CHAPTER 2

SCOPE AND METHODOLOGY

OF ISLAMIC ECONOMICS
 LEARNING OUTCOMES

▪ To provide an overview of the definition of Islamic economics.

▪ To appreciate the salient characteristics of Islamic economics.

▪ To understand the scope of Islamic economics and its

objectives as a discipline.

▪ To have a general understanding of the methodology of

Islamic economics.
 DEFINITION OF ISLAMIC ECONOMICS

Economics is:

▪ A social science that studies aspects of production,

consumption, distribution and exchange of commodities.

▪ The science which studies human behaviour as a relationship

between ends and scarce means which have alternative uses.

▪ The study of how society manages its scarce resources.

 DEFINITION OF ISLAMIC ECONOMICS

▪ Attempts by modern Muslim thinkers in defining Islamic economics

have placed greater emphasis on its philosophical dimension,
namely attainment of equity and justice in economic activities.
▪ However, despite the many noble attempts to define Islamic
economics, till today, there is no consensus on a suitable definition.
▪ Debated issues range from:
 Articulating the objectives of Islamic economics.
 Invoking the Islamic ethical precepts in economics.
 Formulating its methodological stance.
 Presenting it as an economic system.
 Examining ideas and thoughts of early Muslim scholars.
 DEFINITION OF ISLAMIC ECONOMICS

▪ Arif (1985)
IE is the behavioural study of Muslim who organises the resources, which are on trust, to achieve falah (success).

▪ Mannan (1992)
IE is a social science that studies the economic problem of people imbued with the values of Islam.

▪ Hasanuzzaman (1991)
IE is the knowledge and application of its functions and the rules of Sharī ʿah that prevent injustice in the acquisition and
disposal of material resources to provide satisfaction of human beings and enable them to perform their obligations to God and
society.

▪ Chapra (1996)
The branch of knowledge which helps realize human well-being through an allocation and distribution of resources that is in
conformity with Islamic teachings without unduly curbing individual freedom or creating continued macroeconomic and
ecological imbalances.
 DEFINITION OF ISLAMIC ECONOMICS

▪ Siddiqi (1996)
Islamic economics is ‘the Muslim thinker’ response to the economic
challenges of their times. They were the resource persons in the
endeavor aided by the Qurʾān and Sunnah as well as by reason and
experience.

▪ Zarqa (2003)
It is economics which is guided by the Sharī ʿah. It covers all humans
(Muslims and non-Muslims) in their behaviour, institutions and
policies related to economic life, even when such behaviour is not
Sharīʿah compatible.
 DEFINITION OF ISLAMIC ECONOMICS

▪ The diversity of definitions should not surprise once we

remember that Islam's approach to all human issues, including
economic ones, is holistic or multidisciplinary.

▪ Islamic economics could be a study of choice considering

relative scarcity rather than absolute scarcity.

▪ It is apparent that wealth maximization and utility optimization

in general may not be a primary concern in Islamic economics.
 DEFINITION OF ISLAMIC ECONOMICS

Generally, Islamic economics could be defined as:

A social science that studies the economic problems of

humanity,
and evaluates their solutions from the perspective of the
Islamic world view and values,
as well as human reasoning and experience.
 CHARACTERISTICS OF ISLAMIC
ECONOMICS

Rabbāniyyah (Divine Origin)

Insāniyyah (Humanness)
Characteristics
Akhlāqiyyah (Ethicality)

Wasaṭiyyah (Moderation)

Wāqiʿiyyah (Practicality)

Ālamiyyah (Universality)
 CHARACTERISTICS OF ISLAMIC ECONOMICS

1. Rabbāniyyah (Divine Origin)

▪ The concept of rabbāniyyah means that Islamic economics has

a divine origin and is built upon the Islamic world view
confirming that God being the sole creator, owner and provider
of resources.
▪ The initiation of economic activities in Islam has its
metaphysical roots in the Holy Qurʾān.
▪ As such, Sharīʿah rules that are derived from the Qurʾān and
Sunnah, shall be applied in all aspects of economics, business
and financial deliberations taking place in society.
 CHARACTERISTICS OF ISLAMIC ECONOMICS

2. Insāniyyah (Humanness)

▪ Islamic economics is also concerned with the role of insān (human being)
who possesses both physical and spiritual attributes to attend to the
problems of resource allocation, distribution and growth.

▪ Humankind is responsible for managing the economy, and any attempt

made to understand human behaviour in the market place requires an
investigation of the concept of human being as an individual and as a
member of the community.

▪ An individual makes decisions on what to consume and produce, and is

held accountable in the hereafter for the choices made and actions
conducted.
 CHARACTERISTICS OF ISLAMIC ECONOMICS

3. Akhlāqiyyah (Ethicality)

▪ The role of humankind as Allah’s (SWT) vicegerent in establishing a moral and

social order on earth is difficult as they are being constantly attacked by
Satanic forces that reel them back to their bestial self.

▪ This requires an individual to exercise the power of intellect in dealing with

economic problems and choices where the likelihood of falling into error
cannot be overlooked.

▪ The sole purpose of humanity on this earth is to enslave themselves to Allah

(SWT) by following His guidance and teachings. Accordingly, they become
closer to Him and are rewarded with the beautiful gardens of paradise.
 CHARACTERISTICS OF ISLAMIC ECONOMICS

4. Wasaṭiyyah (Moderation)

▪ The need for balance is fundamental in any form of conduct as

without it extremism emerges that often leads to injuries,
discontent and unhappiness.

▪ The fact that Islam upholds moderation as a principle of good

conduct implies that the benefits arising from such behaviour
are manifested in all aspects of livelihood including economics.
 CHARACTERISTICS OF ISLAMIC ECONOMICS

5. Wāqiʿiyyah (Practicality)

▪ While the Sharīʿah rules give rise to the equitable nature of Islamic economics, some
activities may need no explicit divine guidance but must follow the law of nature.

▪ This includes considering the realities of life and the importance of being efficient in using
and handling of the resources entrusted to humankind by God.

▪ Islamic economics uses reasons and facts to understand and explain the realities (Example:
increasing sales by doing market research).

▪ One could refer to the 2007–2008 global financial crisis as a situation arising from humanity's
neglect of reference to divine revelations and values in the pursuit of economic activities.
 CHARACTERISTICS OF ISLAMIC ECONOMICS

6. ʿĀlamiyyah (Universality)

▪ Islamic economics is not only for Muslims. It is for the entire

humanity. This imposes a serious challenge to Muslim
economists to successfully deliver the message of Allah (SWT) to
humanity and positively contribute to world economic stability
and prosperity.

▪ One implication of this universality is the need to study

economic life of Muslims and non-Muslims in their economic
behaviour, institutions, policies and thought. It should also study
and critically review all accumulated human economic
knowledge.
 SCOPE OF ISLAMIC ECONOMICS
Three Conceptual Components of Economics:
1 Economic System
2 Economic Analysis
3 Economic Policies

The three components are conceptually distinct but there are

several channels of influence whereby one affects the other.
 SCOPE OF ISLAMIC ECONOMICS
1. Economic System

▪ The economic system comprises the ‘normative’ elements, that is,

what ought to be, the do's and don’ts, the right and wrong, the legal
and illegal, the ḥalāl (permissible) and ḥarām (impermissible), and the
goals in economic life.

▪ It is the conceptual repository of the normative components of any

form of economics.

▪ A system comprises a society’s world view, goals, rules and

institutions that the society prefers to live up to and follow in
managing its economic life
 SCOPE OF ISLAMIC ECONOMICS
2. Economic Analysis

▪ It consists of descriptions of economic reality and statements about stable

relationships among variables or causes and effects.

▪ This is the ‘what is’, or the ‘positive’ or descriptive component in

economics.

▪ In addition to policy, values influence economic analysis through two

channels:
 The choice of topics or questions to be studied.
 The choice of variables to be used in explaining economic phenomena.
 SCOPE OF ISLAMIC ECONOMICS
3. Economic Policies

▪ These policies consider how we move from where the

economy is, to where it should be: to change the present
economic reality to make it closer to our ideals or goals.

▪ An economic policy always comprises both goals and means.

The goals are normative and ‘imported’ from the system
component, and the means are positive and ‘imported’ from
the analysis component. Policy uses knowledge of causes
and effects as a tool to reach goals.
 SCOPE OF ISLAMIC ECONOMICS
Islamic Economics as a Social Science

▪ As a social science, Islamic economics seeks to examine the conduct of

individuals collectively in social settings including the market place and
the established economic relationships to assure fairness and justice.

▪ Islamic economics is also associated with social undertakings by the

state where the institution of zakāh and other collective and voluntary
spending activities take place.

▪ The concept of the individual shall not be confined only to the mundane
physical-being that is merely driven by material impulses but must be
seen as a social individual who interacts with the community.
 SCOPE OF ISLAMIC ECONOMICS

Islamic Economics as a Social Science

▪ As a way of life, Islam is not a religion that isolates economic activities from the worship of God
but sees all human activities as an act of worship.

▪ Aql (mind/intellect), rūḥ(soul), qalb (heart) and nafs (self) of the individuals have an impact on
determining economic choices.

▪ The economic decision of the individual does not affect only oneself, but the society one lives
in as well. As such, immoral economic decisions may seek only to benefit a few of the rich and
the elite with catastrophic effects on social and economic welfare of nations.

▪ Since the problem deals with the individual in his or her management of resources in a social
context, the study of Islamic economics shall include the study of the individual conduct (that
is driven by his philosophical, psychological and theological inclinations) within a social
context.
 SCOPE OF ISLAMIC ECONOMICS

Islamic Economics as a Political Science

▪ Political economy deals with the role of markets and government in determining the performance of
economy.

▪ This does not only include the relation between the market and the government, and the coordination
and cooperation between them, but also the preference for regulation and deregulation of the market.

▪ Actions in the market shall be governed by a set of sound legal rules as well as ethical principles to
ensure justice and fair dealings. Otherwise, the market may not be able to police itself, leading to
people indulging in corrupt business practices such as price-fixing, hoarding, outbidding, trickery,
concealing of defects and cheating. Therefore, Islamic economics shall also deal with this aspect.
 SCOPE OF ISLAMIC ECONOMICS

Islamic Economics as a Multidisciplinary Science

▪ Islamic economics is a discipline which has relations with Islamic metaphysics,

ontology, epistemology, theology and ethics.

▪ Some scholars view Islamic economics as a multidisciplinary science that combines the
disciplines of science, religion and ethics.

▪ Though this may make the scope of Islamic economics too wide, acknowledging the
close relationship between the mentioned disciplines and Islamic economics is
undeniable.
 OBJECTIVES OF ISLAMIC ECONOMICS AS A
DISCIPLINE

1. Study & Discover

▪ Islamic economics includes normative statements and positive statements.

▪ In Islamic economics, normative statements should follow value principles of Islamic behavior.
▪ A positive statement provides observable economic facts assessed without any value judgment, while
a normative statement describes the ideal state of the economy based on certain value principles.
▪ On the positive side, Islamic economics shares with conventional economics the professional duty of
studying all human economic reality and accumulated knowledge related to it, and to ‘discover’ and
‘verify’ new positive knowledge, both descriptive and analytical.
▪ Islamic economics should make special effort to seek the wisdom of Divine instructions, including their
short- and long-term consequences, expected hurdles and ways to implement them to achieve their
full intended benefits for humanity.
 OBJECTIVES OF ISLAMIC ECONOMICS AS A
DISCIPLINE

2. Assess and Reform

▪ Islamic economics should critically analyze every issue it studies from the perspective
of an Islamic economic system as well as the realities of time and place, and formulate
policies to reform the present and move closer to the system goals (objectives of the
Sharīʿah in economic life).
▪ Islamic economics shall maintain a universal outlook; hence, it shall study, assess,
review all accumulated human economic knowledge and use available analytical tools.
▪ Islamic economics has a comparative advantage over conventional economics as the
former has access to the divine guidance of the Sharī ʿah. This makes for fundamental
contributions and possible paradigm shift in economics.
 METHODOLOGY OF ISLAMIC ECONOMICS

▪ Methodology is generally defined as a system of broad principles

or rules from which specific methods or procedures may be
derived to interpret or solve different problems within the scope
of a discipline.

▪ Economic methodology is concerned with how economic

knowledge is pursued.

▪ In order for Islamic economics to become a reality, a

methodology which incorporates Islamic values is necessary to
be included.
 THREE-PRONGED APPROACH OF ISLAMIC
ECONOMICS

Islamic economics may follow a three-pronged approach involving:

▪ Negation: Involves the rejection of any conventional economic concept, theory,
value or model if it contradicts the world view of Islam and its fundamental
elements.
▪ Integration: involves the incorporation of any economic concept, theory or
practice that is in line with the Islamic world view.
▪ Value-addition: involves such exclusive additions made to economics because
of the unique values within the Islamic world view.
 INTERPRETING ECONOMIC PHENOMENA

▪ Conventional economists are convinced that the explanation of economic phenomena is

based on observing them the way they are or the way they occur in an economy. This form of
observation and interpretation is called ‘positive economics’. (Example: The establishment of
the law of demand)
▪ Generally, the Islamic world view is in agreement with positive economics and its scientific
forms of observation and analysis.
▪ Islamic epistemology in fact, acknowledges sense perception, sound reasoning and the
scientific method as sources of knowledge to observe natural phenomena, including
economic phenomena. Empirical evidence is accepted in Islamic epistemology as a means of
validation of knowledge.
▪ Though the Islamic world view approves empirical evidence as a means of discovering
knowledge, it also accepts the unseen and metaphysical beings who directly or indirectly
influence the natural phenomena of economics.
 INTERPRETING ECONOMIC PHENOMENA

Example of Normative Vs. Positive Economics

▪ Distinguishing between positive statements concerning facts (what is), and

normative statements concerning values (what ought to be) is an important part of
methodology in which the link between positive economics and normative
economics must be preserved.
▪ The economic phenomenon (inflation, for example) is an aspect of positive
economics, but avoiding it or managing it is part of normative economics, because it
is based on a value judgment of inflation.
 SUMMARY

▪ Conventionally, economics has been defined as the science which studies human
behaviour as a relationship between ends and scarce means which have alternative
uses. However, this is found to be unfitting as a definition of Islamic economics.

▪ Going through various definitions of Islamic economics and analysis of divine

guidelines provided in the Qurʾān and Sunnah, it is noticed that different definitions
are not contradictory; rather they refer to different aspects.
▪
▪ Although Islamic economics studies choices made by people within the Sharīʿah
boundaries, sources of knowledge are not limited to divine revelation but include
empirical and rational sources as well.
 SUMMARY

▪ The main characteristics of Islamic economics are defined in terms of its rabbāniyyah
(divine origin), insāniyyah (humanness), akhlāqiyyah (ethicality), wasaṭiyyah
(moderation), wāqiʿiyyah (practicality) and ʿālamiyyah (universality). One could also
view ‘Sharīʿah boundaries’ as a key characteristic of Islamic economics.

▪ Islamic economics is not only concerned about individuals; it also seeks as a social
science to examine the conduct of the individuals collectively in social settings
including in the market place, and their economic relationships that are established
to assure fairness and justice.
 SUMMARY

▪ Islamic economics has a wide scope in which it could be seen as a social science,
political science and multidisciplinary science that has a very close relationship with
fiqh (Islamic jurisprudence).

▪ Islamic economics aims to discover and study economic reality and accumulated
knowledge to assess and reform the present and formulate policies in line with the
Sharīʿah objectives in economic life.

▪ Islam acknowledges sense perception, sound reasoning and the scientific method
as sources of knowledge to observe natural phenomena, including economic
phenomena.
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