Consumer Behaviour, Sustainable Developmentand

Economic Principles of IslamBy

M. Fahim KhanEmail: mfahimkhan@gmail.com

ABSTRACT

The present paper argues, in a theoretical framework that“Islam is not only for development but it is also for

Sustainable Development”. The argument is based on theinstitutional framework that Islam suggests for a

society. This framework leads to a consumer behaviourthat not only eradicates Faqr but also reduces the

incidence of poverty and leads to sustainable development

of the society.The concept of Sustainable Development still remains a subject outside the mainstream of Conventional Economics.The theory has yet to identify endogenous elements in consumer decision-making process that can help maintaining consumption pattern, in line with the society’s need for Sustainable Development. Sustainable development is considered a matter of observing certain ethics in economic behaviour. An economic theory that ignores the role of ethics in consumer’s decision making is bound to leave such pressing economic problems like alleviation of poverty and sustainable development outside the mainstream of Economics.

This paper discusses the Islamic understanding of economic behaviour of human beings and suggests how to

regulate it to lead it to achieve sustainable developmentin a society.

PART I

Eradicating Hunger and Extreme Poverty

UN Approach

1.Halve, between 1990 and 2015, the proportion of people

whose income is less than $1 per day

The MDG provides an eight-point road map with measurable

targets and clear deadlines for improving the lives of

the world's poorest people.

The MDG provides an eight-point road map with measurable

targets and clear deadlines for improving the lives of

the world's poorest people.

Eradication of extreme poverty is the first of eight

points. MDG takes a comprehensive approach. Addressing 8

points at a time to make a comprehensive fight against

hunger and extreme poverty (let us call it HNEP) does not

allow UN to target immediate elimination of HNEP. UN is

aiming at sustainable development which will ultimately

increase economic status of very poor sections of the

society any where in the world and put them on the track

of their sustainable higher socio-economic status which

will be free of HNEP and make them stay on their own feet

without looking assistance from GOs or NGOs.

This is indeed a very comprehensive and ideal approach to

fight HENP. The problem with the approach is that it

allows very poor to continue to suffer HNEP until

sustainable development has reached a level where no body

needs help to feed them. No doubt this is a noble and

thoughtful strategy.

There are enough resources in the world to feed the

currently starving population. For example, if more than

1200 billionaires of the world donate annually 2.5% of

their wealth (estimated to be $4.5 trillion of World

annual income) extreme poverty and hungry can be fed1.

But, of course, this is not a rational approach2. By the

time that current number of hungry is covered, new stock

of hungry would be added to the stock of population 1 For these calculations, basic figures taken from http://spinport.com/the-worlds-billionaires/315291/

2 MDG target aims to halv the population living on one dollar per day. According to UN“However, even if these positive trends continue, in 2015, roughly 920 million people

would still be living under the international poverty line of $1.25 a day, as adjustedby the World Bank in 2008”. There are 115 thousand in the world earning one million ayear. If they donate $10 a day, the Faqr is extreme poverty and hunger is eliminated.

See http://www.globalrichlist.com/ for these calculations

because there is no systemic provision to stop the number

of hungry from increasing. This calls for the need for

sustainable development even though it may cause a

substantial proportion of hungry to continue to suffer

from starvation for considerable time.

This strategy, despite all its merits, and despite

support from international development financial

institutions and the commitment of the underdeveloped

countries to orient their development plans to eradicate

HNEP; almost none of the countries has been able to meet

MDG targets. And HNEP continues to suffer even after the

lapse of 22 years of 25 years’ target.

Eradicating Hunger and Extreme Poverty: Islamic Approach

Islamic scholars will never hesitate to say that Islam

has solution to poverty, hunger and starvation. When

asked where is the Islamic solution to remedy the

situation, the Islamic institutions of Zakah, Sadaqaat

and Infaaq fi sabilillah are quoted in general terms.

Various verses from the Quran and various Ahadith are

quoted to substantiate this claim. But when we see the

reality we find high incidence of starvation and extreme

poverty in Muslim societies.

Another anomalous situation that we observe in

contemporary Muslim world is the verdict that Zakah

collected by government can be invested for future

benefit of poor, particularly to improve their capacity

and to enable them to improve their economic status.

Indirectly, we can say that Zakah can be used for

sustainable development in the same sense in which UN has

defined it. As a result of this approach, we can find

several contemporary Muslim countries, where Zakah has

been collected in huge amounts but is waiting to be

distributed or invested in various projects a fashion

that it can contribute to sustainable development in the

society. The funds keep waiting for sustainable for

suitable project to deploy the Zakah funds for the

benefit of the poor whereas HNEP sections of the

population continue to suffer from starvation, diseases,

infant deaths, maternity deaths, etc .I have no basis to dispute with Shari'ah scholars on

using the Zakah funds for sustainable development but

still I would like to pose the following questions for

the Shari'ah scholars to reflect.

1.Is there any priority among the 8 heads mentioned in

the Quran on which Zakah can be spent3? How do wedefine priority in the use of Zakah, particularly

when there is hunger, starvation and extreme poverty

prevalent in the society ?

3 The Quran (9:60)

2.Does not the Quranic verse (9:60) give top priorityto Fuqaraa? The order of preference can clearly be

seen in this verse .3.How do we define Fuqara? Does not ‘Fuqaraa’ mean

those suffering from starvation and extreme poverty?

4.A tradition from Prophet (peace be upon him)narrates that ‘Faqr’ leads to Kufr. Then doesn’t itmean that top priority be given to Zakah funds first

to eliminate starvation and extreme poverty and do

it on spot on immediate basis?

5.Isn’t the category of human needs ‘darooryyaat’means give top priority to eliminate starvation andextreme poverty to save ‘nafs’ from destruction or

decimation ?6.Is it not the Hadith of profit (peace be upon him)

that one is not a believer if he sleeps his fullstomach and his neighbour is starving? Does it notmean that starvation be removed on the spot and on

immediate basis?

7.Is food not one of the two instinctive problems,hunger and fear (hunger having priority) as

mentioned in the verse al-Quresh (106:3-4) and,

therefore, should be attended on priority 8.Is it not that “Not encouraging to feed poor

(107:3)” means denying ‘Deen’ [Similar theme also

repeated in 89:19] 9.We also know a couple of Ahdith that recommend

advance discharge of Zakah obligations. Does it meanto meet the needs of HNEP urgently

If the answer to these questions is positive, thenis it not true that

a)Immediate elimination of hunger is the duty ofindividuals, community and state

b)Immediate elimination of hunger is important becauseit may lead people to murder their children or sell

them (as is being witnessed some poor countries).The Quran mentions it as Big Sin (Khit-an Kabiran)

c)It is close to Haraam (prohibited) to save any Zakahfor future use and not using it immediately for

feeding those starving and suffering from extreme

poverty?

d)Zakah should not be used for such programs as

“sustainable development”There are numerous successful examples of feeding hungry

people even in contemporary Muslim societies. And so is

the case in non-Muslim societies. Apparently, no

difference may be visible between the two. Then how can

we claim that Islam has unique system to deal with HNEP?

However, a little reflection will reveal the following

facts.i)Feeding the hungry is a religious duty and not a

voluntary act. This is a duty of every one who caneat full to his stomach to take care that his

neighbour does not sleep hungry.ii)Hungry have to be fed immediately. So is the case

with the ills of extreme poverty, diseasesrequiring immediate attention, primary education

to enable read and write an simple passage in anylanguage etc

iii)The institutional framework of Islam mobilizesvoluntary efforts to feed the hungry and theextremely poor. The Awqaf, NGOs, voluntary

organizations are some examples found in allMuslim countries. State’s primary role in this

respect is confined to developing simplestructures in different parts of the country thatwould be used by devoted Muslims to feeding hungry

and provide basic and immediate medical care toneedy. Role of state can be simply regulatory and

supervisory as central bank is to banking and

financial institutions .My conclusion, on the basis of the above discussion, is

that the Islamic approach requires starvation and extreme

poverty to be the prime target of Zakah and to supplement

them with Sadaqaat and Infaq fi sabeelillah, if there is

high incidence of starvation and extremely in the

society. I have not substantiated this statement. I will

wait for the comments from the discussants and from floor

and do the research to substantiate the statement that

eliminating hunger and extreme poverty is the primary

target of all Zakah and Sadaqah.

The two targets, MDG and Islamic, do not conflict but

differ in following way in their respective perspective

1.Time line for eradication of Faqr: Phasederadication of Faqr, waiting 15 years to eradicateFaqr from half of the population (no time frame toachieve complete eradication for the Faqr) is the

MDG target. Islamic target should be immediate

eradication of starvation 2.Deliverables/Targets: MDG target is to halve the

proportion of people suffering from Hunger andachieve Full employment and provide decent work for

all where as Islamic target is to Eradicatepopulation suffering from Hunger as early as

possible, if immediately is not possible. Othertargets like full employment and decent work is

secondary target 3.MDG does not suggest institutional framework that

would take care of starvation and extreme poverty.Islam gives institutional framework to eradicate

HNEP 4.MDG approach aims at achieving for sustainable

development that will gradually reduce theproportion of HNEP in the population. The pursuit of

sustainable development has been left to thenational governments to orient their development

strategies and plans so that the society is put onthe path of development where ultimately starvation

and extreme poverty may not exist. The abovediscussion on Islamic approach clearly indicates

that Islamic institutions of Zakah and Sadaqaat andInfaaq fi sabeelillah are meant to eradicate HNEPthrough transfer of resources from rich to poor.

Apparently, this approach does not aim sustainabledevelopment. It only aims at taking care of HNEP.The fact that the above mentioned institutions donot lead to sustain development and instead onlytransfer resources to meet immediate and urgent

needs of HNEP, has attracted criticism from certaincircles that this approach creates a section ofextremely poor population that will continuously

look forward to receiving assistance and that stock

of population my continue over time4. This is nottrue. This paper shows that Islamic system generates

sustainable development.The lastmsentence is the main theme of this paper. In my

view, Islamic system of life uses one single word to

describe hunger and extreme poverty. Islamic system aims

at eradicating Faqr. Islam deals with Faqr in two

dimensions.

a)Motivating the Muslims, individually or severally tohelp existing stock of starving and extremely poorpopulation to meet their minimum needs immediately

through Zakah and Sadaqaat.b)Introducing in the Islamic system of life, elements

that lead to sustainable development. so as to stopthe flow into the starving and extremely poor

population and instead causes the flow out from the

existing stock of such people.Rest of the paper is devoted to explaining in detail the second dimension.

4 Nobel laureate Dr Yunus, the founder of Grameen, mentioned in alecture at IDB that Islamic institutions of Zakah and Sadaqaat

creates beggars in the society rather than making them improve their

economic status .

PART II

Islam and Sustainable Development

Islam is not merely for development; it is for SUSTAINABLE Development

1 .Introduction

There is no dispute on the premise that Islam is for

development. A research conducted by an American Think

Tank “Institute for International Economic” concludes,

“If any thing, Islam is for development”5. Carly Fiorina,

CEO of Hewlett Packard is on record to say the following:And this civilization was driven more than anything, by invention. Its architects designed buildings that defied gravity. Its mathematicians created the algebra and algorithms that

5 Marcus Noland, “Religions, Culture, and Economic Performance,Washington DC, Institute for International Economics

would enable the building of computers, and the creation of encryption. Its doctors examinedthe human body, and found new cures for disease. Its astronomers looked into the heavens, named the stars, and paved the way for space travel and exploration…. When other nations were afraid of ideas, this civilization thrived on them, and kept them alive. When censors threatened to wipe out knowledge from past civilizations, this civilization kept the knowledge alive, and passed it on to others. The civilization I’m talking about was the Islamic world from the year 800 to 16006.

There are several other evidences to prove that Islam

poses no threat or hurdles to develop. Instead it is

conducive to development. But it has not yet been argued

that Islam is not merely for development. Instead it is

for sustainable development. This paper elaborates on

this thesis .

1.1 UN Concept of Sustainable Development?

Sustainable development refers to economic development

that meets the needs of all without leaving future

generations with fewer natural resources than those we

enjoy today. It is widely accepted that achieving

sustainable development requires balance between the

economic, ecological and social pursuits of human being

in seeking their wellbeing on earth.

6 Carly Fiorina “http://www.islamfortoday.com/hewlettpackard.htm”

According to the above definition, sustainability of

development is multidimensional concept. The General

Assembly, in its 1997 Program for the Further

Implementation of Agenda 21 (paragraph 27) decided that

poverty eradication should be an overriding theme of

sustainable development for the coming years. It is one

of the fundamental goals of the international community

and of the entire United Nations system, as reflected not

only in Chapter 3 of Agenda 21, but also in commitment 2

of the Copenhagen Declaration on Social Development.

Poverty is addressed in Chapter II of the Johannesburg

Plan of Implementation. The Chapter describes the

priority goal as “Enabling the poor to achieve

sustainable livelihoods”.

This priority goal requires actions in the followingdirections:

1. Improving access to sustainable livelihoods, entrepreneurial productive opportunities and resources;

2. Providing universal access to basic social services;

3. Progressively developing social protection systems to support those who cannot support themselves;

4. Empowering people living in poverty and their organizations;

5. Addressing the disproportionate impact of povertyon women;

6. Working with interested donors and recipients to allocate increased shares of ODA to poverty eradication; and

7. Intensifying international cooperation for poverty eradication

1.2 Conventional Economics Sustainable Development

In conventional economic theory, currently know as Neo

Classical theory, growth is explained without

institutions, while development stays out of discussion.

Neo Classical Economics is based on the assumption that

humans are rational. The approach is based on a concept of

efficiency, which means more is better than less. If the

market mechanism is allowed to work freely and

competitively with no information and transaction cost,

economic agents’ operations in the market will result in

an efficient use of scarce resources. This will benefit

the economic agents individually as well the economy as a

whole.

The current developments in economic theory, emphasizing

role of institutions, explain economic growth and

development with specific reference to the institutional

framework of the society. World Bank report on

Institutions (2001) lends support to this hypothesis. The

Report emphasizes the institutional foundations of a

market economy.

The economists still debate that economic theory,

basically explaining economics of developed countries

(DCs), is relevant to explain economics of less-developed

countries (LDCs). In many respects this is true. It is no

wonder if some economists are trying to develop an

economic theory that can be relevant to all societies on

the globe. Some form of institutional economics may help

achieve this objective because it is the set of

‘institutions’ that distinguishes one community from the

other in the global village.

1. 3 Islam System of life and Sustainable Development

Objective of Islamic system of life is to require

human beings to pursue their wellbeing7. The pursuit of

wellbeing depends on defining wellbeing and what human

beings need to achieve this wellbeing. This essentially

requires understanding human behaviour and resource

allocation in the process of fulfilling their needs. The

present theory of consumer behaviour despite its

robustness and amenability to mathematical manipulations

covers a very limited ground as far as understanding the

consumer behaviour is concerned with respect to achieving

such objectives as sustainable development and

eradication starvation of extreme poverty. The theory may

have contributed substantially to understanding the

consumer behaviour in some societies of the West where

state takes care of starving and extremely poor sections

of the society. But the theory hardly proves its

relevance to understand the decision-making process of

consumers in majority of the countries in the

contemporary world. For example, why consumers prefer to

7 Shatibi, al-Muwafiqaat

spend on conspicuous luxury goods while their basic needs

are unfulfilled. Or what type of consumer choice it is

to prefer leisure instead of working for contributing

even a small income to the poverty stricken family. Or

how a consumer would objectively identify whether or not

there is waste of resources in his consumption pattern.

Or why items like education of children and family health

are low priority items in majority of the developing

countries. Or why sometimes consumers prefer not to

consume certain items despite that they know there is a

lot of utility for them and instead ends up consuming

items of low utility to them. The present theory is not

only limited in scope with respect to understanding of

the consumer behaviour but it also lacks the ability to

understand and explain some of the contemporary economics

problems that are directly the result of certain

peculiarities in the consumer behaviour. Incidence of

poverty has a lot to do with the consumer behaviour but

this is not a subject of existing theory of consumer

behaviour. Economic development also has strong roots in

the consumer behaviour but the existing theory is not

geared towards understanding consumer behaviour as a

reason for development particularly sustainable

development. The world Summit on Sustainable Development

held in Johannesburg, South Africa, from August 26 to

September 4, 2002 recognized that changing consumption

pattern is one of the essential requirements for

Sustainable Development. But the theory of consumer

behaviour has yet to recognize it. The Sustainable

Development will remain a subject outside the mainstream

Economics unless there is a theory that identifies

endogenous elements in consumer decision-making process

that can help keeping consumer behaviour in line with the

society’s perception of Sustainable Development.

Sustainable development is eventually a matter of

observing certain ethics in economic behaviour. A theory

of consumer behaviour that ignores the role of ethics in

consumer’s decision making is bound to leave such

pressing economic problems like alleviation of poverty

and sustainable development outside the mainstream of

Economics.

It is in this background that the need for an

alternate theory is emphasized. There is need to review

the objectives and assumptions of the existing theory and

see if an alternative formulations of objectives and

assumptions are needed to lead us to a theory which is

more realistic and more comprehensive in understanding

consumer behaviour and hence provides better insight into

the contemporary economic problems and their solutions.

2. Study of Economic Behaviour: A Realistic Approach

2.1 Objectives and AssumptionsHuman behaviour depends on what is the human perception

of objective of life. The objective of his life is

supposed to determine the nature of his activities. We

can assume that a rational human being will do all what

will improve their wellbeing and will avoid anything that

will create hardships for their life or will make their

living conditions bad for them.

In doing so human beings are confronted with two

sets of choices. Firstly, they have choice set generated

by instinctive impulses. This set may or may not refer to

any objective criteria for the choice. Some are most

intensely desired than others merely on the basis of

personal whims. Let us call it Desires Set. Secondly, he

has choice set reflecting defined needs referring to a

defined institutional framework of the society. This Need

Set includes all those things that are needed for the

preservation of various aspects of human life in the

society. The needs may have three levels of fulfilment;

namely essential level, complimentary level and

beautifying level. These levels will be discussed in

detail later in this section.

The two sets may overlap. The degree of overlap will

depend on the commitment of the human beings to

institutional requirements. The distinctive feature of

Need Set include is that it may include desires which are

purely psychological or instinctive desires but they have

to be included in choice set for the sake of personal

development, to improve personal well being and to

achieve the objective of life as understood by human

beings in the institutional framework of the society.

In this scenario, human being, under certain

institutional framework, have to push aside their Desires

in order to pursue their Needs. Because of multiplicity

of needs and scarcity of resources to meet them, the

desires that do not meet the criteria to qualify, as

“Needs” will often have to go unsatisfied within the

defined enforceable institutional framework of the

society. This will be assumed to be a key element of

rational behaviour of economic agent. The decision making

process that motivates economic agents to push aside

certain instinctive desires in the interest of meeting

‘Needs’ necessitated by institutional framework of the

society distinguishes Economics of developed societies

from less developed societies. Obviously we are talking

about the ability to distinguish needs from desires. This

ability is a key element in decision-making process of

economic agents. This ability also explains the

difference in the behaviour of economic agents in

different societies. The institutional framework of the

society determines the dimensions and intensity of the

ability to determine needs and to distinguish needs from

desires. It is this ability that also explains difference

in the economic behaviour of DCs and LDCs. There are

certain needs that human beings are obliged to meet only

because society wants to be met irrespective of whether

they are desired or not. On the other hand there are

desires one may very much like to satisfy but cannot do

because society does not allow it. Institutional

framework of a society ensures this. The key element to

pay attention to, in this respect, is rationality. This

paper introduces Rushd as an alternative concept to work

this to help distinguishing desires from needs.

2.2 Rushd 8 : An Essential Part of Rational Economic BehaviourInstinctive desires are driving force for human

behaviour. Human beings also have instinctive desire to

develop and improve their welfare. The instinctive urge

to improve one’s welfare leads to screening the desires

so as to give priority to those that would contribute to

wellbeing and improve human life on earth.

A set of rules, norms and values for filtering

instinctive desires before embarking on their

satisfaction. We thus can identify two elements playing

crucial role in economic decision making of economic

agents.

i) Instinctive desire to develop and

improve one’s wellbeing.

ii) Social norms, values, rules, culture

and regulations (which are

collectively called as institutions)

aiming at improving wellbeing

8 Rushd is an Arabic term describing a certain reference of humanbehaviour. It is difficult to precisely define the concept of Rushd

because it has multidimensional meanings. This is basically a Quranicterm, which will be discussed in detail in the section on Islamic

approach to understand economic behaviour.

The needs of economic agents are not limited. For

all practical purposes, they are unlimited in reference

to the resources. The needs, therefore, have to be

prioritized. (Prioritization is different from the

concept of preference ordering as used by Neo Classical

Economics). Priorities may differ from person to person,

place to place and time to time.

If a society gives some objective criteria to

identify needs from non-need desires then the proportion

of economic resources devoted to non-Need desires can be

regarded by the society as the indicator of waste of

resources, as this does not contribute anything to the

well being of economic agents operating in the society..

This raises two questions: First, why rational human

beings would waste scarce resources. In other words, why

human being would devote scarce resources to meeting non-

Need desires rather than to meeting Needs? We will call

it lack of ‘sound-mindedness’. We will use this term as

counter part of ‘rationality’ used in Neo-Classical

Economics. While ‘rationality’ in Neo-Classical Economics

refers to Homo Economicus, the concept of sound-mindedness

refers to the human beings whose economic activities or

economic decisions are influenced not merely economic

considerations but also by social, moral, legal and

cultural and other considerations that society wants to

be taken care of by individuals as member of a society.

The concept of sound-mindedness refers to what Becker9 has

explained in the context of ‘bounded rationality’.

For the purpose of this paper, we will use the term

Rushd instead of Bounded Rationality. This is an Arabic

word signifying sound mindedness. The term has been used

in the Quran. For example, consider the following verse

11:87 where the nation of Hood challenges the Rushd of

prophet Shoaib referring to his preaching how to use

their wealth. The concept of Rushd as opposed to bounded

rationality will be discussed in more detail in the next

part of this paper. The concept of Rushd is much broader

than the concept of bounded rationality. This is

particularly true when discussing economic behaviour

sustainable development in Islam.

Creation of wealth and its accumulation is itself a

need if it is meant for ones present and future

development and for sustaining the development for and

meeting needs of future generations.

2.4 Rushd and Economic Decision Making

In this framework, if we assume Rushd on the part of

the economic agents, the resource will be allocated to

resources prioritised list of needs until he exhausts his

resources. This is in equilibrium because the resulting

allocation of resources maximizes wellbeing. Any other

9 Becker, 1976 and 1993

resource allocation would mean lower wellbeing. The

equilibrium is also stable in the sense that any external

influence or shock may change the resource allocation

only temporarily but he will have urge to come back to

the original allocation to restore the wellbeing level.

We can elaborate this decision making process as

below:

1. An economic agent may have unlimited desires to

pursue, but operating within an institutional

framework and ability to judge good from bad, the

economic agent would rather like to identify needs

and fulfil them rather than satisfying his

instinctive desires.

2. An economic agent thus has a list of needs to be

fulfilled.

3. Criteria to qualify a desire as need will be based on

the Institutional Framework of the society

4. Needs have different intensities. They may be

presented in a scale starting from very essential

needs to least essential needs.

5. Rushd plays a central role in preparing the list of

needs to be fulfilled is created by factors like

education, religion, and social cultural and other

institutional influences on the economic agents. The

nature and strength of Rushd, however, may vary. Some

economic agents may have strong Rushd so that all

desires will be strictly judged on Rushd through to

qualify as needs. Other economic agents may be weak

on Rushd, which may allow some desires to be

camouflaged as “needs”. The nature of Rushd will

depend on the nature of Institutional Framework of

the society

6. Deviations from Rushd are observable around the mean

level of Rushd in the society.

7. Internal Pressure: An economic agent has a pressure

from inside to work for his wellbeing and any

deviation from his commitment to fulfil the needs for

his well-being may bring a pressure from inside to

correct his behaviour. If smoking, is being met as

non-Need desire there will be pressures from inside

to tell him not to do that. Education (formal or

informal) is one of the main factors underlying the

internal pressure.

8. External Pressure: An economic agent faces external

pressures if he does not yield to internal pressures.

These pressures may come from family and other

institutions (social, religious, legal etc).

9. Consumer spends his resources on fulfilling the needs

starting from the top of the list until his resources

are exhausted. Some may have to stop in the very

beginning of the list because of the resource

constraints and some may go quite far down the list

with more resources at their disposal.

10. The list of needs is exhaustible by definition.

However, nothing precludes it from being a very large

list and may remain inexhaustible for many or all of

the consumers in a society. The list may vary from

person to person, from time to time and place to

place.

11. The economic problem of a consumer is how to go as

far as down the list as possible.

12. Equilibrium. An economic agent is in equilibrium in

the sense that he has no internal or external

pressure to make him change his consumption pattern

to seek maximization of his wellbeing with his

resources. There may still be several needs

unfulfilled but no change in his list of needs and

priority there-in, can bring an improvement in his

well being.

13. In practice, however, an economic agent may end up

allocating resources to a list consisting of his

needs and desires due to lack of Rushd.

Theoretically, this will be a situation of

disequilibrium because consumer’s allocation of

resources to contribute to his wellbeing is not

optimal and he will be at a level of well being less

than what he potentially can achieve.

14. Temporary versus permanent disequilibrium. The

disequilibrium can be temporary or permanent. It will

be temporary if internal and external pressures are

operating to influence him to correct the list of

needs and hence correct the resource allocation. It

will be a permanent disequilibrium if the internal or

external pressures are absent or are weak to bring

about the needed correction.

15, Higher versus lower level equilibrium. Even if an

economic agent is in equilibrium, it does not mean

that there is no economic problem. Consumer may only

be fulfilling only part of his Needs from the

resources available to him. As more resources the

wellbeing is improved and reaches higher levels of

equilibrium.

16. Poverty Trap. Equilibrium/Disequilibrium may occur

below poverty line. In other words, individuals’

category (i) may remain unfulfilled needs (and hence

suffering from HNEP) while he has exhausted all his

resources according to the prioritized list of his

needs.

1.7 Individual and collective equilibrium in the society.

It is possible that individual may be in equilibrium

but society may be collectively in state of

disequilibrium. For example, the some individuals may

be on higher levels of equilibrium as their S-needs

(category (i) needs) and part of X-needs (category

(ii) needs) are being fulfilled and there is no

economic problem for him but the equilibrium may not

be in line with the ultimate socio-economic goals of

the society. While some members of the society are

suffering from HENP, there are others who are meeting

there category (ii) needs.

The above approach will help us understanding the

concepts like poverty, sustainable development,

starvation and the role of religion and other

institutions under which society conducts its economic

activities. This approach, thus, will be used to

understand Sustainable Development in Islamic Society.

This approach has been developed because Neo-Classical

Economics does not allow us to understand the behaviour

that leads to HENP and sustainable development and it

also does not help us understand the role of

institutions, as institutions have no role in Neo-

Classical Economics. Before we understand the role of

Islamic institutions in the above-mentioned theoretical

framework let us see what difference this framework would

make compared to using the framework of Neo-Classical

Economics.

3. Difference, the Proposed Theory MakesWhat difference does it make to analyse economic

behaviour in the above framework? What new information

we get about economic behaviour? How far this

information is amenable to a processing that can yield

results for studying the phenomenon like sustainable

development or extreme poverty and hence improving the

economic conditions of members of a contemporary society

irrespective of whether it is developed society or

underdeveloped society? Some points of major difference

that such a framework would make are discussed below:

3.1 Additional Information

We get some additional information that we can get

when using the neo-classical analytical framework. Some

examples are given below:

3.1.1 Waste of Resources:

The economic agents may not be pursuing their needs

and may be allocating resources according to their

desires. As already explained, this may happen if

economic agents have weak Rushd. For a society

interested in sustainable developments, this information

would be very useful and will help the society design

ways and means to ensure that members of the society

minimize their consumption of what they do not need in

order to save and conserve resources for the development

of present and future generation.

3.1.2 Wellbeing

Neo-Classical Economics, though refers to

wellbeing, this is a subjective concept based on

Economic agents’ personal perception of utility. In

fact, wellbeing may mean different meaning for

different individuals. It may mean happiness

(Aristotle) satisfaction (Selfish benefits) or Falah

(religious jargon) etc. Neo Classical Economics does

not recognize all such variations in wellbeing. The

concept of needs implicitly has an objectively

defined concept of wellbeing.

3.1.3 Unhealthy Demonstration Effects: Conspicuous

consumption of certain items by affluent class in a

society may generate unnecessary emphasis on non-Need

desires or on needs very low in priority, as they may

become status symbol. Such tendencies not only imply

waste of resources in the affluent classes and sacrifice

of important needs by over spending on less important

needs in the less affluent classes, they will be also be

detrimental to the wellbeing as defined by the society.

Some sections of the society may be starving and

extremely poor while others may be indulged in

conspicuous consumption of less important needs or non-

need desires.

Such analysis is useful for the society not only in

the interest of economizing on the use of resources for

future generation but also for the development of present

generation so that they are not ill-fed and different

members of society do not create ill-effects on less

affluent members of the society and hence become a source

of corruption and unrest in the society.

3.1.4 Labour Supply Distortions

Economic agents have to allocate their time

(a) For work (to purchase goods and services

to meet the needs)

(b) For other needs (which cannot be

purchased)

The waste of resources can occur in allocating time as

well. In less developed societies it has been often

observed that even in extremely poor population the

labour force (population in working age) remains idle but

would not accept jobs below a certain wage or a job that

is not of the choice of the labour. The idle labour may

not even be looking for a job believing that job of their

choice does not exist. With such attitudes, several of

the needs would remain un-met. It is observable in

several parts of the world10. Why this happens?

Obviously the Rushd element is weak or is not working.

Internal and external proportions to correct the

behaviour are weak or are absent or are not geared to

wards defining needs and making economic agents to meet

them. This is a disequilibrium situation. Needs remain

un-met despite availability of resources. In several

communities this disequilibrium can take the form of

permanent disequilibrium.

3.1.4 Interpersonal Comparison:

Policy makers and social decision makers often need to

make interpersonal comparison to assess social welfare

affect of various policy options and decisions. In

practice, such comparisons are made consciously or

10 See The Lewis-Ranis-Fei (LRF) Model of Surplus Labor is an economic

development model. Also see Khan (1978)

unconsciously and explicitly or implicitly in almost all

policy decisions. The recognition of needs and their

significance for different individuals and groups of

individuals is made at various levels in government and

other social organizations. Developing a framework for

analysis of economic behaviour and generating necessary

data in that respect would make policy making simpler and

straight forward whenever interpersonal comparison is a

part of the policy making process.

3.1.5 Perception on Economic Problems: A Major

Difference

Economic problems are multidimensional. Economic

behaviour can be related not only to the above problems

at micro level but also to the problems of society at

macro level, like unemployment, poverty, income

distribution, inflation and sustainable economic growth

and development. Economic problem, thus, is how to gain

maximum human wellbeing within constraints of time and

resources. He has multitude of needs to meet with

respect to his wellbeing. He has to prioritize them in

order of their contribution to his wellbeing. His first

problem is how to rightly prioritize them. One’s own

sense of Rushd will help screening one’s needs. Even if

he has succeeded to make an optimal choice, the

individual may not be able to keep pace with the dynamics

in the society leading to improved wellbeing anticipated

by the dynamics of the society leading to reduced well

being? All these elements have positive aspects as well

as normative aspects. These elements can be understood

only by recognising the concept of Rushd.

3.1.6 Issue of Development

Economic behaviour has implications for self-

development at micro level as well as development of

society at macro level. When economic agents, whether as

consumer or a producer, are in equilibrium in the sense

already mentioned, then this is static equilibrium. In

dynamic sense, he may not still be in equilibrium. To

grow and develop and reach a higher level of wellbeing,

in inter temporal sense, is also a need. This will

require resources to meet the future needs. But

resources saved for this purpose may not be enough to

fulfil the anticipated future needs. Depending on the

priority of future needs, an individual may be in

disequilibrium if the individual is meeting lower order

needs ignoring future needs carrying higher priority.

Such a situation may raise development issues for the

society at macro level too. If individuals do not have

urge to move to higher levels of wellbeing, the society

will lag behind in development compared to the societies

where individuals are seeking higher and higher level of

well being.

Thus the problem of lack of development may be a

result of the following elements:

i) Weakness of Rushd sense.

ii) Weakness of internal and external pressures to

correct the sense of Rushd.

iii) Lack of collective spirit and initiative to

respond to the individuals’ need to move to higher

level of wellbeing.

iv) Lack of resources in the society to create

opportunities for individuals to help them move to

higher level of wellbeing.

3.2.3 Unemployment

Employment, in the context of our approach, would

mean inability to find a job for the number of hours

he/she intends to work for. This will be an involuntary

unemployment. An individual, however, may spend more

time, by choice, to meat lower order needs than working

for income needed to meet higher order needs. Inability

to find job This may generate voluntary unemployment.

Since he needs to work but decides not to work, this

voluntary unemployment leaves him at a lower level of

wellbeing. Both types of unemployment mean that the

individual is in the state of disequilibrium as some

needs of higher priority are not met and instead time is

being spent on meeting needs of lower priority. It means

the weakness of Rushd

3.2.4 Poverty

Our framework allows us to define the problem of

poverty. This is not possible under Neo-classical

framework. We can define three dimensions of poverty

also, which have implications both at micro level as well

as macro levels.

(a) Involuntary Poverty: Individuals are unable to meet

their critical needs. This may occur in two ways.

Despite that all his time is devoted to meeting these

needs, time value of his/her efforts is not enough to get

him resources sufficient to meet even his needs. Lack of

capital, human or physical, may often be the reason. The

individual has no choice but to depend on the society’s

institutional framework to provide necessary assistance

to get him/her out of the poverty trap. This is the

category of poverty where consumer’s choice does not play

any role.

(b) Voluntary Poverty: Individuals may assign their

critical needs a lower priority and spend his/her

resources on needs, which do not have higher priority.

Such poverty is result of

i) An individual’s lack or absence of Rushd

ii) Weak External pressures.

In this situation a person may remain content with his

economic condition and spend most of the time in leisure

or low priority needs instead of using his time to

improve his economic conditions. Many developing

countries will find this category of poverty prevailing

there.

(c) Potential Poverty: Individuals may have enough

resources meeting their present critical needs but they

may be ignoring their self development needs or future

needs. Demonstration effect of the consumption pattern in

the community may distort the consumption priorities of

low-income group of population. This type of poverty too

will result due to lack of Rushd and/or weaknesses of

internal and external pressures.

3.2.5 Pollution of Environment This is another major economic problem that Neo-

Classical Economics cannot address in its framework of

analysis. An individual imbued with Rushd is assumed to

be using the resources judiciously. Rushd based economic

behaviour only can ensure sustainable development of self

and society. As the sense of Rushd in the economic

agents weakens and desires, not needs, get priority in

their choice, the resources get misallocated and

environment is on stake. As sustainable development is

needed for the well being of all, society is required to

have an institutional framework with respect to the

economic behaviour. Since affluent members of society can

easily slip away from the rightly prioritized list of

needs and since demonstration effect from the affluent

section of society are strong in influencing the economic

decision making in the rest of the society, the

sustainable development will be more at stake, the more

skewed is the income distribution.

4. Application of Theory

Two basic questions need to be answered to complete

this theory.

1) One basic question is the following.

What is the reality on the ground? Is it Rushd that

guides economic behaviour of individuals or is it

Rationality, as defined in the Neo-Classical

framework, that guides individuals’ economic

behaviour.

2) The second basic question is how to determine that

an individual is following Rushd and is fulfilling

his needs, instead of satisfying his desires at the

cost of postponing or ignoring needs

3) A related question is, how to determine when the

consumer is not in the desired equilibrium state and

when community or government needs to do something

to bring microeconomic behaviour to equilibrium

state. This will require determining some benchmarks

for various needs and spelling out some guidelines

for economic behaviour. Every society does have

such benchmarks, implicitly or explicitly. They

need to be identified explicitly for the purpose of

analyzing economic behaviour and for developing

institutional framework to motivate to meet the

benchmarks. As society commits itself to sustainable

development of its members, as well as of the

society as a whole, comprehensive bench marks and

guidelines will need to be developed to give the

society enough basis to devise strategies and plans

for consumers to gear their behaviour towards

attaining maximum well-being and sustainable

development. If the society happens to be having no

explicit or implicit benchmarks then where to start?

Many countries already conduct household income –

expenditure surveys and those who do not conduct may

not find it difficult to start conducting such

surveys. These surveys are already designed with

the implicit objective of determining needs of the

household without any explicit theory of economic

behaviour. These surveys can be specifically

oriented towards explicitly determining benchmark

for various needs too with explicit theory how to

analyse them. Some countries use these surveys to

prepare consumption plans for various food items,

particularly for food grains. The concept of

determining benchmark for various needs using

household survey is, therefore, not a new concept

for economists. The main question would be who will

determine the needs and fix the benchmark for

different categories of needs. This will be

discussed in the next part in Islamic context.

5. Conclusion of Part II

Economic behaviour is an important aspect of human

behaviour. It can lead the man and society to drift

easily into such problems as unemployment, poverty,

underdevelopment, and exhaustion of natural resources,

pollution of environment. Two things can stop a behaviour

leading to such economic evils: a) Correcting the sense of

Rushd b) Committing collectively to social responsibility.

Market alone cannot correct economic behaviour. Social

institutions will be required to guide the market and

sometime to regulate the market. The social institutions

will emerge from the ethical base that society is

committed to.

No society is void of an ethical base that would

leave individuals free to behave the way he likes or leave

market free to allow individuals to satisfy whatever

desires he intends to satisfy. On the other hand, not all

societies have same set of ethics and norms for its

markets and the behaviour of its economic agents. Each

society has a set of ethics and norms not only defining

rules for behaviour but also reflecting the worldview and

objective of life that society members are assumed to be

pursue.

Islamic system of life provides unique and elaborate

rules for market as well as for the behaviour of its

economic agents. The next part of this paper discusses

what Islamic institutional framework and how it enables

the individuals and society continuously improve level of

their well being on a path of sustainable development. It

may be mentioned that the next part can be read without

reference to religious beliefs. Though some religious

beliefs have been mentioned in the next part, but these

beliefs are more in the nature of virtues and ethics

universally recognized. The beliefs can be considered as

ethical values or socio-economic institutions. This fact

has been pointed out to emphasize that the Islamic

approach to economic activity has lessons for even non-

Muslim societies and that Islam offers a global message

how to save the economies from catching economic diseases

and economic ills and put them on a path of sustainable

development.

References for Part II

1. Becker, Gary, The economic way of looking at

behavior, Nobel Lecture,(1993)Becker, Gary, The

economic approach to human behavior, Chicago,

University Press, Chicago, (1976)

2. Vorgelegt von, From Fragmentation to Innovation: The

Application of Institutionalism towards Financial

Market Theories, Ph.D. Dissertation (2004)

http://elib.suub.uni-bremen.de/publications/disserta

tions/E-Diss1259_Bernstorff.pdf

3. Lewis, Arthur Lewis, W. Arthur (1954). “Economic

Development with Unlimited Supplies of Labor”,

Manchester School of Economic and Social Studies,

Vol. 22, pp. 139-91 (1954)

4. Khan, M. Fahim, A study into the causes of wage

fluctuations in Labor surplus countries, Ph. D.

Thesis (Unpublished) Boston University, 1978

5. Renis, G. and J.C.H. Fei. “A Theory of Economic

Development”. American Economic Review, 51, 533-565

(1961)

Part III

Islamic Theory of Consumer Behaviour

Is Conventional Theory of Consumer Behaviour Totally

Irrelevant? Even though need is the driving force for

consumer behaviour the instinctive desires too often

remain a factor in consumer choice. The conventional

analysis of consumer behaviour still remains valid. It

will always be useful to study unusual, undesirable,

unhealthy patterns in consumer behaviour. It will still

be relevant to study what may be called the dark side of

human nature. Consumption of alcohol and drugs, markets

of pornography, money spent on illicit and abnormal sex

activities, spending resources spent on criminal actions,

economics of prostitution, consumption of goods abhorred

by society or prohibited by law, wasting money in funs and

games and gambling, the excessive use of resources in

glamorous sports, wresting, and other entertainment and

all such behaviour cannot be analysed in the need based

framework described above. The conventional rationality

based approach is the only framework that can analyse such

behaviour.

Need for “Islamic” Theory

Islamic scholars interested in science of Economics

have several reasons to be dissatisfied with the current

theory and believe they must develop an alternate theory

to understand what Islam teaches them about economic

behaviour. From Islamic sources, based on divine

revelations, they get a different understanding of the

nature and behaviour of human being compared to what

conventional Economics provides. The textual sources of

Islam, for example, make elaborate references to elements

of human behaviour relating to consumption. The Islamic

economists, when they try to analyze these elements

within the framework of the conventional theory of

consumer behaviour, they feel lost. The conventional

theory is very restrictive and not rich enough to allow

economic understanding of these elements. Some of the

concepts mentioned in the divine text pertaining to

consumer behaviour are just not recognizable in the

conventional theory of consumer behaviour. An alternative

to conventional theory, more realistic and wider in

scope, is in the wider interest of the discipline of

Economics

There is an added interest in an alternative theory

for Muslim economists. They need a theory that can help

understanding the divine commandments about the behaviour

and can lead to better conclusions for the benefit of the

human existence in this world.

Another factor that makes it important to develop a

theory relevant to Islamic theory of consumer behaviour

to Muslim Economists is Islam’s urge to develop human

being as individuals and also develop an institutional

mechanism to support a sustainable development in the

society to make the life on earth easy and comfortable

for all generations to come as long as this world exists.

Alleviation of poverty in a society, meeting the needs of

less privileged members of society, restraining from

corrupting the earth (land and sea and air) and

environment are among the clear objectives of Islamic

system of life and they have been made an explicit part

of the consumer choice. To achieve this objective, an

elaborate legal and moral framework for consumer

behaviour has been specified in Quran and Sunnah. For

example, we have specific injunctions; to avoid Israf,

Tabzeer and Itraf, to keep a balance in spending; to keep

watch on needs of neighbours and the have-nots; to eat

good food (Tayyibaat), not to use the prohibited

commodities; not to make consumption harmful to health,

environment or fellow beings; to spend in the cause of

Allah; to observe Taqwa (God-consciousness) and Iman

(belief in God and his commandments) in spending, to seek

Falah (success in both the worlds), to follow Ihsan (best

way of doing things) in all activities etc. These

injunctions to some extent can be subjected to economic

analysis, using the tools of conventional economics and

conclusions can be drawn for policy purposes. This is

what I have done in my paper on Consumption Function and

in my paper on Consumer Behaviour published earlier. Such

analysis, though useful on its own merit is not the

subject of this paper. What needs to be done is how to

incorporate these values in the theory of consumer

behaviour and draw implications for such objectives as

alleviation of poverty and sustainable development,

creation of harmony in society etc.

The purpose of this paper is to analyze Islamic

injunctions about consumption and consumer behaviour in

an appropriate theoretical framework more relevant to

understand these injunctions and draw policy conclusions.

The framework developed in Part II will be utilized in

this section to delineate a theory which can allow

scientific analysis of the Islamic approach to

consumption in order to

i) Understand the economics of the Islamic legal and moral

framework for consumption

ii) Draw policy conclusions on how to use this framework for

sustainable development of individuals and society

Some of the distinctive feature of Islamic approach

to consumption, that make the conventional theory of

consumer behaviour not relevant for economic analysis of

Islamic consumer behaviour and makes the theoretical

framework developed in Part II more relevant, are

highlighted below:

Distinctive Features of Islamic Approach to Consumption

The Rationality Assumption

The consumer behaviour is analyzed only for a

rational consumer. But rationality has to be pre-

defined, realistically, before getting into the analysis

of consumer behaviour. The conventional theory defines

rationality in too simplistic terms, which in fact makes

the scope of analysis too restrictive and makes the

application of theory too limited. The rationality for

example keeps ethics out of the human behaviour. It is

done in the interest of keeping the framework value free.

But that is not realistic. The definition, for example,

implies that “more is preferred to less”. This, in

itself, is value judgement and not a positive statement.

If it is value judgement, then virtue is that consumer

would be following some golden mean of the extreme of

this ethical value. “A virtuous consumer, would neither

consume ‘too much’ nor ‘too little’ but will have a

balance somewhere in between”. This attitude has to be a

part of the rationality assumption. This ethical virtue

in human behaviour is observable in all

civilized/educated/developed societies.

All societies abhor waste and a rational consumer is

expected to avoid waste. Just like we know that risk-

loving behaviour cannot be expected from rational not a

part of rational behaviour, we need to define in a way

that waste-loving behaviour is not a part of rational

behaviour.

Another element of a consumer’s choice is his/her

ability to judge what is good and what is bad for and

that he/she will go for the good and leave the bad. This

element of consumer choice is a significant factor in

real life decision-making process but it is absent from

the definition of rationality in conventional theory of

consumer behaviour.

Understanding consumer behaviour, in Islamic

perspective requires the Islamic legal and moral

framework for human behaviour to be included in the

rationality definition. Working with such wider meaning

of rationality would make the theoretical framework

relevant for both positive and normative analysis of

consumer behaviour. The Quran has emphasized the concept

of rationality in economic behaviour and has referred to

it as “Rushd”. For consumer behaviour some vary specific

norms and injunctions have been laid down that would

conform to Rushd. These have to be taken into account in

the analysis of consumer behaviour.

Allais Paradox

Maurice Allais, a Nobel prize winning economist, died earlier this month. In this post, I’m going to focus on one of his many intellectual contributions, as it profoundly influenced modern psychology. It’s known as the Allais Paradox, and it was first outlined in a 1953 Econometrica article. Here’s an example of the paradox:

Suppose somebody offered you a choice between two differentvacations. Vacation number one gives you a 50 percent chance of winning a three-week tour of England, France and Italy. Vacation number two offers you a one-week tour of England for sure.

Not surprisingly, the vast majority of people (typically over 80 percent) prefer the one-week tour of England. We almost always choose certainty over risk, and are willing to trade two weeks of vacation for the guarantee of a one-week vacation. A sure thing just seems better than a gamble that might leave us with nothing. But how about this wager:

Vacation number one offers you a 5 percent chance of winning a three week tour of England, France and Italy. Vacation number two gives you a 10 percent chance of winning a one week tour of England.

In this case, most people choose the three-week trip. We figure both vacations are unlikely to happen, so we might as well go forbroke on the grand European tour. (People act the same way with lotteries: we typically buy the ticket for the biggest possible prize, regardless of the odds.)

Allais presciently realized that this very popular set of decisions – almost everybody made them – violated the rational assumptions of economics. Instead of making decisions thatcould be predicted by a few mathematical equations, people acted with frustrating inconsistency. After all, both questions involve 50 percent reductions in probability (from 100 percent to 50 percent, and from 10 percent to 5 percent), and yet generated completely opposite responses. Our choices seemed incoherent.

The Allais paradox was mostly ignored for the next two decades. But then, in the early 1970s, two Israeli psychologists, Daniel Kahneman and Amos Tversky, read about the paradox and were instantly intrigued: they wanted to know why people didn’t respond to probabilities in a linear manner. Based upon their conversations with each other, it seemedobvious that people perceived a smaller difference between probabilities of 1 percent and 2 percent than between 0 percent and 1 percent, or between 99 percent and 100 percent. In other words, all changes in risk

are not created equal. As Allais had observed decades before, we value complete certainty aninordinate amount.

But why was certainty so attractive? Kahneman and Tversky wanted to understand the psychology behind the paradox. Their breakthrough came by accident. Kahneman had been reading a textbook on economic utility functions, and was puzzled by the way economists explained a particular aspect of our behavior. When evaluating a gamble—like betting on a hand of poker, or investing in a specific stock—economists assumed that we madethe decision by taking into account our wealthas a whole. (Being rational requires factoringin all the relevant information.) But Kahneman realized that this isn’t how we think. Gamblers in Las Vegas don’t sit around the card table contemplating their complete financial portfolio. Instead, they make quick decisions that depend entirely upon the immediate terms of the gamble. If there is a $100 wager, and you’re trying to decide whether or not to ante in with a pair of aces,you probably aren’t thinking about the recent performance of your mutual fund, or the value of your home.

But if we don’t make decisions based upon a complete set of information, then what are ourdecisions based upon? Which factors were actually affecting our choices? Kahneman and Tversky realized that people thought about

alternative outcomes in terms of gains or losses, and not in terms of states of wealth. The gambler playing poker is only concerned with the chips right in front of him, and the possibility of winning (or losing) that specific amount of money. (The brain is a bounded machine, and can’t think about everything at once.) This simple insight led Kahneman and Tversky to start revising the format of their experiments. At the time, theyregarded this as nothing but a technical adjustment, a way of making their questionnaires more psychologically realistic.

This minor change in notation soon revealed one of the most important discoveries of theircareers. When Kahneman and Tversky framed questions in terms of gains and losses, they immediately realized that people hated losses.In fact, our dislike of losses was largely responsible for our dislike of risk in general. Because we felt the disadvantages of risky decisions (losses) more acutely than theadvantages (gains), most risks struck us as bad ideas. This also made options that could be forecast with certainty seem especially alluring, since they were risk-free. As Kahneman and Tversky put it, “In human decision making, losses loom larger than gains.” Theycalled this phenomenon “loss aversion”

This simple idea has profound implications. For one thing, it reveals a deep bias built into our brain. From the perspective of

economics, there is no good reason to weight gains and losses so differently. Opportunity costs (foregone gains) should be treated just like “out-of-pocket costs” (losses). But they aren’t – losses carry a particular emotional sting. Take this imaginary scenario:

The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program A is adopted, 200 people will be saved. If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Which of the two programs would you favor?

When this question was asked to a large sampleof physicians, 72 percent chose option A, the safe-and-sure strategy, and only 28 percent chose program B, the risky strategy. In other words, physicians prefer a sure good thing over a gamble that risks utter failure. They are acting just like the people who choose thecertain one week tour of England. But what about this scenario:

The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program C is adopted, 400 people will die. If program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability

that 600 people will die. Which of the two programs would you favor?

These two different questions examine identical dilemmas. Saving one third of the population is the same as losing two thirds. But when Kahneman and Tversky framed the scenario in terms of losses, physicians reversed their previous decision. Only 22 percent voted for option C, while 78 percent of them opted for option D, the risky strategythat might save everyone. Of course, this is aridiculous shift in preference, as nothing substantive has changed in the scenario.* But our choices are guided by our feelings, and losses just make us feel bad. Because the coldhearted equations of classical economics neglect emotion, their description of our decisions remained woefully incomplete.

And this returns us to Maurice Allais. It would be easy to dismiss his paradox as a trifling issue, an irrelevant foible of human decision-making. But it actually helped lead to a radical revision of human nature. (DanielKahneman went on to win the Nobel Prize in 2002.) We’ve come to realize that we’re not nearly as rational as we like to believe, thatthe brain is driven by all sorts of inarticulate feelings and pre-programmed instincts. It’s worth noting, however, that the modern investigation into our irrationality didn’t begin with a brain scan, or with discussions of the amygdala. Instead,

it began with a few inconsistent people, making economic decisions about their vacation. Leonard Cohen said it best: “There’sa crack in everything – that’s how the light gets in.” Allais found an important crack.

*Patients exhibit a similar bias: When asked whether they would choose surgery in a hypothetical medical emergency, twice as many people opted to go under the knife when the chance of survival was given as 80 percent than when the chance of death was given as 20 percent.

Source: http://www.wired.com/wiredscience/2010/10/the-allais-paradox/

The Allais paradox was mostly ignored for the next two decades. But then, in the early 1970s, two Israeli psychologists, Daniel Kahneman and Amos Tversky, read about the paradox and were instantly intrigued: they wanted to know why people didn’t respond to probabilities in a linear manner. Based upon their conversations with each other, it seemedobvious that people perceived a smaller difference between probabilities of 1 percent and 2 percent than between 0 percent and 1 percent, or between 99 percent and 100

percent. In other words, all changes in risk are not created equal. As Allais had observed decades before, we value complete certainty aninordinate amount.

But why was certainty so attractive? Kahneman and Tversky wanted to understand the psychology behind the paradox. Their breakthrough came by accident. Kahneman had been reading a textbook on economic utility functions, and was puzzled by the way economists explained a particular aspect of our behavior. When evaluating a gamble—like betting on a hand of poker, or investing in a specific stock—economists assumed that we madethe decision by taking into account our wealthas a whole. (Being rational requires factoringin all the relevant information.) But Kahneman realized that this isn’t how we think. Gamblers in Las Vegas don’t sit around the card table contemplating their complete financial portfolio. Instead, they make quick decisions that depend entirely upon the immediate terms of the gamble. If there is a $100 wager, and you’re trying to decide whether or not to ante in with a pair of aces,you probably aren’t thinking about the recent performance of your mutual fund, or the value of your home.

But if we don’t make decisions based upon a complete set of information, then what are ourdecisions based upon? Which factors were actually affecting our choices? Kahneman and

Tversky realized that people thought about alternative outcomes in terms of gains or losses, and not in terms of states of wealth. The gambler playing poker is only concerned with the chips right in front of him, and the possibility of winning (or losing) that specific amount of money. (The brain is a bounded machine, and can’t think about everything at once.) This simple insight led Kahneman and Tversky to start revising the format of their experiments. At the time, theyregarded this as nothing but a technical adjustment, a way of making their questionnaires more psychologically realistic.

This minor change in notation soon revealed one of the most important discoveries of theircareers. When Kahneman and Tversky framed questions in terms of gains and losses, they immediately realized that people hated losses.In fact, our dislike of losses was largely responsible for our dislike of risk in general. Because we felt the disadvantages of risky decisions (losses) more acutely than theadvantages (gains), most risks struck us as bad ideas. This also made options that could be forecast with certainty seem especially alluring, since they were risk-free. As Kahneman and Tversky put it, “In human decision making, losses loom larger than gains.” Theycalled this phenomenon “loss aversion”

This simple idea has profound implications. For one thing, it reveals a deep bias built

into our brain. From the perspective of economics, there is no good reason to weight gains and losses so differently. Opportunity costs (foregone gains) should be treated just like “out-of-pocket costs” (losses). But they aren’t – losses carry a particular emotional sting. Take this imaginary scenario:

The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program A is adopted, 200 people will be saved. If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Which of the two programs would you favor?

When this question was asked to a large sampleof physicians, 72 percent chose option A, the safe-and-sure strategy, and only 28 percent chose program B, the risky strategy. In other words, physicians prefer a sure good thing over a gamble that risks utter failure. They are acting just like the people who choose thecertain one week tour of England. But what about this scenario:

The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program C is adopted, 400 people will die. If program D is adopted, there is a one-third

probability that nobody will die and a two-thirds probability that 600 people will die. Which of the two programs would you favor?

These two different questions examine identical dilemmas. Saving one third of the population is the same as losing two thirds. But when Kahneman and Tversky framed the scenario in terms of losses, physicians reversed their previous decision. Only 22 percent voted for option C, while 78 percent of them opted for option D, the risky strategythat might save everyone. Of course, this is aridiculous shift in preference, as nothing substantive has changed in the scenario.* But our choices are guided by our feelings, and losses just make us feel bad. Because the coldhearted equations of classical economics neglect emotion, their description of our decisions remained woefully incomplete.

And this returns us to Maurice Allais. It would be easy to dismiss his paradox as a trifling issue, an irrelevant foible of human decision-making. But it actually helped lead to a radical revision of human nature. (DanielKahneman went on to win the Nobel Prize in 2002.) We’ve come to realize that we’re not nearly as rational as we like to believe, thatthe brain is driven by all sorts of inarticulate feelings and pre-programmed instincts. It’s worth noting, however, that the modern investigation into our irrationality didn’t begin with a brain scan,

or with discussions of the amygdala. Instead, it began with a few inconsistent people, making economic decisions about their vacation. Leonard Cohen said it best: “There’sa crack in everything – that’s how the light gets in.” Allais found an important crack.

*Patients exhibit a similar bias: When asked whether they would choose surgery in a hypothetical medical emergency, twice as many people opted to go under the knife when the chance of survival was given as 80 percent than when the chance of death was given as 20 percent.

Allais ParadoxIn identical experiments, an Allais paradox occurs when the addition of an independent event influences choice behavior. Consider the choices in the following table (Kahneman and Tversky 1979).

lottery

1to33

3435 to100

preference

018%

82%

0083%

017%In Experiment 1, a choice of and was given, and most participants picked . In Experiment 2, a choice of and was given, and most participants picked .

This observed pattern violates the independence axiom, since in both experiments, the payoff is identical if a

ball is picked, while if the event is disregarded, the two experiments are identical.

To see it another way, consider the event to be a black box that is always received if the random ball value is . Knowing or not knowing the contents of theblack box should not influence behavior.

http://mathworld.wolfram.com/AllaisParadox.html

Rushd as Islamic alternative to the Concept of

Rationality

The Quran has referred to the term “Rushd” (often

mentioned in the sense of “right-mindedness or sound-

mindedness”), for the economic behavior. For example,

the people of Shoaib asked the Prophet Shoaib “O Shoaib!

Does your prayers command that we give up what our

fathers used to worship or that we give up doing what we

like with our wealth (resources)? Verily you are the

fore-bearer, right minded (Rasheed)” (11.87). ‘Rasheed’

can be translated most closely by the English word

Rational personal but with a difference than what implies

in the definition used in Neo-Classical Economics. This

means people of Shoaib believed that they can behave

rationally to decide how to use their resources. But

profit Shoaib did not agree with their concept of

rationality. What was the difference? It required certain

moral and social responsibilities. Hence, the Islamic

concept of rationality, to be called ‘Rushd’, is more

than what is involved in concept of rationality in Neo-

Classical analysis economic behaviour. Similarly, for the

custodian of the property of an orphan, it has been

ordained in the Quran “… if then you find rationality

(rushd) in the, release their property to them ……” (4:6).

If we try to understand Rushd in the Quranic terminology,

we will find that Rushd will include:

1. The conventional definition of rationality

2. Social responsibility

3. Ethical responsibility

4. Religious responsibility, and

5. Golden mean between niggardliness and Israf

(waste)

6. Etc.

Introducing following two concepts can sum up this

discussion:

a. Sound minded judgement

b. Right minded judgement

In secular context, Rushd would mean sound judgement. It

would mean rationality as known in the context of Neo-

classical Economics plus the ethical and social

considerations of the society. In Islamic context, it

would mean sound judgement within the Islamic framework

for human behaviour, in general, and economic behaviour,

in particular. As the Quran mentions, “And We had

certainly given Abraham his Rushd (sound minded judgment)

before, and We were of him well-Knowing” (21:51).

Obviously, the sound-minded judgment, here, refers to

sound judgment of a right-minded person, not of any

common man. Right-minded person would be the one who

follows only the right as revealed through the divine

guidance.

The implications of above mentioned distinctive

classification of Rationality is that we will refer to

sound minded judgment when we are analyzing economic

behavior of any person. We will refer to right minded

judgment when an economic decision is made in the

framework of divine guidance; namely, ‘Islamic’ for the

purpose of this paper.

Ethics and Rationality-The concept of Rushd

There are two sets of ethics, one includes a set of

ethics that are universal and are explained in divine

sources while the other is the set which is developed

over time as Muslim culture. The later set may have

changed over time and may also vary from country to

country due to mixing up of ethics with local traditions

and culture. The former, however, is universal and does

not change over time. For example, prohibition of pork,

gambling, intoxication, extra marital relationship etc

remains unchanged with respect to time. However, female

circumcision, polygamy, eating seafood other than fish,

eating camel meat and horsemeat are relative to time and

culture. Rushd takes both types of ethics as a factor in

determining consumer behaviour of Muslims. However, an

analysis of Islamic economics would consider only the

universal ethics given by divine guidance. These ethics

are listed and briefly explained later in this chapter.

When we study the consumer behaviour in present day

Muslim societies, then the relative ethics become

relevant. This will, however, be a matter of empirical

study.

Categories of consumption

Human being’s consumption decisions are, generally,

recognized by economist to be made in two dimensions,

a) To satisfy their present needs and

b) To satisfy their future needs.

Muslims’ consumption decisions are also made in

these dimensions. But there is a third dimension also

that is extremely important for Muslims and is part of

their decision process with respect to consumption. The

third dimension is ‘to care for others’. This is

explicitly or implicitly a part of their budget

constraint. It not only includes giving away money or

food or other consumption goods to have-nots, but it also

includes spending on removing hardships for others and

creating trusts and institutions to care for others who

need to be cared.

Though such activities may be found in non-Muslim

communities as well but they are not a part of consumer’s

choice. They are non-economic decision taken with no

economic value in consideration. For a Muslim consumer

this is an integral part of the consumer choice.

The third dimension therefore has to be accommodated in

the analytical framework to understand the consumer

behaviour in Islamic perspective. The inclusion of third

dimension with other features of consumer choice such as

avoiding waste, etc implies that the conventional

framework for the analysis of Muslim consumer behaviour

does not remain very much relevant.

Needs as Basis for Consumer Decision Making

In the process of exploring the Islamic theory of

consumer behaviour, another distinct question is whether

the conventional concept of utility can continue to

remain the basis for understanding the consumer decision-

making. The concept of utility has a particular

philosophical underpinning derived from the Greek

philosophers’ discussions for the motivation of human

behaviour. Is their any other possible concept that can

be utilized for understanding the consumer decision-

making process that will be more relevant to the Islamic

approach to consumption?

Islamic social scientist, Ibn-e-Khaldoun, for

example, based his discussion on socio-economic behaviour

on the nature of human needs and their relationship with

different stages of development in society. In his

analysis, needs is the motivation for human socio-

economic behaviour to move from one stage of human

development to another.

Islamic philosophers, Shatibi and Ghazali, have been

more elaborate and specific on concept of need. They

referred to the term Maslaha (well being of mankind) as

the objective of Islamic system of life and discussed the

concept of needs to achieve this objective.

The concept of need as found in the Islamic

philosopher’s discussion with respect to the motivation

for human behaviour is a sound and more realistic basis

for developing an Islamic theory of consumer behaviour.

There are several reasons. Firstly, it is more realistic

and definable basis than the concept of utility.

Secondly, it would make interpersonal comparison of the

welfare of consumer possible, which is not possible under

the utility-based approach. Interpersonal comparison is

often required in the analysis of Islamic consumer

behaviour, particularly in view of the third dimension

discussed above. Irrespective of whether a person is

Islamic or unlslamic, it seems more logical to assume

that a person will look at the ‘need’ of a particular

commodity before he decides to consume it and will not

merely look at the so called utility (satisfying a

desire) aspect of the commodity.

It may be argued that use of “need” or “utility” is

only a matter of semantics. What a man needs also has

utility for him and he feels satisfaction in fulfilling.

Yes, this is true but the reverse is not true. He may

desire and feel satisfaction in consuming a thing, which

may not be his need at all. In real life we clearly

observe that one may desire several things but decides

not to go for many of them and instead may go for only

those things, which are his needs.

Conventional analysis of consumer behaviour is

concerned with allocative efficiency, which means that

the resources are used so that they are not wasted. The

concept of waste in conventional analysis using the

concept of utility is quite vague. According to

conventional analysis, if resources are used in a way

that it would not be possible to use them to make one

person better off without making another person worse

off. This requires interpersonal comparison. While

theoretically we may make such comparison, this

comparison is not practically possible within the concept

of utility. Waste of resources is said to be

misallocation of resources and justifies government

intervention to correct the allocation of resources. But

there is no practical significance of this theorization.

The use of the concept of needs in the consumer analysis

makes the concept of waste meaningful and makes the case

of government intervention more realistic.

Efficient allocation of resources is one of the

primary concerns in Islamic economic teachings. Waste is

abhorred in Islam. The use of concept of need in

analysing consumer behaviour will, therefore, be very

much relevant in Islamic framework. Market failures in

avoiding waste will be more objectively, identifiable and

allocative efficiency will be more realistically

achieved.

Methodology

Working with the concept of need will not allow us

to use the conventional methodology of defining utility

function for analysis of consumer behaviour. A different

methodology is needed. This would require identifying

criteria for categorizing and prioritizing needs.

Conventional theory can hardly help in this respect.

Though conventional theory does discuss categories like

inferior goods, Giffen goods, necessities, luxuries etc.

yet this categorization develop in utility-based

framework does not have much relevance for need-based

analysis. This categorization is not meant to classify

which goods contribute more to well being. Categorizing

needs and prioritizing them according to defined

criteria, thus, will be another important distinctive

feature of the Islamic theory of consumer behaviour.

Some classical Islamic scholars did discuss

categorization and prioritization of needs but not

specifically in the context of theorizing consumer

behaviour. Ibn-e-Khaldoun, for example, used the

categorization of primary needs, secondary needs and

luxuries to explain motivation of man’s development from

one stage to another. Shahibi and Ghazali used the

categorization of needs into Essentials (called

Darrooryyat), complementaries (Hajiyyat or Takmillyyat)

and Amelioratories (Tahsinyyat). Defining categories of

needs and their priorities thus will be a major and very

distinct function of economists seeking to analyze

consumer behaviour in an Islamic framework. In

developing this theory, it may not pose much a problem

(as it does not pose a problem in defining smooth

indifferences curves in conventional theory). Its

application to a real economy, however, will require

substantial field work to collect necessary data which in

turn will require regular periodical households surveys

about their income and expenditure patterns. Such

surveys are already being carried out in different

economies but not for the purpose of analyzing consumer

behaviour but for purpose of information for public

policy making.

However, the main change required in the methodology

and analytical framework to study economic behaviour is

to move away from the current approach, which is derived

from mathematics. Economics is a science studying human

behaviour. We need to be guided by sciences that deal

with the study of human beings at micro level. This is

the subject of separate chapter, which is not included in

this paper.

Objective of the Theory

Finally, objective of theory is its most distinctive

element. It would not merely aim at understanding how

consumer makes a choice with respect to allocating their

resources to meet their different needs. It primarily

would aim understanding whether allocation of his

resources to various needs was aimed at maximizing his

wellbeing and whether the wellbeing he achieved meets the

threshold of well-being. This is altogether different

question that conventional theory addresses. The Islamic

theory of consumer would have the following concerns:

1. Does consumer’s allocation of income aim at maximizing

his wellbeing?

2. Is there a threshold of wellbeing that consumer has to

maintain?

3. Is his consumption pattern consistent with the

sustainable development of society?

The Islamic theory will also be concerned with

1. How to make consumers to contribute towards their

development?

2. How to make the society develop over time?

Islamic Elements of Rushd (Rationality)

It has been emphasized earlier that Rationality is influenced

by institutional elements around the consumer. The

institutional elements that Islam provides the human beings

for their behaviour on the globe specify a set of ethics. This

set of ethics includes specifically the following:

1. Righteousness:

This is basic and principal norm for human behaviour

and for all human activities, including economic

activities, as mentioned in the Quran.

“Those who believe in the Quran and those who follow

Jewish (Scriptures) and the Christians and Sabians, any

who believe in Allah and the Last Day and work

righteousness shall have their reward with the Lord. On

them shall be no fear, nor shall they grieve (2:62)”.

“Say: Not equal are things that are bad and things that

are good even though the abundance of bad may dazzle

thee. So fear Allah, so that you understand, so that you

may prosper (5:103)”.

There are many verses to this effect. These verses

determine the dimensions of Rushd (right minded

judgement) for a Muslim that would force him/her to think

of right and wrong; and good and bad before needs are

fulfilled. Only those needs are fulfilled which are

right and which are good.

2. Attitude towards Borrowing/Lending

Borrowing is discouraged and lending is encouraged only

as Sadaqah (a good act with eyes on the reward in

hereafter. Borrowing is not a desirable behaviour in the

ethical system of Islam. On the other hand lending is

cherished, but only as Sadaqah, in the spirit of helping

a fellow being to meet his needs. (Lending is prohibited

to be a commercial or economically beneficial

proposition). The underlying spirit is that the members

of society do not exploit each other on account of

economic crises arising in the lives of fellow beings11.

It is argued that encouragement of lending as an act

of charity and in the spirit of helping fellow being in

their economic crises situation is expected to reduce

class conflicts (between haves and have-nots), reduce

feelings of social injustice and contribute to creating

an environment of peace and harmony in the society.

Lending, therefore, is a non-economic institution

effecting human behaviour. It is part of ethical system.

11 But limitations on borrowing do not mean that it would put limitations on the economic and business growth. The ethical norm to shy away from borrowing does not preclude seeking financial accommodation for production and trade purposes. There are several ways known and practiced in Muslim as well as non-Muslim world where businesses can accommodate each other financially without resorting to borrowing-lending phenomenon.

This generates a mentality different from that of

satisfying unlimited wants. It generates a mentality of

fulfilling genuine needs as much as allowed by one’s

resources, without resorting to borrowings, as much as

possible. The mentality that leads to what is called

“consumerism” and is triggered by the easy access to

credit is discouraged. This mentality becomes a part of

the ethical System of Islam and hence a part of right-

minded rationality (Rushd) for a Muslim in his/her

economic behaviour.

Fulfilling the needs in order of their priority

requires value judgment and therefore ethical part of

Islamic system of life. Maximizing the utility also

involves value judgement but Neoclassical Economics

treats it as value neutral concept. The ethical element

discouraging requires that the things lower on the

priority need to be postponed rather than fulfilled by

borrowing even if the financial cost of borrowing is less

than the benefit of fulfilling the need, unless there is

clear capacity to pay back.

3) Ihsaan

This is a norm for all human activities and human

dealings and it means doing the things in their best

style. The human activities and dealings are required to

be ameliorative and beautifying the activity so that the

one, doing the activity not only achieves the objective

but feels good too for doing so and makes all others

involved in the activity feel good.

4) Avoiding Harm (Damage/Loss)

It is a general rule for human conduct not to

inflict harm upon oneself nor cause harm to any one else.

For consumption, it has direct implication with respect

to components of consumption basket and method of

consuming and meeting needs. Thus consumer goods that

can cause harm to one’s health or consumption habits that

can pollute environment or create harmful effects for

others are required to be avoided.

5) Specific Values and Injunctions forConsumption and Consumer Behavior

The above are some of the moral values for human

behavior which have implications for consumption as well.

Besides these values, there are a set of values and

injunctions that directly relate to consumption of

consumer behavior. These values and injunctions can

easily be categorized into

a) values leading to judicious allocation of resources for

consumption

b) values relating to quality and style of consumption.

The values leading to judicious use of resources for

consumption are the following:

6) Values Leading to Judicious Use of Resources

Avoiding Waste ( Israf ) “…. But waste not for Allah loves not

the wasters”. (6:141). And “O children of Adam! Wear your

beautiful apparel at every time and place of prayer: eat

and drink: and waste not , For Allah does not love

wasters”. (7:31)

Israf literally means waste of resources. Islam

strongly requires Muslims not to waste resources. Though

this is an Islamic norm yet all civilized societies

would, in principle, abhor the attitude to waste12.

Working with the theory that consumer satisfies his

desires rather than meet needs, will hardly leave much to

be categorized as waste13. The only waste, in such a

framework, will be something that consumer will throw or

destroy resources for no reason. Such a behavior, in any

case, will not be a subject of economics, because this

will be considered an irrational behaviour.

We can identify waste when we see consumption of a

good that is not really needed by the consumer. Also, any

consumption of a low priority at the cost of not 12 It has been discussed earlier, conventional theory discusses role of government to reduce market failures in order to avoid waste of resources.13 Since consumer is assumed to always equate marginal utility to the price, there is no waste as long as he decides to consume a good.

fulfilling a high priority need would also be a waste of

resources and required to be avoided. Furthermore, there

will be a waste if a consumer fulfils one’s needs by

consuming goods more than what is normally required to

meet that need in a community. This will particularly be

applicable to commodities that are in the nature of

essential and basic needs. One narration from Prophet

(peace be upon him) advises to conserve water, while

washing for prayers even if one is washing at the bank of

a river. This tradition from the Prophet emphasizes the

significance to conserve resources. Mere abundance at a

particular time and place should not be an excuse for not

using it judiciously.

Avoiding Extravagance ( Tabzeer ) “………. But waste not (your

wealth) in the manner of a spend thrift. Verily, the

spend thrifts are brothers of devils and Devil is ever

ungrateful to his Lord” (17:28)

This is a concept similar to Israf but refers to waste

caused by consumers spending on goods without

consideration of needs and their priority. Tabzeer will

more commonly refer to the affluent class of the

population, who may not pay attention to what is needed

and what is not needed while spending their money. Many

of their purchases may end up unused as they never needed

them and therefore may not end up consuming them.

Compared to this Israf can appear in the behavior,

affluent or not. We may distinguish Tabzeer as waste in

the spending of resources in acquiring the goods for

consumption, while Israf as a waste in the actual

consumption of a commodity. Both these concepts, however,

relate to the concept of need.

While some consumers may have tendency to waste

resources by indulging in Israf and Tabzeer, there are

others, who do not like to spend resources and like to

hold back the resources as much as possible. This too is

not desirable in Islamic framework.

Maintain Moderation “Those who, when they spend, are not

extravagant and not niggardly but hold a just (balance)

between those extremes (25:67). “And make not thy hand

tied (like a niggard) to thy neck, nor stretch it forth

to its utmost reach, so that thy become blameworthy and

destitute” (17:29). These commandments too can be

understood better under the concept of need based

consumer behaviour. This can occur with one instinctive

desire and that is to hold back resources rather than

spending them. And Islam discourages this tendency. The

Quran has referred to this behaviour as below:

“Say (to the disbelievers): If you possessed the

treasures of my Lord, then you would surely hold them

back (from spending) for fear of being exhausted. And man

is ever miserly14”. This instinctive desire is not

recognized in conventional theory but consumers do often

satisfy this desire.

7) Spending for Others: ( Infaq , Sadaqaat and Qardh Hasan )

Infaq means to spend to meet the needs of the others

not as a favour to others but for the sake of reward from

Allah. “The parable of those who spend their substance in

the way of Allah is that of a grain of corn; it grows

seven ears, and each grain has a hundred ears; and Allah

gives many fold increases to whom he wills and Allah is

all-sufficient (to meet his creatures’ needs) and is all-

knowing” (2:261)

Sadaqaat includes, besides Infaq, any act to help

reduce hardships for fellow beings. Meeting their

consumption needs is a very desirable form of Sadaqaat.

“If you disclose your Sadaqaat, it is good; but if you

conceal them and give them to the poor, that is better

for you. Allah is well-acquainted with what you do.”

(2:271)

Qardh Hassan means a good loan. It refers to meeting

the needs of fellow being for the sake of Allah. It

becomes a loan to Allah and He rewards it many folds.

“Who is he that will lend to Allah a goodly loan so that

He may multiply it to him many times. And it is Allah

14 The Arabic term that has been used here to describe such a behavioris “Qatoora”. This can only be explained. It means the mentality thatmakes a man keen to hold back resources, being scared that his resources may exhaust sooner than later.

that decreases and increases, and unto him you shall

return.” (2:245) and “Verily those who give Sadaqah, men

and women, and lend Allah a goodly loan, it shall be

increased manifold and theirs shall be an honourable good

reward” (57:18).

Apparently, this all may seem to be what is commonly

known as charity. But, in fact, it is altogether a

different concept. Let us lump together the three terms,

infaq, sadaqaat, and qardh hasan in one term “Sadaqah”.

Sadaqah is an Arabic word. This can loosely be translated

into an act of benefiting some one without seeking a

reward in return from the beneficiary. Sadaqaat is plural

of sadaqah.

Some of the major differences between Sadaqah and

secular concept charity are as below:

1) There is an obligatory part in Sadaqah but not in

charity. Every Muslim is obliged to give a certain

percentage of his defined resources as Sadaqah.

2) Sadaqah is a regular economic feature of consumer

behaviour while charity is not recognized as a

regular economic feature of human behaviour.

3) Charity has no economic value and hence cannot be a

part of economic behaviour as no benefit is sought

out of it. Sadaqah has an economic value and is done

for one’s own benefit, irrespective of whether

someone else benefits from it or not. The explicit

reward for this is promised in this world as well as

World Hereafter.

4) Motivation for charity has to come from inside but

for Sadaqah it is imposed from outside (by the

religion). There is penalty for those who accumulate

wealth but do not make Sadaqah out of it and there

is a promise of multiplied reward for those who do

it. (See the verses quoted above).

5) Sadaqah is a wider concept than charity. Sowing a

tree on ones own land is a Sadaqah even though it

benefits the one who sowed the tree. Taking steps

for reducing pollution of water or land or air or

environment is a Sadaqah even if it is to improve

the surroundings of his residence

6) Charity, in secular context, is recognised as part

of ethical system in various societies (even in

Christian culture15) but Islamic system makes it a

part of the economic system embedded in the beliefs

system.

The economic significance of Infaq or Sadaqah is

obvious. While injunctions for moderation could lead to

take away resources of the economy from circulation, the

infaq will more than compensate it.

It is this dimension that directly brings the

concept of sustainable development in the behaviour of

15 Acquinas)(

the consumer, as this dimension would require making

spending for following purposes:

1) To meet the needs of have-nots and to help them

raise their economic status in the society

2) To spend (time or money) to generate something

that will benefit future generations. This is

called Sadaqah Jarriyah. It is an Islamic belief that

when a person dies all his connections with this

world are severed except that three things

continue to reach him. One, the knowledge that he

spread and is being beneficially used, the asset

or resources that he built and which continue to

benefit people after his death, like sowing trees,

or developing land, or improving environment and

the pious off-spring who pray for their parents.

3) To save for off springs to make them a generation

as good, if not better, than the present

generation (particularly in terms of upholding the

beliefs and values of Islam which include the

consumption related values)

Infaq, sadaqaat or qard hasan, is a highly commendable

act in Islam and have been repeatedly ordained in the

Quran. This behaviour cannot be understood when working

with the concept of maximization of satisfaction of one’s

own desires and wants. Why a man should do that. If it

is a matter of satisfying wants that contributes to

welfare then my wants are as important to my welfare as

any one else’s wants are to his welfare. But if I know

that my neighbour’s essential needs are not being

fulfilled while I am spending on fulfilling my non-

essential needs then obviously, the spirit of sadaqah will

be invoked. This raises my welfare as well as of my

neighbour’s welfare. The social welfare increases.

Since spending to meet the needs of others increases

the well being of myself as well as of the others

simultaneously, there will always be room to improve

social welfare. There will always be possibilities to

making oneself and some one else better off

simultaneously.

8) Prohibition of Interest

Interest is prohibited in Islam. And in this

connection it has been mentioned in the Quran “Allah

destroys Riba (which includes interest on loans) and gives

increase to Sadaqaat” (2: 276). Widespread conviction to

make sadaqaat eliminates the need from the less privileged

members of the society to borrow. The Riba has to fade out

if sadaqaat increase.

The above mentioned consumption values i.e. Israf,

Tabzeer and Infaq aim at ensuring not only judicious uses

of resources for consumption but also make the

consumption conducive for circulating the wealth in the

economy and conducive for growth and development of the

economy.

9) Values Relating to Quality and Style of Consumption

The second set of values relate to the quality and

style of consumption. There is strong emphasis on

careful selection of the composition of basket so that it

contains “good” goods, so as to not corrupt earth or

pollute the environment, not to create ill-feelings among

the fellow beings or creating unhealthy competition in

consumption or creating corruption, distortions and

disturbances in the economy. These values are in fact

the specific manifestation for consumer behaviour of the

norm “Ihsan” described earlier for the general behaviour

of man

“Good” ( Tayyibaat ) Goods The consumption basket of a

consumer is required to include only such goods which not

only meet his defined needs in prioritized manner but are

also the goods which are “good” and cherished by the

society. The consumer is required to be careful in

selecting the goods that are not dirty or harmful to

oneself or to the society or are not prohibited by the

religious injunctions.

“So eat of the sustenance which Allah has provided

for you, lawful and good16” (16:114). 16 The Quranic term is Tayyibaat. The exact translation of Tayyibaat may not be conveyed by the word “good”. The phrase “good and pure” maybe more closer but still the pure may give connotation that is not

And “They ask thee what is lawful to them. Say:

Lawful unto you are things that are good”. (5:4).

Every society has its own perception what is good to

consume and what is not. All societies, for example,

agree that narcotics are not good things to consume. The

societies get this perception from their own perception

of life, its objectives and the desired social setup.

Islamic teachings provide a very clear and distinct

perception of life, its purpose and how to build-up the

society. This society, thus, will have a clear perception

of what is good to consume and what is not. Perception of

society about consumers’ needs will be an important

determinant of a Muslim consumer’s behavior as it will be

in any other society. The strength of the influence of

society’s perception on needs on consumer behavior may be

different in different societies but it will always be

there. In Islamic society, however, this influence will

be very strong because of elaborate and strong teachings

in Islam on how a consumer should behave.

Itraf This too relates to consumption basket but addressed

to a specific group in the society, the very rich and

affluent. Rich and affluent members of the society are to

be careful in selecting the goods for consumption, not to

needed here. Tayyibaat will generally be understood in the society without explanation. It will not be those, which are specifically prohibited like pork, alcohol etc and will be those which are cherished in the society as good things to eat.

be conspicuous so as to serve as factor in distorting the

needs list of others members of the society and also not

to reflect an attitude “I do not care about laws and

ethics for my consumption, because I have resources and

power to do so”. This is probably what is referred to in

common man’s language as “filthy rich”. An attitude from

the affluent members of society can corrupt the

consumption pattern of the entire society and lead to

corruption of earth and corrupting the environment in the

society.

Avoid Corrupting Earth “……. Commit not evil on earth as

corruption” (11:86) “……. And do good as Allah has been

good to you. And do not seek to cause corruption on

earth. Allah does not love corrupters” (28:77).

“Corruption has appeared on land and sea because of what

the men have earned; that Allah may give them a taste of

some of their deeds; in order that they may turn back

from evil” (30:41).

This norm re-enforces the norms of Tayyibaat and Itraf

mentioned above. All such norms only emphasize quality

of goods in the consumption basket. The goods have to be

“good”, conducive to maintain harmony in the society and

keep the environment clean and pleasant.

The alternative perception on Theory of Consumer

Behaviour discussed in Part I offers more conducive

framework for the development of Islamic Theory of

Consumer Behaviour. Since this alternative perception is

wider in scope and more pragmatic in its application to

different situations, it is more relevant for its

application to Islamic consumer behaviour as well. The

alternative perception on the analytical framework has

been discussed somewhere else. Under the alternate

perception following factors determine a consumer’s

choice:

i) Well-Being

ii) Needs

iii) Rushd

While the first four actors have been discussed

earlier, the fifth factor needs further

elaboration, as it is key to ensuring

sustainable development. We need to discuss two

more elements in this analysis; Institutional

Framework ensuring Rushd in consumer behaviour

and the budget constraint.

For the purpose of this conference, these two

elements have not been discussed. They are part

of another paper. But following brief

discussion on Institutional arrangement for

ensuring Rushd in consumer behaviour

Institutional Framework to ensure

Rushd in Consumer Behaviour

At individual level, there is all the possibility of

developing lacunae in application of Rushd. There will

always be instinctive motivation to by-pass what Rushd

requires. This is what the Quran has warned about the

whole mankind.

“Satan threatens you with poverty and bids you to conduct unseemly. Allah promises you His forgiveness and bounties and Allah cares for all and He knows all things”(2:68)

It is assumed that a Muslim aware of Islamic laws

and ethics will resist instinctive temptation to ignore

Rushd in his economic decision-making. But still there

will remain possibility of deviating from the desired

path. The instincts may present the desires camouflaged

as “need”. While any deviations or even substantial

deviations may go unobserved for a short time but they

will soon be noticed and pressures will come either from

inside or from family, friends, neighbours and community

leaders.

Let there arise out of you a band of people invitingto all that is good, Enjoining what is right and forbidding what is wrong: They are the ones to attain felicity. (3:104)

Also society has a role in meeting the needs of the

members of the community if their resources do not enable

them to meet their essential first level needs. Sadaqaat

from those who are obliged to do so provide the sources

to help the society to manage this obligation. When

society is doing, it would have a leverage on its members

not deviate from Rushd based behaviour.

Resource Constraints

A few words are also in order with respect to

Resources at the disposal of consumer to meet his needs

and the prices of goods and services he has to buy from

the market to meet his needs are constraints to his

ability to meet all his needs. While prices and

disposable household income pose a binding constraint,

this constraint is relaxed because of the third dimension

in Islamic society discussed earlier. Sadaqaat being a

strong element of Islamic system, it can be assumed that

consumer’s level 1 needs will in any case be met even if

the consumer has no resources of his own to meet these

needs. Some Islamic scholars argue that it is one of the

functions of state in Islamic society to guarantee

minimum needs for all17.

An implicit constraint in this choice of goods to

meet his needs is the obligation of Sadaqaat. An Islamic

consumer will be constrained by the needs of other

consumers in his neighbourhood. He will not feel

comfortable meeting his low level needs if some consumers

17 Dr. Siddiqi (1994).

in his neighbourhood are finding it difficult even to

meet their survival needs18. Also there is minimum

obligation to give away to the needed and there is

tremendous encouragement to give away beyond the minimum

required.

Maximizing Well-Being

Maximizing of wellbeing is assumed to be the

objective of mankind on earth. And this is what Islam

aims at for the believers. A believer therefore will

allocate his time and money for solely purpose for this.

This means that consumer will identify his needs in the

light of his understanding of what Islam expects from

him, prioritize them and fulfil them while observing all

the Islamic norms and rules of consumption. The consumer

while doing so will be able to allocate resources that

will maximize his wellbeing.

The consumer needs to make three types of choices in

the process of seeking his maximum wellbeing:

1. Allocation of his time to various needs, which include

the need to earn income and accumulate wealth as a means

for maximizing wellbeing.

2. To allocate income between Sadaqah (to meet the needs of

others) and his own needs.

18 He is not a mumin who eats to his fill, while his neighbour is hungry beside him. (Hadith)

3. To allocate the income earmarked to meet one’s own needs

between present consumption and future consumption.

4. Choice of consumer goods and services for present

consumption.

Allocation of time

The central issue, with respect to allocation of

time, is how this choice would differ if the consumer

were not an Islamic consumer. A non-Islamic consumer may

also have needs that cannot be met by spending money and

these needs may rank quite high in the priority. The

difference will arise from the fact that how much the

needs that cannot be met by spending money fall into the

category of Sadaqaat. For an Islamic consumer, the

proportion of Sadaqaat in such needs may be much higher

than for a non-Islamic consumer just because of the

religious stress and rewards for Sadaqaat. Thus a non-

Islamic consumer may spend considerable time in “Leisure”

(e.g. in more than needed recreation activities), which

is non-productive from society point of view, and thus in

Islamic framework would be considered undesirable. Such

leisure is waste of time, which is not allowed. An

Islamic consumer, who is not working full time or

overtime will be spending time in activities contributing

either to his own development or to the development of

the society or developing assets (like plantation,

teaching etc.) that will be conducive to the sustainable

development of the society.

Allocation for Sadaqaat

Besides, that one may devote part of his time for

Sadaqaat activities, an Islamic consumer spends for

Sadaqaat out of the income he makes or wealth he

accumulates by devoting his time to work. Part of this

spending is obligatory and is linked to the volume of

income he makes or volume of wealth he has accumulated.

And there is encouragement to do more. Whatever is

obligatory to be spent from Sadaqaat out of accumulated

wealth is effectively paid out of the income. Sadaqaat

thus will therefore always be a proportion of income.

How this proportion is determined? The Quran has

specifically addressed the question how much should go to

Sadaqaat and the guidance is “Al-Afu”19 which can be

interpreted “as whatever can be spared from one’s needs”.

This obviously implies that one’s own needs have priority

over meeting other needs, except for the obligatory

Sadaqaat. Beyond the obligatory Sadaqaat, all other

Sadaqaat are voluntary. But the encouragement and rewards

for Sadaqaat is so great that one can always be tempted to 19 Verse 2:219: They ask thee concerning wine and gambling. say: “In them is great sin,

And some profit, for men; But the sin is greater than theprofit.”

They ask thee how much they are to spend;Say: “What is beyond your needs.”Thus doth Allah make clear to you his signs: in order

that ye may consider-

spend as much as possible. There are numerous verses in

the Quran and several traditions from the Profit to this

effect.

It is not righteousness that ye turn your faces towards East or West;

But it is righteousness to believe in Allah and the Last Day

And the Angels, and the Book, and the Messengers; And give away of your substance, out of love for

Him,For your kin, for orphans, for the needy, for the

wayfarer, for those who ask,And for the ransom of slaves; and are steadfast in

prayer, and give Zakah,And fulfil the contracts, which ye have made;And are firm and patient, in pain (or suffering) and

adversity,And throughout all periods of panic.Such are the people of truth, the God-fearing.

(2:177)

With so much emphasis on Sadaqaat, while still making

them secondary to own needs, suggests that the decision

how much to spend on Sadaqaat will be decided exogenously.

Sadaqaat will not be prioritized in the list of the

consumer needs for allocation of his resources. He will

make a priori decision, keeping in view his resources and

his needs, whether he is in a position to make Sadaqaat

and if yes how much. He will decide a priori certain

proportion of income or wealth to be devoted regularly to

Sadaqaat. It can, however, be assumed that accumulated

wealth will, by and large, be invested to generate at

least minimum obligation of Sadaqaat to be paid on the

wealth. We can, therefore, make Sadaqaat only a function

of income. Sadaqaat of course may generate after one’s own

at least critical needs have been met. It will require

some organization and institutional set up in the

community that would take the responsibility of pooling

the Sadaqaat of individuals and utilizing them for

alleviating poverty.

Umar Farooq, the second Caliphate was quick to

realize this need and established the institution at

state level called Baitul Maal. It was witnessed within

the period of Umar Farooq, that people had obligatory

Sadaqaat to make but there was no one to receive them.

The institutions to organize and manage Sadaqaat for

the development of poor (besides meeting their basic

needs) does not have to be at state level. NGOs have

been found throughout the Islamic history doing this job

in varying degrees in Muslim societies.

Institutionalization of Sadaqaat can be done at individual

level as well. The institution of Waqf is manifestation

of this effort. Several innovations are possible in

institutionalizing Sadaqaat for the purpose of organizing

and managing Sadaqaat and initiatives can be taken at

several levels; at individual level, at group of

individuals level, at NGO level, and at state level.

Emergence of such initiatives and organization is

motivated by teachings of Islam and the implied Islamic

system of life.

Allocation for future needs

This is a recognized element for Islamic consumer

behaviour20. This involves a little more detailed

discussion, which is avoided here. The consumer will

appropriately rank, in his list of needs, the allocation

for future needs. The fact that human beings, in general,

is myopic and may not clearly perceive his future needs

and hence their priorities versus current needs will

always call for an active role of community21.

There are several other discussion points, which are

bypassed for the time being. The point is that if Society

itself is weak on such institutions then it will not be

playing its role in correcting the consumer behaviour, in

correcting their priorities, and helping them in their

socio-economic development. The consumer behaviour, thus

will be sustaining poverty rather than development.

20 There is Hadith that tells us that it is better to leave your heirswealthy rather than leaving them poor, begging others ……………. (Sahaih al Bukhari).

21 In several countries, Government makes a compulsory deduction from the salaries of their employees to develop a pension fund for the employees. This is a recognition of the myopic behaviour of consumerbehaviour in allocating income for future needs. Government recognises that the employee will not make allocation for their level1 of their future needs and may spend on level 2 and level 3 of present needs. A compulsory deduction, therefore, is made to avoid misallocation of resources by individuals.

Built-in forces are mobilized by the commitment of

practising Muslims. This commitment generates following

forces:

1) Building up internal pressures that they are accountable

of all their deeds to the All-knowing and Omni Present

Almighty.

2) Developing an attitude to help others in need as a part

of normal consumer behaviour.

3) Developing institutions to generate external pressures on

individuals to remain on the optimal path of consumption

and to ensure that essential needs of have-nots are met.

Let us see what happens if these features cease to

exist. It has been discussed earlier that if an

individual consumer deviates from Islamic behaviour then

other things remaining same, this deviation will be short

lived and built-in-forces and society will bring him back

to the Islamic behaviour. This will, however, not be same

if the deviating consumers become dominant in the

community.

Implication of Deviating from Islamic Path

Implications of deviating from optimal path

Main and rather obvious implications are highlighted

below:

1. Some or many essential needs of consumers may go un-met,

because consumer prefers some other wants to such needs.

This may happen not only in lower income classes, but may

happen in affluent classes as well, as they may not

recognize some of their needs. Need for religious

education for example may get ignored. Lower income

classes may over spend low priority needs such as

entertainment at the cost of some other essential food or

education or health needs.

2. Some non-needs may enter into the consumption basket,

e.g. smoking, drugs, unhealthy and excessive time and

money consuming entertainment like gambling etc. This

implies not only waste of resources but also destroying

wellbeing.

3. Consuming over spending on low priority as well as high

priority needs may waste resources. This will be

violation of a religious duty as well which requires not

to do Israf.

4. Commodity mix and the style of their use in the basket

may not be environment friendly. The consumer may prefer

various wants not necessarily the needs or may opt for

such method of needs which violate the norm of good style

or pollute environment and make things ugly for the

community ignoring Islamic teachings in this respect and

may leave adverse impact for living conditions for future

generations.

5. Economic growth of individual and community may be put at

stake. Pursuit of some wants may lead the consumer to

ignore some needs meant for his own economic uplift or

economic uplift of the community. The rate of time

preference when consumer’s only objective is satisfaction

of wants may be higher compared to when the consumer’s

objective in fulfilment of needs including the future

needs. Pressure of wants can easily lead to ignoring

some of the future needs and hence sacrificing self-

development as well as social development.

Two specific behavioural peculiarities may occur. One,

the consumer may over spend on present needs and hence

wasting the resources that could be used for future

needs. The savings and capital accumulation thus will be

sub optimal. Second, the consumer may spend miserly on

his present needs, spend less than what is needed to meet

his present needs. This of course will save resources

from present consumption. But this is being done in

miserly behaviour and not as a rational choice between

present needs and future needs, and hence may not

necessarily result in using the resources for meeting

future needs. The resources may be used or hoarded in a

way not conducive to optimize on meeting future needs.22

6. Class conflict may be created. An affluent class may

indulge into Israf and Itraf which may create ill feelings

among less privileged classes and hence become a source

of class conflict. Peace and harmony in the community

may be adversely affected.

7. Human and social development may be thwarted seriously as

the needs for such developments like education, health

22 Following verses in Quran identify these two types of behaviour:Verily thy Lord doth provide sustenance in abundance for whom

he pleaseth, and HeStraiten it for He doth know and regard all His servants

(17:30). Also see 25:67

etc. be sacrificed for satisfying some mundane wants.

Lack of commitment on the part of individuals may let the

community also lag behind in developing institutions

needed for such development.

Indicators of a Community Being Off-Track in Consumer Behaviour

How to determine that most of the consumers in a

community are off track the path of their wellbeing and

that the community is no more seeking the wellbeing and

instead mostly allowing its members to pursue their wants

rather than needs? Several indicators can be defined by

conducting a household income-expenditure survey

carefully designed for this specific purpose of selected

sample of households from the community. The following

indicators can be used to infer whether the society is

off-track.

1. Poverty Incidence and income inequality

2. Environmental Conditions

3. Comparison of expenditure on basic food items by income

groups or comparison of income elasticity of demand for

by income groups.

4. Proportion of expenditure on goods harmful to health or

to environment and/or presence of goods prohibited in

Islamic law in the consumption basket of consumer

5. Number of children out of school or without home study

Various indicators can be derived through the normal

household income-expenditure surveys being currently

conducted in different Muslim countries. Special

surveys, however, can be conducted with carefully

designed questions to determine the knowledge and

commitment to Islamic rules and norms for consumer

behaviour.

How to Bring Back the Community to Islamic Track with respect to Consumer Behaviour

The society would degenerate to non-Islamic norms

when the forces at individual and community level fail to

re-enforce each other in maintaining the adherence to

Islamic norms. The forces of change, therefore, will

have to generate at state level.

The state will need to work in two directions:

a) Understanding the nature and extent of deviation from the

Islamic behaviour and factors underlying the deviant

behaviour.

b) Identifying and implementing appropriate policy measures.

A carefully and scientifically designed household

survey can help a lot in understanding the behaviour.

Conclusion

Rationalization of consumption and consumer

behaviour for the sake of development and growth and more

so far the sake of what is called sustainable development

is a serious concern of all developing countries,

including all Muslim countries. But Muslim countries

have the advantage that they have very specific guidance

in their religion about rationalization of consumption

and consumer behaviour that can lead to achieve such

goals faster. Since this is divine guidance and integral

part of their religious beliefs, the Muslim countries can

achieve better results in terms of growth and sustainable

development if rationalization of consumption on the

lines of Islamic teachings is a specific element of their

development strategy.

This paper elaborates on this point in the framework

of a theory of consumer behaviour, which is different

from the conventional theory but more relevant for

developing countries, in general, and Muslim countries,

in particular. In the framework of this theory it has

been shown that consumer behaviour rationalized according

to Islamic teachings leads to a fast track towards

alleviating poverty, accelerating sustainable

development, reducing class conflicts and promoting peace

and harmony in the society. As society commits itself to

sustainable development of its members, as well as of the

society as a whole, comprehensive bench marks and

guidelines will need to be developed to give the society

enough basis to devise strategies and plans for consumers

to gear their behaviour towards attaining maximum well-

being and sustainable development.

This paper is also an attempt to substantiate the

claim rigorously presented in international conferences,

seminars, and academic foras in late Seventies that

Islamic economics is a potentially scientific discipline

quite different from the discipline of Economics (Zarqa

1976). This paper negates the claim of some economists

(Muslim and others) that we do not need a distinct

theory. (Conventional) Economic theory is general enough

to accommodate variations in values and rules of

behaviour delineating economic systems (Al-Jarhi)).

Those who take this view, however, ignore the fact that

Islamic teachings refers to a very wide set of concepts

and statements about economic values and behaviour of

economic agents that the philosophy and methods of

conventional Economics just cannot capture within its

theoretical framework. For example, the statement in the

Quran [Say: “If ye had control of the Treasures of the

Mercy of my Lord, Behold, ye would keep them back, for

fear of spending them: for man is (ever) niggardly!

17:100] highlights an aspect of human nature which is

obviously outside the assumptions and methodology of

conventional Economics23. Islamic teachings on

consumption and consumer behavior refer to several

concepts and aspects of human behavior which cannot be

understood and explained within the theoretical framework

and methodology of conventional economics. We need a

23 Conventional Economics fails even to explain why people hold money despite substantial opportunity costs of doing so.

different theory. This is the central focus of this

paper. The paper develops a theory based on concept of

“needs” rather than on the concept of “wants” to

appropriately understand consumer behaviour in all its

aspects. Using this theory, the paper not only is able

to explain concepts like waste in consumption,

conspicuous consumption, irrationalities in consumer

behaviour etc. but also shows that the norms of consumer

behaviour embedded in Islamic teachings aim at

alleviating poverty and developing man and society on a

sustainable track. The paper also discusses how

deviation from these norms can occur and how and who can

bring back the consumers on the normal track.

Consumption is not the only area of Islamic system

of life that is required to be studied by economists in

an appropriate theoretical framework (not necessarily of

conventional Economics) for the sake of discovering

faster tracks towards development and growth of

societies, enhancing well-being of mankind and achieving

more peaceful and just economic order. The vast Fiqh

literature on exchange, for example, provides another

virgin field to be looked out by economists in such

perspective. Economists will find a lot to theorize

about market operations, market structures, risk

management in markets for creating a better environment

for enhancing production and exchange without creating

class conflicts and tensions in the society.

An unwritten moral of the paper is that if “Islamic

economists”, during the last thirty years, had paid more

attention to such aspects of Islamic economic teachings

as consumer behaviour, exchange, property rights et.),

instead of theorizing the complex subject of Islamic

finance and Islamic financial system, they would have

gone a long way to show to the world that Islamic

economics is a unique and distinct discipline promising a

more peaceful and just economic order for the mankind.

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