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ISLAMIC ECONOMICS ECS10403 Topic 4 Consumption in Islam LEARNING OUTCOMES • In this topic students will know the following, • • • • • • The Islamic Framework for consumption. Concept of Need in Islam. Maslahah versus Utility. The Rule for Allocation of Resources to the Needs. Views of early Muslim thinkers on consumption. Role of Muslim Economists. 2 CONTENTS • • • • • Principle of Consumption in Islam The concept of wealth and success The brotherhood concept in Islam The hierarchy of needs of Muslims Decision making process 3 WHAT IS CONSUMPTION? • In economic theory, people perform two primary functions within the market. These functions or roles are consumers and producers. • Consumption is perhaps the last and very important stage. • Consumption stands for expending of wealth for satisfaction of human wants such as food, housing, education, health, other personal or family needs. 4 THEORY OF CONSUMER BEHAVIOUR • Utility-maximization: from secular point of view the theory of consumer behaviour uses the law of diminishing marginal utility to explain how consumers allocate their income. Consumer choice and the budget constraint. • Consumers are assumed to be rational, i.e. they are trying to maximize their utility with the budget they have. • Consumers have clear-cut preferences for various goods and services and can judge the utility they receive from successive units of various purchases. • The determinants of a consumer purchasing goods include, tastes (or pattern of preferences); income (ability to buy); and choice (willingness to buy). 5 UTILITY THEORY OF VALUE AND THE INDIFFERENCE CURVE • Indifference analysis reveals optimal utility, and the marginal rate of substitution, is where the indifference curve is tangent with the budget constraint curve. • When P increase for product B from $1.00 to $1.50, the equilibrium between what a customer prefers and what he can afford shifts from X to X’, decreasing the quantity of product B demanded from 6 to 3 units. • The demand curve is determined from the $1:6 units, and $1.5:3 unit combinations. 6 MUSLIM CONSUMER BEHAVIOUR • In Islam, the consumer is aware of Islamic norms and his behaviour is governed by them. The basic principles of consumption laid down by Islam are: 1. consumption of lawful things 2. consumption of pure and clean things 3. moderation in consumption • His choice is how much of the income is to be spend on worldly needs and how much to spend in the way of Allah (infaq fi sabil Allah) • Muslims are motivated to spend in the way of Allah (s.w.t.) though many Quranic verses and Hadith which highlight the rewards in the hereafter. 7 Consumption of lawful things • The followers of Islam are required to spend their earnings on Halal or permitted expenses and refrain from spending on Haram or prohibited things such as wine, narcotics, prostitutes, gambling. 8 UNLAWFUL things: • Carrion (dead meat), blood, pigs and idols, intoxicants and gambling, purchase or sale of stolen items. • Narrated Jabir bin 'Abdullah: I heard Allah's Apostle, in the year of the Conquest of Mecca, saying, "Allah and His Apostle made illegal the trade of alcohol, dead animals, pigs and idols." The people asked, "O Allah's Apostle! What about the fat of dead animals, for it was used for greasing the boats and the hides; and people use it for lights?" He said, "No, it is illegal." Allah's Apostle further said, "May Allah curse the Jews, for Allah made the fat (of animals) illegal for them, yet they melted the fat and sold it and ate its price." (Bukhari, 3:438) 9 Consumption of pure and clean things • Salman reported that the Messenger of Allah said: “The blessing of food is washing of hands before it and washing of hands after it”. (Tirmizi) • Abu Qatadah reported that the Messenger of Allah said: “When one of you drinks, he should not blow into the vessel”. (Bukhari) 10 Moderation in consumption • Moderation involves a middle path in terms of a balanced consumption • “Those who, when they spend, are not extravagant and not niggardly, but hold a just (balance) between those (extremes)” (Al-Furqan, 25:67) 11 THE HIERARCHY OF MUSLIMS’ NEEDS • “The economic problem revolves around mankind’s needs, the means of their satisfaction and utilizing these means” (An-Nabhani, 2002:47). • Limited needs can be fulfilled, but not unlimited wants. (Zaman, 2010:88). • Islam recognizes that man has certain needs, some of which are more important and others less important. The Shariah emphasizes that one’s preference might not coincide with one’s true utility function. • Al-Dimashqi (The Guide to the Merits of Commerce, AlIsharah Ila Mahasin Al-Tijarah, 570H/1175) classified needs (al-hajat) as essential (daruriyyah) and others which are socially incidental (‘aradiyyah wad’iyyah). 12 THE HIERARCHY OF MUSLIMS’ NEEDS (Cont.) • Abu Ishaq al-Shatibi (Maliki, d.790H/1388) described five fundamentals of existence in this world: (1) life; (2) property; (3) faith; (4) reason; (5) posterity, and goods and services that promote these five elements are said to have maslahah for humans and are therefore needs, which can be classified into three groups: • Daruriyyat (Necessitates) • Hajiyyat (Conveniences) • Tahsiniyyat (Refinements / Beautification). 13 DHARURIYYAT (NECESSITIES) • Necessaries are those wants whose satisfaction is absolutely essential as without doing it, man cannot survive. • For example: food, clothing and shelter. • The Prophet saying: “That is enough for you of this world if it meets your hunger and covers your body and along with these, you get some (house) to live in..” 14 Necessities are held to include, • protection of al-Nafs, man’s physical existence, the provision of things like food, clothing and shelter; • protection of Din, religion; • protection of al-‘Aql, mind; • protection of al-Nasl, progeny or pedigree; • and al-Mal, property. 15 HAJIYYAT (CONVENIENCES) • Conveniences include things which improve on the quality of life and remove hardship and difficulties. • A man’sectoral ordinary food, clothing and shelter are bare necessaries for his survival, but good food, good clothes and a good house are his comfort. • Enjoyment of comforts is permissible in Islam. • Qur’an has enjoined upon the people to wear good clothes, take good food and drinks but be not extravagant. 16 TAHSINIYYAT (REFINEMENTS / BEAUTIFICATION) • Refinements, on the other hand, are needs that are above necessities and those that relieve hardship, since they add beauty and elegance to life without transgressing the limits of moderation as defined by the Shariah. • e.g. quality Persian carpets, high quality furniture, clothing etc… 17 ALLOCATION OF RESOURCES TO NEEDS IN ISLAM • Resources should be first allocated to the essentials or daruriyyat, and if any balance left over then to hajiyyat, then to tahsiniyyat. This involves first level of preference ordering akin to lexicographical ordering which cannot be represented by convex indifference curves that neo-classical economics assumes for preference ordering (Khan, 1995:37): Islamic consumer behaviour involves an Analytic Hierarchy Process (AHP). • “And let not your hand be tied (like a miser) to your neck, nor stretch it forth to its utmost reach (like a spendthrift, extravagant), so that you become blameworthy and in severe poverty.” (Al-Isra’, 17:29) 18 DECISION MAKING PROCESS 19 EFFICIENCY • Islamic theory of of consumer behaviour considers 4 levels of consumer choice. • Secular economics restricts itself to the 2nd and to the 4th levels, choosing to ignore the 1st and the 3rd level. • In the 4th level in secular economics, choices between substitutes are applied but only partially, without recourse to maslahah -v- utility, or indeed praiseworthy or blameworthy. • Therefore, the scope of consumer behaviour in Islamic economics is much larger than in secular economics. • The concept of secular efficiency is to maximize satisfaction with available resources. • Islamic efficiency is to maximize the fulfillment of needs with available resources. • Fulfilling needs is desirable, it is desirable that necessities are met as a first priority; those that have more than this are required to meet the necessities of those who do not. 20 ISLAMIC -v- CONVENTIONAL CONSUMER BEHAVIOUR IN THE MARKET PLACE • Conventional concept of consumer behaviour rests on a persons utility function, but Islamic consumer behaviour rests on Allah’s pleasure in term of spending to help others (alms). • Conventional consumer behaviour focuses on consumption for worldly needs only, but in Islam consumer behaviour looks on both the worldly needs and the hereafter. • Consumer behaviour in the conventional system is free to consume any product according to his desire or whim, but in Islam it is bound by moderation and Islamic morals and ethics. 21 SPENDING IN THE WAY OF ALLAH (infaq fi sabil Allah) • “And those whose wealth is a recognized right. For the (needy) who asks and the deprived.” (Al-Ma’arij, 70:24-25) • Re-distribution of wealth in the form of sadaqah can be compulsory such as zakat, kharaj, jizya, ‘ushur; but it can also involve voluntary spending (infaq) that includes waqf, takaful and qard al-hasan. 22 AL-GHAZALI • Consumption and consumer behaviour • “The object of the wise is the vision of the Lord in the next world and the only way to gain it is learning and action and there is no other way, but it is not possible to stand constantly on them without a health body which is also not possible without food and drink, such food and drink which are absolutely necessary and which are taken according to prescribed rules” • Ihya, 2004, 2:1, Bk.11 Kitab Adab al-Akl (Book of the Manners Relating to Eating) • “The sustenance of a number of the sahabah was no more than a sa’ of wheat every week. When they ate dates they sufficed themselves with one sa’ and a half. One sa’ of wheat is four mudds, so that each day they ate about half a mudd, a third of the stomach. A greater quantity was required in the case of dates because these contain pits which must be discarded. Abd Dharr (r.a.) used to day, ‘every week my food amounts to one sa’ of barley, in accordance with the usage of the Apostle of Allah (s.a.w.s.), and, by God, I shall not eat more until I meet him again!” • Ihya, 2004, 3:87-87, Bk.23 Kitab Kasr al-Shahwatayn (Book of Breaking the Two Desires) 23 MUSLIM ECONOMISTS • The role of Muslim economists suggests that they must clarify and develop consumer behaviour to determine the affect Islam has on (1) propensity to consume/save; (2) sharing income with others; (3) composition of the consumption basket; (4) inequality of consumption in the community etc.. • They will need to integrate the theory of fiqh principles relating to the theory of consumer behaviour and the theory of the firm. • The views of early Muslim thinkers must be incorporated more into Islamic economics in order to avoid replication of secular economic concepts. • Islamic economists must develop and analyze empirical data concerning consumer and business related decisions in order to compare them more effectively with analysis derived from conventional economics. 24 MUSLIM BROTHERHOOD • Narrated Abu Huraira (r.a.), the Prophet (s.a.w.s.) said, “Do not envy one another; do not inflate prices one to another; do not hate one another; do not turn away from one another; and do not undercut one another, but be you, Oh servants of Allah, brothers. A Muslims is the brother of a Muslim: he neither oppresses him nor does he fail him, he neither oppresses him nor fails him, he neither lies to him nor does he hold him in contempt. Piety is right here - and he pointed to his breast three times. It is evil enough for a man to hold his brother Muslim in contempt. The whole of a Muslim for another Muslim is inviolable: his blood, his property, and his honour.” Narrated by Muslim, hadith no.35 in An-Nawawi’s “Forty Hadith”. 25 THANK YOU