Reconstruction of ie thought need for ijtihad

Reconstruction of Islamic Economic Thought: Need for Innovative Thinking (Ijtihad)1 by Muhammad Akram Khan2 Working Paper (Last updated 31 December 2016) Abstract While claiming to develop Islamic economics as a social science based on the Qur’an and the hadith3, Muslim scholars have actually ended up presenting ‘Islamic economic teachings’ in modern jargon. Although it is a valuable contribution, yet they did not adjust the meanings and interpretations of the primary texts in light of socio-economic developments that had taken place since the beginning of Islam. Besides presenting archaic interpretations of the Qur’an and the hadith, they relied heavily on the Islamic law (fiqh)4 without realizing the fact that the social context of the legal thought was outdated by several centuries. Human social and economic developments have evolved into new dimensions since then. New problems and challenges have emerged which require innovative thinking (ijtihad) and fresh interpretation of the primary sources. The paper gives examples of at least six priority areas where ijtihad is required. These areas are: shari’ah and maqasid al-shari’ah; definition of riba; zakah law; distribution of profit and loss under musharaka; Islamic commercial law; and implementation of the law of inheritance. The paper proposes a plan for creating necessary infrastructure for ijtihad.

JEL Classification Codes: D64, E43, H55, K22, O16, O31, Z12 1. Introduction The main objective of the present paper is to emphasize the need for innovative thinking (ijtihad) in several matters relating to Islamic economics. After a short introduction the paper proceeds to identify six main areas, as an illustration, where ijtihad is urgently needed, if the Muslims wish contributing to the global knowledge. The 1

I am thankful to Anwar Abbasi, Haider Zaidi, Rafiqul Islam Molla, Syed Abdul Hamid al-Junid, Izharul Haq and Tahir Saleem for valuable comments on an earlier draft of the paper. I have benefitted from these comments.

However, remaining short-comings of the paper are mine.

2 makram1000@gmail.com 3 Hadith refers to sayings, actions and approvals of the Prophet Muhammad (peace be upon him). Most of this have been subjected to rigorous scrutiny for authenticity. In this paper by ‘hadith’ we mean only authentic traditions of the Prophet (pbuh).

4 Fiqh refers to collection of Islamic legal thought developed during five centuries after the advent of Islam. It contains innovative thinking about problems and challenges of that time. The scope of the thought is extensive but temporal as it was developed in response to actual problems faced by individuals and governments of the day.

third part of the paper presents a proposal in bare outline for creating an infrastructure to institutionalize ijtihad in Islamic economics.

2. Need for Innovative Thinking (Ijtihad) The knowledge contained in the two primary sources of Islam (the Qur’an and the hadith) requires innovative thinking (Ijtihad). The language and style of these sources is such that they can be reinterpreted in each age. Since the guidance in these sources is for the whole humanity and for all times, we need to understand meanings of the primary texts according in the context of our time. It does not mean we necessarily have to discard what we have inherited from earlier generations. It only means that we should re-open the doors of Ijtihad which are erroneously believed to have been closed.

Iqbal (1989, 141) has quite aptly remarked that, “The closing of the doors of Ijtihad is pure fiction suggested partly by the crystallization of legal thought in Islam, and partly by that intellectual laziness which, especially in the period of spiritual decay, turns great thinkers into idols.”

MEANING OF IJTIHAD Ijtihad means the utmost effort an individual can put forth in an activity. In Islamic law, the term denotes utmost effort of a legal expert to find solution of a legal problem for which there is no explicit injunction available in the primary texts. The Islamic law recognizes it as a valid process of decision-making on the basis of the Prophet’s own approval of what one of his companions, Ma’adh b. Jabal, said while being nominated as governor of Yemen5. All major schools of Islamic law resorted to Ijtihad in their formative periods. In fact most of the Islamic law as it exists today was the result of the Ijtihad of the master of the school of law or his immediate successors. According to the generally accepted opinion Ijtihad is not required where primary and authentic texts are available or where there exists consensus among religious scholars (ijma’) . Ijtihad had been a powerful tool in the Islamic legal thinking which kept alive original spirit of the law in changing circumstances. However, around beginning of the 10th century, most Sunni jurists argued that since all major matters of religious law had been settled there

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Ma’adh b. Jabal was appointed by the Prophet (pbuh) as governor of Yemen. Before he left, the Prophet asked him as to how he would judge when the occasion of deciding a case arises. Ma’adh said, “according to the Qur’an”.

The Prophet thereupon asked what he would do if he did not find the solution to the problem in the Qur’an, to which Ma’adh said he would govern according to the Sunnah. But when the Prophet asked if he could not find it in the Sunnah also, Ma’adh said "ana ajtahidu" (I will exert myself to find the solution). The Prophet thereupon patted his back and told him he was right. [Abu Dawud, al-Kitab al-Sunnan, Book: Aqdiya: Chap. 11; Also: Tirmidhi, al-Jami’ al-Sahih, Book. Ahkam: Chap. 3].

was no need for any fresh ijtihad. People should follow the established legal precedents and traditions as codified in the books of various schools of law.

OBJECTIVE OF THE PAPER The main stance of the present paper is that over centuries socio-economic conditions have evolved and a large number of legal edicts which were issued centuries ago have either become redundant or at least problematic. By following the Islamic law blindly the original and creative spirit of Islam has blunted. Application of the law, particularly in the fields of finance and economics, have created insoluble problems. A literal following is either not possible or at least so complex that the law seems to be more of a problem than a solution in several cases.

In the present age we need to apply the powerful tool of Ijtihad which is inherent in the original spirit of Islam, if Muslims want to keep Islam relevant to the humanity at large.

The work done in the name of Islamic economics and finance during the last four decades (1976-2016)6 is in the framework of what we inherited from earlier generations. It is overly gripped by immobility of the Islamic law (fiqh), major part of which was developed several centuries ago. Until Muslim scholars take a fresh look on the Islamic economic teachings they shall not be able to make any significant contribution to human welfare. They will keep revolving around what their forefathers had said centuries ago without realizing that times have changed and history has moved on. Their insistence on remaining focused on the intellectual heritage and refusing to take a fresh look on the primary sources has dwarfed Islam’s role as source of enlightenment. The global scholarly community has not as yet paid due heed to what Muslims have been saying about ‘superiority’ of the Islamic economic system. These claims seem to them irrelevant and archaic. Muslims must show courage to undertake Ijtihad, where necessary, and say goodbye to spiritual slavery of the past. They should acknowledge change as reality and be prepared for fresh and innovative thinking.

In the following discussion we shall enumerate some key areas that require innovative thinking (Ijtihad) for liberating the Islamic economic thought from shackles of outmoded human thinking.

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Assuming First Conference on Islamic Economics held in Makkah in 1976 as a milestone for the birth of Islamic economics in this age.

3. Priority Areas That Require Creative Thinking (Ijtihad) 3.1 SHARI’AH AND MAQASID AL-SHARI’AH What is Shari’ah?

Whatever is presented in the literature on Islamic economics and finance in the name of Shari’ah is a collection of verses from the Qur’an, traditions (ahadith) of the Prophet, rulings of jurists and opinions of religious scholars. While the Qur’an is divine verbatim and the authentic traditions of the Prophet are also believed to be divinely inspired, the rulings of jurists and scholars are expressions of human thinking. We have to accept the divine as it is but we can disagree and deviate from human thinking. However, if we intermingle both, the divine and the human, and name it as Shari’ah, the whole content would appear to be sacrosanct. The room for disagreement and further thinking would become restricted. It would impede the growth of knowledge. For overcoming this obstacle we need to disentangle the divine from the human.

For achieving this objective we need to prepare a compact or concise description of the Shari’ah. It is surprising that despite passage of several centuries, Muslims have not compiled a compact and standalone document which can be presented under the nomenclature of the Shari’ah. It is now time to do so to disentangle the divine texts from human thinking. We need to compile a short document that consists of Shari’ah as prescribed in the Qur’an and authentic traditions of the Prophet (pbuh). The compilation should be of the nature of ‘bare’ law, in the legal jargon. It should be in Arabic language as revealed by God or spoken and approved by the Prophet (pbuh) without any translation, commentary, explanations or discussions. It should then be left to the readers to discuss and explain the contents of this compilation. The approach would segregate the divine from the human. It would open the way for free and independent thinking without being guilty of any profanity. It would expand the canvas of thought and allow people to transcend boundaries of the Islamic law (fiqh). It would be the first step for emancipating Islam from immobility of the fiqh.

Objectives of the Shari’ah Several authors have discussed objectives of the Shari’ah. Most of them have resorted to the five objectives stated by Ghazali (d. 1111 AD), and Shatibi (d.1388 AD). According to them objectives of the Shari’ah are five: protection of life, faith, progeny, reason and property. We do not know exactly the socio-economic milieu in which these objectives were defined. Although there is a lot of merit in the list yet in this age the objectives appear to be exceedingly simplistic and out of sync with social developments. For example, these objectives do not mention such vital values as justice, human dignity, universal education, trust in mutual dealings, accountability and transparency, business and personal ethics, alleviation of poverty, environmental protection, equitable distribution of income and wealth, and corporate social responsibilities, etc. It is a sad commentary on blind imitation of forefathers that only a few scholars have ventured to suggest expansion in these objectives. For example, Amin, et el (2015) mention Nejatullah Siddiqi (2009), Abu Zahra (19677) and Chapra (2008) as examples of those who have suggested a revision in the maqasid al-shari’ah proposed by Ghazali and Shatibi. One of the most important areas for Ijtihad is to re-open the whole question of objectives of the Shari’ah and bring them in line with social developments and the stage of history where we have reached by now.

3.2 DEFINITION OF RIBA The Qur’an categorically declares that ‘riba’ is illegal (Q. 2:2758). However, it does not explicitly define the term riba. Muslim jurists have framed an implied definition which treats any excess on the principal of a loan as riba. This definition is generally accepted by all schools of jurisprudence. Majority of the Qur’anic scholars think that the Qur’an did not define riba because the practice was rampant in Arabia and the first audience of the Qur’an understood it quite well. Without disputing this narrative, we think another potent reason for not defining riba was to leave it open for future generations to define it in their respective contexts. That is what has been said by Asad in his commentary on verse Q. 30:39. He says: …we realize that the question as to what kind of transactions fall within the category of riba is, in the last resort, a moral one, closely connected with the socio-economic 7

Amin et el have not cited full reference to Abu Zahra. Date of publication is also mentioned as 1967 at one place and 1997 at another.

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In this paper all references to the Qur’anic verses are stated as follows. After the alphabet “Q.” the digit(s) before the colon denote chapter number and digit(s) after the colon refer to verse number. For example, Q. 2:275 means chapter 2, verse 275 of the Qur’an.

motivation underlying the mutual relationship of borrower and lender: and, stated in purely economic terms, it is a question as to how profits and risks may be equitably shared by both partners to a loan transaction. It is, of course, impossible to answer this double question in a rigid, once-for-all manner: our answers must necessarily vary according with changes to which man’s social and technological development – and, thus, his economic environment – is subject. [Note 35 on the verse]

Not only the Qur’an is silent on the definition of riba, the hadith literature also does not help much. In this regard, the following famous hadith reported on the authority of ‘Umar b. alKhattab, the second caliph of Islam, is quite illustrative9: ‘Umar b. al-Khattab said, "There are three things. If Allah's Messenger had explained them clearly, it would have been dearer to me than the world and what it contains: (These are) kalala, riba, and khilafa. [Sunan Ibn Majah, Book of Inheritance, Vol. 4, #2727; Ibn Majah adds: "According to al-Zawa'id, the authorities of its chain of transmitters (isnad) are reliable, but it has munqata’ chain of transmission." p. 113; munqata’ means an interrupted, broken or discontinuous chain.]10

The question of riba and its application in the present day came up for legal ruling in nineteenth century before religious scholars when the Western colonial powers tried to introduce modern banks and insurance companies in Muslim lands. Overwhelming response to the questions on the subject was that the interest practiced by modern financial institutions is nothing but riba and must be avoided. In the beginning the religious scholars also opined that doing a paid job in these institutions is also illegal from the Islamic perspective. In brief, the near consensus response on the prohibition of interest and equating it with riba led to serious thinking among the Muslim wealthy class. Since 1975, with the establishment of Islamic Bank Dubai, it became a stimulus for founding present day Islamic financial institutions, which are progressing at a rapid pace.

The original idea was to establish Islamic financial institutions on basis of profit-loss sharing principles since a fixed return on capital was equated with riba. However, soon the Islamic 9

Reported by Farooq (2006).

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Some people object to the substance of this hadith also as, according to them, its acceptance implies that either the Prophet (pbuh) did not convey the whole of divine guidance or God did not explain something on which He wanted people to act. This is an outlandish objection since there are large number of verses of the Qur’an which require explanation and people have been writing commentaries on that. The existence of a large body of exegetical and juridical literature speaks volumes for the fact that there are verses of the Qur’an which require explanation and interpretation in each age. If we treat such efforts as blasphemy or some sort of short-coming of the Prophet (pbuh) or of God, we propose to close all doors of thinking and reflection on the verses of the Qur’an and would deprive ourselves of the great treasure of knowledge which can unfold only by reflection and thinking on the verses of the Qur’an in each age. In fact, the whole case for ijtihad is based on that very fact.

financial institutions found that the practice of profit-loss sharing is cumbersome, expensive, outmoded and risky. It persuaded them to search for such modes of finance which would bring fixed returns, like interest of conventional banks, without the stigma of interest. With the help of religious scholars whom they accessed for help or employed them in their institutions, they were successful in finding and developing those modes. Most prominent of these modes are murabaha, Ijara, salam, and istisna’ and their various variations. However, if we take a deeper look on these modes of finance they are so much akin to interest of the conventional financial institutions that it is difficult to tell one from the other. The Islamic financial institutions had other problems besides finding modes of finance. They needed to handle requests for bank guarantees, letters of credit, discounting of bills, management of surplus and deficit cash flows, responding to fluctuations in global foreign exchange markets, etc. They were unable to find strictly ‘Islamic’ modes based on profit-loss sharing model and which could be called as pure and pristine in comparison with the prevalent system of interest-based banking. Perforce, they were left with no other option than to devise a large number of tricks and subterfuges to accommodate conventional interest in their dealings despite all the lip-service in equating interest with riba11.

We have now landed at a sad state of affairs. Islamic financial institutions (IFIs) are competing with each other to claim similarity with conventional financial institutions and in devising evernew tricks. They are now effectively in the business of defeating the very objective which was the justification for their existence. We think it is time they come out of this hypocrisy and do some innovative thinking (ijtihad) about the definition of riba.

As a starting point, we should admit that the orthodox scholars made a mistake in equating riba and interest in all cases. The original response of the religious scholars about riba has proved to be overly simplistic and impracticable. It does not help us in doing our everyday business without any guilt or qualm of conscience. It is more honest to accept the mistake and do fresh thinking on the definition of riba than to continue with the present hypocrisy. Fortunately we get some guidance about it in the Qur’an. For example: (a) The Qur’an relates prohibition of riba to injustice (Q. 2:279). It restricts repayment of the principal in a manner that no injustice is caused to the debtor or the creditor. We should try to define the term injustice (zulm) in greater details in the context of dealings in finance. (b) The Qur’an identifies riba with doubling and re-doubling of the principal (Q. 3:130). We should take some lead from that in re-defining the concept of riba.

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For a detailed discussion of the tricks and subterfuges devised by upholders of Islamic finance, see the present writer’s, “What is wrong with Islamic economics”. (2013, pp.337-401).

(c) It obliquely refers to philanthropy as an alternative of riba. (Q. 2: 277) (d) It clearly says that dealing in riba has not to be like a trade (Q. 2: 275). We should see which modes of financing on interest are a trade and which are human necessity.

Besides we should keep in view our contemporary needs. The definition of riba should enable us to do all of the following tasks: (a) Financing for all commercial purposes (b) Financing for durable consumer assets like homes, vehicles, equipment, etc. (c) Financing for everyday consumer needs as are in vogue these days through the use of credit cards (d) Discounting of bills and promissory notes (e) Difference between cash and credit prices of the same product or service (f) Income through sub-leasing of assets (g) Risk-free investment and guaranteed income for weaker sections of the society like the old, widows, orphans, etc. (h) Compensation for inflation if the loan remains outstanding for a prolonged period (i) Penalty for delinquent defaulter or for breaking promises deliberately including default on consumer utility bills and credit cards (j) Fees for bank guarantees (k) International transaction, such as wire transfers (l) Foreign exchange transactions of all types (m) Lastly, the definition should be easy to understand and apply.

These are only examples of the factors that should be taken into account while undertaking Ijtihad in the definition of riba. If Muslim scholars do not undertake ijtihad, they will continue with the business of contriving new tricks and would become a source of ridicule in eyes of the world. They would not contribute anything to welfare of humanity if they continue expanding the present system of Islamic finance and did not undertake fresh thinking on the definition of riba and the structure and operations of IFIs.

3.3 Zakah Law Zakah is an obligatory payment on wealth and income of the well-to-do Muslims having resources over and above an exemption limit (nisab)12. Since the days of the Prophet (pbuh), most of the Muslim states had been collecting it as a tax. It was disrupted after the colonial took over which introduced their own taxation systems. The objectives on which the accumulated receipts of zakah can be spent have been defined in the Qur’an (Q. 9:60). The most significant use of zakah is for alleviating poverty, though it has other uses as well.

Generally, it should be collected by the government and in case it does not perform this function, individuals should pay out privately to deserving people.

Zakah is a powerful institution for alleviating poverty, smoothing out inequalities of income and wealth, providing social security net, and meeting other public needs such as defense and passenger welfare. However, most of the Muslim states applying the law of zakah in this age have adopted an extremely limited interpretation which has dwarfed this powerful institution into a pygmy and made it a perfunctory activity on the part of devout Muslims. The main obstacle in blunting its dynamism and energy is the concept that zakah is a form of obligatory ritual (ibadah) like five daily prayers. Any change in its law would be sacrosanct. As a result, Muslim scholars insist on application of the zakah law verbatim as found in the early sources of Islam like hadith and fiqh, since there are no details of the law in the Qur’an itself.

Several authors have pleaded for ijtihad in the zakah law. (See, e.g. Iqbal and Lewis, 2014). We have also discussed the problems created by literal application of the textual law elsewhere (Khan 2013, 415-450). At this place we shall briefly summarize, for sake of illustration, the need for innovative thinking on the law of zakah. A deeper analysis of the law would highlight other areas for review and innovative thinking. (a) The forms of wealth and income have changed over time since the beginning of Islam. There are new forms of income and wealth for which we do not find any prescribed exemption limits or rates of zakah in the early sources. Insistence to follow the book literally leaves us without answers to the exemption limits and zakah rates for the new forms of wealth and income. (b) The existing zakah law denominates exemption limits in either/or terms of silver and gold as if they would be equal in terms of market value. It requires no argument to say that over centuries equivalence of the market prices of silver and gold has

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We are deliberately omitting the technical definition of zakah found in the books of fiqh for keeping the discussion simple and focused.

diverged significantly. Insisting to keep both of these metals as exemption limit is confusing and problematic. (c) The rates of zakah on agriculture, livestock and business, if applied literally create problems of justice and fairness in terms of incidence of tax. (d) The disbursement of zakah among the deserving people creates problems of management, free-riders and by-passing of the truly deserving. (e) The existing zakah law does not allow investment of zakah funds and distribution of profits among the deserving people. It insists on distribution of zakah funds as collected. As a result, the zakah funds are consumed on a current basis and no capital is formed for continuous maintenance of the needy and the poor.

We think the zakah law needs extensive re-thinking and Ijtihad for making it relevant to the present day needs and also to inject back into it the original dynamism for alleviating poverty, providing reliable social safety net and financing public welfare projects. Some of the areas for innovative thinking (Ijtihad) in the zakah law are as follows.

RATES OF ZAKAH AND PROGRESSIVE TAXATION The generally accepted position in case of zakah is that the rates prescribed in the hadith literature relating to agriculture, livestock and cash should be applied literally and verbatim in the present age. There is no doubt that we find a set of zakah rates in the hadith literature.

Without going into technical details of the authenticity of these ahadith, we can easily see that these rates are proportionate and not progressive in nature. The concept of incidence of tax was not a major issue in the days of the Prophet (pbuh). However, the Prophet has himself defined zakah as a levy that is taken from the rich and transferred to the poor13. Thus it is obvious that the progressive taxation which levies a higher burden of tax upon the rich as compared to the poor is quite in consonance with the spirit of the zakah law as defined by the Prophet himself. Had he been alive in the present age, he would surely have approved of the progressive taxation. Seen in this perspective the concept of progressive taxation is quite in line with objectives of the Shari’ah.

If the above line of argument is valid, the rates of zakah in this age should be revised to accommodate the concept of incidence of tax, putting a higher burden on those with higher income and wealth as compared to others. The jurists in our age should undertake Ijtihad on rates of zakah for accommodating the concept of progressive taxation.

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Muslim, al Jami’ al-Sahih, (Bk1, hadith 29).

INVESTMENT OF ZAKAH FUNDS The generally accepted position on expenditure from zakah is that the funds should be transferred to the poor in the form of cash or kind (as collected). However, in the present age the benefits of zakah can be multiplied if we allow investment of zakah funds in industry or business and transfer income of those enterprises to deserving people. This approach would bring several benefits. For example, it would be possible to generate employment for the poor, who may otherwise be deserving people for the zakah funds. Secondly, the people who deserve receiving benefit from the zakah funds can be made owners of industries or businesses run with the zakah funds. The ownership can be given in the form of share certificates. These owners would receive dividend income of the industries. In a few years, they may not require any further support from zakah funds. Third, the zakah funds can be invested in rural economies where most of the poor people live, creating linkages for absorbing agricultural outputs as raw material for these industries. For example, plants for milk, fruit juice, energy, poultry and livestock feed, flour mills, etc., can be installed in villages enabling local economies flourish. In a few years’ time those who now deserve zakah may become self-sufficient or even zakah-payers. The only innovative thinking is that we should allow transfer benefit of zakah than zakah itself. The jurists need to do re-thinking on the whole issue of distribution of zakah funds. It would convert the institution of zakah into a powerful poverty-alleviation mechanism from a procedure of dole-distribution and perpetuating poverty as it is now. Need not be said that a regulatory framework for handling the new arrangement would be necessary for safeguarding the funds and interests of the poor and for managing the attendant risks.

EXEMPTION LIMIT (NISAB) OF ZAKAH The generally accepted view about exemption limit (nisab) of zakah for cash and gold and silver is equivalent to 200 dirhams of silver. For goats and livestock, various numbers of different animals have been prescribed. The objective of providing an exemption limit for zakah is to allow everyone a basic minimum for everyday living before the state taxes the income or wealth. If we adhere to this spirit of the law, the exemption limit would require adjustment for each country on a yearly basis because the living expenses are subject to change in prices of various goods and services. One suggestion is that the exemption limit for all types of income and wealth should be equal to minimum wage of a person for one year. For example, minimum annual wage for a worker in Pakistan has been determined by the government as Rs 180,000 for 2016-2017. This can be adopted as benchmark. The exemption limit for income of all types should be Rs 180,000, and deducted from the total income of a person before zakah is calculated. However, in case of zakah on wealth, the exemption limit only determines the status of the person (ghani or faqir) and no deduction has to be made from the savings or accumulated wealth (assets) since it is assumed that the savings have accumulated after

meeting the running expenses. This point of view could be a good starting point for ijtihad in this area.

3.4 Distribution of Profit and Loss in Partnership (musharaka) Profit and loss sharing has been presented by contemporary Muslim jurists as an ideal alternative to interest-based finance. The idea is that in case of interest-based finance, the financier gets back his capital with interest even when there is no profit in the business. It can lead to an unfair and unjust situation. In case of loss, the entrepreneur who exerted his efforts for the business bears all risks while the financier bears no risk and receives a guaranteed return in the form of interest. For remedying this potential unfairness, profit and loss-sharing is proposed as the ideal alternative. Under this arrangement the financier should bear the burden of loss in proportion to his share in the total capital.

The whole idea of making profit and loss in proportion to capital share is simplistic and outmoded14. It can be easily seen that the profit is generated not by capital alone. A number of factors such as management, hard work of labor, market context, laws, rules and regulations, nature of products or service, consumer perceptions, etc., contribute toward profit. Similarly loss is not caused by capital alone. It is caused by a number of similar factors. It is too naĂŻve to assume that the profit or loss is caused by finance alone. In this perspective, there is a need to take a fresh look on the theory of profit-loss sharing and making it realistic. The profit-loss sharing cannot be an alternative for interest-bearing finance. Nor is it fair to conclude that the profit can be shared in any ratio but the loss must be borne only in proportion to capital shares in a partnership enterprise. The whole issue of profit-loss sharing requires re-visiting and innovative thinking (Ijtihad). Once the Muslim scholars are prepared to do that, their insistence on profit-loss sharing as an alternative to interest-based finance would also melt. It would help them refine the theory of riba as well.

Some Muslim scholars have realized the need for re-thinking on musharaka. For example, Tahir and Khan (2016) have recently proposed several changes in the existing practice of musharaka.

However, they too, have not gone far enough. They have retained the basic framework of musharaka as found in the classical fiqh literature. For example, they take distribution of loss according to proportions of equity as a given premise (pp.63). The changes proposed by them are merely tinkering with the existing procedure and not a plea for ijtihad in the basic framework of the musharaka law. A bolder approach would be required to think through all anomalies in the present thinking and practice.

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We have discussed the limitations of profit-loss sharing in Khan (2013, 275-288).

3.5 Islamic Commercial Law Interest in developing Islamic economics as a social science diverted attention of Muslim scholars to Islamic commercial law which reached its apogee during the Muslim Golden Age (813th centuries). The law is elaborate and comprehensive and covers almost all types of business transactions then in vogue. However, with the passage of time and evolution of business practices around the globe, new forms of business have evolved which create difficulties for Muslims if they follow the Islamic commercial law in letter and spirit. We have discussed this question in detail in our book (Khan 2013, 392-394). A quick summary of the idea is that at least following areas of commercial law require innovative thinking in the Islamic framework:

FORWARD, FUTURES AND OPTIONS TRADING All developed economies have forward, futures and options trading exchanges. These exchanges have evolved over centuries. The main objective of trading on these exchanges is to mitigate risks of fluctuations in the market and future uncertainties. Trading in derivatives helps in discovering fair competitive market price, liquidity management, lower funding cost and efficient transmission of funds from lenders to borrowers. (Jobst 2014, 311 and 329). However, these exchanges have also become hotbeds of speculation and sources of economic instability.

It has been observed that players in these exchanges sometime take excessive risks, avoid prudential safeguards and violate internal controls. Generally, Muslim scholars with the exception of Kamali (1995), have opined against legality of these business practices due to such objections as speculation, deferment of both price and commodity, insufficient linkage with underlying asset, inter-temporal variations in value, possibility of unilateral gain or loss of one party, and similarity with debt sale. For example, Jobst (2014, 324) quotes OIC Fiqh Academy resolution (63/1/7, 9-14 May 1992) explicitly prohibiting options contracts. (Also see e.g., Uthmani 1999, al-Suwailem 1999, 2000). Jobst (2014) refers to several variations of derivatives developed by Islamic financial institutions. However, serious scholars have raised concerns on most of them. (See, e g. DeLorenzo, 2007). Jobst (2014, 326) concludes that the question about the legality of options contracts has not been finally resolved in the Islamic law. The whole question of forward, futures and derivatives needs re-thinking. Muslim scholars need to draw clear boundaries between the lawful and the unlawful contracts.

EXCHANGE OF CURRENCIES The existing Islamic law of currency exchange (bai’ al-sarf) requires that all exchanges of currencies should be simultaneous and at going rate of the day. In practice, the foreign exchange markets experience a lot of volatility because of myriad factors. The commercial enterprises dealing in international trade buy and sell merchandise which involves time for delivery and making payments. The rates quoted today for a commodity to be delivered, say,

three months from now may change drastically, leaving either of the parties to the contract in an unfavorable position. All prudent traders entering into such deals would like to protect themselves against any future unfavorable movement in the exchange rates. This has led to the development of forward market in currency exchange. According to strict interpretation of the Islamic law, such transactions are not lawful since they do not involve spot exchange of currencies. As spot exchange involves immeasurable risks and even impossibilities of transactions, Muslim traders are also forced to enter into forward purchase and sale of currencies. That creates a conflict with the Islamic law. Some Muslim scholars have expressed their concern on this situation and have recommended re-thinking by Muslim jurists. (See, e.g.

Siddiqi 1999). The question of finding an acceptable solution to dealing in foreign currencies requires innovative thinking enabling Muslim traders to compete in the international markets without violating the Islamic law.

3.6 Implementing the Islamic Law of Inheritance The Islamic law of inheritance is based on the Qur’anic explicit injunctions (Q. 4: 11-12, 176).

These injunctions are immutable. However, the implementation of this law sometimes leads to unintended negative impact. This is visible, in particular, in case of agricultural land which is distributed among heirs of a deceased. In a few generations the original parcel of land is fragmented into small pieces where farming becomes uneconomical. A literal following of the Qur’an does lead to this situation and calls for Ijtihad in implementing the law for avoiding this unintended impact. One possibility is to declare a maximum size of the land parcel which cannot be further subdivided in a physical sense. At that stage or whenever the heirs decide in case of a larger size, it should be possible to incorporate a company for managing the farms on the undivided land and distributing the income among heirs according to their entitlements.

The company can be managed by some of the heirs or by professional managers. The titles of ownership (share certificates) should be marketable on stock exchange or on a specifically created exchange for such shares which is easily accessible to ordinary farmers. For making the idea practicable, a legal framework would be necessary. Besides, institutional infrastructure would have to be developed for regulating such a market. It would also require social and cultural change management program to train people for accepting the arrangement. It would also need an efficient dispute resolution mechanism and a strong audit system for protecting the interests of common man against corruption and fraud.

4. Infrastructure for Innovative Thinking (Ijtihad) Ijtihad is a complex task. Like in all other technical matters, a person who has to undertake ijtihad must be competent for the job. For Ijtihad in Islamic economic thought, the person should have at least following competencies: (a) In-depth knowledge of Arabic language and literature besides fluency in one or two other languages of academic discourse like Urdu, Turkish, Bhasa Malaya, French, German, Spanish, and Chinese, etc. (b) Awareness of the intellectual heritage of Islam, like exegetical (tafsir), traditional (hadith) and legal (fiqh) studies (c) Knowledge of earlier efforts for Ijtihad in the Islamic economic thought (d) Knowledge of contemporary social reality through specialization in at least one discipline relating to Islamic economics, finance, society and law (e) Maturity of age to enable in-depth understanding and thinking (f) Consciousness about history and historical developments since the dawn of Islam (g) Understanding of evolution and developments in Western law and social institutions (h) Practical experience in any field relating to economics, finance, and law From the above list it can be easily imagined that no one person can have all these competencies at the same time. The only method of approaching Ijtihad in this age is to make it a team-work effort where the team collectively possesses the necessary competence. This is also relevant because the history of knowledge development in the West, who is torch-bearer of knowledge in this age, shows that most of the knowledge has evolved through group effort.

Hardly is there any field of knowledge where a single person is performing feats of excellence all by himself. Gradually, humanity has learnt that all knowledge must be developed as group effort, where peers review, contribute and fertilize each other’s ideas.

The most appropriate method for reconstructing Islamic economic thought would be to bring together persons from different disciplines that collectively possess the necessary competence for Ijtihad. This fact has already been realized by Muslims in certain areas of knowledge. For example, there are now such bodies as OIC Fiqh Academy, Indian Fiqh Academy, Audit and Account Organization for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB), Islamic Shariah Research Academy (ISRA), and International Centre for Education in

Islamic Finance (INCEIF), Shari’ah Supervisory Boards of Islamic financial institutions, etc.

However, these organizations are engaged in ijtihad of a limited type.

Iqbal (1989, 118) says that there are three degrees of Ijtihad: (a) ‘complete authority in legislation which is practically confined to the founders of the schools’ (ijtihad fi shra’); (b) ‘relative authority which is exercised within the limits of a particular school’ (ijtihad fil madhab); and (c) ‘special authority which relates to determining the law applicable to a particular case left undetermined by the founders’ (ijtihad fil masa’il). The existing bodies mentioned above are engaged in the Ijtihad of second and third degrees. Following Iqbal (1989, 118) we would say that reconstruction of Islamic economic thought would be possible only if Ijtihad of the first degree is undertaken where competent people review and re-examine all thought found in our intellectual heritage.

About a century ago Iqbal proposed and supported (1989, 126-130) the idea of Ijtihad by elected Muslim parliaments. At that time he had in view the experiment of Turkish republic under Ataturk. Iqbal was quite optimistic about Muslims of the future once they get freedom from colonial powers. He thought that the liberated Muslim lands will have representative parliaments which could undertake Ijtihad as collective bodies. Now after a century or so, and after experiencing the work and output of Muslim parliaments around the globe, we think Iqbal was overly optimistic. The competence and performance of Muslim parliaments leave no doubt in our mind about their inability to undertake such a serious task of far-reaching significance as reconstruction of Islamic economic thought.

In this perspective we think there should be a dedicated body of competent people organized in a centre. The body should be independent, non-political, non-sectarian and non-profit and managed professionally. It should be based in some Western centre of knowledge where independence of thought and freedom of expression is upheld. The body should be supported by income from an independent endowment fund to be created with donations from Muslim governments, and wealthy people but managed professionally by competent persons. The centre thus created should undertake Ijtihad on various economic issues and involve Muslim and non-Muslim scholars. The work of this body should be published widely. This is bare skeleton of the idea for institutionalizing Ijtihad in Islamic economic thought.

5. Concluding Remarks In this paper we have argued that the work done so far under the nomenclature of Islamic economics consists of material taken from the intellectual heritage of Muslims without much review and modification. Most of it pertains to pre-modern age and is about one thousand years old. The society has moved on since then. New modes of production, new methods of wealth creation and distribution, new problems, issues and concerns have emerged. A

knowledge that discusses issues of a thousand years ago cannot attract attention of the contemporary world.

For making an effective contribution, the whole economic thought in Islam needs to be reviewed and reexamined. For this purpose Muslims need to show the courage and competence to undertake Ijtihad. The Ijtihad should treat divine and human materials separately. While the divine texts have to be accepted and respected as they are, all human thinking can be put to re-examination and modified to suit our needs.

This is a monumental task and requires concerted effort of all Muslims. We have proposed that it should be institutionalized under an independent body of competent people. An endowment fund contributed by Muslim governments and wealthy people should support it. Only by such collective effort Muslims can make revelation a source of comfort and help in solving problems of the humanity.

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