Islamic Banking

Course coordinator

Muhammad Helal Uddin

Assistant Professor
Department of Business Administration
Manarat International University

Contact details:
helaluddin.du@yahoo.com
01911-729491
 Lecture Outline
Concept of Islamic economics.
Definition, goals , Objectives , source, principles and
assumptions of Islamic economics.
Riba and Profit.
Socio-economic impact of Riba
Islam , Capitalism and Socialism
 Definition
 Adam Smith- Economics is the science of wealth.
 Alfred Marshal – Economics is the study of mankind in
their ordinary business of life.
 Dr Omar Chapra - Islamic economics is that branch of
knowledge which helps realize human well being
through an allocation and distribution of scarce
resources that is in conformity with Islamic teaching
without unduly curbing individual freedom or creating
continued macro economic and ecological imbalances
 Definition
 Dr. M A Mannan
→ Islamic Economics is a social science which studies
the economic problems of the people in the light of
Quran and Sunnah.
 Goals of Islamic economics
 Establishment of Adal (justice) to attain Hasanah
(Good) and Falah (welfare) in this life and life hereafter
 Establishment Ihsan (gracious conduct or kindness) in
economic affairs
 Establishment of Maroof (good acts, institutions)in
economic life
 Elimination of Munker (evil, wrong practices from
economic life).
 Achieve maximum distribution of wealth in society
 Achieve universal education
 Encourage cooperation in society
 Objectives of Islamic Economics
 Replacement of interest by profit sharing
 Creation of money through a process of investment,
rather then through process of lending
 Social welfare state in nature
 A minimum level of income is guaranteed to all
members of the society
 Objectives of Islamic Economics
 Establish justice in the Economy
 Protect the interest of the deprived and the oppressed.
 Ensure full utilization of resources.
 Minimizes the gaps between rich and poor.
Sources of Islamic Economics
The Holy Quran
The Sunnah of the prophet (PBUH)
Islamic Law and Jurisprudence
History of the Muslim
Data relating to Economic Life
Assumption of Islamic economics
Belief on Islamic Shariah
Belief on Allah’s sovereignty
Belief on Islamic economics for human being
Belief on Dual responsibility
Riba and Profit
Riba is the Arabic word of Interest
Interest means Expansion, Addition and surplus.
Interest refers to take more what is given, taking usury over
the principal amount
The return earned on an investment
 The fee charged by a lender to a borrower for the use of
borrowed money, usually expressed as an annual percentage
of the principal; the rate depends upon the time value of
money, the credit risk of the borrower, and the inflation
rate. Here, interest per year divided by principal amount,
expressed as a percentage. also called interest rate
 Riba and Profit
Profit is the difference between the total revenue and
total cost.
There are some concepts of profit as “Accounting
profit” “Economic profit”
Difference between profit and interest
 Profit is related with purchase and sell
 Interest is related with credit and time

 Profit is uncertain and imprecise

 Interest is certain and definite

 Risk is related with profit

 There is no risk with interest
Difference between profit and interest
 An investor can make profit at one time
 Compound interest can impose on the credit

 Profit based project ensure higher productivity

 Interest based project guarantee less productivity

 Profit encourage investment

 Interest discourage investment
Difference between profit and interest
 Profit doesn’t create Inflation
 Interest is one of the causes of Inflation

 Profit ensures equal distribution of wealth

 Interest accumulates wealth to the capitalist
 Socio-economic impact of Riba

 Interest is forbidden by the Islamic shariah for the

following reasons
 Religious reason
 Social reason
 Economic reason
 Political reason
 Socio-economic impact of Riba
 Religious reason
 Allah’s order
 Destroy the morality
 Socio-economic impact of Riba
 Economic impact of Riba
 Investment deterrent
 Economic imbalance
 Economic unrest
 unequal distribution of wealth
 Inactive mind
 Reducing the amount of wealth
 Tendency to more savings and less expenditure
 Socio-economic impact of Riba
 Create inflation
 unemployment increase
 Unutilized resource
 Stagnant of growth and development
 Economic fluctuation
 Macro economic instability
 Destroy the low and order situation
 Socio-economic impact of Riba
 Social impact
 Creates injustice
 oppression and deprivation by owner of the capital
 frugality
 increase the poverty level
 Socio-economic impact of Riba
 Political reason
 Emergence of capitalist class
 Concentration of power to a few number
 Economic imbalance creates political turmoil
 Burden of foreign debt increase
 Convert a nation into a dependent nation
 Developed world interfere to the poor nation
 Islam , Capitalism and Socialism

Major Economic systems and its features

1. The Market Economy
2. The Command Economy
3. The Mixed Economy
4. Islamic Economy
 Islam , Capitalism and Socialism
The Market Economy
 The market economy is an economic system in which a
substantial proportion of economic decisions are
taken by the use of markets.
The Command Economy
 In a command economy decisions are taken at the
center and orders issued to enterprises concerning
their production and investment plans.
 Islam , Capitalism and Socialism
The Mixed Economy
 An economy with a mixture of state and private
enterprises. Some economic activities are carried on
by individuals or firms taking independent economic
decisions , co-ordinated by markets. others are carried
on by organizations under state ownership and
control, with some degree of centralized decision-
taking.
 Islam, Capitalism and Socialism
 Islamic Economy
 Islamic economics represents a systematic effort to try
to understand the economic problem and man’s
behavior in relation to that problem from an Islamic
perspective.
 Islam, Capitalism and Socialism
Features of Capitalism
The Right of private property
Freedom of enterprise
Freedom of choice by the consumers
Profit maximizing motive
Competition
Class conflict
Importance of price and market system
Secularism
Interest based economy
 Islam, Capitalism and Socialism
Features of Socialism
 Absence of individual freedom
 Centrally controlled and planned
 Ownership of resource is only for state
 Absence of freedom of thinking
 Believe on Dialectical Materialism
 Atheism
 Islam, Capitalism and Socialism
Features of Mixed Economy
 Co-existence of the public and private sectors
 Role of price system and Government directives
 Government regulation
 Control of monopoly
 Reduction of economic inequalities
 Islam, Capitalism and Socialism
Features of Islamic Economy
 Allah is only the owner of the resources ,man is the
trustee
 Freedom of thinking within the framework of Islam
 Resources are not scarce and unlimited want is a
misguiding concept
 Principle of self dependency and helping of the poor
 Islam , Capitalism and Socialism
 Strict prohibition of interest
 Right of society on individual wealth
 Achieving maximum distribution of wealth
 Establishment of justice ,gracious conduct and
elimination of evil working
 Minimum level of income is guaranteed to all
 Minimize the rich and poor gap