* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download LESSON 1
International reactions to Fitna wikipedia , lookup
Islamic terrorism wikipedia , lookup
Islam and Mormonism wikipedia , lookup
Soviet Orientalist studies in Islam wikipedia , lookup
Islam and secularism wikipedia , lookup
Muslim world wikipedia , lookup
Islamic Golden Age wikipedia , lookup
History of the Muslim Brotherhood in Egypt (1928–38) wikipedia , lookup
Islam and Sikhism wikipedia , lookup
Criticism of Islamism wikipedia , lookup
Islam in Egypt wikipedia , lookup
War against Islam wikipedia , lookup
Islam and violence wikipedia , lookup
Schools of Islamic theology wikipedia , lookup
Islamic missionary activity wikipedia , lookup
Islamic democracy wikipedia , lookup
Islamofascism wikipedia , lookup
Censorship in Islamic societies wikipedia , lookup
Islam in Afghanistan wikipedia , lookup
Political aspects of Islam wikipedia , lookup
Islamic ethics wikipedia , lookup
Islam in Bangladesh wikipedia , lookup
Islam and other religions wikipedia , lookup
Islamic economics in Pakistan wikipedia , lookup
Islamic schools and branches wikipedia , lookup
PART III: ISLAMIC INSTITUTION LESSON 15 ECONOMIC AND FINANCE INSTITUTION 1.0 Introduction In the name of Allah, Most Gracious, Most Merciful. Most of our daily activities are related to economy. People say ‘everything is money’. Working is about money because we strive to earn money for a living. When we go out from our house, money will come to the picture at least to buy food, to pay taxi fare or bus and many others. In fact, in our house, the issue of money exists. When we switch on the electricity, it involves money right because we have to pay the bill. Money is the source of economy. Islam never stops Muslims from earning money. In fact, Islam encourages Muslims to work hard to strengthen the economy of family and the nation. However, how should the money be earned? Off course, in Islam, it must be from the lawful (halal) source. To earn money from lawful source, the economic system must be lawful in the first place. Therefore, Islam provides its own economic system to its followers. Thus, in this topic, we will discuss Islamic economy and finance from various angles. It includes the principles and philosophy, basic concept of economy and finance, economic institution and financial product. 2.0 Learning Outcomes By the end of lesson, the students should able to: 2.1 Define Islamic economy 2.2 Explain the philosophy of Islamic economy 2.3 Elaborate the basic concept of Islamic economy 2.4 Identify Islamic economic institutions and explain their functions 2.5 Explain some Islamic banking products 3.0 List of Topics 3.1 The Meaning and Concept of Economy and Finance 3.2 The Basic Concept of Economy and Finance 3.3 Economic Institution 3.4 Financial Products 1 4.0 Terminologies 4.1 Exigencies A pressing or urgent situation 4.2 Collectivism The principles or system of ownership and control of the means of production and distribution by the people collectively, usually under the supervision of a government. 4.3 Individualism A doctrine holding that the interests of the individual should take precedence over the interests of the state or social group. 4.4 Vested interests A special interest in protecting or promoting one's own personal advantage. 4.5 Social apathy Absence or suppression of passion, emotion, or excitement among in society. 4.6 Head-Toll Tax on each individual 5.0 Topics 5.1 The Meaning and Concept of Economy and Finance 5.1.1 Presentation In Arabic language, the word iqtisad is used for economy. The word comes from the root word qasad which means direction or sharp target. Iqtisad means managing and organizing affairs by putting effort to achieve the target without wasting. In the West, the word economy is used to describe about management of limited resources to fulfill unlimited wants. It seems to be individualistic in nature. In Islamic economy, there is no such notion of unlimited wants but what it has is the maximization of social benefit and individual wisely. Islamic economy is not based on individual interest or a small group of people like corporate, technocrats and aristocrat but instead, it is based on public interest in which all members of society must be allowed to benefit from the abundant resources bestowed by Allah SWT according to ability and capability of each member without being oppressed or treated unjustly. Philosophically, Islamic economy is the management of economic resources and activities to meet the social needs based on tawheed or the obedience to Allah SWT. Man as the vicegerent of Allah SWT on the earth is responsible to manage the economic resources according to Allah’s SWT commandments and to ensure the social needs is fulfilled. Fairness (al-‘adl) and charity (ihsan) to others become the two main aspects of 2 Islamic economy. Therefore, the Islamic economy aims at performing Allah’s SWT commandments, developing a society based on Shari’ah and attaining the blessings of Allah SWT. Islam has its own principles that guide the economic activity of man in economy with the aim of ensuring the entire pattern of production, exchange and distribution of wealth in economy are in conformity with the Islamic standard of justice and equity. Those principles should always be the same regardless of time and place. Islamic economy does not bind itself with time-bound methods and specific techniques of economic production or with the issues of what kind of organizational patterns and mechanisms should be established to manage the economy as such issues are subjected to the age and evolved in accordance with the needs and requirements of the community and the economic situation. From the Islamic point of view, the earth and all that it contains were created by Allah SWT for the use of mankind for the purpose of carrying out his duty as the vicegerent of Allah SWT on the earth. Thus, the earth and all it contains are belonged to Allah SWT. Based on that, Islam therefore, does not allow a particular person, class, race or group of people to create a monopoly in certain economic activities: equal opportunities for all are its watchword. Apart from that, all activities in Islamic economy must be lawful (halal). Lawful economics (based on shari’ah) aims at protecting and preserving the natural resources from wrongful acquisition and consumption. Our material needs and our right of property has to be satisfied in a lawful and just manner because everything we own is actually only a trust (amanah) from Allah SWT. Acquiring and selling property is a legal way of making profit but it shall not be done by neglecting our duty towards Allah and society. In Islam, there are certain principles and concepts that must be applied to all economic activities in general. The entire pattern of production, acquisition, distribution of wealth should conform to sound standards of justice and equality. Among the basic conditions for lawful economics in Islam are: a) Lawfulness of products (halal) b) No element of doubt (shubhah) and uncertainty (gharar) c) Absence of unlawful interest (riba) d) Responsibility and liability of each member of society e) Cooperation for the common good (healthy competition) 3 f) 5.1.2 No unlawful practices in marketing (misinformation of customers, etc) Activities From the discussion above, can you list down five features of Islamic economy? 5.2. The Basic Concept of Economy and Finance 5.2.1 Presentation Let us look in detail about the basic concept of economy in Islam. In this subtopic, we will look at the issue of right of ownership on property, the problem of equality, social justice as well as obligations and restrictions as being discussed by Abu Alaa alMawdudi. Thus, the contents of the discussion are mainly taken from his ideas. Right of Ownership on Property As the vicegerent of Allah SWT, man can freely utilize the resources bestowed by Allah SWT on the earth and everyone is entitled to benefit from them according to his needs. Therefore, the resources such as water in the rivers and springs, timber in the forests, fruits of wild plants, wild grass and fodder, air, animals of the jungle, minerals under the surface of the earth and others cannot be monopolized by anyone, also no restrictions shall be imposed on anyone to use them. However, in the context of a state, the government is allowed to put certain restrictions on the use of the resources. For example, people who want to use any of those resources for commercial purposes can be required to pay taxes to the state. Likewise, in the case misuse of the resources, the government may intervene but in principle, no one can be prevented from availing themselves of Allah’s earth as long as they do not transgress or interfere with the rights of others or of the state. In Islamic economy, it is not permissible for individuals to take possession of resources, and then kept them idle and useless. They should either benefit from the resources or make them available to others. Based on this principle, Islam rules that no one can keep his land unused for more than three years. According to AlMawdudi, if during this period, he does not use the land for cultivation or for construction of buildings or for some other purpose, such lands shall be treated as ‘vacated’. Then, anyone else can make use or take possession of that land and he is not guilty in the eyes of law, nor the government has no authority to hand it over to 4 someone else (including the previous owner). This is because Islam recognizes the rightful title of those who take over the possession of the earth’s natural resources and puts them to good use. For instance, if somebody takes possession of an uncultivated piece of land, on which nobody has a prior right of ownership, and makes productive use of it, he cannot be arbitrarily dispossessed of that piece of land. This is how every right of ownership originated in the world according to alMawdudi. When man first appeared, everything was available to everyone, and whoever took possession of anything and made it useful in any manner became its owner. It means, he acquired the right to use it specifically for his own purpose and to obtain compensation from others if they wanted to use it. This is the natural basis of all the economic activity of mankind. Islam orders mankind to honour the rights of ownership even though it is always open to ascertain whether a particular ownership is legally valid or not. Islam does not acknowledge any economic policies which destroy the rights conferred by the Shari‘ah. Social justice and collective good are very dear to Islam, but the rights given by the Shari‘ah cannot be taken away by anyone, even the government. It is unjust to reduce or remove the restrictions placed by the Shari‘ah on the rights of individual ownership for the sake of the good of the community as a whole because this type of action as does not in line with the Shari‘ah. An Islamic state is responsible to protect the legal rights of individuals and, at the same time to compel them to fulfill their obligations to the community as enjoined by law. That is how Islam strikes a balance between individualism and collectivism. The Problem of Equality It is a fact that Allah SWT does not distribute His gifts and favour equally among mankind but, in His infinite wisdom, has given some individuals more than others. It seems to be natural in human existence of having that divergence, variety and inequality among them in their life. In that divergence and variety itself, we can find wisdom behind it that it will be the driving spirit behind human endeavour and excellence. It is impossible in human life to have absolute equality as promoted by some ideologies in this world such as socialism and communism. All those ideologies which want to force an absolute equality in economy are actually wrong, unrealistic and 5 impossible to achieve and those ideologies are artificial in nature. Islam on the other hand, at all times and places is realistic and practical. In economy, Islam believes in equality of opportunity to secure a livelihood and to climb the ladder of success and prosperity. Therefore, Islam stresses that there should be no obstacles in society that prevent person from striving for a living according to his capacity and talents; nor should any social distinctions exist with the object of safeguarding the privileges of a certain class, race, dynasty or group of people. All those artificial ideologies are actually serve the vested interests, or which seek to perpetuate the power of a certain group. Islam therefore rejects those things. Such ideologies in the real sense seek to establish, through force if necessary, an unnatural inequality as to replace the natural limited inequality that provides incentive and reward to the endeavour accomplished by individuals in society. According to alMawdudi again, Islam does not agree with those who want to enforce complete equality in respect of the means of production and the fruits of economic endeavour, as they aim at replacing limited natural inequality by an artificial equality. Everyone must be given equal opportunity to join the economic struggle at his own level and in their ability and capacity. Al-Mawdudi then made this very interesting illustration to explain the issue of limited natural inequality and artificial equality in Islamic economy: “He who has inherited an aeroplane should make use of it; while he who has only a pair of legs should stand on his feet and try to improve his lot. The laws of society should neither be such as would establish a permanent monopoly for the aeroplane-owner (over his aeroplane) and make it impossible for the bare-footed to acquire an aeroplane nor such that the race for everyone should compulsorily begin from the same point and under the same conditions so that they would all be tied to each other right till the end of the race. On the contrary, economic laws should be such as to make it possible for the bare-footed, who started his race under adverse conditions, to possess an aeroplane, if he can do so by dint of his effort and ability, and for he who inherited the aeroplane to be left behind in the race and to lose it, if he does not have the ability or efficiency to keep it. Effort should be rewarded and laziness penalized” 6 Social Justice Another importance basic principle in Islam is social justice in all aspects of life including economy. In economy, Islam does not want the economic activities to take place in an atmosphere of moral neutrality and social apathy. Everyone who involve in economic activities must be fair, just and kind to one another. Meaning to say, the element of akhlaq must be there. Through akhlaq in economy, a feeling of mutual love and affection among people can be developed. Consequently, the weak, the needy and unable are helped. Thus, a permanent institution such as Baitul Mal and Zakat Board that guarantee assistance to those who are in need or lack of the necessary means and abilities are relevant to exist in a society. Therefore, the amount of Zakat collected is to be spent on the poor and the needy. Thus, stressed al-Mawdudi, people who are unable to take part in the economic activities and anyone who need assistance to get started in the economic race, should receive their share of the blessings of life from this social institution.. The institution of Zakah in Islamic economy actually provides a mean of social insurance whereby all members of the society are provided with at least the necessities of life. That is why Islam emphasizes on a balance between the individual and the community because it promotes individual freedom and at the same time ensure that such freedom is positively conducive to the growth and tranquillity of the community as a whole. Therefore, political or economic organisation which aims at hiding the identity of the individual who is in need and and unable is not allowed to exist in Islamic economy because such organization will deprive the freedom of the individual to develop his personality and talent. Obligations and Restrictions Islam is the only system of life in the world that gives a great care between right and wrong in respect of the means of earning wealth. It never acknowledged and in fact condemns any illegal earning of wealth and livelihood that morally or materially injure the interests of another individual or of society as a whole. Therefore, the manufacture and sale of liquor and other intoxicants, adultery, professional dancing, gambling, transactions of a speculative or fraudulent nature, transactions in which the gain of one party is absolutely guaranteed while that of the other part is left uncertain and doubtful, and price 7 manipulation by withholding the sale of the necessities of life are rejected and illegal (haram) in Islam. Islam acknowledges the right of ownership of an individual over the wealth or property earned by him by legitimate means but some restrictions are imposed on the right. For example, a Muslim can only spend his legitimate wealth in certain specified ways. It means, the wealth cannot be spent something which is prohibited by Islam such as investing in non-halal investment, going to night club and so forth. He also cannot waste his riches on idle luxury, nor may he use his wealth to behave arrogantly towards his fellows. Certain forms of wasteful expenditure have been unequivocally prohibited at the discretion of an Islamic Government. In Islam, a Muslim is allowed to accumulate wealth that is left over after meeting his legitimate and reasonable commitments and the wealth can also be used to produce more wealth. However, Islam imposes restrictions on both activities. For example, he is a rich man, he must pay zakah, at the rate of two and a half percent a year on the accumulation exceeding the specified minimum. He can only invest it in a business which halal and legitimate. In this connection, he may own the legitimate business himself or he may make his capital available to others on a profit-loss sharing basis, stressed al-Mawdudi. Working within those limits, he may become a millionaire and at the same time he will receive reward and the divine favour of Allah SWT. These are the benefits that he gains in the world and in the Hereafter. At the same time, from those activities, the interests of the community as a whole also are taken after through the imposition of Zakah on his commercial goods and ‘Ushr (one tenth) on the value of agricultural produce as well as he should deal fairly and honestly with those he does business with in trade, industry or agriculture, also with his subordinates, the Government and the community at large. If he does not voluntarily act justly to others, particularly his employees, the Islamic state will compel him to do so. Al-Mawdudi also stated that, even though the wealth has been accumulated within these legal limits, still it is not allowed to be concentrated at one point or in one place for a long time. It must be distributed among a large number of people from generation to generation such as through the law of inheritance. Through this law, the wealth accumulated by a person in his lifetime 8 is distributed among all of his near relatives soon after his death. If there are no near relatives, distant relatives benefit from it in the proportions laid down by the law for each one of them and if no distant relative is forthcoming, then the entire Muslim society is entitled to share in the inheritance. Under this law the creation or continuance of any big family of capitalists or landlords becomes impossible. In this respect the Islamic law is different from that of other inheritance laws in which most of them attempt to keep the wealth once accumulated by a person concentrated in the hands of one main beneficiary from generation to generation. 5.2.2 Activities Choose an economic system such as capitalist or socialist, then compare them with the Islamic economy. Discuss with your colleagues. 5.3 Economic Institution 5.3.1 Presentation Economic institution refers to institutions that are responsible to generate economy for Muslims as well as non-Muslims who live in an Islamic society or country. In general, the functions of the economic institutions should encompass the following scopes: a) Research and development b) Social welfare revenue c) As a fund for Muslims to perform the five pillars of Islam such as pilgrimage (hajj) like the Pilgrimage Fund Board of Malaysia d) Protection of Muslims’ properties from being wrongly used e) Generate waqf money to be more productive to Muslims f) Trainings on skills to young Muslims g) Investment inside or outside the country to create Islamic economy atmosphere Among the economic institutions that had been established in the history and some are remained until today are Bayt al-Mal and Waqf Bayt al-mal Bayt al-mal means “house of money, property” or “public treasury”. In Islamic history, a room in a mosque or house of a Governor-General was used to keep the 9 money and other valuables (silver, gold) of a Muslim town. The money collected in the bayt al-mal was regarded as ‘common property’ of the community and was used for road construction, public buildings, and to assist needy and the poor. The money was collected from: a) zakah b) jizyah (the head-toll of every non-Muslim member of the community for not being able to join the Muslim army) c) land tax d) one fifth of the war spoils (property confiscated during war); property whose owners had died without leaving heirs to claim it e) a certain share of the yield of mines f) trade taxes, and customs duties g) fines h) ransoms for prisoners paid to the Muslims i) Revenues from all waqf properties (properties for public use, endowments) j) All accidental revenues and property that could not be made private property. Nowadays, Muslim governments do not make the institution of bayt al-mal as the main economic institution anymore due to the modernized administration influenced by the Western model. Yet, in principle, the state treasury (tax money from the citizens, state revenues from industry, etc) is used to finance public institutions (schools, hospitals, roads, etc) as well. Unfortunately, the state treasuries in some Muslim countries often include taxes from unlawful sources, such as casinos (gambling), alcohol licenses, etc). The actual bayt al-mal that exists today collects only zakat-payments and private donations (sadaqah). It is no longer treasury of the whole country but a small and rather insignificant in economy. Endowments (awqaf ; from sg. waqf) As waqf is considered a property whose ownership is limited by the will of the settler of the endowment (known as the waqif). Someone who turns his property into waqf renders it to someone who takes care of its administration (a school, a mosque, a piece of land, a plantation), for use only (total or partial). The property that has been is declared as waqf will not be regarded at the property of the donor nor becomes property of someone else The ownership is effectively suspended. 10 Any concrete object (‘ayn, plural ‘aynan) can be declared as waqf if it cannot be destroyed by usage and cannot lose its value with time. Such object is considered to be property of Allah, while the recipient of waqf (person or institution) has the rights to use only. The waqf contract is terminated when the waqf property is destroyed or loses the qualities that are required for the use of it for its intended purpose, like a plantation that no longer yield and produce, or a building that crumbles down. The remainder of the waqf property must then be returned to its former owner or his heirs. 5.3.2 Activities a) Discuss how Bayt al- Mal and Waqf can play a role in developing the economy of Muslims. b) List down as many as Islamic financial institutions in your country and Malaysia. 5.4 Financial Product 5.4.1 Presentation Let us look at some products which are offered in Islamic financial activities of Islamic economy. a) Al-Musharakah (partnership) It is a partnership or participation contract. In banking, a special agreement made between the bank and the customer on a musharakah basis means that any profit is shared between the two parties as specified in the agreement. Losses are also shared in proportion to each party’s participation in the investment capital. b) Al-Murabahah (sale at mark-up price) It is a form of down-payment. A contract of sale (of something) at a price agreed upon by the seller and the buyer with a profit margin. The seller (for instance, a bank) buys commodities or equipment (a car, for example) on behalf of the buyer (customer), and then resells it to him at a mark-up price. The difference in price must be agreed in advance. The buyer pays the required amount either in a lump sum or in installments. The seller bears any costs related to the sale of the goods and any risks until the goods are delivered to the buyer. 11 c) Al-Mudharabah (profit sharing) It is a contract in which the owner of surplus capital (rabb al-mal) entrusts his property to another party who acts as investor. The owner has no operational control over the project. The profit earned is then shared between owner of the property (rabb al-mal) and the investor (mudharib). In case of financial loss, the investor gets nothing and does not bear the lost. The is borne by the owner of the property. d) Al-Ijarah (lease) In Islamic banking practice ijarah is similar to a leasing transaction. Under the terms of a contract made between the bank and a client, the bank purchases at the client’s request equipment (like a car, a house) which the customer leases. The term of lease and the fee are agreed in advance. The equipment remains in the ownership of the bank. e) Al-Rahn (mortgage) Property (movable or immovable) pledged as a guarantee of repayment of a debt by the debtor. Such property can be sold by the pledgee (bank) if the pledger (client) defaults on its obligations. In the past rahn represented a kind of deposit, in cash or in kind, provided by one the buyer as a guarantee and a sign for his serious intention to purchase the goods in question. The Islamic law doctrine reserved for rahn only the function of pledge (collateral security). f) Takaful Takaful means “mutual provision of guarantees” and is today’s Islamic system of insurance. Two parties form a contract to support each other in case of a loss (which means primarily a monetary compensation). Both parties can be individuals, or one of the two parties can be a financial institution, such as a bank. Unlike normal insurance policies, takaful does not contain elements of uncertainty (gharar) or interest (riba). A valid takaful contract must include: a special mechanism of mutual risk sharing and provision of mutual guarantees; policy holders act as co-owners of takaful funds policy holders participate in the operations and control the accounts premiums paid by the participants used only in halal operations 12 5.4.2 terms of sharing the financial results between the participants. Activities Find out Islamic financial products offered by the following institutions in Malaysia: a) YAPEIM b) Bank Islam (BIMB) c) Bank Muamalat d) Bank Rakyat 6.0 Lesson Summary The administration of economy and finance in Islam is explained in Al-Quran and al-Sunnah and then interpreted and elaborated by Muslim scholars. Its administration is not an imitation from other system. It has its own system which has been discussed and debated by Islam since Islam was revealed and then elaborated by Muslim scholars. Thus, all new transactions that emerge today must be compared with the transactions in Islamic economy. The legality of each transaction in Islamic economy cannot be tolerated. 7.0 Self Assessment 7.1 Which of the following is wrong about Islamic economy? A. It is not based on individual interest B. The economic resources are limited C. No concept of unlimited wants D. Emphasis on public interest Answer: B 7.2 Islamic economy aims at ________ A. Fulfilling the needs of the Islamic country B. Fulfilling the needs of the Muslim society C. Meeting Allah’s Wills D. Meeting the needs of poor people Answer: C 13 7.3 Which of the following is true about resources in Islamic economy? A. It belongs to one who is the first possess it B. It belongs to the owner forever even though the resources is not used for more than three years C. The Islamic government has the right to take over the resource from the owner does not use it for more than three years D. It is permissible for individuals to take possession of resources, and then kept them idle and useless Answer: C 7.4 On the issue of equality in economy, Islam recognizes ___________ A. the absolute equality B. the opportunity to secure a livelihood C. the government’s authority to determine the equality D. the absolute equality but with the supervision of the government Answer: B 7.5 The owner of waqf property is _________ A. the owner himself B. Allah SWT C. the one who manages the property D. Muslim community Answer: B 14