Introduction to Islamic Economics | Part 1 | Fundamentals of Islamic Economics

ISLAMIC ECONOMICS
INTRODUCTION TO
MODULE 1

In this session, you will learn about:
• Nature and Scope of Islamic Economics
• Freedom of Choice with Accountability
• Islam’s View of Property as a trust
• Freedom of Enterprise
• Sources of Islamic Economics

Economics?
What is
Naji Naseem.P
Asst. Professor, Dept. of Islamic Finance
SAFI Institute of Advanced Study

Economics
Economics is the social science that studies the
production, distribution, and consumption of goods and
services. Economics focuses on the behaviour and
interactions of economic agents and how economies work.
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ISLAMIC ECONOMICS
Islamic economics aims at the study of human falah
achieved by organizing the resources of earth on the
basis of cooperation and participation.
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Philosophical foundations of Islamic economic system
1. Tawhid: God's Unity and Sovereignty.
2. Ibadah: Any act must be within sharia boundaries to seek Allah's pleasure.
3. Khilafah: Man's role as God's vicegerent on the earth.
4. Tazkiyah: Purification plus growth.
5. Accountability: Belief in accountability on the day of judgment and its
implications for the life in this world and in the hereafter.
Islamic Economy Paradigm
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Islamic economics aims at
the study of human falah
achieved by organizing the
resources of earth on the
basis of cooperation and
participation.
Human Falah
Resources of Earth
Cooperation and Participation
Islamic Economics
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Human Falah
• Falah is a both worldly concept.
• In this world it represents three things: Survival, Freedom from want,
Power and Honor.
• Quran uses the term Falah or its derivatives at 40 Places.
• Conditions of Falah at the Spiritual, Economic, Cultural and Political
level.
• Falah has implications both for individual behaviour(micro level) as
well as for collective behaviour(macro level)
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Micro-level Macro-level
Survival
Biological survival
physical health, freedom from disease.
Ecological balance,
Hygienic environment,
and medical aid for all
Economic survival.
having means of livelihood.
Management of natural resources to
generate work opportunities for the
entire population.
Social survival.
Brotherhood and harmonious interpersonal
relationship.
Inner social cohesion.
Absence of internecine conflicts among
different groups.
Political survival.
Freedom and participation in the affairs of
state.
Independence and self determination
as an entity.
Freedom from Want
Alleviating poverty. Provisioning for the entire population.
Self reliance.
Work rather than parasitic idleness.
Generating resources for the coming
generations.
Power and Honour
Self respect. Economic power and freedom from
debt.
Civil liberties, protection of honour and life. Military power.

Conditions of Falah:
(a) Spiritual,
(b) Economic,
(c) Cultural, and
(d) Political.
(a) Spiritual Conditions of Falah:
(i) Humility in prayers (khushu').
(ii) Consciousness of God (taqwa).
(iii) Remembrance of God (dhikr).
(iv) Repentance for sins (tawbah).
(v) Inner purification (tazkiyah).
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(b) Economic Conditions of Falah
 Infaq:
• Infaq refers to spending on others and on the social needs of the
community merely to seek God's pleasure.
• Infaq in the Islamic sense is a mechanism to nourish one's spirituality.
This is one reason why secrecy in Infaq is preferred, although its
announcement to induce others to charitable spending is not
prohibited.
• Zakah is part of the broader concept of infaq. The Qur'an specifically
enumerates Zakath as a condition of falah presumably to emphasize
its purifying role. The underlying idea is that Zakath 'purifies' an
individual's soul from excessive love for wealth.
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 Prohibition of Interest:
• The Qur'an declares interest on loan capital (riba) as a hindrance to the
achievement of falah. The wealthy exploited the poor and the needy.
 Fulfillment of Covenants and Trusts:
• Fulfillment of covenants and trusts is a necessary condition for falah.
• In its simple meaning it stands for honoring personal commitments and
promises.
• It involves meeting all one's social and religious obligations. One is
obligated to obey God and His Messenger. One also has obligations
towards the family, neighbors and the society.
• Polluting the environment through industrial waste contravenes one's
obligations towards the society and hence retards the social pace towards
falah.
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 Justice:
• The Qur'an has pleaded for justice at a number of places. It has linked falah
with the observance of justice in all affairs.
• The Qur'an uses the term zulm (inequity) as an antonym of justice.
• The Qur'an repeats that the zalim (one who perpetrates zulm) would not
achieve falah.
• Islamic law has clearly defined the lawful means of acquiring wealth.
Digression from these means would amount to zulm and would hinder the way
to falah.
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 Enterprise:
• God speaks of enterprise and struggle for livelihood as "seeking His
bounty". Enterprise and effort to harness natural resources are an
essential condition to achieve falah.
The Qur'an says: "And when the prayer ends disperse
freely on earth and seek to obtain (something) of God's
bounty, but remember God often, so that you might attain
falah" (62: 10).
• The productive economic activity contributes to the falah of the society
as well as of the individual.
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• It has made obligatory a bare minimum of social spending (called zakah)
on all those who have a surplus over and above their needs.
• Infaq covers expenditure on one's own family as well which is not so in the
case of charity.
• Islam recognizes the right of the poor and the needy to receive a share
from th wealth of the rich.
• Infaq has to be purely for the sake of God who has promised reward in the
hereafter.
Islam has broadened the concept of charity in number of ways.
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(c) Cultural Conditions of Falah
The Qur'an visualizes a certain cultural pattern for the Muslims.
Unless the society adopts this pattern it would not attain falah.
 System of Prayers
It covers the establishment of mosques, arrangements for congregational
prayers - both daily and weekly - and the appointment of the mosque staff, etc.
 Knowledge
• The Quran visualizes a society where people would base their actions on
knowledge rather than superstitions and myths.
• The Qur'an repeatedly says that the fabricators of lies would not attain
falah. This explains the emphasis of the Qur'an on inquiry and pursuit of
knowledge.
• A society which ignores the pursuit of knowledge would not attain falah.
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 Sexual Chastity
The Qur'an has enumerated sexual chastity and modesty as one of the characteristics of those who
attain falah..
 Prohibition of Drinking Alcohol and Gambling:
Drinking of alcohol and other intoxicants and playing games of chance lead to numerous social
evils. The Qur'an holds them to be obstacles to falah.
 Purification of the Environment:
Some scholars extended the interpretation of purification from inner purification and purification
from wealth into purification of environment.
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Resources of Earth
• Islamic economics studies human behaviour towards resources of earth and
investigates those modes of utilisation which may lead to Falah.
• Resources of earth are meant to provide livelihood to the creatures of God.
• The Quran informs us that God has created sufficient resources for his
creatures(41:10).
• Scarcity may be either due to lack of proper utilisation of natural endowments
or an imbalanced distribution.
• Islamic economics studies resources from the point of view of ‘adequacy’
rather than scarcity.
• Scarcity of resources is a man made situation and islamic economics studies it
in order to rectify it.
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Cooperation and Participation
• Cooperation in view of the fact that inter-personal relationship in Islam are
based on the Universal brotherhood of all human beings(4:1).
• The Quran has explicitly ordained Muslims to help one another in furthering
God-consciousness (taqwa) and virtue(birr) (5:2).
• The mutual help rather than conflict should be the basis of all economic
relationship(41:10).
• As members of an Ummah the Muslims are visualized like one body, so that
the whole body senses pain if any organ is suffering from any
discomfort(49:10).
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• Most of the Muslim economists have proposed relatively wider scope for Islamic
economics on the basis of comprehensive and integrated viewpoint of human life.
• Ahmad (1981) says that the scope of Islamic economics is wider more than secular
economics because it treats cultural factors like attitudes, tastes, motives, and social
customs
• Islamic economics has a wider role of because it’s deals with a wide-ranging set of
issues, such as:
o The incentives system
o Allocation of resources,
o Types of economic freedom,
o The system of economic decision-making
o The proper role of government
Scope of Islamic Economic System
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Freedom of Choice and Accountability
• Property of whatever sort is not considered merely the personal privilege of the one who
owns it. Ownership brings with it a certain responsibility towards the property itself, its
use and benefits.
• The relationship between man and his Creator and the social responsibilities of a Muslim
require that property be used not only for one's personal advantage and benefit but also
for the advantage and benefit of the community.
• This does not mean that every commercial, industrial, or agricultural enterprise must
ultimately turn into a charitable activity, hut there must be human, ethical, and moral
factors that relate to the use of property.
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• Because every Muslim is accountable before both Allah and his community, a great deal of
faith is placed in a Muslim's word.
• Contractual freedom is required and implies the ability to make free choices without
undue influence.
• The attempt to control certain segments of the market or certain phases of a given
mechanism that may either control prices or affect the natural laws of a free economy is
considered haram.
• On the Day of Judgment, every individual will be resurrected to account for their lives. God
describes this event in the Quran,
“On that Day, people will come forward in separate groups to be shown their
deeds: whoever has done an atom’s weight of good will see it, but whoever has
done an atom’s weight of evil will see that” (99:6-8).
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Economic Freedom
• People are free to enter and exit the market.
• An adequate level of information about the market forces and commodities is to be
ensured.
• Monopolistic elements should be eliminated from the market. Coalitions of
professional men, whether they were groups of sellers or buyers, are not to be
allowed.
• The Muhtasib (controller) should interfere and determine the price of the equivalent
whenever monopolistic elements appeared in the market.
• Within this freedom, he recognized the effects of demand and supply on prices.
The Qur’an has warned against any deviation from the honest practice of
economic freedom such as false oaths, misleading information, incorrect
weights, and ill will.
Some of the economic freedom in Islam in relation to the market from the writings of Ibn Taimiyyah.
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Shari'ah Law
Sharia'h refers to a code of law or divine injunctions that regulate
the conduct of human beings in their individual and collective lives.
Branches of Sharia’h
MUAMALAAT
AKHLAQ
Sharia'h
AQAID
UQOOBBAAT
A'MAAL
1. Matters of belief and worship.
2. Matters of discipline.
3. Transactions and Contract.
4. Righteous deeds.
5. Prohibitions.
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Sources of Shari'ah
Primary Sources
Qur'an  Qur’an is the last revealed book from the Almighty.
Sunnah
 The Sunnah, consists of the sayings of and the actions done
and/or approved by the holy Prophet (pbuh),
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Secondary Sources
Ijma’  Unanimous consensus among Muslim scholars.
Qiyas  Analogy. An extension of law from original text.
Ijthihad  Critical thinking. The endeavor of a jurist to infer.
Urf  Custom.
Maslaha-E-
Mursalah
 Public Interest.
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Maqasidu Shari'ah(Objectives of Shari'ah)
Primary Objectives
1. Religion.
2. Life.
3. Progeny – family unit.
4. Property.
5. Intellect.
6. Honour
The primary objectives that Sharia'h tends to realize are the
Protection and Preservation of:
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The above primary objectives of Sharia'h lead to a number of secondary objectives, which are
Secondary Objectives
1. The establishment of justice and equity in society.
2. The promotion of social security, mutual help and solidarity, particularly to
help the poor and the needy in meeting their basic needs.
3. The maintenance of peace and security.
4. The promotion of cooperation in matters of goodness and prohibition of
evil deeds and actions.
5. The promotion of supreme universal moral values and all actions
necessary for the preservation and authority of nature.
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Wealth and Ownership in Islamic Perspective
 According to conventional economics, livelihood is the fundamental
problem of man and economic development is the ultimate goal of
human life.
 According to Islamic economics, livelihood is necessary and indispensable
but is not the true and the only purpose of human life; the life hereafter is
the real factor to be taken care of.
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It is clearly mentioned in the Quran that Allah has created all the wealth
available on the earth and in the heavens. Hence, He is the real owner
of this world with all its resources, wealth and factors of production.
“To Allah belongs all that is in the heavens
and all that is on the earth”-(Al Quran 02:284).
“He it is who made you vicegerents in the earth” (6: 165)
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Q&A
Naji Naseem.P
najipara@gmail.com
9633956651

Introduction to Islamic Economics | Part 1 | Fundamentals of Islamic Economics

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