The Economic System
In Islam
 Tijarah : Trade and Commerce
 Distribution of Wealth
 The concept of lawful (halal) & Unlawful (haram)
WHAT IS THE BASED? HOW
SHOULD BUSINESS CARRIED
OUT?
Guidance from the
Quran and sunnah on
Islamic Economic
System
•Written in Quran according to
principle of trade (al – Tijarah) &
prophet teaching (Ahadith)
•There should no bil-batil / wrong
method (eg: bribery / usury)
•Must halal(lawful) and must not
haram (unlawful) acts
•Should be no disagreement
between.
•Must be honest in every matter.
•Enjoins the cardinal value of
equity, justice , mutual co-operation
, and self sacrificing to reorganising the socio-economic
Sale Transaction
1.Men and Women are allowed to engage in lawful
trade in the Shar’iah, there is no sex disqualification.
2.The Shar’iah allows an auction. Trade in all forms
must be clean and honest according to the guidance of
the Quran and the Sunnah
3.Taking an oaths (sumpah/melanggar sumpah) in sale
transactions is forbidden, the Quran lays stress on
honest and straight forward dealings in the very
earliest revelations.
4.The only trade that is declared unlawful is that of
dealing in Wine and other intoxicants (minuman keras),
Pigs and things made out of it, Idols and Image.
5.It is Unlawfull in trading to Swindle
(penipuan/pengecohan), Cheat or Lie in respect of
price, or to deceive.
Law of Contract
•Contract = al-‘aqd (in arabic)
= obligation / a tie. act of “putting a tie to a bargain”.
•al-in’iqad (2/ more parties enter into contract) , that is joining or trying up
the offer & the acceptance together. The obligations of contract called
‘uqud.
•Milk or ownership a relationship between a man & his property which is
under his controls to the exclusions(pengeluaran) of other claimants.
•Type of ownership :
1.Milk al-Yad → one may have physical possession of the property
2.Milk al-Tasarruf → right of disposal of the property
3.Milk al-Ragabah → proprietary rights (hak-hak pemilik)
The Law of Contract (cont)
 Mal : something exist and can be held in use & beneficial at the
need time.
Eg : - Grass , trees,
- For property by renting
 Consideration is an essential ingredient of a valid contract, anything
which is impossible to attain cannot form a valid & lawful
consideration
 Contract is made only both parties agreed(rights and duties) withfree manner
acceptance. The consideration must be lawful.

Offer (see page:356 ) The offer can be made in a number of ways:
1.
2.
3.
4.
5.
verbally (Bil Kalam) this kind of offer is to be made in the same meeting.
written (Bil Kitabah)
message sent with some person (Rasul)
signs & gestures (for handicaped or different languages people)
conduct (Fil) an offer made through the silence, delivery of goods is valid.
 Withdrawal of an offer There is option of withdraw his offer
before agreement.
 Time(Majalis al-aqd) needed in purpose of make up his/her
mind whether to accept or reject the offer.
COMPETENCY OF PARTIES
TERMINATION OF CONTRACT
The parties who wants to enter into a
The contract can be terminated by
contract must be legally competent to do
the mutual consent of the parties
so. A minor (one who has reached the age
according to the terms stipulated
of puberty or an insolvent or a person of
in their contract , or on the basis
unsound mind, or an intoxicated person)
of the nature of the contract.
it cannot enter into contract.
(see page: 358)
HAWALAH Is an assignment of debt , Some contracts are assignable,
the conditions requisite for a valid Hawalah:
1. The debt which is the subject matter of the contract must be a lawfully subsisting
obligation.
2. The original creditor (A) and debtor (B) must mutually agreed that the debt should
be paid by B to C, the assignee debt which constitutes the object of the transfer
3. The debt must have fallen due, but it is not necessary that the debt owed to the
transferor should have fallen due
4. Both debts must consist in objects of the same kind, equal in quantity or quality
5. The two debts must not consist of foodstuffs which have been purchased
THE CONTRACT OF SALE – ‘aqd al-by
•means the delivery of a definite object which possesses legal value in exchange for
something equivalent in value (price). includes barter.
•The seller (Mushtari) and the buyer (ba’i) are referred to by one generic name alaqid, that must posses qualifications(must):
Mumayyiz , able to understand the implications of the contract of sale (not an
insane or a minor person )
Have capablility of disposing of his property
free to use discretion (not be working under coercion, undue influence,
misrepresentation, fraud or mistake.
SUBJECT MATTER OF SALE
It must be :
oowned by the seller of his agent
oin a position to be delivered. The sale of a bird in the air or fish in the water is
void.
olawful (Halal) and wholesome (Tahir). The sale unwholesome things like wine. Pigs
and dead animal (except fish) is void (tak berlaku).
SALE (CONT)
The Gharar sale (Bay al- Gharar)
Uncertainty is involved because its resembles the presents sale of future goods recognised by
a Sale of Goods Acts(common law system). This involves speculative risk in contract.
Example: the sale of fish or birds before they are caught or produced by the vendor.
The Muzabanah and Ariyyah Sales
Muzabana : a general rule
Ariyya
: exception in the principles of contract of sale.
• Muzabana form of contract can be applied in any commodity, but Ariyya is only
applicable in the case of sale of fruits for dried dates.
• Muzabana is possible in any form of corp in the field to be sold. (see page: 360)
The Forbidden Contracts of Sale
Based on the Sunnah of the Prophet:
1. Two transactions in one sale
2. Extra conditon attached to a sale
3. Sale of what one does not own
4. Al-Mulamisah & Al-Munabidhah Sales
5. Al-Najash (dishonesty & bad behaviour)
(goods that not the own right or selling
7. Talaqa Rukban (tricking people)
something that is not appear)
8. Bai Hadir Lilbadi (city dweller
fraudulently acts as a self imposed
agent for sale and purchase of the
simple villagers)
PARTNERSHIP
 Shirakah: Partnership
Shirakah or partnership contract signifies the conjunction of two or more
persons to carry on a business to shares the profit by joint investment.
In the widest sense of the term shirakah, the partnership exists where
property is held in common between two or more coproprietors.
1. Shirakah al-Inan: Limited Partnership
Is a limited partnership in which on partner is not allowed to do anything without his copartner.
2. Shirkah al-Abdan : Association of Bodies or Labour Association
1. Islamic Laws allows two or more persons to associate themselves for the exercise of a
profession or a handycraft. The profit will be practically equal for the partners with a view
to lending mutual assistance even through the associates work separately.
3. Qiraad : Dormant Partnership
Qiraad agreement is a contract by which a persons entrusts funds to a
trader (amil) in order that he shall trade with it. Subject to the lender
having a share in the profit . Thus, in Qiraad the capital is handed over
to an agent to trade with, and the contract comes into forces when the
agent starts his trading journey. (see page: 366)
PARTNERSHIP( CONT )
Mudarabah : Co-Partnership
Mudarabah is a contract in which certain property or stock (Ras al-Mal) is
offered by the owner or proprietor (Rab al-Mal) to other party to make
partnershipin which both parties will Participate in profit.
Organs in Partnership :
Wakalah: Agency → arises when one person authories another to replace him in the
exercise of civil rights.
Wakil → the person thus authorised, can be entrusted with all acts which can be done
by representative
Obligations of a Wakil→ generally its responsible to sell or buy for the price, and
should declare clearly to third party
Daman: Guarantee → is a form of contract by which the third person constitutes
himself liable for the debt of another
Damin → the third person who constitutes himself liable for the debt of another
Capital in Qiraad Partnership and the different between ordinary & Qirad partnership
the ordinary partnership has its existence when the partner is live , the share are mostly
small, all partner has active role , & each person contribute its shares of capital. But , in
Qirad / dormant partnership , a capitalist furnish the fund, but active agent operate the
business almost without control.
• Ijarah : Hire → derived from arabic word ajar: meaning reward or remuneration
• When one party sells to the other the temporary enjoyment of moveable property other than
ships and animals in return for a price it is called al-ijarah. The price should be in proportion to th
temporary enjoyment sold.
 valid ijarah requirenment:
o the ingredients essential are the lesser and
the lesse,
o the thing which is to be hired,
o the price or remuniation for the hire,
o the consent of the hire
o the contracting parties must be legally
capable to enter in to the ijarah contract
o there must be proper stipulation of price o
remuniation
 Tahkim : Arbitration Contract → is a form of contract in
which it is agreed that in case of any dispute or
disagreement in the terms of contractual agreement , it
will be settled through the appointment of a arbitrator
(hakam)
IJARAH AND TAKHIM
 The remuniation for hire is to be paid day by day but
in the following cases, it is to be prepaid if:
1. consists of a definite object
2.Has been stipulated
3.Local custom
4. hire of any animal for some definite journey
which is not yet commended
*the ijarah contract will be valid if it is combined with a
conditional agreement. (see page:370)*
Ill-gotten wealth
 Money or property which is aquired through unfair(unclean and unlawful) will cause a great harm.
- the prayers won’t find acceptance
- the supplications won’t be answered
- the petitions won’t be granted
 Even, when he does something good, they won’t avail him nothing. In the next world, there will be no share for him in the
special favours of Almighty Allah.
 It is ensured by shari’ah that the trader must not exploit the buyer.
Distribution
of
wealth
• Government took the interest in the market condition and developed an
institution of hisah(responisble for stopping adulteration, underweighing, overwork by employers, and so on which pertaining unlawful professions) .Such
departments were headed by muhtasibs.
• There are numerous instance to suggest the government intervened if the
rules of fairplay were violated.
• The holy prophet also participated himself visiting the market place advising
the traders to use moral principles in trade.
Warning to selfish and dishonest traders
“They will receive the eternal punishment.”
oSome traders are habituated to swear in the name of Allah while selling their commodities.
And the prophet said that Allah won’t look on the Day of resurrection,nor would they be
cleansed of their sins, they will be recipients of painful punishment because they sold the
goods by swearing falsely
Al-riba: The usury
 Some people says that usury and trade are same thing, but Allah has permitted trade and
forbbiden usury.
 Those who practice usury are ungrateful and wicked
 True believers must give up the practice of usury
 If one does not stop the usury,he is given notice of war from Allah and His messenger
 The Next world is given to those who stop usury
 Those who devour usury are the rejectors of faith
 Wealth doesnt increase but decreases (leads to poverty)
Usury was not new in Arabia
 Before the advent of islam, this has been prevailed in the Arabian Peninsula(economy bases) but
Islam deny & reject this unjust & criminal systemgive new basis such as : zakat, of the goodwill loan,
of cooperation and mutual solidarity.
• Certain aspects of usury which is forbidden are for example :
1. Selling other land, unborn animal, selling uncaught fish/birds
2. selling the comodities which defect have been disguished,selling the goods which allow the buyer
just to touch it without seeing(examining),
3. selling the cloth without showing the buyer adequately
4. selling the comodities without weighing/measuring,
5. selling agricultural produce not yet ripped,
6. etc
Usury (Cont)
•There are also prohibited all kinds of invalid partnership, such as partnerships in cultivating a tract of land in return for
the products of a certain piece of it.
•And applied to all commodities that exchange something with the same type but one of the parties gives more than he
receives except in respect of vegetables and fruits, and when exchange one type of good with the other type is
prohibited except in equal quantities in direct and immidiate exchange.
•Here it may be mentioned that the shari’ah does not tolerate
any profit which is stipulated at the time of contract
because apart from being riba it is risky in that it may
not all be realised, or even realised, it may
be less than be stipulated amont.
Distribution of Income and Wealth
•The policy of distribution of income and wealth in Islamic Law assures that in
the process of distribution none of the factors of production exploit the other.
•As a practical religion and way of life, this policy compulsory retains a portion
of produced wealth for those who are detained from contributing their share in
production due to any social, physical, or economic handicap.
Al-Amanah: The Trust
The law of Allah delacred:
“Do not devour one another’s wealth by false
and illegal means.”
A man who keeps someone’s property in trust is
Amin, a trustworthy person
The trust may be various kinds:
-Property, goods, credit, etc.
-Plans, confidences, secrets, etc.
-Knowledge, talents, opportunities, etc.
Men who misusing the property or abusing the
confidence reposed in them will be accounted
by Allah, if not in this world, it will be on the day
of Judgement
Al-Dayn: The Debt
•When one has an economic trouble,
he should ask other people for loan.
•In Islam, debt is also the kind of trust which should be returned to its owner.
•The verse on the injuction of debt and its repayment is among the detailed verse of
commandments (ayat al-ahkama al Mufassal). It says:
-When money or something is lent for a specific term, it should be written down in a document
-The scribe who is called upon to write should not refuse and he should write exactly as what is
dictated.
-The person taking oath should dictate.
-Supposing such a person cannot dictate well or incapable, then his guardian or agent should
dictate justly.
-Two witnesses from amongst the Muslims should be called to witness the deed.
-If two male witnesses are not available, then one Muslim man and two Muslim women should
ne invited as witnesses
-In the entire affair, the parties concerned should fear Allah and do justice.
Al-Rahn: The Mortgage
means a proof or something that has been held in pledge.
In Shariah law, it means holding something that has a value while giving something on debt.
 If the times stipulated while giving a debt on security expires, the debt can recovered from
the mortgaged property.
 A valid mortgage must satisfy the
following 3 conditions:
① Both the mortgagor and mortgagee
must have the legal capacity to
possess and dispose of the property
② While making the agreement terms of
the mortgage must be expressed
③ The debt as well as the mortgaged
property should not be unlawful
commodities
 There are 3 essential requisites for a
valid mortgage:
1. The presence of the mortgagor and the
mortgagee
2. The thing to be mortgaged and the
debt to given in lieu of it
3. Consideration
and acceptance
• whose transactions are forbidden under shariah
The agreement of mortgage will be considered incomplete
until the article pledged is taken over.
• Responsibility for damaged or loss of the article
mortgaged shall be borne by the mortgagor.
Bayt al-Mal: The Centre of The Financial Organization of
the Ummah
•Bait in Arabic means a House, while Mal means the property.
•Bayt al-Mal means the treasury of the public.
•The concept of Bayt al-Mal is the concept of trust: the wealth of Bayt al-Mal is to be
treated as Allah’s or Muslim’s wealth.
•The sources from which funds are collected in the Bait al-Mal are as follows:
- Zakat
- Ushr - Sadaqah - Khums
- Jizzyah
- Fay
-Kharaj
- Dara’ib
• Abdallah bin Umar has said: “In your property, there are other
rights other than Zakat”:
- Waaf
- Amwal al-Fadilah
- Ushur
- The estate left behind one who has
no heirs
- Kira al-Ard
•As promised in the Quran, “Allah will deprive usury of all blessings, but will give increase
for deeds of charity.” Thus, Islam lays great stress on the relief of the poverty by the rich.
•It is not considered to be a favor by the rich if they help the poor; on the other hand, it is
a duty of the rich and prosperous men to take part in the economic uplift of the poor.
The Right of the Poor
and
the Handicapped
• The Muslims have been ordered to work for
the uplift of all mankind and to show by
their conduct that their minds and hearts
are free from national or religious hatred.
• While Muslim mustn’t live an extravagant
life, those who are blessed with the
bounties of Allah are not expected to live in
rags, for the Prophet has said that Allah
likes to see traces of His bounty of His
Servant.
Miserliness condemned in Shariah
• Miserliness is considered to be a sin in Islam. Islam doesn’t believe in merely collecting
property and living a miserly life.
• A generous man is considered to be a friend of Allah in the teaching of the Prophet. With
Muslim, the worship of Allah is linked up with kindness – to parents, kindred, those in
want, those who are far from their homes though they maybe total strangers to us.
• The miserly persons are the brothers of Shaitan, the Devil, and hence are always ungrateful
to Allah like Shaitan.
Begging: An unlawful act
•Muslims are asked to struggle to earn their lawful livelihood, and not merely depend on
charity.
•The only time begging can be permitted is when a man is hard press and there is no other
way to survive than asking for help.
•It’s not lawful to beg except for three categories of people:
-That a man who accepts to be a guarantor on someone’s behalf (and has no money to pay)
-That a man whose property is destroyed by calamity
-One who is starving and three people of his locality confirm that he is really starving
Al-Rishwah
• Al-Rishwah or bribery is offered or promised to be offered to someone
in order to influence him or persuade him to do something wrong in
favour of the giver.
• Al-Rishwah is dishonesty.
• It doesn’t prohibit the mutual exchange of gifts among friends and
relatives. The Messenger of God said that “Exchange gifts, this will
increase your love.”
• But the taking of gifts by the government officers and administrators in
the process of discharging their duties is thus forbidden under
Shari’ah. The Prophet has warned: “There will come the period when
bribe will be made lawful by people thorough gifts, and murder
thorough adminitions.”
The Devastating Effects of Modern Economic System
• A man is not to live by bread alone. A man does not live to eat but eat to live and survive.
• If we attempt to build our society on economic foundation alone, it would really mean
that a man’s position is being reduced to a grazing animal.
• The wealth people forgetting their role of Khalifa of Allah on earth, began to describe their
motto of life as “money, more money and yet more money.”
• Dishonest ways of earning have been legalized and everything has been
named a ‘business’ (al-tijarah)
The Modern Banking System & Interest-free
Muslim Banks
• Usury meant any premium paid for the use of money, it means the practice
of demanding an exorbitant premium of interest.
• Every business man in need of loans is driven by force of circumstances to
borrow from the Banks which charge high rates of interest.
• Muslim dynasties ruled all over the world and inherited this well established
banking system, but they never engaged in the practice of riba or interest
without which the modern banks, as the general impression is given to all of
us, cannot work.
Islamic Bank: A New Economic Order for the Modern
World
Guidelines for an ordered and centralized economic pattern of the world, that could be
ordained thorough the Islamic Bank are suggested below:
1. The world Muslim currency should be immediately established.
2. The value of one barrel of crude oil should be fixes at one Dinar.
3. In foreign currencies, the oil price should be gradually increased with an index based
on the rate of inflation on a selected number of Technical Essentials.
5. Standard export of Muslim countries should in Islamic Dinars. All the Islamic
countries must see and contain in all their requirements for development, including
Education, technology and ideology.
6. All the surplus wealth of Muslim countries must be deposited with the Islamic Bank
7. The major functions of the Islamic Bank should be to invest its
contribution, both at home and abroad.
8. Another body of experts should be formed to prepare
an International Price List of the Technical that Essentials Dinar
9. The Islamic Bank should give interest free Dinar Loans
to the Muslim countries for their projects.
10. The Islamic Bank should also deduct Annual Zakat
on the stagnant wealth that could
be used as Aid to the poor Muslim countries.
The Concept of Lawful (halal)
and Unlawful(haram) in
Shari’ah
 Shariah give clear guidance regarding of lawful and
unlawful acts based on al quran and the sunnah of
prophet.
 The Basic principles( from holy quran) : Juridical Dictum
“Al-ihaba aslan fil –ashya”
lawfulness recognize principle in all things
means : all is lawfull unless it is definitely prohibited by law (but some scholar think vice versa )
 Allah has made obligatory deeds essential , do not waste them , and He has fixed limits, do
not cross them. Whatever He has declared as unlawful, do not violate them, and He has
kept quite about certain things , it is a sort mercy for you, do not enter the unecessary
discussion about them
HALAL AND HARAM
• some people trying to trick what is haram , by finding flimsy and excuses , to
be able to do what’s unlawful or haram, and make it halal
eg : jews cant catch fish on Saturday ,so, dig ditches on Friday and accumulate fish
on Sunday.
• What has been declared as unlawful
in sunnah
1. wine (drinking , selling ,brew )
5.
2. murder ,
6.
3. adultery ,
7.
4. theft ,
brigandage,
usury.
Making wool using
death animal hair, etc
• some people in modern time people declare that waht is
unlawful as lawful in the name of trade . but good musims
need to be ‘taqwah’(piety) and keep away from all of those
sin.
• People who is really in need can get zakat and sadaqah
in purpose of sustain their life
o The Creator asks all the creatures to follow His command and eat ‘taiyib’ food( what
is pure, cleans wholesome, nourishing, and pleasing to the taste.) this is written in
surat al baqarah verse 172
o The believer is given lesson from quran. And need to do gratitude to Allsah and tHe
prophets with doing ibadah.
o Al-Jahiliyah (‫ )الجاهلية‬is the pre-Islamic time of ignorance. This concept is part of the
following classification in the ontology. People must need to eliminate this to be a true
muslim with doing what has been taught, eg: worship with facing the qiblat when pray.
Injunctions in
Respect of Halal
&
Haram
o There are some 3 condiltional ( driven under
necesity ) that may allowed peoplre to eat
what is hara,( based on quran ) wich is:
1. People in helpless condition to save their life
Example : when people got nothing to
eat ,forcably to eat what is haram
2. Absolutely no intention to break the law of
Allah
3. Even eat, It should be not taken more than
necesity.
Consideration of haram food :
True muslim should abstain from this kind of food that forbiden to eat /
haram food:
1.The flesh ofswine or a pig ( eg: pork )
Because of its habits, its unclean, may causes fever & leprosy
2. Dead or rooting flesh
Because of ‘maiata’ : has not been slaightered in the manner of
prescribed life
3.Blood poured from an animal by force
4.The flesh of stranged animal
5.The flesh of an animal beaten to death
6.The flesh of animals which dies through fall;
7.The flesh of an animal which is smitten to death with the horn
8.The flesh of an animal a part of which is eaten by wild beast
Because it is consider as un hydienic food
9.A flesh of an animal which is natural death
10.Animal slaughtered for idol
because of polytheism(to idol) consder as great sin; excet for islamic purpose / dabh
(this still need to have bismilahAllah-u-Akbar ) or ‘’id-al kabir (eg: circumcision; in this
state , better give the meat for othe too, but not obligatory)
11.The beast of prey with canine teeth(according to ‘hidaya’)
Consideration of halal food :
Consider as halal food
1.Milk (from cows, sheep, camels, and goats)
2.Honey
3.Fish
4.Plants which are not intoxicant
5.Fresh or naturally frozen vegetables
6.Fresh or dried fruits
7.Legumes and nuts like peanuts, cashew nuts, hazel nuts, walnuts, etc.
8.Grains such as wheat, rice, rye, barley, oat, etc.
•Animals such as cows, sheep, goats, deer, moose, chickens, ducks, game birds, etc., are also
Halal, but they must be Zabihah (slaughtered according to Islamic Rites) in order to be
suitable for consumption. The procedure is as follows: the animal must be slaughtered by a
Muslim. The animal should be put down on the ground (or held it if it is small) and its throat
should be slit with a very sharp knife to make sure that the 3 main blood vessels are cut.
While cutting the throat of the animal (without severing it), the person must pronounce the
name of Allah or recite a blessing which contains the name of Allah, such as "Bismillah Allahu-Akbar".
The Holy Qur'an, 5:3
“ Forbidden to you (for food) are: dead meat, blood, the flesh of swine, and that
on which hath been invoked the name of other than Allah; that which hath been
killed by strangling, or by a violent blow, or by a headlong fall, or by being gored
to death; that which hath been (partly) eaten by a wild animal; unless ye are able
to slaughter it (in due form); that which is sacrificed on stone (altars)... ”
The Holy Qur'an, 5:90
“O ye who believe! Intoxicants and gambling, (dedication of) stones, and
(divination by) arrows, are an abomination, of Satan's handwork: eschew such
(abomination), that ye may prosper.”
o Dabh can be divide by 2:
i. Dabh al-Ikhtiari : killed by knife
ii. Dabh al idtiari : killed by shoot
o There ais exception that known as id-al kabir which alloews people to eat
beast flesh , but its better to give the flesh to the other , but not obligatory)