In search of

Islamic Financial System

Islamic Economic System

Chapter 1

Economics System in Islam

What is Islamic Economics? What are the principles upon which Islamic Economy, its monetary and financial systems function?

A very short and straight answer

Islamic economics is as old as Islam itself

and Islam is not a religious.
It is a complete political, social, financial & economic system for the Islamic & Non Islamic Community. Islam is Deen that totally differ to the religion because of the definition, depth and details

Islamic Economics
For Economists By: Marium Khan Iqra University Defence View Campus, Karachi Pakistan

20th Century Economists define Islamic Economics

Hasan-uz-Zaman
Islamic economics is the knowledge and application of injunctions and rules of the Islamic Jurisprudence that prevent injustice in the gaining and disposal of material resources in order to provide satisfaction to human beings and enable them to perform their obligations to Allah and society.

M. Akram Khan
Islamic economics aims at the study of human recovery achieved by organizing the resources of earth on the basis of cooperation and participation.

Dr. Najatullah Siddiqui

Role of Shariah define the belief of justice and freedom, cooperation and sharing that are fundamentals to Islamic economic philosophy with the total Islamic system. Key to economic philosophy of Islam lies in man's relationship with Allah, His universe and His people. i.e. other human beings are the nature and purpose of man's life on earth

Introduction of Islamic economics

considered in the dates back to emergence of Islam, Fourteen centuries ago. The concept of economics was establish on the day Adam disobeyed to Allah Almighty

Theory of Need, Want & Desire

establish with Prophet Adam May Peace Be Upon Him who was sent to earth from Haven on the orders of Almighty Allah.

He was senseless to his needs and desires at the time he was created.

Relationship of Allah and Man is being defined as

Tawhid (Oneness of Allah) It is total commitment to the will of Allah by submission & mission to mould human life in accordance with Allahs will.

4 Great ways of excepting Tawhid

1st Look back and thank Allah. 2nd Look forward and trust Allah 3rd Look Around and believe Allah

4th Look within you and find Allah

 Life on earth is a test and its purpose is to prove successful by doing Allahs willed. For man entire universe with all the natural resources and powers open to exploitation, that Allah owns it alone. Life on earth is a test and provisions available to man being in the nature of trust.

Islam & Faith

Almighty Allah is Absolute

Prophet Mohammad
May Allahs Prayer and Peace be upon Him, was an executive judge

Holy Quran
Is the code of conduct. Islam organize mans life in its aspects of political, social or economic.

Islamic Economic is the applications of

Deen
Principles of Lifestyle comprises of

Theory The Holy Quran.

Explanation of theory Hadiath
(saying of Prophet Mohammad May Peace Be upon Him)

Implementations & practicing

Sharia
(life of Prophet May Peace Be Upon Him).

Islamic economics is an independent system,

It enjoys a separate identity. It is a self-contained system with its own economic policy, It covers interests at

Private or Public Material or Spiritual.

Islam has given a complete system of lifestyle,

Earning, Expenditure, Business, Relationship & Legal Framework.

For all bases Islamic Economic emphasis on

Social Justice, Equality, Unity, love, Cooperation, Sharing, Transparencies

in all affairs and respect.

System that Guard

Minorities and Non Muslim Rights in the Islamic State. Women and Orphan Rights Right of employees Right of Lender and Borrowers Right of everyone without RaceReligion-Language-Color or Sect

Islamic Economic system is based on four principles

All wealth belongs to Almighty Allah Man is the trustee of the wealth Hoarding of wealth is prohibited Wealth must be in circulation at all time

For any activity and for all purpose, Islamic Economic demands three main principles to be followed by an individual in his day-to-day affairs and problems.
IJMA (Gathering), QYAS (Discussion) AMAL (Act).

 Islam specifically considers distribution as economic problem. It differ to application of capitalists & communists system for production. Islam differentiates between basic needs and luxuries It not accept the concept of effective scarcity of resources.

 Holy Quran identify resources in sufficient, unlimited and number of qualities to fulfill basic needs like food, clothing and shelter for over fifty billion human beings at all time. Conventional economics misguide this reality with starvation, poverty, & economic backwardness. It resulted from misdistribution, originated by man-made laws and systems.

The financial matters in the human life play a vital role

It identify principles of finance including earnings, income, distribution of wealth & utilization of these same. Matters pertaining to money must be fare and transparent and useful for developing socio-economic life of the community.

Islamic Economic eliminate monopoly of a group or individual who

Keep a control on world monetary polices. Who gets most out of these resources. Blocks wealth to cross their jurisdictions Remain in between privileged society. This is classified as Capitalist form of Economy that protects the class of influence and privileged.

 It does not impose any limits on amount of wealth that an individual can acquire. It guides maintaining of wealth in proper form of distribution & incentive on work and efforts. It show opposition & defend against misuse of exploitation in getting hold of wealth through unfair means. It clearly denies "free" market of Capitalism, which has led to the situation of survival of the large part of the society.

 In Islamic Economics public revenue from natural resources used to secure needs of community and not to fill pockets of casino owners. State to provide public, essential resources to cover needs of every individual and family.

It forbids monopolies by outlawing hoarding of wealth and eliminating copyright or patent laws that would open avenue for potential monopoly to develop.

It protects the ownership of businesses and companies by restricting it only to those who contribute both capital and effort to the company or business and effectively putting the seal on such concepts as "corporate takeover" from ever becoming a reality.

It classify wealth in a systematic way that protects rights of individuals to access wealth. It protects the society and secures the needs of the people.

It mandates vital and natural resources as public property while allowing for unlimited access to luxury items. It protect society by defining certain needs as prohibited needs .

 It disregard corrupt man-made systems and protect honor, rights of woman, minor and orphans. It ban all forms of prostitution, pornography or any activities that exploit charms and physical attractiveness of women. It prohibit alcohol, gambling, spiral of corruption, social turmoil and moral devastation

Basic Principles of Islamic Economic The Islamic economy is composed of three basic components The principle of adaptable ownership The principle of economic freedom within a defined limit The principle of social

Islamic law permits three types of ownership, The individual ownership. The state ownership. The public ownership.

Principle of Economic Freedom within a Defined Limit

Islamic law is the source that that prohibits all such social and economic activities that differ to the teaching of Islam and the principles and values that are approved by Islam. Such social and economical activities fall under the categories of Riba, like holdings, monopoly, gambling and speculation

It clearly define principal on which ruler of an estate sworn in for the supervision of general activities and intervene in anti Islamic economic activities. The state must protect and safeguard the public interest through the control on individual freedom in the illegal and non-permitted actions they involve due to which the economic activity of the community and society suffer.

 Men have no right to possess unlimited wealth and desire to obtain wealth by any means and way he may choose of his like. Right is given to every member of the society by appointing each one is a guardian of the public trust and the ownership is limited for the public welfare and in the betterment of mankind.

The Principle of Social Justice

Social justice has two prime principles

Principle of give-and-take responsibility Principle of social balance Prohibits growth in differences to an extent that few live in extra luxury and rest are deprived of basic necessities of life and forced to live a life of misery, hunger, without shelter, illness and as neglected class of the society.

Tawhid (monotheism)
Definite acceptance of Almighty Allahs relationship with man and mans believes in supremacy of Almighty Allah with clear vision of

Day of Judgment.

The accomplishment of man depends on the belief and obeying the teaching of Islam and bringing healthy and peaceful community by synchronizing between morality and the material characteristic of life.

Ijithad
Emphasized the independent legal judgment, effort or ability to figure out rules from sources for carrying out social justice in according to Islamic Economics. Economical and social problems, which can be solved only through Ijithad, particularly issues in regard to which, no clear injunction is available in the Quran, or Sunnah.

Ethics (Moral principles)

It is third element for the enforcement of social justice. Islamic economics consider ethics in relation to human lifestyle or religion. Islamic Sharia defines social justice in the Islamic Economic as the pillar of the concept that function with a valid reason.

 The concept of Zakat and prohibition of Riba practices in daily life of Islamic society bring the stability, peace, harmony and social development. It also gives the real value of Money and defines the state responsibilities for income distribution that are treated as the basic principles of social justice in society

Muslim contribute for Economics

Ibn Khaldun
Muslim Philosopher, Scholar & Economist. Respected as father of Economic System of all times Authenticated name in Islam for defining different fields of knowledge, specially science of civilization, Contributed theories and concept in economics that placed him above-board in the history of economic thought as a major predecessor. Adam Smith accepted him as the "father," of economics.

 Planted seeds of classical economics in production, supply and cost Pioneered in consumption, demand, and utility, the bases of modern economic theory Believer in free market economy. Introduced labor theory of value.

 Free economy & for freedom of choice. Analyzed relationship of economic study, which are demand, supply, prices and profits First to put seed of modern demand theory which was further developed by Thomas Robert Malthusian, Alfred Marshall

 Logically role of cost of production on supply and prices Theory of profit as a reward for undertaking risk in a future of uncertainties Concept for traders maximize profits, "Buy cheap and sell valued," Concept of macroeconomics Theory of Growth based on capital accumulation through man's efforts

 Economic Development through Migration Tax Theory in history Theory for the best Rate of Taxation Explain advantages of trade among nations through foreign trade with people's satisfaction, merchants' profits, and countrys wealth and how all increased.