Mudaraba Frame Work : Dr. Monzer Kahf
Mudaraba Frame Work : Dr. Monzer Kahf
Prof. Monzer Kahf: I am presently working on Estate planning for Muslims in non-Muslim countries
– By Dr. Shariq Nisar
Dr. Monzer Kahf is Ph.D, in Economics from University of Utah. For over a decade he has served as Research Economist at Islamic Research and Training Institute (IRTI) of the Islamic Development Bank (IDB), Jeddah, Saudi Arabia. He has authored more than 25 books and monographs and above 70 articles in English and Arabic, on Islamic banking and finance, Islamic economics, Zakah and Awqaf. In recognition of his invaluable contributions to Islamic Economics he was awarded IDB Prize in Islamic Economics: 2001. Prof. Kahf shares his views with Dr. Shariq Nisar
Could you please let us know about your current area of engagement in Islamic economics?
I am presently working on Estate planning for Muslims in non-Muslim countries, the theory of distribution in Islam, and the Islamic financing and banking theory and practice.
During the last two and half decade more than 130 member countries of the IMF have faced some bout of banking crises. Several theories are put forth about the causes of these crises including the one pointed out by Islamic economists. In your opinion how important are these charges?
There is a lot of exaggeration in the claim that Islamic economics and elimination of interest is the pass-par-tout key. It is not the cure of every economic illness. Basically the late nineties crisis in Indonesia and other countries is the result of mismanagement, the prevalence of the American style values of “run for money regardless of any standards as long as you are not caught” and the promiscuousness of the system to abuses by dictators, their family members and other opportunists. Islamic economics and elimination of interest are no substitutes of honest and checked and balanced management of the economy. The latter can be done and will succeed in any reasonable medium term with or without interest as the economic history of Europe and Japan indicate.
Of course Islamic economics and elimination of interest bring in a lasting solution to the negative performance of American corporate imperialism once the failure of corporate values becomes well known.
Several western scholars have argued about remarkable shift in Islamic banking practices from the theory. What do you think is the reason for that?
This argument came actually from Islamic economists. The problem is that they and their Western imitators put the carriage before the horse. They theorized a model that turned out to be unrealistic and inconsistent with financial intermediation. The Model they theorized is the two-tier Mudarabah but the practice used Murabahah and leasing on the use of funds side of the banking transactions. Both modes are more consistent with financial intermediation while Mudarabah is more of a venture capital approach rather than financial intermediation process. Obviously Mudarabah succeeded on the funds mobilization side, in investment deposits because banks are regulated financial institutions, businesses are different.
This means that the theory was wrong. Yet many Islamic economists stick to it in a dogmatic manner because they accuse Murabahah to be less Islamic. This struggle is apparent in the five-year discussion of the newly adopted law of a Islamic banking in Kuwait. The law finally went along with permitting the Islamic bank to enter directly in business venture on its own initiative. In spite of the restrictions and the discretionary authority the central bank may exercise, this approach loosen specialization and allow the Islamic bank to compete with business and to have its own stores for goods and services instead of remaining a financial intermediary only.
How would you assess the developments of past quarter century in Islamic economics and banking?
After a great take off since the First international Islamic Economic Conference in Makkah 1976, we went into stagnation in the nineties, most of the writings since the beginning of the nineties are repetitive and there is very little refinement, probably the whole profession of Economics is presently stagnant too.
There has been a call for Shariah scholars and professional economists working together to promote Islamic economics. How much progress you think has been achieved?
I think this is been going on for the last quarter of a century. Now the stage is for a new breed of Shariah well versed economists. This is what is direly needed now.
What would be your advice to the young researchers entering the field of Islamic economics and finance?
Improve your systemic Shariah foundation; don’t take it from hunches you find scattered in Islamic economics writing and go for rigorous economic training.