Prof. Nejatullah Siddiqi’s contributions invite researchers to examine how India’s Muslim economists gave a new interpretation to the economic and financial issues from Islamic perspective, especially on the development and evaluation of Islamic economics and finance since the second half of the 20th century, accentuates Professor Javed Ahmad Khan.

Shah Waliullah Dehlavi (d. 1176/1762), one of the India’s great Islamic social scientists, observed for the first time in the mid 18th century on the Indian Muslim people’s surroundings from an economic perspective. This paved the way to explore the relevance of Shari’ah-based business and finance from the second half of the 20th century that we are witnessing today.

In fact, India had been the commercial hub of Shari’ah-based financings since the medieval time. The libraries of Kutch and Surat in Gujrat, and Malabar in Kerala are full with records, besides the well-documented in Ghaneza documents, of how Arab traders entered into profit-and-loss sharing (mudharabah and musharakah) modes of finance contracts with their Indian business partners since the Indo-Arab sea trade. A number of studies in recent decades have come out, showing how the medieval India did the Shari’ah-based financings along with Indian merchants when Arab Muslim traders started commercial enterprise on Indian shores.

However, the revival of Islamic finance in India started in the late 19th century when charity-based institutions, welfare societies, and ‘Muslim Funds’ came out in western part of India while the Islamic investment companies in Southern part of India, all these proving that Shari’ah-based financing was always prevalent among the Indian Muslims. However, the last quarter of the 20th century saw the establishment or a series of Islamic banking and financial institutions all over the world and this further gave a new dimension to the possibility of Islamic banking and finance market in a country like India.

This also paved the way for religious scholars (Ulama) and professional Islamic economists in India to give a new dimension of understanding modern development in Islamic economics and finance especially from the second half of the 20th century.


Nothing in the area of Islamic finance is a more interesting and debatable issue than the concept of money, interest and profits. Muslim writings on usury, riba or bank interest took more theoretical and rational explanation when Islamic banking was presented as an alternative to commercial banking.

But why banking business could not be developed in the Muslim society? The ideas of presenting Islamic economic and finance as an alternative to the prevailing economic system were in the wake of colonial dominance in the Muslim countries, particularly in the Arab world with rich oil resources. It has also been a central theme of Islamic economic thought. It was studied largely on the assumption that in order to present an alternative to capitalism and communism, Muslim scholars argued that an interest-free Shari’ah-based financial system would be an important step in this direction.


Prof. Mohammad Nejatullah Siddiqi was one of the pioneers in the development of modern Islamic economics and finance in post-independent India. He, along with his colleagues Prof. Fazlur Rahman Faridi in the Department of Economics, Aligarh Muslim University in India, gave a fresh understanding to the economics of Islam and both were lucky to see the Islamic economics in their lifetime as an emerging discipline in academic institutions, whether Muslim or non-Muslims, at the global level.

Now, Islamic economics has achieved the status of an emerging paradigm and these two professional Islamic economists from India can be counted as the first-generation architects of this new discipline. Both were much concerned with the introduction of teaching this as a subject in universities and madrasas. Prof. Faridi followed with a proposition with fiscal policy in Islamic framework while Prof. Nejatullah Siddiqi covered in his scholarship the vast areas of economics and finance. Later on, and needless to mention here, a number of Indian scholars have come up with their remarkable researches in this area.

The economic thinking of Prof. Mohammad Nejatullah Siddiqi got evolved with the passage of time and developed on the standard scientific pattern of the conventional economics. It was the mid 1960s when western capitalism was at its peak, and he came out with a rigorous theoretical argument that financial intermediation based on mudharabah and shirkah (the Islamic equivalent of modern day’s equity-based finance) are possible.

This theory was later termed as Islamic Banking. In the Islamic banking system, he argued, once you borrow money from the bank, it becomes a financial partner in the project and in that case, theoretically the percentage of non-performing assets becomes zero. Unlike conventional commercial banks, money is not created in Islamic banks, rather Islamic banks do contract with depositors. This is contrary to the conventional view of money. 

Prof. Siddiqi, however, didn’t engage in his writings to justify or discuss the riba (interest) mentioned in the Qur’ān. Instead, he theorised convincingly, perhaps for the first time in mid 1960s, that equity routes of banking and investment banking without interest is possible. His theoretical work, Banking Without Interest, published in 1967, is a milestone in the understanding of Islamic finance in modern times.

At the later stage of his life, he realised that Islamic banking and finance have evolved to a great extent and he was also conscious about the commercialisation of Islamic banking business by different players, innovations in the financing techniques adopted by finance professionals without much caring for the spirit of Shari’ah. Perhaps all these led him to write his masterpiece Maqasid-i-Shari’ah in 2009.

In fact, Prof. Siddiqi was not in favour of exposing Islamic economics and finance as force or domination by Islam. He was in favour of ‘seeking guidance directly from whatever is recognisably divine in human heritage, in the full glare of reason and intellect, aided by intuition, imagination and knowledge’.

Since the financial liberalisation drive in the early 1990s, personal finance has taken several new dimensions while the equity fund and the participatory finance in the stock market have increased several folds. This prompted Muslim scholars to argue for scope of Islamic participatory finance that Indian banks may exploit untapped potential in Islamic banking. Further, it was the oil money of the post 1970s era that ignited the idea of running Islamic banks and later on the other segments of financial markets in oil rich Gulf states, and, thanks to the Globalisation of the 1990s, the Arab Muslim world is certainly, in the present times, a much-flourished hub of Islamic finance centre. In the decade following the coming of Arab Gulf oil money in the form of remittances along with the possibility of Arab investment in India, a curiosity however developed in the government circles to attract Islamic finance for India’s growing economy.


These ongoing initiatives showed that Indian Muslims in secular India cannot live without economic theology, without some rationalisation of Shari’ah-compliant funds for their business and investment activities. They visualise Islamic banking models to be operative in an open competitive environment side by side with the conventional financial institutions in the country.

Post-independent secular India was a new ground to foresee the possibility of applying Shari’ah-based economics and finance for Indian Muslims. Professor Siddiqi further refined, developed and organised his ideas in the context of the secular environment of the country. Along with him, India’s fellow economists, trained in conventional social sciences paradigm, gave a new interpretation of the economic and financial issues from Islamic perspectives, basically trying to see the Islamic solution of the economic problems dominated by capitalist and socialist ideas.

However, it is hard to think these Islamic scholars were closer to interpreting the society they had found, nor do we know how much they were influenced by the public opinion of the time. No doubt, this led to the initiatives taken by intellectuals and Muslim leaders to demand from the government the establishment of Islamic banking or Shari’ah-compliant funds by the conventional financial institutions in the country. These scholars first gave Islamic economics its modern structure – who looked at the factors determining in a micro and macro framework such as money and its various forms, also raised questions as why is interest different from profit? How capitalism and socialism are not compatible with the Shari’ah-based economic system? However, their thoughts remained centred on equity and justice. For, inequality of wealth due to interest-based financing in the banking system was found to be a serious flaw by these scholars.

Moreover, in absence of interest rate, the service charges in Muslim-run investment companies, the Islamic loan financings were critically looked at both by the layman as well as by Ulama. Speculation in the stock market was also regarded with grave misgivings. But Islamic economists and Muslim fatwas centres engaged to deliberate on the emerging issues, and stated their viewpoints with rationale perspectives.


At a time, especially after the World War II, when the Muslim world was ineffective in the global economy and the capitalist and communist countries were far stronger. Islamic scholars began to argue that capitalism and socialism would not be viable in the coming next two decades. Their writings tried to convince the general readers that Muslim world cannot be comfortable with these two dominating economic models. At that time, Prof. Nejatullah Siddiqi’s Banking Without Interest carried an authority and conviction of applications of mudharabah (profit and loss sharing) financing that were not available in the writings of religious scholars on the economics of Islam. Muslim debate on riba took more theoretical and rational explanation when Islamic banking was presented as an alternative to commercial banking. Moreover, the notion that Islamic finance was a problem solver was in the mind of common believers of Islam, different from the prevailing economic system in the country.

It must be noted that Prof. Nejatullah Siddiqi’s conception of Islamic economics and banking was no more based on the criticism of capitalism or socialism. A good number of his academic works were receiving global attention especially in the Muslim world. He wrote Banking Without Interest when Islamic banking received more criticism and opposition from Muslim intellectuals and in his own Department of Economics in Aligarh Muslim University. He tried to explain the rationale for Islamic finance compared with the debt and equity route which are prevalent in the society whether Islamic or un-Islamic. Fortunately, his economic ideas reached the global community when he was in the International Centre for Research in Islamic Economics at the King Abdul Aziz University, Jeddah from the mid 1970s till late 1990s.

These Muslim scholars and economists draw arguments in parallel to conventional banking, though, at the initial stages, especially the concept of cost of capital was not much discussed, unless the global financial market raised the problem of short-term liquidity faced by Islamic financial institutions.

Murabaha is seen as the carbon copy of interest-based financing. However, it would be a great mistake to suppose that Islamic banking in the central tradition escaped from its history.

However, the Shari’ah-based interpretation of the 20th century Islamic economists is addressing the world they are living in. Had Islamic finance been the phenomenon of religion, money and politics, its acceptance would have been simply confined to a few countries or regions. On the contrary, its expansion and acceptance in the open global market has already seen the development of Islamic finance market into an industry with steady growth.

Professor Nejatullah Siddiqi was aware of this emerging era of Islamic finance and he along with his colleagues established the Indian Centre for Islamic Finance (ICIF) in early 2000. His dream was to see young researchers and scholars, madrasa students, to enquire about the area of Islamic economics and finance. He wanted ICIF to be a platform for researchers and scholars to explore the possibility of interest-free finance for entrepreneurial development. He would tell us not to waste time on criticising interest-based capitalistic models prevalent in the Muslim world, rather our effort should be to develop an alternative in Islamic economics and finance. The west has its own more rational critique of capitalism than others.

He would advise young researchers of Islamic economics that instead of being critical to other economic systems, they should concentrate on the viability of this concept as an alternative to capitalism and socialism.

It is the theoretical foundations built by Prof. Siddiqi and his colleagues in recent decades that Islamic Economics has drawn international attention and recognition. Islamic finance market has now developed into the trillion-dollar industry with the support of oil money along with the civilizational drive in the Muslim world.

The more specific realm of the development in theoretical fields of Islamic banking in the latter half of the last century saw the cooperation and joint efforts in project financing between the conventional and Islamic banking systems. However, the critics rightly point out that the ongoing Islamic economics is basically consumer economics based on murabaha financings and it’s still not much engaged in the long-term investment activities, involving in the development of entrepreneurship in the lower middle class section of the society.

Moreover, despite the serious thinking on Islamic economics and finance in recent decades, the current theoretical development of Islamic economics is still far from what is desired with regard to equity and justice. Critics rightly ask as how much Shari’ah-based finance has improved the economic conditions of Indian Muslim? This is yet to be researched and ascertained.

The development has not been balanced. As the primary attention has been given so far to Islamic banking, finance professionals do realise that ‘this has led to the false impression that interest-free finance is all that Islamic economics has to offer’.

Finally, Prof. Nejatullah Siddiqi’s contributions invite researchers to examine how India’s Muslim economists gave a new interpretation to the economic and financial issues from Islamic perspective, especially on the development and evaluation of Islamic economics and finance since the second half of the 20th century.

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