Introduction to Islamic Economic System

Before understanding the Islamic Economic System it is very important to know Islam before
knowing its teachings about economic system.

ISLAM – The Complete Code OF Life

Islam is not merely a religion or economic system but Deen (Complete Teaching about all the
aspects of life). These teachings are for individuals and collective lives (society/world).

Islam means peace and peace is acquired through total submission. Peace cannot be acquired
without justice, the objective of all the Devine Books and Prophets.

Parts of Each System

If we look at all the systems which are collectively present or were used in the past, each and
every system in the world has two parts;

 Ideological Basis
 Detailed Structure

Similarly, Islam is based on these two parts. I would only be specifying things related to
economic system.

Comparison of Ideological Basis

Ideological basis of capitalism and socialism is Ideological basis of Islam is Emaan.

Materialism.
This world is what all matters. What really matters is not this world but hear-
after.
All other systems are inspired or against some Islam has to be established on its own
existing systems. ideological basis. It does not need any
assistance or insertion from other systems.
All other economic systems are based on Islamic economic system is based on Devine
human knowledge and/or experiences. teachings.

Different Economic Systems (A review)

There are two known economic systems given below;

Capitalism: This is the system that provides “an absolute and unconditional right to private
property.” Spreading this system they sold the slogan Freedom but it was not a freedom in true
terms.

Socialism: This is another system that came against the above mentioned system. This system came
with “total denial of right to private property with the exception of ownership of some articles of
personal use.” They spread the slogan Equality but it was not justified with respect to all individuals.

Islamic Approach: (Balanced View)

Now after looking into the above mentioned systems if we look into the Islamic economy then we come
to know that Islam provides you balanced approach towards freedom and equality. Islam tells us that
“the absolute right of property belongs to ALLAH Almighty. A person has right to property but neither
absolute nor unconditional because these would lead us to create disorder on earth.”

Freedom and equality are two basic and essential human values and Islam does want to promote and
maintain them but we do want freedom but not at the cost of equality. We want equality but not at the
cost of freedom. But Islam comes with the slogan of Moderation.

A brief overview of both economic systems is given below;

CAPITALISM … An Overview
Capitalism comes with an absolute and unconditional ownership. There is no criterion between just and
unjust earnings, creating inequities in distribution of wealth. In it the interest-based system does not
allow common people to share the profits except to the extent of a fixed rate which is again taken by
the industrialists as it is charged to the cost of production. Here, gambling is the major instrument for
concentrating the wealth of thousands of men in few hands. Speculative transactions disturb the natural
market operations and contribute to the inequities in the distribution of wealth. We all have been
witnessing that the rich becomes the richer and poor becomes the poorer. There is lack of sympathy for
deprived. This system is

… Yet a failed attempt today

SOCIALISM … An Overview
Socialism is an emotional reaction against evil consequences of capitalist economy, especially the
inequitable distribution of income. It comes with the negation of private ownership and market forces.
This system is curtailment of zeal of production by lack of personal incentives. It is development of
utopian idea of planned economy. In it destiny of the people left in the hands of ruling class. It is the
existence of one big capitalist, the state which treats the people as part of the machines.
ECONOMIC SYSTEM OF ISLAM
 Policy statement of Islam: Justice

“… in order that it may not become confined to the rich amongst you.”

(Al:Hashr: 7)

“Verily Allah imposes upon them Sadaqah (alms) on their wealth to be taken from the rich and then
given to the poor.”

(Tirmizi)

… Better the circulation, better the economy

The Objectives
Following are the objectives of Islamic economy;

1. Everyone to function according to his ability, aptitude, own choice and liking.
2. Market forces to be operative.
3. Everyone to get what is rightfully his.
4. Equal participation in profit and loss.
5. Wealth to circulate in equitable manner.
6. Gap between rich and poor to be narrowed.

Dimensions

Above mentioned objectives can be achieved if we implement Islamic economy in letter and spirit.
Meaning is applying both dimensions of Islamic economic i.e.

Spiritual Dimension: In Islam spiritual dimension leads us to live according to spiritual socialism e.g.
human rights on surplus wealth.

Legal Dimension: Legal dimension of Islam means to live in controlled and internally managed capitalism
e.g. surplus wealth for personal use.
Islamic Spiritual Socialism

Islamic spiritual socialism means ALLAH is real Owner. Whatever one has is the bounty (Fazal) of ALLAH.
The rightful share of every/any person is the fulfillment of basic necessities. Whatever is in excess of
one’s basic needs is the right of others but all of this is volunteer effort. No government or religious law
will force you on doing this.

Examples:

Our Holy Prophet PBUH, his Sahaba’s RA and sufi saints lived their lives at this level. Those people are
the models and peace makers of the societies with their volunteer efforts.

Islamic Legal System

It includes three aspects of capitalism i.e.

1. Private ownership.
2. Personal incentives.
3. Market economy.

Islam legally gives you all above rights but also provides guidelines for control and internal management.
Islam tells us not to forget who is the true owner? Not to get blinded by the greed for personal
incentives. And the process of earnings is subject to Divine injunctions.

Equitable Distribution of Wealth

In Islam due to freedom the gap between haves and have-nots is bound to emerge. Hence, steps should
be taken for equitable and circulation of wealth. There should be an established institution of Zakat.
Zakat is not a tax but an obligation (farz iabadat); as such no evasion will result equitable distribution of
wealth.

The Circulation of Wealth

In Islam there is flow of wealth from rich to the poor and from poor to the rich. Islamic economy tends
to increased purchasing power of people. This will result in boost in sales and higher volumes of
production. Again – the circulation.

Other Means of Circulation

Islam has also introduced other means of circulation and given in following;

 U’shr
 Kaffarat
 Sadaqat and Anfaaq
 Wirasat
 Khiraj and Jizyah
  Anfal and Fay

Process of Earnings Is Subject to Divine Injunctions

IMPACTS OF INTEREST
KEYNES ON INTEREST:

According to Keynes, elimination of unemployment needs extinguishment of interest. There is an

inverse relation between interest and savings. Interest  Earnings  Savings  Investment

Source: Keynes General Theory of Employment, Interest & Money.

PAKISTAN

Year Interest % Savings %

1965 5 13
1985 16-17 5

Year Economic Growth Poverty

1980 6.5% 30%
1990 4.6% 40%
2000 3.3% 50%
 Huge borrowing on interest in 1988and onwards through Structural Adjustment Program.
THE REAL TASK
All the Divine injunctions and their beauty and benefits are still in theoretical form and no living example
is available now or in past except Prophet Muhammad PBUH. Some natural process of revolution is
bound to find its way due to injustice prevailing in the world.

The need of the hour is to establish the DEEN of ALLAH, which is the ultimate objective of sending all the
Prophets, Books and Divine Law. (Al Hadeed: 25)

CONCLUSION
After getting the overview of current and past economic systems, we get a clear picture that socialism,
capitalism or integrated system applied these days carry certain flaws in them. Those flaws either in
ideology or in structure are causing deterioration in societies. Islamic economic system provides the
answers.