Ten Reasons Islamic Financial and Economic Models Need Global Implementation
Islamic system safeguards us from the harm of inflation. Current financial system causes inflation through its interest-based scheme. As banks charge more interest borrowers (firms and businesses) charge more for their products and services which causes a domino effect for all businesses related to the borrower’s firm causing them also to increase their products and services prices. This causes inflation in long term. Another reason is changing interest rates cause firms to change policies towards their working capital (less investment in it) which may cause shortage of production and service leading to higher demand and inflation. The bigger a business is the more it charges generally because of the higher the cost of finance is (debt + equity). The reason for higher cost is particularly due to cost of debt which is a result of interest-bearing financial scheme. That is why common people find it difficult to afford quality goods and services. Solution is Islamic economic and financial system
Islamic system is based on natural currency such as gold. By these standard banks are limited to create money as much as the speed of gold mining. In current financial system banks act as gods and create money out of nothing.
Islamic system aims at generating Islamic taxes from investments which not only helps firms but also the common people through a social welfare model.
Islamic system is just and fair for corporate governance as it holds the accountable responsible for their duties. In current financial system the owners of companies can walk away in case of default. This is called limited liability. Often this helps the rich shareholders and harms the suppliers.
Islamic tax is levied on human agents whether Muslim or non-Muslim and not on abstract entities such as firms as is the case with current financial system. By this legalized identity of abstract entities such as firms, rich corporations escape paying tax by deception and legal loopholes.
Current financial system is a competition among rich and powerful corporations which has cause numerous coups, civil wars and genocides. Islamic system encourages to collaborate with each other instead of competing. The synergistic effect of this will lead to shared and mutual business growth, data sharing, fulfilling clients’ needs effectively, helping the new businesses enter the market, research & development.
In modern financial system shareholders are given priority in cases of conflicts between shareholders and business managers and stakeholders. This is called the principle-agent problem. Shareholders are given priority because of they being mostly from the upper financial and economic classes. However, in Islamic financial system everything is well defined through Shariah law which is summarized in the maqasid shariah or the objectives of Islamic law. So, the financial world must fashion their financial relationships with shareholders and stakeholders according to these goals
Current financial system is based on debt slaving not only of individuals but of nations. At its worst, the Bank has been used to underpin the rule of corrupt and tyrannical leaders and force entire nations into debt slavery. Islamic system rejects debt slavery because Islamic system rejects interest bearing scheme of financial activities.
Current financial system is based on the philosophies of McNamara and Friedman which are aggressive leadership, deregulation, profit at any cost without any accountability or transparency. Islamic system when performing financial investment appraisals, financing from sources, financial control and dealing with capital markets foreign or local, obligates human and environmental welfare. This welfare can be its ability to empower human demography, empower the human capital, effect on the job industry, effect on society and morality, effect on human rights and effect on environment for example. Islamic investment should not only consider an achievement on economic benefits but also avoidance of social, human and environmental harm as an obligation and reaping social, human and environmental benefits as charitable.
In current economic and financial system minimum wage is set on the basis of the lowest paid labor. This does not do justice to those who are more skillful. Islamic system proposes a minimum wage which should be defined based on job category. A highly skilled person should have a different minimum wage than a hard labor who works as a street cleaner. This is because according to Quran 39:9 those who know are not equal to those who do not know.