Contract Enforcement Mechanisms in the Islamic Economics: A Comparative Study of Enforcement Costs in the Early Islamic World

“The present paper seeks to answer this question that “what are contract enforcement mechanisms in the Islamic economics and how these mechanisms affect the enforcement costs?”. Because the judgment on enforcement costs depends highly on the context of time and place, our study is devoted to the early Islamic time in the Arabian Peninsula. Therefore, after dividing enforcement mechanisms into private and public, we will show that North Arabian Peninsula in that time had no government and so no official Judiciary system as the most important public enforcement mechanism. So the Arab had no choice except referring to the private enforcement mechanisms that were so expensive and inefficient. However some contracts were enforced by the means of self-enforcement mechanisms because of continuity and repeatedness. After the dawn of Islam, the judiciary system and Hisbah mechanism was instituted and so the public enforcement became possible in the Arabian Peninsula. Along with the public mechanisms, Islam encouraged Muslim society to use private enforcement methods. In addition, the Islamic moral teachings were the most important means of self- enforcement. This paper concludes that the Islamic enforcement mechanisms were efficient in regard to minimizing transaction costs. So the “Cost Efficiency Principle” may be seen as an Islamic jurisprudential fundamental. This rule has priority until it is not contrasted with the basic Islamic rules such as judicial justice, not referring to tyrant (Taghut) and justice.