THE REAL CHALLENGE FOR ISLAMIC ECONOMICS AND FINANCE: �HOMO ECONOMISLAMICUS

Ali Polat

Prof. Dr., Ankara Yildirim Beyazit University,�College of Political Science, Department of Economics �Ankara, Türkiye,

alipolat@aybu.edu.tr

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20-22 February 2024, Kuala Lumpur

Content

• Introduction
• Literature Review
• Homo Economicus (huge !)
• Homo Islamicus (limited !)
• Critics of both as a separate strand of literature (slowly developing)
• Homo Economislamicus
• Next Step Further (Discussions)
• Conclusion

What are the achievements of Islamic Economics and Finance (IEF) in last 50 years ?

Introduction

• What are the achievements of Islamic Economics and Finance (IEF) in last 50 years ?
• The achievements are also still under review and critics from several perspectives.
• The achievements are struggles for Muslims to find better applications.
• The achievements can help us to find our mistakes too.
• The achievements reflect the evolving landscape of IEF, balancing traditional Islamic principles with modern financial needs and innovations.
• The field continues to evolve, addressing contemporary economic/financial/ethical challenges while adhering to its ethical and religious foundations.
• Which theoretical human type, homo Islamicus or homo Economicus have been instrumental in the development and struggles of IEF ?

Introduction

CONVENTIONAL

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FINANCIAL MARKETS

FINANCIAL INSTITUTONS

FINANCIAL INSTRUMENTS

HUMAN

TECHNOLOGY

GLOBAL REACH

ISLAMIC

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FINANCIAL MARKETS

FINANCIAL INSTITUTONS

FINANCIAL INSTRUMENTS

HUMAN

TECHNOLOGY

GLOBAL REACH

H A R A M

H A L A L

GOVERNMENT, PRIVATE, NGO�perspectives

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Introduction

• Two prototypes, not available in full capacity are at the background of both theory and application.
• The developed theory suggests the knowledge/decision making process/behavior is/should be based on the prototype
• However,
• There is a transitivity and obscurity between these two human definitions.

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Introduction

• Human being has the capacity of moving to the lowest level of wickedness or highest level of virtue. Therefore, we can see the duality in every value and potential to increase for ourselves as follows(Furqani & Echchabi, 2022) :
• good (salihat) and bad (sayyiʾ-at) (Qur’an , 45:21)
• right (khayr) and wrong (sharr) (Qur’an , 99:7,8)
• righteousness (birr) and sin (ithm) (Qur’an , 5:3)
• good deed (hasanah) and evil deed (sayyiʾah) (Qur’an , 27:89–90)
• righteous (maʿruf) and evil (munkar) (Qur’an , 3:104)
• lawful (halal) and unlawful (haram) (Qur’an , 10: 59)
• wholesome (tayyib) and malicious (khabıth) (Qur’an , 2:172).

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Introduction

• Verily never Will Allah change the condition of a people until they change it themselves (with their own souls, inner self) (Al Ra’d 13: 11). �This change in;
• premises,
• beliefs,
• teachings,
• practices,
• Can we understand this ayah as changing ourselves from homo economicus to homo Islamicus? (in time and space)

Literature Review

• The Latin term of economic man, “homo economicus", can be defined as “the self-interested economic agent".
• In classical and neoclassical economics, the utility-maximizing objectives of individual economic agents were taken to be the basis of economic activity.” (Rutherford, 2003).
• This narrowly self-interested actor who make decisions based on the pursuit of his own personal utility maximization as a rational agent is at the centre of the theory of consumer choice, the theory of the firm, industrial organizations, and welfare theory.

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Introduction

Introduction

Literature Review

• HE is inadequate and deficient (Urbina and Ruiz-Villaverde, 2019)
• It has deficient features (Furqani and Echchabi, 2022)
• HE is only in the textbooks and self-interested individual needs revision (Henrich et al, 2001)

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• On the other hand
• HI is not clear in definition and expectation. The descriptions in the literature are impractical (Sholihin, Sugiyanto and Susamto, 2023)

Literature Review

Hard Questions to Answer?

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Is Homo Islamicus an input or pre-requisite for IEF?

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Or

Is Homo Islamicus an output of IEF?

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How much did we develop ourselves in 50 years in terms of Homo Islamicus ? (in terms of Quality and Quantity)

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Homo Economislamicus: �A trial to explanation of the current

• HEI is a multi-dimensional individual who, while rooted in the rational and utility-maximizing principles of economic behaviour, is also (deeply) anchored in the spiritual and ethical teachings of Islam. This individual seeks to harmonize the pursuit of worldly benefits with the moral and spiritual imperatives of Islamic teachings.
• Characterized with a dual nature between higher spiritual aspirations and worldly desires.

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Homo Economislamicus

• «True Man» Mahyudi (2015, 2016) or
• «Universal Man» (Mohd, Aziz, 2017) are offered.
• Struggling today’s problems with a positive trait of man ignores the dark-side of man. Laziness, selfishness, greed, corruption and extravagance etc are part of a «true man».

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Homo Economislamicus

Skewed towards HI

Skewed towards HE

A standard HEI

A balanced individual exhibiting attributes of both HE and HI acts partially consistent with HI and HE principles, embodying a mix of both good and bad manners

Increasing positive skewness in human behaviour persistently and continuously will transform overall micro and macro level behaviours if it is beyond a specific threshold.

This problem is very big to solve as it is very complex and dynamic.

An individual's behaviour isn't static.

Over time and across different spaces (countries or societies), there can be shifts in this distribution, leading to changes in skewness towards HI (positive skewness) or HE (negative skewness).

Homo Economislamicus

Skewed towards HI

Skewed towards HE

A standard HEI

A balanced individual exhibiting attributes of both HE and HI acts partially consistent with HI and HE principles, embodying a mix of both good and bad manners

How Sociatel Values Change ? �Social Conformity Theory suggests that individuals tend to conform to the norms and behaviours of the group to which they belong (Heinzen & Goodfriend, 2019)

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Broken Windows Theory which posits that visible signs of disorder and misbehaviour encourage further disorder and misbehaviour (Maskaly and Boggess, 2014). Drawing from the Broken Windows Theory, minor deviations in behaviour can snowball into larger societal shifts.

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Homo Economislamicus

Skewed towards HI

Skewed towards HE

A standard HEI

A balanced individual exhibiting attributes of both HE and HI acts partially consistent with HI and HE principles, embodying a mix of both good and bad manners

When a significant proportion of individuals in a society exhibit a consistent skewness in behaviour, it could influence the overall societal norms and values.

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For instance, a society with a persistent positive skewness might develop policies and systems that prioritize community welfare and ethical considerations.

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Therefore, collective skewness of HEIs towards HE or HI will create societal impact.

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Next Step Forward

• In each step forward and in every decision, one should ask the questions that
• a) is the knowledge produced is consistent with HI, HE or HEI ?
• b) is the required application/ regulation/ code is consistent with HI, HE or HEI ?

Next Step Forward

• Al-Jarhi (2013) provides ten gaps in the theory and practice of IE and provides the solutions to fill these gaps. IF IEF «properly perceived and correctly applied» than will produce a new economic order that benefits humanity.
• However, the gaps he mentions are either the misunderstanding or misapplication of HEI and it must be stopped at some point before going into more mingling.

Conclusion

• The paper discusses a new category, homo economislamicus, which seeks to bridge the gap between the idealized representations of HI and HE, acknowledging the complex and dynamic nature of human behaviour which does not strictly adhere to either category.
• This new category emphasizes the necessity for individuals to undergo a transformative change, aligning closer to the principles of HI, while recognizing the inherent challenges and barriers that prevent a complete transformation, including historical, cultural, and political influences.

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Conclusion

• It can be concluded that any problem that IEF is struggling is also by-product of HE perspective.
• The deeply rooted perspective of HE in modern economic systems has inadvertently fostered a myriad of micro and macroeconomic issues.

References

• Abdul-Baki, Z., & Uthman, A. B. (2017). Exploring the “social failures” of Islamic banks: a historical dialectics analysis. Journal of Islamic Accounting and Business Research, 8(3). https://doi.org/10.1108/JIABR-06-2014-0021
• Addas, W. A. J. (2006). Methodology of Economics Secular Versus Islamic. In International Islamic University Malaysia.
• Al-Jarhi, M. A. (2013). Gaps in the theory and practice of Islamic economics. Journal of King Abdulaziz University, Islamic Economics, 26(1). https://doi.org/10.4197/Islec.26-1.11
• Asutay, M. (2007). Conceptualisation of the Second Solution in Overcoming the Social Failure of Islamic Banking and Finance : Examining the Overpowering of Homoislamicus. IIUM Journal of Economics and Management 15, 15(2), 167–195. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1693608
• Azizy, S. H. (2019). The Ends of Islamic Economics from the Perspective of Homo Economicus and Homo Islamicus: A Critical Study. Adzkiya : Jurnal Hukum Dan Ekonomi Syariah, 7(1). https://doi.org/10.32332/adzkiya.v7i1.1436
• Bee, M., & Desmarais-Tremblay, M. (2023). THE BIRTH of HOMO ŒcONOMICUS: The METHODOLOGICAL DEBATE on the ECONOMIC AGENT from J. S. MILL to V. PARETO. Journal of the History of Economic Thought, 45(1). https://doi.org/10.1017/S1053837221000535
• Farooq, M. O. (2013). Contemporary Islamic Economic Thought. In Contemporary Islamic Finance: Innovations, Applications, and Best Practices. https://doi.org/10.1002/9781118653814.ch2
• Furqani, H., Adnan, G., & Mulyany, R. (2020). Ethics in Islamic economics: microfoundations for an ethical endogeneity. International Journal of Ethics and Systems, 36(3). https://doi.org/10.1108/IJOES-03-2020-0032
• Furqani, H., & Echchabi, A. (2022). Who is Homo Islamicus? A Qurʾānic perspective on the economic agent in Islamic economics. ISRA International Journal of Islamic Finance, 14(2). https://doi.org/10.1108/IJIF-05-2021-0102
• Hanapi, M. S. (2018). The Wasatiyyah-Consumerism Concept as an Equivalent to the Consumerism Phenomenon in Conventional Economy. International Journal of Academic Research in Business and Social Sciences, 7(12). https://doi.org/10.6007/ijarbss/v7-i12/3724
• Haniffa, R., & Hudaib, M. (2010). Islamic finance: From sacred intentions to secular goals? Journal of Islamic Accounting and Business Research, 1(2). https://doi.org/10.1108/17590811011086697
• Heinzen, T., & Goodfriend, W. (2019). Social Psychology. In Nucl. Phys. (Issue 1).

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References

• Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E., Gintis, H., & McElreath, R. (2001). In search of Homo economicus: Behavioral experiments in 15 small-scale societies. American Economic Review, 91(2). https://doi.org/10.1257/aer.91.2.73
• Maftukhatusolikhah, M. (2003). Penalty Imposed On Debt Payment Delaying-Capable-Clients: A Study on DSN-MUI’s Fatwa No. 17/DSN-MUI/IX/2000. Jurnal Iqtisad, 4(2).
• Mahomedy, A. C. (2013). Islamic economics: Still in search of an identity. International Journal of Social Economics. https://doi.org/10.1108/03068291311321857
• Mahomedy, A. C. (2015). Occidental rationalism: Its early impact on the foundations of modern science. Unpublished Paper, University of KwaZulu, Natal, Durban.
• Mahyudi, M. (2015). ‘True man’: The true economic man for Islamic economics. Global Journal Al-Thaqafah, 5(2). https://doi.org/10.7187/GJAT912015.05.02
• Mahyudi, M. (2016). Rethinking the concept of economic man and its relevance to the future of Islamic economics. Intellectual Discourse, 24(1), 111–132.
• Mohd, M., & Aziz, E. A. (2017). Rethinking the structure of Islamic economics science: The universal man imperative. International Journal of Economics, Management and Accounting, 25(2 (Special Issue)).
• Pareto, V. (2015). Manual of political economy. A critical and variorum edition. In A. Montesano, A. Zanni, L. Bruni, J. S. Chipman, & M. McLure (Eds.), Estudos Economicos (1st ed., Issue 2). Oxford University Press. https://doi.org/10.1590/0101-4161201545258roa
• Rutherford, D. (2003). Routledge Dictionary of Economics (2nd edition). In Reference Reviews (2nd ed., Vol. 17, Issue 2). Routledge. https://doi.org/10.1108/09504120310461608
• Sholihin, M., Sugiyanto, C., & Susamto, A. A. (2023). A systematic review on homo Islamicus: classification and critique. Islamic Economic Studies. https://doi.org/10.1108/ies-11-2022-0043
• Urbina, D. A., & Ruiz-Villaverde, A. (2019). A Critical Review of Homo Economicus from Five Approaches. American Journal of Economics and Sociology, 78(1). https://doi.org/10.1111/ajes.12258
• Yunus, D., & Muslimin, J. (2020). Debt in the Perspective of Islamic Law. Jurnal Syarikah : Jurnal Ekonomi Islam, 6(1). https://doi.org/10.30997/jsei.v6i1.2187
• Zaman, A. (2022). The Power of Ideas – Dr. Asad Zaman. https://asadzaman.net/the-power-of-ideas/

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T h a n k s !

Ali Polat

Prof. Dr., Ankara Yildirim Beyazit University,�College of Political Science, Department of Economics �Ankara, Türkiye,

alipolat@aybu.edu.tr

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20 February 2024, Kuala Lumpur

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New Computers: There is no only binary choice but more.

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