Economic System Of

Islam
Comparative Economic
Systems
Economic System-Theme
An economic system is the method used by a
society to produce and distribute goods and
services
What determines which type of
economy a country has?

The type of economy is determined by the extent

of government involvement in economic
decision making
Traditional Economy
1. Allocation of resources is based on rituals,
habits, or customs
2. Roles are defined by family
3. People work together for the common
good
4. Little individual choice
Free Market Economy
1. Private ownership of
property/resources
2. Business decisions are driven by the desire
to earn a profit
3. There is a great deal of competition
4. Consumers have many choices
Command Economy
1. Central ownership of property/resource
2. Centrally planned economy
3. Lack of consumer choice

Example: Cuba and Former Soviet Union

Mixed Economy
1. Individuals and businesses as decision makers
for the private sector
2. Government as decision maker for the public
sector
3. A greater government role than in a free market
econom
4. Most common economic system today
Examples: England, Germany, Russia
 Capitalism
1. An economic system characterized by
private ownership of businesses and
marketplace competition
2. The government is concerned about its
people and takes care of those who cannot
care for themselves
3. The political system is a democracy with
leaders elected by the people
4. The United States and Japan
 Socialism
1. Increased government involvement in
peoples lives and the economy
2. The main goal is to keep prices low for
all people and to provide employment
for many
3. The government runs key industries and
makes economic decisions
4. More social services for all and free or
low cost medical care
5. Canada, Germany, Sweden
 Communism
1. The government runs everything (Totalitarian
government)
2. Only one political party
3. Assigned jobs there is virtually no
unemployment
4. There is little to no economic freedom
5. Cuba, North Korea, and China are examples
Outcome of modern economic system

Explosion of

Debt
Explosion of
Over-supply )26(


Competition

Explosion of

*****
And give to the relatives due and to the
needy and the wayfarer, and do not squander
Explosion of Explosion of
wastefully. Surely the squanderersExplosion
are the of
Over-production Over-utilization
fellows of the devils and the satan Over-wastage
is ever

ungrateful to his Lord.
(Isra 26-27)
Islamic Economic System
Three economic modes of Muslims
Moral Hallal means of living
(Height of Distribution of entire excess wealth
spiritual Hardy any situation of Zakat
living) Simple lifestyle

Legal Hallal means of living

(Minimum Pays Zakat and other compulsory dues
threshold Charity (infaq) up to the level of Taqwa
of living) Modest lifestyle

Illegal No distinction of hallal/harram

(State of Does not care to pays Zakat/other dues
practical Charity for image building
kufr) Extravagant and luxurious lifestyle
Stinginess/wealth piling up
Principle of Islamic Economic
System
1. Riba Free Economy
2. It is forbidden to gain property or wealth by fraud,
deceit, theft, or other falsehoods
3. Hateful for a guardian to take from an orphan's property
4. Forbidden are earnings from gambling, lotteries
5. Concept of Halal and Harram (Rizq-e-Halal)
6. No Exploitation
7. Unique Marketing
Cont
8. It is unlawful to hoard food and other basic
necessities.
9. Responsible in spending money (extravagance)
10. No begging
11. encouraged to give constantly in charity
12. Earning and expenditure by Halal means.
13. Right to property and individual liberty
14. System of Zakah (welfare contribution)
15. Law of Inheritance (Mirath)
Special Characteristics of
Islamic economic system
 Devine Economic Plan
Malik 2

Wealth is a test Not related to efforts

Anam 165/Nahal 71 Zumr 49

And Allah has made some of you excel others in wealth. (Nahal 71)

And Allah has made you successors in the land and raised some of you above
others in different levels, to test you for what is given to you. (Araf 165)

When a man gets in trouble he cries for help of Allah, and when he is
granted favors, he says I have got it due to my knowledge. In fact
wealth is a trial but most of people do not know. (Zumr 49)
Welfare of Humanity

Prayer Charity Fasting Hajj

Work ()

Spiritual Power Economic Power Piety Unity

Output/Resource

()

Human Welfare

Social System Economic System Political System Spiritual System

Outcome)(

 Economic Principles of Islam

Earning Side Usage Side

Business Usury Individual () State ()

Frugality & Sharing Distribution

( Hashar
7)






















(Baqra 279)


























(Baqra









219)
































)34(
But

They
Allah
with
if ask
in


you
has
order
Allah
you
and
doallowed
thatnot

how

His stop

wealth

much

Messenger
taking
business

may
they



not
usury,
should

become and


then


spend;
be ready
forbidden
confined


Say:

for
"What
to
usury
the

waris


beyond
rich
(Baqra 275) amongst your needs."
you. Thus Allah makes clear to you His
revelations: In order that you (Tauba may ponder. 34-35)(Baqra 219)
 Dimensions of
Islamic Economic System

Elevating ethical/
spiritual values
evils/crimes
Restricting

Legal System Spiritual System

Limited Capitalism Spiritual Socialism
(surplus wealth for personal use) (human rights on surplus wealth)

Inter-dependent &
Inter-connected (Synthesis)

Restricts luxury & Channels excess

wealth accumulation wealth to needy
Immune System Treatment system
(Regulatory) (Repair/Maintenance)
Primary focus of Islam is on the spiritual System (test of Taqwa/free will)
Legal system provides only safety valve for safeguarding basic human rights
Keeping excess wealth and generating income from it is allowed legally but
spiritually is it detested.
Status of Sources of Income
Labor
Ideal +
Capital
(Entrepreneurship)

Permitted
Partnership
(Labor + Capital)
Restricted
Land
Prohibited
Distribution Channels ()
Compulsory

Marriage payment and
penalties on certain faults

Taxes ()
Taxes imposed by state to
provide basic needs of its citizens
% of contribution

Zakat ()
Payable on wealth of individual

Inheritance ()
Strictly in accordance with injunction of Quran

Voluntary Charity ()
Entire wealth in access of basic needs
 Stock Exchange Transactions
Interest based
Load taken/given at interest
with security against fully
insured property (margin
financing)
Trade*
Risk capital investment at
profit/loss + Work + Public
benefit
*Limited liability is an exclusion

Public Benefits
Gambling Does the activity lead to
Profit/loss without efforts at the employment/resource
expense of someone else generation or brings harm to
the public interest

1. Limited liability concept in anti-Islam

2. Primary purpose of the transaction is to make quick money rather than long term
investment
3. Mostly investment is made from loan taken from banks or brokers
4. It is a gambling business (gain at the loss of someone else
5. Short term focus leads to extreme damage of public interest.
 Property business (Plots)
Interest based
Loan taken/given at interest
with security against fully
insured property (margin
financing)
Trade*
Risk capital investment at
profit/loss + Work + Public
benefit
*Limited liability is an exclusion

Public Benefits
Gambling Does the activity lead to
Profit/loss without efforts at the employment/resource
expense of someone else generation or brings harm to
the public interest

As per Islamic law house is right of every Muslim. Anyone trying to grab the property for
the purpose of trade/profit making is haram because it is a gamble (profit/loss at the
expense of others) and it is also not a business/trade as it does not lead to any fruitful
business activity which entails hardwork. As a consequence of profit making price of the
property rise and takes it out of the reach of legitimate buyer for building his house
 State Financial Crime: Inflation
4,690
5,000

4,000
Value Rs

An item costing Rs 3,192

100 now costs Rs
3,000 4,690 in year 50
@8% inflation rate 2,172

2,000 1,479

1,006
685
1,000 466
216 317
100 147
0

0 5 10 15 20 25 30 35 40 45 50
Year
Limited Liability
Resources Credit

Islam does not Judges Production

permit
Corporate
limitation Capitalist CitizenCommerce
Law
of liability. Every (limited liability)
individual is fully (1886)
responsible for Politicians Trade
his deeds
Jobs Media

Corporation:

An


ingenious



device

for

obtaining



individual


profit

without individual responsibility.
Allah does not impose upon (Fatir 18) anyone a duty but to the
Nor can a bearer of burdens bear another's burdens if one heavily laden should
Moto: Profit,
extent of hisgrowth
ability;&He gets reward
Competition and for every good deed,
amorality,
call another to (bear) his load. Not the least portion of it can be carried (by the
dehumanization,
and
other).suffers forhe
Even though opposition
every to nature.
ill that
be nearly he earns. (Barea 286)
related.
Does Islam allow any Banking System?

1. Banks were created for taking public deposit and

lending at interest and investment
2. Interest is against natural laws
3. Banking was conceived in iniquity (against natural
law) and was born in sin (for the benefit of rich)
4. An interest rate of zero means the end of the
money & banking system
Mirror view before/After Implementation
Before Islam (Savage Society) After Islam (Natural Society)
Tyranny Piety

Harmony
Savagery Courage
Exploitation

Cut-throat competition Happiness

Self-centeredness Justice
Criminality Content
Robbery Non-contributory Satisfaction
/Contributory
Theft Chastity
Racism Social Security Intellect
Humility
Cowardice Plan Compassion
Ignorance (Surplus Pool) Care of kin
Deprivation

Tensions Affection
Fear Sincerity
Hunger Freedom
Servitude Fortitude
Debt Munificence
Threats Zeal & Endeavor
Summary of natural economic System of Islam
1. Islamic view is that real economy controlled
2. money is only a supportive function, prhibit earning money through
money and compels people to work and invest money in business
ventures
3. Protects labour/work
4. Eliminates sources of unearned income (interest/speculation)
5. No protection to capital and uses wealth in real economic activities
integrated with physical laws of nature.
6. Collect Zakat (wealth tax) no tax on income or consumption.
7. It is responsibility of individuals for meeting needs of poor and social
welfare of society
8. State is responsible for meeting basic needs of citizens and taking
administration/legal measure for checking concentration of wealth in
few hands
Conclusion
 Story of Past Rebels
Tower of Babel

X

How many populations have We destroyed, which were given to wrong-
doing? They tumbled down on their roofs. And how many wells are lying
idle and neglected, and castles lofty and well-built? (Hajj 45) X

Period of Namrood (let us revolt) 2500 BC

Thank you
What should
we do?
Penalties on various crimes

Level Crime Action

Moral various
Disliking/Curse of
Allah

Social Adultry 100 Lashes

Political Killing Revenge (Qasas)

War with
Economic Interest Allah & Rasul
Steps for healing the money system
1. Limit growth and focus on wellbeing
2. Limit Debt & encourage entrepreneurs
3. Introduce zero rated debts
The money
4. Impose Charge on money holding
system is like a
5. Make speculation a criminal offence
cancer that
6. Incentivise productive work and investment;
consumes its
7. Tax Unearned Gains
host and
8. Replace labor for energy use
ultimately
9. Strengthen the social fabric of family and
community destroys itself
10. Lease land for living/business purposes
Healing the Money System David C. Korten: http://www.converge.org.nz/pirm/money.htm
 Action at personal level
1. Adopt simple lifestyle (Resource conservation & sharing)
2. Get out of interest/speculation based investments
3. Fully utilize goods before replacement
4. Eliminate moody craving for extravagant gadgetry
5. Get rid of fashion (a bio-economic disease of the human
mind )
6. Demand durable goods to be made still more durable by
being designed so as to be repairable.
7. Get closer to the nature as possible
8. Join hands to fight for reform at state level