World Congress for Middle Eastern Studies

Barcelona, July 19th – 24th 2010


Frontier of the Islamic Economics and Finance: New Challenges (264) - NOT_DEFINED activity_field_Panel

· NOT_DEFINED date: WED 21, 5.00-7.00 pm

· NOT_DEFINED institution: Kyoto University (Japan)

· NOT_DEFINED organizer: Yasushi Kosugi

· NOT_DEFINED language: English

· NOT_DEFINED description: The relentless efforts made toward the restructuring of the economic system according to Islamic principles started in the middle of the twentieth century. The ultimate objective was to implement an alternative form of economic and financial system different from the modern capitalist standard. These efforts resulted in the development of the independent academic discipline called “Islamic Economics”. The fruits of such endeavors were materialized by the launching of the commercial practice of Islamic finance in the 1970s. However, up to the present, the practice of Islamic finance, in reality, has not necessarily reflected the theoretical proposals of Islamic economics. For example, Islamic banks for the most part adopted debt-based financial products instead of the equity-based products suggested by most Islamic economists prior to that period. Therefore, Islamic Economics is still a frontier science in that many of its arguments are under scrutiny and quite controversial. We accept this aspect of Islamic Economics in a positive way because its ideas and theories have a huge potential to open new horizons and are indeed continuing to open such horizons. The current global economic system and the economic sciences which support this system have manifested a substantial number of fundamental problems, such as global economic disparity, the vulnerability of the global eco-system, and the economic instability highlighted by the current financial crisis. Towards solving these problems, any serious proposals for alternatives or alterations are essentially important, if the human race is going to have a better “tomorrow”. The role of Islamic Economics in this respect is quite apparent. Based on such motivations, this panel session primarily aims to reevaluate the achievements of Islamic Economics which have been influenced by conflict and coordination between theory and practice in Islamic finance, and subsequently to consider the role of Islamic economics in this age of globalization and in relation to the current economic situation.

Chair: Yasushi Kosugi, Kyoto University (Japan)

Paper presenter: Mehmet Asutay (Durham University, UK), “Conceptualizing the Social Failure of Islamic Banking and Finance: Modeling the Second Best Solution”
In his paper, he will primarily introduce the basic principles of Islamic economics and finance, and then attempt to provide the comprehensive picture regarding the achievement and reality of Islamic economics. The phenomenal growth of the Islamic finance industry has been remarkable since it came into existence just over thirty years ago. However, a closer reading of this positive development indicates that the Islamic finance industry does not necessarily share the aspirations of Islamic economics. In other words, the Islamic economic system aspires for the development of Islamic economics and financial institutions founded upon homoislamicus, agents concerned about social justice and human-centered economic growth and development. This indeed indicates the divergence between the aspiration of Islamic economics and the world of Islamic finance. After highlighting and analyzing the tension areas between the two, his paper argues that Islamic finance needs to move into its third stage of development through the institutionalization of social banking as a second best solution in overcoming the social failure of Islamic finance and in creating value-added for capacity building and social justice.

Paper presenter: Shinsuke Nagaoka (Kyoto University, Japan), “Coordinating Sharia Legitimacy with Economic Feasibility in Islamic Finance: Explaining the Divergence from the Multiple Diversities Perspective”
His paper will focus on the gap between the idea of Islamic economics and the practice of Islamic finance from the aspect of the development of Islamic financial products. Since the rise of its commercial practice, Islamic finance has confronted inherent problems related to its practical survival that are not observed in conventional finance. In order to be commercially successful in a situation where its practice coexists with conventional finance, Islamic finance must be not only compliant with the idea of Islamic economics, but also needs to provide competitive financial products. Thus, the practice of Islamic finance must maintain a balance between the above two conditions in order to survive as a financial practice. However, most practices of Islamic finance do not necessarily satisfy both the conditions. Many controversies regarding this matter, for example, determining which condition must or should be considered more important by Islamic finance, have been observed throughout the history. His paper overviews the following three prominent case studies wherein conflict and coordination between the two conditions can be investigated (Murabaha, Bay Ina & Bay Dayn and Commodity Murabaha & Tawarruq).Shifa Mohd Nur and Dr. Shehab Marzban will talk about the new issues of Islamic economics and finance, which have a tremendous amount of potential to solve the current problems of Islamic economics and finance.

Paper presenter: Shifa Mohd Nur (Durham University, UK), “Integrating Moral in a Dynamic Model of Corporate Social Responsibility in Islamic Economics and Finance”
Shifa Mohd Nur will focus on Corporate Social Responsibility (CSR) in Islamic Economics and Finance. The escalating social and economic problems in particular during the current financial crisis have raised new questions as well as expectations about corporate governance, ethical and social responsibilities. Commentators have raised “ethical” as the missing link in financing and also in running financial institutions. CSR has emerged and developed with the aim of constructing and directing the social responsibilities of economic and financial institutions. The main objective of her paper is to study the concept of CSR from an Islamic perspective. Importantly Islamic banks are criticized for not considering the social dimensions related to development, which is an essential distinguishing point of Islamic moral economy. Her paper therefore attempts to respond to this by suggesting a new paradigm within CSR framework to help Islamic bank and financial institutions to overcome the gap between aspirations and realities.

Paper presenter: Shehab Marzban (Durham University, UK), “Modeling the Analysis of Sharia Compliance Process: An Empirical Attempt”
His paper will focus on Sharia-compliant investments. Sharia-compliant investments are generally considered to be exposed to higher financial vulnerability compared to conventional investments which have a much larger asset universe to invest in. The wording “vulnerability” within this context refers to higher exposure to risk or less expected return compared to another less vulnerable alternative. His paper aims to question this general consideration and to explore empirically how Sharia-compliant investments performed during the last year compared to conventional investments. In doing so, a novel attempt was made to construct a specific model to analyze the outcome of the Sharia screening process. The analysis clearly reveals that during 2008/2009, Sharia-compliant portfolios were able to outperform conventional portfolios and should not be generally branded as being exposed to higher financial vulnerability.