Islam and other
Economic Systems
Table of contents
01
03
Economic System of
Islam
Fundamental Features
of Economic System in
Islam
02
Ideological Foundations
of Islamic Economics
01
Economic System of
Islam
The Meaning of Economic System in Islam:
The Islamic economic system is a mode of satisfying the economic needs of an
organized society in accordance with the injunctions of the Quran and the
Sunnah. It is regulated by certain values, such as piety, justice, benevolence,
cooperation, brotherhood and equality, which are eternal and immutable.
Consumer, producer and trader must abide by these values..
Important Institution of the Economic System:
The economic system of Islam is composed of many institutions, organizations and laws. These include private
ownership, Zakat and Usher, Khumas and Kharaj, Law of inheritance, spending and Sadaqat, Sharakat
(partnership) and Muzarbat (profit and loss sharing), rules and regulations of commercial dealing, prohibitions on
interest and gambling, and the state responsibility of necessities of life. These institutions work together to achieve
economic goals, and if one is removed from the whole, its effects will fade away.
The Islamic Economic System has the following
goals:
(i)
Achievement of Welfare:
The higher goal of the economic system of Islam is the exploitation of the
God-given resources of the universe for the satisfaction of the economic
needs in such a manner that the greatest number of men get the greatest
temporal and eternal welfare. in other words the goal of Islamic
Economics is neither temporal Welfare alone nor eternal welfare alone. It
aims at real welfare which is a combination of temporal and eternal
welfare. It can de be termed as "Winning of Allah's Goodwill."
(ii) Economic Development:
Islam emphasizes the exploitation of the resources of the universe and the
use of God-given knowledge and action to achieve rapid economic
progress. The Holy Prophet (S.A.W) emphasizes the importance of
continuing to engage in the economic struggle until the last breath of life.
(iii) Relief from Poverty and Starvation:
Allah Almighty wishes to see His family prosperous, so He taught men the
principles to direct the flow of provisions in the earth and the heaven
towards them. Had the people of the habitations believed and adopted
the way of piety, they would have received blessings from the heavens
and the earth.
(iv) Equitable Distribution of Wealth:
Islamic economics seeks to establish an equitable system of the distribution
of wealth, eliminating injustice and exploitation and guaranteeing a wagerate to all factors of production. It also establishes permanent institutions like
the Zakat and Anfag system, the Bait-al-Mal, the Law of Inheritance, the
Auqaf system and the Law of Permissions and Prohibitions for this purpose,
which are lacking in non-Islamic systems.
(v) Securitv of Freedom:
The economic system of Islam is designed to preserve human liberty
and give individuals complete control over their resources. It also
imposes no restriction on them except that they must remain within
the limits set by Allah.
vi) Elimination of Waste:
The elimination of waste is an important aim of Islamic economics, as Allah
Almighty has created resources according to a scale to fulfil the needs of all
men. He declares these resources as His Bounties and warns man that he
will be held accountable for the use of them. Un-Islamic economic systems
lack any conception of accountability to a supreme Being in the Hereafter,
so wastage is usual.
Functions of the Islamic Economic System:
The economic system of Islam is governed by its moral values, such as piety,
justice, benevolence and cooperation. These values are the source and
origin of the Holy Quran values, and man can strive to satisfy his needs or
earn profit only in conformity with these values. This distinguishes the
economic system from other systems, as they lack a moral dimension.
02
Ideological Foundations
of Islamic Economics
1.Existence of the Creator of the Universe:
Islam believes that the universe was created by a Creator and Master
who is Ever-Living and Everlasting, Sustainer and lord, all-Knowing
and All-Aware, Powerful and Omnipotent.
2. Man is the Vicegerent of God:
Man is the Vicegerent and deputy of God. In this Capacity it is his duty to
establish the will of His Master in his own sphere.
3. Abundance of Provisions:
Allah Almighty has provided the universe with infinite resources to meet
human needs, including the Earth, sky, and sea. The Holy Prophet (SAW)
said that the door of provisions is open to the sky.
4.The Resources of Provisions are for the Benefit of Man:
The Infinite economic means created in this universe by Allah Almighty
are meant for man's use and satisfaction of his needs. Everything in the
universe is directly or indirectly working for the benefit of man, and no
man or party of men has any right to do anything which might cause the
means of provision to remain unutilised or go waste. All men have an
equal right to utilise the resources of the universe without distinction,
and the doors of earning livelihood cannot be closed on any individual
or party.
5. The resources of Provisions can only be ufilised:
accordance with God's Will:
Man should utilise the resources of the universe in accordance with their
Creator and Owner's will, as this will open doors to new sources of
provisions. If the resources are utilised contrary to or independently of the
will of Allah, social discord arises and man is engulfed in misery.
6.Economic Problem forms only one part of Human Life:
Islamic economics is based on the premise that the economic problem is
just one part of human life, and that no scheme can be adopted which
violates human dignity or raises mischief and strife in society. Social
Justice and harmonious social development are the sum and substances
of Islamic economics.
7. Sense of Responsibility:
Man should strive to utilise resources with a sense of accountability to the
sustainer of the world on the Day of Judgement, when He will weigh the
actions on the scale of Good and Evil and decide reward or punishment.
"Then, on that Day, you shall certainly be called to account for the
comforts of life."
(At-Takathur 102: 8]
03
Fundamental Features
of Economic System in
Islam
1. Inducement to Maximum Utilization of the Resources of
the Universe:
Islamic economies emphasize the maximum utilization of the infinite
resources spread over the universe and the use of all God-given faculties
by man to achieve this purpose. Renunciation of the world or Asceticism
is prohibited, and man is constantly engaged in research and exploration
and the development of resources. This outlook leads to the promotion of
technical knowledge and arts, and the making of inventions. With the full
use of human energy, the National Product grows at a phenomenal rate.
2. Use of Lawful Means for Earning Livelihood:
Islam encourages man to strive to earn a livelihood through lawful means,
such as manual or mental labour, trade, industry or crafts, farming or fishing,
mining or construction, and employment. Unlawful earning is prohibited,
such as stealing, bribery, gambling, interest, prostitution, production,
purchase and sale of narcotics, painting,sculpting, musical instruments, and
hoarding. People must eat of what is lawful and clean in the Earth and not
follow the ways of Satan.
3. Inducement to Spend Wealth within Limits:
Islam grants man the right to use his lawfully earned wealth and
permits, even encourages him to spend it on his genuine needs or give
it away as support or gift to other members of the society. However, it
imposes certain restrictions on the spending of wealth, such as not
spending money on things that destroy morality and character, and
avoiding ostentatious displays, articles of sensual pleasure, and
needless and undue spending. This has ensured the benefits of the
economic system and saved society from its evils.
4. Prohibition of Amassing Wealth:
The Islamic economic system teaches that lawfully earned wealth should be
spent in moderation in the right way. Hoarding of wealth is condemned
because it invokes Allah's wrath and closes the doors of Allah's mercy and
blessings on the niggard. It also stops the flow of wealth, leading to a
downfall in the sale of consumer goods and an economic crisis.
5. Arrangement for Promoting the Circulation of Wealth:
The Islamic economic system aims to prevent wealth concentration and
promote circulation of wealth. Muslims are encouraged to spend their
lawful earnings on legitimate needs, help kinsfolk and needy persons, and
spend on Jihad in the way of Allah. The payment of obligatory Sadaqat
and Zakat is important, which transfers a sizable portion of wealth to the
poor and indigent sections of society, creating purchasing power and
relieving the economy of unsold stocks. Inheritance is distributed among
family members and near relations, and the Islamic government collects
taxes from the wealthy to supply the needs of the needy. Interest is
prohibited and considered a crime, hindering wealth circulation. The
government can take appropriate measures to remove bottlenecks in
wealth circulation.
6. Economic Freedom:
Islamic economic system provides equal opportunity to all members
of society, but individuals must exercise their economic freedom
within the bounds set by Allah and spend their lawfully earned wealth
for lawful purposes.
7. The Rights of Private Ownership:
Islam recognizes the individual right of ownership on lawfully earned wealth,
but requires them to use it within limits set by the Shariat. While private
ownership is more in accord with Islamic doctrines, the Islamic government
is authorised to nationalize certain means of production in a suitable manner
whenever the necessity arises.
8. Equitable Distribution of Wealth:
The economic system of Islam emphasizes equitable distribution of wealth.
Through moral teaching and legal measures, the process of transferring
wealth from the affluent to the poor has been instituted, creating a balanced
and self-regulatory system of distribution and exchange of wealth.
Additionally, steps have been taken to make it possible and easy for factors
of production to receive just compensation, while exploitation has been
curbed.
9. Moral Values and Role of the State:
The Islamic economic system is based on a comprehensive scheme of
moral education and training, linked to a strong and co-ordinated system of
beliefs and devotional practices. This system protects the economy from
internal conflict and crises, and uses the authority of the state to promote
economic prosperity. The government is also responsible for relieving the
masses from poverty and hunger and launching effective measures to fulfil
their economic needs.
10. Flexibilitv:
Islamic economics is fully capable of absorbing new ideas, institutions and
organizations, allowing it to benefit from human experiences in
consumption, production, distribution and exchange of wealth. It can also
assimilate joint stock companies, economic planning, social welfare
services, insurance and banking institutions, modem instruments of money
and credit, advanced technical equipment and foreign trade corporations.
11. Regulating the Mechanism of Prices:
Islamic economics is a free enterprise system where economic variables are
controlled by forces of supply and demand. However, the price mechanism
is regulated by moral values to prevent human behaviour from getting out of
control and disrupting the economy. The Islamic State plays an important
role to remedy this situation.
12. Positive Role of the State:
The economic system of Islam is a free enterprise system, but the state plays an
important role in achieving its goals. Through administrative and statutory
measures, the state seeks to eliminate economic injustice and exploitation, narrow
the gap in incomes, alleviate unemployment and keep prices at a reasonable level.
It also forms monetary and fiscal policies to offset the adverse effects of a laissezfare economy. The state plays a regulatory, guiding and leadership role in every
sector of economic life to establish economic justice.