Islamic Economic System

PDG in Islamic banking and finance

Center for Islamic Economics
Aug ~ Dec, 2015

Irshad Ahmad Aijaz Chairman, Shari'ah Supervisory Board

BankIslami Pakistan Limited
<irshad786@gmail.com>

Contents
The basis for economic thoughts;

Basics of social & economic thoughts;

Ideological & theoretical differences with other economic thoughts;

Ideological base for economic system is it really required?

Conventional economics;
The basic issue;
Positive and Normative economics;
Comparison between systems;
Islamic and conventional models;

Q & A;

The basis for economic thoughts

Every society has set of thoughts that provide basis for social systems;
The features of these thoughts reflect in features of that system, be it social or
economic or political;
Therefore we at first try to elaborate the basic difference in approach and
ideology. This explains to us the root cause of other micro difference;
The classical systems of economics developed in secular societies which do not
consider revelation as basis of wisdom;
This basic difference create a difference which widens at micro level;
Therefore a question comes in front of us: what is Islamic economics and how
it differs from conventional economics?

Differences between Islamic and classical economic theories

Islamic economic guidelines provide us a basis which is different from from
conventional economics in two ways:

Basic ideological differences;

Authoritative nature of religious rules;
Concept of Halal and Haram (Prohibitions and Permissions);
A permissible cannot be prohibited and prohibited cannot be permitted (except under specific rules);

Deficiencies in practical approach (failure in achievement of results);

Failure in achieving the target free market that ultimately creates equilibrium;
Mismatched distribution of wealth;
Unnatural control over economic activities;

The first type is all about ideology and beliefs and the second area mostly
belongs to activities of administrative and strategic nature;

Ideological base for economic system is it really required?

Is it necessary to have economics with an Islamic perspective?
A question may arise here: why do we need an economic system which is
Islamic?
A simple answer is Islamic theory of Maqasid ush Shari'ah (objectives of
Shari'ah);
Segregation between systems of life is a major cause of abolishment of the
societies. Designing of a system in isolation of the other cause conflict between
systems of the society which leads to ultimate problem in the composition of
the society;

Ideological base for economic system is it really required?

Theory of free market and controlled market proved to have been problematic
theories for human being
Therefore Islamic viewpoint is coherence and interdependency between
systems and not segregation;
Till now multiple theories of life styles are discussed and implemented and all
of them are logic based;
Human logic does not cover all the required feature in a system;
Therefore it is necessary to have an absolute basis for any system of life;

Structure of Islamic economic guidelines

Adherence to general guidelines and objectives of Shari'ah. E.g Concept of
Halal and Haram and Maqasid ul Shari'ah i.e. theory of safeguarding faith
(deen), life (nafs), intellect (aql), posterity (nasl), and wealth (maal);
Whatever hurts these objectives and basics of Shari'ah is not acceptable to
Islam and its removal is desirable.
Adherence to guidelines of general dealings (guidelines on Mua'amlaat) e.g.
prohibition of harmful economic activities like impermissible ways of wealth
creation (Akl Bil Baatil), compulsion of law of contract, deconcentration of
wealth, prohibition of bribing, hoarding and other unjust ways of dealings;
Adherence to specific economic guidelines of Shari'ah like prohibition of
Riba, Gharar, Qimar, short sale, buy back etc. etc.

Islamic Economic System

Conventional economics
Economics is all about management of available (scares) resources to give
optimal output;
This science has developed very sophisticatedly in recent time and made great
progress;
Thousands of books have been published and the topic is taught the world over;
The empirical results show deficiency of world in achieving the targets;
Uneven wealth distribution and its concentration in hands of few, increased
distances between wealthy and poor and recent meltdown of giant economies
and many other issues portray a different picture;

Flaws in conventional economics

All this shows the objectives which are the actual target of economic sciences
are not achieved in the manners which was claimed;
The major targets of conventional economics were two:
Setting standards for economic systems to be achieved i.e socioeconomic objectives
like growth, employment, equitable distribution of wealth, stability of economy etc.
etc. normative economics;
Analytical study of the theoretical standards like Realization of efficiency and equity
in allocation and distribution of the scare resources positive economics;

In spite of all these theoretical developments, the economic goals have not been
achieved. The reason may be disharmony between the mechanism and goals;

Flaws in conventional economics

But one try to find the basic reason behind the practical flaw and why the
systems were not coherent with the objectives?
The reason was simple pure logic based system:
The normative objectives were made on the basis of priorly set natural human values
system;
Then the economic system was designed and developed for achieving these values;
So the target (set of human values) and method (normative objectives) were developed
on pure logical basis;

According to Islam the human value system and mechanism for achieving it, is
not a pure logical matter;
It is in fact act of creator of this world to suggest the practical aspects for
achieving theoretical objectives;
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Flaws in conventional economics

So the systems have been developed with no or less intervention of the
Revelation (wahee message of God);
This conflict started in West and gradually increased through secular education
and media propagation;
Moral values have been set aside of economic functions and activities and this
became more widespread over the centuries;
The world view of new West (1600 ~ 1800 centuries) totally denies the
interference of religion in design of system of life;
Materialism and physical achievement are the goal now and not the spiritual
achievements;
The ultimate result of this proliferation of segregation between objectives and
methods has resulted very unfortunate results;
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Flaws in conventional economics

The unequal distribution of wealth, increased ways of earning and making

money, low attention to ethical values, zero acceptability of religious guidelines,

artificial demand and supply, unethical marketing techniques, white collar crimes
and many other burning issues are the gift of such incoherent, dissonant and
purely material system of economics;
Now what is the way?
The answer is:
A

system that recognize value system and humanitarian goals and is coherent with
objectives;

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Islamic alternative
This

leads us to a next question:

How to design such a system? What changes are required to the existing system to make
it more objective based? How to solve problem of incoherence between system and
objectives?
The

answer is 'goals and method of Islamic economics';

One point should be clarified here:
The so far developed economic science which are broad-based academic and exploratory
work of the conventional economics can not be declared a redundant work;
The difference between existing and Islamic theories is not a total difference which mean
even a single point is not acceptable to Islam. There might be some agreed upon theories
between Islamic and other conventional models;

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Architecture of Islamic economic model

There exist three economic experiments:
Capitalism market economy;
Socialism controlled economy;
Mixed economy somewhat controlled and somewhat free;
There are possible areas of difference between economic systems and also

possible area of agreement;

Islamic economic principals will follow suit;
There are possible areas of difference and agreement between Islamic principals
and other existing economic theories and an other possible area is of uniqueness;

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Architecture of Islamic economic model

Mixed Economy
Controlled Economy

Absolute freedom

1. Pure capitalist theory;

2. Pure socialist theory;
3. Pure mixed economy theory;

4. Pure Islamic theory;

5. Socialist and Mixed economy commonalities;
6. Capitalist and Mixed economy commonalities;

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7. Mixed economy and Islamic theory;

8. Capitalist, Mixed economy and Islamic theory;
9. Socialist, Mixed economy and Islamic theory;

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10. Capitalist and Islamic theory;

11. Socialist and Islamic theory;

12. Commonalities between all economic systems;

Absolute control

Free Economy

Islamic Economy
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Q&A

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