How Islamic Economic Models Contribute to the Productivity Increase

Topics: Islamic banking, Sharia, Bank Pages: 16 (5661 words) Published: October 22, 2011
1.1 -------------------------------------------------

1.2.1 Islamic Finance
In this day and age, crisis and challenges had continuously interrupted the worldwide financial environment. However, Islamic finance remains as a tough and viable financial intermediation. Moreover, it has become more important in the international financial system. As a result of developing a comprehensive Islamic financial system, Malaysia has gain experiences which brought it ahead toward development as well as advancement of the industry. Furthermore, Islamic country was not the only player of Islamic financing but also non Islamic countries. We can observe globally that there are many countries have already encountered with Islamic finance and those which plan to develop Islamic finance in the future such as Japan, Russia, India, Bahrain, France, and so on. Expansion of Islamic finance leads to improvement in the economics of Islam. Islamic economics are discussed next.

1.2.2 Relationship between Islamic economic models and increase in productivity Both Western classical and Islamic economists classify economic activities as productive or unproductive. An economic model defined as a simplified framework designed in order to illustrate complex processes. Islamic economic model is a simplified framework designed by a regime in order to reflect Islam’s overarching ethical vision of economic processes. Islamic economic model is also known as Islamic economic system. It is an economic system or framework which is based on the Shariah principles and rules. Krugman, 1994 defines productivity as a measures of how efficiently production inputs, such as labour and capital, are being used in the economic to produce a given level of output. He noted that the productivity is considered as a key source of economic growth and competitiveness and thus it is also a basic statistical information for many international comparisons and country performance assessments. These productivity datas are used to investigate the impact of product and labour market regulations on economic performance. Productivity growth constitutes an important element for modelling the productive capacity of economies. It also allows analysts to determine capacity utilisation, which in turn allows one to gauge the position of economies in the business cycle and to forecast economic growth. In addition, production capacity is used to assess demand and inflationary pressures. For this critiques paper, productivity is emphasized as the performance of a country mostly Malaysia which consist of effectiveness and effeciency but mainly its profitability. Hence, increase in productivity is also considered as increase in the national income of a country. However, we also consider that increase in company’s profit as an increase in productivity. In addition, Malaysia’s Real Gross Domestic Product growth trend which may also refers to the country productivity is represented in figure 1. Other datas to show Malaysia performances can be obtain by referring to table 3.4, table 3.5 and table 3.6 given in Monthly Statistical Bulletin datas by BNM (More in appendix). Figure 1: Malaysia: Real GDP Growth Trend

The relationship between Islamic economic models or systems toward an increase in productivity is the issue we are trying to look into this critiques paper. We will look into how the Islamic Economic System contributes to the productivity increase from the views of the Islamic economic experts.

Figure 1 shows that Malaysia was most productive in 2000 with 8.2% growths and most non-productive in 2009 with -1.8% growths.

1.2.3 Critique Rationales
There are three reasons for us to critique on the issue. Firstly, we would like to find out how much productivity made by Islamic finance since it began. Islamic productivity here includes the profitability made by an institution, banks or overall country which using the Islamic economic system....
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