Download Economies of the ME & NA

Islamic Economic Principles
Religion of Islam

Islam: submission to the will of God

Emerged 1400 years ago in Arabia

Within 100 years, it expended to Persia,
Fertile Crescent, India, North Africa, and
southern Spain
Prophet Mohammed

He traveled across Arabia and Syria,
learning about trade and religion

He married one of the richest women of his
tribe and managed her business
Islamic Economic Principles
Economic System:

Capitalism: Private ownership and profit-making
motive from trade

Socialism: State control of resources and income
redistribution

Altruism: Voluntary redistribution of income &
wealth through charity contributions
Islamic Economic Principles
Property Rights:

God has created the earth for people to use

Man can use the land to produce food

Labor must be rewarded for the value of his
work
Religion of Islam
Profit Motive:

Business and trade are encouraged

Businessman should use profits to build an
affluent life and to help the poor & needy
Islamic Economic Principles
Taxation:

Zakat: A generalized wealth tax

Ushr: A property tax depending of the quality of land

Kharaj: An income tax on revenues from land

Jizyah: A protection tax payable by non-Muslims
Note: only Zakat is Quranic
Islamic Economic Principles
Family Law: brides are entitled to dowry with full
property rights. They receive

Deferred Dowry: Monetary obligation of groom to
bride in case of divorce

Prompt Dowry: Payment from the groom to bride
family to finalize the marriage agreement

Gifts from parents & others to the bride for starting a
family
Islamic Economic Principles
Inheritance Law:

One could transfer up to 1/3 of his/her
property if desired

Only immediate family members could
bequeath property

Government takes the property in case of no
legal inheritors
Islamic Economic Principles
Inheritance Law:

The inheritors must pay property taxes

Both male & female can inherit property

The inheritance share of a female is ½ of the share of
a male with similar rank

Women have full property rights over their bequest,
but men must provide for family members
Islamic Economic Principles
Example of Inheritance Distribution:
one widow, one son, and one daughter



Share of widow = 1/8 or 12.5%
Share of son = 7/8 * 2/3 = 7/12 or 58.3%
Share of daughter = 7/8 * 1/3 = 7/24 or 29.2%
Islamic Economic Principles
The taking of interest (riba) is sinful:

Exploitation of borrower by lender because money is
not earned from labor

Increasing concentration of money in the hands of
wealthy money lenders

Interest is earned from a riskless venture as
borrower loses collateral in case of loan default
Islamic Economic Principles
Islamic banking system:

Depositors share profit/loss of the bank

Bank provides interest-free loans, but adds a
% service charge
Islamic Economic Principles
Islamic banking system:

Bank buys equipment for a business and
adds a % mark-up to the price. After a
certain time period, business has the option
to buy the equipment from the bank

Bank and business enter a joint investment
venture and share the profit/loss
Islamic Economic Principles
Economic Development Funds:

Oil-rich countries (e.g., Saudi Arabia & UAE)
provide grants and interest-free loans to
finance developmental projects and plans in
Third World countries