Developing Contemporary

Microeconomics from an Islamic

Perspective:
The Challenge of Genuine Islamization
by
Mohamed Aslam Haneef
Dept. of Economics, IIUM.
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Outline
1. Introduction
2. Islamization of Economics- The Why,
What and How
3. The Folly of Downstream Islamization
4. Operational Challenges in IOEMicroeconomics

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Introduction
In developing contemporary Islamic
Economics, we do not have to re-invent the
wheel.
Patchwork Islamic economics also not viable
Critical Engagement with modern economics
is possible but premised on Islamic foundations
Challenge is to develop contemporary Islamic
economics through process of genuine
Islamization
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Introduction - cont.
Before 1980s, writings on Islamic economics are
found but were not specifically talking about
Islamization of economics (IOE)
pioneer Islamic economists like Mahmoud Abu
Saud, Khurshid Ahmad, M.A. Mannan, M.N.
Siddiqi, Anas Zarqa and Monzer Kahf and scholars
such as M. Baqir Sadr and Mahmud Taleghani did
not focus on IOE per se but were presenting
Islamic economics according to their
understanding.
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Introduction- cont.
Part of Islamization of Knowledge Agenda (alAttas and al-Faruqi)
1984 3rd International Conference of Islamization
of Knowledge in KL had 2 specific papers:
Islamizing Economics- M.N. Siddiqi
Tahqiq Islamiyat Ilm al-Iqtisad: al Mafhum wa
al Manhaj- Anas Zarqa
(in Towards Islamization of Disciplines, IIIT,
1989)
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2. Why Islamic Economics

Modern economics is not value-free nor is it ideologyfree. All modern social sciences taught in universities
today were born in the last 300 years and have
foundations that represent western European history
and experience (S.M.N. al-Attas, Islam and
Secularism, 1978, Ch. 1)
Aspects of these foundations (and impact on the way we
see the human being and relations to other human
beings and nature) may not be in line with the Islamic
worldview.
Hence many policy tools may also be unacceptable.

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What is IOE (for extensive biblio, see

Mohamed Aslam Haneef, 2005)
IOE by definition, implies critical interaction/dialogue
with modern economics. (even critics of IOK/IOE do
not disengage completely)
However, genuine IOE calls for a critical evaluation of
not only modern economics but its foundations too (as
given by all major proponents of IOK)
One major weakness in contemporary Islamic
economics literature has been the oversight of this
important need to pay attention to the foundations of
modern (mainly neoclassical) economics
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What is IOE- cont.

de-westernizing modern economics and then

infusing it with Islamic values/principles

Recasting modern economics by eliminating,

amending, reinterpreting and adapting its
components according to worldview of Islam
and its values/principles
focus of IOE is primarily an epistemological
and methodological concern that requires
some sort of integration of knowledge
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IOE- The How

In the context of IOE, the Islamizers must
master both the heritage and modern
economics (critically) and then make creative
synthesis/integration
For both the heritage and modern economics,
there are two types of knowledge i.e.
substantive and methodological/ philosophical.
Focus11/01/15
has been mostly on the former
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IOE- Cont.
1. Mastery of modern economics
Substantive knowledge (theories)

Is neo-classical/keynesian economics
enough? What level of theory sufficient to
perform IOE? What about other schools of
thought?
What about other disciplines like history,
sociology, political science etc?
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IOE-cont.
Methodological knowledge
- modern sciences (including economics)
developed using methods and methodologies
that may not be sufficient for Islamic
economics due to the sources of knowledge
involved and their own historical experience

Very few, if any, of us were/are exposed to

this type of knowledge in our undergraduate
and graduate studies.
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IOE-cont.
2. Mastery of the Heritage
Substantive knowledge
What from our heritage is relevant to develop
contemporary Islamic economics?
Current emphasis is on fiqh and to a lesser
extent usul al-fiqh? Is this sufficient?
What about kalam, falsafah, history? Ulum alQuran and ulum al-hadith? Etc.

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IOE-cont.
Methodological knowledge
Very little, If anything is available and is being
taught
Is knowledge of Usul al-Fiqh sufficient to
develop contemporary Islamic economics?
Do we need to develop a new discipline that
caters to developing a social science like Islamic
economics?
Need for usul al-Iqtisad?
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IOE- cont.
3. Interaction with modern economics and
integrating the heritage with modern
economics must involve knowing what to
eliminate, reject etc. and why we do so.
The lack of (1) and (2) (especially the
methodological parts) has not enabled us to
do (3)
Created patchwork Islamization
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Downstream Islamization in practice

Practical dimension almost exclusively
focused on Banking and Finance
-Islamic banks have mainly replicated
practice of conventional commercial
banks, trying to Islamize the practices
- Debate about what has been done- is it
genuine Islamization or patchwork?
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Fails to realize that modern commercial banks and the

system of modern banking has its roots in a certain
history of western europe; these institutions come
with certain values and foundations that rationalise
their very existence
We make the mistake of trying to Islamize
instruments alone.
(For critique of Islamic Banking, see Ziauddin Sardar,
Islamic Futures, 1989).
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Cont.
While banking and finance have received
most of the attention in the last decade, early
writers were aware of the importance of
dealing with the micro foundations of the
discipline.
To do genuine Islamization, we need to
examine some fundamental assumptions that
underlie modern economics with inputs from
both our heritage and modern economics
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Operational Challenges in IOEMicroeconomics

Microeconomics today has been reduced to
mean the individual economic behaviour of
representative agents according to
neoclassical theories
Focus is on the rational behaviour of these
representative agents
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Challenges
1. In the context of IOE, focus should also be to
critically evaluate the assumptions of the
models/theories from Islamic perspectives.
- Can we use the representative agent model for
Islamic economics AS IT IS (are the
assumptions relevant)
- IF NO, can we use the model if we
modify/relax the assumptions,
- maybe we can even modify/improve the
mathematics
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Challenges-cont.
2. If Microeconomics (as a part of economics as a
whole) is to be taught, should we not teach other
schools of economics such as classical,
keynesian, institutionalist etc.
- Many critical works on the neoclassical
foundations of economics have been undertaken
by scholars who consider themselves as being
part of alternative schools of economics.
- Islamic economics can benefit from them but
must also critically evaluate these alternative
foundations too

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Challenges- cont.

3.

Focus of economics must be to deal with real

world economic problems rather than fictitious
inventions of neoclassical economists
- any attempt at developing Islamic
alternatives must address the problems of the
individual, ummah and humanity at large

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Example in Consumer behaviour

- Discussion has normative and positive/

technical aspects.
- All positive aspects must work within a
normative framework
(Reference for most of this section is
Tahir/Ghazali/Agil, 1992)
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Normative framework of Consumer

Behaviour

deals with the rules of the game or

framework within which technical
decisions are made
derived from the vision obtained from
our sources of knowledge
sets the boundaries/parameters that will
guide/limit our decision making process
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Normative- cont
includes concepts/values/norms/laws that
explain
- man and nature
- scarcity and rationality
- consumption (and the rules governing it)
as well as criteria that will influence choices
made
Need to compare Islamic normative framework
with that found in neoclassical economics
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Positive/Technical Aspect

dealing with constrained decision making

within the normative framework
includes tools/methods to seek precise
solutions to constrained optimization
Can we use the tools of neoclassical economics
if our framework is different?

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Normative Framework
Man
- man is both greedy and caring; physical and
spiritual; can be guided or otherwise; individual
but living in society
Other Concepts
- rizq meaning Godly sustenance, halal, tayyibat
meaning good and pure, heirarchy of needs
(daruriyyat, hajiyat, tahsiniyyat, tarafiyyat),
moderation, israf, tabthir
Challenge is to translate these concepts into
measurable variables
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Behavioural Assumptions (Taken from Zarqa

in Tahir/Ghazali/Agil, 1992)

consumption as a means to achieve falah

consume enough goods to lead a good and
healthy life (2:35, 168)

enough basic needs

enough not to depend on others (for family as
well)

(these are not fixed for everyone and every place)

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Behavioural Assumptions (cont.)

consume wider basket of goods (to satisfy

both physical and spiritual needs)
certain goods prohibited
no extravagance or spending on wrongful
items
give zakat and sadaqah (36:47)

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Technical Aspect

Maximize/optimize subject to constraints

(external and internal)

the choice is made within the framework

above
Issues
need to quantify the qualitative factors
can we use conventional tools?
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Example in Production
Normative framework derived from
Islamic sources of knowledge.
discusses man, the firm, concept of halalharam, tayyibat, no wastage or
extravagence, justice to yourself, your
workers/employers and to society etc.
Many items would be similar to
consumption
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Production- cont.
Issue of concern is the goal of maximization
Using Technical Analysis, scholars have differed
on this
- some like Siddiqi say maximization is not
the preferred goal
- others like Abu Saud (later developed by
Hasan), say maximization per se is ok. Issue is
what you are maximizing and the constraints
you have
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Production-cont.
Amin and Yusof (2003) take the analysis one
step further by demonstrating that profit
maximization can still be applied in an
Islamic framework, by incorporating Islamic
ethical values into the valuation of
opportunity cost as part of total costs to
ensure allocative efficiency.

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Using an modified neoclassical framework,

they show that if consumers behave
according to Islamic values, the production of
necessities would be higher and that of
refinements would be lower, compared to that
in a conventional setting.
This however, may require the state to
intervene in the form of taxes on the latter and
incentives for the former.
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Conclusion
Dilemma of Islamic Economists
Modern western trained Muslim economists
(or those in Islamic studies) are not able to
appreciate both the philosophical and
methodological issues underlying their own
disciplines and having any meaningful
exposure to the Islamic legacy (or to
modern economics for those in Islamic
studies).

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In the 250 year western economic

history (from the 1750s), their scholars
discussed methodology, philosophy.
In developing alternative schools in the
west, they have once again looked at
the foundations of neoclassical
economics
See www.paecon.net
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Most economics programs in western

universities today hardly discuss
philosophical and methodological
issues in economics.
The underlying assumptions of
mainstream neoclassical-keynesian
economics is accepted as truth,
while most if not all attention is
placed on mastering the latest
quantitative techniques (now
available in software packages) and
applying these to analyse data
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Islamic economists, especially academics

must pay more attention to methodology
and philosophy of economics; must know
this from our Islamic heritage as well as
understand the development of
methodology in western economics if we
want to really produce a unique, genuine
contemporary Islamic economics, banking
and finance.
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References
Sayyid Tahir, Aidit Ghazali and Syed Omar Syed
Agil (1992). Readings in Microeconomics- An
Islamic Perspective. Kuala Lumpur: Longman
Publishers.
Mohamed Aslam Haneef (2005). A Critical Survey
of Islamization of Knowledge. Kuala Lumpur:
International Islamic University Malaysia.
Ruzita Mohd. Amin and Selamah Abdullah Yusof
(2003). Allocative Efficiency of Profit
Maximization: An Islamic Perspective. Review of
Islamic Economics, No. 13.
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Thank you.
Comments and Questions welcome
mdaslam@iiu.edu.my

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