I was representing Pakistan at the Global Islamic Impact Investment Forum and was pleased to witness the widespread understanding and appreciation of the Islamic Financial System (IFS). This is progress by leaps and bounds.

Smith presented his theory of the Wealth of Nations in 1776. This theory merged with the European financial needs to become the defining moment for Capitalism and modern banking. From the 19th century onwards, Smith’s invisible hand controlled the growth of economies across continents.

Another feature that remained invisible was the work of Ibne Khaldun, the 14th-century pillar of thought, jurisprudence, social sciences, and economics of Islam, till as late as the latter half of the 20th century.

“His significant contributions to economics, however, should place him in the history of economic thought as a major forerunner, if not the Father of Economics, a title which has been given to Adam Smith, whose great works were published some three hundred and seventy years after Ibn Khaldun’s death, says Ibrahim M. Oweiss, an American economist.

Ibne Khaldun’s narration of Islamic financial systems is a more comprehensive document with wellbeing at its core than its western counterparts

The economic thought that predates Adam Smith by almost three centuries has gone unnoticed in academic realms till recently. While the similarities between Khaldun’s Muqaddama and Smith’s Wealth of Nations are many, I find Khaldun’s narration of IFS, a more comprehensive document with wellbeing at its core.

I can almost see Khaldun sitting in the airy corridors of the mosque in Tunis in the 14th century, systematically analysing the importance of technology, foreign trade, economic surplus, stabilisation policy framework, employment & taxation. Khaldun’s Islamic finance analysis is interlinked with the realisation of socio-economic justice and growth for all.

The rotation of money is integral here, with an understanding that money is a means to an end and not the end and that hoarding and interest-based earning are out of the window. Banks, in this case, will not be Riba (interest)-based institutions but will be identified by their scope of investments and promotion of opportunities.

Fiqa-al-Muamlat (Islamic Commercial Law) covers a wide horizon from natural resources to property taxation etc. The ethics of the content is in sync with the Islamic purpose of life, including sustainability and expansion of opportunities — very modern debates now. To know that Khaldun had made them integral to commerce seven centuries ago is astounding. Noting down the names of the Jurists who worked on this is overwhelming; Abu Yusuf, Al-Mawardi, Ibne-Hazm, Al-Ghazali, Al-Dimashqi Ibne-Rushd, Ibne-Khaldun, Al-Maqrizi, and Shah Waliyullah to name a few.

Islamic financial thought is based on Falah (Prosperity) now and hereafter. Therefore, the concept of accountability is interwoven. The correlation between thought and practice is strong, and a theoretical view alone is not encouraged.

Shariah boundaries ensure welfare for the larger population allowing personal growth and initiative. Baytulmal, as the central treasury collapsed with the rise of the European systems and the Dinars and Dirhams gave way to Kaima (currency notes of the Ottomans introduced by the European banks). The interest-based model for transactions became strong, and the world web of modern banking developed.

Now we stand at the sudden and unprecedented rise of the Islamic Financial System globally. Like Khaldun, we must use the economic filter to define our present for a successful future.

Pakistan today is looking at IFS and Islamic Banks favourably. Leading Islamic banks like Meezan Bank, Faysal Bank Limited, Bank Islami, Dubai Islamic, and Al-Baraka Bank (Pakistan) Limited, along with all major banks, maintain the Islamic window, and many Takaful initiatives are now leading the insurance market. Islamic Financial Systems are here to stay.

I also hope that large-scale transformations like that of Faysal Bank and State Bank of Pakistan (SBP) initiatives like Roshan Digital Account will help us further in expanding on the Islamic Financial System’s horizon, explore the richness of its history and benefit from this enriched scheme.

The author is the Founder of Nutshell Group and the Corporate Pakistan Group

Published in Dawn, The Business and Finance Weekly, October 11th, 2022