TOPIC 5: ISLAM AND ECONOMICS PDF

TOPIC 5: ISLAM AND ECONOMICS Learning Outcome:To summarise the principles that govern the economy in Islam. MEANING As people are acquainted with the different economic systems of the world, it has been observable that no economic system is correctly working to fulfil the economic requiremen...

TOPIC 5: ISLAM AND ECONOMICS Learning Outcome:To summarise the principles that govern the economy in Islam. MEANING As people are acquainted with the different economic systems of the world, it has been observable that no economic system is correctly working to fulfil the economic requirements and needs of human beings. Human needs are not only confined to fulfilling basic needs such as food, shelter, and clothing. They are very vast in nature. Human beings also engage in many economic activities for their satisfaction, such as purchasing property, selling goods and services, investing, borrowing loans, and others. Economics, in general, signifies the study of human behaviour in using resources to satisfy wants. It deals with the human management of the earthly resources regarding consumption, production, and distribution. There are two central dimensions in defining the word economics. Rephrase; People have noticed that none of the world's economic systems fully meet all human needs. These needs go beyond basics like food and shelter, extending to various activities like buying property, selling goods, investing, and borrowing money. Economics is about how people use resources to satisfy their desires. It involves managing resources on Earth for consumption, production, and distribution. There are two main aspects to understanding economics. 1. Conventional Economics: A. Economics is the science of wealth. (Adam Smith) B. Economics is a study of mankind in the ordinary business of life. (Alfred Marshall). C. Economics deals with human behaviour that concerns money getting and money spending. (Modern Economist). 2. Islamic Economics: A. Economics is a social science that studies the economic problems of people imbued with Islamic values (M.A. Mannan). B. Economics is an administration of scarce resources in human society in the light of an ethical conception of welfare in Islam. It concerns the material and immaterial welfare subjected to the Islamic Prohibition on production, consumption, and distribution (Ibn Khaldūn, Al Tüsī). Concisely, Islamic economics is defined as the knowledge and application of injunctions and rules of the Shari’ah that prevent injustice in acquiring and disposing material resources, so that man could perform his obligations to Allah SWT and society. Islamic economics focuses on all aspects of economic activities. It neither confines to profit-making as practised in materialism nor sole individual ownership as advocated by capitalism. On the other hand, Islam stresses the equal distribution of goods and services among people in society. It balances both individual and societal interests. The Islamic economic system has the strength to overcome the weaknesses of both socialism and capitalism Thus, economics in Islam is based on the concept that Allah SWT. Owns everything in this world. All properties, wealth and resources are God's ownership, and He disposes them according to His Will. Human beings should exploit these resources and have power over them only as directed by Allah's laws and His will CONCEPTS Islamic Economics as a system is governed by four unique concepts 1. Belief: Islamic economics is a beliet based system. Its concept is governed by the teachings derived from Qur'an and Hadith of the Prophet Muhammad SAW. These teachings are the foundations for its system to realise the faläh and a good life within the framework of Shari'ah. 2. Ownership: Allah SWT is the Sole Creator of everything and every life in the universe He is the absolute owner of everything, including all properties on this planet. Allah says in Sürah al Baqarah, 2 29 ِ ْ‫ه َُو الَّذِي َخ َل َق َل ُكم مَّا فِي اَأْلر‬ ‫ض َجمِيعًا‬ “He is Who created for you all that is on earth." 3. Earning. It is incumbent on every Muslim to earn his living. He is obliged to carn an honest livelihood. He should not become a burden on others for his livelihood and preferably carn it through his labour. 4. Equity and justice: Islam provides every individual with some fundamental socio-economic rights. It includes the right to access factors of production. land, labour, and capital to ensure economic justice. Besides, a man as an economic agent has the right to address grievances and the provision of legal justice. PURPOSE OF ISLAMIC ECONOMICS AL-FALAH Islam sets goals for human life. The ultimate goal of man's life is the attainment of falah in both worlds. Islam requires man to co-ordinate his life in the most balanced way of his economic (material needs) and spiritual aspects of attaining real success. One of the essential conditions to gain falah is the fulfilment of the objectives of Shari’ah. Al-Ghazzali defined the objective of the Shari'ah to be the five foundations of securing individual and social life, religion, life, intellect, posterity, and property. He also proposed that the key to the minimum protection and preservation of these foundations is through guarding social utilities (masalih) Rephrase it; Islam guides human life with specific goals. The ultimate aim is to achieve success, known as falah, in both worldly matters and spirituality. It teaches that individuals should balance their material needs with their spiritual growth to attain true success. To achieve falah, it is crucial to fulfill the objectives of Shari’ah. Al-Ghazzali identified these objectives as protecting five essentials: religion, life, intellect, family, and property. He emphasized that safeguarding these essentials depends on preserving social benefits and utilities (masalih) Social utilities, three-level hierarchy of needs: I. Necessities: All activities essential to the preservation of five foundations of a good life. II. Complementary: All activities and things that are not vital to preserving the five foundations. Rather, they are to remove difficulties in life III. Luxuries or Refinement: All activities and things that go beyond the limit conveniences. It includes matters that do not remove or relieve difficulties but preferably those that complement and adorn life. Al Falah in Islamic economics addresses the following: 1. The attainment of material well being in the society through a. The eradication of poverty and creation of conditions for full employment and job opportunities b. The development of training and education to advance the individual abilities and enable him to cater for his well being independently, c. The construction of affordable and comfortable housing d. The promotion of Infaqe in all economic activities e. The system free from riba 2. The development of human behaviour in the light of Islamic norms and values a. Consumption- As a consumer, man should be governed by five principles Principle of righteousness -> Principle of moderation -> Principle of cleanliness -> Principle of beneficence -> Principle of morality b. Production: Attainment of falah in production means the achievement of the following Increase in income resulting from the increase of only beneficial goods and services through the maximum utilisation of resources Increase in the volume of production according to the priorities the hierarchy of needs. Quality of goods and services produced subject to Islamic injunctions Maximum participation of people in the production process PRINCIPLES OF THE ISLAMIC ECONOMIC SYSTEM 1. Tawhid and Brotherhood Tawhid literally means unity. The principle of Tawhid and brotherhood are the predominant note of Islamic economics, that to Allah alone belongs whatever is in the heavens and the earth, and that He has made the good things for the service of man. Man has been appointed as the vicegerent of God on earth and entrusted with the responsibility to use and distribute the resources created by Him justly. Thus, Tawhid teaches man how to relate and deal with other men in the light of his relationship with Allah it says that social justice is the more fundamental truth behind the workings of an economy based on market exchange, resource allocation, maximisation of utility, and profits In Islam, the capacity to understand and dispense this social justice emanates from the knowledge and practice of the principles of Al-Qur'an. Thus, the principle of Tawhid and brotherhood link up the duties to men with the duties to Allah. Rephrase; In Islamic economics, the principles of Tawhid (the oneness of Allah) and brotherhood are central. They emphasize that everything in the heavens and earth belongs to Allah, and He has provided resources for humanity's benefit. Humans, as Allah's representatives on earth, are entrusted with using and distributing these resources equitably. Tawhid guides how people interact with each other based on their relationship with Allah. It underscores that social justice is fundamental in an economy, influencing market activities, resource allocation, utility maximization, and profit. In Islam, understanding and practicing social justice comes from knowledge and adherence to the principles of the Qur'an. Therefore, Tawhid and brotherhood connect human responsibilities to both each other and to Allah. 2. Individual Liberty Everybody has a right to earn a living through decent labour. A duty and a great virtue as well. An individual is free to be involved in any profession within the laws of Islam. Nobody has the right to undermine the status of honest working men based on the kind of work for a living. The Prophet SAW said: "It is far better for one even to take his rope, cut wood, pile it up and sell it in order to cat and give charity rather than to beg of other whether they give him or not” (Sahih al-Bukhari 1480) 3. Right to Property In Islam, an individual has the right to property through lawful means. It is considered his private possession. Allah SWT. mentions in Sürah al Nisa, 432 َ ‫ال َنصِ يبٌ ِممَّا َأ ْك َت َسبُوا َوال ِّن َسا ِء َنصِ يبٌ ِب َما َأ ْك َت َسنَّ َو َس َتلُوا هَّللا َ مِن َفضْ لِ ِه ۚ ِإنَّ هَّللا َ َك‬ ‫ان‬ َ ْ‫َواَل َت َت َم َّن ْوا َما َفضْ َل هَّللا ُ ِب ِه َبع‬ ٍ ْ‫ض ُك ْم َع َلى َبع‬ ِ ‫ض لِلرِّ َج‬ ‫ِب ُك ِّل َشيْ ٍء َعلِيمًا‬ ) "And do not crave what Allah has given some of you over others. Men will be rewarded according to their deeds and women 'equally according to theirs Rather, ask Allah for His bounties. Surely Allah has 'perfect' knowledge of all things" The ayah explicitly recognises the individual's right to own, inherit, and sell the property as and when he likes. It also recognises all other rights which go along with the right of ownership, such as the right to safeguard one's property from theft and any unlawful possession of someone's property by force or deceit. Thus, Islam forbids anyone, including the state, from jeopardising this right as long as the individual does not involved in unlawful transactions such as selling wine or pork, or taking other people's property by force However, he must also fulfil certain obligations to the state, for instance, by paying certain taxes. It is to highlight that every individual is responsible for the state's prosperity as the state is responsible for the security of the individual. Rephrase; The Quran explicitly acknowledges an individual's right to own, inherit, and freely trade property. It affirms all associated rights of ownership, such as protection from theft or unlawful seizure. Islam prohibits any entity, including the state, from infringing on these rights unless the individual engages in unlawful activities like selling alcohol or pork, or unlawfully seizing others' property. However, individuals also have obligations to the state, such as paying taxes, to contribute to the state's prosperity, just as the state ensures their security. 4. Economic Inequality within Natural Limits Islam admits the economic inequalities among people within reasonable and natural limits, as they differ in their ability, intelligence, and other qualities Al Qur'an acknowledges this as follows: ِ ‫َّك َس ِري ُع ْال ِع َقا‬ ‫ب َوِإل ُه الفُو ٌر َرحِيم هللا‬ َ ‫ت لِ َتسْ لُو ُك ْم فِي َما َعا َن ُك ْم ِإنَّ َرب‬ ِ ‫در َج‬ َ ‫وهو الذي جعلكم خليف األرض ورفع بمحكم قول بعض‬ "And it is He Who has made you generations coming after generations, replacing each other on the earth And He has raised you in ranks, some above others that He may try you in that which He has bestowed on you, Surely your Lord is Swift in retribution, and certainly He is Oft Forgiving, Most Merciful" (Sürah al An'am, 6: 165) ً ‫ت لِ َي َّتخِدَ بعضهم بعضا سخيا‬ َ ‫ض ُه ْم َف‬ ٍ ْ‫وق َبع‬ ٍ ‫ض دَ َر َج‬ ُ ‫ِّك عن قسمنا بينهم معيشتهم في الحين الدنيا وردما بع‬ َ ‫ت َرب‬ َ ‫ُون َرحْ َم‬َ ‫َأمر َيقيم‬ َ ‫ِّك َخ ْي ٌر ِممَّا َيجْ َمع‬ ‫ُون‬ ُ َ ‫ورحمت َرب‬ "Is it they who would portion out the Mercy of your Lord! It is We Who portion out between them their livelihood in this world, and We raised some of them above others in ranks, so that some may employ others in their work. But the Mercy (Paradise) of your Lord (O Muhammad SAW) is better than the (wealth of this world) which they amass (Sürahal Zukhruf 43:32) These two Qur'anic Avat state: A. Everything on the earth and the universe belongs to Allah. Man, as the vicegerent on the earth has been entrusted with many things for his use and proper exploitation B. Allah has assigned different ranks to human beings. Some are entrusted with huge fortunes and more ability to work, and some with lesser fortunes and lesser ability to work. C. Life is a trial whereby one will be tested on the bounties given. The economic inequality among people provides chances for human beings to develop noble qualities and struggle for betterment in their lives. For example, people whose sustenance is scarce should learn to be patient and content. Meanwhile, others with abundant resources should develop the qualities of gratefulness, kindness, and sacrifice. However, Islam disapproves of vast economic inequality among people as it will cause chaos and enmity in society. Thus, Shariah imposes al-Zakah and recommends al-Afw (charitable funds from the surplus wealth of people) to maintain equitable differences in people's basic needs. Rephrase; Economic inequality offers opportunities for people to cultivate virtues and strive for improvement in their lives. For instance, those facing scarcity learn patience and contentment, while those with abundance can develop gratitude, kindness, and generosity. However, Islam discourages extreme economic disparities, which can lead to societal unrest and discord. Therefore, Shariah mandates al-Zakah (charitable giving) and encourages voluntary charitable contributions (al-Afw) from surplus wealth to ensure basic needs are met fairly across society. 5. Social Security It deals with the maintenance of public benefits and welfare by the state. The state is responsible, among others, to provide adequate means for the poor to meet their basic needs. Besides, the stare is also responsible to sanction measures to reduce the gap between the rich and the poor within natural limits. Islam emphasises the provision of a complete shelter to address all misfortunes and eventualities by helping older people, unemployment, sudden calamity, and hereditary deformity. Simultaneously, the state is incumbent to impose taxes on the wealthy to meet the requirements of those in need irrespective of their creed, colour, and religion. Rephrase; It involves the state's role in ensuring public welfare and benefits. This includes providing sufficient support for the poor to meet their basic needs and taking steps to narrow the gap between the wealthy and the less fortunate within reasonable bounds. Islam stresses the importance of comprehensive social safety nets to address various hardships such as old age, unemployment, sudden disasters, and disabilities. At the same time, the state is obligated to levy taxes on the wealthy to fulfill the needs of those in distress, regardless of their beliefs, ethnicity, or religion. 6. Social Justice Social justice (economic justice), according to islamic conception, includes three things; A. provision of basic necessities of life to the poor and the needy B. fair and equitable distribution of wealth C. protection of the weak against economic exploitation In Islamic economics, justice should prevail in all circumstances by giving each what he or she is due I. Production- It is related to individual liberty and the right to property. It involves the right to acquire wealth lawfully and the right to own the wealth without abusing other people's rights. II. Distribution- It is related to economic inequality within natural limits and social security. Wealth should be circulated among all sections in society instead of being concentrated in a few hands onlys Al-Qur'an highlights this matter in Sürah al-Hashr, 59:7 ِ ‫ما أفاء هللا على رسوله من أهل القرى والمي مل كن ال يكون دولة بين السبيل شدِي ُد ْال ِع َقا‬. ‫ هوا واتقوا هللا إن هللا‬. ‫ب‬ ‫الرسول محدوه وما بكم عنه فانتهوا‬. “Allah gave as booty (Fai) to His Messenger (Muhammad SAW) from the the townships, it is for Allah, His Messenger (Muhammad SAW), the kindred (of Messenger Muhammad SAW), the orphans, Al Masakin (the poor), and the wayfarer, in order that it may not become a fortune used by the rich among you. And whatsoever the Messenger (Muhammad SAW) gives you, take it, and whatsoever he forbids you, abstain (from a), and fear Allah Verily, Allah is Severe in punishment.” III. Consumption- It is related to balance in spending, neither excessiveness nor miserliness. It is done according to the hierarchy of needs, the necessities, the complementary, and the luxuries. Islam recommends that the surplus wealth of people be spent in the service of virtue, righteousness, and public welfare. ‫ان َبي َْن َذل َِك َف َوامًا‬ َ ‫والذين إذا أنفقوا لم يُسْ ِرفُوا َو َلم يفترُوا َو َك‬  "And those, who, when they spend, are neither extravagant nor niggardly, but hold a medium (way) those (extremes)" (Sürah al Furqăn, 25.67) WEALTH MANAGEMENT AND DISTRIBUTION IN ISLAM Being a comprehensive system of life, Islam grants serious attention to the well- being, the economic, and the prosperity of one and all. Moreover, Islam guides man to have the proper attitude towards wealth and prosperity, therefore, man will not be overwhelmed or to be repulsed at them. Within the context of the worldview of al Tawhid, Islam builds up a spirit of kinship, the brotherhood of humanity (al Ukhüwwah). This spirit of al Ukhüwwah is embedded in and nourished by creed and faith (al Aqidah wa al Iman), the concept of righteous and meritorious works (al Ibadah wa al Amal al Şalth), and ethics and etiquette (ol Akhlaq wa al Adab). All these values, therefore, govern wealth management and distribution in Islam. Wealth Management Wealth management refers to the organization and management of assets. The wealth is to be organized and managed objectively and ethically, according to Shari’ah. It begins with the method of generating income, utilising and managing it, which must comply with the Shariah. For example, the act of generating income from the job, utilising it for household needs, investing to generate long term wealth, and ensuring the fulfilment of Zakah payment. According to contemporary Muslim economics scholars, wealth management can be categorised into five aspects of their purposes: wealth creation, wealth accumulation, wealth protection, wealth purification and wealth distribution 1. Wealth Creation- It involves getting money and assets through lawful means. For example, selling goods and providing services to generate more income and create more wealth. Allah states in Al-Qur'an: َ ُ‫صالِحً ا ِإ ِّني ِب َما َتعْ َمل‬ ‫ون َعلِي ٌم‬ َ ‫ت َواعْ َملُوا‬ َّ ‫يَأ ُّي َها الرُّ ُس ُل ُكلُوا م َِن‬ ِ ‫الط ِّي َبا‬ "O messengers, eat from the good (and healthy) foods and work righteousness." (Surah al-Mu'minin; 23:51) 2. Wealth Accumulation- It involves generating more wealth and creating more productive economic activities in society. It is achievable through various types of investments in stocks, unit trusts, real estate investment trusts, and diversified equity funds, which are aligned with the Islamic rulings. 3. Wealth Protection- It concerns guarding and protecting one's wealth from risks. For example, wealth protection by either individuals or institutions through takaful or Islamic insurance. Takaful is defined as a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other against loss or damage. It is based on Shari'ah, which explains how each participant is responsible for contributing and cooperating with each other. The Qur'an vehemently emphasises  the necessity for men to cooperate, be responsible, and help each other in doing good deeds. ِ ‫َو َت َع َاو ُنوا َع َلى ْال ِبرِّ َوال َّت ْق َوى َواَل َت َع َاو ُنوا َع َلى اِإْل ْث ِم َو ْالع ُْد َو‬ ِ ‫ان َوا َّتقُوا هَّللا َ ِإنَّ هَّللا َ َشدِي ُد ْال ِع َقا‬ ‫ب‬ "And cooperate in righteousness and piety (among others), but do not cooperate in sin and aggression (which can lead to your own catastrophic). And fear Allah; indeed, Allah is severe in penalty." (Sürah al Ma'idah, 5:2) 4. Wealth Purification- It includes the purification of wealth through different means prescribed by Shari'ah, such as zakāh, sadaqah, and waqf. It also includes purification of one's business transactions and economic activities from any forms of riba, prohibited things, immoral activities, and those that lead to harmful consequences for society. Besides, it concerns the purification of the self by using one's wealth for good deeds and safeguarding himself against cheating, suspicions, bad feelings, and manipulation in economic transactions. 5. Wealth Distribution- It can be conceptualised as economic and financial activities on how the wealth is distributed among the members of the society. Islam necessitates that wealth is widely circulated among members of society instead of being confined to a few hands. It is to generate more economic activities and increase productivity. Besides, every individual in society will get his due right to strive for his livelihood. Concept of Wealth Distribution 1. Objectives- the system for the distribution of wealth laid down by Islam envisages three objectives a. To establish a practical system of the economy. This objective aims to establish a system of economy which is natural and practicable and allows every individual to function in a normal way according to his ability, his own choice and liking, so that his activities may be more fruitful, healthy and valuable. It is secured through a healthy relationship between the employer and the employee and properly utilising the natural force of supply and demand b. To enable everyone to get what is rightfully due to him. This objective is to enable everyone to get what is rightfully his. In Islam, the conception and the criterion of this differ from other systems of economy. Under materialistic economic systems, there is only one way to acquire the right to wealth, which is a direct participation in production. On the contrary, the basic principle of Islam signifies that wealth is the property of Allah Himself, and He alone can lay down the rules as to how it is to be used. According to Islam, those who directly participated in the production of wealth and those whom Allah has made obligatory upon others  to help are the legitimate sharers of wealth. Hence, the poor, the helpless, the needy, and the destitute too have a right to wealth. c. To eradicate the concentration of wealth. This objective ensures that the wealth is circulated in society as widely as possible instead of becoming concentrated in a few hands. Thus, it leads to the narrowing of the distinction between the rich and the poor within the natural limit In this respect, Islam does not permit any individual or group to have a monopoly over the primary sources of wealth. Instead, it gives every member of society an equal right to derive benefit from them. 2. Tools and Sources- The concept of distribution of wealth in Islam differs from capitalism and socialism. It is based on divine scripture with moral and ethical values addressing humanity, sympathy, forgiveness, generosity, and charity. In Islam, there are two kinds of heads relating to the distribution of wealth, ie.. primary and secondary heads Primary heads- It refers to the distribution of wealth among the factors of production. It involves those who participate directly in the process of production, ie, land, labour, and capital. Their rewards are rent, wage and profit, respectively. Secondary heads- It refers to the redistribution of wealth to people who do not participate directly in the process of production and do not meet their needs themselves. Among the tools and sources of redistribution of wealth distribution in Islam are: A. Zakah- A Muslim financial obligation and worship. It aims for the purification of self, wealth, and property. It is also a means that motivates an individual to continuously strive to work productively (according to the principles of Islam) if he/she wishes to improve his standard of living. Zakāh is a significant instrument for restricting the excessive accumulation of wealth and reducing income and wealth inequality among people in society. Islam clearly defines modes of spending Zakāh, which are targeted towards the needy and vulnerable class of society B. Wirathah- The Islamic system of inheritance. It has fundamental importance in the Islamic system of the distribution of wealth Allah SWT. prescribes a long list of inheritors in accordance with the degrees of relationship, in which the inherited wealth circulated widely. In contrast, the system of inheritance that is generally prevalent in Europe is the rule of primogeniture- that is to say, all the property of the deceased goes to the eldest son, depriving the other children. Moreover, in certain places, a man can distribute his whole property by will to any person, thus depriving even his male offspring of a share in the inheritance. As a result of this system, wealth is concentrated instead of circulated  C. Waqf- Refers to an Islamic endowment of property to be held in trust and used for a charitable or religious purpose. It is an important tributary of social, cultural, and economic life. It is based on compassion, social takaful, and empathy among Muslims. It keeps the flow of wealth from the rich to the members of society and benefits them continuously. The Islamic system of redistribution serves to facilitate and assist the non active participants of the economy. The tools, including the above three mentioned ones are useful to eliminate poverty and the concentration of wealth. Besides, it has positive impacts on socioeconomic matters and issues in society. Thus, it is evident that the tools and ingredients of the Islamic system are the best sources of distribution of wealth, which solve all deficiencies of other economic systems that prevail today. In a nutshell, wealth and property in Islam are both responsibility and accountability. It is a trust from Allah to be utilised and managed following His Will, belittling one's position as a Khalifah of Allah on the earth With wealth, a person can rise to become the best humanity if he spends his wealth for the good of many. However, if he lords his wealth over others by exploiting and spending it on evil works it will be a curse, as in the cases of Qärün and Fir'awn in the Qur'an. Rephrase; The Islamic system of wealth distribution aims to support those not actively participating in the economy. These methods, including the ones mentioned earlier, are effective in reducing poverty and preventing wealth concentration. They also have positive impacts on social and economic issues within society. Therefore, it's clear that the tools and principles of the Islamic system offer the most equitable distribution of wealth, addressing shortcomings found in other economic systems today. In summary, wealth and property in Islam are viewed as responsibilities entrusted by Allah, to be managed according to His guidance, acknowledging humanity's role as stewards on earth. How wealth is used determines its impact: using it for the benefit of many can elevate a person, while misusing it for exploitation and harmful purposes can lead to condemnation, as seen in the stories of Qarun and Pharaoh in the Quran.