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The discussion on the Islamic Economics has been going on in the last three decades. Islamic Research & Training Institute (IRTI), a research arm of the Islamic Development Bank (IDB) Group, has been one research center focusing on the study on Islamic banking, finance, and economics. The application of the Islamic economics at the moment is still limited to the Islamic Banking & Finance. The growth of Islamic Financial institutions in the last one or two decades to some extents could be attributed to the study on Islamic Banking & Finance.

In all of above studies, Shariah has been the central part of it. This is because in Islam, by its nature, faith cannot be separated with knowledge and science. Knowledge and science are there to advance the faith. Thus, in the history of Islamic past, Shariah was an integral part in the body of the constitution and law in the most part of the Muslim world. It had been going on like that for hundreds of years from the time of the establishment of the first Islamic State in Madinah during the Prophet Muhammad’s time till the demise of the Ottoman Empire.

Within the above context, it is very important to expand the study of the Islamic Economics into an Islamic Political Economy. This is because the application of the Islamic Economics, Finance, and Banking cannot be confined only in the financial sector as the present case shows. Financial sector is only one sub-sector in the economy of one country. To have a real success in the financial sector and to develop solid economic progress, one will also need to deal with non-financial and/or economic factors affecting finance and/or economy.

These factors are among others the functioning of the good governance in the government, the establishment of the rule of law, streamlined and not overlapping regulation, service-oriented bureaucracy, social safety net, universal health care, and good education system. This is the area which is basically beyond the economics. Thus, to deal with the issues of development and progress in the Muslim world, one should go beyond the economics. It will need to deal with political, social, and cultural issues.

Islamic Political Economy: The Concept

Political economy is a discipline and/or thought related to laws of productions of wealth at the state level. Political economy most commonly refers to interdisciplinary studies drawing upon economics, law, and political science in explaining how political institutions, the political environment, and the economic system influence each other.  Each major ideology such as capitalism, communism, socialism, and mixed system will have its own political economic system. Islam, as a belief system which does not only deal with ritual matters but also worldly matters, also has its own worldview and/or rulings related to political economy of a nation and the Ummah (the community of the worldwide Muslims).

Similar with Islamic economics, banking, and finance, the concept of Islamic political economy will also be based on the Shariah with the Qur’an and the Hadith as primary sources.  In general, Islamic political economy will oblige the State to play its role to establish justice based on rule of law, it is obliged too to protect faith, life, honor, posterity, and wealth of all people under its rule. This is related to the Objectives of the Shariah (Maqashid Shariah).

In addition, the State is also obliged to serve the people on the matters related to the public services that include creating a service-oriented bureaucracy, ensuring the freedom of doing businesses for all members of society, facilitating all business efforts of its citizens (especially the micro, small, and medium enterprises), ensuring tidiness and cleanliness of the public places, and protecting the environment. The State will also need to ensure the universal access of the education and health services. The availability of proper housing system with good standard of ‘hygiene’ and ‘sanitation’ for all its population will also be part of its responsibility. And last but not least, there has to be a proper social safety net in place to help the weaker segment of the society.

One of the twentieth century Muslim thinkers discussing on the Islamic political economy is Ayatullah Muhammad Baqr al-Sadr who was also a political activist.  He was a movement figure who was leading an uprising against the Saddam Bath Regime when it was still in power. He was executed by the regime in early 1980. He envisioned the establishment of an Islamic political system that would replace the systems in the Muslim world considered corrupt. Among his books known in the West are Our Philosophy (Falsafatuna) and Our Economy (Iqtisaduna).


Sadr believed on the need to create a program that would establish a new social and economic order that would replace the capitalist and socialist order dominant in the Muslim world. Sadr believed that the Islamic Economic System (IES) was more capable in solving the contradiction within a capitalist system, and therefore; would be able to serve human needs betters, and more importantly, the IES would have the capacity to develop and progress in line with the human potentials.

Sadr’s economic view is part of the general political theory meant to establish a comprehensive Islamic social system. The application of IES would be judged after the creation of Islamic State where all aspects of human social economic behavior would be determined based on Islam.


The economy of an Islamic State according to Sadr would be divided between individual as a vicegerent of Allah in this world and the ruler as a witness that would apply the God’s rules. Therefore, the economic structure of Islamic State would consist of the private and public ownership. But, Sadr rejected the views that the economic structure of Islamic State is a combination between capitalism and socialism. Sadr contended that the rules pertaining to public and private ownership are based on fundamental belief of the Islam itself. This kind of approach is basically similar to the way that private ownership is advocated in the capitalist system, or public ownership by socialist: as the logical conclusion of their ideological and philosophical beliefs.

Sadr discussed in more details the relation and the economic structure of an Islamic State that included the human economic relation, Islamic theory of distribution, the distribution of natural resources, the distribution of productions, the channeling of human basic natures, economic development, and the Role of State.

Other thinker that discussed extensively about Islamic Political Economy is Masudul Alam Choudhury, he is known with his epistemological literatures and Islamic political economy. Like Sadr, Choudhury also uses the epistemological approach on his Islamic political economy study where he saw that the development of knowledge was based on the belief and ideology of the people. Within this context, it could be said that the Qur’an and the Sunnah is the basis of knowledge development within the Islamic tradition. The process of integrating belief and knowledge actually had been done for hundreds of years in the Islamic history.

Choudhury saw that the application of Tauhidic Paradigm in the Political Economy would showcase an alternative to today conventional economic model. In relation to the application of Tauhidic Paradigm in political economy, Choudhury discussed about the ownership rights, work and productivity, the theory of value, the allocation of natural resources, price, and preference formation.

In general, to address the real development issues in the Muslim World, the study of Islamic economics will need to be advanced further to include the Islamic Political Economy. As discussed above, there are many non-economic and/or financial factors affecting the economics and/or finance, and to deal with them properly one should also use political economy approach.

The Strategic Objectives of the Study of Islamic Political Economy

The strategic objective of Islamic political economy includes among others successful development and progress in the Muslim world. Besides, the application of Islamic political economy is expected at the end not only to be beneficial for the development and the progress in the Muslim world, but also to be able to contribute to the betterment of the humanity in general including those in some parts of  Western developed countries, currently also facing the financial crisis.

The Islamic political economy is expected to be able to create a more ethical social order rather than a materialistic one, a more caring society to the fellow being, more humane, more environment friendly, more equal, having a long term vision rather than short term, and care to the sustainable development, and on top of that more attention to the role of morality in the society. All of these are expected to go hand-in-hand with the productivity of the people.

The Relevance of the Study of Islamic Political Economy with the Challenges of Development & Progress in Indonesia in Particular and the Muslim World in General

As discussed above, one of strategic objectives of Islamic political economy is the successful development and progress in the Muslim world. In view of this, the Islamic political economy is very relevant for Indonesia. There are many ‘non-economic’ factors affecting the Indonesian economy, these are among others corruption, the rule of law, and the bureaucracy. In fact, these factors are now considered as factors affecting the economic competitiveness of a nation in Competitiveness Report compiled by the World Bank.

We have seen today that pervasive corruption in Indonesia undermines the strength of the Executive, the Legislative, and the Judiciary system.  The problems with the rule of law and the weaknesses of the justice system that include police, attorney general office, and the court will also create legal uncertainty in the society and in turn will also constraint the investment climate in the country. Finally, inefficient, ineffective, and too large bureaucracy will create difficult and complicated regulation, which in turn, will undermine the competitiveness of an economy.

The above three factors will be very critical for the real progress of any economy. Any backward country, or at least the under-developed one, must have issues with these three factors. On the other hand, any developed country for instance those OECD countries must have better systems in term of those three factors. In addition, these three factors could also undermine the economic development and create a high-cost economy. In Indonesia’s today context, they are contributing in discounting the economic growth.  Hence, the political economy approach is very much relevant in discussing the future development and progress in Indonesia, especially Indonesia is the biggest Muslim country with a growing Islamic awareness.

Islamic political economy within the framework of economic development is very important to address those non-economic factors. The Islamic political economy will not differentiate the issue of economic progress and the need for the strengthening of State institutions and for the creation of enabling political environment. The facts that Islam stresses the welfare of the society based on justice, mercy, well-being, and wisdom are important political doctrines. The making of functioning State institutions is also critical in Islamic political economy perspective since the State is expected to be able to protect human basic aspects such as faith, life, knowledge, wealth, and posterity.

The Islamic political economy will emphasize more equal economic opportunities that will not only benefit a few member of society, the need to have investment-driven growth, the need to have social safety net to protect the weaker segment of the society, good health system, universal access to education, effective and clean judiciary system, service-oriented bureaucracy, simplified regulation that will not make difficult for the people, especially for the people to do business and investment. Finally, this all will be critical in creating more equal and sustainable economic development.     

The social political change in the Arab world today bringing down many old authoritarian regimes to a large extent show that there has been an accumulated discontentment among the Arab people on how the State and the economy was run. It happened before also in Indonesia with the downfall of the General Soeharto in 1998. The emergence of Islamic-led Governments with its many forms started in Iran and Turkey, and then followed in the afterward of the “Arab Spring” by Tunisia, Morocco, Egypt, and Libya will make the discussion on Islamic Political Economy relevant.

However, although it is imperative and critical, successful change is an arduous task and would not be easy. Yet, it is not impossible either. But, a set of intellectual disciplines that can accompany change need to be there also. Thus, the study on an Islamic political economy would be one important variable on how the changes could deliver result, and thus; bring about betterment for the conditions in Indonesia in particular and the Muslim world in general.

By Farouk Abdullah Alwyni

Farouk is the Chairman of Center for Islamic Studies in Finance, Economics, and Development (CISFED). He obtained his MA in Economics from New York University and his MBA in International Banking & Finance from the University of Birmingham. He has been presenting about Islamic Finance related subjects in many local and International forums.