Economic Systems and Islamic

Finance

Instructor: Muhammad Kashif

saykashif@yahoo.com
Meaning of Economic System
 A systematic relation among individuals
engaged in the production of wealth,
distribution, and exchange of wealth and
the use of commodities and services is
called Economic system.
Every System has two parts
 Ideological Basis
 Detailed Structure
Ideological Basis
 the Ideological basis of Capitalism and
Socialism is materialism
 Ideological basis of Islam is Eeman
 In Islam real matter is not this world but
hereafter
Brief History of Capitalism
 Feudal System
 Merchants
 Bankers
 Capital
 Since the capital was the nucleus of this system, it
came to be known as Capitalism.
Brief History of Capitalism
 Capitalism: An absolute and unconditional right to
private property

 The Slogan :- Freedom

Definition of Capitalism
 Capitalism, as defined by the Collins Dictionary,
“is an economic system based on the private
ownership of the means of production, distribution
and exchange”.

 Broadly speaking, capitalism is the name given to

the economic system in which the principal means
of production, distribution and exchange are in
private (individual or corporate) hands.
Characteristics of Capitalism
1 Right of private property
2 Profit Motive
3 Competition
4 Economic Freedom
5 Wage System
6 Consumer`s Sovereignty
7 Price Mechanism
8 Laissez- faire
MERITS of Capitalism
1 Maximum utilization of resources
2 Invention
3 Technical advancement.
DEMERITS of Capitalism
 Cruel Competition
 Class Struggle
 Unjust Distribution of Wealth
 Economic Crisis
 Corrupt Business Practices
 Poverty & Unemployment
 Disaster of Interest-based Trade
 An Expensive Way of life
Emergence of Socialism…
 Industrialization and merciless exploitation
 German Philosopher Karl Marx to present
socialism as a concrete philosophy and practical
system.

2-11
Cont`d….
 Das Capital in 1867 which is considered to be the
Bible of socialism
 collective ownership of the means of production
will replace private ownership.
 Every citizen shall have an equal share in the
resources of the state.
 The motive for the work will NOT be personal
profit but collective or social interest.

2-12
Definition of SOCIALISM
 According to the Collins Dictionary,
“Socialism is an economic theory or system in
which the means of production, distribution and
exchange are owned by the community
collectively through the state”
 Socialism means total deniel of right to private
property with the exception of owner ship of some
articles of personal use
 The Slogan:- Equality
MERITS of Socialism
1 Elimination of wastage of resources
2 Eradication of exploitation
3 Elimination of concentration of wealth
4 No unequal distribution of wealth
5 Provision of necessaries of life
6 Elimination of unemployment.
DEMERITS of Socialism
1 End of liberty

2 Weakness of the will to work

3 Errors in planning

4 Failure in practice.
Economic system of Islam
 Meaning
 Islamic economic system implies a mode of satisfying the
economic needs of the members of an organized society in
accordance with the commands of the Quran and the Sunnah.
 In this system the economic activities of the society are
regulated by certain values of which, piety, justice,
benevolence, cooperation, brotherhood, are especially
important.
Economic system of Islam
 Meaning
 Islamic economic system implies a mode of satisfying the
economic needs of the members of an organized society in
accordance with the commands of the Quran and the Sunnah.
 In this system the economic activities of the society are
regulated by certain values of which, piety, justice,
benevolence, cooperation, brotherhood, are especially
important.
Goals of Economic system of
Islam
1 Achievement of welfare
2 Economic development
3 Relief poverty and starvation
4 Equitable distribution of wealth
5 Elimination of waste
6 Security of freedom
Capitalism, Socialism and Islam
1 Capitalism = Freedom
2 Socialism = Equality
3 Islam ensures both
4 Freedom not at the cost of equality
5 Equality not at the cost of freedom
Goals of Economic system of
Islam
2 Economic development
3 Relief poverty and starvation
4 Equitable distribution of wealth
5 Elimination of waste
‫غ‬
6 Security of freedom(‫) ر ر‬
Features of Economic system
of Islam
1 Maximum utilization of resources
 The most important basic principle of Islamic
system is the maximum utilization of the infinite
resources spread over the vast universe.
 Full usage of all God-given faculty (talent)
 Islam declares it a punishable offense to let these
human faculties rust in idleness
“….for you shall be questioned for (the use) of
your eyes, ears and minds.[ Bani-israel 17:36]
Features of Economic system of
Islam
2 Use of Lawful means for earning livelihood

“O people! Eat of what is lawful and clean in

the earth and do not follow the ways of satan
for he is your declared enemy. [ Al-Baqara 2:
168]
Cont`d…
3 Inducement to spend wealth within limits
“… eat and drink, but do not transgress, for Allah
does not like the transgressor” [ Al-Ara`f 31]

4 Prohibition of amassing (gathering) wealth “ Give

them the news of a painful torment who hoard up
gold and silver and do not expend these in the way
of Allah” [ Al-Tauba 9:34]
Cont`d…
5 Circulation of wealth “… so that it does not remain
circulating among your rich people only” [Al-Hasher 59: 7]
6 Economic freedom
 Islamic economic system provides an equal
opportunity to make a living to all members of the society.
 No scope for monopolies and economic privileges.
 Individuals are bound to exercise economic freedom
within the limits of Shariah.
Cont`d…
7 The right of private ownership

8 Equitable Distribution of wealth

9 Moral values and role of state

20-25
‫‪Importance of Capital in Islam‬‬
‫سفَ َها َء أَ ْم َوالَ ُك ُم الَّتِي َج َع َل هَّللا ُ لَ ُك ْم قِيَا ًما َو ْار ُزقُو ُه ْم‬
‫‪َ ‬واَل تُ ْؤتُوا ال ُّ‬
‫سو ُه ْم َوقُولُوا لَ ُه ْم قَ ْواًل َم ْع ُروفًا‬ ‫فِي َها َوا ْك ُ‬
‫‪ 5: Do not entrust (their) property God has given‬‬
‫‪you to maintain (On trust), to those who are‬‬
‫‪immature; but feed them and clothe them from it,‬‬
‫‪and speak to them with kindness.‬‬
‫ئ‬ ‫خ ن ت‬ ‫ق‬
‫ب‬ ‫ب‬ ‫س‬ ‫ے‬
‫ل‬ ‫کے‬ ‫لوگوں‬ ‫م‬ ‫ے‬ ‫دا‬ ‫ے‬
‫س‬‫ج‬ ‫مال‬ ‫کا‬ ‫ان‬ ‫کو‬ ‫لوں‬ ‫ع‬ ‫ے‬ ‫‪ :5 ‬شاور ب‬
‫نت‬ ‫ت‬ ‫معی ت ب ن‬
‫سے ان کو کھالے اور پ ہ اے‬ ‫ن‬ ‫ں‬ ‫م‬
‫ت ی‬ ‫اس‬ ‫)‬ ‫اں‬ ‫ہ‬‫(‬‫ت‬ ‫دو‬ ‫مت‬
‫ق‬ ‫ے‬‫ی ہ‬ ‫ا‬ ‫ا‬
‫ے رہ و سورہ ال سا‬‫ے اور ان سے مع ول ب ا ی ں ہک‬ ‫رہ‬
Sources of Income in Muslim State
 Zakat
 Sadqat
 ushar ‫غ‬
 Looting‫مت‬( ‫لی‬‫)م ا ن‬
 Looting part for government(1/5)
 Looting part for Mujahideen(4/5)
 Zakat can not be given to Sadaat
 Looting can
‫ئف‬
 ‫ے‬ (without war)
‫خ‬
 ‫راج‬
 ‫‪Recipient of Zakat‬‬
‫ين َعلَ ْي َها َوا ْل ُمؤَ لَّفَ ِة قُلُوبُ ُه ْم َوفِي‬
‫ين َوا ْل َعا ِملِ َ‬
‫سا ِك ِ‬ ‫ص َدقَاتُ لِ ْلفُقَ َرا ِء َوا ْل َم َ‬‫إِنَّ َما ال َّ‬ ‫‪‬‬
‫ضةً ِم َن هَّللا ِ ۗ َوهَّللا ُ َعلِي ٌم‬‫يل ۖ فَ ِري َ‬ ‫يل هَّللا ِ َوا ْب ِن ال َّ‬
‫سب ِ ِ‬ ‫سب ِ ِ‬‫ين َوفِي َ‬ ‫ب َوا ْل َغا ِر ِم َ‬ ‫الرقَا ِ‬‫ِّ‬
‫َح ِكي ٌم‬
‫‪: Charities are meant for the indigent and needy, and those‬‬
‫‪who collect and distribute them, and those whom you wish‬‬
‫‪to win over, and for redeeming slaves (and captives) and‬‬
‫‪those who are burdened with debt, and in the cause of‬‬
‫‪God, and the wayfarers: So does God ordain. God is all-‬‬
‫‪knowing and all-wise.‬‬
‫زکوة وخیرات) تو مفلسوں اور محتاجوں اور کارکنان صدقات کا حق ہے اور ان‬ ‫‪ :‬صدقات (یعنی ٰ‬ ‫‪‬‬
‫لوگوں کا جن کی تالیف قلوب منظورہے اورغالموں کے آزاد کرانے میں اور قرضداروں (کے قرض ادا‬
‫کرنے میں ) اورخدا کی راہ میں اور مسافروں (کی مدد) میں ( بھی یہمال خرچ کرنا چاہیئےیہحقوق ) خدا کی‬
‫ے مقررکر دیئےگئےہیں اورخدا جاننےواال (اور) حکمت واال ہے‬ ‫طرف س‬
Zakat can not be given to Non
Muslim
 Hazrat Umar ‫نہ ک‬
‫ل ت اب‬ ‫م س یاک ا‬

 Tibri says Fuqra means muslim needy

and Masakeen mean non muslim needy

20-29
Some other Islamic Terms
 ‫بی ع‬
 ‫مزارعہ‬

‫ق‬
‫مسا ات‬
‫غ‬
 ‫رر‬
 Ijara
 Riba

20-30