Advanced Theory of Islamic Economics and Finance

Instructor: Dr. Salman Ahmed Shaikh

Email: islamiceconomicsproject@gmail.com

Course Description
This course will cover the core principles of Islamic economics and finance and their economic
implications on the microeconomic choices, macroeconomic aggregates and markets. It will
discuss the theory of Islamic economics and finance. It will enable the students to gain an
understanding of the research areas, research issues and advancements in Islamic economics,
Islamic banking, Islamic capital market investments and Islamic social finance institutions.

Course Objectives
The course sets forth the following objectives:

 To learn the core principles of Islamic economics, understand their contrast with
mainstream economics and analyse their economic implications.
 To study the modelling of economic behaviour of economic agents, such as consumers
and producers in the Islamic economic framework by learning the assimilative,
distinctive and integrative approaches.
 To acquire understanding of advanced issues in Islamic banking, Islamic investments and
Islamic social finance practices and applications.
 To learn monetary and fiscal policy tools and instruments in Islamic economic
framework.
 To understand and examine the potential of Islamic social finance institutions in public
policy, public finance and economic development.

Teaching Methodology
The course will be rigorous and introduce Islamic economic theory in contrast with mainstream
economic theory. Powerpoint presentations will be used to bring focus and structure in lecture
delivery and facilitate participants in keeping up with the flow of contents. For each lecture,
concise handouts with lecture notes will be distributed to ensure reinforcement and sufficient
reference material. Data, statistics and research papers shall be readily used during class
discussions to bring substance to the discussions. During the course, there will also be guest
speaker sessions and a seminar to help gain contemporary research trends, issues and
methodologies in Islamic economics and finance.
Assessment / Grading
Marks Distribution Marks Allocation
Quizzes and Assignments 15
Term Paper and Presentation 15
Midterm Exam 30
Final Exam 40

Weekly Course Plan

# Content Covered Learning Outcomes
Introduction to Islamic Economics and  To introduce the distinctive principles of
Finance Islamic economic framework in contrast
 Distinctive Principles with mainstream economics.
1
 Contrast with Mainstream Economics  To introduce the distinctive Islamic
 Distinctive Institutions economic institutions in commercial
 History of Muslim Economic Thought finance, social finance and public finance.
Ethics and Values-Based Economics
 Values in Consumer Behaviour  To introduce social economics and how
Islamic principles pave way for ethics and
 Values in Productive Enterprise
values-based economics.
 Environmental Ethics
2  To introduce the Islamic values governing
 Values for Self-less Behaviour
consumer behaviour, producer behaviour,
 Values for Pure Altruism and attitude towards the environment,
 Values for Positive and Negative biodiversity and externalities.
Externalities
 To understand the basic postulates,
Comparative Economic Systems assumptions and philosophy of free
market capitalism, communism and
 Free Market Capitalism
Islamic economics framework.
3  Communism
 To learn the theoretical works in
 Islamic Economics Framework
comparative economic systems both in
 Review of Literature mainstream and Islamic economics
literature.
Methodology in Islamic Economics  To review the three approaches and the
 Positive versus Normative Economics arguments in favour and against of using
them in building theoretical foundations
 Assimilative Approach
of Islamic economics.
 Distinctive Approach
 To learn the problems and paradoxes with
4  Integrative Approach
analysis of optimizing behaviour in
 Issues with Neoclassical Deductive neoclassical economics.
Models
 To study the approaches to bring values
 Incorporating Values and Externalities in and externalities in objective functions of
Behaviour economic agents.
Intertemporal Consumption and Finance in  To study how intertemporal consumption
5
the Islamic Framework is different in Islamic framework with
  Mainstream Models regards to the choice of assets, payoffs
 Case for Integration through Analysis of and rules of exchange.
World Values Survey  To study the models which use the
 Examples of Integrative Modelling integrative approach in modelling
behaviour in an Islamic framework.
Microeconomic Behaviour in the Islamic  To study the attempts in the literature to
Framework model consumer and producer behaviour
 Consumer Behaviour in order to analyze the market outcomes.
6
 Producer Behaviour  To appreciate the benefits and limits of
 Market Outcomes mathematical modelling in analyzing
 Review of Modelling Approaches value-led versus values-neutral behaviour.
Economic Development in Islamic
Framework  To understand the civilizational
development determinants espoused by
 Emphasis on Human-Centric
Development Ibn-e-Khuldun.
 To study the stimulants in Islamic
7  Economic Structure Stimulants
economic framework to achieve
 Development Finance Instruments
economic development.
 Review of Literature
 To learn the application of development
 Measuring Holistic Development in the finance instruments.
Islamic Framework
8 Midterm Exam
 To understand the effect of Zakat on
Economics of Wealth Taxation: Zakat wealth redistribution through
 Effect on Wealth Redistribution mathematical modelling and numerical
simulation.
 Effect on Income Redistribution
 To study the effect of Zakat on boosting
9  Effect on Aggregate Demand
aggregate demand through numerical
 Stabilization Effect of Zakat
simulation.
 Estimating Potential Zakat Collectible
 To study the approaches to estimate
 Institutionalizing Zakat in Public Policy nationwide potential Zakat collectible and
measure its effects on poverty alleviation.
 To understand the rules and mechanics of
Economics of Endowments & Trusts: Waqf
Waqf.
 Rules and Mechanics of Waqf Creation
 To study the effects of the decentralized
and Operations
provision of public goods through Waqf.
 Decentralized Provision of Public Goods
10  To study the effects of Waqf on human
 Institutionalizing Waqf in Modern
capital, physical capital and social capital
Economy
development.
 Performance and Efficiency of Waqf
 To review the literature on the
Globally
performance and efficiency of Waqf.
Advanced Issues in Islamic Banking  To learn the advanced issues in Islamic
 Price Benchmarking commercial banking, such as price
11  Liquidity Management benchmarking, liquidity management and
 Tax Neutrality tax neutrality.
 Central Banking Operations  To expound on the central banking
 management in Islamic framework in
controlling monetary aggregates and
macroeconomic objectives.
 To enhance understanding about the
various screening criteria used to adjudge
the faith compliance of Halal stocks.
Advanced Issues in Islamic Investments  To study the various methods of income
 Different Screening Criteria purification.
 Income Purification Methods  To learn the alternate trading instruments
12
 Short Term Trading Instruments in Islamic investment rules for short term
 Performance, Pricing & Premiums of trading.
Islamic Stocks  To review the literature on the
performance of Islamic investments, asset
pricing in Islamic investments and
identified premiums on Halal stocks.
 To discuss the monetary policy tools and
Monetary and Fiscal Policy Framework instruments in the Islamic framework.
 Monetary Operations in Dual Banking  To study the fiscal policy tools in the
System Islamic framework including Zakat, Bait-
ul-Maal and non-tax revenue generation
13  Alternate for Monetary Controls
from State-Owned Waqf.
 Alternate for Sovereign Financing
 To analyze how the monetary and fiscal
 Managing Inflation, Exchange Rate
targets are met with monetary and fiscal
Stability, Unemployment and Growth
policy tools of Islamic economics
framework.
Frontiers of Research in Islamic Economics
 To discuss contemporary issues, such as
 Design of Equity Based Financial
moral hazard in equity financing,
Instruments to Mitigate Moral Hazard
alternate pricing benchmark, tax
14  Alternate Pricing Benchmarks in Islamic
neutrality, liquidity management and
Debt Based Financing
regulatory standardization in Islamic
 Derivatives and Liquidity Management finance.
Instruments
15 Term Paper Presentations
16 Final Exam

Reference Texts
1. Handbook of Empirical Research on Islam and Economic Life, 1st Edition, 2017, Edward
Elgar.
2. History of Islamic Economic Thought by Abdul Azim Islahi, 1st Edition, 2014, Edward
Elgar.
3. Islamic Economics: A Short History by Ahmed El-Ashker & Rodney Wilson, 1st Edition,
2006, Brill Academic Publishers.
4. Understanding Islamic Finance by Muhammad Ayub, 1st Edition, 2012, John Wiley &
Sons.
5. Islamic Asset Management by Natalie Schoon, 1st Edition, 2011, Edinburgh University
Press.
Research Paper Readings

1. Tripp, C. (2006). Islam and the Moral Economy: The Challenge of Capitalism.
Cambridge University Press: London.

2. Koehler, B. (2014). Early Islam and the Birth of Capitalism. Lexington Books.

3. Shaikh, S. A., Ismail, M. A., Ismail, A. G., Shahimi, S., & Mohd. Shafiai, M. H. (2017).
“Towards an Integrative Framework for Understanding Muslim Consumption
Behaviour”, Humanomics, 33(2), 133 – 149.

4. Mahomedy, A. C. (2013). Islamic Economics: Still in Search of an Identity. International

Journal of Social Economics, 40(6), 556 – 578.

5. Zarqa, M. (2003). “Islamization of Economics: The Concept and Methodology”, Journal

of King Abdulaziz University: Islamic Economics, 16(1), 3 – 42.

6. Zaman, A. (2013). Logical Positivism and Islamic Economics. International Journal of

Economics, Management and Accounting, 21(2), 1 – 28.

7. Shaikh, S. A., Ismail, M. A., Ismail, A. G., Shahimi, S., & Mohd Shafiai, M. H. (2018).
“Intertemporal Consumption Behaviour in OIC Countries”, International Journal of
Islamic and Middle Eastern Finance and Management, 11(4), 529 – 552.

8. Al-Suwailem, S. (2002). Decision-making under Uncertainty: An Islamic Perspective. In

‘Islamic Banking and Finance: New Perspectives on Profit-Sharing and Risk’, eds. Iqbal,
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10. Ragab, I. A. (1980). “Islam and Development”. World Development, 8(7-8), 513 – 521.

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12. Demirguc-Kunt, A., Klapper, L., & Randall, D. (2013). Islamic Finance and Financial
Inclusion: Measuring Use of and Demand for Formal Financial Services among Muslim
Adults. Policy Research Working Paper No. 6642, The World Bank.

13. Shaikh, S. A. (2017). “Poverty Alleviation through Financing Microenterprises with

Equity Finance”, Journal of Islamic Accounting and Business Research, 8(1), 87 – 99.
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15. Khan, M. S., & Mirakhor, A. (1994). “Monetary Management in an Islamic Economy”,
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17. Wilson, R. (2008). “Innovation in the Structuring of Islamic Sukuk Securities”,

Humanomics, 24(3), 170 – 181.

18. Mohd Yusof, R., Kassim, S. H., Shabri A. Majid, M., & Hamid, Z. (2011). “Determining
the Viability of Rental Price to Benchmark Islamic Home Financing Products: Evidence
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19. Nazlioglu, S., Hammoudeh, S., & Gupta, R. (2015). “Volatility Transmission between
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20. Sukmana, R., & Kassim, S. H. (2010). “Roles of the Islamic Banks in the Monetary
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21. Ghosh, S. (2016). “Macroprudential Policies, Crisis and Risk-taking: Evidence from Dual
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23. Hakim, S. A., Hamid, Z. & Meera, A. K. M. (2016). “Capital Asset Pricing Model and
Pricing of Islamic Financial Instruments”, Journal of King Abdul Aziz University: Islamic
Economics, 29(1): 21 – 39.

24. Hazny, M. H., & Yusof, A. Y. (2012). “Revisiting Markowitz’s Mean Variance Analysis:
A Review from Shariah Perspective”. International Conference on Statistics in Science,
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25. Iqbal, Z. (2002). “Portfolio Choices and Asset Pricing in Islamic Framework”, in ed.
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Investment during the Financial Turmoil: The Case for the US-based Equity Investors”.
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27. Sensoy, A., Aras, G., & Hacihasanoglu, E. (2015). “Predictability Dynamics of Islamic
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28. Shaharuddin, S.S., Lau, W.Y., & Ahmad, R. (2016). “A Survey of Literature on Islamic
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29. Yilmaz, M. K., Sensoy, A., Ozturk, K., & Hacihasanoglu, E. (2015). “Cross-sectoral
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30. Ashraf, D. (2013). “Performance Evaluation of Islamic Mutual Funds Relative to

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31. El Khamlichi, A.; Laaradh, K.; Arouri, M., & Teulon, F. (2014). “Performance
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32. Hoepner, A. G.; Rammal, H. G., & Rezec, M. (2011). “Islamic Mutual Funds’ Financial
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