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The Islamic Economics Unit was established in 1976 for the promotion and advancement of

Islamic economics, finance and banking both academic and the industry. It seeks to do this by
conducting research and training by organising international conferences, seminars and
workshops. To substantiate its discourse on the virtues of an interest-free economic system, the
undertaken the publication of 26 highly accomplished books on various aspects of Islamic
banking and finance.
Over the years the Unit has established a specialised library and documentation unit on Islamic
economics, banking and finance – perhaps the richest resource centre in Europe in the field. The
Unit also provides consultancy on issues pertaining to Islamic economics and finance.

Islam has never developed a separate theory of political or moral economy in the way that
economic science and analysis have evolved in the western tradition. There are few thinkers in
Islam who have ever discussed economic matters as a separate discipline
Theoretically, while an Islamic system faces no risk of a run or credit freeze, conventional
system may face a risk of a run and credit freeze. In the event of a run or credit freeze,
experience showed that conventional banks had to suspended conversion into currency, go
bankrupt, or require large amounts of new liquidities from the central bank]. Invoking quantity
theory which postulates MV=PY, where M is money stock, V is velocity of money circulation, P
is the price level, and Y is real income, and assuming fixed Y and V, the price level would tend
to rise at much slower pace under an Islamic as compared to the conventional system.

An Islamic economic model emphasizes private property, private sector development, promotes
free domestic and foreign trade, enhances competitiveness, and aims at eliminating distortions in
asset and product markets. While natural monopolies due to invisibilities are acceptable in an
Islamic economic model, restrictions to entry and trade, however, are forbidden [The Prophet
PUH and succeeding Khalifs were careful not to introduce distortions. Umar refused to impose a
retaliatory import tax on goods imported from Christian countries that had imposed tariffs on
imports from Muslim regions]. In many countries, monopolistic competition in form of large
corporations that control markets stands against expanding supply and reaching higher social
welfare. Namely, product prices become rigid because of market power and cannot fall, and
quantities sold are lower than under pure competition. Antitrust laws contribute to improve
competition and expand supply and reduce prices. Intermediaries that group to control
agriculture markets impose low prices that do not enable farmers to earn sufficient profits and
could therefore contribute to a falling agriculture production.

Asset prices have to be market determined. While interest rates do not exist in an Islamic
economic model, reward to capital is through profits and profit and loss sharing arrangements.
The exchange rate, defined as the price of gold in terms of commodities, the price of gold in
terms of currency, or the price of a unit of local currency in terms of a foreign currency, has to be
market determined. Such was indeed the case in the early era of Islam.
Fraud, cheating in weight, altering the quality of products, such as adding water to milk or
diluting honey, had been condemned both in Quran and Sunnah as abhorrent activities.
An Islamic economic model rests on free competition, undistorted equilibrium prices, and
precludes price fixation by the Government and many forms of price distortions (e.g., excessive
duties, subsidies, etc.), except in natural monopolies or public services (e.g., transport). State
marketing boards and price fixing can be detrimental to private investment and to long-term
supply. Fraud, cheating in weight, altering the quality of products, such as adding water to milk
or diluting honey, had been condemned both in Quran and Sunnah as abhorrent activities. Allah
has repeated warned those who cheat, diminish weights, or falsify merchandise.

“In reality, an Islamic economic order can only be renewed if certain fundamental reforms are
undertaken. The axes of the modern economy are so distant from the moral economy of Islam
that nothing short of a spectacular break would suffice to bring to life a new Islamic economic
order. The main features of an Islamic economy have been in an eroded state for several
centuries, so that most are merely religious vestiges of a long-forgotten past. By the time of the
revolt of Islam in the 1970s, the elements of an Islamic economy were simply theoretical
constructs, which may have featured in the education of seminarians but had no place in the
modern economy. Only a few countries such as Saudi Arabia maintained a zakat (Islamic wealth
tax) collection department as part of the public finance architecture of the state. The vast
majority of Muslim countries had relegated the use of Islamic taxes to voluntary religious tithes,
leaving public finance to the usual array of revenue-generating taxes and duties: on incomes,
sales, customs, and so on. Agricultural taxes, which were essential to the functioning of the rural
economy in Islam, also vanished, and were replaced by modern equivalents which had no echo
in Islam's past.

The use of paper currency, issued by a central bank and 'backed' by foreign exchange reserves,
also became widespread in the nineteenth century, gradually decoupling the classical forms of
the Islamic unit of exchange — the gold-based dinar and the silver-based dirham — from its
historical association with bullion." The unit of exchange in the world of Islam, allowing for the
fact that it had atrophied and been allowed to debase over the centuries, was definitively
terminated with the rise of modern central banking. In the colonial and post-colonial period,
many Muslim countries used the same or equivalent currencies as their European overlords. This
explains the widespread use of the colonial French franc, or the British pound in the Sterling area
— both of which tied the dependent economy to the metropolis and its needs.

Effort, innovation, creativity, division of labour, technology and skills development have been
emphasised by all major Muslim thinkers along with cooperation, compassion, justice, charity
and solidarity.