ISLAMIC

FINANCIAL
SYSTEM
COURSE INSTRUCTOR
J AW E R I A Z A I B
LECTURE 1&2
B Y J AW E R I A Z A I B
LETS TALK ABOUT
THE SUBJECT
FIRST
W H AT I S I S L A M I C F I N A N C I A L S Y S T E M ?
DIFFERENCE BETWEEN ISLAMIC
BANKING AND FINANCE AND ISLAMIC
FINANCIAL SYSTEM?
CHAPTER 1
BELIEF IN DIVINE GUIDANCE
GOD

CREATED
MANKIND
(VICEGEREN
T)

INTELLECT DESIRES
HOW TO BALANCE THE TWO?

GUIDELINE • SET OF
RULES
S WERE (DO’S AND
SENT DON’T’S)

MESSENGE • PROPHETS
RS

• THE
BOOK OF
GUIDANCE HOLY
QURAN
ISLAMIC ECONOMIC SYSTEM

IS BASED ON ‘’THE
The entire
THIS SINGLE GREATER
concept of IFS
CONCEPT GOOD’’
ECONOMIC SYSTEMS

• CAPITALISTIC ECONOMIC SYSTEM

• SOCIALISTIC ECONOMIC SYSTEM
• ISLAMIC ECONOMIC SYSTEM
CAPITALIST ECONOMIC SYSTEM
LAND(RECIEVES
REVENUE FROM THE
WEALTH)

BANK CLIENT( entrepreneur) WEALTH

(ISSUES (RECIEVES THE RESIDUE PRODUCEDR

INTEREST FROM WEALTH)

BASED LOANS)

LABOUR (RECIEVES WAGE

FROM WEALTH
PRODUCED)

Paying back (loan) + interest

DISTRIBUTION OF WEALTH
IN CAPITALIST ECONOMY
• Wealth should be distributed only over those who have take part in producing it.
• Who are they?
• 4 factors of production.
1. Capital
2. Labor
3. Land
4. entrepreneur/ organization
DEFINITIONS OF THESE FOUR
FACTORS BY CAPITALIST VIEW
• Capital: A commodity which has already undergone one process of human production and is
again used as a mean of another process of production i.e. money machinery.
• Labor : Any exertion on the part of man(physical).
• Land : Natural resource “ used as a means of production without having previously undergone
any process of human production.
• Entrepreneur / Organization; brings together all the factors of production , exploits them,
And bears the risk of profit and loss in production.
SOCIALIST ECONOMY

People
State
(public)
Owns Land labour

Entrepreneur Earns wages

Owns capital Rest of the wealth goes to state

ISLAMIC ECONOMIC SYSTEM

• Prohibits riba.
• Prohibits gharar in most of the cases.
• Instead of riba there is concept of profit.
• Two kinds of Rights to wealth
1. Primary right
2. Secondary right
ISLAMIC ECONOMIC SYSTEM

1. Capital invested
2.Land
Capital invested in
the form of cash , 3. Labor
Land includes house ,
food stuff etc. land or machinery, production
Labor includes the
After generation of not only natural one who works for
wealth the investor resources. the business be it an
will receive profit After generation of owner
over capital. wealth rent is paid for The return for labor
land in wealth is wage.
FACTOR OF PRODUCTION IN ISLAMIC
ECONOMIC SYSTEM
Primary right to wealth:
Factor of productions:
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. Cannot be let /leased.eg liquid money and food
2. LAND: used in way their original external form remains the same or unaltered. Can be let
and leased.
3. LABOR: human exertion +planning and organizing
ISLAM, SOCIALISM AND CAPITALISM
SOCIALIST CAPITALIST ISLAMIC

1.Capital includes only money and food any

1.No private ownership thing which is consumable doesn’t includes
1.Entrepreneur is the risk bearer of loss and machinery
2 .No investor
profit
3.No profit or loss 2.Entrepreneur is not separate entity but is
2.Interest is involved adjusted in labor and capital
4. No rent for land
3.Capital includes machinery 3.Interest is excluded only involves profit
5.State owns everything and the wealth
4.Land includes natural resource eg land or 4.Land includes land ,house or machinery
produced
house
6. Hence concentration of wealth in one hand 5.Labor includes human exertion plus
5.Labor include only human physical exertion management
6.Loss bearer is the one who invests capital
WAYS IN WHICH CAPITAL CAN BE
INVESTED
1. Private business
2. Partnership
3. Co operation of capital and organization(MUDARIB). ( mudarabah)
4. Money lending business.
OBJECTIVES OF DISTRIBUTION OF
WEALTH IN ISLAM
1. Establishment of practicable system of economy
2. Enabling everyone to get what is rightly due to them
3. Eradicating the concentration of wealth.