1CHAPTER
1Introduction
I
slam propounds the guiding principles, and prescribes a set of rules, for all
aspects of human life, including the economic aspect. How, and to what
degree, would an economic and fi nancial system designed in conformity
with the principles of Islam be different from a modern, conventional, non-
Islamic system? How would such a system deal with the questions of the
allocation, production, exchange, and distribution of economic resources?
How can some of its fundamental principles be explained with due analytical
rigor? Researchers interested in contemplating or devising a social, economic,
and fi nancial system based on the tenets of Islam are familiar with these and
many other such questions.
It is only in the past few decades that efforts have been made to explain
Islamic fi nancial and economic principles and rules in modern analytical
terms and, despite considerable published research, there is still some con-
fusion in regard to applying a precise defi nition to various social sciences
prefi xed with the term “Islamic,” such as “Islamic economics” or “Islamic
fi nance.” One of the main reasons for this confusion is the tendency to view
different aspects of such a system in isolation, without looking at it in its
totality. For example, the term “Islamic fi nance” is often deemed to denote
a system that prohibits “interest.” However, this simple description is not
only inaccurate but is itself a source of further confusion. Unfortunately,
too, a number of writers have taken the liberty of expressing opinions on
these issues without suffi cient knowledge of Islam, its primary sources, its
history and often without even a working knowledge of Arabic—the lan-
guage of Islam.^1 Against the backdrop of a politicized atmosphere, such
attempts render an understanding of these issues even more diffi cult.
Systematic thinking by professional economists about Islam and eco-
nomics has had a short history compared to both the remarkable earlier
period of vibrant scholarship in the sciences and humanities in the Muslim
world and to the long “hibernation”^2 that followed it. This earlier period
witnessed major achievements in all areas of Muslim scholarship and gave
rise to dynamic economic growth in Muslim societies. History has recorded
how these contributions, discoveries and intermediation by Islamic sciences
An Introduction to Islamic Finance: Theory and Practice, Second Edition
by Zamir Iqbal and Abbas Mirakhor
Copyright © 2011 John Wiley & Sons (Asia) Pte. Ltd.