Islamic Economic System

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 Islamic Economic system

Islamic Economic system: It refers to

the knowledge of economics or economic
activities and processes in terms of
Islamic principles and teaching.

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 Principles of Islamic
Economic system
Allah the real possessor- Every thing
belongs to ALLAH Almighty.
“To Allah belongs whatever is in the
heavens and whatever is in the earth”
Man and his Position: Man is the
vicegerent (Khalifa) of Allah (SWT) and is
obliged to follow the guidelines sent down
by Him in every sphere of life for success
in the life here and the life hereafter. 3
Wealth and Resources: Allah has
created abundant resources (both actual
and potential).
Every human being has equal right to
acquire these resources through
righteous means.

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Economic Trust: The natural inequality
enables some people to earn more than
the others.
To maintain a balance in the society, it
is required that a part of the surplus
earned by a person should go to one
who is not able to earn. This principle is
known as Economic Trust.
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Economic Activities: Islam provides
comprehensive guidelines towards the
economics activities i.e. production,
distribution, and consumption. The
commodities and services to be
produced are categorized into
necessities, comforts and luxuries.
Extravagance and wastage in
consumption are prohibited.
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Trade and Business: Islam permits and
encourages trade. However, it provides a
few conditions to protect the interest of
the parties involved in the trade and in the
interest of the society.
One cannot trade in the commodities that
are prohibited and clearly mentioned in
Quran and A hadith and that are not in the
collective interest of the society.
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Debt in Islam: Generally, Islam
discourages one’s involvement in debt. It
permits the same only when borrowing
money becomes a necessity. The person
getting into debt must be aware of his
ability, both actual and potential, to repay
the debt even before entering the
transaction.

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Zakat and Charity: Zakat means
purifying or increase. Allah (SWT) has
made it obligatory for every able
individual to pay annually a portion
(2.5%) of the surplus earned to the poor
and the needy as their share in the form
of Zakat.
Islam also encourages individuals to
spend in the optional charity (Sadaqah)
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Savings in Islam: Islam also encourages
saving a portion of wealth for future
uncertainties and requirement.

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 Islamic Economics Structure

• Politics/Public (Siasi)
• Business/ Private (Tijari)
• Social/ Voluntary (Ijtimai)

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 Operational Principles
Adl/ Ihsan: Doing justice/ giving what is due
(adl); beyond justice/ giving more than what
is due (ihsan)
 Takaful/ Taawun: Cooperation and collective
good (beyond personal good).
Responsibility/ accountability: to others
(society), but ultimately to Allah.
Moderation/ balance: avoid extremes in all
economic pursuits
Sociaist Economy
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 Characteristics of
economic system in Islam
Distinguished from other economic
systems with its being based mainly on
religious sources and its embracing
both this and other worlds as a whole
Favours ethical values, social justice
and welfare, moderation and balance in
all matters with related to individual and
society.
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Islamic economics differs in general
from socialism by accepting private
property and profit, and from capitalism
by rejecting interest.
Dynamism of capitalism and equality of
socialism are combined in Islamic
economics.
Private interests reconciled with the
public ones.

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The principle of “neither suffering a
loss nor causing a loss” to protect all
kinds of rights no matter to whom they
belong.
Islamic economics takes human life as
a single life consisting of two legs: this
world and the hereafter.
Islamic economics aims a maximum
economic welfare for everybody in
society.
In this system, problem of production 15
 has been solved by giving vast economic freedoms to
individuals such as private property and enterprise, by
encouraging working, earning and then sharing, by
taking measures to prevent economic resources from
remaining idle and by removing all barriers blocking
national and international trade.
 As for the problem of distribution, it is solved through a
system based primarily on obligation of zakat and
prohibition of interest.
 The main difference between Islamic economics and
other secular economic systems is that Islamic

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economics aims at
‘unlimited spiritual satisfaction added to
the limited bodily pleasure’
while others aim only at ‘limited bodily
pleasure’.
Mudarabah is a special kind of partnership
where one partner gives money to another
for investing it in a commercial enterprise.
The investment comes from the first partner
who is called
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“rabb-ul-mal”, while the management and
work is an exclusive responsibility of the
other, who is called “mudarib”.

Musharakah or Musharaka is a word of

Arabic origin which literally means sharing.
In the context of business and trade it
means a joint enterprise in which all the
partners share the profit or loss of the joint
venture 18
 Conventional Economics
Conventional economics is the
economic system that was derived from
the theories developed by the western
scholars such as Adam Smith , Max
Weber.
It has been widely practiced all around
the world.
This system have some features
including the concept of absolute
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 Conventional Economics
scarcity , self interest based, absolute
freedom, materialism and utilitarianism.
The term absolute scarcity stated that
all resources are limited and human
wants are unlimited So humans need to
make choices.
 There is no free lunch in this world.
The choice that humans made will
involve the opportunity costs of other
choices that were forgo in this process.
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 Difference between conventional
and Islamic Economic systems

 Religion does not  Religion does matter in

matter in conventional all aspects of life.
economics.  Economic agents is
 Economic agent is God fearing.
selfish. (Economic  Profit maximization is
agents are producer, allowed but not on the
consumer and cost of others.
government)
 Profit maximization at
any cost.

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 Comparison
Comparison Islamic Economy Conventional Economy
aspects
Source Al-Quran, Sunnah, the The results of human thought
thought of scholars and and also based on personal
experts in Islamic experience (Human Mind).
economics.
Motif Falah (orientation for the Solely for the world.
world and the hereafter).
Wealth From zakat, sadaqah, From taxes and also
Distribution grants, gifts, endowments allowances
and inheritance
Consumption For the benefit, needs and For materialism, rationalism,
and also obligations of and also selfishness
Production
Basic Muslims Human Economy
foundation
Market Free and under Non
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mechanisms surveillance