Challenges of Economic Development in the Muslim World: Islamic vs Secular Arguments

Does Islam Meet the Challenge of Economic Development in the Muslim World? (Islamic
vs. Secular Arguments)
A very small number of countries in the Muslim world are classified as rich, such as
the Arab Gulf countries, or enjoying a relatively high level of industrialization, such as
Turkey and Malaysia. Apart from these exceptions, the Muslim World is generally
suffering from underdevelopment and poverty.
Muslims make up about 19 percent of the world’s population but earn only 6
percent of its income. Underdevelopment means structural disequilibrium mostly
reflected, in high dependence on agricultural products, raw material or mineral
production, and lack of developed industrial structure. Such structural disequilibrium is
noticed even in the few rich Muslim countries. Add to this, poor social infrastructure, i.e.
education, health, sanitations, clean water, etc.
Mal distributions of National income, poverty, or ultra-poverty, of high percentage
of population are common problems in the Muslim World. Development problems are
reflected in low income per capita, and unsuitable annual rates of income growth, weak
export performance, and unfavorable terms of trade, BOP problems, depreciating foreign
value of national currencies, high and increasing foreign indebtedness.
Traditionally Economic analysts in international development reports attribute the
economic problems of Muslim countries to same factors that are known in other
developing countries, such as: inefficient financial markets reflecting on use of financial
resources, low rates of savings and investment, idle or underdeveloped natural resources,
low rate of technological advance, high rates of population growth, inability and failure to
carry out sound fiscal, monetary, and trade policies.
In the recent two decades economists started to recognize that most of the
economic problems which developing countries faced, and still facing are backed by
unfavorable socio/political climate ( e.g. lack of education, lack of development vision and
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aspiration, political instability, and corruption) as well poor or inefficient organization,
suitable legislations, and law enforcement.
In this lecture, I am reviewing and discussing some arguments that have been
raised recently about ability of Muslim countries to develop mainly because of their
religious culture.
M. Noland (2003) recognized that a relationship can be found between adherence
to major world religions (Christianity, Islam and Buddhism) and national economic
performance. Yet he enquired about how far strong or significant such relationship can be
on statistical grounds? M. Noland assigned a special section1
in his work to Islam, saying
“since considerable recent commentary has focused on (its) alleged impact”. M. Noland
on bases of his empirical work could not support a hypothesis that Islam strongly affects
economic development, but at same time he refused claims of some commentators who
“have claimed that Islam is inimical to growth”.
Luigi Guiso, Paola Sapienza, and Luigi Zingales (2003) found that “on average,
religious beliefs are associated with “good” economic attitudes, where “good” is defined
as conducive to higher per capita income and growth”. Yet, Luigi Guiso et al, concluded
from their empirical work that while Christians (particularly Catholics) are thrifty, favor
private property and competition, Muslims and Hindus are strongly against competition.
Muslims, they say, are the most anti-market, as they were generally less disposed to agree
with statements such as “Competition is good,” and “Private ownership of businesses and
industry should be increased”. They concluded that on average “Christian religions are
more positively associated with attitudes conducive to economic growth, while Islam is
negatively associated”.
The econometric approach adopted by M. Noland, Guiso, et al, and others2 which
depended on “available statistical data” has not in fact been fair to Islam. Apart from all

1
) This issue is addressed in the fifth section of M.Noland’s paper
2
) See; Daniel L. Chen, “Economic Distress and Religious Intensity: Evidence from Islamic Resurgence During
the Indonesian Financial Crisis”, MIT mimeo, November 2003; Karen Pfeifer, “ Islamic business and business
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probable bias of samples’ population, available data still reflects properties of
contemporary Muslims. These may be good Muslims (so far practicing of prayers, fasting,
etc.) or may not. Besides, many Contemporary Muslims have minor education about
Islamic culture, especially its economic aspect. Modern Muslim societies are not ruled by
Sharia. Thus, answers by Muslims on questions about relationship between their religion
and modern practices of business and markets, as collected by samples are bound to be
inaccurate and have to be examined by Muslim experts.
D. Landes explained stagnation in the Muslim world because, in his opinion, of
developing an inferiority complex. He added “Islam has long exercised a retardative
influence on Arab intellectual and scientific activity” as “new knowledge and ideas have
fallen under suspicion as bid’a or heresy.” Some truth, however, can be detected in D.
lands’ talk about bid’a ( البدعة (and its retardative impact. Surely, some Muslims’ opinions
on bid’a were behind inability to innovate or to qualify market rules to suit continuous
changes.
D. Landes’ conclusion that “Islam has long exercised a retardative influence on
Arab intellectual and scientific activity,” is unacceptable because this is not Islam, it is
rather culture that developed in Muslim countries because of diverse factors that have to
be thoroughly analyzed.
B. Lewis refers to lack of freedom in Muslim societies and failure of leadership.
“Muslim modernizers, by reform or revolution, concentrated their efforts in three main
areas: military, economic, and political and results achieved were disappointing. B. Lewis
emphasizes that “lack of freedom” was a major force in retarding the development of the
Muslim world. To quote his words “freedom of the mind from constraint and
indoctrination, to question and inquire and speak; freedom of the economy from corrupt
and pervasive mismanagement; freedom of women from male oppression; freedom of
citizens from tyranny, that underlies so many of the troubles of the Muslim world.

as usual: A study of firms in Egypt”, Development in Practice 02/2001; 11(1):20-33. DOI:
10.1080/109614520020019920
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One would tend to agree with B. Lewis on some important points, but going
through his analyzes we find that he has underestimated the devastating effects and
consequences of European imperialism to the Muslim world.
About importance of “Freedom” in B. Lewis’ thesis, we have to emphasize that the
Quran contains many versus which speaks to non-believers asking them to think and use
their intellect for sake of adopting the righteous path. Prophet Muhammad Pbuh, strictly
followed the Quranic teaching, emphasizing the value of human liberty and man-kind
equality. Omar Ibn Al-Khatab confirms that all people are born free by will of Allah and Ali
Ibn Abi-Taleb “has repeatedly emphasized that God created man as a free being with
sound senses and reason, and led him with His grace to the right path, but it was man who
chained himself with false desires and misguided ambitions” Limits on freedom in the
Muslim world are imposed by tyrant rulers, vested interest groups, unlearned religious
authorities, and some preachers who use their followers to enforce their opinions on
others. Unfortunately, Islam is accused of stifling freedom if the unfounded fatwas or
intolerant religious opinions are considered part of Sharia. Yet, more serious in stifling the
freedom of Muslim people in recent centuries was western imperialism.
The French imperialists in the 19th and 20th centuries moved by their nationalistic
and Christian zeal saved no effort in challenging and weakening the Islamic culture in
Algeria and Morocco and other Muslim territories in Africa. British imperialists mainly
motivated by their economic interests were keen to firmly establish the interest-based
banking system, as well as secular taxation system. Trade links between colonies and the
empire planted inequality in benefits and created later on a pattern of economic
dependency that was unfavorable to the colonies even after independence. Would B.
Lewis say that the western imperialists did all that by consent of Muslim people? In fact all
that could not had been without firmly closing the Freedom’s door.
Imperialism had strongly polluted culture in Muslim societies in a manner and
caused damage which could not be easily repaired later on. The effect of western
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imperialism on education was even worse, as students of the high class and later on the
middle-class, were studying Western culture, while minor attention was given to modern
empirical sciences and technology.
B. Lewis also underestimated the effect of establishing the new state of Israel on
the Arab world in 1948.Brotherhood and unity of the Muslim people is emphasized in
Quran, and the Arabs woke up on the disaster of their brothers in Palestine losing their
land becoming refugees everywhere? The Muslim economies in the Arab world, in
particular the Egyptian economy, suffered since 1948 because of Israel more than
anything else. How far that was due to attempts to restore a land for its Muslim people
(Islamic cause) or to politics, or due to unsuccessful militarist rulers’ adventures? B. Lewis
should have given us some answer instead of emphasizing the humiliating defeat of the
Muslims by Israeli gangs in 1948.
Timur Kuran’ s argued that some Sharia rules are not conducive to economic
development. Islamic Partnership contracts enabled merchants to raise money for long
distance trade expeditions in the past, but they are “ill-suited to building long-lasting
assets such as factories and railways”. T. Koran holds business partnership complying with
Sharia was behind failure of Muslim countries (referring particularly to the Middle East) to
“produce a single case of mass financial mobilization through non-governmental channels
for a major business venture, except insofar as foreigners were involved”. His recent
writings emphasized other obstacles to progress that are related to Sharia; the financial
system, inheritance practices, Waqf, contract law and procedures of the courts.
Does T. Kuran know that Partnership and other finance or trade contracts which
had been practiced for centuries in Muslim societies were known in the pre-Islamic
society? These contracts were approved in Sunnah under conditions that eliminated
usury, Gharar, Ghab’n and other forms of injustice. If T. Kuran knows that such
partnership “contracts” are not mentioned in the Quran, then he may have to blame
Muslim scholars for not updating Islam to coup with new matters that have no previous
rules in Sharia or in approved traditions of the Muslim world. Similarly, when T. Kuran
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(2003) identifies the absence in Islamic law of the concept of a corporation as one of the
bottlenecks which seriously hampered economic growth in the Muslim world, he should
know that the traditional unlimited liability partnership was not in the Divine revelation.
The concept of corporation with its limited liability character was adopted in Islamic Fiqh
after it has been recognized as maslaha rajeha (Muslim people’ public interest) in the
1980e s. Again T. Kuran could have said that ijtehad in this respect came almost one
century after the western world. But even so, it is false to say that the absence of the
concept was crippling Muslim countries’ economic growth. This is simply because the
“corporation” was legalized by secular laws in many Muslim countries during European
imperialism. Similarly, neither T.Kuran nor anyone else can that the prohibition of interest
was behind the present state of un-development of the Muslim world because the
interest system, and commercial banks were made legal by secular laws. What gains have
been obtained since the 19th century from adopting such Sharia impermissible system?
What benefits in terms of economic growth have been gained from interest-based
Commercial banking and commercial Insurance in Muslim countries since these were
made legal by secular laws?
T. Kuran bluntly calls these divine Laws “Inheritance customs” saying that these
customs “hindered business consolidation”. Because these laws cause wealth
fragmentation! First, T.Kuran should have brought hard empirical evidence that Islamic
inheritance laws cripple capital accumulation before claiming or suggesting this. Second
we have to tell him that Justice in wealth distribution is given high priority in the Islamic
system, and Islamic inheritance laws are playing an important role in this respect.
On other front, T. Kuran is right in attacking the Waqf institution in being
stagnating or corrupted in some Muslim countries. But why, on the other side could not
he recognize the new role played by such institution in many modern Muslim countries,
such as Kuwait, Saudi Arabia, Sudan and Pakistan.

Most of the arguments that raises suspicion regards the inability of Islam to help
economic growth mix between Islam and Muslims, i.e. how contemporary Muslims think,
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behave, act, and how their social and political life is run in their countries. In other words,
Muslim countries are taken literally to represent Islam. The question of “Is Islam capable
of meeting the challenge of economic development?” becomes synonymous with “Is the
Muslim World within known conditions capable of meeting the challenge of economic
development?”
Such approach is methodologically wrong because of the wide gap which exists
between an authentic Islamic Model and its application. Such wrong methodology
prevents non-Muslim scholars from making any rigorous analysis about the “Is Islam
capable of meeting the challenge of economic development?”
Many of the Islamic economists recognize that their societies, for centuries have
suffered from stagnation and lack of enlightened Islamic rules in the areas of economics
and finance in particular. Imperialism had inflected badly and seriously on their countries
by introducing foreign education and secular legislations which allowed for interest-based
financial institutions (Riba System), secular taxations (neglecting Zakat).
Most of the Muslim countries after independence were plagued by dictatorship,
corruption, and market monopoly! More important, is some prevailing misunderstanding
about innovation in Islam. Some traditional fuqaha consider any innovation to be bid’a
بدعة , while some others widen the scope of innovation without deep knowledge in Sharia
and its tenets (maqasid). In fact enlightened ijtehad is the solution, and this needs an
atmosphere of freedom in Muslim societies. A “u” turn is necessary to restore true
civilization to the Muslim world by Sharia revival. This is the big challenge which Islamic
economics face!
Acknowledgements: This public lecture was convened by Dr. S. Nazim Ali, Bahnaz AlQuradaghi, and Wijdan Tariq of the Center for Islamic Economics and Finance, College of
Islamic Studies, Hamad Bin Khalifa University in Doha, Qatar.
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Speaker Bio: Abdelrahman Yousri Ahmad is Professor of Islamic Finance, College of Islamic
Studies, Hamad Bin Khalifa University. He holds a Ph.D. in Economics from St. Andrews
University, Scotland. His past experience include as ex- chair of the Department of
Economics at Alexandria University and Director-General, International Institute of Islamic
Economics at the International Islamic University, Islamabad, Pakistan. He authored
numerous books and articles. He is a recipient of the Islamic Development Bank Prize for
his outstanding contribution to Islamic economics. He is also holding permanently the post
of “Emeritus Professor” at the newly established Faculty of Economic Studies and Political
Science, Alexandria University.

Link : https://ibir-api.hbku.edu.qa/sites/default/files/2020-12/Abdelrahman%20Yousri%20-%20Summary%20Report.pdf