Maqasid Foundations of Market Economics

Islamic finance rests on the principles of free market exchange found in Islamic economics. But the latter has failed to keep pace with the rapid development of the former. Much work published on Islamic economics is rather idealistic, ideological and prescriptive, with little analytical insights, and hence of a trifling relevance to the Islamic finance industry. One of the common fallacies in many Islamic economics textbooks is the assumption of the principle of homo Islamicus often contrasted with homo Economicus embedded in conventional economics. In other words, the principle of homo Islamicus which suggests that people behave selflessly would prove to be pointless once it is discussed in the light of what had prevailed in Muslim history. Take, for instance, the Prophet Muhammad’s (pbuh) prohibition of catching incoming trade caravans before they reach the marketplace in Madinah. Another insight on the distinction between positive and normative statement can be excerpted from the Holy Qur’an 4: 128. As a matter of fact, the classification of economics into positive and normative helps greatly in ensuring clarity and organising debate on policy issues. Incidentally, this property applies equally well to the analysis of religious scriptures where Arabic statements are deliberately classified into khabari (informative of positive statement) and insha’i (constructive or normative statement) used to organise the transmission of meaning.