Thursday, April 28, 2011

Elements of the Islamic Economic System

I would like to share a small fraction of the book Interest Free Islamic Banking (Lariba Bank : Foundation for a United & Prosperous Community) by Dr. Yahia Abdul Rahman. This is a actually a very brief and basic explaination to understand Islamic economy.

First of all, we have to know that money is not looked as a commodity that commands a price, that is called interest in the riba system. Money does not reproduce and give birth to money. Money is a means of transacting business and is used to measure the efficiency of doing a business. Monetary policy is based on actual achievement of economic growth and productivity, not on perceived future rates of growth, since the future is only known to God.

So here are the following elements regarding Islamic economic system :


Islam requires every individual to work and to produce. Prophet Muhammad saw teaches : "Never be lazy and helpless". There is no good in an individual who does not want to produce and earn money. And it is known that the unproductive hand is an unclean impure hand. Products should be useful and not harmful as defined in the Quran and the Shariah.


In its efforts to do away with classes in the society based on wealth and affluence, and reshaping it through distribution into an intergrated society, Islam makes the following points :

  • God owns wealth, power and natural resources. The individual or the instituition is appointed by God as a trustee and custordian to manage them. 

  • Every being, human or not, has a minimum reuirement to be able to live in dignity. This should be provided by the government to anyone who cannot meet his/her own needs.

  • Islam respects private property and the right of ownership is protected.

  • The system is paid back and balanced out through the act of Zakah (alms giving is an essential part of the system and faith). If this source is not enough, the Islamic government would apply a temporary tax to the rich and affluent to balance the budget as a religious duty (Fardhu Kifayah). Zakah is spent by the Islamic government to be distributed to the poor, the needy, the traveller (wayfarer), administrators and to help the oppressed indebtors to pay off their debts. Where muslims live under a non-Islamic government, Zakah must still be collected from the muslims and spent for the good of society.

  • The individuals are trained to feel socially responsible for others in the community. He/she cannot enjoy life while others not.

  • The government is responsible for the basic needs of every citizen. These are food, shelter, clothing, education and heath care.

  • The only road to richness and to achievement is hard work and assumption of risk. It is not through inheritance. That is why Islamic lawa (by a detailed description in the Holy Quran Chapter 4) defined how exactly the estate should be distributed after death. No one can make a will that attempts to alter the predefined distribution rates. In addition, if one wanted to include inhis/her will a payout to others outside what the law requires, this is limited to a maximim or 1/3 of the total estate. This way money is always distributed and trickled down through the system every time it is accumulated, not through inheritance taxes to the government but through direct distribution to those who are entitled to it, hence reducing the government burden and waste. 

Islam preaches moderation and a balanced pattern of consumption. Islam is the way of life. Over-consumption and spending in the wrong way (bribery, illegal profits, etc) are condemned as the work of satan and not allowed. Everyone is trained to plan for the future and to be careful. The story of Prophet Joseph is an important lesson in long-range planning.


Human nature, if untamed, is characterized by selfishness and greed. Islam focuses on training the individual spiritually and ethically to suppress selfishness and greed and to promote goodness.