Islamic Economic Studies · 1998 · 236 citations · 8 references
Open access
BusinessEconomicsFinanceBankingEconomic HistoryIslamic StudiesBanking HistoryCommercial BankingIslamic BankingIslamic HistoryEliminationEssential Services ProvisionGovernment Expenditure GrowthIslamic Banking GovernanceIslamic Banking HistoryIslamic Banking RegulationMudarabah Financing
The study examines how the historical awqaf system can inform modern Islamic economies, proposing that integrating cash awqaf with mudarabah within Islamic banks could reshape bank portfolios. The authors suggest combining cash awqaf and mudarabah under Islamic banks, thereby increasing the mudarabah/murabahah ratio. They argue that awqaf historically supplied essential services at no state cost, and modernizing it—especially through cash awqaf—could slash government spending, shrink the state sector, and curb riba.
This paper aims at analysing the relevance of the historical awqaf system for modern Islamic economies. The main argument focuses on the fact that the awqaf system has provided throughout Islamic history all the essential services at no cost to the state. Thus, a successful modernisation of the system implies a significant cut in government expenditure and all the associated benefits; including downsizing the state sector and a reduction and even an eventual elimination of riba. As far as the modernisation of the system is concerned, historical evidence indicates that the real exiting potential lies in the cash awqaf. It is envisaged here that two powerful Islamic financial institutions, the cash awqaf and mudarabah need to be combined. It is argued further that this combination should take place within the framework of Islamic banks and thus alter the portfolio of these banks in the desired direction, i.e. increasing the mudarabah/murabahah ratio.
8