual with some education, better social integration and more fulfilled basic needs becomes less dependent on religious ideologies for psychological satisfaction and, thus, becomes less religious. In other words, the more an individual understands science the more critical he or she becomes towards religious doctrines. The future of religion, from a sociological perspective, is elaborated by Lenski (Lannaccone 1998: 1468):

Sociology was thus from its inception … committed to the positivist view that religion in the modern world is merely a survival from man’s primitive past, and doomed to disappear in an era of science and general enlightenment.

Similarly, reflected by Freud’s argument citing the exigency of eradicating religion from a cultural perspective, it is the proposed benefits projected by religion which can only be accomplished through scientific methods alleviating civilisation from strict religious regulations (Runzo 2001: 168). This meant that rigorous religious regulations can be replaced by an agile and efficient methodology based on scientific understanding, removing and superseding religion. Despite centuries of scientific development, media and information saturation combined with globalisation, religion still holds an incessant significance in today’s world (Lannaccone 1998: 1468). Although there are many constraints on analysing the authenticity of real data regarding religion, however, most of the world’s leading religions claim a healthy growth rate (The List: The World’s Fastest Growing Religions, 14 August 2009). A steep increase in the membership growth of churches in the USA since the American revolution from 16 to about 60% of the population’s attendance, and statistical data from the US Bureau of Labor suggests that the fraction of the population employed as clergy has remained constant during the last one and half centuries (Lannaccone 1998: 1469).

Religious surveys suggest that religious beliefs are not inversely proportionate to rises in income or an increase in educational levels (Lannaccone 1998: 1468). The methodology which allowed civilisation to interpret natural phenomena into scientific facts has also allowed the cultivation of a better understanding towards religious ideologies, and hence, a new religious contextualization accompanying postmodernism has emerged. In this process of recontextualization, the church shifted from its position of an absolute ban on interest to a position which permits this practice. Accordingly, the church’s understanding of contemporary concepts of interest is not of the same nature when compared to previously held views (Munby 1956). This position is contrary to historical approaches, where divine religious texts were contextualised to reflect the environment in which they were expressed or revealed.

Moreover, the challenges faced by religions in the postmodernism era have instigated a recontextualization of religious ideologies to find solutions for today’s problems. This process has increasingly brought religion into the limelight. During the last decades, political conflicts based on religion, religious-based economic reforms have ensued, alongside the influence of religion on culture, media, technology, medical science and the demand for food and beverage. The cartoons of Prophet Muhammad (pbuh) published by Danish newspaper, Jyllands-Posten, during 2005, are illustrative examples of developments in local disputes on religion’s impact and comprehension, replicating patterns of global conflicts (Wæver, 18 August 2009).

The increase in religious involvement in the operations of society, especially, within the market highlights further challenges for regulatory authorities. This has led to changes in the regulatory approaches utilised by many authorities, to accommodate religiously led market operations. The UK’s Financial Services Authority introduced significant measures between the enactment of the Finance Act 2000 to the introduction of the Finance Act 2007, to accommodate Islamic financial products within a British market (Ainley et al. 2007: 8), while France, in spite of its historical roots concerning religious scepticism, adjusted its legal and taxation system through legislative reforms, to introduce Islamic financial products (Legal Week, 20 August 2009). Such reformations are driven by many factors, including the search for sources of liquidity for the economy rather than pragmatic factors (Legal Week, 20 August 2009). In the current era, state and society’s receptivity towards religion has oscillated between complete scepticism to a progressive stance. While in a progressive mode state and society accept and encourage religious economic practice within a controlled environment, if religious economic practices result in tangible or intangible benefits. This has opened a door of opportunity for religious ideologues to promote the acceptability of religion in post-postmodernism and reinvigorate the perception of outcomes, from a religiously motivated economic and social activity. However, religious ideologies will need to deconstruct historical attempts to regulate the market using religious principles. This process of deconstruction could highlight the misconstruction of the implementation of religious principles.

2 Market Regulations and Ethics: Religiously Informed Regulative Environment

Trade through wilful means of exchange largely appears in all recorded human history. The need and necessity of trade materialised in the creation of markets somewhere in between 12,000 and 10,000 BC, whereas a well-structured and moderately defined working model of a market system can be seen as far back as 6000 BC, in the form of bartering in Mesopotamia (Ryan, 23 March 2009). Until the early epoch between 3000 BC and 500 BC, market mechanisms were moderately easy in processes and methods of functioning without having introduced complicated and complex definitions, and deceptions. With the passage of time the complexity speared into the market, it also brought with it factors like fraud, deception, exploitation and dishonesty. To mitigate unhealthy market elements, the practice of regulations was introduced which supervised and govern the ethics in the functions of markets. These regulations were derived and extracted from the social ethics and morals which prevailed within society. The derived values of social ethics and morals were constructed on the general perception of definition of good and bad perceived within the culture and religion. Without a formal regulatory institution, markets were regulated through implementing the practices that were created by the social dimensions of culture and religion.

3 Judaism, It’s Effects and Influence on Market Regulations

Judaism as an ancient religion discusses market regulation in Judaic law, known as Halakhah. Halakhah is categorised by two dimensions: one explains normative standards mainly based on rights, status and responsibility, while the other dimension explicates the collection of solutions permitted, when dealing with economic and social problems (Resnicoff as cited in Lange and Kandel 2005: 363). The main primary sources of Halakhah are the Torah, Mishnah and Talmud. Moses had two kinds of revelations from the God: one comprises five books called the ‘written law’ or the ‘written Torah’, while the second body of revelations were oral traditions transmitted from one generation to another (Resnicoff as cited in Lange and Kandel 2005: 364). Oral traditions were later recorded and compiled in 188CE under the name of Mishnah, Thereafter, during the historical period of Gemara (500CE), scholars discussed and debated on the Mishnah and the ‘written Torah’ (Le...

Table of contents

• Cover
• Front Matter
• 1. History of Economic Thought Hidden Within the Archives of Abrahamic Religions
• 2. Exploring the Epistemology of Utility Function in Islamic Economics: Foundation of Islamic Finance
• 3. Islamic Approach to Corporate Social Responsibility in Scientific Research with CSR Overview in Banking Sector of Bosnia and Herzegovina
• 4. Potentials of Waqfs from a Socio-Economic Perspective: The Case of Bosnia and Herzegovina
• 5. Efficient Diversification with Shariah-Compliant Stocks: Evidence from the South-East European Capital Markets
• 6. Credit Risk Assessment for an Islamic Bank in Bosnia and Herzegovina
• 7. Market Rent Value as a Basis for Profit Margin Calculation in Home Financings Based on Diminishing Musharakah with Ijarah: Possibilities for Implementation in Bosnia and Herzegovina
• Back Matter