Monday, January 30, 2012

The longest verse in the Holy Quran

The longest verse in the Holy Quran is verse 282 of surah Al-Baqarah (the second chapter) which prescribes the rules on commercial transactions and related matters.

يَا أَيُّهَا الَّذِينَ آمَنُوا إِذَا تَدَايَنتُم بِدَيْنٍ إِلَىٰ أَجَلٍ مُّسَمًّى فَاكْتُبُوهُ ۚ وَلْيَكْتُب بَّيْنَكُمْ كَاتِبٌ بِالْعَدْلِ ۚ وَلَا يَأْبَ كَاتِبٌ أَن يَكْتُبَ كَمَا عَلَّمَهُ اللَّهُ ۚ فَلْيَكْتُبْ وَلْيُمْلِلِ الَّذِي عَلَيْهِ الْحَقُّ وَلْيَتَّقِ اللَّهَ رَبَّهُ وَلَا يَبْخَسْ مِنْهُ شَيْئًا ۚ فَإِن كَانَ الَّذِي عَلَيْهِ الْحَقُّ سَفِيهًا أَوْ ضَعِيفًا أَوْ لَا يَسْتَطِيعُ أَن يُمِلَّ هُوَ فَلْيُمْلِلْ وَلِيُّهُ بِالْعَدْلِ ۚ وَاسْتَشْهِدُوا شَهِيدَيْنِ مِن رِّجَالِكُمْ ۖ فَإِن لَّمْ يَكُونَا رَجُلَيْنِ فَرَجُلٌ وَامْرَأَتَانِ مِمَّن تَرْضَوْنَ مِنَ الشُّهَدَاءِ أَن تَضِلَّ إِحْدَاهُمَا فَتُذَكِّرَ إِحْدَاهُمَا الْأُخْرَىٰ ۚ وَلَا يَأْبَ الشُّهَدَاءُ إِذَا مَا دُعُوا ۚ وَلَا تَسْأَمُوا أَن تَكْتُبُوهُ صَغِيرًا أَوْ كَبِيرًا إِلَىٰ أَجَلِهِ ۚ ذَ‌ٰلِكُمْ أَقْسَطُ عِندَ اللَّهِ وَأَقْوَمُ لِلشَّهَادَةِ وَأَدْنَىٰ أَلَّا تَرْتَابُوا ۖإِلَّا أَن تَكُونَ تِجَارَةً حَاضِرَةً تُدِيرُونَهَا بَيْنَكُمْ فَلَيْسَ عَلَيْكُمْ جُنَاحٌ أَلَّا تَكْتُبُوهَا ۗ وَأَشْهِدُوا إِذَا تَبَايَعْتُمْ ۚ وَلَا يُضَارَّ كَاتِبٌ وَلَا شَهِيدٌ ۚ وَإِن تَفْعَلُوا فَإِنَّهُ فُسُوقٌ بِكُمْ ۗ وَاتَّقُوا اللَّهَ ۖ وَيُعَلِّمُكُمُ اللَّهُ ۗ وَاللَّهُ بِكُلِّ شَيْءٍ عَلِيمٌ

O you who believe! When you contract a debt for a fixed period, write it down. Let a scribe write it down in justice between you. Let not the scribe refuse to write as Allah has taught him, so let him write. Let him (the debtor) who incurs the liability dictate, and he must fear Allah, his Lord, and diminish not anything of what he owes. But if the debtor is of poor understanding, or weak, or is unable to dictate for himself, then let his guardian dictate in justice. And get two witnesses out of your own men. And if there are not two men (available), then a man and two women, such as you agree for witnesses, so that if one of them (two women) errs, the other can remind her. And the witnesses should not refuse when they are called (for evidence). You should not become weary to write it (your contract), whether it be small or big, for its fixed term, that is more just with Allah; more solid as evidence, and more convenient to prevent doubts among yourselves, save when it is a present trade which you carry out on the spot among yourselves, then there is no sin on you if you do not write it down. But take witnesses whenever you make a commercial contract. Let neither scribe nor witness suffer any harm, but if you do (such harm), it would be wickedness in you. So be afraid of Allah; and Allah teaches you. And Allah is the All-Knower of each and everything.
Ahmad Sanusi Husain : 
Alfalah Consulting - Kuala Lumpur : 
Islamic Investment Malaysia :

Sunday, January 29, 2012

Words of wisdom: Focus

Concentrate all your thoughts upon the work at hand. The sun's rays do not burn until brought to a focus.

"Most people have no idea of the giant capacity we can immediately command when we focus all of our resources on mastering a single area of our lives." — Tony Robbins

"My success, part of it certainly, is that I have focused in on a few things." — Bill Gates

“The successful warrior is the average man, with laser-like focus.” — Bruce Lee

"You can’t depend on your eyes when your imagination is out of focus." — Mark Twain

"Goals provide the energy source that powers our lives. One of the best ways we can get the most from the energy we have is to focus it. That is what goals can do for us; concentrate our energy." — Denis Waitley

"It is during our darkest moments that we must focus to see the light." — Aristotle Onassis

"The three pillars on which I believe any business success is based are: Persistence, Enthusiasm and Focus." — Max Markson

"The key to success is to focus our conscious mind on things we desire not things we fear." — 
Brian Tracy

"To create something exceptional, your mindset must be relentlessly focused on the smallest detail." — Giorgio Armani

“One reason so few of us achieve what we truly want is that we never direct our focus; we never concentrate our power. Most people dabble their way through life, never deciding to master anything in particular.” ---- Anthony Robbins

"Don't measure yourself by what you have accomplished, but by what you should have accomplished with your ability."

Ahmad Sanusi Husain : 
Alfalah Consulting - KL : 
Islamic Investment Malaysia :

Saturday, January 28, 2012

Words of wisdom: Concentration

Concentrate all your thoughts upon the work at hand. The sun's rays do not burn until brought to a focus.

Success in any endeavor requires single-minded attention to detail and total concentration.

Concentration and mental toughness are the margins of victory.

The concentration and dedication- the intangibles are the deciding factors between who won and who lost.”

“Concentration is the secret of strength” - - Ralph Waldo Emerson

"What do I mean by concentration? I mean focusing totally on the business at hand and commanding your body to do exactly what you want it to do." -- Arnold Palmer

“There can only be one state of mind as you approach any profound test; total concentration, a spirit of togetherness, and strength.” -- Pat Riley

Ahmad Sanusi Husain : 
Alfalah Consulting - Kuala Lumpur : 
Islamic Investment Malaysia :

Ibn Khaldun, Father of Economics

In his Prolegomena (The Muqaddimah), 'Abd al-Rahman Ibn Muhammad Ibn Khaldun al-Hadrami of Tunis (A.D. 1332-1406), commonly known as Ibn Khaldun, laid down the foundations of different fields of knowledge, in particular the science of civilization (al-'umran). His significant contributions to economics, however, should place him in the history of economic thought as a major forerunner, if not the "father," of economics, a title which has been given to Adam Smith, whose great works were published some three hundred and seventy years after Ibn Khaldun's death. Not only did Ibn Khaldun plant the germinating seeds of classical economics, whether in production, supply, or cost, but he also pioneered in consumption, demand, and utility, the cornerstones of modern economic theory.

Before Ibn Khaldun, Plato and his contemporary Xenophon presented, probably for the first time in writing, a crude account of the specialization and division of labor. On a non-theoretical level, the ancient Egyptians used the techniques of specialization, particularly in the era of the Eighteenth Dynasty, in order to save time and to produce more work per hour. Following Plato, Aristotle proposed a definition of economics and considered the use of money in his analysis of exchange. His example of the use of a shoe for wear and for its use in exchange was later presented by Adam Smith as the value in use and the value in exchange. Another aspect of economic thought before Ibn Khaldun was that of the Scholastics and of the Canonites, who proposed placing economics within the framework of laws based on religious and moral perceptions for the good of all human beings. Therefore all economic activities were to be undertaken in accordance with such laws.

Ibn Khaldun was cognizant of these ideas, including the one relating to religious and moral perceptions. The relationship between moral and religious principles on one hand and good government on the other is effectively expounded in his citation and discussion of Tahir Ibn al-Husayn's (A.D. 775-822) famous letter to his son 'Abdallah, who ruled Khurasan with his descendants until A.D. 872. From the rudimentary thoughts of Tahir he developed a theory of taxation which has affected modern economic thought and even economic policies in the United States and elsewhere.

This paper attempts to give Ibn Khaldun his forgotten and long overdue credit and to place him properly within the history of economic thought. He was preceded by a variety of economic but elemental ideas to which he gave substance and depth. Centuries later these same ideas were developed by the Mercantilists, the commercial capitalists of the seventeenth century-Sir William Petty (A.D. 1623-1687), Adam Smith (A.D. 1723-1790), David Ricardo (A.D. 1772-1823), Thomas R. Malthus (A.D. 1766-1834), Karl Marx (A.D. 1818-1883), and John Maynard Keynes (A.D. 1883-1946), to name only a few-and finally by contemporary economic theorists.

Labor Theory of Value, Economics of Labor, Labor as the Source of Growth and Capital Accumulation

With the exception of Joseph A. Schumpeter, who discovered Ibn Khaldun's writings only a few months before his death, Joseph J. Spengler, and Charles Issawi, major Western economists trace the theory of value to Adam Smith and David Ricardo because they attempted to find a reasonable explanation for the paradox of value. According to Adam Smith and as further developed by David Ricardo, the exchange value of objects is to be equal to the labor time used in its production. On the basis of this concept, Karl Marx concluded that "wages of labour must equal the production of labour" and introduced his revolutionary term surplus value signifying the unjustifiable reward given to capitalists, who exploit the efforts of the labor class, or the proletariat. Yet it was Ibn Khaldun, a believer in the free market economy, who first introduced the labor theory of value without the extensions of Karl Marx.

According to Ibn Khaldun, labor is the source of value. He gave a detailed account of his labor theory of value, presenting it for the first time in history. It is worth noting that Ibn Khaldun never called it a "theory," but had skillfully presented it (in volume 2 of Rosenthal translation) in his analysis of labor and its efforts. Ibn Khaldun's contribution was later picked up by David Hume in his Political Discourses, published in 1752: "Everything in the world is purchased by labour."7 This quotation was even used by Adam Smith as a footnote. "What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities." If this passage which was published in A.D. 1776 in Adam Smith's major work, is carefully analyzed, one can find its seeds in Ibn Khaldun's Prolegomena (The Muqaddimah). According to Ibn Khaldun, labor is the source of value. It is necessary for all earnings and capital accumulation. This is obvious in the case of craft. Even if earning "results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained. Without labor, it would not have been acquired."

Ibn Khaldun divided all earnings into two categories, ribh (gross earning) and kasb (earning a living). Ribh is earned when a man works for himself and sells his objects to others; here the value must include the cost of raw material and natural resources. Kasb is earned when a man works for himself. Most translators of Ibn Khaldun have made a common mistake in their understanding of ribh. Ribh may either mean a profit or a gross earning, depending upon the context. In this instance, ribh means gross earning because the cost of raw material and natural resources are included in the sale price of an object.

Whether ribh or kasb, all earnings are value realized from human labor, that is, obtained through human effort. Even though the value of objects includes the cost of other inputs of raw material and natural resources, it is through labor and its efforts that value increases and wealth expands, according to Ibn Khaldun. With less human effort, a reversal to an opposite direction may occur. Ibn Khaldun placed a great emphasis on the role of "extra effort," which later became known as "marginal productivity," in the prosperity of a society. His labor effort theory gave a reason for the rise of cities, which, as his insightful analysis of history indicated, were the focal points of civilizations.

Whereas labor may be interpreted from Ibn Khaldun's ideas as both necessary and sufficient conditions for earnings and profit, natural resources are only necessary. Labor and its effort lead to production, which is in turn used for an exchange through barter or through the use of money, that is, gold and silver. The process therefore creates incomes and profits which a man derives from a craft as the value of his labor after having deducted the cost of raw material. Long before David Ricardo published his significant contribution to the field of economics in 1817, The Principles of Political Economy and Taxation, Ibn Khaldun gave the original explanation for the reasons behind the differences in labor earnings. They may be attributed to differences in skills, size of markets, location, craftsmanship or occupation, and the extent to which the ruler and his governors purchase the final product. As a certain type of labor becomes more precious, that is, if the demand for it exceeds its available supply, its earnings must rise.

High earnings in one craft attract others to it, a dynamic phenomenon which will eventually lead to an increase in its available supply and consequently lower profits. This principle explains Ibn Khaldun's original and insightful analysis of long-term adjustments within occupations and between one occupation and another. However, this point of view was attacked by John Maynard Keynes in his famous statement that in the long run we are all dead. Nevertheless, Ibn Khaldun's analysis has not only proved to be historically correct but has also constituted the core thinking of classical economists.

Ibn Khaldun succinctly observed, explained, and analyzed how earnings in one place may be different from another, even for the same profession. Earnings of judges, craftsmen, and even beggars, for example, are directly related to each town's degree of affluence and standard of living, which in themselves are to be achieved through the fruits of labor and the crystallization of productive communities. Adam Smith explained differences in labor earnings by comparing them in England and in Bengal along the same lines of reasoning given by Ibn Khaldun four centuries earlier as he compared earnings in Fez with those of Tlemcen. It was Ibn Khaldun, not Adam Smith, who first presented the contribution of labor as a means of building up the wealth of a nation, stating that labor effort, increase in productivity, and exchange of products in large markets are the main reasons behind a country's wealth and prosperity. Inversely, a decline in productivity could lead to the deterioration of an economy and the earnings of its people. "A large civilization yields large profits [earnings] because of' the large amount of [available] labor which is the cause of [profit]."

It was also Ibn Khaldun, long before Adam Smith, who made a strong case for a free economy and for freedom of choice.

Among the most oppressive measures, and the ones most deeply harming society, is the compelling of subjects to perform forced work unjustly. For labour is a commodity, as we shall show later, in as much as incomes and profits represent value of labour of their recipients...nay most men have no source of income other than their labour. If, therefore, they should be forced to do work other than that for which they have been trained, or made to do forced work in their own occupation, they would lose the fruit of their labour and be deprived of the greater part, nay of the whole, of their income.

To maximize both earnings and levels of satisfaction, a man should be free to perform whatever his gifted talents and skilled abilities dictate. Through natural talents and acquired skills, man can freely produce objects of' high quality, and, often, more units of labor per hour.

Demand, Supply, Prices, and Profits

In addition to his original contribution to the economics of labor, Ibn Khaldun introduced and ingeniously analyzed the interplay of several tools of economic analysis; such is demand, supply, prices, and profits.

Demand for an object is based on the utility of acquiring it and not necessarily the need for it. Utility is therefore the motive force behind demand. It creates the incentives for consumer spending in the marketplace. Ibn Khaldun had therefore planted the first seed of modern demand theory, which since been developed and expanded by Thomas Robert Malthus, Alfred Marshall, John Hicks, and others. As a commodity in demand attracts increased consumer spending, both the price and the quantity sold are increased. Similarly, if the demand for certain crafts decreases, its sales fall and consequently its price is reduced.

Demand for a certain commodity also depends upon the extent to which it will be purchased by the state. The king and his ruling class purchase much larger quantities than any single private individual is capable of purchasing. A craft flourishes when the state buys its product. With his ingenious analytical mind, Ibn Khaldun had further discovered the concept known in modern economic literature as "derived demand." "Crafts improve and increase when the demand for their products increases." Demand for a craftsman is therefore derived from the demand for his product in the marketplace.

As is commonly known, modern price theory states that cost is the backbone of supply theory. It was Ibn Khaldun who first examined analytically the role of the cost of production on supply and prices. In observing the differences between the prices of foodstuffs produced in fertile land and of that produced in poor soils, he traced them mainly to the disparity in the cost of production.

[In] the coastal and hilly regions, whose soil is unfit for agriculture, (inhabitants) were forced to apply themselves to improving the conditions of those fields and plantations. This they did by applying valuable work and manure and other costly materials. All this raised the cost of agricultural production, which costs they took into account when fixing their price for selling. And ever since that time Andalusia has been noted for its high prices ....The position is just the reverse in the land of the Berbers. Their land is so rich and fertile that they do not have to incur any expenses in agriculture; hence in that country foodstuffs are cheap.

Besides individual and state demand and cost of production, Ibn Khaldun introduced other factors which affect the price of goods or services, namely, the degree of affluence and the prosperity of districts, the degree of concentration of the wealthy, and the degree of customs duties being levied on middlemen and traders. The direct functional relationship between income and consumption as presented by Ibn Khaldun paved the road to the theory of consumption function as a cornerstone of Keynesian economics.

Ibn Khaldun also made an original contribution in his concept of profits. In economic literature, a theory of profit as a reward for undertaking risk in a future of uncertainties is generally attributed to Frank Knight, who published his ideas in 1921. There is no doubt that Frank Knight substantially advanced a well-established theory of profit. Nevertheless, it was Ibn Khaldun, not Frank Knight, who originally planted the seed of this theory: "Commerce means the buying of merchandise and goods, storing them, and waiting until fluctuation of the market brings about an increase in the prices of (these goods). This is called profit (ribh)." In another context, Ibn Khaldun stated again the same idea: "Intelligent and experienced people in the cities know that it is inauspicious to hoard grain and to wait for high prices, and that the profit (expected) may be spoiled or lost through (hoarding)." Profit is therefore a reward for undertaking a risk. In the face of future uncertainties, a risk-bearer may very well lose instead of gain. Similarly, profits or losses may accrue as a result of speculation which is carried out by profit-seekers in the marketplace. To maximize profits, Ibn Khaldun introduced a gospel for traders, "Buy cheap and sell dear," which has been widely quoted ever since. In his translation of the Muqaddimah of Ibn Khaldun, Franz Rosenthal stated in a footnote, "In 1952 a book by Frank V. Fischer appeared, entitled Buy LowSell High: Guidance for the General Reader in Sound Investment Methods and Wise Trade Techniques."

If Ibn Khaldun's gospel is applied to cost analysis, it becomes obvious that profit may be increased, even for a given price of a final product, when one reduces the cost of raw material and other inputs used in production by buying them at a discount or, in general, at a low price even from distant markets, as he indicated in his account of benefits of foreign trade. Nevertheless, Ibn Khaldun concluded that both excessively low prices and excessively high prices are disruptive to markets. It is therefore advisable that states not hold prices artificially low through subsidies or other methods of market intervention. Such policies are economically disastrous because the low-priced goods will disappear from the market and there will be no incentive for suppliers to produce and sell whenever their profits are adversely affected. Ibn Khaldun also concluded that excessively high prices will not be compatible with market expansion. As the high-priced goods sell less in the market, the policy of excessively high pricing becomes counterproductive and disrupts the flow of goods in markets. Ibn Khaldun had thus laid down the foundations of ideas which later led to the formulation of disequilibrium analysis. He also cited several factors affecting the upward general price level, such as increase in demand, restrictions of supply, and increase in the cost of production, which includes a sales tax as one of the components of a total cost. After his analysis of what stimulates overall demand in it growing economy, Ibn Khaldun stated the following:

Because of the demand for (luxury articles), they become customary, and thus come to be necessities. In addition, all labor becomes precious in the city, and the conveniences become expensive, because there are many purposes for which then, are in demand in view of the prevailing luxury and because the government makes levies on market and business transactions. This is reflected in the sales prices. Conveniences, foodstuffs, and labor thus become very expensive. As a result, the expenditures of the inhabitants increase tremendously in proportion to the civilization of (the city). A great deal of money is spent. Under these circumstances, (people) need a great deal of money for expenditures, to procure the necessities of life for themselves and their families, as well as all other requirements.

As to the impact of restricted supply on the price level, Ibn Khaldun summed it up thus: "When goods are few and rare, their prices go up."

By carefully reading the above two passages, it becomes obvious that Ibn Khaldun discovered what is now known as cost-push and demand-pull causes of inflationary pressures. In fact, he was the first philosopher in history who systematically identified factors affecting either the price of a good or the general price level.

Macroeconomics, Growth, Taxes, Role of Governments, and Money

In macroeconomics, Ibn Khaldun laid the foundations of what John Maynard Keynes called "aggregate effective demand," the multiplier effect and the equality of income and expenditure.25 When there is more total demand as population increases, there is more production, profits, customs, and taxes. The upward cycle of growth continues as civilization flourishes and a new wave of total demand is created for the crafts and luxury products. "The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase." People's "wealth, therefore, increases and their riches grow, the customs and ways of luxury multiply, and all the various kinds of crafts are firmly established among them." The concept of the multiplier was later developed and expanded by several economists, in particular by John Maynard Keynes. However, it was discovered for the first time in history by Ibn Khaldun.

Modern national income accounts were also developed and expanded using the equality of income and expenditures. Expenditures of one citizen are income to others; therefore total expenditures are equal to total incomes. This equality was first discovered by Ibn Khaldun. In fact, he used both terms as synonymous to one another after having established the equality between them. "Income and expenditure balance each other in every city. If the income is large, the expenditure is large, and vice versa. And if both income and expenditure are large, the inhabitants become more favourably situated, and the city grows."

Ibn Khaldun introduced the pioneering theory of growth based on capital accumulation through man's efforts.

(Man) obtains (some profits) through no efforts of his own, as, for instance, through rain that makes the fields thrive, and similar things. However, these things are only contributory. His own efforts must be combined with them, as will be mentioned. (His) profits will constitute his livelihood, if they correspond to his necessities and needs. They will be capital accumulation it they are greater than (his needs)."

Ibn Khaldun gave his account of the stages of economic development, from nomadic to agricultural to more "cooperation in economic matters" which occur through an expansion of a town to a city, where demand increases and skilled labor congregates and expands production both ill quantity and in "refinement." Economic growth continues so long as there is an extra effort which creates capital accumulation, which in turn, combined with effort, leads to more production and the development of crafts in the cities. As was presented earlier, wealth expands through labor and its efforts, whereas with less human effort there may occur a reversal to stagnation, followed by a downward trend in people's standard of living.

Governments play an important role in growth and in the country's economy in general through their purchases of goods and services and through their fiscal policy of taxation and expenditures. Governments may also provide an environment of incentives for work and prosperity or, inversely, a system of oppression which is ultimately self-defeating. Even though Ibn Khaldun regards governments as inefficient, "not so much calculation" is carried out by them of what is contemporarily known as cost and benefit; they still play an important role in the country's economy through their big purchases. Government expenditures stimulate the economy by increasing incomes, which are further hiked through a multiplier effect. However, if the king hoards the amount he collects in taxes, business slackens and the economic activities of the state are adversely affected through the multiplier effect. In addition to its welfare program for the poor, the widows, the orphans, and the blind, provided there is no overburden for the treasury, the government should spend its tax revenue wisely to improve conditions of its "subjects, to safeguard their rights and to preserve them from harm."

Ibn Khaldun was the first major contributor to tax theory in history. He is the philosopher who shaped the minds of several rulers throughout history. More recently his impact was evident on John F. Kennedy and later on Ronald Reagan. "Our true choice is not between tax reduction on the one hand and avoidance of large federal deficits on the other. An economy stilled by restrictive tax rates will never produce enough revenue to balance the budget, just as it will never produce enough jobs or enough profits." John F. Kennedy said that back in 1962, when he was asking for a tax decrease, a cut in tax rates across the board. But when John Kennedy said those words, he was echoing the words of Ibn Khaldun, a Muslim philosopher back in the fourteenth century, who said the following: "At the beginning of the dynasty taxation yields large revenues from small assessments. At the end of the dynasty taxation yields small revenue from large assessments….This is why we had to have the tax program as well as the budget cuts, because budget cuts, yes, would reduce government spending."

According to Ibn Khaldun, tax revenues of the ruling dynasty increase because of business prosperity, which flourishes with easy, not excessive taxes. He was therefore the first in history to lay the foundation of a theory for the optimum rate of taxation, a theory which has even affected contemporary leading advocates of supply-side economics such as Arthur Laffer and others. The well-known Laffer curve is nothing but a graphical presentation of the theory of taxation developed by Ibn Khaldun in the fourteenth century.

"When tax assessments and imposts upon the subjects are low, the latter have the energy and desire to do things. Cultural enterprises grow and increase, because the low taxes bring satisfaction. When cultural enterprises grow, the number of individual imposts and assessments mount. In consequence, the tax revenue, which is the sum total of the individual assessments, increases"; whereas with large tax assessments, incomes and profits are adversely affected, resulting, in the final analysis, in a decline in tax revenue. Ibn Khaldun made a strong case against any government attempt to confiscate or otherwise affect private property. Governments' arbitrary interferences in man's property result in loss of incentives, which could eventually lead to a weakening of the state. Expropriation is self-defeating for any government because it is a form of oppression, and oppression ruins society.

In macroeconomics Ibn Khaldun also contributed to the theory of money. According to him, money is not a real form of wealth but a vehicle through which it can be acquired. He was the first to present the major functions of money as a measure of value, a store of value and a "numeraire." "The two mineral 'stones,' gold and silver as the (measure of) value for all capital accumulations ... [are] considered treasure and property. Even if under certain circumstances, other things are acquired, it only for the purpose of ultimately obtaining [them]. All other things are subject to market fluctuations from which (gold and silver) are exempt. They are the basis of profit, property and treasure." The real form of wealth is not money, however; wealth is rather created or otherwise transformed through labor in the form of capital accumulation in real terms. It was, therefore, Ibn Khaldun who first distinguished between money and real wealth, even though he realized that the latter may he acquired by the former. Yet money plays a much more efficient role than barter in business transactions in a society where man exchanges the fruits of his labor, whether in the form of goods or of services, with another to satisfy the needs which he cannot fulfill alone on his own. Money also facilitates the flow of goods from one market to another, even across the border of countries.

Foreign Trade

Ibn Khaldun also contributed to the field of international economics. Through his perceptive observations and his analytical mind, he undoubtedly shed light on the advantages of trade among nations. Through foreign trade, according to Ibn Khaldun, people's satisfaction, merchants' profits, and countries' wealth are all increased.

The merchant who knows his business will travel only with such goods as are generally needed by rich and poor, rulers and commoners alike. (General need) makes for a large demand for his is more advantageous and more profitable for the merchants' enterprise... (that he will be able to take advantage of) market fluctuations, if he brings goods from a country that is far away...merchandise becomes more valuable when merchants transport it from one country to another.

The italicized word, valuable, indicates Ibn Khaldun's perception of the gains of trade. If a good becomes more valuable by being transported from country A to country B and still sells at a profit in B after the cost of transportation and all other costs are taken into account, then it is (1) cheaper than the same good produced internally, (2) of better quality, or (3) a totally new product. If the foreign good is cheaper than that produced internally, foreign trade will serve to economize labor and other resources by having them diverted from the high-cost good which cannot face competition to other low-cost products. The resources which are saved from this process of diversion may be used to produce other goods or may add another layer of capital accumulation. Foreign trade may therefore contribute positively to the country's level of income as well as to its level of growth and prosperity. If the foreign good is of a better quality than that produced internally, the imported good will add to the level of satisfaction of those who purchase it. In the meantime, internal producers facing the competitive high-quality product must attempt to improve their production or accept a reduction in their sales and revenues. There will be a welfare gain in either case: a rise in the quality of internal products or a diversion of resources from the production of a high-cost good to a low-cost good, as in the first case. In the last case, when the imported good is a totally new product, the welfare gain from foreign trade may be expressed in terms of an increase in the level of satisfaction of those who purchase it or in terms of an increase in quantity or quality of production of other goods if the imported item is a new tool or a modification of an existing one. Furthermore, an introduction of a totally new product through foreign trade may attract internal producers, if it is feasible, to produce it once they are capable to compete with the foreign product.

Ibn Khaldun was conscious of what was later termed the "opportunity cost." Applying valuable labor to improving poor soils means that the labor could have been better used in the production of other goods. Resources in general should be put to the best possible use. Otherwise there will be a cost which will surface in a loss in value. Foreign trade provides further incentives in the attempts to optimize the use of labor and other natural resources.

Ibn Khaldun's originality in his perceptive observations and analysis of foreign trade deserves proper recognition in the field of international economics. The subject of gains from trade has been substantially developed and expanded, in particular, since the publication of Political Discourses by David Hume in 1752. But the first original seed of the subject was planted by Ibn Khaldun four centuries earlier.

Ibn Khaldun and Adam Smith

In spite of Ibn Khaldun's overall contribution to the field of economics, it is Adam Smith who has been widely called the "father of economics." Schumpeter's view of Smith's economics is more critical than admiring. "Personally, I do not share such a view, for I still consider Adam Smith one of the great philosophers who has significantly contributed to the field of economics even by having been a mere collector of previous economic thoughts. He eloquently presented these ideas in detail in an excellent new form and style. Nevertheless, by comparison, Ibn Khaldun was far more original than Adam Smith, in spite of the fact that the former had also restructured and built upon foundations laid down before him, such as Plato's account of specialization, Aristotle's analysis of money, and Tahir Ibn al-Husayn's treatment of government's role. Still, it was Ibn Khaldun who founded the original ideas in numerous areas of economic thought.

Despite Ibn Khaldun's contributions, some economic ideas as well as some economic philosophy of the freedom of choice, as presented above, were later attributed to Adam Smith without giving due credit to the original thinker Ibn Khaldun. "Smith's great economic treatise contains both his 'preaching' of the 'gospel' of economic liberalism, i.e., economic freedom for all individuals."39 Since there is such a striking similarity in the economic thought of Ibn Khaldun and of Adam Smith, it must be left to the economic historian to ascertain direct or indirect links between these two great thinkers who were four centuries apart. However, I would like to suggest some possible and likely points of contact. Even though Adam Smith did not explicitly refer to Ibn Khaldun's contributions, it may well be argued that there were several channels through which he may have encountered the latter's pioneering and original economic thought.

Adam Smith graduated from Glasgow University, where he was influenced by his teacher Francis Hutcheson, who was in turn affected by Antony Ashley Cooper, known as Lord Shaftesbury in the late seventeenth century and early eighteenth century, and other philosophers who were concerned with "liberal enlightenment," all of whom may have been directly or indirectly affected by Ibn Khaldun's thought. After his graduation, Adam Smith devoted six years to research at Oxford University's library, where he may have been exposed to Ibn Khaldun's contributions even without having been aware of the author's name. It was not uncommon in early times that ideas were circulated, discussed, and delivered from one generation to another without the name of an author. Furthermore, ever since the Crusades, which lasted from the eleventh to the thirteenth centuries, most Western philosophers attempted to discount the impact of Muslim scholars through a multiplicity of approaches, which included using Muslim ideas without mentioning the name of a Muslim author. The protracted war waged by the Crusaders to capture the Holy Land from the Muslims created a strong antagonistic feeling, well embedded in the Western mind, from which Western scholars were not immune and which lasted for centuries, probably until modern times. Another possible channel through which Adam Smith may have been directly or indirectly exposed to Ibn Khaldun's economic thought was through his tour of Europe. During this tour he encountered Quesnsay, other Physiocrats in Paris, and other European intellectuals who may have been influenced by Ibn Khaldun in one way or another.

Adam Smith could also have been exposed to the economic contributions of Ibn Khaldun through the dominant influence of the Ottoman Empire. Ever since the Ottoman Empire rose in the fourteenth century-and vastly extended its boundaries at its peak in the sixteenth century to include much of southeast Europe, southwest Asia, and northern Africa-a new bridge was erected linking intellectuals in the Continent with their counterparts in the vast territories of the empire, of which Egypt became a part in 1517. It was in Egypt that Ibn Khaldun spent the latter part of his life revising manuscripts of his works which he had originally completed in Tunis in November of 1377. His thoughts were then transmitted from one generation to another, from one century to another, and from one country to another. Influenced by Ibn Khaldun's idea that craftsmen and industrialists play a significant role in a country's growth, prosperity, and power, Sultan Selim 1, after having successfully extended his domain of influence over Egypt in 1517, took back with him from Cairo to Constantinople the best-known artisans at that time. In modern terminology, this was a case of a "transfer of technology."

The impact of Ibn Khaldun was extensive and profound, not only in the minds of some rulers and statesmen, but also among intellectuals and educators long before his books were even translated into other languages, In response to great interest in his works, his books were finally translated to the Turkish language in 1730, exactly forty-six years before the publication of Adam Smith's The Wealth of Nations.

Concluding Remarks

Even if Adam Smith was not directly exposed to Ibn Khaldun's economic thoughts, the fact remains that they were the original seeds of classical economics and even modern economic theory. Ibn Khaldun had not only been well established as the father of the field of sociology, but he had also been well recognized in the field of history, as the following passage from Arnold Toynbee indicates:

In his chosen field of intellectual activity [Ibn Khaldun] appears to have been inspired by no predecessors ... and yet, in the Prolegomena ... to his Universal History he has conceived and formulated a philosophy of history which is undoubtedly the greatest work of its kind that has yet been created by any mind in any time or place.

Through his great sense and knowledge of history, together with his microscopic observations of men, times, and places, Ibn Khaldun used an insightful empirical investigation to analyze and produce original economic thought. He left a wealth of contributions for the first time in history in the field of economics. He clearly demonstrated breadth and depth in his coverage of value and its relationship to labor; his analysis of his theory of capital accumulation and its relationship to the rise and fall of dynasties; his perceptions of the dynamics of demand, supply, prices, and profits; his treatment of the subjects of money and the role of governments; his remarkable theory of taxation, and other economic subjects. His unprecedented contributions to the overall field of economics should make him, Ibn Khaldun, the father of economics.

(Dr. Ibrahim M. Oweiss/Islamic

Ahmad Sanusi Husain :
Alfalah Consulting - KL : 
Islamic Investment Malaysia :

Tokoh Islam - Ibn Khaldun: Bapa Ekonomi dan Sosiologi - pembangunan dan tamadun

Ibn Khaldun atau nama sebenarnya Wali al-Din Abd al-Rahman bin Muhammad bin Abu Bakar Muhammad bin al-Hasan lahir di Tunis pada 1 Ramadan 732H Keluarganya berasal daripada keturunan Arab Hadramaut yang pernah menetap di Serville, Itali, dan Sepanyol. Akhirnya berpindah dan menetap di Afrika Utara semasa pemerintahan Hafs Abu Zakariyya, pemerintah Tunis pada waktu itu.
Seperti yang dinyatakan sebelum ini, Ibn Khaldun mendapat pendidikan dalam pelbagai ilmu Islam seperti al-Quran, al'Hadith, perundangan Islam, kesusasteraan, falsafah, bahasa, dan mantik. Antara gurunya ialah Muhammad Ibrahim al-Abili, Abu Abd Allah al-Jayyani, Abd Allah Muhammad bin Abd al-Salam.Ibn Khaldun menjadi cendekiawan yang agung sehingga disanjung oleh Barat kerana buah fikirannya, Walau bagaimana pun jarang umat Islam mengkajinya. Sebenarnya, sumbangan pemikiran Ibn Khaldun dalam ekonomi banyak dimuatkan dalam hasil karya agungnya, al Muqaddimah. Antara teori ekonomi yang terdapat dalam karyanya masih lagi relevan dengan masalah ekonomi semasa.
Ibn Khaldun telah membincangkan beberapa prinsip dan falsafah ekonomi seperti keadilan (al adl), hardworking, kerjasama (cooperation), kesederhanaan (moderation), dan fairness.Berhubung dengan keadilan (Justice), Ibn Khaldun telah menekankan bahawa keadilan merupakan tulang belakang dan asas kekuatan sesebuah ekonom. Apabila keadilan tidak dapat dilaksanakan, sesebuah negara akan hancur dan musnah.Menurut beliau, ketidakadilan tidak sahaja difahami sebagai merampas wang atau harta orang lain tanpa sebarang sebab yang diharuskan. Malah, mengambil harta orang lain atau menggunakan tenaganya secara paksa atau membuat dakwaan palsu terhadap orang lain. Begitu juga kalau meminta seseorang melakukan sesuatu yang berlawanan dengan Islam.
Beliau mengkategorikan perampas harta orang lain secara tidak sah hingga memberi kesan kepada kehidupan isteri dan keluarga sebagai paling tidak adil. Menurut beliau lagi, seseorang yang membeli harta seseorang dengan harga yang paling murah termasuk dalam kategori memiliki harta cara yang tidak betul. Ketidakadilan seumpama di atas membawa kepada kejatuhan sesebuah negara dan keruntuhan sesebuah tamadun dengan segera. Menurut Ibn Khaldun, atas sebab sebab tersebutlah semua bentuk ketidakadilan dilarang oleh Islam.
Manusia dan Ekonomi
Berdasarkan analisis mendalam, didapati kesemua teori ekonomi dan idea Ibn Khaldun tentang manusia berdasarkan kepada prinsip-prinsip dan falsafah Islam. Ibn Khaldun tidak melihat fungsi utama manusia dalam aktiviti perekonomiannya seumpama haiwan ekonomi (economic animal). Sebaliknya beliau menganggap manusia itu sebagai manusia Islam (Islamic man/homo Islamicus) yang memerlukan pengetahuan ekonomi untuk memenuhi misinya di atas muka bumi ini.Dalam hal ini, Ibn Khaldun menekankan perlunya manusia menjauhi perbuatan jahat. Sebaliknya manusia wajib mengikuti ajaran Islam sebagai model untuk memperbaiki dirinya dan mesti memberikan keutamaan kepada kehidupan akhirat.
Teori Pengeluaran
Ibn Khaldun mengemukakan teori bahawa kehidupan perekonomian sentiasa menghala ke arah pelaksanaan keseimbangan antara penawaran dengan permintaan. Menurut beliau pengeluaran berasaskan kepada faktor buruh dan kerjasama masyarakat. Bahkan beliau menganggap buruh merupakan faktor terpenting dalam proses pengeluaran walaupun faktor-faktor lain seperti tanah tersedia, tenaga buruh perlu untuk menghasilkan matlamat akhir.
Selain itu beliau berpendapat bahawa kenaikan yang tetap pada paras harga amat perlu untuk mengekalkan tahap produktiviti. Dalam hal ini beliau menyarankan agar masyarakat melakukan perancangan supaya setiap bidang pekerjaan dilakukan oleh orang yang mahir dan cekap.
Walau bagaimanapun, pertumbuhan ekonomi (economic growth) dan pembahagian tenaga buruh bergantung rapat dengan pasaran. Di sini dapatlah dinyatakan bahawa teori pembahagian tenaga buruh, pengkhususan tenaga buruh, dan pertukaran yang dikemukakan oleh Ibn Khaldun 100 tahun lebih awal daripada Adam Smith yang juga mengemukakan teori yang sama.
Teori Nilai, Wang dan Harga
Ibn Khaldun tidak secara jelas membezakan antara teori nilai diguna (use value) dengan nilai pertukaran (exchange value). Tetapi beliau dengan tegas berhujah bahawa nilai sesuatu barangan bergantung kepada nilai buruh yang terlibat dalam proses pengeluaran."Semua usaha manusia dan semua tenaga buruh perlu digunakan untuk mendapatkan modal dan keuntungan. Tidak ada jalan lain bagi manusia untuk mendapatkan keuntungan melainkan melalui penggunaan buruh, kata Ibn Khaldun.
Teori Pengagihan
Menurut Ibn Khaldun harga barangan terdiri daripada tiga elemen utama iaitu gaji atau upah, keuntungan, dan cukai. Ketiga-tiga elemen ini merupakan pulangan kepada masyarakat. Oleh sebab itu, beliau membahagikan ekonomi kepada tiga sektor iaitu sektor pengeluaran, pertukaran, dan perkhidmatan awam. Menurut Ibn Khaldun, nilai atau harga sesuatu barangan sama dengan kuantiti buruh yang terlibat dalam pengeluaran barangan berkenaan. Harga buruh merupakan asas kepada penentuan harga sesuatu barangan dan harga buruh itu sendiri ditentukan oleh mekanisme permintaan dan penawaran dalam pasaran.Manakala keuntungan terhasil daripada perbezaan yang diperoleh oleh peniaga antara harga jualan dengan harga belian. Namun begitu perbezaan antara kedua-dua harga itu.

Monday, January 23, 2012

Islamic financial, business & management events in Kuala Lumpur in 2012

21-22 February 2012: KL Conference on Islamic Wealth Management

20-21 March 2012: KL Conference on Islamic Finance

9-10 April 2012: Workshop on Islamic Trade Financing

To register or reserve a seat online, please go to:

Saturday, January 21, 2012

Glossary of Islamic Financial Terms - List No.3

adadiyyah (pl. `adadiyyat) Countables i.e. things which are measured in individual units rather than by volume, weight, or length. An example of `adadiyyat are eggs which are customarily purchased in unit, (half dozen, dozen, etc.) rather than by weight.

`adl `Adl is a general term which conveys the meanings of justice, equity and fairness.

`amil One who performs a task, an agent. One who deserves compensation for some task which he does, such as the mudarib (manager) in a mudarabah contract or a zakat collector.

`aqar Real estate; Immovable property such as land, buildings, trees and so forth.

`aqd `Aqd is a central term in Islamic financial law, which essentially means, "contract."

`ard Land.

`arif An expert who is consulted in situations which require an impartial, informed decision, such as the appraisal of property.

`ariyah A contract in which one party loans another the use of some item for an indefinite period of time. Ariyah is generally used to refer to the neighborly lending of small articles.

`ayn `Ayn is term used by the classical jurists to refer to currency or ready money. The term `ayn refers to gold, silver, coins, notes and any other form of ready cash. `Ayn is often contrasted with dayn.

`inah A sale in which a purchaser buys merchandise from a seller for a stipulated price on a deferred payment basis and then sells the same merchandise back to the original seller for a price lower than the original purchase price.

Ajr Generally ajr means compensation or wage. In an ijarah (lease) contract, the ajr is the price paid by the hirer to the hired party in exchange for the services which the latter renders.

akl al-suht Unlawful acquisition of wealth.

al-ajir al-khas A hired-worker who is contracted to perform a specific task in a specific amount of

time by one party, such as a cook or a servant.

al-ajir al-mushtarak A worker, such as a tailor, who offers his services to many and thus may be contracted by several clients at once.

al-ajr al-mithl The prevailing rate; the price which is normally paid for a given service.

al-akl bi l-batil Unlawful acquisition of wealth.

al-amin al-`amm One who has been entrusted with the property of another for a reason other than safe-keeping (wadi`ah), such as a tenant who rents an apartment or the mudarib in the mudarabah contract.

al-amin al-khas One who has been entrusted with the property of another and is responsible for it, as is the case in the wadi`ah (safe-keeping) transaction.

al-amwal al-ribawiyah The six kinds of substances (gold, silver, dates, wheat, salt and barley) which, when exchanged in kind, must be exchanged in equal measure and with immediate transfer of possession. If these conditions are not met, then the exchange is considered to be riba (interest).

al- kharaj bildaman The Islamic legal principle that means entitlement to revenue follows assumption of responsibility. Profits, therefore, are based on the ownership of, and responsibility for, capital.

al-hajjah al-asliyyah Lit: Basic needs. Tech: In relation to the law of zakat, the shariah has exempted those assets which are required to fulfill one's basic needs. Also spoken with regard to economic role of the Islamic state. The Islamic state is responsible to provide for the basic needs of all citizens, should some of them fall short of the means.

amanah Trust, with associated meanings of trustworthiness, faithfulness and honesty. As an important secondary meaning, the term also identifies a transaction where one party keeps another’s funds or property in trust. This is in fact the most widely understood and used application of the term, and has a long history of use in Islamic commercial law. By extension, the term can also be used to describe different financial or commercial activities such as deposit taking, custody or goods on consignment.

arbun Earnest money/Down payment; a non-refundable deposit paid by the client (buyer) to the seller upon concluding a contract of sale, with the provision that the contract will be completed during the prescribed period.

ayah The term refers to a passage from the Holy Qur'an.

bai al-dayn Sale of debt or receivables.

bai al-'inah A loan in the form of a sale, called 'inah (facade) because it is a sale in appearance only. This is accomplished by one's buying back what one has sold for a lower price than that for which one originally sold it. The difference, ostensibly profit, is actually a loan.

bai al-wafa' A sale with the right of redemption, literally, a sale of honour. Typically, such a sale takes place when a commodity is sold on the condition that the seller be allowed to redeem the commodity upon paying its price; and the buyer agrees to honour the condition.

bai al-bithaman ajil Deferred-payment sale, credit sale.

batil Void, invalid. Said of a transaction, a contract which governs a transaction or an element in a such a contract when they are null and void. opp. sahih.

bay` Sale; an agreement between two parties (the seller and the buyer) to the effect that the ownership of the sale item is transferred from the seller to the buyer in exchange for a price.

bay` `ajil bi-ajil Lit.Delayed-for-immediate sale. A type of sale in which the sale price is paid immediately and delivery of the sale item is delayed. Syn. bay` al-salam.

bay` al-kali bi-kali (Lit. Sale of a debt for a debt) Bay`al- kali' bi-kali' is a type of sale which is prohibited. Islamic jurists use this term to describe several different types of debt-for-debt exchanges. The most well-known of these is the exchange in which a lender extends his debtor's debt repayment period in return for an increase on the principal i. e. interest. The term kali' is a synonym for debt.

bay` al-mu'ajjal Deferred payment sale, credit sale; a sale in which payment is delayed and delivery of the contracted goods is immediate

bay` al-salam Deferred delivery sale; A type of sale in which the sale price is paid immediately and delivery of a specified sale item is deferred for a stipulated period. Syn. salaf.

bay` bi-thaman ajil Deferred payment sale. Some Islamic banks carry out a transaction of this name in which goods are requested by a client, purchased by the bank and then sold to the client at an agreed upon price which includes the bank's mark-up profit. Often the client is offered the option of paying in installments. This is essentially identical to the murabahah financing used throughout the Islamic banking sector. Syn. bay` `ajil bi-ajil and bay` al-mu'ajjal.

bay`atan fi bay` Lit. Two sales in one. A type of transaction, which was explicitly prohibited by the Prophet. The meaning of the expression "two sales in one" is explained by the fuqaha' in various ways. Also called "safaqatan fi safaqah."

bayt al-mal The treasury of the Muslim Community; historically, the bayt al-mal as an institution was developed by the early Caliphs but which soon fell into disrepair. The funds contained in the bayt al-mal were meant to be spent on the needs o the Ummah e. g. supporting the needy.

daman Responsibility for financial coverage in the case of destruction or damage.

daman/kafala Guaranty or surety

darura Overriding necessity

dayn Debt; some form of wealth which one is required to pay back to another.

dhimmah Dhimmah is a basic term in fiqh al-mu`amalat which roughly corresponds to the concept of liability. A debt is said to be "established in someone's dhimmah" if he is in debt to someone else. The fuqaha' also speak about a person's dhimmah "being occupied " and "being cleared." The concept of dhimmah may be likened to a virtual liability container which it may be said that every responsible person has. These containers, it may be imagined, are constantly being filled with rights and obligations--such as the obligation to repay someone.

dinar A gold coin used by Muslims throughout Islamic history. The standard mass of the dinar which is referred to in Fiqh is 1 mithqal (app. 4.25 grams.)

faqih Muslim jurist; A Muslim who is an expert in Fiqh; a Muslim who is knowledgeable of the rules of the Shari`ah and knows how these rules are related to the source texts upon which they are based.

faqir (pl. fuqara') A poor person.

faskh Undoing, dissolving, cancellation. Faskh is a term used by the classical fuqaha to refer to the dissolution of a contract or agreement. It has been described as the cancellation of a contract, such that affairs return to the state in which they were before the closing of the contract, without any addtition or subtraction. Many of the classical fuqaha' apply the term faskh to instances in which a previously valid (sahih) contract is cancelled voluntarily by the contractual parties--such as in iqalah, khiyar al-`ayb (option to return in case of a defect) and khiyar al-shart (stipulated option of return)--and use the term infisakh for cancellations which occur outside of the will of each of the contractual parties--such as the cancellation of a sale contract when the sale item is destroyed, before the seller can hand it over to the purchaser or the dissolution of certain partnerships (see shirkah) upon the death of one of the participating parties.

fatwa (pl. fatawa A formal response issued by an expert faqih, called a mufti in response to a question.

fatwa An authoritative legal opinion based on the Shari'a (Islamic law)

fiqh Practical jurisprudence, or human articulations of divine rules encompassing both law and ethics. As such, fiah may be understood as the jurists' understanding of the Shari'a, or jurists' law.

fiqh al-mu'amalat Islamic commercial jurisprudence, or the rules of transacting in a Shari'a compliant manner

fuduli A party is described as "fuduli" whenever it transacts (e. g. sells, rents, etc.) with someone else's property without the permission of the Shari`ah (e. g. wakalah). Such is the case when a party does not own the property with which it transacts and is not the wakil (authorized representative) or wali (guardian) of the true owner. For example, if a person were to negotiate and "close" a deal with a buyer in which he sold some machinery without the owner of the machinery having made him his wakeel (authorized representative) the "seller" would be described as fuduli.

fuqaha pl. of faqih, qualified specialists in fiah, or jurists.

gharar Uncertainty in a contract of exchange as to the existence of the subject-matter of the contract and deliverability, quantity or quality of the subject-matter. It also involves contractual ambiguity as to the consideration and the terms of the contract. Such ambiguity will render most contracts void.

gharim (pl. gharimun) Orig. A debtor who does not possess the funds with which to repay his debt. According to the Hanifi jurists, a gharim is one who whose funds, after repayment of his debt, would not equal the nisab. The Shafi`i and Maliki jurists divide the gharimun into two types: 1) those whose debts were incurred in their own benefit and 2) those whose debts were incurred benefiting others. The gharimun are one of the eight groups mentioned in the Qur'an as legitimate recipients of zakah funds.

ghasb The wrongful appropriation of property by force.

habal al-habalah A type of sale practiced by the Arabs during the Jahiliyyah, in which the essence of the agreement between the two transacting parties, depended on a pregnant she-camel giving birth to a female calf which would subsequently become pregnant itself. The habal al-habalah transaction was prohibited by the Prophet, according to several well-known reports, ostensibly because of the extreme uncertainty (see gharar) in the essence of the contract, given that neither of the contractual parties can be even remotely certain that a pregnant she-camel would successfully give birth to a another she-camel, which would subsequently mature and become pregnant itself.

hadith (pl. ahadith) A successively transmitted report of an utterance, deed, affirmation or characteristic of the Prophet Muhammad. The ahadith are the source texts by which the Sunnah is preserved.

halal Permissible, lawful; said of a deed which is not prohibited by Allah, opp. haram.

halal lawful; one of the five major Shari'a a categorizations of human acts

hamish gedyyah security deposit. An amount of money paid by the purchase orderer upon request of the seller to make sure that the orderer is serious in his order of the asset. However, if the promise is binding and the purchase orderer declines to purchase the asset, the actual loss incurred to the seller shall be made good form this amount.

haqq lit. truth, right. Al-Haqq, the Truth, is one of the names of Allah. In the Fiqh of financial transactions, the term haqq signifies a right which a party possesses, for example the creditors right to payment.

haram Impermissible, unlawful, opp. halal.

hawalah Bill of exchange, promissory note, cheque, draft. Tech: A debtor passes on the responsibility of payment of his debt to a third party who owes the former a debt. Thus the responsibility of payment is ultimately shifted to a third party. hawalah is a mechanism which can be usefully employed for settling international accounts by book transfer. This obviates, to a large extent, the necessity of physical transfer of cash. The term was also used, historically, in the public finance during the Abbaside period to refer to cases where the state treasury could not meet the claims presented to it and it directed its claimants to occupy a certain region for a certain period and procure their claims themselves by taxing the people. This method was also known as tasabbub. The taxes collected and transmitted to the central treasury were known as mahmul (i.e. carried to the treasury) while those assigned to the claimants or provinces were known as musabbab.

hawl The term hawl is used by the jurists to describe the amount of time which must pass before a Muslim in possession of funds equaling or exceeding the exemption limit (nisab) must pay Zakah on his wealth. In the case of cash, gold and silver it is one Islamic year i.e. a lunar year of app. 354 days.

hibah Gift, donation. Tech: Transfer of a determinate property (mal) without any material consideration. Muslims have been exhorted by the Prophet to donate gifts to others. This is one of the important values of a Muslim society. It is intended to cultivate love and co-operation among citizens rather than rivalry and competition.

hisbah Hisbah is a term used by the classical jurists, among them Ibn Taymiyyah, to describe the function of regulating the market place which is to be carried out by the Islamic authority (often called the muhtasib in this sense). Hisbah includes taking whatever steps may be needed in order to maintain a fair and orderly market place. Historically, various Islamic rulers have undertaken the duty of hisbah by supervising activities ranging from the inspection of eateries for sanitary conditions to the investigation of fraud. The basis of hisbah is the Prophet's customary inspection of the marketplace of Madinah.

hukm (pl. ahkam) In Fiqh, the Shari'ah ruling (e. g. obligatory, recommendable, neutral, reprehensible, or forbidden) associated with any action.

husah (lit. pebbles) A type of sale practiced by the Arabs in the Jahiliyyah and prohibited by the Prophet Mohammed in which the sale was determined by the casting of pebbles. Classical commentators mention three forms of the husah sale: 1) the seller would say to the would-be purchaser, "when I throw the pebbles in my hand, then the deal is closed and binding on you," 2) the seller would say to the would-purchaser, "I shall sell you the commodity which your pebbles hit" or 3) in a land sale, the seller would say, "I shall sell you the plot of land whose dimensions are defined by the extent to which you throw this pebble." The husah sale--like the habal al-habalah sale was ostensibly prohibited because of the gharar (uncertainty) which characterized the contract which governed it.

ihtikar Hoarding; the prohibited practice of purchasing essential commodities, such as food and storing them in anticipation of an increase in price.

ijara Ijara is a form of leasing in which there is a transfer of ownership of a service for a specified period for an agreed upon lawful consideration. Instead of lending money and earning interest, Ijarah allows the financial institution to earn profits by charging rentals on the asset leased to the customer.

ijarah wa-iqtina Lease-and-purchase transaction; a financing instrument used by practitioners of contemporary Islamic finance in which a financier purchases reusable merchandise (e.g. airplane, buildings, cars) and then leases them to clients in return for an agreed upon rental fee (to be paid for the length of the lease period) and an agreement that the client will purchase the merchandise at the end of the lease period.. There are similar transactions of various names, among them al-ijarah al-muntaha bi-tamlik.

ijma` (lit. consensus) The unanimous consensus of the Muslim Ummah on a given issue, usually as represented by the agreement of the jurists. Ijma' has traditionally been recognized as an independent source of law, along with the Qur'an, Sunnah and Qiyas (analogical deduction), by most of the jurists.

ijtihad (Lit. effort, exertion, diligence) The process by which a qualified Islamic jurist (called a mujtahid) endeavors to arrive at the correct ruling on a given issue by reflecting on source texts from the fundamental sources of the Shari`ah: the Qur'an and Sunnah.

ikhtikar Monopoly

ikhtilaf Divergence of opinions among jurists

iktinaz Hoarding wealth by not paying zakah on it.

iman Conviction, faith or belief; the acceptance and affirmation of Allah, His Books, His Messengers, His Angels, the Hereafter and Divine Decree.

Infaq Spending, normally in the path of Allah. Among the various praiseworthy types of infaq are spending on one's family, spending in preparation for jihad and feeding and clothing orphans and other underprivileged individuals.

iqtisad Lit. moderation. The term is used in modern standard Arabic to denote the field of economics.

Islam (Lit. submission to Allah) The religion of Allah (God) i. e. the worship of Allah alone. Islam is (1) shahadah i. e. testifying that there is no god but Allah and that Muhammad is the Messenger of Allah, (2) establishing Salah i. e. prescribed prayer, (3) paying Zakah i. e. giving a portion of one's wealth to the needy, (4) the Sawm of Ramadan i. e. fasting during the 9th month of the Islamic calendar and (5) Hajj i. e. making pilgrimage to the sacred precincts of Makkah (Mecca) in Arabia once in a lifetime if one is able. A person whose religion is Islam is a Muslim. A person becomes Muslim by declaring the shahadah i.e. " Ashhadu an la ilaha illallah wa ashhadu anna Muhammadan rasulullah" ("I tesify that there is nothing rightfully worshipped except Allah and I testify that Muhammad is the Messenger of Allah").

Islah Reform

Islamic banking Financial services that meet the requirements of the Shariah, or Islamic law. While designed to meet the specific religious requirements of Muslim customers, Islamic banking is not restricted to Muslims: both the financial services provider and the customer can be non-Muslim as well as Muslim. Also called Islamic finance or Islamic financial services.'

Istihsan Judicial preference for one legal analogy over another, usually in view of the public welfare

istisna'a A contract of sale of specified goods to be manufactured, with an obligation on the manufacturer to deliver them upon completion. It is a condition in istisna'a that the seller provides either the raw material or cost of manufacturing the goods

jahala Lack of knowledge or ambiguity in the terms of contract.

jahiliyyah (exp. ayyam al-jahiliyyah lit. the days of ignorance) The so-called "pre-Islamic period." The period between the Prophethood of `Isa bin Maryam (Jesus) and the Prophethood of Muhammad. Jahiliyyah is the term Muslims use to refer to the era just before the coming of the Prophet Muhammad and more generally to the state of affairs which characterized this era, which was plagued by shirk (the crime of associating partners with Allah), infanticide, tribal strife, etc.

ji'alah Service fee; a fee paid for any service rendered, also known as ju'l.

kafalah Assumption of the responsibility for debt repayment; a standard Islamic financial transaction in which X (the kafil) agrees to assume responsibility for the debts of Y (the makful `anhu). Similar but not identical to hawalah.

khiyar (lit. Option, choice) the option extended to one or more of the parties in a sales contract to rescind the sale, upon the appearance of a defect, for example. The jurists have traditionally recognized several different types of khiyar, including khiyar al-ru`yah, khiyar al-`ayb, khiyar al-shart, khiyar al-majlis.

khiyar al-shart An option in a sale contract concluded at the time of signing the agreement, giving one of the two parties to the contract a right to cancel the sale within a stipulated time.

madhhab (lit. way of going, pl. madhahib) A fiqh school or orientation characterized by differences in the methods by which certain source-texts are understood and therefore differences in the Shari`ah rulings which are deduced from them. There are four well-known madhahib among Sunni Muslims whose names are associated with the classical jurists who are said to have founded them (Hanafi, Maliki, Shafi`i and Hanbali).

makruh Lit.detested; technical term used by the fuqaha' to classify actions with regard to their desirability. Makruh is said of an action which one is rewarded for avoiding, but not punished for committing.

mal Wealth, money, property; any valuable thing which can be possessed.

manfa`ah (lit. benefit) The yield which a utilizable property produces. The term is often used by the fuqaha' to describe the usufruct associated with a given property, especially in leasing transactions. In an automobile lease for example, the term manfa`ah might be used to describe the benefit which the lessee derives from the use of the car for the duration of the lease (as opposed to the actual ownership of the vehicle).

maqasid the general objectives of Islamic law

maqasid al-Shari`ah (lit. The objectives of the Shari`ah). The term maqasid al-shari`ah refers to a juristic-philosophical concept developed by the later generations of the classical jurists, who attempted to formulate the goals and purposes of the Shari`ah in a comprehensive manner to aid in the process of investigating new cases and organizing previous existing rulings.

maysir Gambling, a game of chance. Originally a game of chance played by the Arabs before Islam, maysir came to refer to any game of chance One of three fundamental prohibitions in Islamic finance (the other two being riba and gharar). The prohibition on maysir is often used as the grounds for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.

miskin A poor, indigent person. The miskin is mentioned in the Qur'an as one of the recipients of zakah.

mu`amalah A financial transaction. Fiqh al-mu`amalat is the traditional Islamic discipline concerned with the jurisprudence of financial transactions.

mudaraba A Mudarabah is an Investment partnership, whereby the investor (the Rab ul Mal) provides capital to another party/entrepreneur (the Mudarib) in order to undertake a business/investment activity. While profits are shared on a pre-agreed ratio, loss of investment is born by the investor only. The mudarib loses its share of the expected income.

mudarib: The mudarib is the entrepreneur or investment manager in a mudarabah who invests the investor's funds in a project or portfolio in exchange for a share of the profits. For example, a mudarabah is essentially similar to a diversified pool of assets held in a Discretionary Asset Management Portfolio.

mufti A highly qualified jurisconsult who issues fatawa (sing. fatwa, informed legal pronouncements), usually in response to questions posed to him.

mugharasah A type of agricultural contract in which a land owner and a worker agree that, in return for the worker's planting and tending of fruit-bearing trees on the land owner's field, the landowner will assign to him a share of the orchard's harvest. Both Hanafi and Hanbali jurists (the latter also call the transaction munasabah) discuss mugharasah in their fiqh works. Two valid forms of the contract have been mentioned: 1) The landowner supplies the necessary materials (e. g. twigs) and bears related expenses (e. g. fixture transportation) while the worker tends the trees for a fixed period. After the expiration of this period, the worker receives a fixed wage or a fixed portion of the orchard. 2) The worker supplies the materials and bears related expenses and receives a share of the harvest. The second more closely resembles muzara`ah.

mujtahid Legal expert, or a jurist who expends great effort in deriving a legal opinion or interpreting the sources of the law.

murabahah (phr. bay` al-murabahah) Originally a term describing any sale in which the seller sells his merchandise for more than the price at which he acquired it, the term murabahah is now used in contemporary Islamic finance to describe a financing scheme in which a financial institution agrees to purchase merchandise for a client provided that the client promises to purchase it from the financial institution at an agreed upon mark-up. This transaction, called simply murabahah or murabahah financing, is widely used in contemporary Islamic finance.

murabaha Purchase and resale. Instead of lending out money, the capital provider purchases the desired commodity (for which the loan would have been taken out) from a third party and resells it at a predetermined higher price to the capital user. By paying this higher price over instalments, the capital user has effectively obtained credit without paying interest.

musaqah A type of partnership in which the owner of an orchard agrees to share a stipulated portion of the produce of the orchard's trees with a worker, in exchange for the latter's irrigation of the garden.

musharakah Partnership. A standard Islamic transaction in which two or more parties enter into any one of several related types of partnerships (see shirkah, mudarabah, musaqah, muzara`ah). In a typical musharakah agreement, two or more parties agree to provide capital (ra's mal) towards the financing of a commercial venture, share profits according to a stipulated ratio and share losses on the basis of equity participation.

muzabanah Essentially, muzabanah is a transaction in which the owner of fruit trees agrees to sell his fruit for an estimated equivalent amount of the dried fruit, such as palm fruit for dates or grapes for raisins. Muzabanah was an agricultural practice known to the people of Madinah and prohibited by the Prophet (see hadith of Jabir b. `Abd Allah), ostensibly because of the strong element of gharar present in such a transaction. The special case of araya (see entry) was exempted from this prohibition. Some fuqaha', particularly Maliki jurists, use the term muzabanah to describe any sale in which the weight or volume of the exchange items is unspecified.

muzara`ah Share-cropping; an agreement between two parties in which one agrees to allow a portion of his land to be used by the other in return for a part of the produce of the land.

najash The prohibited practice of deceiving and inciting a potential buyer during the course of pre-sale negotiations or bidding by egging him on, either through insincere bidding on the part of a spectator (such as bidding with no intention of buying and merely in order to have the would-be buyer raise his bid), or false statements on the part of the seller himself (such as the seller claiming that the commodity is of greater value than its true worth).

nisab The exemption limit for the payment of zakah. A Muslim who possesses wealth below the nisab is exempted from paying zakah, while a Muslim who possesses wealth at or above this exemption limit is obliged to pay zakah. The nisab differs depending on the type of wealth in question.

PLS Profit and Loss Sharing. The term is used to describe any one of several financial schemes (but particularly the banking system of Pakistan) based on the principle of interest-free lending and featuring the use of mudarabah and musharakah (see entries) as financing instruments.

qabd (lit. seizing) taking possession of the exchange commodity in an exchange transaction, such as the exchanger taking possession of the silver which he traded for his own gold. Its being immediate is a necessary condition for the validity of currency exchange.

qard hassan a loan per amore in which there is no interest. In Islamic law, all loans are gratuitous contracts

qimar A type of prohibited arrangement in which the acquisition of property is contingent upon the occurrence of an uncertain event, as is the case in gambling.

qirad Qirad is a synonym for mudarabah.

Qur'an the Book of Divine Revelation that was delivered to humankind by the Prophet Mohammed, peace be upon him.

ra's al-mal Capital. The money or property which an investor (rabb al-mal) invests in a profit-seeking venture, often in a partnership (musharakah) such as a mudarabah or shirkah arrangement.

rabb al-mal In the mudarabah, the investor.

rahn Collateral; a pledge or the transaction which governs such a pledge.

riba (lit. increase) any increase in a loan or sale transaction which accrues to the lender, seller or buyer, without the provision of an equivalent counter-value to the other party. In Islam, riba is one of the most abhorrent of all sins and is absolutely prohibited. Riba encompasses various types of illict gain, of which banking interest is one example.

riba al-fadl The riba of exchange surplus. Any commodity-for-commodity exchange transaction (i. e. barter) in which the exchanged commodities are of the same type but of unequal measure, or the delivery of one commodity is postponed.

riba al-nasi'ah Postponement riba. Riba al-nasi`ah is one of the two categories into which riba (see entry) is often divided by the fuqaha', the other being riba al-fadl (see entry). Riba al-nasi'ah takes place when two ribawi substances (see al-amwal al-ribawiyyah) are exchanged, one immediately and the other with a delay. An example of riba al-nasi'ah: two parties agree to exchange 10 kilos of gold for 2 kilos of silver such that the former is handed over immediately and the latter is to be delivered 2 weeks from the date the contract is signed. Another example: two traders exchange 1 metric ton of wheat for 2 metric tons of barley such that the latter is delivered after one year.

rishwah Bribery.

rukn (lit. pillar, pl. arkan) In fiqh, an integral part of an act, such as a transaction, without which the act can not be said to have been performed.

sadaqah (pl. sadaqat) Charitable giving.

sahih (lit. sound, healthy, correct) said of a valid contract, opp. of bƒtil. A hadith of the highest level of authentication.

salah Ritual prayer; the second pillar of Islam after the shahadah.

salam A type of sale in which the full price of the goods is paid in advance and the goods are delivered at a specified date in the future.

salam A contract for the purchase of a commodity for deferred delivery in exchange for immediate payment according to specified conditions

sarf Currency exchange.

shahadah Testimony to the fact that Allah has the unique right to be worshipped to the exclusion of anything or anyone else and that the Prophet Muhammad is the Messenger of Allah by declaring, "Ashhadu an la ilaha illallah wa ashhadu anna Muhammadan rasulullah" (i.e. "I testify that there is no one or thing rightfully worshipped except Allah and that Muhammad is the Messenger of Allah).

Shariah: Islamic law as revealed in the Quran and through the example of Prophet Muhammad (PBUH). A Shariah compliant product meets the requirements of Islamic law. A Shariah board is the committee of Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shariah compliant products.

Shariah advisor An independent professional, usually a classically trained Islamic legal scholar, that advises an Islamic bank on the compliance of its products and services with the Shariah, or Islamic law. While some Islamic banks consult individual Shariah advisors, most establish a committee of Shariah advisors (often know as a Shariah board or Shariah committee).

Shariah compliant An act or activity that complies with the requirements of the Shariah, or Islamic law. The term is often used in the Islamic banking industry as a synonym for "Islamic"—for example, Shariah compliant financing or Shariah compliant investment.

shart (pl. shurut) A necessary condition, something which needs to exist or be present in order for something (like a transaction) to be valid. Also a condition or stipulation in a contract.

shirkah Any contract between two or more persons in which they agree to jointly enter into a financial enterprise whose profits will be divided between them. syn. musharakah.

shuf`ah The right of pre-emption in sale transactions, for example, a real estate sale in which some party possesses the right to force the seller to sell him all or part of the real estate in the event of a sale.

sighah (sighat al-`aqd) Sighah is a term used by the fuqaha' to refer to the formal exchange which takes place between the contractual parties indicating their willingness to enter into the contractual agreement and therefore constitutes the contract itself. The sighah is a rukn (integral element) of the Islamic contract and essentially consists of a proposal (ijab) on the part of one contractual party and an acceptance (qabul) on the part of the other, either of which may be verbal, written or even gestural, depending on the circumstances under which the contract is closed. An accepatable sighah in a sale contract, for example, may consist of a purchaser saying to a seller, "do you agree to sell me this merchandise for this price?" followed by the seller replying "Yes." The ijab and qabul may be reversed so that the seller proposes and the purchaser accepts. Signing a written contract which details the conditions of the transaction which it governs, constitutes acceptance on the part of the signer.

suftajah (Orig. Persian) A debt transfer transaction, practiced in Islamic societies since the `Abbasi period in which A, a debtor authorizes his agent (wakil) or someone who owes him a debt, to pay a given amount to C to whom A owes a debt. Suftajah is related to and may be considered a special case of the standard Islamic debt transfer transaction known as hawalah (see entry).

sukuk Similar characteristics to that of a conventional bond with the difference being that they are asset backed, a sukuk represents proportionate beneficial ownership in the underlying asset. The asset will be leased to the client to yield the return on the sukuk.

Sunnah The actions, deeds, affirmations and characteristics of the Prophet Muhammad. The customary practice of the Prophet which informs the life of a Muslim.

takaful Islamic insurance. Structured as charitable collective pool of funds based on the idea of mutual assistance, takaful schemes are designed to avoid the elements of conventional insurance (i.e., interest and gambling) that are prohibited by Islamic law.

tawarruq Reverse murabahah. As used in personal financing, a customer with a genuine need buys something on credit from the bank on a deferred payment basis and then immediately resells it for cash to a third party. In this way, the customer can obtain cash without taking an interest-based loan

Ulema pl. of 'alim, Shariah a scholars or jurists.

Ummah The Muslim Community.

urboun Earnest money. It is the amount paid by the client (orderer) to the seller after concluding a contract of sale, with the provision that the contract is completed during the prescribed period. The urboun amount will be counted as part of the price; otherwise the urboun will be kept by the seller if the buyer fails to execute the contract.

usul al-fiqh Islamic legal theory.

wadia Safe-keeping/resale of goods with a discount on the original stated cost

wadi`ah (lit.) Safe-keeping deposit. The standard Islamic financial transaction in which X entrusts property to Y for safe-keeping. Wadi`ah refers to the deposited property.

wakalah Agency; a standard Islamic practice wherein X (the wakil) acts as the agent of Y. In this capacity X may execute the affairs of Y. Wakalah is a widely applicable phenomena in Islamic practice which is often used in financial transactions: whenever a party cannot personally supervise a given affair, it deputizes another party to execute it on its behalf.

waqf pl. (awqaf) lit. cessation; A standard Islamic transaction in which one 'freezes' his property such that it is considered to have been arrested in perpetuity and can neither be sold, inherited or donated. The term waqf frequently refers to the property itself. The use of a waqf (e.g. a park) is often dedicated to the relief of the poor, the public at large or other charitable ends.

wasiyyah Will, testament, bequest. The statement of a Muslim in which he details the manner in which his wealth is disposed of after his death.

zakah literally, it means blessing, purification, increase, or cultivation of good deeds. In Shariah, it is an obligation in respect of funds paid for a specified type of purpose and for specified categories. It is a specified amount prescribed by Allah the Almighty for those who are entitled to Zakah as specified in the Qur'an. The word Zakah is also used to indicate the amount paid from the funds that are subject to Zakah.

(by Mohammad Imad Ali/Finance in Islam)

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