Riba–free finance and zakat–induced economic aid: The political economy of two developmental initiatives in the Muslim world
Ali, A. (2014) Riba–free finance and zakat–induced economic aid: The political economy of two developmental initiatives in the Muslim world. In: Clarke, Matther and Tittensor, David, (eds.) Islam and Development: Exploring the Invisible Aid Economy. Ashgate, Farnham, England, pp. 87-108.
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Riba-free finance in the shape of an institutionalized Islamic banking and finance industry (IB&F) and zakat-induced economic/financial aid from affluent Arabs to poorer Muslim nations emerged as alternative faith-based economic initiatives in a world of economic rationalism and secular humanism. IB&F and Arab economic/financial aid emerged in the 1970s in the wake of an oil-based economic boom and a wave of Islamic religious resurgence in the Arab Middle East, which coincided with the collapse of Keynesian-Neoclassical Macroeconomic Consensus (KNMC) and rise of neo-liberal market fundamentalism. In a global economy ruled by secular ideologies the appearance of a faith-based financial sector was initially viewed as bizarre and ridiculous. However, such secular antipathy was not evident when affluent Arab nations came together Lo institutionalize an Islamic religious obligation, zakat or charity, into a distinct category of foreign aid. Over the last four decades however, IB&F has grown as a resilient alternative to conventional banking and finance and has captured a niche market both within and outside Muslim countries, while Arab foreign aid after a meteoric rise in the 1970s and 1980s appears to have taken a back seat allowing IB&F to become the leading facilitator of economic development, mostly amongst Muslim communities. What follows is a two-part analysis of the political economy of IB&F and Arab economic/financial aid. After a brief outline of the political and economic background that produced these developmental agencies, the main section of this chapter will dwell on the growth and role of IH&F, followed by a short section of Arab economic/financial assistance. The chapter will conclude with some comments on the critical role of these two agencies in the economic development of the Muslim world.
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