Islamic Economic

Skrip
Diajukan Kepada Al-Zuhri
Al-Zuhri, Singapura
Disusun oleh :
Nursyazana Abd Aziz
S8811019F
Di Bawah Bimbingan:
Ustaz Hamrey Mohamad

Islamic Economics
Abstract: This article attempts to focus on the discipline of Islamic Economics in which why it is
differ from any conventional economics such as capitalism, communism and etc. Firstly, the paper
addresses the theories of economics such as Conventional Economics versus Islamic Economics.
Secondly, it discusses on how Islam view attaining knowledge regards to economy as one of the
most important knowledge (Fardh Kifayah) in the ummah. Finally, a proposal on the specific subject of the the benefits of practising Islamic Economics will be presented in the article.
Introduction
Have you ever wondered why recently, there is an increase in awareness of practising Islamic Economic (ie Islamic Banking) worldwide? How this knowledge of Islamic Economics is relevant in
twenty-first century? In addition to that, there are an increasing number of non-islamic countries
providing Islamic Banking services to the clients which consists of muslims and non-muslims too.
Does the practising of Islamic Economic provide the best solution for economic crisis that has been
occurring since centuries ago?

Conventional Economic Versus Islamic Economic

The crux of economic crisis that has been arises since decades ago are due to the "selfishness that
transgresses the boundaries of moderation. (Mawdd, 2011) In fact, the "degeneration of individual who is blessed with better economic position" (Mawdd, 2011) has turned into selfishness,
greed, stinginess, dishonesty, short-sightedness and self-righteousness. (Mawdd, 2011) Thus, the
gap between the riches and poor continues to widen due to the rights that were deprived of due
share of the national wealth. In addition to that, the plight of the under-privileged individual has
driven them to commit crimes in order to survive. As a result, the lower the social economic status
of an individual, he is unable to contribute to the society or vice-versa. These problems usually arise
in countries that are practicing Capitalism and Socialism (inclusive of Communism) systems.

In general, Islam has prohibited earning a living through illegal (haram) means such as selling of
wine, drugs, music and etc which inclusive of their production, sale, purchase and storage are
also considered unlawful. (Mawdd, 2011) Besides that, Syariah has declares by gaining unlawful economic gains at the expense of others is forbidden such as bribery, theft, gambling, speculation, betting, all fraudulent deals, hoarding, monopolies and cartels. (Mawdd, 2011)

Business transactions such as profit and loss which entirely depends on luck, as well as those businesses in which the rights of the two parties remain undefined are prohibited.

a. Conventional Economics - Capitalism

Interest based transaction

Interest based transaction simply inculcate traits such as selfishness and heartlessness in every individual. In a long run, it will create a ripple effect onto the society whereby none of the people from
the community will be willing to be charitable towards each other when they needed any help. Interest arises from self interest of an individual which promotes selfishness in them. Hence it will
produce a society which is lacking of respect and love, and those who are willing to exploit on the
expense of others.

Interest-based loans usually involved individual who needs money to support their basic needs or
dabble in business. In most cases, the needy is unable to pay back the current loan thus at times, he
will take up a new loan to repay the previous loan. As result, the debtors will fall into depressions
and unable to work productively due to having difficulty of paying their loans. In the end, most
debtors are unable to pay back their principal amount due to interest payment which defeat the purpose of repaying back the loan to their creditors.

Theoretically, a capitalist thinks that by amassing his wealth in interest-based schemes, it will earn
him riches. With such a self-seeking mindset, a man tend to be wealth-worship, therefore he will be
loath to part with even a cent unless his personal interest is involved. Islam, on the other hand, encourages men to spend our wealth on Sadaqa (charity), pay zakah and providing free interest based
schemes which would actually increase and multiply our wealth further. Surah Al Baqarah , verse
268 explained, Satan frightens you with poverty and bids you to commit indecency whereas Allah
promises you His forgiveness and bounty. Allah is Munificent, All-Knowing. Besides that, a capitalist assumed that every wealth that are spend will be lost eventually. On the contrary to Islam, by
spending our wealth for the sake of Allah , we would actually gain the advantages of what we spend
which will eventually revert to us. As Allah s.w.t has promised, Whatever wealth you spend in
charity is to your own benefit for you spend merely to please Allah. So,whatever you spend in charity will be repaid to you in full and you shall not be wronged."(al-Baqarah, 272) Therefore, Islam

ensures that social justice prevail in the community therefore muslims are highly encouraged to pay
zakah to help those needy people. Islam guarantee the rights of the society to an individual and
community.

b. Conventional Economics - Communism

Equality
Communism is the total opposite of Capitalism. All classes and class distinctions have been abolished which includes social inequality. The people will be sharing the national wealth with each
others and will hold societys resources in common. Likewise, the ownership of an individual will
be limited compared to Capitalism whereby any one can has unlimited amount of wealth. In addition to that, all business and wealth will be taken care (totalitarian) and owned by the state. Thus,
the state could focus on the progress of the community as holistically. Communism is the total opposite of Capitalism.

On the contrary, Islam did not restrict any muslim to accumulate wealth through the permissible
way. An individual has the right to secure earning wealth as long it is accordance to Al-Quran and
Sunnah. In which, if there is any individual needs to secure some wealth to sastify his own basic
needs and the family , he is allowed to keep the wealth for himself or family . Besides that, an Islamic government is forbidden from taking the property and nationalise it for state use. Tax is imposed on those who are wealthy and zakah are collected to help those in need.Therefore, Islam encourages people to earn wealth and prosper. Allah s.w.t said: "So walk in the paths of the earth and
eat of His sustenance which He provides." ( 67:15) Islam made the aim of owning property a means
towards satisfying the needs and not for the purpose of boasting.The philosophy of Islamic economy dictates in accordance to the commandments of Allah (SWT).

d. Islamic Economics
Islamic economics is the knowledge and application of injunctions and rules of the Shari'ah that
prevent injustice in the acquisition and disposal of material resources in order to provide satisfaction to human beings and enable them to perform their obligations to Allah and the society. (Zaman, 1984) According to Haneef, Islam, the Islamic Worldview, and Islamic Economics explains
the role of Islamic worldview in the process of developing Islamic economics. Therefore, most of

the Islamic economics theories are mainly derived from the verses in the Al- Quran and Sunnah. If
it is otherwise, the scholars will apply their ijtihd to interpret derived principles, (Zaman, 1984)
to Islamize Western economic theories to suit the context.
i)

Zakah

The objective of paying zakah is to introduce "economic justice into society in such a manner as to
check, on the one hand, all forms of economic imbalance and exploitation and, on the other, to
promote the growth and development of moral values. (Mawdd, 2011) In addition to that, It also
promotes selflessly in spirit of sympathy and generosity which will inculcate a society filled with
love and charity. Allah has strongly encouraged His servants to spend in the way He pleases (Infq
f sablillh) such as Sadaqah (charity) and Zakah (Mandatory Charity).

"And We made them into leaders to guide people in accordance with Our Command, and We inspired them to good works, and to establish Prayers and to give Zakh. They worshipped Us alone.
(al-Anbiy, 21: 73) The ayat above mentioned that prayers and giving zakah is part of the mandatory act of worship towards Allah. Therefore Muslims have to obey His command as Zakah is one
of the five pillars of Islam. Thus it is considered as part of act of worship and Muslims have to obey
and fulfil their responsibilities as His servants. Zakah is not considered as taxation being imposed
onto the Muslims but as an act of worshipping. All the donated money will be given to those who
are socially deprived and underprivileged. They will use the donated money to satisfy their basic
needs. As a result, the poor people social economic status will be elevated slowly and thus they will
be able to find job for themselves and fend for their family members. The act of giving is considered as the most noblest and reflects a good conduct of akhlaq of muslims behavior. Therefore if a
society is exposed by Islamic social norms, the nobles will be looked upon as role as they earn and
spend according to Syariah instead of idolizing groups of individual who earn and spend more lavishly on their lifestyles. If all the Muslims did their part in obeying Allahs command of paying zakah, in shaa Allah, there will be a time whereby it will be difficult to find anyone who should be
receiving it. Zakah also can be used to pay off debts for debtors( wal-Ghrimn) who are unable
to pay off their loans.

The history of Zakah can be dated by Abu-Bakr, the first Caliph who succeeded the next caliph role.
He waged a war to capture those who refused to pay zakah after the death of Prophet Muhammad
and put them on trial. "Abu Huraira reported Allah's Messenger as saying: Charity does not

in any way decrease the wealth and the servant who forgives Allah adds to his respect, and the one
who shows humility Allah elevates him in the estimation (of the people). (Sahih Muslim) Zakah
encourages muslim to increase their investments in their assets and savings hence they will be paying less zakah rather than accumulating cash which requires higher zakah payment. Only those who
are ungrateful especially the rich individual will find it is a hassle to pay zakah.

According to surah Taubah, verse 9, " Zakah expenditures are only for the poor and for the needy
and for those employed to collect [zakah] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler - an obligation [imposed] by Allah . And Allah is Knowing and Wise. There are eight categories
of individual who deserves zakah :
i)

The poors are those who cannot afford basic needs such as food and clothe for themselves and their families. Zakah will only be able to tide them over a short term period.
Therefore they need to learn how to be independent by being employed and learn new
lifeskill to support themselves.

ii)

The needy are those with low income. Zakah money will be able to aid them in improving their social economic status in which they start a small business and eventually raise
their status to the next level.

iii)

The administrators re those who collect and administer the process of zakah
collection,distribution, accounting, and investment.

iv)

Zakah also to be given to individual who needs help and to forge a closer bond between
the individual and to the community irregardless of religion.

v)

To free the slaves that are forced to live under the rule of dictators and who are longing
for freedom and liberty.

vi)

To help debtors who are in heavily in debt

vii) Zakah can be partly donated to support any charitable effort to please God ( school or a
place of worship, or helping a student, a refugee, or a new immigrant)
viii)

Helping travelers to establish a new life, develop new businesses, or building facilities
that would make it easier for people to travel and achieve their goals. (Abdul-Rahman,
2010)

ii) Riba versus Non-Interest

Bounties that are created by Him in this world is for the benefit of His servants. Hence, every individual is required to be able to differentiate between the permissible (halal) and prohibited
(haram)while using the bounties that are available. Believers! Do not hold as unlawful the good
things which Allah has made lawful to you, and do not exceed the bounds of right. Allah does not
love those who transgress the bounds of right, and partake of the lawful, good things which Allah
has provided you as sustenance, and refrain from disobeying Allah in Whom you believe. (alMidah, 5: 87-88)

Narrated Abu Huraira: The Prophet ( )said, "Avoid the seven great destructive sins." The people
enquire, "O Allah's Messenger ( !)What are they? "He said, "To join others in worship along with
Allah, to practice sorcery, to kill the life which Allah has forbidden except for a just cause, (according to Islamic law), to eat up Riba (usury), to eat up an orphan's wealth, to give back to the enemy
and fleeing from the battlefield at the time of fighting, and to accuse, chaste women, who never
even think of anything touching chastity and are good believers. (Sahih al-Bukhari)
Riba means excess or increase. In the Islamic terminology interest means effortless profit obtained
that is free of exchange. Riba is a conditional loan that the borrower will return to the creditor more
than the quantity borrowed. This transaction usually occurred in capitalism system whereby debtor
has to pay more that the borrowed amount.

There are two types of riba: Riba al-jahiliyah (the riba of the age of ignorance and paganism)
whereby debtor has to pay an additional sum on top of the principal sum to prolong the payment
through debt restructuring(interest based loan). If the debtor is unable to pay, then a new agreement
is concluded that increases the principal amount and prolongs the maturity date. Riba Al-Fadl is
defined as taking a loan for payment at a later date for a higher value, or selling an item for a profit
(the word fadl means an excess over the cost or a premium). (Abdul Rahman, 2010) This type of
riba is similar to barter trading where a fixed amount of interest is fixed throughout the loan period
in which the debtor has pay.

Islam, on the contrary encourages lender to extend grace period to the borrower so that he will be
able to pay back. "But if the debtor is in strained circumstance, let him have respite until the time of
ease; and whatever you remit by way of charity is better for you, if only you know." (al-Baqarah, 2:
280) This verse explained that if the debtor is in a strained situation, the lender is encouraged to extend the grace period or forgo the debt(treat it as Sadaqa).

Besides Islam, the authentic teachings of Judaism and Christianity did prohibit lending money with
charging interest (ribit: increase over the original amount of debt- Old Testament) This concept applies to all other faith and philosophies too. The act of riba is considered as one of the worst sins
and this evidently leads to inequality. In Islamic shariah, the loan is known as qard hassan (good
loan). It is indirectly helping the poor and enable them to pay the loan back on time without having
to pay any interest on top of the principal amount. If the debtor is unable to pay back the loan due to
financial, the creditor is able to make a claim from the Bayt ul Maal (payment made from the zakah)

Usually businessmen will take loan from the bank to start up a new company or to expand. Hence
their loan will include interest. This loan will be only beneficial to the businessmen if they made
any profit. In contrast to Islam, Syariah implements law such as partnership Musyrakah and Mudarabah.

Firstly, Mushrakah (equality of profit and loss sharing basis) which is more beneficial for both
stakeholders and businessman. In Mushrakah , partners need to specify the terms and conditions of
this partnership and will be bound by the law to determine the profit and loss ratio between the parties concerned. In this case, both businessman and stakeholder gains profit and loss equally rather
than having to make payment for interest if they are borrowing money from non-islamic bank. On
contrary to non-islamic bank, interest-free banking will reduce the minimal the chances of a loss
and opportunities for gain will be manifolded. Indirectly, it will help to increase the growth of trade
and business and thus increase the job opportunities and employee's income. Besides that,the rate of
capital flow to national banks will naturally rise by leaps and bounds. In conclusion, interest free
system did not deter any amount of money being deposited into the banks but it will indirectly increases the nationals economic growth. Hence, the banks will still be able to continue performing
their daily duties for clients whom have opted for their services.

Secondly, Murabah is a partnership whereby one of the partners supply capital and the other one
will be offering his services. In addition to that, they will both be sharing the profit in accordance to
the contract they have drawn. Besides that, Qar al-asan also provide another alternative to interest
free loan. Allah has declared that whatever charity given, an individual will be duly rewarded .
Thus muslims are highly encourage to extend a loan to one in need which exclude interest or harassing for the return of principal amount.

iii) Halal & Haram

A man is expected to know what is permissible and lawful (all) for him, and what is prohibited
(arm) that he cannot indulge such as obligatory worships, the rights he has over others and vice
versa and etc. All of the permissible and prohibited acts (amal maruf nahi mungkar) are being explained in both the Al-Quran and Sunnah. Therefore, any individual is not allowed to transgress the
limits of arm while seeking his fortune and earning money, or in spending what he has earned.
Woe to every fault-finding backbiter, Who amasses wealth and counts it over and again, He thinks
that his wealth will immortalise him forever! Nay, he shall be thrown into the Crusher. (al-Humazah, 1-4) As a result, everyone is duty-bound to abide by the rules so he could contribute and
boost up the societys moral and economic uplift. Islam promotes equality, so that every individual
would have equal opportunity for his moral, social, and material growth. Conversely, If it is otherwise, the society will be morally backward, socially impoverished, and economically exploitative.
Islamic economic system is the only one that "promotes people friendly policy where individuals
enjoy freedom of thought and expression and are guaranteed avenues of collective struggle for their
rights and a better future. (Mawdd, 2011)

Similarly, Islamic economic system guarantees an individuals freedom to earn their earnings.
Though there are restrictions but they are necessary for a societys progress and prosperity. Hence ,
Islam seeks to establish a political system that guarantees active participation of the people and a
government of their choice but circumscribed by the parameters set by the Qurn and the Sunnah.

Moreover, Islams economic system also guarantees the harmonious growth of human personality
both spiritually and materially. Thus, Islam provides every individual with ample opportunities to to

do good deeds and developing traits and moral virtues like compassion, tolerance and etc. Besides
that Islam emphasise on the importance of mn (Faith), Ibdt (acts of worship), education and
moral upbringing in order to reform a person from within. All of these will be impossible unless
the Muslim society is united and able to go against non islamically social pressure. Likewise, Islamic economic promotes the sustainability of a societys unity and cohesion which discourage the
division of a society (race, language or religion). Therefore, it creates an atmosphere of unity and
cooperation among them through its moral, political, social and economic structures. As a result, it
will create a society full of compassionate and helpful people and be united in increasing the national economics growth.

In addition to that, Islamics economic system also aims on equitable distribution in order to
achieve equality and justice. According to Al-Quran and Sunnah, individual has to the right to
earn wealth through the permissible (halal) way instead of attaining it through forbidden way
(haram). In which he is entitled to make use of this wealth for himself or leave it behind for his
heirs. Islam exercised restrictions as to deter unsightly conduct of an individual that might be harmful for the individual and for the society. Therefore, Islam encourages one to spend part of his
wealth on sadaqah and zakah to allow a portion of this to reach the less privileged and be diverted
to schemes of public welfare.
Knowledge in Islam
Narrated Abu Hurairah: that the Messenger of Allah ( )said: "Whoever takes a path upon which
to obtain knowledge, Allah makes the path to Paradise easy for him. (At-Tirmidhi). If an individual
is equipped with knowledge, he will not act against Allahs command such as practising Riba or
usury and deny any muslims rights in the society by not paying zakah or not being charitable
(sadaqa). Hence with knowledge and taqwa, "It is only those who have knowledge among His servants that fear Allah.(35:28) According to Imam Syafii, after the obligatory deeds, nothing is more
beloved to Allah than studying knowledge. Ibn Taimiyyah said, Seeking religious knowledge is a
collective obligation (fard kifayaah) except for that which is incumbent upon each individual to
know, such as every person seeking knowledge of what Allah has ordered him to do and what Allah
has prohibited him to do, since this is an individual obligation( Umar, 2006)

Conclusion
Man-made systems such as conventional economics are inadequate as it lacked of justice, but none,
are comparable to Allahs wisdom in creating justice. Individual will only realised that the moment
he feels the need for justice, he will realise that it is can be only found in the Al-Quran and Sunnah
of the Prophet Muhammad . Peace will prevail if only everyone practices Islamic laws.

Indeed, Islamic economics system is a unified whole which evolves out of Aqeedah. It is derived
from the Al-Quran and Sunnah which guide the muslims in obeying the system of Divine Worship,
the economic system and the political system. All of these systems are interrelated. Thus, if an individual has a faith and belief in Allah and Prophet Muhammad you will inevitably have to practise these systems that are morally acceptable. By the end of the day, all of the human mankind are
held accountable for our acts therefore, with strong aqeedah installed in all of the individual, they
will never deviate from islamic norms. As Islam does not separate religion from worldly issues such
as economic system and etc.

On the other hand, Capitalists interest lies in gaining monetary in interest based transaction. Furthermore, It is believed that interest is an economic necessity, without it the economy cannot
achieve progress. Capitalist relies entirely on interest which is served as an incentive which encourages an individual to save money and invest it in lucrative schemes. Hence, individual will be lure
to earn easy money through interest in which the commercial banks will make use of the savings to
loan to businessman rather than keeping it idle and unproductive. Capital is serve to promote trade
and industry. Nonetheless, if an interest based system exist in the country, the consumers will actually buy lesser products and save more money. It is teaching them to be more miserly and the market will suffer greatest loser due to a major portion of the goods produced remains unused. The decline in consumption thus leads to a decline in job avenues, a decrease in income and further decline of the consumption level of finished goods.

Therefore, Zakh is levied on the surplus in order to discourage the affluent from amassing wealth
and providing a channel for those with lower economic social status to benefit from this. Society
must be educated by the government in regards to this promoting interest free schemes and duly

motivated to follow the path of Ijtihd (scholarly re-interpretation of juridical issues), instead of
blindly following the beaten track (Taqld). This required level of Taqw (God-fearing) and
Tafaqquh (insight into the juridical issues of Shar ah) in accordance to Qurn and the Sunnah. Islamic economic is a just system that is duly based on Shariah created by Allah s.w.t with just. It
does not contain any elements of inequality of amassing wealth (Interest based schemes for capitalism and equal distribution of wealth without earning it without working hard for it for communism).

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