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Islamic economics

Islamic economics is economics in the political context of Islam that respects its associated ethical codes. For centuries Muslims have developed ways to integrate their religious beliefs with the external economic realities of the nations they live in. This has had varying degrees of compatibility with the empires and customs they encountered. Like most things in Islam, commerce adapts to al-urf, "the custom".

In the 1980s and 1990s Muslim bankers and religious leaders developed ways to integrate Islamic law on usage of money with modern concepts of investing and ethical investing. In parallel, a sophisticated economic discipline has emerged, almost an Islamic science, with its own categories, concepts, analytical tools and institutions. Some of these revived traditional micro-venture capital and ethical investing frameworks that thrived in medieval times. However, they incorporated many modern techniques and technologies. Some consider the emergence of these economic practices to be part of a revival of Islam and an Islamization of knowledge. Others see them simply as a practical and wise response to problems of global debt and debt slavery.

Islamic economic institutions, not just the Islamic bank but all those connected with Islamic banking, operate on the basis of zero interest. Most also advise participatory arrangements between capital and labor. Both of these rules reflect the Islamic norm that the borrower must not bear all the cost of a failure, as it is Allah who determines that failure, and intends that it fall on all those involved.

Conventional debt arrangements are thus usually unacceptable - but conventional venture investment structures are applied even on very small scales.

Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also sustainable) use of natural capital, i.e. producing land. These latter revive traditions of haram and hima that were prevalent in early Muslim civilization.

The modern idea of ecosystem valuation prevalent in such theories as Natural Capitalism is probably ultimately due to traditions that originated there. There are also parallels between the notions of khalifa and land stewardship. Some think green economics parallels the economics of Islam, with similar ethical base for society-wide economic decisions. The terminology Four Pillars of the Green Party seems to echo the Five Pillars of Islam.

Social welfare, unemployment, public debt and globalization have been re-examined from the perspective of Islamic norms and values. Islamic banks have grown recently in the Muslim world but are a very small share of the global economy compared to the Western debt banking paradigm. It remains to be seen if they will find niches - although hybrid approaches, e.g. Grameen Bank which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern human development theory.

See also: modern Islamic philosophy, Islamic bank, Islamization of knowledge, green economics, creditary economics