Said About Islamic Economy

Islam is a system of practical life and high ideal morals together, and these two aspects are interconnected and never separate. Muslims do not accept an economy irrelevant to morals and values, rather, their economy derives its strength from the inspiration of the Qur’an and is necessarily a moral economy. These ethics can give a new meaning to the concept of value and fill the intellectual void that is about to appear as a result of the manufacturing mechanism.”
Jack Ostroy: French philosopher and author on Islam and economic development

The Western economy prioritizes production and consumption as fundamental goals and views them as ends in themselves, without considering the consequences that may arise.
In contrast, the Islamic economic system seeks to establish a sense of harmony and satisfaction among people according to an interconnected system that enhances human goals, without sticking to the desire for useless production and consumption.
Roger Garaudy – French philosopher (1913 – 2012)

“The wage data allow us to talk with greater certainty about the “Golden Age of Islam” in both absolute and relative terms. In the aftermath of the Justinian Plague, during the early centuries of Islam, real wages and per capita incomes in Iraq and Egypt rose well above the subsistence level and well above those for Roman and Byzantine Egypt in the centuries preceding the plague. This environment of high wages and high incomes contributed to and, in turn, was supported by the productivity increases associated with the Golden Age of Islam.”

“The new financial system has not just made non-financial corporations operate with a shorter time horizon. It has also made them more ‘financialized’ – that is, more dependent on financial activities of their own. Given the higher returns that financial assets bring compared with traditional businesses, many companies have increasingly diverted their resources to the management of financial assets. Such a shift in focus has made those companies become even less interested in building up technology-based long-term productive capabilities than what was made necessary by the increasing pressure from short-term-oriented shareholders.”

Islam does not object to the profit motive, economic competition, or entrepreneurial ventures—the more imaginative the latter, the better. So freely are these allowed that some have gone so far as to characterize the Koran as “a businessman’s book.” It does not discourage people from working harder than their neighbors, nor object to such people being rewarded with larger returns. It simply insists that acquisitiveness and competition be balanced by the fair play that “keeps arteries open,” and by compassion that is strong enough to pump life-giving blood—material resources—into the circulatory system’s smallest capillaries. These “capillaries” are fed by the Poor Due, which (as has been noted) stipulates that annually a portion of one’s holdings be distributed to the poor.
– From the Book The World’s Religions by Huston Smith

Islamic economics establishes its model in society along the lines of the physical health model. Just as the health of the body requires that food reach all its parts through blood circulation, the economic health of society – as Islam sees it – requires the distribution of money and goods to be done in a wide manner that includes all classes of society. That is why we find the Qur’an and Sunnah are regulating various measures breaking down the barriers of economic classes.
– From the Book The World’s Religions by Huston Smith.

Islam is acutely aware of the physical foundations of life. Until bodily needs are met, higher concerns cannot flower. When one of Muhammad’s followers ran up to him crying, “My Mother is dead; what is the best alms I can give away for the good of her soul?” the Prophet, thinking of the heat of the desert, answered instantly, “Water! Dig a well for her, and give water to the thirsty.”
– From the Book The World’s Religions by Huston Smith..

Islamic economy supports the free market, promotes exchange, protects private property, and does not ignore the profit, and its history reflects that it has created an active market in many different countries. The Islamic economy includes reform elements that can achieve the reform of the capitalist system into a true market economy, since it is a synthesis between the economy market and moral values, thus between economics and ethics. Therefore, a constructive dialogue must be opened between contemporary economics and the Islamic economy, whose leadership was confirmed after the 2008 crisis due to its departure from the interest and its basis on profit.

“The writings of Muslim scholars on economic issues over the past fifteen centuries represent a treasure for researchers and deserve appreciation, as many of the analyses contained therein were ahead of their time. For example, scholars such as Ibn Khaldun had an ambitious program of studying the factors that determined the rise and fall of great empires, and his research included history, sociology, economics, and demography… The matter of economics in Islam was not subject to a single thought, but rather the views of Muslim scholars were reinforced through an intellectual dialogue that continued over centuries.”
– Rodney Wilson on Islamic Economy’s heritage.

“Islamic economy calls people to adhere to spiritual values and moral meanings when deciding systems and controls for economic affairs, instead of them being based on interests and benefits only. The investor, the owner of the producing company, or even the worker, lender, or borrower, if all of these kept their personal interests in mind only, and remained in every case and in every circumstance, aspiring only to achieve their own benefits, then this approach will create the unjust and embarrassing moral situation that the world suffers from today, resulting from the application of the conventional capitalist system, keeping in mind that practicing this behavior on a national level will lead to violating human interests in the name of individual interests”.
– Muhammad Nejatullah Siddiqi, Indian Islamic economist.

Did you know…

Islamic economy has historically succeeded in achieving prosperity and eradicating poverty during certain periods when it was applied as a comprehensive system with its own institutions, regulations, and practical principles. This success is attributed to the fairness and balance of its theories, as well as the efficiency and effectiveness of its tools. One of the most significant tools of Islamic economics is Zakat, which managed to eliminate poverty and achieve prosperity during the era of Umar ibn Abdul Aziz (61–101 AH / 681–720 AD). History tells us that during this time, zakat accomplished the following:
  1. Fulfilled the material needs of individuals.
  2. Cleared debts.
  3. Supported those in need of marriage.
  4. Reduced the jizya for non-Muslims.
  5. Generated a surplus in Bayt al-Mal (the treasury) that could be redirected to address emergencies, expand public services, and improve the quality of life.
This highlights the viability of Islamic economics as a system capable of eradicating poverty at its roots and achieving limitless prosperity.
The Islamic economy requires, in the type of products it produces, especially in the field of food, the standard of good halal, which is permissible and does not have any effects on the environment, health, or mind. This is what gives Islamic products a civilized dimension. It is not enough that the food is halal, but it must also be free from health, environmental, psychological and physical damage such as the effects of harmful pesticides, methods of packaging, transportation and preservation mechanisms that affect the safety of the product, and this is one of the meanings of the Almighty’s saying: {O mankind, eat from whatever is on earth [that is] lawful and good} [Al-Baqarah: 168]
Islamic economy recognizes the value of good education and training as it is the best way to qualify individuals for the labor market, and to achieve the balanced personality that Islamic development aims to create and directs most of its attention to. That is why Islam never neglected or ignored education, but rather it was keen to provide it to people even in times of war. We read in Al-Sīra al-Nabawiyya that the Prophet, may Allah bless him and grant him peace, would release a prisoner who taught ten Muslims to write on the day of Badr. At that time, a person would be ransomed for four thousand dirhams. This means that the Islamic state spent 400 dirhams on an individual to learn the basics of reading and writing, which is considered a large cost at that time.
Islamic economy is based on the characteristic of inclusive justice, which appears in all its sectors, activities, tools and policies, and the effect of justice appears in production and consumption, as production is directed at producing efficient goods and services that suit society’s priorities and satisfy its needs at the same time, and consumption itself is based on benefit from the good things of livelihood without the forbidden things, away from the extravagance that wastes resources and disrupts sustainability.
The impact of inclusive justice in Islamic economy is manifested in distribution at all levels, Post-production is distributed on the basis of justice by giving each part of production elements (organizer – land – labour – capital) a return on his contribution to production according to the amount of effort and risk, so each element is given what it deserves in light of justice, apart from adopting a usurious interest that has nothing to do with the outcome of the activity, whether profit or loss. Redistribution is also decided through zakat, public interest funds, and the various types of rights and taxes approved by Islamic Shariah under the basis of justice in taking and giving.
The value of #equality in Islam holds immense economic and #developmental dimensions, as manifested in the principle of equal provision of #socialsecurity for all members of the Islamic society, Muslims and non-Muslims alike. This principle was deeply understood by Umar Ibn Al-Khattab, the second caliph of Islam, who derived it from the guidance and principles of Islam. He extended social security benefits to non-Muslims, as evidenced by the following narration: Once, Umar saw an elderly and impoverished man from the people of Dhimmah. He sent for the public treasury and said, “Look at this man and those like him; they are the poor among the People of the Book. Exempt them from the jizyah and grant them a stipend from the public treasury.”
The effects of the comprehensive justice of the Islamic economy, appear in the aspect of ownership, thus ownership moves within the framework of justice. It is not permissible to acquire money from something unlawful, as injustice falls on the people, so people waste an important resource without benefit. It is not permissible to direct property to harmful production or useless work, in order to protect resources from loss and to ensure the satisfaction of basic needs.
Did you know that Zakat al-Fitr plays a major role in achieving social solidarity and sparing the poor and needy from asking in the day of Eid, the target group of Zakat are the poorest in society, that’s why Islam imposes on the rich to meet the needs of their poor brothers with kindness, mercy, and without disfavor or condescension.

Islamic Finance Principles

Financing usually comes in the form of cash that is converted into productive equipment, investment projects and assets. Based on the ownership of the money originally, the ownership of the assets is determined between the partners according to their different proportions, the effect of this ownership appears if a loss occurs in the project, as each partner bears the loss according to his share in the ownership, even if this leads to the loss of some assets. This does not apply to the Mudareb partner (fund manager), as Mudarabah is a partnership between capital on the one hand and labor on the other hand, here the Mudareb does not own any of the assets, and therefore he only bears the loss of his wage, in case of loss
Islamic finance is linked to the framework of priorities and prioritizing basic needs over luxuries. In Islamic finance, the social role is accompanied by the economic one, making funding governed by the framework of priorities, so that funding is not directed to luxury production projects while the same funding is needed in projects of economic priority. Because it is related to public needs or basic goods, and if resources are directed to the purposes of satisfying basic needs, they are of great benefit, and if they are directed to satisfying secondary needs, they become of little benefit, and if they are directed to satisfying imaginary needs, they are a waste of resources and energies.

Islamic economy does not accept stimulating “debt growth” at the expense of “wealth growth.” That’s why Islamic economy sets need as a criterion for borrowing when the loan is required as a financing tool. Borrowing can only be for the purpose of obtaining permissible fruits, such as developing funds. The balance between the two elements is achieved by linking debt to real economic activity represented in the production of goods, services, or benefits. Thus, financing on the basis of interest is rejected, because interest is a debt that is not matched by growth in wealth, because even if it is assumed that the activity does not take place, the debtor returns the debt with its interest.

Jurisprudential Heritage

Social security—or the well-being of worldly affairs—depends on economic security and the fulfillment of the needs of all members of society. For this reason, Islamic economics has mandated zakat on the wealth of the rich, making it a permanent right for the poor rather than a gift or donation. Alongside other forms of expenditure, zakat serves as a continuous stream of support that prevents individuals from falling into poverty. Simultaneously, it fosters psychological harmony and social stability within the community, free from class envy and social unrest. This embodies the well-being of worldly life as described by Al-Mawardi, who linked it to two principles: “The first is what organizes the collective affairs of society, and the second is what ensures the well-being of each individual within it.
The Islamic economy boosts the value of agriculture because of its added value and its relevance to blessing, to the point of being used as a proverb about blessing in verse 261 of Surah Al-Baqarah in which spending in the path of God is likened to a grain whose fruit yields seven ears, in each ear a hundred grains with the possibility of doubling, and for this reason some scholars have favored agriculture over other crafts and activities “because of its submission to God’s judgment, trust in Him, and its connection to blessings and distance from suspicion.” [Al-Adab al-Shar’iyyah wa al-Mar’iyah Grants by Ibn Muflih (3/294)]
Islamic economy seeks to create confidence among traders in various economic activities. That’s why one of the most important principles of agreements and transactions is “building contracts on the basis of obligation,” meaning that each party to the agreement is obligated to do what it pledged. Whoever fails in his commitment bears the damage accordingly. Based on that, Islamic economy ensures a safe environment for economic activities, with stable transactions, avoiding crises that occur due to the absence of honesty and responsibility.
Islamic economy is concerned with comprehensive development, that facilitates obtaining sources of livelihood through spending on public facilities and facilitating the investment process. Believing that the best way to achieve wealth is through real work and actual production, therefore Islamic economy is interested in developing economic policies with plans that work on creating sources of income, before concerning with tax policies. In this regard, the will of Imam Ali, May Allah be pleased with him to his governor in Egypt, Al-Ashtar Al-Nakha’i (d. 37 AH), appears. Among what was stated in this message: “your efforts for developing the land must be more than collecting the taxes, because taxes will not be available except by development . And the ruler who wants to collect taxes without developing, will destroy the cities and the people, and his rule will not last long.”
Islamic economy recognized the value of sustainability before the emergence of the modern concept for sustainable development, to deal with the successive crises caused by excessive search for ways to accumulate capital without considering its impact on the environment and resources, and evidence exist in the practices of Al-Farouq Umar ibn al-Khattab as he refused to divide the lands of Iraq after its Fath, recognizing the rights of future generations to wealth, he left the lands in the hands of its people so that upcoming generations would guarantee a share of the wealth that would be transferred to them through inheritance or otherwise. On that matter he prominently said: “But for the future Muslim generations, I would have distributed the land of the villages I open among its people” [Narrated by Al-Bukhari (3/106) Hadith No. (2334)].
The Islamic economy regulates the process of benefiting property, within the rule of justice, and justice includes acquiring money from Halal, then spending it in Halal. If the Islamic economy requires money trading, it sets determinants and standards to distinguish authorized spending from others, and spending thus varies to what is praiseworthy and what is reprehensible, praiseworthy spending is what saves its owner from being blamed in the afterlife and does not attribute its owner to miserliness or foolishness in life, such as giving alms, expiations, spending on the family, and voluntary alms. As for the reprehensible aspect, it is what revolves around extravagance, miserliness, and scarcity. [Al-Raghib Al-Isfahani in his book Al-Dhari’ah ila Makram Al-Sharia (p. 285).]

The Holy Qur'an & Hadith

The moral element is very important in achieving economic development, treating economic deviations, and achieving social stability. Virtuous ethics call for generosity and benevolence, fulfilling rights and duties, and adhering to social responsibility, which ensures the provision of sustainable economic and social sectors. On the other hand, moral deviations extend beyond mere neglect of duties, driving individuals to pursue every means of profit, gain, and wealth accumulation. This is why the Prophetic Sunnah warned against stinginess, as the Prophet, be upon him, said: beware of stinginess because it doomed those who were before you. It incited them to shed blood and treat the unlawful as lawful. [Sahih Muslim (2578)]

Islamic economy views poverty as both a material and moral issue. It fights the tendencies of greed and miserliness within individuals, considering these traits as key contributors to the problem. When the wealthy hoard their wealth and fail to meet their financial obligations, money stops circulating, and poverty remains unchanged or even gets worse. This, in turn, broadens social inequality, allowing class divisions to prevail. For this reason, the Qur’an addresses the souls of humans, warning them against stinginess and miserliness, which doubles the extent of the phenomenon. It links psychological and societal success with the fulfillment of various financial rights, as understood from the Almighty’s saying: “So be mindful of Allah to the best of your ability, hear and obey, and spend in charity—that will be best for you. And whoever is saved from the selfishness of their own souls, it is they who are ˹truly˺ successful.” [At-Taghabun: 16]

Islamic economics requires workers be completely trained, based on the recommendation to be professional in their work. Mastery in Islamic economics is not merely about producing an appealing outcome, rather it is a comprehensive process that involves excellence in form, efficiency, and effectiveness, and repeated usage. Professionalism is linked to Ihsan, which is founded on vigilance and the fear of God in both public and private. This principle applies to all types of goods, regardless of their price. In this context, the Prophet Muhammad (peace be upon him) said: “Verily Allah has prescribed Ihsan (kindness) for everything. “ (Sahih Muslim, Book of Hunting and Sacrifices, Chapter on the Command to Practice Excellence in Slaughtering and Killing, hadith 1955).
Islamic economy is concerned with industry field due to its important role in maximizing benefits, exploiting environmental resources, and developing the infrastructure and productivity of society. In addition, industry has a major impact in protecting societies from expected disasters and enhancing national security at various levels. The Holy Qur’an has linked some industries with amazing results at the level of social security. It has also linked building the ship to the salvation of the Prophet of God Noah, peace be upon him, from the flood, {So We inspired him (saying): “Construct the ship under Our Eyes and under Our Revelation (guidance).} [Al-Muminun: 27], also between the dam building and saving some communities from the danger of aggression against them from others, as stated in the endings of Surat Al-Kahf
Islamic economy does not accept any manipulations in trading, either buying and selling, but rather considers transparency, integrity and disclosure necessary conditions for these operations. Therefore, the market in Islamic economy is characterized by being transparent, in which all sufficient information about goods and services is available. In the Islamic market model, it is not permissible to conceal any defect in the goods and services being traded, as indicated by the hadith “The Muslim is the brother of another Muslim, and it is not permissible for a Muslim to sell his brother goods in which there is a defect, without pointing that out to him” [Narrated by Ibn Majah (2246) and Al-Hakim (2152) qualified as Sahih].
Resources in Islamic economy are trusts for those in charge of them; therefore, it is not permissible to waste them for no benefit, or to monopolize them without directing them to the benefit of humanity through productive and social processes within one’s ability and capacity. Accordingly, the owner of the resources has the right to utilize them to satisfy his needs, seeking what is Halal (permissible) and virtuous, but he is commanded to be kind to people and is forbidden from wasting these resources by spending them foolishly or on what is forbidden by the Shari’ah. “Rather, seek the ˹reward˺ of the Hereafter by means of what Allah has granted you, without forgetting your share of this world. And be good ˹to others˺ as Allah has been good to you. Do not seek to spread corruption in the land, for Allah certainly does not like the corruptors.” [Al-Qasas: 77]
The Islamic economy strives unemployment in all its forms, especially voluntary unemployment, which is based on resting and abandoning striving. Islam does not know a time in which human effort stops giving, but rather that is included in the category of what a person is asked about, as in his saying, may Allah’s prayers and peace be upon him: “The feet of a servant will not move on the Day of Resurrection until he is asked about his life and how he spent it.” [Al-Tirmidhi (2417) qualified as Hasan Sahih]. The demand to strive to achieve financial accumulation and productive abundance that is sufficient to achieve well-being at all times is confirmed by his saying, may Allah’s prayers and peace be upon him “Take advantage of your youth before you grow old” [Al-Nasa’i (11832) and Al-Hakim (7846) according to the two Shaykhs’ condition]. Taking advantage of youth, which is a time for work, and diligence, may be a reason to meet the needs of old age, which is a stage where work and striving are difficult in.
Islamic economy works on achieving economic development and magnifying production, the philosophy of Islamic economy is based on the fact that the earth was created for the benefit of all human beings {He is the One Who created everything in the earth for you} Surah Al-Baqara:29, and that its subjected to production and wealth generation, {And He has subjected to you whatever is in the heavens and whatever is on the earth – all from Him} Surah Al-Jathiya:13, and since many resources cannot be utilized except by transforming them from their primary material into a material straightly directed to satisfaction and use, Islamic economy requires work and production. To ensure the first goal, which is to achieve benefit up to the level of sufficiency and beyond according to the prevailing level in society.
The distribution of return on investment in Islamic economy is linked to the principle of risk tolerance. Which results in risk sharing between the parties to the economic activity according to the potential profit for each of them. Under no circumstances may one of the parties hedge to remove the risk from himself and transfer it to the other party. This was indicated by the hadith of the Prophet, May the blessings of Allah be upon him, which is deemed a general principle for Islamic companies. “Any profit goes to the one who bears responsibility.” [Abu Dawud (3508) and Al-Tirmidhi (1285) qualified as hasan]

Intellectual Foundations

Integrating theoretical basis and practical development” is considered one of AlBaraka Forum for Islamic economy’s intellectual foundations, as the relationship between theory and practice is a complementary one, characterized by continuous interaction. In this context, AlBaraka Forum is interested in presenting Islamic economic theory beside turning it into a global culture, and the Forum employs its capabilities concerning this through workshops and events that address Islamic economic issues through comprehensive discussions, reaching the depth of these issues and coming up with decisions and recommendations that evaluate the theory and enhance its presence on ground
Islamic economy is defined by a set of ethical values and Shariah standards, as well as its relevance to the process of economic development through its emphasis on the need for real production that benefits both the individual and society.