Editorial

Citation

Alam Choudhury, M. (2006), "Editorial", Humanomics, Vol. 22 No. 2. https://doi.org/10.1108/h.2006.12422baa.001

Editorial

The papers in this issue deal with some critical points of Islamic development financing, Islamic banking and monetary transformation, and other development perspectives. The important points to note here are the substantively different ways of financing ventures between mainstream and Islamic approaches. One raises the question whether such an alternative mode of development financing is possible in today's world. Also some critical methodological issues of inter-sectoral linkages as a systemic sign of unity of knowledge are formalized. This is an important way of understanding the central epistemology of oneness of the divine law around which the entire Islamic worldview revolves.

Asset financing under Islamic law is free of interest. Interest is replaced by the alternatives of participatory financing instruments called Mudarabah (profit and loss sharing), Musharakah (equity) and Murabaha (cost-plus financing). Secondary financing instruments, such as foreign trade financing, unit trust, rents, deferred payments, joint ventures, co-financing, and forms of capital market instruments, all revolve around the principal MMM ones. Issues of private property and social property rights, inter-sectoral and inter-communal development and trade are all premised on these instruments.

The inverse relationship between participatory financing instruments and the abolition of interest rate comes about in a logical framework of unifying relationship on these two opposite sides. Participatory instruments bring about activities in terms of capital, production, cost minimization, risk diversification, and human resources throughout the social economy. The circular causal interrelationships between participation at the individual, enterprise and institutional levels and the functioning of development financing instruments and socio-economic states, both cause and necessitate regimes of declining rates of interest. Now the policies enhancing and maintaining the regimes of declining rates of interest causes mobilization of resources. Besides the resource mobilization issue, the direction of resources generated in the progressively interest-free regimes of development requires the direction of such resources towards moral and ethical goods and services according to the Islamic law. The end all is actualization of human wellbeing and overall development sustainability.

Contrary to the regimes of participatory development that mobilizes resources into the good things of life pertaining to the Islamic law, interest rate regimes hold back access to resources except by the very rich who can show collateral for loans and entry into bond markets and other interest-bearing capital market instruments. In interest-bearing transactions the poor and the less financially able are always left out from participation processes that otherwise raise entitlement and empowerment. Such inimical consequences arise no matter how small or large is the rate of interest. The skewed concentration of power generated by the ownership of wealth by the fortunate few creates social inequality, and thereby, deprivation and loss of human potential in society at large.

Regimes of interest rates also withdraw potential spending from the social economy in the form of savings. The result is a decline in potential output, product, and risk diversification. These are adverse conditions for establishing sustainable human wellbeing.

In the end, the role that such inverse relations play between participatory financing instruments and socioeconomic development in ethical wellbeing on the one side and interest regimes on the other hand, bring out the relational worldview of Islamic development financing instruments between the good things of life. This is an epistemological question that drives the entire socioeconomic system forward.

Today, with the increasing interest in Islamic modes of financing there are nearly 150 major Islamic banks in the world with many of their banking branches. A massive of Islamic funds is thereby entering the global economy.

The papers in this issue expatiate many of the above kinds of issues relating to Islamic economics and finance. They provide important readings for scholars, students and practitioners alike in understanding the effectiveness of the Islamic modes of development financing and the inherent logic in them.

Masudul Alam Choudhury