Islamic Economic Principles Islamic economic system has more in common with mixed capitalism or Keynesian-type economics in which

the government plays a major role in production of public goods, distribution of economic goods, and stability through spending and taxing policies. Islamic economic principles are based on three sources: Sunnah (Quranic instructions), Ijma (the consensus of religious scholars), and Oiyas (personal opinions based on analogy and religious doctrines). Islam provides specific instructions on the following economic principles: Property Rights: Private ownership of resources is recognized as God has created the world with natural resources for people to enjoy. Private owners are entitled to returns on their labor and capital investments. Also individuals involved in free trade must be rewarded for their investments and willingness to take risks. But, they all must contribute to the betterment of the community by making tax and charity payments. Unproductive hoarding of resources is prohibited and profit making is encouraged. Collective ownership of resources is not recognized as absolute ownership is only limited to God. The government is responsible to provide public goods, redistribute income, and protect individual property rights. Income Distribution: The state is responsible to collect taxes and provide direct transfer payments to the poor in order to improve income and wealth distribution. In addition, individuals are highly encouraged to make charitable contributions to the needy neighbors and expect to be rewarded by God on the Day of Judgment. Taxation: There are four main categories of taxation: (1) Zakat is a generalized wealth tax imposed on all income earning assets including the ownership of animals, gold, and silver, articles of trade, and the produce of the land. It is collected by the government to ensure proper distribution among the poor and needy in order to improve income/wealth distribution. (2) Ushr or tithe is a property tax on fertile land when and only when it produces output. The tax rate depends on the quality of the land: 5% on irrigated land and 10% on rain-fed land. (3), Kharaj :is tax on revenues from the land. It can be fixed (so much per unit of land or per tree) or proportional (depending on the type of crops). (4) Jizyah is tax paid only by non-Muslims to receive protection form the state. It is a lump-sum tax depending on the ability to pay (e.g., 48 dirhams by the rich, 24 dirhams by the middle-class, and 12 dirhams by the poor).

Sources of ownership in Islam: Physical and Mental Work Landed property and rent Mining and minerals Inheritance and Bequest Trade and Commerce Property obligations: Prohibition of Riba (interest) Interest and Usury:The taking of interest on money lending is forbidden. Usury is said to be exploitation of one person by another and therefore sinful for three reasons: (1) it increases the concentration of economic wealth (2) it involves a riskless economic venture, and (3) it is a selfish attempt to maximize the money's rate of return without labor activity and hard work. Accumulation of wealth must be based on personal effort and labor and capital investment. In an Islamic banking system, depositors are partners who share the profit or loss of the activity and pay a small transaction cost. Prevention of gharar (uncertainty ) Prevention of Mysir (gambling) Denial of monopoly and legal obligation of Zakat Prohibition of unjustified means Factors Of Production In Islam CAPITALIST VIEW In order to understand the Islamic point of view fully, it would be better to have a look at the system of the distribution of wealth that is obtained under the capitalist economy. According to the Capitalistic economics, these factors are four:1. Capital: which has been defined as "the produced means of production" - that is to say, a commodity which has already undergone one process of human production, and is again being used as a means of another process of production. 2. Labour: that is to say, any exertion on the part of man. 3. Land: which has been defined as natural resources (that is to say, those things which are being used as means of production without having previously undergone any process of human production). 4. Entrepreneur, or Organization: The fourth factor that brings together the other three factors exploits them and bears the risk of profit and loss in production. Under the Capitalist economy, the wealth produced by the co-operation of these four factors is distributed over these very four factors as follows: one share is given to Capital in the shape of interest, the second share to Labor in the shape of wages, the third share to Land in the shape of rent (or revenue), and the fourth share (or the residue) is reserved for the Entrepreneur in the shape

of profit. SOCIALIST VIEW On the other hand under the Socialist economy, capital and land instead of being private property are considered to be national or collective property. So, the question of interest or rent (or revenue) does not arise at all under the philosophy of this system. Under the Socialist system, the entrepreneur too is not an individual but the state itself. And labor alone is considered to have a right to wealth under the Socialist system, which it gets in the shape of "Wages". THE ISLAMIC VIEW The Islamic system of the distribution wealth is different from both. From the Islamic point of view, there are two kinds of people who have a right to wealth: 1. Those who have a primary right that is to say, those who have a right to wealth directly in consequence of participation in the process of production. In other words, it is those very "factors of production" which have taken a part in the process of producing some kind of wealth. 2. Those who have a secondary right, that is to say, those who have not taken a direct part in the process of production, but it has been enjoined upon the producers to make them co-sharers in their wealth. The ruling government does not own the land. They just have to act as a caretaker because all unclaimed land & wealth belongs to ALLAH & is collectively owned by all Muslims living in that territory. This also further elaborates that Islam is the true democracy not limiting the role of citizens to vote once every 4-5 years, instead every citizen enjoys the same right & authority over the resources. Every citizen has the right to object lavish use of resources, undue protocols & luxuries. There is no concept of ruler as authority over the resources-be it a parliament or people elected by the parliament. They are all the caretakers which serve men to serve & not to rule. ISLAMIC THEORY Those who have a primary right to wealth As indicated above, the primary right to wealth is enjoyed by "the factors of production." But "the factors of production are not specified or technically defined, nor is their share in wealth determined in exactly the same way as is done under the Capitalist system of economy. In fact, the two ways are quite distinct. From the Islamic point of view, the actual factors of production are three instead of being four:1. Capital: That is, those means of production which cannot be used in the process of production until and unless during this process they are either wholly consumed or completely altered in form, and which, therefore, cannot be let or leased (for example, liquid money or food stuff etc.) 2. Land: That is, those means of production, which are so, used in the process of production that their original and external form remains unaltered, and which can hence be let or leased (for example, lands, houses, machines etc.). If a land is owned by a person then the natural resources discovered from below the soil are to be shared with the state.80% of it belongs to the person & 20% goes to the state(it is known as KHUMS in Islamic terminology ). Know that whatever of a thing you acquire, a fifth of it is for Allah, for the Messenger, for the near relative, and the orphans, the needy, and the wayfarer...(8:41)

The items which are eligible for khums are seven: 1. The profit or the surplus of the income. 2. The legitimate wealth which is mixed with some

illegitimate wealth. 3. Mines and minerals. 4. The precious stones obtained from sea by diving. 5. Treasures. 6. The land which a dhimmi kafir buys from a Muslim. 7. The spoils of war. If the resource is scattered over a vast land underground, then after surveying using modern technology the income must be shared among all land owners ,& not just the one who is tapping it, after deducting the expenses in proportion to the area of land. Islam is "a straight path;" and naturally, its economic system is based on very balanced standards. Islam, in contrary to communism, recognizes the concept of private ownership. But, in contrary to capitalism, Islam has limited the means of acquiring wealth to prevent the excessive accumulation of wealth in a minor quarter of the society. The Islamic economic system is based upon the belief that only Allah is the real and actual owner of everything. But God has also implanted the concept of ownership in our nature; and thus, we are allowed to "own" the wealth of this world. The Qur'an says, "Whatever is in the heavens and the earth belongs to Allah." (2:284) Allah is the owner of the whole universe. It is in this capacity that He has allowed us to own the blessings of this world by saying, "He has created for you whatever that is in the earth."(2:29) However, Islam also wants to prevent the excessive accumulation of wealth in the hands of a few people so the society may not fall into two classes: one is overstuffing, while the other is starving. The chance of such a situation is very real. A look at one of the richest nation in the world, the United States of America, and its problem of the poor, hungry and homeless people will bear us out. The Qur'an justifies the concept of tax by saying,"...so that (the wealth) may not become a monopoly of the rich among you." (59:7) 3. Labor: That is, human exertion, whether of the bodily organs or of the mind or of the heart. This exertion thus includes organization and planning too. Whatever "wealth" is produced by the combined action of these three factors would be primarily distributed over these three in this manner: one share of it would go to Capital in the form of profit (and not in the form of interest); the second share would go to Land in the form of rent, and the third share would be given to Labor in the form of wages.