The Islamic Economic System

By Gold Rush

Members: Maryam Noor (Leader)

Maham Hameed Sana Ahmed Mahwish Waqar Mehreen Munawar Nadia Latif Leena Tayyaba Huma Cheema Sunita Sana

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CONTENTS

1. Age of Discovery 4

2. Introduction 5

3. Features 7

4. What the Islamic Economic System aims to do? 9

5. Merits 11

6. Demerits 13

7. Conclusion 15

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Age of Discovery&

Introduction

Age of Discovery:

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The Islamic Empire significantly contributed to globalization during the Islamic Golden Age, when the knowledge, trade and economies from many previously isolated regions and civilizations began integrating due to contacts with Muslim explorers, sailors, scholars, traders, and travelers. Some have called this period the "Pax Islamica" or "Afro-Asiatic age of discovery", in reference to the Muslim South-west Asian and North African traders and explorers who travelled most of the Old World, and established an early global economy across most of Asia and Africa and much of Europe, with their trade networks extending from the Atlantic Ocean and Mediterranean Sea in the west to the Indian Ocean and China Sea in the east. This helped establish the Islamic Empire (including the Rashidun, Umayyad, Abbasid and Fatimid caliphates) as the world's leading extensive economic power throughout the 7th-13th centuries. Several contemporary medieval Arabic reports also suggest that Muslim explorers from al-Andalus and the Maghreb may have travelled in expeditions across the Atlantic Ocean between the 9th and 14th centuries.

Arabic silver dirham coins were being circulated throughout the Afro-Eurasian landmass, as far as sub-Saharan Africa in the south and northern Europe in the north, often in exchange for goods and slaves. This helped establish the Arab Empire (including the Rashidun, Umayyad, Abbasid and Fatimid caliphates) as the world's leading extensive economic power throughout the 7th–13th centuries.

The origins of capitalism and free markets can be traced back to the Islamic Golden Age and Muslim Agricultural Revolution, where the first market economy and earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".

Introduction:

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Islamic Economic system is that part of life which relates to the economic activities of the people. Its essential elements are eternal as revealed by Allah in the Holy Quran and exemplified by the Messenger through his Sunnah. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; i.e. it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, etc. Islamists movements and authors will generally describe this system as being neither Socialist nor Capitalist, but a third way with none of the drawbacks of the other two systems.

Islam is an entire way of life, and Allah's Guidance extends into all areas of our lives.   Islam has given detailed regulations for our economic life, which is balanced and fair.  Muslims are to recognize that wealth, earnings, and material goods are the property of God, and we are merely His trustees.  The principles of Islam aim at establishing a just society wherein everyone will behave responsibly and honestly.

Islam differentiates between the basic needs and luxuries; there exists no concept of relative scarcity of resources in Islam. The resources available on earth are sufficient to secure the basic needs (food, clothing, and shelter) of fifty billion human beings. Such a misunderstanding has concealed the reality that starvation, poverty, and economic backwardness, result from maldistribution frustrated by man-made laws and systems. Under the Islamic system, Nigeria alone could support the whole of Africa, as occurred in the past when, under the system of Islam, Africa sent food to relieve the famine in Medina during the rule of Omar bin al-Khattab.

The implementation of Islam would eliminate the stranglehold by which the elites control the polices of the world and milk its resources. The shortsightedness of limiting production stems from the man-made ideologies that fail to understand the nature of creation. Because the Islamic system reflects the wisdom of the Creator, then the implementation of Islam will provide a society conducive to life that will address the needs of humanity based on the correct understanding of life. Muhammad (SAW) said, "The son of Adam, if he had two valleys of gold, would desire a third and would not be satisfied till he bites the dust."

Islam will safeguard against abuses of exploitation in acquiring wealth by limiting the way in which wealth is acquired.

In the systems of today, the stock market offers no such protection and allows for any outsider to secure a share in any business or corporation and impose his policies on the company agenda, even if that individual puts no effort or work into the business. Today, food manufacturers have cultivated the art of burning surplus food and dumping surplus milk into the ocean to artificially inflate prices by creating "scarcity," an art that would cease to exist with the implementation of Islam.

Unlike today's system, which opens all doors for anyone to access wealth by any means, Islam categorizes wealth in a systematic way that both protects the right of individuals to access wealth and, simultaneously protects the society and secures the needs of the Ummah. Islam mandates vital and natural resources as public property while allowing for unlimited access to luxury items.

For such a system to emerge, the Ummah must revitalize within itself the Islamic way of life and cultivate the Islamic culture and the Islamic Aqeedah as the sole basis for providing solutions to its problems.

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Features

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Aims

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Features:

A vigorous monetary economy was created on the basis of the expanding levels of circulation of a stable high-value currency (the dinar) and the integration of monetary areas that were previously independent. Innovative new business techniques and forms of business organization were introduced by economists, merchants and traders during this time. Such innovations included the earliest trading companies, big businesses, contracts, bills of exchange, long-distance international trade, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal), circulating capital, capital expenditure, revenue, cheques, promissory notes, trusts (see Waqf), startup companies, savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system, and lawsuits. Other important features of Islamic Economic System are:

Teachings of Quran and Sunnah to serve as the basis for all economic activities. Islamic economic institutions, not just the Islamic bank but all those connected with

Islamic banking operates on the basis of "zero interest." This prohibition is for all interest-based transactions, whether giving or receiving, whether dealing with Muslims or non-Muslims.  Islam prohibits time value of money in itself as producing no value - in conjunction with other value driven agreements the idea is entertained. In the case of Islamic banking, the lost time value is compensated by utilizing a sales contract, charging a mark-up on the home or vehicle that the client might be seeking to purchase by way of a loan.

Most Islamic economic institutions advise participatory arrangements between capital and labor. The latter rule reflects the Islamic norm that the borrower must not bear all the cost of a failure, as "it is God who determines that failure, and intends that it fall on all those involved."

Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also sustainable) use of natural capital, i.e. producing land. These latter revive traditions of Haram and Hima that were prevalent in early Muslim civilization.

The concepts of welfare and pension were introduced in early Islamic law as forms of Zakat (charity), one of the Five Pillars of Islam. The taxes (including Zakat and Jizya) collected in the treasury of an Islamic government was used to provide income for the needy, including the poor, elderly, orphans, widows, and the disabled. Every Muslim who owns wealth, more than a certain amount to meet his or her needs, must pay a fixed rate of Zakat to those in need.  The government was also expected to store up food supplies in every region in case a disaster or famine occurs. One of the earliest versions of a welfare state appeared in the Abbasid Caliphate.

Islamic Inheritance system. State’s responsibility to eradicate all forms of exploitation of man by man such as

feudalism and reduce inequalities of income and wealth. The last tool of economic policy has to do with the role of the government as an

insider of the system rather than as an outsider. The government can intervene in the economic matters in the larger interest of the society. At the same time people have a lot of freedom in this government regulated economic system.

Public and private sectors Property Rights:

o Public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) over which all humans

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have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be utilized by any citizen, without undermining the rights of other citizens over it.

o State property includes certain natural resources, as well as other property that can't immediately be privatized. Unclaimed, unoccupied and heir less properties, including uncultivated land (mawat), can be considered state property.

o There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual's right to private ownership. Islam also guarantees the protection of private property by imposing stringent punishments on thieves.

Islam accepts markets as the basic coordinating mechanism of the economic system. Islamic teaching holds that the market, through perfect competition, allows consumers to obtain desired goods, producers to sell their goods, at a mutually acceptable price. The three necessary conditions for an operational market are said to be upheld in Islamic primary sources:

o Freedom of exchange: the Qur'an calls on believers to engage in trade, and rejects the contention that trade is forbidden.

o Private ownershipo Security of contract: the Qur'an calls for the fulfillment and observation of

contracts. It is forbidden to gain property or wealth by fraud, deceit, theft, or other falsehoods.

Forbidden are earnings from gambling, lotteries, and the production, sale, and distribution of alcohol. 

It is particularly hateful for a guardian to take from an orphan's property. It is unlawful to hoard food and other basic necessities.   Everyone should take what

they need and no more. A Muslim should be responsible in spending money.  Extravagance and waste are

strongly discouraged.  Muslims are encouraged to give constantly in charity. The Prophet Muhammad once

said that "nobody's assets are reduced by charity." Islam bans certain things that are considered to be harmful for the individual and the

society as a whole. This results in protection of rights and honor. For instance, to protect the honor (ird) of the woman, Islam would outlaw all forms of prostitution, pornography, or any type of sexual bombardment that exploits the charms and physical attractiveness of women.

Monopoly power is considered undesirable in Islamic Economic System; The Caliph would link the currency to gold, silver or some other precious resource. By backing the currency with resources of real value, Islam creates a stable medium of exchange and eliminates the concepts of linking currencies that allow nations to manipulate currencies and maintain a monopoly over the financial markets of the world.

During the Muslim Agricultural Revolution, the Caliphate understood that real incentives were needed to increase productivity and wealth, thus enhancing tax revenues, hence they introduced a social transformation through the changed ownership of land, where any individual of any gender or any ethnic or religious background had the right to buy, sell, mortgage and inherit land for farming or any other purposes. They also introduced the signing of a contract for every major financial transaction concerning agriculture, industry, commerce, and employment. Copies of the contract were usually kept by both parties involved.

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Created the cheque system of today. Enabled trade networks to form over huge distances.

What Islamic Economic System aims to do?

Islam aims to set up a model society that exemplifies all economic and social morals: The distributive objective is built into the system by Zakat, the State insurance, and

the inheritance system. Thus, over accumulation and excessive concentration of wealth is checked by forces that are working within the system itself.

Freedom of choice in Production and Consumption matters. Islam aims to keep a balance between individual and state roles: individual’s freedom

and efforts are not entirely sacrificed for the state, nor the state is kept weak and futile so that it cannot ensure social justice and implement policies for general welfare.

General welfare of the people. The concept of ‘Falah’ includes the welfare in this world as well as welfare in the world hereafter.

All efforts should be made for Social justice. Social and human equality. Promoting cooperation among people for common well-being by developing helpful

attitude towards fellow beings. All Muslims must consider each other brothers: they must share sorrows and

happiness of other Muslims. Islam believes in moderation in all economic activities; use of resources, consumption

of goods, work and leisure. People are instructed to treat each other with benevolence: they may sacrifice and

give the others more than their due right or share. It seeks an economic system based on uplifting the deprived masses, a major role for

the state in matters such as circulation and equitable distribution of wealth and ensuring participants in the marketplace are rewarded for being exposed to risk and liability.

Islam firmly believes in the dignity of labor. Honor and being paid without delay is their due right.

All transactions should be just and fair. Hoarding, under-weighing, adulteration, artificial monopoly, selling through deceit and misleading advertisements are not permitted.

Islamic Economic System aims to create equality of opportunity for all by spending huge amounts on Public utilities, education, and health and infrastructure facilities.

In view of the great importance of organization in modern industry, it is absolutely essential that the right type of persons, who are really fit and qualified for the job, should be appointed as organizers.

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Merits

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Merits:

The implementation of Islam would eliminate the stranglehold by which the elites control the polices of the world and milk its resources. Islam does not impose any limits on the amount of wealth that an individual can acquire, thus creating an incentive to work. Because the Islamic system reflects the wisdom of the Creator, then the implementation of Islam will provide a society conducive to life that will address the needs of humanity based on the correct understanding of life.

Islam denies the "free" market of Capitalism which has led to the situation of "survival of the fittest". Such an unrestricted environment has led directly to the current situation where multinational companies have scavenged the resources of the world like parasites unrestricted in their "freedom." Under the Caliph, natural and vital resources would be categorized as public property and a right of every citizen of the state - Muslim or otherwise. "The humans have a right to three things - water, green pastures, and fire-based fuels

(An-Naar)." Islam forbids monopolies by outlawing the hoarding of wealth (Al-Ihtikar), and

eliminating copyright or patency laws that would open the avenue for potential monopolies to develop.

Islam protects the ownership of businesses and companies by restricting ownership of companies only to those who contribute both capital and effort to the company or business, thus effectively putting the seal on such concepts as "corporate takeover" from ever becoming a reality.

Islam categorizes wealth in a systematic way that both protects the right of individuals to access wealth and, simultaneously protects the society and secures the needs of the Ummah.

Islam creates a stable medium of exchange and eliminates the concepts of linking currencies that allow nations to manipulate currencies and maintain a monopoly over the financial markets of the world.

The Islamic Economic System secures the needs of every individual, and eliminates all forms of economic and social corruption.

The early Islamic economy set up a very simple yet highly effective transport system that has evolved to the transport system of today.

Zakat provides a major means of fiscal policy because it affects the allocation of resources, the level of aggregate demand and the distribution of income as well since the variations in the volume and the timing of collection and disbursement of Zakat creates variations in disposable income and fixed and circulating capital. The flexibility of Zakat allows for the intensification of the development efforts.

These innovations made by Muslims and Jews laid the foundations for the modern economic system.

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Demerits/Criticism

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Demerits/Criticism:

While most Muslims believe Islamic law is perfect by virtue of its being revealed by God, Islamic law on economic issues is not "economics" in the sense of a systematic study of production, distribution, and consumption of goods and services. The Islamic Economic System has not exactly failed as it is considered perfect for the world in the sense that it revolves around every aspect of an economy. It sets rules for everyone; rich or poor, owner or labor, society or individual.

Critics of Islamic economics argue, however, that the fundamental characteristic of charging interest (i.e. charging a premium, on the principal amount of a loan, for the time value of the loaned money) is not truly eliminated in Islamic banking, but rather the interest is merely hidden and relabeled.

This version of Islamic economics, which influenced the Iranian Revolution, called for public ownership of land and of large "industrial enterprises," while private economic activity continued "within reasonable limits." These ideas helped shape the large public sector and public subsidy policies of the Iranian Islamic revolution. In the 1980s and 1990s, as the Islamic revolution failed to reach the per capita income level achieved by the regime it overthrew, and Communist states and socialist parties in the non-Muslim world turned away from socialism, Muslim interest shifted away from government ownership and regulation. In Iran, it is reported that "eqtesad-e Eslami (meaning both Islamic economics and economy), once a revolutionary shibboleth, is undoubtedly absent in all official documents and the media. It disappeared from Iranian political discourse about 15 years ago [1990]."

Some argue early Islamic theory and practice formed a "coherent" economic system with "a blueprint for a new order in society, in which all participants would be treated more fairly". Michael Bonner, for example, has written that an "economy of poverty" prevailed in Islam until 13th and 14th century. Under this system God's guidance made sure the flow of money and goods was "purified" by being channeled from those who had much of it to those who had little by encouraging Zakat (charity) and discouraging riba (usury/interest) on loans. Bonner maintains the prophet also helped poor traders by allowing only tents, not permanent buildings in the market of Medina, and not charging fees and rents there.

Just a glance at the economic system in Islam suffices to explain the fear and dread that America and the West have shown towards Islam, and explains the dedication and effort exerted towards curtailing or suppressing the resurgence of Islam as a system. Such a system would not only break the grip that the Capitalist nations have secured over the wealth and resources of the Muslim lands and dethrone their upper hand over the policies of the world, but would provide the long-awaited solutions to life that they have kept a secret from their own people with their extensive media manipulation and education. Because the currency in Islam is linked to gold or other precious resources, the implementation of Islam would cut the economic chains that America employs by linking other currencies to the dollar.

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Conclusion

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Conclusion:

The key difference from a financial perspective is the no-interest rule since most other religions favor charitable giving and socially responsible investing. The belief that the prohibition of investment with interest charges is essential for an Islamic society is widespread, though liberal movements within Islam may deny the need for this prohibition, since they see Islam as generally compatible with modern secular institutions and law.

But in other parts of the Muslim world the term lived on, shifting form to the less ambitious goal of interest-free banking. Some Muslim bankers and religious leaders suggested ways to integrate Islamic law on usage of money with modern concepts of ethical investing. In banking this was done through the use of sales transactions (focusing on the fixed rate return modes) to achieve similar results to interest. This has been heavily criticized by many modern writers as a means of covering conventional banking with an Islamic facade.

Islam makes a distinction between Halal and Haram which is the difference between right and wrong. It also lays considerable sheers not only on the ends but on the rightful means to achieve those ends, so Islamic Economic System is the best and complete economic system. A lot of progress has been made in the Capitalist System but at the cost of depriving the social worker of their rights.

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