Islam and Development

This short essay answers the question:
To what extent is the argument that “the Muslim belief is the major cause for hampering development in the Middle East” justified?
From a class on Political Economy in the Middle East.


This statement is only partly justified, because while there are aspects of the Muslim belief system that have a negative effect upon development, there are also aspects of belief that are beneficial for economic development and many other non-faith related traits within the region that further hamper the regions ability to further development.

The idea of Islamic economics that began arising in the mid 1900s didn’t arise as a theory of economics; instead it was meant as a socio-political construct to help restore Islamic self-respect and communal cohesion. Thus, the idea was not advanced as a means to further economic growth and development and in fact seemed more or less unconcerned about the potential hampering of economic development that would occur because it brought with it some growth-hampering characteristics. The goals of the system were not economic, but social, which meant that it was never held to the scientific standards of economics (coherence, precision and realism).

One of the major hampering effects of this system was the effective binding of Islam to the state apparatus. Effectively, this hampered the growth potential of the populace and the state by proclaiming that any economic endeavor not sanctioned by Islam was either prohibited or publically discouraged and relegated to the underground.

Besides this merging of religion and state, the system advocated a number of other culturally appreciated (but perhaps economically dubious) institutional requirements: the rejection of riba (interest or increase without risk), a zakat system of religious donations, and the establishment of an Islamic moral filter for all economic decisions. Similarly, the system also promoted the preeminence of a number of cultural-religious mores and norms that would further impede economic growth: the rejection and discouragement of Bid’ah (innovation), the advancement of waqf, and a tradition of oppression of women.

While riba was probably initially banned by Muhammad as a means of combating exorbitant lending practices that nearly always ended in debt defaulting leading to slavery, the continued rejection thereof stands only to deflate possible economic growth. Interest is important as an incentive for both payment and loaning in general; it can help cover the risks and expenses of investment, and it can help to deal with inflation. In some time periods, the Prophet’s injunction against riba has been reinterpreted to be a rather low set interest rate, indicating that they felt that interest was important to economic growth and allowed by Islamic law. The indiscriminate banning of interest discourages investment and loans, and requires banking institutions to development round about ways to deal with the lack. This generally leads to either dubious banking practices and underhanded dealings or a stagnant and stifled economy.

The zakat system stands as minor form of wealth redistribution. A small percentage of a person or business’ income is donated to a religious fund for caring for the poor. However, as the cases where Islamic economics have been officially introduced and accepted on a national level, it is apparent that as an attempted reduction of inequality and poverty, the zakat system has failed. Because of loopholes in the system and evasion of payment by businesses, the funds have not been forthcoming, and that which has been collected has, in many cases, been diverted to other causes. At the same time the high administrative and bureaucratic costs of the system have offset any gains that have been garnered. In addition, large-scale corruption within these systems has been rife. In these cases then, it is certain that the zakat system has been more of a drain on the economy rather than a significant redistribution and check on economic gaps. Thus, it can be said that if mismanaged, this system hampers economic growth, but there is not an opposite case of well-managed zakat that can prove if it would be effective otherwise.

The promotion of an Islamic moral filter within the economic sector could be effective in promotion of economic growth if it was undertaken in the correct manner. If it was established as a sort of ethics oversight committee or an equivalent to something like the Better Business Bureau, it could be very effective in promoting fair business practices and ethical actions. On the other hand, if the filter was established solely as a rejection committee for anything deemed “inappropriate” by its own interpretation of Islam the moral filter could then significantly hamper economic activity by both rejecting new business ideas as well as filling the economic sector with large amounts of red tape that would hamper business transactions and stifle growth.

Whether or not the Islamic moral filter would be a growth or hampering factor could depend upon the extent to which the filter establishes the rejection and disapproval of bid’ah. Depending on the extent to which this is emphasized the lack of innovation could be relegated solely to religious innovation, being ignored with regard to other areas of societal growth, allowing any number of innovations that could bring economic growth. However, it could also be applied in all areas of society. If this was the case, it would lead to stagnation and limitation on the economy as new inventions, products and services could potentially be rejected and their economic potential ignored.

The advancement and protection of religious waqfs also could serve as a potential economic hampering. As a religious endowment, waqf can serve to tie up funds that could otherwise serve to fill-out and promote economic growth. They can also serve to help stifle economic growth by tying up land and other resources that are then unable to be used in growing sectors of the economy. In response to this, many Arab countries started in the 1960s to pass legislation allowing the break-up of waqfs so that their fund could be reused. However, within more traditional areas, such as Palestine, these moves have not only been resisted, but an increase in waqf dedications have been seen as an attempt to stymie Israeli expansion (as religious endowments have some protection under Israeli law). This could serve to hamper the areas economy in the long run.

The Islamic culture also brings with it a recognized oppression or suppression of women. This large segment of society could be very influential in economic growth. As it stands today though, illiteracy is twice as large among women than among men. Women have little access to ownership of business, land or other productive assets. And while the number of women in the workforce is increasing they are largely relegated to lesser levels of employment (mostly in the agrarian and service sectors). Muslim cultural beliefs with regard to keeping women from education and the workforce do stymie economic growth.

As has been shown, many Muslim beliefs and/or associated institutional arrangements in some ways can decrease economic growth. However, this does not mean that Muslim beliefs in general will hamper economics. It has been shown that in general religious belief correlates with increased productivity. (The same study also showed that increased church attendance correlated to decrease economic growth. It would be interesting to see if this was the same with Muslim prayer practices and mosque attendance).

Despite all this though, it is hardly justified to call Muslim belief the “major” cause for decreased development in the Middle East as there are other major causes of economic hampering. Some of these which stand out are: poor economic governance, low small-industry growth, democratic lag or deficit, political upheavals, bad business environment (caused by corruption, and overwrought rules and regulations), low quality of human capital, and lack of regional cooperation.

Terror Financing

This essay is to answer this question:
How are terror organizations being financed and to what extent is sound information about budgets of terror organizations available for academic research? From a Political Economy of the Middle East course.


Traditionally, terror organizations have been largely funded by states. With the continued globalization and integration of the world economy, this influence has decreased. Whereas some few states, such as Iran and Syria, continue to fund acknowledged terror groups, most terror groups have turned to different forms of financing, essentially funding themselves and their operations by various means.

One of the most common means of financing comes from private donors. Wealthy individuals who either agree with the ideology or cause of the terror groups, or who perhaps actively take part in their cause, donate of their personal fortunes to fund the groups. These types of individuals or others can also act as middlemen or instigators themselves, traveling and gathering money and donations from other donors from around the world to increase the funds that are at the disposal of the terror organization.

Terror groups can use these moneys within regular financing and banking institutions to garner greater funds through means of investment or interest. Interestingly, some such groups actually go to the point of opening accounts in their own names or through the means of front organizations to spread their finances. The use of these accounts has led to nominally honest, non-terror banking organizations being highly involved in the movement of terror finances. Banks, and other financial networks and organizations, for example the Arab Bank, al-Taqwa, and al-Barakat, have been used to transfer these funds extensively around not only the Arab Middle East, but also throughout many other international areas. The system is simple enough with local operatives of the terror group opening bank accounts in their local cities, which then receive funds via transfer from the general terror fund. However, sometimes this legal transfer system can be too easily tracked.

To combat this, many times terror groups, especially in the Middle East, turn to using the traditional Hawala system of money transfer. This is an informal, anonymous money transfer system that is based solely upon trust built up between brokers over generations. In many cases, because it can run slightly cheaper than normal and official channels, migrant workers sending remittances home use this system. But, its anonymous and informal (i.e. non-traceable) nature makes it ideal for terror organizations wishing to transfer money. No records are kept (any of necessity are destroyed when the transaction is finished) and no official money transfer occurs- a broker simple contacts a fellow broker asking him to release so much money to someone who shows up with the correct code, keyword, etc.

But this still leaves the major question, where does the money come from, largely unanswered. Besides personal donations, many terror organizations also rely on legitimate business operations to garner finances. Operatives either gain employment or businesses are created, either as legitimate and workable businesses or simply as fronts, who donate a part of their income or profits to the terror group. In this manner, terror groups can access funds in the form of salaries, government subsidies or other business profits which can be sent via wire or cash transfers into the central account for the group. This type of situation provides for local cover and livelihoods for operatives as well as a means of creating contacts and drumming up support for the group.

Besides legitimate business opportunities, many terror organizations also take part in criminal activities. Authorities have tracked terror money through all kinds of black market operations: mafia-style shakedowns, kidnappings, pirated multimedia sales, drug and arms trafficking, prostitution, fraud, extortion, import-export scams, even diamond smuggling. These types of “fund raisers” are very lucrative and would add much to the terror coffers.

On the other hand, many terror groups have turned to garnering money from sources that are much less criminal and much more humanitarian. Many humanitarian and charitable organizations, which raise money for causes meant to ease human suffering throughout the world, have come under fire for their connections to terror groups. In some cases, they are legitimate, raising funds to for real need but diverting large portions of the money that was raised to financing terror. In other cases, the charity organizations unknowingly contribute to projects that are terror related. Others have acted simply as fronts, hiding behind a façade of charity, while really acting as facilitators for training, arms making and smuggling or other terror related activities.

Sound information about these finances is not largely available for academic purposes. Because the finances themselves are secret, most of the information that is accumulated is known after the fact from investigations. Thus, it is hard for academics (and investigators) to accurately judge the amount of money that is flowing through these channels or to make accurate assessments about where or how it is gained. That being said, it can be assured that there is a large amount of information out there about that money that has been tracked.