The document discusses the need for a paradigm shift in Islamic economics and finance from a linear to a circular model. It argues that the current linear resource-based paradigm is unsustainable due to waste and negative externalities. In contrast, a circular paradigm emulates nature's systems of zero waste and recycling. The document outlines the opportunities of shifting to a circular, compassionate market economy based on natural laws and balance. It discusses how Islamic finance can align with the UN Sustainable Development Goals to help transform the global financial architecture.

1. Circular Islamic Finance
and Economy Paradigm
COLLEGE OF ISLAMIC
STUDIES
Tariqullah Khan
Professor of Islamic Finance
tkhan@hbku.edu.qa
This lecture was delivered at Istanbul Zaim University (IZU) as a Keynote address and at Istanbul
University. Hospitality of IZU is acknowledged with gratitude. Views expressed are personal.

2. In this Lecture ---
We pose the following questions
Is there a paradigm crisis in Islamic Economics and
Finance? What is the right paradigm shift?
We argue that
Yes, there is a paradigm crisis and the right
paradigm is Circular, not Linear,
and we discuss the opportunities of a
paradigm shift from Linear to Circular

3. First, a Quick recall About Turkish Innovations
1638, (390 years ago)
Hezarfen Ahmet Çelebi flew from Galata Tower and landed in Üsküdar
1859 - 1869
Ismail Paşa envisioned and implemented the Suez Canal
1983 - 1989
12 July 2019
Turkey Announces Zero Waste Regulation
22 September 2019
Current
system-
Waste-driven
Desired
system -
Zero-waste
Turkey’s Zero Waste Initiative was presented at the United Nations
Turkish government designed & implemented BOT & Revenue Sharing Sukuk

4. Foundations of the Dominant Waste driven
Linear Paradigm
Interest-based Financial Intermediation and Financialization
External Diseconomies, Property Rights and Market Failure
Fiscal and Monetary Policies
Harold Hotelling, (1932) “The Economics of Exhaustible Resources”, Journal of Political Economy, Vol. 39,
No. 2 (Apr., 1931), pp. 137-175 http://www.jstor.org/stable/1822328
If you cut a tree and keep the cash proceeds in a bank and earn interest the society will be better off.
Coase, R.H (1960), The Journal of Law and Economics, Volume 3 October 1960,
https://www.journals.uchicago.edu/doi/pdfplus/10.1086/466560
External diseconomies (waste dumping) can be bargained by involved parties if property rights were perfectly
defined
Pigou, A. C. (1920) The Economics of Welfare, MACMILLAN http://files.libertyfund.org/files/1410/0316_Bk.pdf
To internalize the marginal social cost “incidental uncharged disservices”, a progressive tax on the offending
party will be an effective solution – progressive Carbon Tax now universally most popular.

5. World GDP and stock of financial
assets 2015 trillion US dollars
Global Economy 2015
WGDP Financial Assets Derivatives
World
GDP 77
trillion
US$
World FAs
300
trillion
US$
World Ds
500
trillion
US$
WGDP
25% of
WFAs
WGDP
15% of
WDs
WGDP
10% of
WFAs &
WDs
Globally, $ 1
of real asset
is against $10
financial
claims
Hottellingan Policy Pitfall - Paradigm of Financialization
Global Finance and Economy
“According to Hotelling’s model
(of economics of natural resources
1931), even when market prices
fully reflect the value of a species,
it will be efficient to exploit a
species to extinction or totally
degrade an ecosystem if the value
of the species or the ecosystem
over time is not increasing at least
as fast as money deposited in an
interest-bearing bank account.”
Costanza, R., Cumberland, J.H., Daly, H., Goodland,
R., Norgaard, R.B., Kubiszewski, I. and Franco, C.
(1997a). An introduction to ecological economics.
CRC Press, Florida: USA.

6. Coasean & Pigouan Policy Pitfall -
Paradigm of Negative Externalities
Extract
Resources
Produce Use/Consume Waste
Atmosphere as
smoke of waste burns
Landfills
Rivers
Seas
 Pollution
 Climate change
and disasters
 Destruction of
Eco System and
species
 Entrance of toxic
elements in food
chain
 Waste of
economic value
 Sanitation, water
and health issues
 Poverty
 Uncertain future
4 billion people live under $10 a day 1.5 billion under $2.0 a day
Resource-based Linear Paradigm
Estimated 6 trillion dollars are wasted in reusable value of waste
Impact of Waste
is Someone Else’s
Concern

7. Alternative & More
Compassionate
Paradigm

8. 2:11
Corrupting the Earth - The Familiar Dialogue
When they (the
paradigm
people) are
told don’t
spread
corruption on
earth, they say
that indeed we
are the
reformers

9. 2:30
Viceregency of Allah
Vicegerents of Allah must establish
Universal Balance (Meezan)

10. ‫م‬ْ‫ل‬‫ا‬ َ‫ع‬َ‫ض‬َ‫و‬َ‫و‬ ‫ا‬َ‫ه‬َ‫ع‬َ‫ف‬َ‫ر‬ َ‫ء‬‫ا‬َ‫م‬َّ‫س‬‫ال‬َ‫و‬َ‫ان‬َ‫يز‬–
55:7
And the heaven He raised
and imposed the balance.
َ‫يز‬‫م‬ْ‫ل‬‫ا‬ ‫ي‬‫ف‬ ‫ا‬ ْ‫و‬َ‫غ‬ْ‫ط‬َ‫ت‬ َّ‫َّل‬َ‫أ‬‫ان‬–
55:8
That you not transgress
within the balance.
Internal equilibrium of creation -
biological, nutritional, functional
etc.,
Life sustaining elements, capacity
and environment of the planet -
air, water, energy, rotational
balance etc.,
Circularity of nature - water cycle,
oxygen and carbon cycle, food
cycle, photosynthesis etc.,
Meezan – The Universal Balance
Demographic equilibrium, families
& future generations

11. A Compassionate Market Economy
Economics Based on the
Natural Laws
Meezan

12. Question: Despite tremendous scientific &
engineering advances why the world’s future
is so uncertain in management of resources?
Answer: Because
Science and
Engineering has
learnt from nature
- Biomimicry
But Economics has gone against nature
Flying; Swimming; Computers, Nano
Technology etc. Here is a list of 14
beautiful scientific discoveries based on
nature
https://www.bloomberg.com/news/photo-
essays/2015-02-23/14-smart-inventions-
inspired-by-nature-biomimicry

13. Economics Nature
Nature Science
Doesn’t
Waste
Based on
Waste
Why Science Serves and Economics Destroys?
Science is in Harmony with Nature
Economics Extracts and Exploits Nature

14. Lessons that Economics Can
Learn from Nature
Nature doesn’t waste
 Water Cycle
 Oxygen Cycle
 Carbon Cycle
 Food Cycle
 (Photosynthesis)
Nature Economics
Need Economics in Harmony
with Nature
Zero Waste Circular Economy

15. https://www.google.com/imgres?imgurl=https://pmm.nasa.gov/education/sites/default/files/article_images/Water-Cycle-
Art2A.png&imgrefurl=https://pmm.nasa.gov/education/water-
cycle&h=1547&w=3023&tbnid=Bu63E8sDNI1PcM:&q=water+cycle&tbnh=102&tbnw=200&usg=AI4_-kRbGy1t58m5sfBdMBl3GMQyEMq9XA&vet=12ahUKEwixt-
_YvpLfAhXFp48KHYdmBDQQ_B0wGHoECAEQBg..i&docid=KlcqrGx4HZ1wHM&itg=1&sa=X&ved=2ahUKEwixt-
_YvpLfAhXFp48KHYdmBDQQ_B0wGHoECAEQBg#h=1547&imgdii=LROIUxFxeBPNIM:&tbnh=102&tbnw=200&vet=12ahUKEwixt-
_YvpLfAhXFp48KHYdmBDQQ_B0wGHoECAEQBg..i&w=3023
Water Cycle
Google Image credit
Oxygen Cycle
https://www.google.com/search?q=photosynthesis+cycle&safe=active&rlz=1C1GCEU_enQA821QA821
&source=lnms&tbm=isch&sa=X&ved=0ahUKEwj44vXVwpLfAhUHSxUIHR45CeoQ_AUIDigB&biw=1920&
bih=969#imgrc=Q9dyWHTC9dqxlM:
Google Image credit
Circularity of Nature

16. Marine Food CycleGoogle Image credithttps://www.google.com/search?safe=active&rlz=1C1GCEU_enQA821QA821&biw=1920&bih=969&tbm=isc
h&sa=1&ei=3ugMXLM1k8y_BInAusgN&q=food+chain+cycle+diagram&oq=food+chain+cycle&gs_l=img.1.1.0l
4j0i7i30j0i5i30j0i8i30l3.90254.91867..96185...0.0..0.394.2328.3-6......1....1..gws-wiz-
img.......0i7i5i30j0i8i7i30.6HtfTM2FSAs#imgrc=VWeLVnevDKikNM:
Carbon Cycle
https://biology-igcse.weebly.com/carbon--water-cycles.html
Google Image credit
Circularity of Nature

17. Extract
Design &
Produce
Use &
Re-use
Biodegradable
Ideally zero
/minimum
waste
Internalize Waste in the Business Model

18. Cleaner
production
processes
with zero-
waste
After sale
service and
repair
End of life
re-
collection
Reuse and
recycle
Rely on
green
energy
Design of
products -
Long life,
non-toxic,
C2C
Principles of Circular Economy

19. Eliminate negative
environmental
impact
Eliminate Waste Reduce Resource
Dependency
Reduce Cost
Advantages

20. 1.Behavioral rationalization
of consumption to
eliminate wastage of food,
water, energy, clothing,
wealth etc.,
1.Enhancing design, repair
and maintenance to
eliminate wastage of life
cycle;
1.Promoting sharing and
Uberization to eliminate
wastage of useful capacity
of assets;
1.Cradle to Cradle to
eliminate wastage of
material value of waste
1.Promote usage of solar
and renewable energy to
eliminate wastage of
potential resource
1.Implement recycling to
eliminate wastage of
embedded values of
waste;
1.Incentivize eco-efficiency
and eco-sufficiency to
avoid wastage of energy
utilization opportunities
1.Chemically and biological
treat waste for remerging
with environment to avoid
wastage of beneficial
components and avoid
smoke of burning
Waste Reduction Opportunities and Interlinked Steps

21. Comprehensive
Human
Development
Goals
Enhancing
Intellect
Protection
of Future
Generatio
ns
Preserve
Self
Respect
Enhance
Wealth
Preserve
Religious
Values
Multidimensional Development Perspectives
QNV2030
People
CultureEconomy
Environment
Local Aspirations National Priorities Global Goals

22. Maqasid & SDGs are a Paradigm Shift
The
Ecological
Environment
is not an
exhaustible
Resource
The
Ecological
Environment
is a precious
Resource
From: Linear Economy Paradigm To: Circular Economy Paradigm

23. Conventional
(Linear)
Economy
Paradigm
Halal
(Islamic)
Economy
Paradigm
Ecological
(Circular)
Economy
Paradigm
In Competing Global Economic Paradigms
Current Placement of Halal Economy

24. Conventional
(Linear)
Economy
Paradigm
Halal
(Islamic)
Economy
Paradigm
Ecological
(Circular)
Economy
Paradigm
In Competing Global Economic Paradigms
Desirable Placement of Halal Economy

25. Conventional
(Linear)
Economy
Paradigm
Ecological
(Circular)
Economy
Paradigm
BIS system driven global
financial architecture –
Basel/IFSB, IFRS/AAOIFI,
IMF-WB Ss & Cs
UN & EC driven global
financial architecture
– SDGs, PRIs, GCPs,
GRI
SDGs Shift Global Financial Architecture
Wealth Ecology

26. Conventional
(linear) economy
paradigm with
traditional
architectural
principles and
institutions
Ecological (circular)
economy paradigm
+SDGs, GCPs, PRIs,
ESG concerns, GRI --
--
The emerging new
international
financial
architecture with
important role of
UN institutions
Transformative Global Financial
Architecture
Increasing role of United Nations &
Ecological, Social and Governance Concerns

27. UN
SDGs/
ESG
concern
s
G20 policy
reforms
International
financial
architecture
International Islamic
financial architecture
and standard setting
National legislative and
judicial systems recognizing
Islamic finance specificities
National legal, regulatory and
supervisory authorities, policy
advisory entities and Sharia bodies
International apex Fiqh academies, and
Sharia boards (whose research-driven
views/guidance notes are important)
Educational, informational, advisory,
structuring and rating services (cross-cutting
services) needed to implement genuine Islamic
financial services
Micro-Sharia governance: compliance at the level of
institutions, products, services, markets and users
(ongoing financial engineering and product
development work)
Qatar National Vision (QNV) & other derived and adapted best
practice standards for Islamic finance & economy (slowly
changeable perameters but with significant conssensus);
Maqasid Al Shariah, SDGs, ESG concerns, PRIs, GCPs etc
Recieved and given principles and architectural foundations of
Islamic finance (unchageable parameters)
Sharia Prohibitions Sharia Permissions
IMF-WB Standards & Codes UN SDGs, PRIs, GCPs
Sharia product development Sharia compliance & audit
Cross-cutting Sharia compliant services Compliance & audit
Independent Sharia academies Regulatory Sharia compliance
National regulatory authorities National supervisory authorities
National legislative system National judicial system
Standards: Basel III, IFRS, Securities
Institutions: IFSB, AAOIFI, OIC-FA
Principles of Responsible Investments (PRIs), Global Compact
Principles (GCPs)
Standards: Prudential, Financial Reporting, Sharia governance,
SRI
Institutions: BIS, BCBS, FSB, IOSCO, IMF, WB
Sustainable Development Goals (SDGs), Global Reporting
Initiative (GRI)
Paris (Climate) Agreement (PA) , EC, Canada & Others US, UK & other skeptics of PA
Islamic finance in the transformative global financial architecture

28. Extractive
paradigm
Compassionate
paradigm
Maqasid Al Shariah and the Compassionate Paradigm

29. Linear business
paradigm
Circular business
paradigm
Shifting the Islamic Finance Business
Paradigm

30. Global Level
Macro Level
Intermediate
Level
Micro
Level
Users of
services
 International institutions &
standard
 Legal, regulatory and tax
framework and policies
 Knowledge, educational,
capacity building,
information and advisory
services and providers
 Financial services and the
institutions and markets
providing them
 Uses and users
Sharia Governance: Direction of Reform
Maqasid
guided
Holistic
Perspective
at all levels

31. Establishing
Halal business
paradigm in
Islamic financial
services
Halal business paradigm + ethical
screening + genuineness of contract
designs + internalizing the
institutions of compassion (Zakah,
Awqaf, charities, interest-free loans,
forbearance, + concerns of ecology
and future generations etc.,) +
encompassing Maqasid Al-Sharia +
SDGs, PRIs and GCPs in financial
contracting and investment decision
and reporting
Reformed scope of Sharia
governance
Existing scope of Sharia
governance
Sharia Governance: Destination of Reform
Halal essential but insufficient

32. Opportunities

33. #1 Opportunity
Design of
Contracts
DISCLOSURES
 Maqasid and Multidimensional Development
Features of Contracts
 Type of Waste and how its cost is internalized
 Co2 emissions
 Use of green energy
SDG Focused INNOVATIVE PRODUCTS
 Example: BirEvim Turkey for SDG 11
ROLE OF REGULATORS
 Capital incentives
 Disclosures
 Regulation
Internalizing compassion in financial contracting

34. Social
entrepreneurs
and Circular
Economy
innovation
Social
Enterprises (for
effective service
to society)
Commercial
Finance (for
profit)
Compassionate
Finance (not for
profit)
Blending the Motives of
Compassion and Profit for
Social Entrepreneurship in
Circular Economy
Government and Regulators
#2 Opportunity
Social
Finance
Commercial
Finance
Interest-
free loans
for Circular
SMEs
Design of
Contracts

35. #2 Opportunity
Design of
Contracts

36. #3 Opportunity
Transformative
pedagogy at all
levels of Blooms
Taxonomy &
Educational
Segments
Evaluation
Synthesis
Analysis
Application
Comprehension
Knowledge
New and Most Wanted
Employment Category Economyst

37. #4 Opportunity
Multidisciplinary
and
interdisciplinary
research at all
hierarchical
levels
Global Level CE
National Level CE
Macro Level CE
Intermediate Level CE
Micro Level CE

38. #5 Opportunity
Circular
Economy
Transition
Strategies
involving all
stakeholders
Global Level
Macro Level
Intermediate
Level
Micro Level
The Public
and other
species
 International organizations
 Legal, regulatory and tax framework and
policies, federal and provincial
government entities, municipalities
 Knowledge, educational, capacity
building, information and advisory
services and providers
 Businesses, entrepreneurs, financial
services and the institutions and markets
providing them
 Uses and users

39. #6 Opportunity
Best
Practices and
Perception –
Studies
 Government entities at
various hierarchies
 Law and Regulation
 NGOs
 Businesses
 Households
 Individuals

40. #7 Opportunity
Assessment of
Value in Waste
Different
Countries
Examples:
 Cradle-to-Cradle Value
 Value in Separation of Product
from Use
 Value in Capacity Utilization by
Sharing
 Value in existing abandoned
material
 Value in alternative energy
sources

41.  Integrating Ecology in
Businesses & design of
contracts
 Creating Blended Interest-Free
finance
 Developing financial contract
based on forbearance
 Creating synergies between
Maqasid, national priorities and
global goals
 Proactive support by
governments & central banks
Elements of the new
paradigm

42. Thanks
Think Out of the Box &
Transform the World to Become
a Better Place for Us & the
Generations to Come

43. tkhan@hbku.edu.qa