Economic System in Islam

Riba

Definition

‫كل قرض جر منفعة فهو ربا‬

The word Riba literally means excess, increase or addition.
The recognized definition of Riba in the context of Sharia is any excess or increase
without due consideration.
Types

Riba Al Quran (Riba of Jahiliyya)

 The Riba of Jahiliyya is a loan given for stipulated period with a stipulated
increase on the principal payable by the loanee. 

Riba Al Sunah

Following the revelation of Quranic verse the Holy Prophet prohibited some other
transactions as well which were not known previously as Riba. In the famous Hadith the
Holy Prophet identified six commodities and detailed the Ahkam about their exchange: 

Gold for gold, silver for silver, wheat for wheat, barley for barley date for
date salt for salt, must be equal on both sides and hand to hand. Whoever
pays more or demands more (on either side) indulges in Riba. 
What is economics?

To utilize the limited resources in a way that maximum needs and wants are met to
ensure the well being of all members of the human society.

The four basic economic problems:

1. Determination of Priorities
2. Allocation of Resources (Land, Labor, Capital, Entrepreneur)
3. Distribution of Income
4. Development

Capitalism, Socialism and Islamic Economic system

Capitalism is an economic system in which the means of production are privately owned
and operated for a private profit; decisions regarding supply, demand, price, distribution,
and investments are made by private actors in the market rather than by central
planning by the government; profit is distributed to owners who invest in businesses,
and wages are paid to workers employed by businesses and companies.
Socialism is a system of production based on the direct production of use-values by
allocating economic inputs (the means of production) and investments through planning
to directly satisfy economic demand.
Economic calculation is based on either calculation-in-kind or a direct measure of labor
time, output for individual consumption is distributed through markets, and distribution of
income is based on individual merit or individual contribution.
Comparison b/w various Systems

Capitalism Socialism
Determination Every individual has No individual has the right to
of Priorities unconditional & absolute right participate in any business
to participate in any business independently
to maximize profits State will determine the
Concept of Selfish Interest priorities as per that overall
planning
Concept of collective interest
Allocation of • Supply & Demand will • Govt. will decide where to
Resources determine the priorities. allocate resources
Development • Market forces will decide • Govt. will decide
where to invest resources
Distribution of • Land - Rent • Land – Rent fixed by Govt.
Income • Labor - Wages • Labor – Wages fixed by Govt.
• Capital- Interest
• Entrepreneur- Profits
Right to Wealth • With the factors of production • With the Govt. that distributes
only. it among the factors of
production.

Islamic Economic System

1. Divine Prohibitions:
Islam has prohibited some economic activities that are not allowed at any time at
any place.( Interest, Gambling, Hoarding etc.)

2. Govt. Restrictions:
Islam allows Govt. to intervene where it feels appropriate , but these restrictions
are temporary as per the need of the time.

3. Moral Considerations & Restrictions (ROIA)

Life in this world is temporary and there is an eternal life after words. One has to
make this worldly life a way to get the maximum benefit in the life hereafter.