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Query Answered: Islam’s Economic System

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  • Does Islam offer an economic system, and if so, what is the blueprint of the system? What is the position of land, labor, capital and organization in this blueprint?
  • Can the funds of Zakah and Sadaqat be used for social welfare?
  • Can we successfully introduce an interest-free economy?
  • What is the interrelationship of the economic, political, social and religious systems in
  • Islam?

Brief answers are offered.

Basics of the Islamic Economic System

The answer to the first question is that Islam has definitely provided an economic system. However, this does not mean that it has prepared a blueprint with the minutest of details for all times to come. Islam has provided the basic principles and determined the essential parameters which we can use as a guideline to prepare a system capable of satisfying our economic needs in all times and climes. We have the freedom to work out the details depending on our circumstances without transgressing the predetermined limits. This is the course followed for our economic system. Leading jurists in the past have formulated detailed rules and regulations which are available in our books of jurisprudence with detailed chapters on Islam’s economic system. These serve as invaluable treasures of knowledge from which we can borrow verbatim details that satisfy the needs of our time.

The Objectives of Islamic Economics

Having explained the meaning of Islam having its own economic system, I shall explain the most important objectives in this system before discussing the principles that Islam provides in the realm of economics.

The first objective in Islam is safeguarding personal freedom. Restrictions only exist to safeguard the collective well-being of society. Islam attaches great importance to human freedom (moral, political, and economic) because individuals are accountable for their deeds in their personal capacity. It is therefore essential to let each person have more avenues for the growth and development of his personality. Islam provides the necessary principles for an economic system that guarantees an individual’s freedom to earn their daily bread, for example, it guarantees basic human rights.

  • Harmony in Moral and Material Progress

The second objective is to guarantee the harmonious growth of human personality both morally and materially. Due to the special emphasis on moral development placed by Islam, it is incumbent on society to provide ample opportunities to help individuals choose to do good deeds, by creating a conducive environment where noble human virtues and traits can blossom.

Islam doesn’t depend on the law to establish social justice. It assigns greater importance to faith, prayers, education, and moral upbringing to reform individuals from within. Social pressure can force individuals to abide by its values in case measures fall short of producing desired results. If that fails to produce a change, then the law is there as a last resort to establish justice.

  • Promotion of Cooperation, Harmony and Justice

The third important objective of the economic system of Islam is the promotion and sustainability of a society’s unity and cohesion. It doesn’t encourage a society’s division based on class, clan, and ethnic or linguistic considerations. Classes that naturally emerge are led to live in an environment of mutual cooperation, compassion and trust.

Basic Principles of Islam’s Economic System

These three objectives allow for a better understanding of the fundamentals and nature of the Islamic economic system. I now briefly explain the major principles of the system.

  • Parameters of Private Ownership

Since personal freedom is of prime importance to Islam, it allows the right of personal ownership of property. It makes no distinction between the types of ownership, whether it is ownership of the means of production or consumer goods or whether it is of earned or unearned income. Rather, Islam focuses on whether income and wealth are obtained and dispensed through fair or foul means.

  • Equitable Distribution of Wealth

Another principle that Islam aims for is an equitable, not equal, distribution of wealth. Since there is no equality in matters such as wealth, health, skills, strength, and intellectual intelligence, it is not logical to claim equality in the means of production and distribution of wealth. Hence, Islam stresses equitable distribution with certain rules to achieve equity and justice. The first rule is that Islam has classified the means of wealth into the lawful and forbidden. It gives individuals the freedom to earn their living subject to the provisos of Halal and Haram. Apart from the forbidden means of wealth production, anything that is earned lawfully, is the rightful income of man. He is entitled to use his wealth for himself, give it to others, earn more wealth on it, or leave it behind for heirs. The wealth that is lawfully earned is however subjected to certain restrictions on its use.

Islam superimposes the right of the society on private ownership and safeguards this right in various ways. It lays special emphasis on the rights of the kindred, making it duty-bound upon those with excess wealth to help their relatives. It similarly recognizes a neighbor’s right to one’s income. Islam also makes every affluent person responsible for helping those who approach him or are in need. In addition, Islam enjoins Muslims to spend ‘in the way of ALLAH TAA’LA’, establishing the rights of society and state on their wealth. In this manner, there is bound to be an overall economic improvement in society, such that hardly any household would need external support.

Zakah is the most outstanding feature of the economic system of Islam. The mandatory Zakah and the voluntary sadaqat are like the regular and supererogatory prayers. Therefore, sadaqat cannot absolve one from the obligation to pay zakah. Zakah should not be mistaken for a ‘holy’ tax. Rather it is an ‘ibadah (an act of worship) and a pillar of Islam. Unlike a tax, zakah is not meant to satisfy the general needs of society. It is exclusively for those who have lagged behind economically. Muslims are to feel honored to fulfill this benevolent duty and are never to try to avoid its payment. Regarding taxation, Islam actually places no restrictions on taxes levied by an Islamic government that is run on the principles of shura, to secure societal welfare.

The Islamic law of inheritance has been framed with the sole objective of allowing the wealth left behind by the deceased to be distributed to a larger group of heirs and next of kin in a well-defined manner. An individual’s parents, spouse, and children are the prime beneficiaries, followed by siblings and close relatives. In the absence of an heir, the community as a whole inherits the wealth which goes to the public treasury. These basic principles are set by Islam for the well-being of society. We are free to devise an economic system of our own within these parameters. We have to adopt a free economy with certain restrictions, and not follow the path of the capitalists, nor that of communists.

Position of Labour, Capital, and Organization

The Islamic law of Muzara’ah and Mudarabah in Islamic jurisprudence highlights the exact position that labor, capital, and organization occupy in the economic system of Islam. Muzara’ah is a method of farming where the land belongs to one person but is cultivated by another and both share the resultant profits. Mudarabah is a form of investment wherein the capital belonging to one person is used by another for business and trade, and both share the profits. Islam safeguards the rights of the landowners, investors, and laborers by establishing land, human labor, enterprise, and capital as factors that are jointly eligible to a share in the profit. While Islam leaves the onus for determining the share-ratio of the different production factors to the respective parties, in the case of any injustice and violation of rights, the law intervenes to settle the matter justly.

Zakah and Social Welfare

On the question of using zakah and sadaqat funds for social welfare, they are meant to satisfy the welfare needs of specific groups of people, not for the economic upliftment of the country as a whole. They are only meant to satisfy the essential needs of the deserving and the needy and to ensure that no member of society is deprived of basic needs.

Interest-free Economy

Answer to the possibility of successfully introducing and running an interest-free economy is decidedly in the affirmative. Following the advent of Islam, the unjust and tyrannical interest-based system was discarded and Muslims adopted an interest-free system for many centuries.  There is no reason why this system should be dysfunctional today. The principle enunciated by  Islam is that a loan should not be a tool of exploitation. To earn a profit, one should be a partner or shareholder of a business. This is what justice demands and how the economy prospers. There is no problem reestablishing the system today without much difficulty, provided we stop blindly following others.

The interrelationship between Economic, Political and Social Systems

The relationship between the different systems is like that of the stems with the roots, of the branches with the stems, and of the leaves with the branches of a single tree. The Islamic system is a unified whole of which faith is the basis. It is an interrelated system with its different parts interlinked allowing them to draw sustenance and strength from one another. Without firm faith and the social conduct of this faith, it will never be possible to establish and successfully run the Islamic economic system. The same holds true for the political system. It is, therefore, wrong to think that there can be an economic, political, or social system that is independent of its religious and moral systems.

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