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In search of

Islamic Financial
System
Islamic Economic
System
Chapter 1
Economics System in Islam
What is Islamic Economics?
What are the principles upon which Islamic
Economy, its monetary and financial systems
function?

A very short and straight


answer
Islamic economics is as old
as Islam itself”
and Islam is not a religious.
 It is a complete political, social,
financial & economic system for the
Islamic & Non Islamic Community.
 Islam is “Deen” that totally differ to

the religion because of the


definition, depth and details
Islamic Economics
For
Economists
20th Century Economists
define Islamic Economics
Hasan-uz-Zaman
Islamic economics is the knowledge and
application of injunctions and rules of the
Islamic Jurisprudence that prevent injustice
in the gaining and disposal of material
resources in order to provide satisfaction to
human beings and enable them to perform
their obligations to Allah and society.
M. Akram Khan
Islamic economics aims at the
study of human recovery
achieved by organizing the
resources of earth on the
basis of cooperation and
participation.
Dr. Najatullah Siddiqui

 Role of Shariah define the belief of


justice and freedom, cooperation and
sharing that are fundamentals to Islamic
economic philosophy with the total
Islamic system.
 Key to economic philosophy of Islam lies

in man's relationship with Allah, His


universe and His people.
i.e. other human beings are the nature
and purpose of man's life on earth
Introduction of Islamic
economics
considered in the dates back to
emergence of Islam, Fourteen
centuries ago.
The concept of economics was
establish on the day Adam
disobeyed to Allah Almighty
Theory of Need, Want & Desire
establish with Prophet Adam May Peace Be Upon
Him who was sent to earth from Haven on

the orders of Almighty Allah.


He was senseless to his needs
and desires at the time he was
created.
Relationship of Allah and Man is being
defined as
Tawhid (Oneness of Allah)
It is total commitment to the will of
Allah by submission & mission to
mould human life in accordance
with Allah’s will.
4 Great ways of excepting
Tawhid
 1st Look back and thank Allah.
 2nd Look forward and trust Allah
 3rd Look Around and believe Allah
 4th Look within you and find Allah
 Life on earth is a test and its
purpose is to prove successful by
doing Allah’s willed.
 For man entire universe with all the

natural resources and powers open


to exploitation, that Allah owns it
alone.
 Life on earth is a test and provisions

available to man being in the nature


of trust.
Islam & Faith
Almighty Allah is Absolute
Prophet Mohammad
May Allah’s Prayer and Peace be upon
Him, was an executive judge
Holy Quran
Is the code of conduct.
Islam organize man’s life in its aspects of
political, social or economic.
Islamic Economic is the applications of
Deen
Principles of Lifestyle comprises of

Theory “The Holy Quran”.


Explanation of theory “Hadiath”
(saying of Prophet Mohammad May Peace Be upon Him)
Implementations & practicing
“Sharia”
(life of Prophet May Peace Be Upon Him).
Islamic economics is an
independent system,
 It enjoys a separate identity.
 It is a self-contained system with

its own economic policy,


 It covers interests at

Private or Public
Material or Spiritual.
Islam has given a complete system of lifestyle,
Earning, Expenditure,
Business, Relationship &
Legal Framework.

For all bases Islamic Economic


emphasis on
Social Justice, Equality, Unity,
love, Cooperation, Sharing,
Transparencies
in all affairs and respect.
System that Guard
 Minorities and Non Muslim
Rights in the Islamic State.
 Women and Orphan Rights

 Right of employees

 Right of Lender and Borrowers

 Right of everyone without Race-

Religion-Language-Color or Sect
Islamic Economic system is
based on four principles
 All wealth belongs to Almighty Allah
 Man is the trustee of the wealth

 Hoarding of wealth is prohibited

 Wealth must be in circulation at all

time
For any activity and for all purpose,
Islamic Economic demands three
main principles to be followed by
an individual in his day-to-day
affairs and problems.

IJMA (Gathering),
QYAS (Discussion)
AMAL (Act).
 Islam specifically considers
distribution as economic problem.
 It differ to application of capitalists

& communists system for


production.
 Islam differentiates between basic

needs and luxuries


 It not accept the concept of

effective scarcity of resources.


 Holy Quran identify resources in
sufficient, unlimited and number of
qualities to fulfill basic needs like
food, clothing and shelter for over
fifty billion human beings at all time.
 Conventional economics misguide

this reality with starvation, poverty, &


economic backwardness. It resulted
from misdistribution, originated by
man-made laws and systems.
The financial matters in the
human life play a vital role
 It identify principles of finance
including earnings, income,
distribution of wealth & utilization
of these same.
 Matters pertaining to money must

be fare and transparent and useful


for developing socio-economic life
of the community.
Islamic Economic eliminate
monopoly of a group or individual
who
 Keep a control on world monetary
polices.
 Who gets most out of these resources.
 Blocks wealth to cross their jurisdictions
 Remain in between privileged society.
This is classified as Capitalist form of
Economy that protects the class of
influence and privileged.
 It does not impose any limits on amount
of wealth that an individual can acquire.
 It guides maintaining of wealth in proper

form of distribution & incentive on work


and efforts.
 It show opposition & defend against

misuse of exploitation in getting hold of


wealth through unfair means.
 It clearly denies "free" market of

Capitalism, which has led to the situation


of survival of the large part of the society.
 In Islamic Economics public
revenue from natural resources
used to secure needs of
community and not to fill pockets
of casino owners.

 State to provide public, essential


resources to cover needs of every
individual and family.
It forbids monopolies by
outlawing hoarding of
wealth and eliminating
copyright or patent laws
that would open avenue for
potential monopoly to
develop.
It protects the ownership of
businesses and companies by
restricting it only to those who
contribute both capital and
effort to the company or
business and effectively putting
the seal on such concepts as
"corporate takeover" from ever
becoming a reality.
 It classify wealth in a
systematic way that
protects rights of
individuals to access
wealth.
 It protects the society and

secures the needs of the


people.
 It mandates vital and
natural resources as
public property while
allowing for unlimited
access to luxury items.
 It protect society by

defining certain needs as


“prohibited needs” .
 It disregard corrupt man-made
systems and protect honor, rights
of woman, minor and orphans.
 It ban all forms of prostitution,

pornography or any activities that


exploit charms and physical
attractiveness of women.
 It prohibit alcohol, gambling,

spiral of corruption, social


turmoil and moral devastation
Basic Principles of Islamic Economic

The Islamic economy is composed


of three basic components
 The principle of adaptable

ownership
 The principle of economic

freedom within a defined limit


 The principle of social justice.
Islamic law permits three
types of ownership,

 The individual ownership.


 The state ownership.

 The public ownership.


Principle of Economic Freedom
within a Defined Limit
 Islamic law is the source that that
prohibits all such social and
economic activities that differ to the
teaching of Islam and the principles
and values that are approved by
Islam. Such social and economical
activities fall under the categories of
Riba, like holdings, monopoly,
gambling and speculation
 It clearly define principal on which
ruler of an estate sworn in for the
supervision of general activities and
intervene in anti Islamic economic
activities.
 The state must protect and safeguard
the public interest through the control
on individual freedom in the illegal and
non-permitted actions they involve due
to which the economic activity of the
community and society suffer.
 Men have no right to possess
unlimited wealth and desire to obtain
wealth by any means and way he may
choose of his like.
 Right is given to every member of the

society by appointing each one is a


guardian of the public trust and the
ownership is limited for the public
welfare and in the betterment of
mankind.
The Principle of Social Justice
Social justice has two prime principles
 Principle of give-and-take responsibility
 Principle of social balance

Prohibits growth in differences to an extent that


few live in extra luxury and rest are deprived
of basic necessities of life and forced to live a
life of misery, hunger, without shelter, illness
and as neglected class of the society.
Tawhid (monotheism)
 Definite acceptance of Almighty Allah’s
relationship with man and man’s believes in
supremacy of Almighty Allah with clear vision
of Day of Judgment.
 The accomplishment of man depends on the
belief and obeying the teaching of Islam and
bringing healthy and peaceful community by
synchronizing between morality and the
material characteristic of life.
Ijithad
 Emphasized the independent legal judgment,
effort or ability to figure out rules from sources
for carrying out social justice in according to
Islamic Economics.
 Economical and social problems, which can be
solved only through Ijithad, particularly issues
in regard to which, no clear injunction is
available in the Quran, or Sunnah.
Ethics (Moral principles)
 It is third element for the
enforcement of social justice.
 Islamic economics consider ethics

in relation to human lifestyle or


religion.
 Islamic Sharia defines social justice

in the Islamic Economic as the pillar


of the concept that function with a
valid reason.
 The concept of Zakat and prohibition
of Riba practices in daily life of
Islamic society bring the stability,
peace, harmony and social
development.
 It also gives the real value of Money

and defines the state responsibilities


for income distribution that are
treated as the basic principles of
social justice in society
Muslim contribute for Economics
Ibn Khaldun
Muslim Philosopher, Scholar & Economist.
Respected as father of Economic System of all times

Authenticated name in Islam for defining different


fields of knowledge, specially science of civilization,

Contributed theories and concept in economics that


placed him above-board in the history of economic
thought as a major predecessor.

Adam Smith accepted him as the "father," of


economics.
 Planted seeds of classical
economics in production, supply
and cost
 Pioneered in consumption, demand, and

utility, the bases of modern economic


theory
 Believer in free market economy.

 Introduced labor theory of value.


 Free economy & for freedom of
choice.
 Analyzed relationship of economic

study, which are demand, supply,


prices and profits
 First to put seed of modern demand

theory which was further developed


by Thomas Robert Malthusian,
Alfred Marshall
 Logically role of cost of production on supply
and prices
 Theory of profit as a reward for undertaking
risk in a future of uncertainties
 Concept for traders maximize profits, "Buy
cheap and sell valued,"
 Concept of macroeconomics
 “Theory of Growth” based on capital
accumulation through man's efforts
 Economic Development through
Migration
 Tax Theory in history

 Theory for the best Rate of Taxation

 Explain advantages of trade among

nations through foreign trade with


people's satisfaction, merchants' profits,
and country’s wealth and how all
increased.