CHAPTER 1

DEFINITION OF ISLAMIC ECONOMICS

 WHAT IS ISLAMIC ECONOMICS?
Islamic economics is based on a paradigm which is not
secularist and value-neutral. It treats all human beings as
vice-regents of God and brothers unto each other. All
resources at the disposal of human beings are a trust and
must be used for the well-being of all in conformity with
the values provided by the Shari’ah. However, well-being
in Islam is not a function of just material possessions and
unlimited consumption. It is rather a function of the
balanced satisfaction of both the material and the
spiritual needs of the human personality.
 OBJECTIVES
• Achievement of Falah
• Fair and Equitable Distribution
• Provision of Basic Human Needs
• Establishment of Social Justice
• Promotion of Brotherhood and Unity
• Achievement of Moral and Material Development
• Circulation of Wealth
• Elimination of Exploitation
 Achievement of Falah
• The Islamic concept of falah is very comprehensive. It
refers to spiritual, moral and socio-economic well-being
in this world and success in the Hereafter.
• At micro level, falah refers to a situation where an
individual is adequately provided for in respect of his
basic needs, and enjoys necessary freedom and leisure
to work for his spiritual and material advancement.
• At macro level, it aims at establishment of an egalitarian
and happy society with clean environment, with
freedom from want and with opportunities to its
members for progress in socio-political and religious
affairs.
• The concept of falah, in strictly economic field, refers
to material well-being of the citizens of an Islamic
state. The economic system of Islam, therefore, aims
to achieve economic well-being and betterment of
the people through equitable distribution of material
resources and through establishment of social
justice.
• “But seek with (the wealth) which God has bestowed
on thee, the home of the Hereafter, nor neglect thy
portion in this world, but do thou good as God has
been good to thee and seek not mischief in the land,
for God loves not those who do mischief.”(28 : 77)
 Fair and Equitable Distribution
• Islam discourages concentration of wealth in few hands
and ensures its circulation among all the sections of
society.
• “That which Allah gives th as spoil unto His messenger
from the people of the townships, it is for Allah and His
messenger and for the near of kin and the orphans and
the needy and the wayfarer, that it become not a
commodity between the rich among you.” (Al-Hashr 59:7)
• The wealth should not be allowed to concentrate in few
rich hands, rather it should freely circulate among all the
people thus enabling the poor and destitute among the
nation to also take benefit from it
• Thus it is the primary objective of the Islamic
economic system to bridge the gulf between the
rich and the poor by modifying the distribution of
wealth and economic resources in favor of the
less-fortunate.
• Islamic economic system ensures fair and
equitable distribution of wealth through positive
as well as negative measures, such as : institution
of Zakat and Sadaqat, laws of inheritance and will,
abolition of interest, prohibition of earning of
wealth by Haram (unlawful) means, prohibition of
hoarding, etc.
 Provision Of Basic Human Needs
• Basic necessities of life like food, clothing and shelter
should be provided to all the citizens of the Islamic state.
• The Prophet of Islam has beautifully defined the barest
necessities of life in his famous Hadith which says: “The
son of Adam has no better right than that he would have
a house wherein he may live, and a piece of cloth
whereby he may hide his nakedness, and a piece of
bread and some water.” (Tirmizi).
• Thus, in this Hadith the basic needs of an individual
have been defined to include a house to live in, clothing
to hide one’s body and food for survival and
maintenance of health.
• It is the obligation of the Islamic state to provide the
basic needs of life to those of its citizens who are unable
to earn due to physical disability, unemployment or any
other reason.
• God guarantees the basic needs to every creature on
earth as stated by the Qur’an : “And there is no animal in
the earth but on God is the sustenance thereof.” (11.6).
• The Islamic state, being vicegerent of God, is duty-bound
to fulfill this purpose of God and provide the basic needs
to its poor citizens. The Islamic economic system ensures
the provision of basic needs to every needy person
through its comprehensive system of social security.
 Establishment of Social Justice
• “He (Allah) placed therein firm hills rising above it, and blessed it
and measured therein its sustenance in four days, alike for (all)
who ask” (41 : 10).
• Allah has placed in the earth sustenance and provisions for all to
cater their needs. However, on account of various reasons, the
distribution of these provisions does not remain fair among all
the human beings, thus making some lucky ones very rich who
possess wealth more than their needs and making many others
very poor who possess nothing or too little to meet their very
basic necessities of life.
• Islam meets this challenge of disproportionate division of wealth
by making it obligatory on the rich to surrender a part of their
wealth for helping the poor and unfortunate members of the
community.
• “Establish worship, pay Zakat and bow your heads with
those who bow (in worship)”- (2 : 43).
• “Ye will not attain unto piety until ye spend of that which
ye love. And whatsoever ye spend, Allah is aware
thereof.”(3:92).
• “And in whose wealth there is a right acknowledged, for
the beggar and the destitute” (70 : 24-25).
• In order to make distribution of economic resources fair
and just, the Islamic economic system has established an
elaborate system of Zakat and Sadaqat.
• many restrictions have been placed barring an individual
to earn wealth through unfair, illegal and unjust means.
 Promotion of Brotherhood and Unity
• “It is not righteousness that ye turn your faces to the East
and the West; but righteous is he who believeth in Allah
and the Last Day and the Angels and the Scripture and the
Prophets; and giveth his wealth, for love of Him, to
kinsfolk and to orphans and the needy and the wayfarer
and to those who ask, and to set slaves free; and
observeth proper worship and payeth Zakat” (2 : 177).
• “They ask thee, (O Muhammad), what they shall spend.
Say : That which ye spend for good (must go) to parents
and near kindred and orphans and the needy and the
wayfarer. And whatsoever good ye do, Lo! Allah is aware
of it” (2:215).
• By helping the poor, the rich persons not only discharge their
religious obligations but also earn their gratitude, love and
affection. So the Zakat and alms pave the way for national
solidarity and social cohesion by cementing the bonds of
fraternity among the rich and the poor.
• Mr. M. A. Mannan in his book ‘Islamic Economics: Theory and
Practice,’ writes: “Salat (prayer) rouses the feeling of equality
and brotherhood between the rich and the poor, the high and
the low, and Zakat puts that feeling of brotherhood on a firm
footing by making the rich and the capitalists responsible for
the maintenance of the poor and the needy.”
• Thus the Islamic economic system through Zakat, Sadaqat and
other means of helping the poor, achieves social harmony and
promotes brotherhood between different sections of society.
 Achievement of Moral and Material Development
• The economic system of Islam aims at material as well as
moral development of the Muslim community. It
achieves this objective through its system of taxation
and fiscal management particularly through Zakat.
• Zakat discourages hoarding of wealth and encourages its
circulation. Those persons who possess hoarded wealth
know that if they keep it like that, it would be consumed
by Zakat. So they would not keep it lying idle, rather
they would per force bring it into circulation by investing
or spending it.
• Thus the consumption and investment would have
multiplier effect on the growth of the national income.
• Taxes like Zakat are collected from the rich and returned
to the poor and thus the purchasing power of the poor
is strengthened.
• The poor people now having purchasing power in their
hands will demand more goods. The industrialists would
produce more in order to meet the increasing demand.
• Thus the increase in demand and supply will encourage
industrialization and thereby expand the scope of
employment in the country.
• In this way, the human and material resources of the
country would be fully exploited and national income
would grow rapidly.
• Zakat and system of voluntary alms also helps
in moral and spiritual development of the
Muslim Ummah. Payment of Zakat and alms
not only purifies wealth but also human soul.
• Payment of Zakat and voluntary alms purifies
the human soul of vices like greed,
miserliness, selfishness, etc.
 Circulation of Wealth
• “They who hoard up gold and silver and spend it not in
the way of Allah, unto them give tidings of a painful
doom. On the day when it will (all) be heated in the fire of
hell and their foreheads and their flanks and their backs
will be branded therewith (and it will be said unto them).
Here is that which ye hoarded for yourselves. Now taste
of what ye used to hoard:” (At-Taubah-9 : 34-35).
• The economic system of Islam achieves this objective
through Zakat. Zakat is a great enemy of hoarding. If it is
paid regularly on the hoarded wealth, it would eat away
the whole or main portion of such wealth in a few years
time.
 Elimination of Exploitation
• “O ye who believe ! Observe your duty to Allah, and give up
what remained (due to you) from usury, if ye are (in truth)
believers. And if ye do not, then be warned of war (against
you) from Allah and His messenger. And if ye repent then ye
have your principal (without interest). Wrong not and ye shall
not be wronged. -(2 : 278-279).
• Another measure taken by Islam  for putting an end to human
exploitation is regarding slavery. The slaves have been the
most exploited class in human history. Islam declared the
emancipation of slaves as the most pious at and enjoined upon
its followers to earn God’s pleasure by setting free as many
slaves as they could. The Qur’an has made emancipation of
slaves an expiation of some types of sins and criminal acts
committed by the believers.
• To eliminate exploitation of labour by the employer
or the capitalist, the Prophet of Islam has laid down
that the workers would be paid their wages
promptly. On the authority of Abdullah-bin-Omar, it
is reported that the Messenger of Allah said : “Pay
the labourer his wages before his sweat dries up.”
(Ibn Majah).
• The debtors have been another exploited class. Islam
has not only abolished interest, but to help this class,
the Qur’an has laid down that the creditor should
give as much time as possible to the debtor for
repayment of debt and if the creditor remits the debt
it shall be treated as almsgiving
• The orphans have always been an exploited class in every society as their
property is generally devoured by their near relatives and their
guardians. In the sight of Islam, devouring the property of the orphans is
a major sin. The Qur’an warns such persons in these words: “Lo ! Those
who devour the wealth of orphans wrongfully, they do but swallow fire
into their bellies, and they will be exposed to burning flame.” (4 : 10)
• The women have been exploited by men throughout the history of
humankind. They were denied in the past even the status of a human
being and were treated as chattel. Islam restored their status of human
beings and gave them rights equal to men in every sphere. In the
economic field, Islam has given them rights to acquire property, own it,
enjoy it and alienate it as the men do. The women have also been given
rights of inheritance like men, they can inherit property from their
parents, from their spouses, from their children and from their other
near kindred. Thus Muslim women are no longer economically exploited
by the men.
PRINCIPLES OF ISLAMIC ECONOMIC
• Allah determines Right and Wrong
• Principle of Use
• Principle of Moderation
• Economic Freedom
• Principle of Justice
 Allah Determines Right And Wrong
• Allah has made demarcation between lawful and
unlawful in the economic sphere and has allowed
man to enjoy those food items and other articles of
use which are lawful and avoid those things which
are unlawful.
• “O ye who believe ! Forbid not the good things
which Allah hath made lawful for you, and
transgress not, Lo! Allah loveth not the
transgressors. Eat of that which Allah hath bestowed
on you as food lawful and good and keep your duty
to Allah in Whom ye are believers.” (5 : 87-88)
 Principle of Use
• Within the bounds of lawful (Halal) and
unlawful (Haram) prescribed by Allah and
also keeping in view the rules of
moderation and prudence, the man has
been allowed to make full enjoyment of
God’s gifts bestowed on him.
• “O mankind ! Eat of that which is lawful
and wholesome in the earth, and follow
not the footsteps of the devil. Lo! he is an
open enemy for you.” (2:168).
• The principle of use should not be over
stretched so as to indulge in extravagance and
wastage of economic resources.
• “O children of Adam ! Look to your adornment
at every place of worship, and eat and drink,
but be not prodigal Lo! He (Allah) loveth not
the prodigals.”(7:31)
 Principle of Moderation
• Although earning of wealth through permitted (Halal) means
is allowed, yet the piety demands that a Muslim should not
become mad after amassing wealth like a greedy materialist.
• He should exercise restraint and earn wealth to meet his
lawful needs. Extra wealth, if at all is earned by him
somehow, may be spent in the path of Allah on charity and
relief of the poor.
• Similarly, in the consumption and spending of wealth, the
believer is recommended to strike balance avoiding
miserliness and extravagance. Miser is he who does not even
provide for the legitimate needs of himself and his family let
alone spending on charitable and noble causes.
• Extravagant or spend thrift is a person who
squanders his wealth in luxury, gambling,
drinking, and on lavish expenditure on
festivities, weddings, day to day living.
• Islam condemns both miserliness and
extravagance and enjoins upon a believer to
exercise moderation. The Qur’an appreciates
those who exercise moderation in spending
when it says: “And those who, when they spend,
are neither prodigal nor grudging; and there is
ever a firm station between the two.”(25:67)
 Economic Freedom
• Islam puts highest value on individual’s
freedom of action in every field of human
activity such as social, political, economic
religious, moral, etc.
• Islamic principle of economic freedom means
that an individual has been allowed liberty by
God to earn wealth, own it, enjoy it and spend
it as he likes. It also entails freedom to adopt
any profession, business or vocation to earn
livelihood.
• Islam makes distinction between Halal (lawful)
and Haram (unlawful), In the field of
production, distribution, exchange and
consumption, only Halal (lawful) means are
permitted. Remaining within the restrictions
of Halal and Haram, an individual enjoys full
freedom to earn and spend wealth as he likes.
 Principle of Justice
• Islamic economic system, is based upon  the
principle of justice which governs all the basic
aspects of economy like production,
distribution, consumption and exchange.
• In the sphere of production, Islamic principle
of justice ensures that nobody is exploited by
the other and that nobody acquires wealth by
unjust, unfair, unlawful and fraudulent means.
• In the field of distribution, economic resources
and wealth should be distributed among the
members of the community.
• Islam discourages concentration of wealth in
few hands.
• System of Sadaqat, Zakat and voluntary alms
along with laws of inheritance helps
distribution of wealth among the larger
sections of society.
 SALIENT FEATURES
• Allah is the Sustainer
• God is Real Owner of Everything and Man is Merely a
Trustee
• Everything Created for Service and Use of Man
• Concept of Halal and Haram
• System of Sadaqat and Zakat
• Prohibition of Interest
• Ban on Hoarding of Wealth
• Policy of Moderation
• Condemnation of Monasticism and Materialism
 Allah Is The Sustainer
• Allah the Almighty God of universe, is the sustainer
and provider. Allah provides livelihood and
subsistence to all of His creatures in the universe.
• It is Allah who has created all means and resources
through which man earns his livelihood.
• Allah, in fact, has committed to feed, sustain and
nourish all creatures including human beings. It is
Allah who expands or curtails rizq (sustenance).
• “O’ mankind! Remember Allah’s grace towards you!
Is there any creator other than Allah Who provideth
for you from the sky and the earth?” (35 : 3)
 God is Real Owner of Everything and Man is
Merely a Trustee
• The heavens and the earth and everything in the
universe belongs to Allah. God is the real owner of
everything, al-though He has given some rights to
man for use of things required by the latter for his
existence on the earth. However, the rights given to
man are very limited, the real position of man being
that of a trustee and a beneficiary.
• “Unto Allah belonged whatsoever is in the heavens
and whatsoever is in the earth; and unto Allah all
things are returned”.(3 : 109)
Everything Created for Service and Use of Man
• It is God who has created everything in this universe.
Many of the things created by God in the earth are of
benefit to man directly or indirectly. Animals, plants,
minerals, metals, water, air, fire, land, river,
mountains, sea, and even sun, moon, stars, day and
night, etc. are all for service to man. Many economic
benefits have been placed by God in these things for
man.
• “And He it is Who hath set for you the stars that ye
may guide your course by them amid the darkness of
the land and the sea. We have detailed our
revelations for a people Who have Knowledge”. (Al-
An’am:97)
 Concept of Halal and Haram
• Islam has introduced concept of Halal (lawful)
and Haram (unlawful) in its economic system.
• Certain means of earning livelihood and
wealth have been declared unlawful such as
interest, bribery, gambling and games of
chance, speculation, short weighing and short
measuring, business malpractices, etc.
• “O mankind! Eat of that which is lawful and
wholesome in the earth, and follow not the
footsteps of the devil. Lo! he is an open enemy
for you”.(2:168)
 System of Sadaqat and Zakat
• Islamic economic order has introduced a comprehensive
system of sadaqat which comprises: compulsory contributions
like Zakah, sadaqatul Fitr, monetary atonements; and
voluntary contributions such as alms-giving, spending in the
way of Allah on the poor, donations to charitable cause, waqf,
etc.
• The system of sadaqat ensures equitable distribution of
wealth in the Muslim community and makes it certain that
the wealth does not remain hoarded in idle channels.
• “Lo ! those who give alms, both men and women, and lend
unto Allah a goodly loan, it will be doubled for them, and
theirs' will be a rich reward”.(57:18)
 Prohibition of Interest
• Interest, which forms the foundation of
capitalistic system of economy and which has
not been eliminated even in the socialist
system, has been completely abolished by
Islam. Charging of interest is a major sin and
the usurers have been given the notice of war
from God and His messenger.
• “O, ye who believe ! Devour not usury,
doubling and quadrupling (the sum lent).
Observer your duty to Allah, that ye may be
successful”.(3:130)
 Ban on Hoarding of Wealth
• Hoarding of wealth has been condemned by Islam in very
clear terms, and those who hoard wealth and do not
spend it for good cause have been threatened with
painful doom. Islam discourages hoarding of wealth and
instead encourages circulation of wealth among all the
sections of society.
• “They who hoard up gold and silver and spend in not in
the way of Allah, unto them give tidings (O Muhammad)
of a painful doom. On the Day when it will (all) be heated
in the fire of hell and their foreheads and their flanks and
their backs will be branded therewith (and it will be said
unto them): Here is that which ye hoarded for
yourselves. Now taste of what ye used to hoard!”(9:At-
Taubah:34-35)
 Policy of Moderation
• Islam follows policy of middle way or
moderation and avoids extremes.
• Abu Hurairah reported that the Messenger of
Allah said: Moderation in expenditure is half
of livelihood, and love for people is half of
wisdom, and good questioning is half of
learning.
Condemnation of Monasticism and Materialism
• Islam condemns Monasticism as well as Materialism
and recommends its followers to adopt middle way
between these two extremist ways of life.
• A spiritual or a monastic lays all the emphasis on
moral and spiritual aspect of life and ignores
completely material aspect. He regards all economic
activity as a vice and economic struggle as a sinful
act.
• “O ye who believe ! Forbid not the good things
which Allah hath made lawful for you, and
transgress not. Lo! Allah loveth not
transgressors”.(5 : 87)