Three years ago, I delivered a lecture at the Institute of Objective Studies in Calcutta, titled ‘Islamic Banking: An Economist’s Perspective’.
Very few people know what Islamic banking is or what interest-free economy means. Only some devout Muslims who try to adhere strictly to the Islamic stricture against interest follow Islamic economics. We do not find mainstream academic institutions working on this subject. However, this is something that touches everyone’s life, Muslim and non-Muslim alike. Hence there is a pressing need for wider awareness among people about what Islamic economics means.
There are three aspects of the subject that merit attention. First, a moral, ethical one, which sees interest as fundamentally unjust because the borrower bears greater risk or loss, or has less security of making a profit than the lender. The lender of money is passive, while the borrowing entrepreneur is active; yet the lender commands a return even before the enterprise yields anything.
Second is the politico-economic or social revolutionary aspect. Interest is the means to protect and perpetuate the socio-economic power of those who represent the past (owners of capital) as opposed to those who seek to become something in future. Credit is the only means through which new, creative economic activity can take place. But the emergence of new enterprises, the creation of new wealth and income, empowerment of the poor and the low income group and the realisation of social justice – are all hostage to the urge of capital-owners to secure maximal returns while bearing minimal risk. Interest breeds speculation, which is the bane of productive economic activities.
The third aspect is the faith-based one, of following scriptural prescriptions.
The vision of interest-free economy has the potential of bringing together under a common movement people of Islamic faith, people of conscience, radicals and social revolutionaries.
One could cite anti-usury thinking in the pre-Christian and early Christian era (Aristotle, Plato etc). One could also highlight the underlying conflict in the American economy and society, between the interests of those with old wealth and those with nothing but their dreams, their zeal for advancement, and their labour. The ‘populist’ movement in the USA, led by Andrew Jackson (President, 1829-37), brought this tension to the fore. The conservative policies of the 1920s and the 1980s Reagan era, with their severely negative social distribution consequences may also be seen in this light.
Islamic banking or interest-free economics means that lenders become risk-sharing business partners. Social ethics, community participation and public accountability are inherent in this vision. A brave new world is waiting to be built, but this cannot happen in isolation, undertaken by one community, in a few countries. It must be a global movement of humanity, seeking to build a just world.
The Economist had recently carried an article on Islamic finance. After summarising some of the technical difficulties involved in "mainstreaming" Islamic banking, the article concluded: "None of these challenges is insurmountable. This is an era of financial innovation where investors delight in exploring new areas of risk. Cultural barriers are there to be crossed. "
Reading this, it struck me that Islamic economics is a conception whose time has now come.