Islam and economics

• Conventional economics

  • the science of wealth(adam smith)
  • a study of mankind in the ordinary business of life (Alfred Marshall)
  • deals with human behaviour that concerns money getting and money spending (modern economist)
• Islamic economics

  • a social science that studies the economic problems of people imbued with Islamic values(M.A. Mannan)
  • an administration of scarce resources in human society in the light of an ethical conception of welfare in Islam. It concerns the material and immaterial welfare subjected to the Islamic prohibition on production, consumption and production (ibn Khaldun, Al-Tusi)
• Islamic economics mean

  the knowledge and application of injunctions and rules of the shariah that prevent injustice in acquiring and disposing material resources so that man could perform his obligations to Allah SWT and society
• islamic economics neither confines profit making as practised in materialism nor sole individual ownership as advocated by capitalism. It stresses the equal distribution of goods and services among people in society. It based on the concept that Allah SWT owns everything in this world
• Islamic economics

  A belief-based system governed by the teachings derived from Quran and Hadith of the Prophet Muhammad SAW, to realise the Falah and a good life within the framework of shariah
• Ownership

  Allah swt is the absolute owner of everything, including all properties on this planet
• Earning

  Obliged to earn an honest livelihood, should not become a burden on others, preferably earn through labour
• Equity and justice

  Provides every individual with some fundamental socio-economic rights, including the right to access factors of production, land, labour and capital to ensure economic justice
• Purpose of islamic economics: Al-Falah

  -the ultimate goal of man's life is the attainment of falah in both words

  -requires man to co-ordinate his life in the most balanced way of his economics (material needs) and spritual aspects of attaining real success

  -to gain falah: the fulfilment of the objectives of shariah (religion, life, intellect, posterity and property by Al-ghazzali)
• social utilities(masalih)

  1. necessities (daruriyat) = essential
  2. complementary (hajiyat) = not vital but remove difficulties in life
  3. luxuries or refinement (tahsiniyat)= complement and adorn life
• Al-Falah in economics

  -The attainment of material well-being in the society through:

  a)the eradication of poverty and creation of conditions for full employment and job opportunities

  b)the development of training and education to advance the individual's abilities and enable him to cater for his well-being independently

  c)the construction of affordable and comfortable housing

  d)the promotion of infaq in all economic activities

  e)the system free from riba
• Al Falah in economics

  -the development of human behaviour in the light of Islamic norms and values

  a)consumption -principle of righteousness, moderation, cleanliness, beneficence, morality

  b)production-achievement of: increase in income resulting from the increase of only beneficial goods and services through the maximum utilisation of resources, increase the volume of production accroding to the priorities the hierarchy of needs, quality of goods and services produced subject to Islamic injunctions, maximum participation of people in the production process
• Principles of the islamic economic system

  1)tawhid and brotherhood

  2)individual liberty

  3)right to property

  4)economic inequality within natural limits

  5)social security

  6)social justice
• Tawhid and brotherhood

  -unity

  -to Allah alone belongs whatever is in the heavens and the earth, and that he has made the good things for the service of man

  -entrusted with responsibility to use and distribute the resources created by him justly
• Individual liberty

  -free to involve in any profession within the laws of Islam
• right to property

  -recognises individual right to own, inherit and sell the property as and when he likes

  -Islam forbids anyone including the state from jeopardising this right as long as the individual does not involve in unlawful transactions such as selling wine

  -but must fulfil certain obligations to the state for instance by paying certain taxes
• economic inequality within natural limits

  -differ in ability, intelligence and other qualities

  -entrusted with many things for his use and proper exploitation

  -Allah has assigned different ranks to human beings. Some are entrusted with huge fortunes and more ability to work and some with lesser fortunes and lesser ability to work

  -life is a trial whereby one will be tested on the bounties given

  -develop nobles qualities and struggle for betterment in lives

  -disapproves of vast economics inequality

  -shariah imposes al-Zakah and recommends al-Afw
• social security

  -deals with maintenance of public benefits and welfare by state

  -provide adequate means for the poor to meet their basic needs

  -responsible to sanction measures to reduce the gap between the rich and the poor within natural limits

  -impose taxes on the wealthy to meet the requirements of those in need, irrespective of their creed, colour and religion
• social justice

  economic justice

  -provision of basic necessities of life to the poor and the needy

  -fair and equitable distribution of wealth

  -protection of the weak against economic exploitation
• social justice

  production

  -individual liberty and the right to property

  -the right to acquire wealth lawfully and the right to own the wealth without abusing other people's right
• social justice

  distribution

  -wealth should be circulated among all sections in society instead of being concentrated in a few hands only
• social justice

  consumption

  -balance in spending neither excessiveness nor miserliness

  -done according to hierarchy of the needs, necessities, complementary and luxuries
• -Islam build up a spirit of kinship; the brotherhood of humanity (al-ukhuwwah)

  -spirit of al-ukhuwwah is embedded in and nourished by creed and faith(al-aqidah wa al-iman), the concept of righteous and meritorious works (al-ibadah wa al-amal al-salih)and ethics and etiquette(al-akhlaq wa al-adab)
• wealth management

  -refers to the organization and management of assets

  -to be organized and managed objectively and ethically, according to shariah
• Five purposes of wealth management

  1. wealth creation
  2. wealth accumulation
  3. wealth protection
  4. wealth purification
  5. wealth distribution
• wealth creation

  -it involves getting money and assets through lawful means

  -selling goods
• wealth accumulation

  -generating more wealth and creating more productive economic activities in society

  -through various type of investments: unit trusts which are aligned with the islamic rulings
• wealth protection

  -it concerns guarding and protecting one's wealth from risks

  -exp wealth protection by either individuals or institutions through takaful and islamic insurance

  -takaful is as a type of islamic insurance wherein members contribute money into a pool system to guarantee each other against loss or damage
• wealth purification

  -includes the purification of wealth through different means prescribed by Shariah such as zakat, sadaqah, wakaf

  -purifucation of one business against any forms of riba, prohibited things and those that lead to harmful consequences

  -using one wealth for good deeds and safeguarding himself against cheating
• wealth distribution

  -it can be conceptualised as economic and financial activities on how the wealth is distributed among the members of the society
• objectives of wealth distribution

  1. to establish a practical system of economy
  2. to enable everyone to get what is rightfully due to him
  3. to eradicate the concentration of wealth
• Tools and sources

  -based on divine scripture with moral and ethical values addressing humanity, sympathy, forgiveness, generosity and charity

  -Primary heads: distribution of wealth among the factors of production (involve directly)

  -secondary heads: redistribution of wealth to people who do not participate directly in the process of production and do not meet their needs themselves
• tools and sources of redistribution

  • zakah
  • wirathah
  • waqf
• Zakah

  -Muslim financial obligation and worship

  -aims for the purification of self, wealth and property

  -motivates an individual to continuously strive to work productively (according to the principles of Islam) if wishes to improve his standard of living

  -restricting the excessive accumulation of wealth and reducing income and wealth inequality among people in society
• wirathah

  -The islamic system of inheritance

  -Allah SWT prescribed a long list of inheritors in accordance with the degrees of relantionship, in which the inherited wealth circulated widely

  -In Europe, follow rule of primogeniture, all the property goes to the eldest son(wealth is concentrated instead of circulated)
• waqf

  -endowment of property to be held in trust and used for a charitable or religious purpose

  -based on compassion, social takaful and empathy among muslims

  -keeps the flow of wealth from the rich to the members of society and benefits them continuously