LECTURE 2

Principles of Islamic Economics

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1. Prohibition Of Ar-Riba

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 Definition of Al-Riba
 Ibn Hajar al Asqalani defined riba as “excess
whether it is in the commodity itself or money”.
 Abu Bakr al’Arabi held that “every excess in
return of which no reward is paid is riba”.
 Abu al a’la al Mawdudi defined riba as “a
predetermined excess or surplus over and
above the loan received by the creditor
conditionally in relation to a specified period”.

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 It is a well known fact that Islam condemns
Interest; however interest is not a proper
synonym to Arabic word ‘Ar-Riba’. In the above
verses of Qur’an it is seen that Ar-Riba is strictly
condemned.
 In Al-Quran the prohibition of riba was
mentioned in four stages before its total
prohibition.
 Ayah 39 Surah Al-Rum
 Ayah 161 Surah Al-Nisah
 Ayah 130 Al-Imran
 Ayat 275-281 Surah Al-Baqarah

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 Types of Riba

 Riba can be divided into two:

 Riba Al-Nasiah – selling or buying of ribawi
products of same kind but delivery or exchange not
at the same time i.e. defer delivery by either parties.
Also known as Riba al-jahiliyah, RIba al-Qur’an.
 Riba Al-Fadlu – selling or buying of ribawi products
of same kind but not of equal in weight or
measurement e.g. 10 grams of gold for 11 grams of
gold or 5 kilos of wheat for 6 kilos of wheat etc.
Payment and delivery must be at the same majlis. Is
also known as riba al-buyu’.

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 Narrated Ubadah ibn as-Samit: The Apostle of Allah
(peace_be_upon_him) said: Gold is to be paid for with gold,
raw and coined, silver with silver, raw and coined (in equal
weight), wheat with wheat in equal measure, barley with
barley in equal measure, dates with dates in equal measure,
salt by salt with equal measure; if anyone gives more or asks
more, he has dealt in usury. But there is no harm in selling
gold for silver and silver (for gold), in unequal weight, payment
being made on the spot. Do not sell them if they are to be paid
for later. There is no harm in selling wheat for barley and
barley (for wheat) in unequal measure, payment being made
on the spot. If the payment is to be made later, then do not
sell them. [Hadith Sunan Abu Dawud 22:3343]

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 To understand this concept there are basically four main
principles to be kept in mind: -

 Any increase in demand for money without

simultaneous production of Goods or Service
constitutes ‘Ar-Riba’.
 If capital by itself is generating more capital then
there is ‘Ar-Riba’. Thus Capital can generate more
capital only when used with other factors. (Land,
Labour and Entrepreneur)
 Everything should be real in value. No illusions
allowed.

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 2. Hoarding is strictly prohibited

• Hoarding Means to stop goods and to store them which are a

basic necessity of common people, may it be related to any
food item or anything else, whatever it be it is causing harm to
the people.

• Therefore it could be food products or medicines or clothes or

buildings etc and similarly business and other professions
when people are in need of it.

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 3. It is a Market Economy

 Narrated Anas ibn Malik: The people said: Apostle

of Allah , prices have shot up, so fix prices for us.
Thereupon the Apostle of Allah (peace be upon
him) said: 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. [Hadith Sunan Abu Dawud 23:3444]
 Thus Islam encourages Demand-Supply
mechanism and does not interfere in any
business unless it is unjust and harmful for
society. 9
‫حدثنا عثمان بن أبي شيبة ثنا عفان ثنا حماد بن سلمة أخبرنا ثابت‬
‫‪:‬عن أنس بن مالك وقتادة وحميد عن أنس قال‬
‫قال الناس يارسول اهللا غال السعر فسعر لنا فقال رسول هلل صلى‬
‫هلل عليه و سلم "‪ 8‬إن اهللا تعالى هو المسعر القابض الباسط‬
‫الرازق واني ألر‪8‬جو أن ألقى اهللا وليس أحد منكم يطالبني‬
‫"بمظلمة في دم وال مال‬

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 4 Redistribution is the essence
 Conventional Economic systems are based on the
‘Trickle down system’. Proponents of these policies
claim that if the top income earners invest more into
the business infrastructure and equity markets, it will
in turn lead to more goods at lower prices, and create
more jobs for middle and lower class individuals.
 Proponents argue economic growth flows down from
the top to the bottom, indirectly benefiting those who
do not directly benefit from the policy changes.
 Economic system is by default a TRICKLE UP system.
Thus Islam redistributes the income in the best way
possible.
  
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 5. Opposes Monopoly in Necessity
 A situation in which a single company or group
owns all or nearly all of the market for a given
type of product or service.
 By definition, monopoly is characterized by an
absence of competition, which often results in
high prices and inferior products.
 Scholars have an opinion that according to Sharia
government must interfere only if monopoly is in
the section of necessity. For example, if someone
monopolizes diamond jewellery market, the ruler
must not be concerned with it.
 However monopolization of wheat market
requires ruler to intervene. 12
 6. State plays a major role

 State in an Islamic Economic system has a major

role to play.
 It’s important to note at this point that a Khalifa
(Viceroy) is not the one who makes laws in an
Islamic State; he is just an implementer.
 Islam is of the belief that laws are made by Allah
alone and that all the decisions if not directly
conveyed should at least be made in accordance of
divine laws (Sharia).
 Islam appoints a direct role on state to channelize
the economic growth and welfare of the country.

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 7. Measurement of Economy

 Today, the world measures its economy in

terms of GDP, GNP, NNP, NDP etc.

 Though these figures are important, Islam

will never accept it at the cost of poverty,
injustice, inequality, unemployment etc.

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8. Taxation is the last option available as
a source of income for government
 Only Zakat (the Islamic Fiscal Duty ) was collected
from Muslims and no Taxes were imposed on them
in the early centuries of the Islamic State. Taxes (In
the form jizyah) were only imposed on non-Muslims
because they were not committed to Zakat.
 Historical experience reveals that Zakat revenue was
in some periods more than sufficient in covering
public expenditure, and in other periods insufficient.
 Public Interest within boundaries of Shariah and its
intents may render Taxation necessary for fiscal,
economic or non- economic purposes.

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 Laying Rules for Islamic Taxation is therefore
an essential and important task.
 The Role of Taxes in an Islamic Economy would
naturally be linked and influenced by ethical
and Shariah constraints imposed on taxation.
 A Tax should not be levied, for any reason, by
an Islamic government except after intensive
consultation‫ ش<<ورى‬with eminent Fuqaha and
Muslim experts in fiscal and economic matters.

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9. Islamic Economy is neither a
communist nor a capitalist philosophy
 The communist philosophy, ‘to each according to
his/her need and from each according to his/her
capacity is in direct conflict with the human
nature.
 People are not willing to work hard and excel
when the fruits of their work is distributed in the
society without any respect to their preferences.
 Communism denies the people the right to
ownership and inheritance but this unnecessary
restriction against human selfness results in loss
of motivation that is essential to cause people to
strive to excel.
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 That reduces capital formation as well as
productivity of the resources; resulting fall in
production of capital goods halts economic
progress.
  Also under Capitalist Economy there are
numerous flaws which are to be discussed from
next chapter onwards.
 Thus system of economy must be capable of
motivating the people to strive to produce the
desired growth.

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10. Zakat compulsory upon all
Muslims
 Zakat is compulsory on all Muslims who
fit in the eligibility criteria. It is paid
and used in accordance with sharia
law. This topic has been explained in
detail in the following lectures.

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