IEP Research Highlights
In developing Islamic
Economics, first need is to present the thesis of Islam answering important
arguments and questions about it and its teachings. Then, economic teachings of
Islam can be presented which will act as broad guidelines for appropriate
conduct in economic pursuits. Then, given the limits and constraints at the
outset, utilizing both the literature and practice of Classical Economics and
Islamic Economics, the foundations, institutions, instruments, mechanism can be
developed and the role of each in the new Economic framework can be delineated.
In this regard, IEP has done following researches:
In
Islamic fiscal economics, working on previous researches and explaining with
reasons that Zakat is the only compulsory payment to the government on one’s
income and wealth in an Islamic economy. Zakatable assets should include all
assets above the value of nisab except the assets in personal use and means of
production. All types of production and income sources be subject to Income
Zakat.
Investment
in stocks should be interpreted as any other investment with some means of
earning income. Stock is a means of earning dividend or capital gains. Just
like means of production/income are exempted from Zakat, investment in stocks
should be exempted from Wealth Zakat as investment in stocks means that the
money is not kept idle. Therefore, any income arising from investment in stocks
i.e. capital gains or dividend must be subject to Income Zakat.
Similarly, this argument could
be extended to introduce Income Zakat on income from mutual funds,
investment in other financial instruments etc. Likewise, if land/building/house
is leased, the land/building/house becomes the means of earning rent. Hence, Income
Zakat could also be introduced on rental income on houses, assets, buildings
etc. Through an empirical study, it is concluded that Zakat in this way can
relieve the government of Pakistan
from deficits. An impact of this proposal on property market, asset market,
equity market has been analyzed.
In
Islamic corporate finance, IEP suggested an alternate approach to corporate
finance in an interest free economy by looking beyond practiced Islamic finance
and suggested alternatives for corporate finance in sourcing funds i.e. i)
Ijara with embedded lease options, ii) limited liability partnership and iii)
equity modes like Musharakah and Mudarabah with added covenants.
Then,
IEP also suggested alternatives for corporate finance in using funds
(investments) i.e. i) Islamic income funds, ii) Islamic REITs, iii) GDP growth
rate linked sovereign bonds iv) foreign currency reserves, v) making strategic
expansion, and vi) equity investments in other companies.
Ijara
with embedded option can solve the paradox of unilateral undertaking and
convert the sale of put option from the perspective of client into a call
option.
In
Mudarabah, following two covenants can be introduced. These two covenants will
minimize the problem of adverse selection, moral hazard and agency problem.
- Mudarib can be asked to contribute some capital. The contract will still remain different from Musharakah as only the Mudarib is the working partner.
- Mudarib can be asked to share in loss to some extent.
In
methods of valuation in Islamic Financial Management, IEP suggested an
alternate means of pricing capital to rank projects and investment alternatives
in interest free economy and use of appropriate discount rate i.e. Nominal GDP
growth rate in public finance and corporate finance in CAPM, dividend discount
model, project valuation, calculating NPV and valuing stocks.
Discussing
the foundations of the ethical precepts of Islam, the thesis of religion,
answering some of the questions in the comparative study of religion and trying
to resolve few of the misconceptions about the faith of Islam.
Outlining
the economic teachings of Islam with regard to earning and spending based on
the study of relevant Quranic text and the narrations of Prophet Muhammad
(pbuh).
Outlining the ideals that Islam
set before its adherents in the ethical sphere of life based on the study of
relevant Quranic text and the narrations of Prophet Muhammad (pbuh).
Analysis
of the comparative economic systems.
Empirical
investigation of the potential of the institution of Zakat to meet fiscal needs
of the government and to assist it in doing away with deficit financing, fiscal
bleeding, crowding out private sector and reducing deadweight loss by parting
the way with private sector so as to ensure market economy operating on its own
as far as is possible and playing an active regulatory role.
In
monetary reforms, discussing how savings would feature despite discontinuation
of interest and how inflation will be checked with central banks not having at
their disposal the conventional OMO.
Discussing
how balance of payments and exchange rate stability can be managed in an
interest free economy.
Proposing
that, if in the short term, the government or central bank needs alternate
source of revenue other than Zakat, they can issue GDP linked bonds.
Critically
analyzing the existing practices and prevalent modes of Islamic financing so
that the ideals of Islamic Economics are not lost with innovative practices.
Proposing
new institutions and the role of those institutions with the comprehensive need
fulfillment mechanisms to serve every major need of a sophisticated
contemporary financial system.
Introducing
the feasibility and structure of Micro equity finance as a substitute for
interest based micro finance and discussing how the potential obstacles in the
form of lack of trust, funding commitment, lack of collateral arrangement, lack
of documentation etc could be handled.
Your comments, suggestions,
queries and criticism are welcomed to convert these ideas into practicable
models for the development of our people.
Important Please note that this project does not receive any
funding yet nor does it want to in the near future. The Project Director makes
himself available whenever and wherever possible to deliver lectures, conduct
workshops, guest speaker sessions, delivering presentations in seminars and
symposiums without any cost on Islamic Economics at any platform.
For more information, please contact
Project Director, Islamic Economics Project
islamiceconomicsproject@gmail.com
www.islamiceconomicsproject.wordpress.com