The Concept of Islamic Economics

By Chairman Farouk Kerbelker

From any perspective willingly or unwillingly, it has to be absolutely clear that Allāh Almighty is worthy of all praise and worship.

It is He, Allāh, The Creator of all humanity, Who provides all the basic necessities of life, guides man with systems, mechanisms with steps and procedures to minimize hardship and starvation, provide humanity with basic economic needs under the umbrella of peace, security, harmony and co-operation and provide total needs to maximize growth of individual, family, society.

Our sincere thankfulness and gratitude in submission to Allāh Almighty has to lead us to belief in Tawhid and worship i.e. the path of formal worship e.g. Salah and informal worship e.g. spending in the cause of Allāh, i.e. establishing the ethico-religious order of Islam.

Let’s talk briefly about Tawhid (The Oneness of Allāh Almighty) and the economy.  Firstly we notice that Islam provides a set of economic goals, values that encompasses and harmonises all aspects of life i.e. ensuring that life is a consistent whole, all this together with integrated mechanisms to achieve the desired goals.

Secondly, Allāh Almighty has designated that certain resources cannot be privately owned. Everyone has the right to benefit, of course, with duties and responsibilities from, and make use of Allāh Almighty’s Raḥmah (Mercy and Blessings) plus natural and other resources. Man has a Divine obligation to earn a livelihood. Under no circumstances can he be deprived of a livelihood. No impediment / constraints / interference should be placed in his efforts to earn his livelihood.  When circumstances are not in his favour he has the Divine right to be helped by the state and his fellow citizens.

Thirdly the economic system, the acquisition and distribution of wealth, must be in strict compliance with the Shari’ah or specific moral and legal guidelines as designed by Allāh, The Wise.

So man’s freedom including his economic activities is to be exercised as an obligation of his lawful commitment as defined in the Qur’ān and Sunnah, thus ensuring the rights and well-being of all as well as his own personal benefit and growth. This is part of the Divine plan to bring about a just and equitable society i.e. re-create the Medina State to the benefit of all – all this is part everyone’s obligation defined by Tawḥīd – it is not the job of Islamic Banks only.

So we see, Islām has a unique way of dealing and understanding the concepts of personal responsibilities, ownership, investments, economics, consumption, financing (without interest implications) and the spending of wealth.

Let’s deal with other points:

Islāmic economics differs fundamentally with Capitalism, Socialism etc.  The beneficial elements in these systems already exist in Islam.  But these systems have serious flaws – e.g. the profit motive is the sole incentive of human activities, that the individual has sole and unqualified right to all the profit – thus ignoring social responsibilities. Entrenched in these systems is the over emphasis of individual rights, greed and willingness to use force to secure markets and the resources of other countries, moral decline and finally absence of religion and truthfulness.  No challenge to the present order is allowed.  Western ethics claims the right to determine what is good or bad or what is truth. 

• The 2^nd point in the uniqueness of Islām is related to the fact that the Shari’ah i.e. Islāmic Law clearly defines laws, rules and regulations to effectively reduce and prevent potential abuse and corruption of the use of all resources.
• The third point of uniqueness is Zakāh one of the more important economic tools in the Islamic system.         

The question we need to ask is what is Zakāh and why do we need it?

Historically we note that the Universal Prophet, Nabi Muḥammad (S.A.W) achievements were based on permanent principles and universal values. He brought about the greatest revolution in Economics, Politics and Sociology in human history. For a start when he arrived in Medina he introduced the system of Salāh (5 daily prayers) and Zakāh . This immediately changed the spiritual, moral, political and economic conditions of the people in harmonious manner and as a foundation for immediate and further development.

The Prophet Muḥammad (S.A.W) is reported to have said “If a single person (Muslim or non-Muslim) were to sleep hungry in a town then Allāh’s protection is lifted from that town”.

Zakāh is a divine financial obligation levied on all able Muslims, whose nett assets exceed a definite level, to contribute a minimum of 2.5% of their nett assets. It is asset based and not income based as in Non-Islamic economies. Clearly it is a huge benefit and empowers the individual and the local community. In the absence of a Zakāh based system it is a disgrace that our present governments indiscriminately burden the poor and unemployed with V.A.T i.e. a tax paid by those who have no income.  Zakāh is the basic principles and mechanism to bring about Socio Economic Justice. Without sharing wealth and equitable distribution there can be no justice. We need to re-evaluate this fundamental purpose of Zakāh.  

The aim of the economic system of Islām including Zakāh is to transform the relationship between capital and labour in such a way that they could enter into voluntary business agreements for mutual benefit. Furthermore, it is to finance viable businesses which find themselves in financial difficulties i.e. to prevent a high rate of bankruptcy, unemployment and unnecessary suffering in a community. Zakāh facilitates the upward movement and mobilization of all segments of society through the creation of opportunities and the inevitable increase of productivity;

The Zakāh system created by the Universal Prophet Nabi Muḥammad (S.A.W) was the first universal welfare system in the world. The Arabian Peninsula was transformed from a slave based economy dominated by the Jews to a Social Welfare Economy where labour and businessmen, Muslim and non-Muslim could interact voluntarily, freely and so creating a vibrant and prosperous economy.

Then why do we have so many impoverished Muslims in Muslim countries?

The answer is complex but can be understood. The first reason is the role of corrupt Political and Religious leadership.

The system implemented by Allāh’s beloved Prophet (S.A.W) and his Saḥāba (companions) (May God be pleased with them and richly reward them), has been corrupted and at times even abandoned. Instead of deciding matters by open consultation, as required by the Qur’an, rulers and governments created dictatorships gaining public acceptance by implementing selective laws of Shari’ah which were usually penal laws.

The rulers in power acquired political authority illegally and then selected religious leaders who were co-opted to use religion to create a passive citizenship.

Since then a minority of rich and powerful leaders had been living a life of great opulence and decadence at the expense of a vast majority of Muslims. The economic system of Islam has nothing to do with this state of affairs.

To understand the full meaning of the function of Zakāh we have to go back to its primary source the Qur’ān and not the rulings of unjust rulers and their spin-doctors.

Zakāh means to grow, develop, or purify your Will for Allāh and NOT mere charity! Zakāh is not intended to keep the poor permanently enslaved through charity but rather to ultimately guide them from poverty into economic progress and prosperity as well as to spiritual and moral awareness.

Zakāh is the foundation for Islamic economics. It is a pillar of Islamic Ideology, the cornerstone of creating love, brotherhood and equity in a community, it shelters a community from jealousy, envy and hatred for each other and it is the gateway to Jannah (Paradise). Some of the rich believe that they can buy their way into heaven by merely paying the minimum Zakāh . Instead they undermine the rights of the poor and jeopardize their own fate in the hereafter.

The spirit and concept of Zakāh in its present practice has been reduced to a lifeless ritual of charity.

Zakāh is one of the pillars of Deen; therefore its foundation must be firm and based on truthfulness.

That foundation is built on total submission and absolute surrender to the Will and Plan of Allāh with total commitment, absolute sincerity and the complete belief in Allāh’s Sovereignty. Each Muslim ruler and sub-ordinate must believe that all resources on this earth belongs to Allāh the Provider, and that all resources must be made available to all human beings for their sustenance, nourishment and spiritual growth within the Islamic system.

The second reason for our backwardness is the unfair World Trading System and hegemony achieved through exploitative financial system. The present Globalization arrangements are destroying the growth of emerging and poor countries.

Thus any government, system or group of people which disrupts the natural and equitable flow of Allāh’s resources, goods etc. Leads to an imbalance and thus suffering.

Because of these factors economic imbalances continue to grow unchecked. Leaders are left unchallenged because of immoral corrupt co-operation of external powers and passive internal leadership. Corrupt elite Muslims refuse to introduce the principles of Islam in its pristine form. Depending on protection of Non-Muslim nations or advisors together with a blind dependence on religious leaders for their understanding of Islām further weakens Muslims. This has both stunted and frustrated the demand for an Islāmic system. Islam as an Ideology is a complete system of life governed by Qur’an and Sunnah, which encompasses the social, economic, political, judicial and military aspects of a community or nation. Islamic leaders are those who remember Allāh, unconditionally surrender to Allāh, and who have upright moral qualities and uphold the laws of Allāh in their land. They are the ones who enjoin the right and forbid the wrong and ensure the Qur’an, the Constitution of Allāh, is implemented in truth and in its entirety.  

Thus, a corrupt leadership and a hybrid so called Islāmic system is the cause of our present misery and weak state.

What should be the core elements of an Islamic Economic System?

• Zakāh system as envisaged in the Qur’ān and Sunnah.
• No hoarding as hoarding freezes the capital needed for growth.
• No interest as it turns people into debtors and subjugated to the rich.
• The prevention of monopolies including corporate take-over’s as this turns people into labourers for the rich.
• It increases access of capital not only to the creditworthy but also to those who have the ability to start their own business.
• Stricter principles governing the relationships between the lender and the borrower to ensure equity.

• It stabilizes the value of money especially international currency as well as ensuring that each piece of paper money is backed by gold or other tangible assets.
• It re-establishes control over public resources which Allāh the Beneficent has defined as belonging to all (state ownership).
• The elimination of speculation e.g. what we would refer as future trading, currency speculation and insider trading.
• Waqf Systems – widespread uses
• Man is constantly reminded that all wealth is a blessing from Allāh the Merciful and to be spent in His Cause.
• Social Security for all is guaranteed. Therefore man need not resort to evil means and systems in the fear of being left without basic necessities.
• By putting real purchasing power in the hands of those in need the demand for goods and services increases, thus stimulating trade, growth etc.
• It stimulates an economy without being inflationary.
• Inheritance laws ensure the circulation of money and its wider distribution.
• The position of women is elevated they are, given real power and their dignity is raised.
• It creates love and harmony between those who have and those in want.

Riba

A key factor contributing to struggling Muslim economies is Riba or interest. Riba is emphatically forbidden in Islām.

Allāh says in the Holy Qur’ān and I quote:

Allāh condemns Riba and enjoins good deeds.

Allāh hates disbelievers who contravene Riba laws. 

“Lo those who believe and do good works and establish worship and pay the poor due their reward is with their Lord and there shall no fear come upon them neither shall they grieve. O you who believe, you shall observe Allāh and refrain from all kinds of Riba, if you are believers, if you do not, expect a war from Allāh and His messenger. But if you repent, you may keep your capitals without inflicting injustice, or incurring injustice. If the debtor is unable to pay, wait for a better time. If you give up the loan as charity it would be better for you, if you only knew. Q2: 276; 280.

Time does not allow me to elaborate on Riba. Suffice to say that the International Monetary Fund, the World Bank and interest-based banks use interest as a tool to keep countries compliant and subservient to their will.

Brothers and sisters, if and when you incur interest bearing debt due to necessity, make sincere Tawba, seek forgiveness from Allāh Almighty for He is oft Forgiving most Merciful.                            

Is there hope for Muslim countries to flourish economically whilst swimming in the sea of corruption, disobedience and injustice.

Can Muslim countries have viable economies within the present Riba Based Financial system and World Order System and at the same time offer its Citizens security and prosperity?
In my opinion it is possible but can only be accomplished with the help of the Almighty given to a sincere, motivated Allāh-conscious leadership. Once again time does not allow me to elaborate but,

How can this be achieved?

1. Massive government spending on infrastructure, welfare programmes, Educational institutions and awareness programmes. Each citizen must be informed of the economic challenges and their responsibility to the well-being of their country.
2. Direct capital injection into the manufacturing and services related industries.
3. The Government must form a National Bank and offer low interest rates to businesses.
4. Encouragement local investment as opposed to relying on foreign investments.
5. Restrict foreign investments mostly to beneficial long terms developments, e.g. telecommunications, highways, power generators. Restricted foreign ownership of movable and immovable assets.
6. In times of Inflation, the Government should increase the bank reserves, and impose stricter currency control rather than using inflation targeting which adds a burden to already cash strapped citizens.           

In conclusion we see an Islāmic economy can work. Locally it would be beneficial if Administrators of Zakāh , at least, consider establishing a Beitul Māl. Invest a portion of the Zakāh fund to finance businesses with the endeavour to create employment and thus giving the poor the opportunity to earn the barakah, blessings of Allāh the Most Generous by also having the opportunity of making contributions to the Zakāh fund.

                                           Wal Ḥamdulillāhi Rabbil ‘Ālamīn