Fard ‘ayn component [1]
Mohamed aslam haneef [2]

Introduction

Since the mid-1970s, there has been a lot of interest in Islamic economics, banking and finance. The establishment of the OIC in 1969 and The Islamic Development Bank (IDB) in 1975 proved to be historic landmarks in the contemporary history of the Muslim ummah. These two institutions clearly provided an avenue for the revitalization of the ummah’s hopes and aspirations. In 1976, the First International Conference on Islamic Economics was held in Makkah al-Mukarramah, bringing together economists, jurists and scholars of other related disciplines for the first time to discuss issues of concern to the  Muslim  ummah,  leading  eventually  to  the  birth  of  the  discipline  of  Islamic Economics. Since 1976, six other conferences have been held: in Islamabad (1983), Kuala Lumpur (1993), Loughborough (2000), Bahrain (2003), Jakarta (2005) and Jeddah (2008).


In addition many other international and national conferences, workshops, symposiums and seminars have been organized all over the world attempting to discuss economic issues and its related disciplines from Islamic perspectives. Thousands of articles, books and seminar papers have been written, numerous Islamic economic research and teaching institutions have been set up, while many universities and institutions of higher learning have introduced courses/programs on Islamic economics and its related fields. At the governmental level, a few Muslim countries, Malaysia at the forefront,  have attempted to introduce Islamic banking and finance reforms in their economies.

Official contemporary writings place the genesis of Islamic economic institutions in Malaysia in the 1960s, with the establishment of Tabung Haji or Pilgrim’s Fund in 1963. However, the present writer is more inclined to view actual planned Islamic economic reforms as having started in the 1980s. Unlike before, the leadership of that period decided to utilize Islam as a positive ingredient in the development of the nation and its peoples, especially the Malays. The role of Islam, at the state level, went beyond ceremonial purposes. Besides the Inculcation of Islamic Values Policy in 1981, various institutions, both in the economic and non-economic spheres were established to help generate positive inputs to the development of Muslims in Malaysia. Many reforms were also undertaken in the legal and education spheres to provide the support needed to sustain these Islamic economic efforts.[3]

While acknowledging the events over the last 30 years both internationally and in Malaysia, this paper wants to focus on an area that somehow has been overlooked. Despite the active interest in the area of Islamic banking and finance, one is still faced with the fact that research in Islamic economics has declined, the enthusiasm of the late 1970s and 1980s has waned, the growth rate of people still actively working in Islamic economics  has  declined  and  the second/third  generation  of  Islamic economists  have become quite a rare breed. This is why this 3rd Islamic Economics Congress and the effort by the organizers to focus on strategic areas for the future of the ummah are greatly welcome. The paper will try to argue that we must devote sufficient resources, both financial and human, to do research in what is called the ‘missing fard ‘ayn’ component in  Islamic  economics,  banking  and  finance,  i.e.  the  foundations  or  usul  of  Islamic economics

Research in Islamic Economics and Finance: Where’s  the  Islamic  Economics?

Using data from a few, mainly publicly available sources, a recent study by Nazim Ali

(2007)[4], attempted to do the following:

1.   document the current status of Islamic economics and finance research based on available publications
2.   to identify trends in research activities (in terms of type and content of work), thereby looking at the evolution of Islamic economics and finance over the years
3.   to present information on various institutions involved in research activities in the area of Islamic economics and finance
4.   to discuss sources of funding for these research activities and identify some areas for further research.

The  following  findings  are  from  his  paper,  but  the  present  writer  makes  some observations relevant to this session, focusing on research requirements.

1.   The numbers of research output in the form of articles, books, conference papers and ‘other materials’ (till 1999/2000) is quite significant at 6484 items. Progress was especially visible in the 1990s, where output more than doubled from the previous decade, mainly due to the establishment of Islamic financial institutions.

2.   While the total numbers and the growth rate in the last decade may give an impression that Islamic economics is gaining popularity and is on the right track, it would probably be accepted that a huge proportion of these publications would be  in  the  area  of  Islamic  banking  and  finance,  not  in  Islamic  economics, especially in areas dealing with theory and foundations. While Ali’s paper does not elaborate on the areas of publication, in an unpublished work done with colleagues involved with the IIUM Journal of Economics and Management that looked at the four major Islamic economics journals since the mid-1980s, this ‘trend’ was very clear.

3.   According to Ali, while the major teaching and research centers (universities) in Islamic economics are based in Asia (Kuala Lumpur and Pakistan) the major share of the output (articles) is from Europe while books and conference papers are from the middle east. This indicates greater academic orientation in Europe (and the USA) compared to areas considered to be in the Muslim world. The output from the Middle-East consists more ‘applied research’ and ‘product development’ output in the area of Islamic finance.

This finding deserves greater attention among Islamic economists and those who are in the funding agencies. Certainly in the case of the Kulliyyah of Economics and Management Sciences, IIUM, the first 25 years of its existence has been primarily focused on teaching. While proud that the KENMS has produced about 2,000 graduates from about 80 countries, the research agenda and publication record in the area of Islamic economics is still very much in its infancy. Even the number of active teachers and researchers who are fully dedicated to the teaching of,  and  research  in,  Islamic  economics  (as  opposed  to  Islamic  banking  and finance) is less than 25% of its faculty, indicating a serious need to re-focus on creating the next generation of Islamic economists. From discussions with colleagues in other institutions in Malaysia and other countries, the same trend seems to exist everywhere.

Ali also mentions that recently, some major publishing houses based in the west have become involved in publishing materials in Islamic economics and Finance. However, a cursory look into the titles produced in the last five years indicates a very clear bias to Islamic banking and Finance. Where is Islamic economics? Has commercial interest and market forces totally determined the direction and areas of research? Is this a healthy trend and are we to allow this to continue?

4.   In the section on research trends, Ali (2007) divides research into two main categories, theoretical and applied. One limitation that was noticed in his write up was that he seemed to focus primarily on Islamic finance, rather than including Islamic economics. Hence when he observes that ‘the industry has long realized the importance of academic research for its growth’ he seems to be referring primarily to the Islamic finance industry. He rightly sees universities and other higher institutions of learning as the main seats of research in Islamic finance and points to the fact that it is mainly academics, researchers and graduate students who form the bulk of researchers in the area.

However two issues have to be pointed out. Firstly, if we accept the premise that Islamic banking and finance has to have Islamic economic foundations, then here has not been a sufficient amount of research in those foundations. Secondly, if we accept the statement that the ‘industry’ realizes the importance of academic research to its own survival, we must also ask who sets the agenda of research? Does ‘theoretical/academic’ research in Islamic finance answer to the demands of industry or does academic research chart out the future path of the industry? While logic will say that it is a two way process, my view is that it has been, and is still, the industry that determines the direction of theoretical research in academia and this trend is ever-increasing. In terms of funding, it does not take a genius to figure out that if left to its own, private financial institutions will fund research in areas and in directions that it sees important and not easily fund research  in  areas  that  only  seem  to  be  theoretically  stimulating  but  with  no apparent ‘practical’ outcome.

Are pure ‘theoretical’ studies not important? If we say that pure theoretical studies are important, who will fund it? Also very important is who will conduct this type of research? From the example of the KENMS, the number of academics and students who choose to do ‘pure’ theoretical research are even a smaller and rarer commodity.

The situation is equally depressing in Islamic economics proper. Very few academics continue to work in building the theoretical foundations of Islamic economic theory and not many bother to focus on policy areas in Islamic economics. Before the west developed such sophisticated analyses of Islamic finance, did they not dedicate sufficient resources- financial, human and time- to the development of solid theoretical foundations in economics and finance? Unfortunately, in Islamic economics, after less than 20 years of writings in economics and its foundations, we Islamic economists abandoned our own field and many decided to join the juggernaut of Islamic finance. While we need people in Islamic finance, we have to find the resources and help create a ‘critical mass’ in the theoretical foundations area if we want to sustain Islamic economics and finance.

5.   Unfortunately, Ali’s paper does not discuss funding for research much. While industry led research has sufficient funding, he admits that research in other areas is very constrained due to limited funding, relying on general all-purposes grants from universities or institutions or from personal funds. He mistaken assumes that public institutions (including the IIUM) have reasonable funding for Islamic economic research (especially for the ‘academic/theoretical category). The remaining parts of this paper will try to discuss this very important issue of funding research in Islamic economics, especially in foundational areas, that I hope the Congress will agree constituents as fard ‘ayn for the sustainable future of Islamic   economics,   banking   and   finance.   The   paper   will   argue   that   by international standards, the amounts of public financial resources dedicated to research in Islamic economics, is insufficient.


Expenditure on Research in Malaysia: The Case of Islamic Economics

It is a fact that Muslim countries, even those that are considered Middle-income, are not spending  what  they  should  be  on  R  &  D.  A  good  example  is  Malaysia,  by  all measurements and criteria one of the most ‘successful’ OIC nations. Unfortunately, as far as R & D expenditure, the figure is a mere 0.69% of GDP for the year 2006. Compare this to countries that were almost at par with Malaysia during independence 50 years ago like Singapore (2.2%), South Korea (2.5%) and Taiwan (2.2%) and we can possibly understand why these latter group of countries have outpaced Malaysia.


However, Malaysia, and I am assuming many other middle income Muslim countries realize that more funding has to go into R & D if development in this era of knowledge is to be sustained. In the case of Malaysia, about 20% of its annual expenditure is spent on education as a whole. While much of this is spent on infrastructure (i.e. the setting up of new schools and universities), more attention is being paid to human resources and R & D as  well.  For example,  in  2006  about  25%  of academic staff in  higher education
institutions had Ph.Ds. By the end of the 9th  Malaysia Plan (2006-2010), the target has

been set to achieve 60%. RM1.2 billion has been allocated for this. While there were only

21.3 researchers per 10,000 workers in 2003, the target has been set to reach 50 researchers per 10,000 workers by 2010.


As far as R & D funding, one major source of public funding for Universities in the last decade has been the Intensification of Research in Priority Areas Fund (IRPA Fund). The following tables show the amounts of funding since 1996 and as an example, look at the funds that went to the National University of Malaysia, UKM. While these figures may seem substantial to some, one has to keep in mind that for the 8th  Plan, the research
expenditure per GDP was only 0.49%. This figure has been targeted at 1.5% in 2010.