The Islamic Development Bank (IDB) has awarded Abbas Mirakhor, IMF Executive Director, and Mohsin Khan, Director of the IMF Institute, the 2003 prize in Islamic economics. Given in alternate years for achievement in Islamic banking and Islamic economics, the award honors the individual or institution that has made the most significant contribution to the field.
The award recognizes Mirakhor and Khan’s seminal research, starting in the mid-1980s when the two worked in the IMF’s Research Department, on the special challenges posed by banking systems operating under Islamic principles, which proscribe the charging of interest. While Islamic banks have existed since the 1960s, it was only in the early 1980s that economywide banking systems began to conform to Islamic practices. The Islamic Republic of Iran was the first country to adopt such a system, and Pakistan followed suit shortly thereafter. With little known about the system’s macroeconomic implications, the IMF encouraged research on the topic. Mirakhor, an Iranian national, and Khan, a Pakistani national, took up the issue.
At the time, the writings of legal scholars and theologians dominated the field. Khan and Mirakhor were among the first to apply conventional economic analysis. “What Abbas Mirakhor and I did was unique because we used standard economic tools,” Khan said. “We were interested in outlining for Western-trained economists what the system was about, describing it in terms that they understood, while at the same time convincing people in the Islamic world that you could use standard economics techniques to analyze the relevant questions.”
Between 1985 and 1995, the two authored—both separately and jointly—a number of theoretical papers, including one that presented a full-scale model for a financial system within an Islamic economic system. “From a theoretical point of view,” Mirakhor said, “there are a lot of interesting questions. What would happen, for example, if you had an economy that ran on a stock market arrangement, with equities shared by everyone in society, but that didn’t have a financial system with a fixed interest rate that allocated financial resources?”
In addition to citing the scientific rigor of Khan and Mirakhor’s studies, the IDB’s prize selection committee noted Mirakhor’s dedication to encouraging young economists to conduct research on Islamic economic issues. Most of the research on the subject done in the IMF builds on the work of Mirakhor and Khan.
Khan, who will become the head of the IMF’s Middle East and Central Asia Department in December, noted that today the literature on Islamic economics is extensive. When working with a country that is contemplating moving to an Islamic banking system, economists now have the means to understand both its benefits and its potential risks and costs, he said.