ISLAMIC ECONOMIC SYSTEM
an equal opportunities & happy society
ECONOMIC SYSTEM
➔ System of production & exchange of
goods & services
ISLAM
● Religion
● Way of life (Ad deen)
● Means peace
ISLAMIC ECONOMICS
➔ Rules of transacting finance/other
economic activity Shari’a compliant
manner
BASIC PRINCIPLES OF ISLAMIC ECONOMICS
● Allah determines right & wrong
● Principle of Uses
● Principle of Moderation
● Economic freedom
● Principle of Justice
PHILOSOPHICAL FOUNDATIONS
a. Tawhid
➔ Related to Faith
➔ First part of Shahadah
b. Risalah
➔ Channel of communication between
Allah & mankind
➔ Prophethood & guidance
➔ Al Quran & other divine book
c. Falah
➔ Signifies attainment of all desires
➔ Refers to spiritual,moral &
socio-economic well being in world
➔ Example : not gambling 7 establishing
Zakat
➔ Micro level ; individual provided for in
respect of his basic needs
➔ Macro level : aims at establishment of
with clean environment
d. Amanah
➔ Trustee
➔ ; Abd (servant & master)
➔ ; Khalifah (leader)
e. Ukhuwwah
➔ bond/relationship
➔ Brotherhood relationship based on
Islamic Law for the sake of Allah
f. Khilafah
➔ Man’s role as God’s vicegerent on
earth
➔ Status & role of man
➔ Specifies responsibilities of man as
Muslim & as Muslim Ummah
g. Adalah
➔ Justice
➔ To put thing in rightful place
JUSTICE OF ALLAH
● Never does anything wrong
● Does not fail to do anything that is
necessary
● No injustice in Allah’s decision
● Is it for Allah to decide if He so desires
to punish
Socialist View
● Acknowledge private property right on
consumer goods
● Give state/community association’s
ownership
Capitalist View
● Individual freedom - highest level
● Inequality between rich & poor
PROPERTY & OWNERSHIP IN ISLAM
➔ Any good that individual like naturally &
can save for some time ( Hanafi)
 ➔ Anything with a value which it may be ● Privatized
sold ● Uncultivated land
● Unclaimed property
JURIST ● heirless
➔ Exclusive association of owned item ➔ Be monitored & organized by
with its owner the state
➔ Gives owner right to deal in his own way
that is not forbidden LIMITATION OF OWNERSHIP
➔ Associated with 1 name
PROPERTY ➔ Private ownership followed by social
● Can be acquired through legal way objectives of property
● Entitle right for exclusive association ➔ Need to care the needy
(no legal obstruction in dealing) ➔ Forbidden to infringe upon private
● Gain political significance (claims, property acquired through legal
liberties, powers) means

RIGHT OWNERSHIP CONSTRAINTS

● To exploit & utilize
● Can be transferred through legitimate a. Property
method ➔ Permissible & legal acquisition
● Limited & qualified not absolute ➔ Legally can be acquired through
hunting
TYPE OF OWNERSHIP
b. Use property
1. Private ownership ➔ Wise conduct & dealing of owner
➔ Owner can exploit w/o legal ➔ Legal transfer - inheritance
impediment ➔ Avert from -ve behaviour element
➔ Sole ownership (1 person) ➔ Encourage investment
➔ Joint ownership :
● More than 1 c. Authority
● Cannot distinguish ➔ State may take possession of privately
from one another owned property to meet need of public
(gifts) benefit
● No proof their shares ➔ Need provide appropriate
are deemed to be equal compensation
➔ Example : build/enlarge mosque
2. Community ownership
➔ Share by entire community d. Warding of harm
➔ Resident have equal right ➔ Avoid harm others
unless converted to private ➔ 1. Certain harm
ownership ➔ 2. Likely harm
➔ 3. Unlikely but significantly harm
3. State ownership ➔ 4. Insignificant harm
➔ Resources cannot be
immediately :
 ● Right to protect the neighbours from
damages (likely occur resulting from
exercise of right by another)
● Demolition (get permission from other)
THEORY OF RIGHT
b. Right to water (as-shrib)
Division of right ● Nobody prevented from utilizing water
1. Right of Allah
source
2. Right by Owner :
● Except if canal / stream for irrigation
● Right of human
made by a person
● The shared right

Elements of right
➔ Must recognized by shariah
➔ Have right to use
➔ shall attract the responsibility to take
care of it
➔ Mechanism for owner of the right to
derive the benefit from owning the
right
c. Right to passage
● Not permissible to prevent any person
who has right of way
2. Ownership over thing only
➔ Owned by 1 person but usufruct is
owned by another person
➔ Example : rent house to a tenant

Total/complete Ownership 3. Ownership over usufruct only

● Ownership of both property ➔ Right to use w/o having any
● Right to enjoy / take advantage of proprietary right over entire property
property ➔ Through borrowing, leasing
● Absolute ownership regardless time &
place OPERATIONAL PRINCIPLES IN ISLAMIC
ECONOMIC
Impartial Ownership
● Ownership of property 1. Production
● Not the right to enjoy it 2. Allocation
● Divided into 3 : 3. Distribution
4. Consumption
1. Easement right , Huquq al-Irtifaq : right
associated with immovable property A. Allah determines right & wrong
● Permitted being lawfulll (halal)
➔ Limit the enjoyment of an
& what is forbidden being
associated property belonging
unlawful (haram)
to different owner.
➔ Permanent right as long as
B. Principle of uses
both immovable properties
● Man allowed to make full
exist
enjoyment of God’s gifts

a. Right to adjacent wall bestowed on him within bounds

of HALAL & HARAM
 ● Not excessive use
(extravagance & wastage)
C. Principle of moderation
● Islam discourage extreme /
cross limits
● Not to be greedy
● Extra wealth - spent in path of
Allah
● Consumption & spending - avoid
extravagance
D. Economic freedom
● Every individual is accountable
for his action done in this world
● Freedom limited by HALAL
HARAM
● Rewarded/punished (in
hereafter)
● Recognizes free enterprise,
human initiative
2. ALLOCATION (INVESTMENT)
➔ Partnership (shirkah)
➔ Trading & commerce
➔ Profit sharing risk
➔ Islamic banking - prohibition of
riba
3. DISTRIBUTION
➔ Islam disclaim poverty
➔ Economic resources & wealth
should be so distributed among
members of community
4. CONSUMPTION
➔ Inter- temporal allocation of
time, effort & money
➔ Infinite horizon model (life
hereafter)
➔ Consumption smoothing
strategy - storing grain
➔ Saving for later consumption -
effective strategy
➔ May change overtime

E. Principle of justice
● Nobody exploited by other
● Nobody acquires wealth by
unjust,unfair fraud.
● Equitable distribution
(community,rich,poor)

OPERATIONAL PRINCIPLES

1. PRODUCTION
➔ HALAL product/services
➔ Should not acquire wealth
through bribery,corruption
➔ Must have ethical moral in
production
➔ Production of daily needs &
requirements beneficial to
Muslim & Muslim society