Evolving Monetary Economics in Islamic Perspective

Abstract

The challenges facing the Islamic banking and finance industry include, inter alia, resolving the issue of ‘form over substance’, adopting value-based social and ethical finance, and reinforcing public confidence that its business and services conform to the principles of Shari’ah in both letter and spirit. These challenges can be faced only if Islamic finance is based on the money and monetary perspective of Islamic economics. An important aspect for discussion in this context is the issue of money creation. This paper is based on an analysis of the literature on conventional and Islamic economics and Islamic finance. It comprises observational and narrative research mainly because monetary policy from an Islamic perspective has not been implemented in any jurisdiction in the modern world. Its objective is thus to suggest how monetary policy might evolve from the perspective of Islamic law of contracts. It discusses an economic model in which a new theory of monetary economics could become a basis for evolving Islamic finance in its value-based perspective. It also discusses monetary economics and monetary policy from an Islamic perspective in the context of contemporary Muslim economies. The Islamic financial system must be based on the Islamic system of money, monetary economics and exchange principles. Hence, economists and policymakers may first focus on evolving monetary economics and policy from an Islamic perspective, to serve as a basis for structural reforms.

The Norm of Rate Fixing of Islamic Banks Based on Conventional Bank Rates: Evidence from Indonesia

“…Over time, according to al-Masri, as Islamic jurists have come to accept the concept of time value of money as long as it is not used in loan transactions, it is reasonable to accept that the central bank can set the rates of margin for murabahah (sale and purchase transactions), the rates of 'ujrah for ijarah (rental/leasing transactions), and the rates of profit for mudarabah and musyakarah (profit and loss sharing transactions). 45 Furthermore, as suggested by Hassan 46 and Ayub and Khan,47 this is applied to prevent financial crises.…”

“…15 Ayub and Khan suggested that due to the prohibition of interest in Islam, Islamic jurists should consider replacing interest rates with markup or profit rates, which can be applied in Islamic banks. 16 While al-Masri and Ayub and Khan have examined the prospect of central banks fixing the rates for Islamic banks, their studies do not specifically address Indonesia as the country with the largest Muslim population in the world. Hence, the rate control possibility exploration of Islamic banks in Indonesia is an unexplored gap.…”

Interaction of Islamic Economics and Government Transformation Technology in Indonesian Muslim Society

“…We can relate Islamic economics to the banking industry. The challenges facing the Islamic banking and finance industry include, among other things, solving the problem of 'form over substance,' implementing social finance and value-based ethics, and strengthening public confidence that its businesses and services are following the principles of Sharia (Ayub & Khan, 2021). Considering the role and position of the state is an exciting object of debate for economists, it raises questions in Islam (Masrimang, Sirajuddin, 2020).…”