Islamic Economics Project

A research project on Islamic Economics

To present Islam as a coherent, logical, rational and comprehensive system which has answers to all contemporary economic and other social problems of today and tomorrow with the goal to clear minds about Islam and its teachings before looking to influence actions and prevailing systems.
IEP 4/22/2011

Vision
To present Islam as a coherent, logical, rational and comprehensive system which has answers to all contemporary economic and other social problems of today and tomorrow with the goal to clear minds about Islam and its teachings before looking to influence actions and prevailing systems.

Introduction
Allah taught us the desirable behavior, actions and attitudes by giving us guidance through a functioning conscience i.e. inner guidance and by sending to us the pious Prophets i.e. external guidance. Muhammad (Peace Be Upon Him) was the last messenger and Quran, the last and only authentic source of guidance for the whole world till the end of this world. After revelation came to Muhammad (Peace Be Upon Him) 1400 years ago, Muhammad (Peace Be Upon Him) being the last messenger of Allah is the only source of divine guidance for human beings. Since no messenger and divine guidance were to come after Muhammad (Peace Be Upon Him), His teachings are thorough and comprehensive and based on principles that are applicable for all times and for all societies. Societies and civilizations are not bound to follow any particular culture, tradition, custom, particular tools and ways of carrying out different functions of life; they are only obliged to follow certain broad principles. In compliance with these principles, the societies are given room to make their own modus operandi which suits their particular civilization, extent of development and access to modern tools and techniques. Islamic Economics Project researches on Islamic Economics in the research areas of:

Interest Free Corporate Finance. Interest Free Public Finance. Interest Free Commercial Banking. Theory of Taxation in Islam and Formulation of Islamic Fiscal Policy. Theory of a Monetary Economics and Formulation of Islamic Monetary Policy. Dealing with Scarcity of Capital & Inflation in Interest Free Economy. Holistic Development Economic Framework in Interest Free Economy. Comparative analysis of Islamic principles with mainstream economic philosophies. Phase wise Application & policy guidelines for Proposed Principles in Economy. Empirical Research to Determine the Case for the Validity of Solutions.

This project tries to study that whether Islamic economic principles have validity and rationale behind them to be followed in todays time.

Projects Goals

The Project will support and promote research and researchers in Islamic Economics. Original papers with applied focus and impact factor will be considered for publishing from the platform of Islamic Economics Project and will be published on Projects website. The project will strive to promote its researches at various platforms including research conferences etc. The project will endeavor to foster healthy debates and envisions becoming a think tank in Islamic Economics. In proposing any change in prevailing system, IEP does not give away the ethical precepts of Islam, even if they become a hurdle in allowing IEP research work to become mainstream for the time being.

How You Can Participate

By praying before Allah for guidance for all of us. Reading the projects research. Writing in-depth articles and papers for the project. Providing feedback and criticism. Encouraging others in your network who have interest in Sociology, Philosophy, Economics and Religion to read the projects research.

Projects Accomplishments

There are more than 550 subscribers of the IEP newsletters. IEP website has been visited by people from more than 100 countries and it has received more than 25,000 hits in just a very short span of time. IEP has issued 43 bi-weekly Newsletters so far. IEP has published one book so far.

IEP now has more than one research fellow who write for IEP Newsletters. Together, 3 IEP research fellows have more than 50 publications. IEP is now a member of American Economic Association.

Projects Short Term Plans

Increase the number of subscribers to 1,000 by the end of 2012. Prepare an exclusive website of IEP. Publish a compendium book (2nd publication) by the end of 2012. Prepare short documentaries and multimedia rich presentations on IEP research. Offer fellowship formally to Islamic economists. Translate IEP research work in Urdu and Arabic. Register IEP as a trust/society and establish exclusive pages in global research repositories. Arrange exclusive sessions on Islamic economics in Global Economic Conferences for IEP fellows. Preparing policy papers and submitting it to SBP, FBR, MoF and other global policy bodies. Providing comprehensive answers on contemporary economic issues with Islamic perspective and preparing an extensive database of Faqs. Besides, publishing researchers work, providing feedback appraisal on the works submitted to IEP. and critical

Project Directors Profile

Salman Ahmed Shaikh is pursuing PhD Economics from IBA, Karachi. He is also serving as Research Associate, IBA. Previously, he did graduation with honor Cum Laude from Bahria University and MS from Szabist securing 1st position. He is a published author with 3 books, 20 research papers including 8 published papers and 9 working papers along with more than 100 research articles. He recently authored Proposal for a New Economic Framework Based on Islamic Principles. He has taught courses in Islamic Finance at undergraduate and graduate level at various national universities in Pakistan. He had been a visiting faculty member at Szabist, PAF-KIET and Biztek. He has supervised 12 Masters Theses to date & is Referee to 2 Journals, including one International journal. He also received commendation certificate from National Book Foundation for his book on Industries of Pakistan. He appears on TV Channels & gives his expert views on Economics & Finance. He has received 11 citations for his work. He has participated in various road shows and international conferences on Islamic Finance and Economics.

IEP Research Highlights

In developing Islamic Economics, we first need to present the thesis of Islam answering all valid arguments and questions against it and its teachings. Then, we can present the economic teachings of Islam which will act as broad guidelines for appropriate conduct in economic pursuits. Then, given the limits and constraints at the outset, utilizing both the literature and practice of Classical Economics and Islamic Economics, we can develop and present the foundations, institutions, instruments, mechanism and delineate role of each in the new Economic framework. In this regard, IEP has done following researches: In Islamic fiscal economics, working on previous researches and explaining with reasons that Zakat is the only compulsory payment to the government on ones income and wealth in an Islamic economy. Zakatable assets should include all assets above the value of nisab except the assets in personal use and means of production. All types of production and income sources be subject to Income Zakat. Investment in stocks should be interpreted as any other investment with some means of earning income. Stock is a means of earning dividend or capital gains. Just like means of production/income are exempted from Zakat, investment in stocks should be exempted from Wealth Zakat as investment in stocks means that the money is not kept idle. Therefore, any income arising from investment in stocks i.e. capital gains or dividend must be subject to Income Zakat. Similarly, this argument could be extended to introduce Income Zakat on income from mutual funds, investment in other financial instruments etc. Likewise, if

land/building/house is leased, the land/building/house becomes the means of earning rent. Hence, Income Zakat could also be introduced on rental income on houses, assets, buildings etc. Through an empirical study, it is concluded that Zakat in this way can relieve the government of Pakistan from deficits. An impact of this proposal on property market, asset market, equity market both through partial equilibrium and general equilibrium is analyzed. In Islamic corporate finance, IEP suggested an alternate approach to corporate finance in an interest free economy by looking beyond practiced Islamic finance and suggested alternatives for corporate finance in sourcing funds i.e. i) Ijara with embedded lease options, ii) limited liability partnership, iii) equity modes like Musharakah and Mudarabah with added covenants iv) income bonds and v) convertible income bonds. Then, IEP also suggested alternatives for corporate finance in using funds (investments) i.e. i) Islamic income funds, ii) Islamic REITs, iii) GDP growth rate linked sovereign bonds, iv) income bonds v) convertible income bonds, vi) foreign currency reserves, vii) making strategic expansion, and viii) equity investments in other companies. Ijara with embedded option can solve the paradox of unilateral undertaking and convert the sale of put option from the perspective of client into a call option. In Mudarabah, following two covenants can be introduced. These two covenants will minimize the problem of adverse selection, moral hazard and agency problem. o Mudarib can be asked to contribute some capital. The contract will still remain different from Musharakah as only the Mudarib is the working partner. o Mudarib can be asked to share in loss to some extent. In methods of valuation in Islamic Financial Management, IEP suggested an alternate means of pricing capital in interest free economy and use of appropriate discount rate i.e. Nominal GDP growth rate in public finance and corporate finance in CAPM, dividend discount model, project valuation, calculating NPV, valuing income bonds and stocks. Discussing the foundations of the ethical precepts of Islam, the thesis of religion, answering some of the questions in the comparative study of religion and trying to resolve few of the misconceptions about the faith of Islam. Outlining the economic teachings of Islam with regard to earning and spending based on the study of relevant Quranic text and the narrations of Prophet Muhammad (pbuh).

 Outlining the ideals Islam set before its adherents in the ethical sphere of life based on the study of relevant Quranic text and the narrations of Prophet Muhammad (pbuh). Analysis of the comparative economic systems. Empirical investigation of the potential of the institution of Zakat to meet fiscal needs of the government and to assist it in doing away with deficit financing, fiscal bleeding, crowding out private sector and reducing deadweight loss by parting the way with private sector so as to ensure market economy operating on its own as far as is possible and playing an active regulatory role. In monetary reforms, discussing how savings would feature despite discontinuation of interest, how inflation will be checked with central banks not having at their disposal the conventional OMO, how liquidity will be managed in banking sector when a central bank wants to inject liquidity or mop up funds. Discussing how balance of payments and exchange rate stability can be managed in an interest free economy. Proposing that, if in the short term, the government or central bank needs alternate source of revenue other than Zakat, they can issue GDP linked bonds. This could replace T-bill and provide a base instrument for OMO and liquidity management in the banking and financial sector. Critically analyzing the existing practices and prevalent modes of Islamic financing. Proposing new institutions and the role of those institutions with the comprehensive need fulfillment mechanisms to serve every major need of a sophisticated contemporary financial system. Introducing the feasibility and structure of Micro equity finance as a substitute for interest based micro finance and discussing how the potential obstacles in the form of lack of trust, funding commitment, lack of collateral arrangement, lack of documentation etc could be handled. Your comments, suggestions, queries and criticism are welcomed to convert these ideas into practicable models for the development of our people. Important
Please note that this project does not receive any funding yet nor does it want to in the near future. I am available to deliver lectures, conduct workshops, guest speaker sessions, delivering presentations in seminars and symposiums without any cost on Islamic Economics at any platform.

For more information, please contact Project Director, Islamic Economics Project islamiceconomicsproject@gmail.com www.islamiceconomics.viviti.com