Islamic Jurisprudence Alternatives for the Monetary Policies in the Central Bank of Kuwait - Research Proposal Example

Running Head: Islamic Jurisprudence in CBK Islamic Jurisprudence Alternatives for the Monetary Policies in the Central Bank of Kuwait [Writer’s Name] [Institution’s Name] Islamic Jurisprudence Alternatives for the Monetary Policies in the Central Bank of Kuwait Introduction Within the global economic crisis the world witnesses today, it is becoming increasingly difficult to ignore the role of central banks in organizing the monetary market and controlling subsidized-loan interest rates. Nevertheless, the credit crunch crisis which is laying heavily on almost all world economies today has proved that current monetary policies need to be reconsidered. In the face of the problem mentioned above, this study is concerned with proposing new alternatives derived from the Islamic economics. The main assumption of the study is that the roles of the Central Bank need to be reconsidered in the light of its mission and broad aims. In this, it is suggested that interest rates should be based on the conception of profit sharing not debt-based. In other words, the Central Bank of Kuwait needs to change its monetary policy of interest rates which is based on usury (riba). This should be replaced by what can be called conventional venture investment structure systems where both the creditor and borrower share profits in the sense that the creditor demands a certain percentage of the borrower’s business profits for an indefinite period of time instead of charging interest over the time that the principal amount is loaned out. In this, the borrower is protected against raises in interest rate. The adoption of such alternative policies will have the effect that the rate of risks and credit crunch problems – which are very likely in economies, based on usury—will be reduced. This research proposal consists of eight sections. The first, and the present, section relates the outline of the whole research proposal; that is, it lays out the points that would be addressed in the paper. The second section offers background to the topic at hand and provides the motivation behind undertaking the research at hand. The next section states the importance of the research. Section four relates what the actual research problem is which needs addressing. The fifth section relates the assumptions that have been made for the research. The sixth section provides with a discussion about what the research actually aims to do. Section seven tells about what methodology would be employed for the purpose of this thesis. The last section gives an overall structure of the thesis that would be written later on. This is the whole outline of this paper. Aims and Objectives The current research is being undertaking to find out the answer to certain research questions. The research aims at providing with an assessment regarding the changes that have been implemented in Pakistani and Sudani banks regarding the adoption of Islamic practices and alteration in the monetary policies in order to ensure their following the Islamic jurisprudence (Shariah). Another aim of the research is to investigate into the very major hindrances that are responsible for obstructing the replacement of current monetary policies by Islamic practices and policies. One more aim of the current research is to propose solutions as well as viewpoints which would allow for a successful implementation of Islamic economic practices as efficient alternatives for the monetary mechanism that currently exists in Central Bank of Kuwait. Research Rationale It is common knowledge that there is a requirement of a lot of endeavours if monetary policy in Kuwait is supposed to be playing its actual part for the achievement of the aims set by the state’s economic policy, regarding the regional as well as foreign progress that has an effect on particular features of the economy of Kuwait (Central Bank of Kuwait, n.d.). A very significant part that a Central Bank plays is the formulation and also an implementation of monetary policy corresponding to the aims that are set by the state general economic policy of the respective nation (Kenen & Meade, 2008). Therefore, the Central Bank has to be assimilating such aims and keeping pace with regional and also the foreign monetary plus economic expansions. It is known that the introduction of zero interest and a profit-sharing system instead of the usury-based one in the monetary system and the Central Bank of Kuwait is not that easy to achieve. Nevertheless, the shifts in the Monetary policy in full accordance with Islamic economic system in the Central Banks of the Sudan and Pakistan make the future promising for adopting the practices of the Islamic economic system in the Central Bank of Kuwait. In context, this study is a contribution to the applications of the Islamic system to all fields of life, a process initially launched by Sheikh Jaber Al-Ahmad, May God bless his soul, late Emir of Kuwait, a process whereby the Kuwaiti community is gradually Islamized through establishing a committee for applying the Islamic Jurisprudence in Kuwait. The importance of the study stems from the idea that the researcher is concerned with reconstructing the monetary system of Kuwait as a whole so that the economic system is in parallel with the Kuwaiti government plans in relation to Islamizing the economy of the country. Literature Review When there is an acceptance of monetary and also the operations that it has in an Islamic economic structure, similar to every other economic system, there should be a consideration of monetary policy being a significant accessible device that the government can use for pursuing macroeconomic aims (Kiaee, 2007). However, there is trouble when we wish for choosing our devices for the execution of monetary policy. Shariah regulations do not permit us to make use of devices that are grounded on interest for monetary policy within the Islamic economic structure, there are certain Islamic scholars who have a belief that we have to be confining ourselves just toward monetary total devices such as credit ceiling (Kiaee, 2007). However, the actual case is that the Islamic nations cannot be seen following such a hypothetical base and instead they make use of extensively profit rate devices, such as Musharakah certificates, which act as alternatives for the actual interest based devices (Kiaee, 2007). The part that money and monetary management plays in an Islamic economy should be such that it is according to the structure of the general economic mechanism which has been outlined and explained by Islam (Khan & Mirakhor, 1993). Although there is no providence of any kind of direct and explanatory directions for the management of money by the Quran or the Sunnah (which are considered the main sources of Islam) both have definitely and very unequivocally condemned interest (riba). An Islamic system should be having such financial and monetary relations that they are managed and performed such a way that avoid using any kind of interest. Such a kind of limitation is what is responsible for making an Islamic system different from a traditional capitalist system in a completely fundamental and significant manner (Khan & Mirakhor, 1994). Monetary policy and central banking in an Islamic system has a very important part, which is taking the lead in the evolution of monetary institutions and devices which allow for a facilitation of effective mobilization of savings and a distribution of resources consistent with the aims of economic expansion that were set for the Islamic economy. It is specifically the central bank’s responsibility of initiating and fostering the expansion of basic, secondary and monetary markets. Simply an implementation of Islamic regulations regarding the finance section would not essentially lead to a momentum for monetary and economic expansion where the triviality of monetary markets plus also an absence of lucrative monetary instruments have lead to there being impediments to the saving-investment nexus plus also for the procedure of monetary intermediation (Khan & Mirakhor, 1994). According to Iqbal and Khan (1981) there are three important aims of monetary policy in an Islamic economic system: 1. “Economic well being with full employment and high rate of growth 2. Socioeconomic justice and equitable distribution of income and wealth 3. Stability in the value of money” (Siddiqui, 2008: 236) The first and the last of the abovementioned aims usually comprise of the aims of monetary policy in a capitalist economic system as well. However, including the second aim, that of having socio-economic fairness and impartial allocation of income has allowed for definitely a significant added part of a suggested Islamic economic mechanism (Siddiqui, 2008). A very major aim of monetary policy regarding the traditional economics, but that Iqbal and Khan do not clearly mention is the maintenance of monetary steadiness in the economy. The two mentioned authors paid more attention to a mechanism whereby the monetary intermediation is completely depended on profit and loss sharing and that such a kind of system has the possibility of leading to volatility in the economy. Research Methodology The present research is concerned with Islamic policies in the Central Bank of Kuwait. There is a requirement of monetary policies being substituted with those based on interest-free regulations and following the Islamic rules. For the current thesis there would be a requirement of research being undertaken in order to gather the needed data. There are two kinds of researches that are normally employed when conducting a research. The two are qualitative and quantitative researches. The aim of qualitative research is to look at attitudes, behaviour and experiences (Baker & Hart, 2007: 148). This research uses criteria such as interviews and focus groups. In this kind of research the person wants personal opinions from the respondents. On the other hand, quantitative research looks into facts and statistics (Thomas, 2006). It is usually a wide scale survey. In this research the person uses questionnaires or structured interviews (Hunter, 2005). The research method that would be employed is fieldwork study design. This method would allow for generating a richer and more in-depth data as compared to the other kinds of researches. Limitations and Difficulties The current research cannot be assumed to be totally accurate since there are certain limitations and difficulties which would be come across and which would make the research inaccurate. One of the limitations of the research is that fieldwork can be only employed for studying a comparatively small group or community (Giddens & Griffiths, 2006). In this case the research would include studying the Central Bank of Kuwait. Other banks that would be studied include banks in Pakistan and Sudan. These are the banks that have implemented policies in accordance with the Islamic requirements. Other than the banks a visit would also be made to Shariah bodies of the mentioned banks for getting to know about the matter at hand. Another limitation about this research is that the data obtained through the study would only be applicable to the group that is used for research (Mukhija, 2003). The findings would not be able to be generalized based on one fieldwork study that would be undertaken. The findings would only apply to the particular bank. Fieldwork study would also require visiting the banks and Shariah bodies for gaining information about the matter. This may pose another problem. One more issue that has to be considered is the requirement of finance for the research. Since the study involves visiting banks in different countries – for example Sudan and Pakistan, apart from Kuwait – there would be a need for capital to finance the visits. Time constraint is also to be included in the list of problems. The time would be limited and it is very much possible that the study undertaken is not detailed enough or enough and required data is not collected. If such issues are dealt with beforehand there would be more accuracy and reliability in the research results, and thus in the conclusion. References Baker, M. J., & Hart, S. (2007). The Marketing Book. 6th ed. UK: Butterworth-Heinemann. Central Bank of Kuwait. (1987). Monetary Policy and the Structure of Interest Rates in the Kuwaiti Market. Delivered during the Cultural Season of the Kuwaiti Economists Association. [Online] Available at: http://www.cbk.gov.kw/PDF/Book1Eng/part05.pdf [Accessed June 11, 2009]. Giddens, A., & Griffiths, S. (2006). Sociology. Australia: Polity. Hunter, R. D. (2005). Research Methods for Criminology and Criminal Justice: A Primer. 2nd ed. Sudbury, MA: Jones & Bartlett Publishers. Iqbal, M., & Khan, M. F. (1981). A Survey of Issues and a Programme for Research in Monetary and Fiscal Economics of Islam, International Centre for Research in Islamic Economics, King Abdulaziz University, Jeddah and Institute of Policy Studies, Islamabad. Kenen, P. B., & Meade, E. E. (2008). Regional Monetary Integration. Cambridge: Cambridge University Press. Khan, M. S., & Mirakhor, A. (1993). Islam and the economic system. Review of Islamic Economics, 2 (1), 1-29. Khan, M. S., & Mirakhor, A. (1994). Monetary management in an Islamic economy. Journal of King Abdulaziz University: Islamic Economics, 6, 1-29. Kiaee, H. (2007). Monetary Policy in Islamic Economic Framework: Case of Islamic Republic of Iran. Unpublished. [Online] Available at: http://mpra.ub.uni-muenchen.de/4837/1/MPRA_paper_4837.pdf [Accessed June 11, 2009]. Mukhija, V. (2003). Squatters as Developers?: Slum Redevelopment in Mumbai. UK: Ashgate Publishing, Ltd. Siddiqui, S. A. (2008). An Evaluation of Research on Monetary Policy and Stability of the Islamic Economic System, The 7th International Conference in Islamic Economics 1-3 April, (Conference Papers) pp.235-270. Thomas, A. B. (2006). Research Concepts for Management Studies. US: Routledge. Read More