Principles of Islamic banking and finance/PIBF201/Islamic economic environment/Overview
The financial sector of an economy is supposed to support the underlying economic system which is in turn based on a particular world view and political and economic doctrines. Conventional finance has developed over several centuries originating from Europe and United States in support of a capitalist system that does not allow much room for religious based ethics. Individuals with any religious concerns in that system are supposed to make their own personal adjustments. Conventional finance is now being adopted by most countries of the world especially after the demise of Soviet Union towards the end of the last century.
As an Islamic economic system allows private property and appreciates the role of markets in determining prices in different markets, many Muslim economists may find the basic principles of an Islamic economic system relatively closer to capitalism compared to one based on socialist ideals. It is, however, important to note that an Islamic economic and its financial system must be in line with Islamic teachings. The basic objectives and goals of an Islamic economic system are distributive justice, fairness and fostering Islamically desirable behavior among people, without unnecessarily sacrificing allocative efficiency. Its financial system should not only contribute in achieving these goals but also avoid financial dealings that involve prohibited elements such as excessive speculation (mysir or qimar), unnecessary uncertainty (gharar) and riba (usury and / or interest).
In this section the fundamentals of an Islamic economy is discussed so that you can relate the goals and objectives of Islamic financial system with the broader economic organization.
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By the end of this learning pathway, you will be able to:
- Comprehend the Islamic world view
- Define Islamic an Islamic economy and understand its objective
