Islamic Economic System

INSTRUCTOR: DR. ABIDULLAH KHAN

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.
Economic System

Determination of
Priorities

Allocation of
Development
Resources

Distribution of
Income
How Capitalism and Socialism address the
four problems?
 Every economic system aspire to solve four basic economic
problems,
 In the recent past, world has experienced two divergent economic
models i.e. Capitalism & Socialism.
Capitalism

 Every individual has a right to maximize his or her profit

 Every Individual is free to perform trade and business
 No restrictions
 Economy freely works on the principles of demand and supply
Basic rules of capitalism

I. Right to private property

II. Profit Motive
III. Laissez Faire
Flaws of capitalism

I. No bindings/restrictions on profit maximization

II. Blindly follows market forces which creates exploitation of labor & poor people
III. No consideration of moral values, the goal is only profit making i.e. prostitution,
drugs, gambling etc.
IV. Monopolies and cartels are created
V. Government & industrialists joint to gather for their own interests rather than
public interest
VI. In balance in the distribution of wealth
socialism

 No free market system

 Attention is given to un-privileged segments of society
 The right to property
 Government make decision about resource allocation
 It is also called planned economy
Basic Rules of Socialism

I. Collective property
II. Planning
III. Collective interest
IV. Equal distribution of wealth
Flaws of Socialism

I. Wages and profits are decided by government, Hence are fixed

II. Government assumes that it has perfect planning i.e. cure of ills
III. Dictatorship by government
IV. Creates inefficiency (there is no profit motive so less incentive to work efficiently
and competitively
Comparison of Capitalism & Socialism
Features
Determination of Priorities
Allocation of Resources
Development
Distribution of Income
Right to wealth
Capitalism Socialism
Right to participate in any business No right to participate in any business
Concept of self interest Concept of collective interest
Supply and demand will determine the State will determine priorities
priorities
Market forces decides where to invest Government will decide
resources
Market forces decides where to focus on Government decides
development
Land: Rent Land: Rent fixed by government
Labor: Wages Labor: Wages fixed by government
Capital: Interest
Entrepreneur: Profit
Right to wealth is with the factors of Right to wealth is with government to
production distribute it among the factor of production
Economic Teachings of Islam

 The teachings of Islam covers all aspects of human life i.e. social, economic etc.
 The values of Islamic economic system derived from Islamic principles
 Islam believes in the market forces of supply and demand as described in next slide..
The Messenger of Allah (‫ )ﷺ‬said: Allah is the one Who fixes prices, Who withholds, gives
lavishly and provides, and I hope that when I meet Allah, none of you will have any claim on
me for an injustice regarding blood or property.
Economic Teachings of Islam

 َ ‫شتَ ُه ْم فِى ٱ ْل َحيَ ٰو ِة ٱل ُّد ْنيَا ۚ َو َرفَ ْعنَا بَ ْع‬

‫ض ُه ْم‬ َ ‫س ْمنَا بَ ْينَ ُهم َّم ِعي‬َ َ‫ت َربِّكَ ۚ نَ ْح ُن ق‬ َ ‫ون َر ْح َم‬ َ ‫س ُم‬ِ ‫َأ ُه ْم يَ ْق‬
٣٢ ‫ون‬ َ ‫س ْخ ِر ۭيًّا ۗ َو َر ْح َمتُ َربِّكَ َخ ْي ۭ ٌر ِّم َّما يَ ْج َم ُع‬
ُ ‫ضا‬ ُ ‫ت لِّيَتَّ ِخ َذ بَ ْع‬
ً ۭ ‫ض ُهم بَ ْع‬ ٍ ۢ ‫ض َد َر َج ٰـ‬
ٍ ۢ ‫ق بَ ْع‬َ ‫فَ ْو‬

“Is it they who distribute your Lord’s mercy? We ˹alone˺ have distributed their
˹very˺ livelihood among them in this worldly life and raised some of them in rank
above others so that some may employ others in service. ˹But˺ your Lord’s mercy is
far better than whatever ˹wealth˺ they amass.”
Economic Teachings of Islam

Islam allows the system driven by market supply and

demand. However, Islam allowed government intervention
so that marked forces do not exploit any segment of the
society
Economic Teachings of Islam

Islam allows the right to property and profit maximization,

but there some prohibitions that make it different from
capitalism such as
I. Devine prohibitions
II. Government restriction
III. Moral consideration
Economic Teachings of Islam

Islam allows the right to property and profit maximization,

but there some prohibitions that make it different from
capitalism such as
I. Devine prohibitions
II. Government restriction
III. Moral consideration
Factors of production in Islam

In Islam there are three factors of production

I. Land
II. Labor
III. Entrepreneur
Right to wealth in Islam

 Islam believes in the philosophy of divine ownership of

wealth
 The ultimate ownership resides with Allah (SWT)
 Owners of wealth are required to share some of their
wealth via Zakat, Ushr, Wirasat, Sadqaat, Qurbani,
Khiraaj etc.
 Right to wealth in Islam

Zakat, Ushr, Wirasat, Sadqaat,

Qurbani, Khiraaj

Allah (Wealth’s ultimate Factors of production  Secondary owners of

owner) (Wealth’s primary owner) wealth
 ROIA- (Return on Investment in Akhirat
Spiritual Concept of Well-being in Islam
 Islam believes that this world life is temporary and fruits of good deeds will enjoyed in
the hereafter .
 So The concept ROI is not limited to this worldly life
 This gave a birth to unique concept of ROIA- Return on Investment in Akhirat