Introduction to Islamic

Economics
 Islamic Wordwiew
 God, according to the Islamic view, has created the universe for the
benefit of all human beings. God has made the resources of this earth
available to man who has the responsibility to make use of them, to mould
them, and transform them according to his needs.
 But man is supposed to observe certain limits in the exercise of his
freedom. Within these bounds all his acts are worship of God.
 Islam requires man to maintain a balance between his love for and
abstinence from material things.
 The requirement is that man should not cause the non-renewable resources
of the earth to be recklessly depleted. 3 Every generation should show
consi~eration for the future generations in the use of resources.4
 Islamic Economics
 Islam treats all human beings as children of Adam. As human
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beings they are all equal. It visualizes equal opportunities for

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everyone. It opposes the creation of monopolies.

 It aims at the establishment of an economic order in which all
nations of the world would get together to devise a global
arrangement to monitor and check irresponsible behaviour by
any nation. The resources of the earth must be safeguarded
against waste, reckless depletion, and destruction for narrow
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economic gains.
 BASIC ASSUMPTIONS

 Human Nature: under capitalism the selfish behaviour

of individuals and nations is not only rationalized but
also encouraged.
 Islam, however, recognizes the dual nature of human
beings. Human beings are selfish as well as altruistic. It
does not, however, encourage human selfishness.
 It channelizes the selfishness of people to common good
and prevents men from hurting others.
 Thus, it propagates that everyone can and should make a
contribution to creating a better society.
 Materialism: The capitalist economic order places a
very high value on material attainments.
 The capitalist approach to life has resulted in
widespread depletion of non-renewable natural
resources, deforestation of wide areas, pollution of
environment, and ecological imbalance.
 Islam treats material possessions as embellishments of
life. But it treats them as secondary to the moral and
spiritual development of human personality.
 Ownership: Capitalism visualizes an absolute right to private
ownership so far as it is not acquired by damaging another
person's similar right. Consequently, people are free to make use
of their resources the way they like.
 They are free to consume, save, invest (or lend on interest)
whatever they own. They have an unlimited freedom to engage iii
any activity or profession.
 Islam recognizes the right of absolute ownership for God only.
Man has been granted the right to benefit from the resources of
the earth.
 Universalism: Capitalist economics has not been able to come out
of the general framework conceived by its founding fathers in the
eighteenth century.
 The Wealth of Nations provided a philosophical basis for a narrow
approach to global economic issues. Instead of conceiving the
world as a place for all human beings, it rationalized the concept
of national policies in isolation from other peoples of the world.
 Individual states take economic decisions in their selfish interest.
 This is not to deny the fact that they do study the· siluation around
them. However, they continue to adopt policies which suit their
selfish ends ignoring the effects such policies might have on other
nations.
 Foundations of Islamic
Economics
 The Islamic view is that the entire world has been
created by ‘ God for the benefit of all human beings.
 There is, thus, a great need for all the peoples of the
world to consult and cooperate with one another while
pursuing economic policies which might adversely
affect others.
 Islamic Economics
 The accumulation of economic power in the capitalist
economies is caused by a number of factors.
 First, the interest income of the rentier class turns the
flow of wealth from the poor to the rich, which
gradually enables a small minority to accumulate large
amounts of wealth.
 Second, the legal innovations of incorporation and
limited liability have enabled the corporations to collect
huge amounts of capital on account of limited risk.
 Third, the benefits of technological developments are
not passed on to the consumers in the form of lower
prices which would benefit the labourers as well.
 Equilibriwn at Less than Full
Employment
 Another feature of the capitalist economies is that
they can be at equilibrium without attaining the full
employment level.
Islamic Economic Organization
 Islam prescribes a free market based on supply
and demand. At the same time, it ensures that the
economic power is not accumulate and if it does, it
is diluted in the following manner:
 Islamic Economic Organization
a) Islam has prohibited interest on capital and thus has foreclosed
the door of accumulating wealth without work or without
assuming risk. The general rule is that whoever wants to earn a
profit must assume risk as well. The operating principle is : no
risk, no gain.
b) Islam visualizes a society where an individual is not dependent
on others. It recognizes the need of each individual to actualize
his potential abilities. Thus, it visualizes a society where a
maximum number of people are independent in their earning
and living.
c) Instead, they have always encouraged self-employment or such
forms of business as shirkalJ, or mf!-ddrabah.
 Islamic Economic Organization
d. Islamic ethos does not encourage unplanned
introduction of new technology. On the one hand, it
would require that the introduction of technology should
be phased and planned.
Moreover, it would urge the industrialists to bear the

cost of the dislocation or economic hardship created by

the introduction of new technology. The basis for such
public policies is the general principle that cost and
benefit go hand in hand
Islamic Economic Organization
 The Islamic economy discourages such market
malpractices as hoarding with a view to raising prices (i!
Jtikar), collusion to bid up prices (tanajush), counter-
bidding (tasawum).
 The present-day Islamic economy will have to develop
some new channels of market information for keeping the
buyers and sellers informed of the market situation.
 Availability of relevant and timely information will
discourage cheating, fraud, collusion; and exploitation of
others on account of their ignorance.
 Islamic Economic Organization
 In an Islamic economic order the problem of demand
creation through advertisement would also not remain as
serious as we find it in a capitalist dispensation. In the
absence of interest, the brakes on the expansion of
investment will be removed.
 It has made obligatory on everyone who owns a certain
minimum of wealth to pay a fixed sum as zakah for
expenditure on the welfare of the poor and the needy.
Islam& other Economic
Systems
 The main economic systems that generally known today's
are capitalism economics and socialism economics. Both
economic systems are also called conventional economics.
 Beside the two mainstreams of conventional economics,
there is an economic system that aims to build society life
and able to accommodate human needs in the world and
the hereafter (Falah), named Islamic economics. 
 Both conventional and Islamic economics have a different
paradigm and almost difficult to reach an agreement, so it
bears several differences that should we know.
 Capitalistism
 The conventional economics here is a capitalist
economy with Adam Smith (1723-1790) as the
main character and the socialist economy
where Karl Marx (1818-1883) as the main
character. 
Capitalism
 Capitalism
 Capitalism is the economic system in which the means of
production are distributed to openly competing profit-
seeking. Capitalism is not merely an economics system but
a peculiar attitude of mind and behaviour.
 Basically it springs out of the notion of the capitalist that
he has earned his wealth by his own ability, skills,
knowledge and wisdom.
 Capitalism
Capitalism is originally defined as a mode of production, where it is characterized
by the predominant private ownership of the means of production, distribution and
exchange in a mainly market economy.
Capitalism is usually considered to involve the right of individuals and businesses

to trade, incorporate, and employ workers, in goods, services(including finance),

labor and land.
In Capitalism, state action is confined to defining and enforcing the basic rules of

the market though the state may provide a few basic public goods and infrastructure.
 The most laissez-faire capitalist economies, as measured by indices of economic

freedom, include countries like Hong Kong and Canada

Capitalism and Islam
Capitialsm Islamic Economic System
 Human beings are selfish  Human beings are selfish as
 Materialism is the supreme well as altruistic
value  Materialism should be
 Absolute private ownership controlled
 Economic power for the  Private ownership within a
minority through: framework
 Interest  Economic power widely
 Limited liability diffused through:
 Wage-labour
 Equity participation
 Market imperfections
 Worker ownership
 Law of inheritance
 Free market flows
 Socialism
 Socialism or communism means an economics system in which the mean
of production are owned by the state.
 A central directorate controls the production of goods and services. The
directorate decides the nature, quantity, and mood of production of goods. This
distribution of goods is also directed by the central body.
 Socialism refers to a broad set of economic theories of social organization
advocating state or collective ownership and administration of the means
of production and distribution of goods, and the creation of an egalitarian
society.
 Modern socialism originated in the late nineteenth-century working class
political movement. Karl Marx posited that socialism would be achieved via
class struggle and a proletarian revolution which represents the transitional
stage between capitalism and communism.
 Socialism
 Socialists mainly share the belief that capitalism unfairly concentrates power
and wealth among a small segment of society that controls capital and creates
an unequal society.
 All socialists advocate the creation of an egalitarian society, in which wealth
and power are distributed more evenly, although there is considerable
disagreement among socialists over how, and to what extent this could be
achieved Some features of socialism are written below. 
  its branches advocate a degree of social interventionism and economic
rationalization, sometimes opposing each other.
   Some socialists advocate complete nationalization of the means
of production, distribution, and exchange;
Islamic Economic System
 It is a morally directed economy, being part of a whole
moral philosophy: Islam. This is in contrast to morally
neutral economic organisation in capitalistic societies.
 Individual initiative has to be discharged within the
framework of social responsibility i.e. no free market as
such and no absolute ownership.
 The economy has a clear goal of establishing and
maintaining a social welfare ‘solidarity’ organisation for
the needier sectors of the society.
 Islamic Economic System
 Work is the basic factor of production, it is a means to wealth
generation and distribution. It is the legitimiser of wealth
acquisition. It is an asset orientated economy, money is just a
means of exchange and store of value. It is not allowed to be a
commodity: It cannot in view of the prohibition of interest which
allows trading in ‘loans’.
 In view of its strong moral framework and social aims, the basic
recycling agent of wealth is a mandatory — very fixed and very
stable religious obligation ‘Zakat’ which is a social tax on wealth
specifically directed to the protection of the society. It is not a fiscal
measure subject to variations of governments’ policies. 
Islamic Economic System
 There are other means of recycling: inheritance laws in
Islam distribute wealth among a wider base than in
capitalistic societies. There is also strong moral pressure to
give freely (Sadaqa).
 Fiscal taxes as known today, have been levied and can be
levied over and above Zakat if the state deems it
necessary. 
 The Sources of Law
Islamic Law
 The Primary Sources:
 The primary sources in Islamic studies are
the
 Qur’an
 Hadith
 Ijmā’
 qiyas
 Al Quran
 The Holy Quran is the first and most important source of Islamic law. The
word Qur’an literally means “the reading” or “the recitation”, and refers to the
divinely revealed scripture given to Prophet Muhammad. Since Prophet
Muhammad is considered the last prophet of God, the Qur’an is considered the
ultimate revelation from God to humanity.
 More than 200 verses of the Holy Quran make up the body of Islamic law that
governs legal relations.
 70 verses on family and Inheritance law
 70 verses on obligations and contracts
 30 verses on criminal law
 20 verses on procedure
 10 verses on other matters
 SUNNA (SUNNAT)
 The Sunnah is the next important source, the Sunnah or
path or way of Prophet Muhammad (PBUH). The
Sunnah consists of the sayings, deeds and words of
Prophet Muhammad (PBUH) which are not revelations
of the Quran
HADITH (HADEES)
 HADITH (HADEES) literally meaning of Hadith "talk" or
"discourse") in Islam refers to what Muslims believe to be
a record of the words, actions, and the silent approval of
the Islamic prophet Muhammad.
 Hadith have been called "the backbone" of Islamic
civilization, and within that religion the authority of hadith
as a source for religious law and moral guidance ranks
second only to that of the Quran (which Muslims hold to
be the word of God revealed to his messenger
Muhammad).
 IJTEHAAD
 The literal meaning of ijtihad is derived from the root word jihad
or effort, to find in the solution the guidance of the Quran and
Sunnah. Ijtihad is the process where scholars of Islam try to find a
solution to an issue on which the Quran and Sunnah are silent.
 For example there is an issue of modern times: is it legal to shut
down the life-support system of a person declared brain-dead?
Because this is a new development of modern technology, the
Quran and Sunnah are clearly silent on this issue. Thus respected
scholars of Islam should do ijtehad and draw out a ruling whether
under the guidance of the Quran and Sunnah, any such thing is
acceptable in Islam.
 IJMA (CONSENSUS OF OPENION)
 Ijma is a term used for an opinion or order of Islam where all
good and respected scholars of Islam are unanimous in their rule.
 For example, scholars believe that there are five obligatory
prayers (Namaz), or that adan should be offered before the
namaz, or that the funeral prayer should be recited over the
deceased believer, or swine is prohibited in Islam, etc.
 QIYAS
 “Qiyaas is a term used when determining the root-cause of the
process to do Ijtehaad. Qiyaas is a process whereby a clear ruling of
the permissibility or impermissibility of an act or thing is applied to
an issue closest related to it.
 For example, Allah and His Messenger (saws) have declared khamr
(wine, alcohol, etc.) haraam. Now if someone were to ask for a
ruling on the usage of marijuana, the scholars of Islam would do
Qiyaas and determine the root cause of the haraam of khamr is its
intoxication; thus all things that intoxicate would be considered
haraam. Because the usage of marijuana intoxicates, it too would be
considered haraam.