Three cardinal ideological concepts and three main principles could be considered to establish the basic philosophy of Islamic economic thought, which also apply on the theory of financial innovation from an Islamic point of view. The three concepts are: the concept of unity, the concept of viceregency of human being on earth and the concept of free-will and responsibility. The principles are considered to be the principle of moderation, the principle of economic efficiency and the principle of social justice (Ahmed 1980; Naqvi 1981).
7.8.1 The Concept of Unity, Tawhid
The concept of unity emerges from the first pillar of Islam which emanates from Muslims’firm belief in the oneness of God with the belief in Prophet Muhammad (peace be upon him) as His messenger. This concept has many implications, some of which are: the unity of the creator (God), the unity of His attributes (sifat), the unity of His work and creation and, as a consequence, the unity of the universe as fully integrated in this unity of God (Al Saead 1970: 112). Nothing can be viewed in separation of His will or work, nor could be seen in isolation of His existence. The whole creation should be seen as a‘whole’, and be viewed as an integrated part of the holiness of the oneness of God (Wilson and El-Ashker 2006: 37).
The key to the economic, including financial innovation, philosophy of Islam lies in a person’s relationship with God, His universe and His creation. This philosophy, as a common factor with other Abrahamic religions like Judaism and Christianity, is the basis of the moral appeal to humans to surrender themselves to the will of God (Al Najjar 2003: 134). Islam even goes beyond this exhortation and makes it clear that all life is essentially in unity because it also provides the practical way to conduct all facets of human life, including economic and finance activities, in accordance with God’s will. There should be unity of ideas and actions in a person’s existence and consciousness (Asad 1993). Muslims believe that their success in the hereafter depends on their performance and actions in this life on earth, because all people are accountable to God. This, therefore, adds a new dimension to the valuation of people’s deeds, including the generation, conduct and practices of any financial innovation or activity, in this life (Siddiqi 1981).
The consequences of the whole-ness of the universe, as discussed above, dictates that any economic activity undertaken by an individual or a group of individuals should not be harmful to the interests of others, nor should it be damaging other sources of goodness in the universe. Moreover, this also means that no abuse or misuse of economic resources in pursuit of ‘maximisation’ of benefit to some individuals or a group of individuals by sacrificing the benefit to others (Wilson and El-Ashker 2006: 37).
A definite relationship between all humans is therefore prescribed in Islam. This is the relationship of brotherhood and sisterhood and equality (Abu-Sulayman 1976). Thus, the users of economic resources should always maintain a well- defined balance. Any deviation from this rule must be immediately rectified by the individuals themselves in the first instance, then by the state, which has the right to rectify the damage, if the individual has failed to put things right. If the harm caused was deliberate and persistent, God’s retribution is promised in return in this life and in the hereafter for the wrongdoers and abusers of the system (Al Aqla et al.
2004: 16).
The Qur’an says “Whoever breaks the covenant of Allah after contracting it, severing that which Allah has ordered to be joined and causing corruption on earth.
It is those who are the losers” (Qur’an, 2: 27). However, if they rectify their actions, God is always forgiving and is generous in His reward for the repentant. The Qur’an says “Except for those who repent and correct themselves and make evident [what they concealed]. Those, I will accept their repentance, and I am the Accepting of repentance, the Merciful”, (Qur’an, 2: 160).
Hence, unity is a coin with two faces: one stresses the fact that God is the sole creator of the universe, and the other emphasises that people are equal partners or that each person is a brother or sister to the other. As far as economic thought and the theory of financial innovation is concerned, this means cooperation and equality of effort and opportunity, all for the well-being of people and society as a whole (Rice 1999).
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7.8.2 The Concept of Vicegerency, al Khilafah
The concept of vicegerency is the core of the Islamic philosophy on which the Islamic economic thought and the theory of financial innovation revolves. Stressing this fact, man is the centre of the universe and God’s deputy on earth (Al Aqla et al.
2004: 12), the Qur’an says, “He it is who has created for you everything on earth”, (Qur’an, 2: 29), and “When your Lord said to the angels, I am placing on earth one that shall rule as my deputy”, (Qur’an, 2: 30), also “It is He who had made you vicegerents on earth”, (Qur’an, 35: 39).
This dictates that the deputy has to perform his duties in accordance with his superior’s instructions. God has laid down His instructions for utilising economic resources on earth and innovating financial products from these resources in the manner He wishes it to be performed (Abdul Meneam 1979: 38). Ibn Taymiyyah (1994: 53–54) and Al Mydani (1996: 5–10) argue that the use of the word‘khilafah’
is not correct as it means that the‘khalifah’is the successor of his predecessor, normally, after the death of the predecessor. This is not appropriate as it negates one of God’s divine attributes as the only living being Who never dies.
Al Tha’alibi (1997: 536) in his interpretation of the Qur’an also emphasises this notion. Thus, we tend to use the word trusteeship instead of‘khilafah’and the word trustee instead of‘khalifah’. This is to ensure a balanced approach of the concept of vicegerency that takes into consideration the reservations of some Islamic scholars on the use of those words from a linguistic and Shariah perspectives due to their perceived meaning in that context.
Although, material prosperity is desirable, it is not an end per se. What is critical is the motivation, the desired “ends” of economic activity or financial innovation.
Having established the right motivation, all economic activity assumes the charac- ter of worship (Siddiqi 1981). In other words, man utilises and controls economic resources as a trustee on the basis of a trusteeship between him and God, the creator and provider of these economic resources (Ahmed 1976: 163–164). Resources must also be disposed of in such a way as to protect everyone’s well-being (Al-Faruqi 1976).
We as humans are, therefore, accountable to God, for any violation of these rules by virtue of the principles of trusteeship and stewardship we would deserve His punishment. This concept has many implications for all economic factors on earth, consumption of economic resources, development of these resources including financial innovation and product derived from it and the distribution of values and benefits among all participants (Wilson and El-Ashker 2006: 38). It is also worth mentioning that the notion of trusteeship is also common to the Jewish and Christian faiths; Green (1993) refers to Psalms 24:1, “The earth is the Lord’s and the fullness thereof”.
7.8.3 The Concept of Free Will and Responsibility, al-Iradah wa al-Masu ’ wliyyah
7.8.3.1 Free Will and Trust (Amanah)
Free will is clearly stated in the Qur’an, it is the ability of human beings to choose, select and decide. Man has the freedom to choose between good and evil, and his destiny is only known to God through His eternal wisdom and knowledge of the characteristics of the man He created. We, therefore, as humans have a free will to act in harmony with God’s code of conduct, or in other words the straight path, or to divert from it, and God knows that in advance (Al Zarqa 2012: 48–51). This fact is emphasised in various places in the Qur’an, “Have We not given him two eyes, a tongue and two lips, and shown him the two paths?” (Qur’an, 90: 8–10). This means that it is up to us which path we choose to follow.
Man has also accepted to bear the burden of God’s trust (amanah) on earth while no one else dared to do so, Qur’an says, “We offered Our trust to the heavens, to the earth and to the mountains, but they declined to bear it for fear of its burden, and man assumed it”, (Qur’an, 33: 72). Hence, the delegated authority given to us by God is manifested in the free will and in the established trusteeship between God and us (Al Najjar 2003: 67). Having also assumed God’s trust, a big responsibility comes with it to maintain this trust in the manner God expects us to observe as we will see below in the following section.
7.8.3.2 Responsibility
Responsibility imposes limits to man’s freedom of choice and dictates accountabil- ity for his actions. Authority with free will, on one hand, portrays one side of the trusteeship agreement, responsibility, on the other hand, represents the other side of this relationship between God and us (Al Aqla et al. 2004: 16). This contractual relationship governs the way on which economic resources are owned by man as a trustee, and also establishes the conditions for its management (Hamed 2000: 178).
Any breach or violation of these conditions makes man accountable to the ultimate owner, God. The limitations to our freedom in utilising economic resources on earth is two-fold, we should seek efficiency in resource production, and ensure social justice in resource distribution (Ahmed 1976: 88). These elements should be observed constantly when we consider financial innovation, in order to be within the parameters set for an Islamic theory of financial innovation as a diversion from this theory will have its consequences as explained above.
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7.8.3.3 A System of Reward and Punishment
In order to complete operational mechanism of the trusteeship agreement where the fulfilment of duties and responsibilities will be assumed in the Hereafter and judged accordingly. Therefore, a system of reward and punishment has to be established (Al Zarqa 2012: 36). The Qur’an says, “And every man’s augury have we fastened to his own neck, on the Day of Judgement We shall bring out for him (his) scroll, which he will see spread open. Read thine (own) record, sufficient is thyself this day to make an account against you”, (Qur’an, 17: 13–14). Qur’an also says “That Day, the people will depart separated [into categories] to be shown [the result of] their deeds. So whoever does an atom’s weight of good will see it, and whoever does an atom’s weight of evil will see it”, (Qur’an, 99: 6–8).