Download Islamic Economics

Q.1. Definitions of Islamic economics.
Islamic economics refers to the body of Islamic studies literature that "identifies and promotes an
economic order that conforms to Islamic scripture and traditions," and in the economic world an
interest-free Islamic banking system, grounded in Sharia's condemnation of interest (riba). The literature
has been developed "since the late 1940s, and especially since the mid-1960s." The banking system
developed during the 1970s. The central features of Islamic economic literature have been summarized
as the following: "behavioral norms" derived from the Quran and Sunna, zakat tax as the basis of Islamic
fiscal policy, and prohibition of interest.
Islamic economics as theknowledge and application of injunctions and rules of shariah that prevent
injustice in the acquisition anddisposal of material resources in order to providesatisfaction to human
beings and enable them toperform their obligations to Allah and the society.
Mannan (1986) defines as studies of a social science inthe economic problems of people to fill with the
valuesof Islam.
S.M Ghazali Wafa et al (2002) defines as all humanactivities to use the sources which follow the law
toperform their obligations to Allah.
Observing the above definitions Islamic economics is thesome part of conventional economics plus
morals,norms and values of Islam, it covers a lot of micro andmacro concepts of conventional economics
likeownerships, rights to produce or create, what toproduce, how to produce and for whom to
produce,others include equity, returns on investments,development projects, stability in the value of
money,broad base economic well being with full employment,optimum rate of economic growth, joint
ventures, fiscaland monetary policies, etc .However Islamic economics ejected injustice, enforcedthe
prohibition of interest (riba), hoarding etc. And alsopromote the determination of the level of
individualliberty, recognition the right of property, controlling theeconomic inequality within the natural
limits,maintaining the equality of social life, and social security. It however prohibits the wider
circulation of wealth, and recognizes social and individual welfare.In conclusion, Islamic economics is
designed foreconomy to contribute richly on the achievement of themajor socio-economic goals of the
society.
Q.2. Assumptions of Islamic economics. -Pdf
Q.3. Principles of Islamic economics. –Pdf
Q.4. Difference between Islamic economics and conventional economics?
In Islam there is no conflict between matter and soul, as there is no separation between economy
and religion. Although Islamic economics is young in comparison with conventional economics,
its characteristics, value and essence are appreciated by Muslims and the non-Muslims. The
over-arching values of Islamic economics lie in the principle that it is an economic strategy that
can achieve unity and harmony between the material and the spiritual life of the people.
To ensure the true well-being of all individuals, irrespective of their sex, age, race, religion and
wealth, Islamic economics does not seek to abolish private property, a practice done by
communism, nor does it prevent individuals from serving their self-interest. It recognizes the role
of the market forces in the efficient allocation of resources. It seeks to promote brotherhood,
socio-economic justice and well-being of all through an integrated role of moral values, market
mechanism and good governance. The differences between conventional and Islamic economics
are as listed below.
1. The Role of Moral Values
While conventional economics generally considers the behavior, tastes and preferences of
individuals as given, Islamic economics does not do so. It places great emphasis on individual
and social reforms through moral uplift. This is purportedly to be the purpose for which God's
messengers have come to this world. Moral uplift aims at changing the behavior, tastes and
preferences of the individuals, and thereby, it complements the price mechanism in promoting
general well-being. Before even entering into the market place and being exposed to the price
filter, consumers are expected to pass their claims on resources through the moral filter first,
where conspicuous consumption and wasteful and unnecessary claims will be filtered out. The
price mechanism can then takes over and reduce the claims on resources even further to lead to
market equilibrium. The two filters enable the optimal use of resources, which is necessary to
satisfy the material as well as the spiritual needs of all human beings. They also reduce the
concentration of wealth in the hands of a few, and raise savings which are needed to promote
greater investment and employment. Figure 1.1 highlights economic distribution in any system.
What makes the Islamic economic system different is that there is a greater support for the
economically-inactive sector, which becomes the main focus of the government sector.
2. The Importance of the Hereafter
The Hereafter is a concept which is completely ignored by conventional economics, but it is one
which is greatly emphasized by Islam and other major religions. Because of their innate
goodness, human beings do not always try to serve their self interest. They are altruistic, and
willing to sacrifice for the wellbeing of others. This behavior is rewarded in the Hereafter. Whilst
conventional economics also seeks optimal allocation of resources, the fact that it is unable to
offer rewards for benevolent acts means that the humane side of the economy is neglected.
3. Rational Economic Man
While there is hardly anyone who is opposed to the need for rationality in human behavior, there
are differences in opinion when defining rationality (Sen., 1987). However, once rationality is
defined in terms of the overall individual as well as social wellbeing, then rational behavior can
help us to realize this particular goal. Conventional economics, however, does not define
rationality in this way. It equates rationality with the serving of self-interest through wealth
maximization. The drive for self-interest is considered to be the "moral equivalent of the force of
gravity in nature" (Myers, 1983, p. 4). Within this framework, society is conceptualized as a
mere collection of individuals united through ties of self-interest.
Conceptualized as a mere collection of individuals united through ties of self-interest.
However, the concept of the 'rational economic man' in social- Darwinist, and the utilitarian
sense of self-interest cannot find foothold in Islamic economics. 'Rationality' in Islamic
economics is not confined to the serving of one's self-interest in this world alone; it also gets
extended to the Hereafter through the faithful compliance with moral values that help rein selfinterest so as to promote social interest. Al-Mawardi (d. 1058) considered it necessary, like other
Muslim scholars, to rein individual tastes and preferences through moral values. Ibn Khaldun
(d.1406) argued that moral orientation would help remove mutual rivalry and envy, strengthens
social solidarity, and create an inclination towards righteousness.
4. Positivism
Positivism in the conventional economics sense of being "entirely neutral between ends"
(Robbins) or "independent of any particular ethical position or normative judgment" (Friedman)
cannot find a place in Muslim intellectual thinking. Since all resources at the disposal of human
beings are a trust from God, and human beings are accountable before Him, there is no other
option but to use them in keeping with the terms of trust. These terms are defined by beliefs and
moral values. Human brotherhood, one of the central objectives of Islam, would be a
meaningless jargon if it is not reinforced by justice in the allocation and distribution of resources.
It is this positive stand, adopted by conventional economics, which keeps it away from
characteristics such as benevolence and equality; these two being ideals greatly encouraged in
Islamic economics.
5. Pareto Optimum
Without justice, it would be difficult to realize even development. Muslim scholars have
emphasized this throughout history. Development Economics has also started to emphasize this
need, more so in the last few decades. Abu Yusuf (d. 798) argued that, "Rendering justice to
those wronged and eradicating injustice, raises tax revenue, accelerates development of the
country, and brings blessings in addition to reward in the Hereafter". Ibn Taymiyyah (d. 1328)
emphasized that "justice towards everything and everyone is imperative for all, and injustice is
prohibited to everything and everyone. Injustice is absolutely not permissible irrespective of
whether it is to a Muslim or a non- Muslim or even to an unjust person." Justice and the wellbeing of all may be difficult to realize without sacrifice on the part of the well-to-do. The concept
of Pareto optimum does not, therefore, fit into the paradigm of Islamic economics. This is
because Pareto optimality does not recognize any solution as optimum, if it requires a sacrifice
on the part of a few (rich) to raise the well-being of the many (poor). Such a position is in clear
conflict with Islamic moral values, the raison d'être of which is the well-being of all. In fact,
Islam makes it a religious obligation for Muslims to sacrifice for the poor and the needy - by
paying zakat. This is in addition to the taxes that they pay to the government. The abovementioned points should not lead one to harbor an impression that the two disciplines
(conventional economics and Islamic economics) are entirely different, as the subject matter of
both disciplines is the same i.e., the allocation and distribution of scarce resources. It must be
noted that conventional economists too have never been value-neutral. They have made value
judgments in conformity with their own beliefs. As indicated earlier, even the paradigm of
conventional economics is changing for example, the role of good governance has now become
well recognized, and the injection of moral dimension has been emphasized by a number of
prominent economists. On the other hand, Islamic economics has benefited a great deal from the
tools of analysis developed by neoclassical, Keynesian, socio humanistic, institutional economics
as well as other social sciences. This symbiotic relationship will, no doubt, continue into the
future
Chapter: Consumption
Q.1. Difinition of islamic consumer.
•
•
•
In economics, consumption stands for expending of wealth for satisfaction of human
wants such as food, clothing, housing, other articles of daily use, education, health, other
personal or family needs, etc.
So, it is absolutely necessary that one should be very careful in the consumption of
wealth as wants are unlimited
Islam, therefore, enjoins moderation, self-control and carefulness in spending of wealth.
Q.2. Principles of consumption.
Principles of consumption:
1
Principle of Lawfulness
2
Principle of cleanliness
3
Principle of moderation
4
Principle of benefit
5
Principle of morality
6
Principle of maximum welfare
7
Principle of trust (we are trustee of money)
The basic principles of consumption laid down by Islam are three: Consumption of lawful (Halal)
things, consumption of pure and clean things and exercise of moderation in consumption. These
principles are briefly described as under:
1.
Principle of Halal: A Muslim has been enjoined upon by Islam to eat only that food which is
‘Halal’ (lawful and permitted) and not to take that which is ‘Haram’ (unlawful and forbidden).
The Qur’an says: “…….Eat of that which Allah hath bestowed on you as food lawful and
good, and keep your duty to Allah in whom ye are believers”.(5:88). In other verse, the
Qur’an has mentioned prohibited or Haram items of food and has said: “Forbidden unto you
(for food) are carrion and blood and swine-flesh, and that which hath been dedicated unto
any other than Allah………”(5:3) The principle of Halal and Haram also applies to items of
expenditure besides food. 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, luxuries, etc. We shall, insha Allah, discuss the
Islamic concept of Halal and Haram in detail later on.
2.
Principle of Cleanliness and Wholesomeness: The Qur’an enjoins upon mankind: “O
mankind ! Eat of that which is lawful and wholesome in the earth, and follow not the
footsteps of devil. Lo! he is an open enemy for you” (2:168). At another place, the revealed
book of Islam addresses its followers thus: “O ye who believe! Eat of the good things
wherewith We have provided you, and render thanks to Allah…….”(2:172). Again the Qur’an
says: “So eat of the lawful and good food which Allah hath provided for you…….” (16:114).
Thus the Holy Qur’an impresses upon the people to eat good things which Allah has
bestowed upon them. The word used by the Qur’an is ‘Tayyab’ which means anything one
finds pleasing, sweet, agreeable, wholesome, pure and conducive to health. The word
‘Khabaith’ is opposite of Tayyab which means things one finds impure, displeasing, bad, and
disagreeable in sight, smell or eating. The believers have been exhorted to take for food
those things which are Tayyab and avoid those which are Khabaith. Prophet Muhammad
(PBUH) in his following Ahadith has stressed cleanliness in food:
(i) 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)
(ii) Abu Qatadah reported that the Messenger of Allah said: “When one of you drinks, he should
not blow into the vessel.”
-(Bukhari)
(iii) Jaber reported that the Messenger of Allah said: “When you go to sleep, put out the lamp
and shut the doors and cover the food and drink.”
-(Bukhari)
3.
Principle of Moderation: The principle of moderation in consumption means that one
should take the food and drinks with moderation and avoid excess because excess of intake
is harmful to health. The Qur’an says: “……… and eat and drink, but be not prodigal. Lo! He
loveth not the prodigals…..” (7:31). Again the Qur’an says: “O ye who believe ! Forbid not
the good things which Allah hath made lawful for you, and transgress not……..”(5:87). Thus
overloading of stomach is prohibited. It is also prohibited that one should adopt self-denying
practices followed by ascetics and monks and deprive himself of some foods which Allah
has made lawful. The principle of moderation is also applicable to spending. One must not
be miser in spending nor extravagant. The Qur’an says: “And those who, when they spend,
are neither prodigal nor grudging; and there is ever a firm station between the
two”………(25:67)