Chapter 3: ISLAMIC ECONOMICS

• Principles Of Islamic Economy

• Characteristic of Islamic Economy

• Scarcity and problem of choice.

• Economics Problems.
PRINCIPLES OF ISLAMIC
ECONOMICS
 1.BALANCE BETWEEN PRIVATE &
PUBLIC OWNERSHIP RESOURCES.
 The Concept of Trustee:
 Allah is the only sole ownership of resources.
 Man only as a trustee.
 Must manage resources according to rules & regulations (Shariah).
In the Quran Allah says:
 “To Allah belongs all that is in the heavens and all that is on the earth” -(Al Quran 02:284).

 Ownership of resources very important. WHY???

 They will able to decide on…
 what to produce,
 how to produce,
 who are their customers according to their product .
Islam recognized two types of ownership:
Private ownership:
an individual own the resources.
Allowed to decide on goods & services of what, how &
who – according to Shariah principles.
Private ownership is respected in Islam
as long as it does not lead to
speculation, exploitation,
discrimination, disrespect to humans,
and extremism on the part of the rich.
Private ownership is respected as long
as it does not cause the rich to feel
superior. It is the negative results of
private ownership that are considered
to be bad, not private ownership itself.
 Public ownership:
 Gov, family & organizations own the resources.
 Utilized the resources according to society needs
called as Public Goods.
  Ibn Abbas reported that the Messenger of Allah
said : All Muslims are partners in three things-in
water, herbage and fire.
 On the basis of above mentioned Ahadith, the jurists
have held that water, grass, fire and salt are things of
common use which must be kept under joint or common
ownership of the community. Not only these things, but
also many other things of common use or of public
benefit, on the analogy of above mentioned Ahadith,
have been held to belong to community instead of
individuals
 The second basic component of the Islamic economy is to allow individuals, at the
economic level, a certain freedom, within the limits of the spiritual and moral values of
Islam.

 The implementation of this principle in Islam is performed as follows: (a) Islamic law
provides the textual stipulation to forbid a group of social and economic activities such as
usury, monopoly, and so on. Because they hinder the realization of the ideals and values
adopted by Islam. (b) Islamic law in principle lays down the supervision of the ruler over
general activities and the intervention of the state to protect and safeguard public interest
through the limitation of freedom of individuals in their actions.
 Social justice is embodied in Islam by the elements and guarantees, which Islam provided for the system of
distribution of wealth in the society. The Islamic image of social justice contains two general principles, each of
which has its own lines and peculiarities.

 One is the principle of general mutual responsibility and the other is the principle of social balance. Islam permits
divergence in wealth within a reasonable limit but does not tolerate this divergence growing so wide that some
people spend their life in luxury and comfort, whereas the great majority of people are left to lead to a life of
misery, hunger, and subsistence. Three elements necessary for the execution of social justice are tawhid, Ijitihad,
and ethics
 Tawhid (monotheism) defines man-God
relationship. The key social justice of
Islamiceconomy lies in man‟s relationship with
God, his universe, and his people, and the nature
andthe purpose of man‟s life on the earth
The second element after tawhid for the execution
of social justice is ijitihad. Nowadays, Muslim
societies are facing various political, economical,
and social
problems that can only be solved through ijitihad,
particularly issues for which, there are no clear
injunction in Qur‟an or Hadith (i.e., Prophet‟s
actions or sayings).

The third element for the enforcement of social

justice in Islamic economy is ethics
In the West, those who tried to connect
economics with ethics considered it in a purely
humanistic vein created by man. In contrast,
economics is related to ethics and ethics in turn
is related to religion in Islamic view.
CHARACTERISTICS OF ISLAMIC
ECONOMY SYSTEM
1- Motivation and Incentive:
 Islam recognizes the self-interest of the individual but limits it within the boundary of the Islamic framework.
 When the self-interest of individuals creates impediments to welfare in the worldly life, the hereafter or to
society, then the notion of self-interest has to be complemented with other notions such as interests of society
and happiness in the hereafter.
2-Property Ownership:

 Islam protects individuals’ demand for property for their own good but regulates their
ownership and dealings to protect social benefits.
 Islam neither forbids private ownership nor allows it to exist unconstrained.
 The state is allowed to impose limits on the rights of owners or confiscate legally acquired
private property to meet the social needs of the Muslim community as a whole with the
stipulation of paying a fair compensation to the owner.
3-Organisation of Decision-Making and Coordination Mechanism:

 In the Islamic economic system, decision-making is a combination of both centralization and decentralization.
Both the market and government play important roles in coordinating economic activities.
 The market is not perfect; hence, Islam recognizes both private, state and public ownership so that there is a
balance between the roles of the state and the market.
 Even if the market is efficient, it may not lead to a distribution of income and resources that is just and fair.
 The Islamic state has to intervene in the market, correct the prevailing distortions, and direct the operations of the
market according to the objectives of the Sharīʿah.
Key Operational Principles of an Islamic Economic System

The Islamic economic system is governed by a comprehensive set of Sharīʿah concepts and principles, including the
following:
 Itqān (Precision of action): The principle of itqān drives economic agents to work efficiently and masterfully to
obtain the perfect result as has been entrusted.

 ‘Adl and Iḥsān (Justice and benevelonce): These principles denote that there shall not be any exploitation.

 Taʿāwun (Cooperation) The Islamic economic system is based on cooperation rather than conflict among economic
agents.
Competition and cooperation
 The pursuit of self-interest requires a Muslim to be conscious of the interests of others and not to hurt others.
 The individual shall seek the cooperation of others while striving for his or her personal benefit and the rectification of
his or her affairs while benefiting others.
Responsibility and Accountability
 The philosophical foundations of khilāfah and amānah mean that economic agents are responsible and accountable for
their actions.
 Allah says: On the Day when every soul finds all the good it has done before it, it will wish all the bad it has done to
be far, far away...(Qurʾān, 3:30).
 Hence, based on the understanding that all economic agents are answerable to the obligations entrusted upon them as
individuals, their economic actions and decisions, whether in terms of production, consumption or distribution, shall
be efficient and just.
OTHERS ECONOMIC
SYSTEM
CAPITALISM

 Capitalism is the economic system in which the means of production are distributed to openly competing profit-seeking.
Capitalism is not merely an economics system but a peculiar attitude of mind and behaviour. Basically it springs out of
the notion of the capitalist that he has earned his wealth by his own ability, skills, knowledge and wisdom.

 1. Private persons and where investments, distribution, income, production and pricing of goods and services are
predominantly determined through the operation of a market economy
 2. Capitalism is originally defined as a mode of production, where it is characterized by the predominant private
ownership of the means of production, distribution and exchange in a mainly market economy
 3. Capitalism is usually considered to involve the right of individuals and businesses to trade, incorporate, and employ
workers, in goods, services (including finance), labor and land.
 4. In Capitalism, state action is confined to defining and enforcing the basic rules of the market though the state may
provide a few basic public goods and infrastructure.
 5. The most laissez-faire capitalist economies, as measured by indices of economic freedom, include countries like
Hong Kong and Canada
CAPITALISM
CHARACTERISTICS
 Resources owned by private
ownership.
 Production (To produce)
 Distribution. (To Distribute)
 Exchange. (Exchange it with
something)
 Freely used by the owners to
make profits.
CAPITALISM
FEATURES
Wide distribution
Economics freedom, free disparities in the of wealth.
Capital privately own. market & competitions.

Banking and institutions Exploitation of weak by

Profit maximizations of interest. the strong
  Socialism or communism means an economics system in which
the mean of production are owned by the state. A central
directorate controls the production of goods and services.

 Socialists mainly share the belief that capitalism unfairly

Socialism concentrates power and wealth among a small segment of society
that controls capital and creates an unequal society. All socialists
advocate the creation of an egalitarian society, in which wealth
and power are distributed more evenly, although there is
considerable disagreement among socialists over how, and to
what extent this could be achieved.
SOCIALISM
CHARACTERISTICS
 Resources owned by community –
state.
 Society transitional stage from
capitalism – communism.
 Distribution based on work, not
need.
SOCIALISM FEATURES.
State ownership – denied
private ownership.
Economic Equality.
No society class.
ISLAMIC ECONOMICS
CHARACTERISTICS
Moderate eco. system.
Studies of
how human fulfill his desires.
according to Shariah.
to achieve al-Falah (Allah’s
blessing/success dunia/akhirat).
Islam. Eco. FEATURES.
 Right Ownership:
 All resources belong to Allah (Absolute Ownership).
 Human possession only to manage & utilize the resources according to Shariah.
(Relative Ownership).
 Private & Public ownership acceptable (legitimate) in Islam.
 Economic Freedom:
 Islam allowed human to earn, own & spend the wealth or resources. BUT!!
 Must be within Shariah.
 Distribution Juctice:
 Proper evaluation of
 allocations .
 distribution through prices .
 redistribution of output (Zakat). – Zakat Institutions.
Islam. Eco. FEATURES.
• Institutions of Insterest:
• Stricly prohibited in Islam.
• The Role of the state:
• Ensure to implementation & compliance
of citizen following the regulations.
• Refinance public good by taxes. (Taxes Vs
zakat). – Wealth Redistribution.
• Nationalization key industry – society &
security reason are permissible.
• Need to announced and compensate
adequately to the previous owner.
 .

Abojeib, M. & Haneef, MA. M. & Mohamed, M. O. (Eds.) (2018) Islamic Economics: Principles and Analysis. Malaysia, Kuala Lumpur: International Shari'ah Research Academy for Islamic Finance (ISRA)
IN SUMMARY …

In Capitalism, Economic Agents Maximise Their Self-interest. Property Ownership Is Mainly Private, And Decision-making Is Mainly Decentralised And Guided By The Market System.

In Socialism, Self-fulfilment And Public Interest Are Believed To Motivate People To Love The Work They Are Doing; Hence, There Is No Need For Private Ownership Of Property. Decision-making Is Centralised In Socialism.

In The Islamic Economic System, The Motivational Factor Is Enlightened Self-interest Where Self-interest Is Guarded By The Sharīʿah And Islamic Moral Values, The Ultimate Owner Of Resources And Goods Is Allah (SWT) And The Caretaker Can Be An Individual Economic Agent Or The Government And The Decision-making Process Can Be Guided By The Market And Commanded By The Central Authority.