Islamic Economic system

1. ISLAMIC CODE OF LIFE Lecture-11: Economic System
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ECONOMIC SYSTEM
PRINCIPLES OF ISLAMIC ECONOMIC SYSTEM
DIVINE ECONOMIC PLAN
Wealth is a test:
 “And Allah has made some of you excel others in wealth.” (Nahal 71)
 “And Allah has made you successors in the land and raised some of you above others in
different levels, to test you for what is given to you.” (Anam 165)
Not related to efforts:
 When a man gets in trouble he cries for help of Allah, and when he is granted favors, he says “I
have got it due to my knowledge”. In fact wealth is a trial but most of people do not know.
(Zumr 49)
TARGET OF ISLAM ( ‫كا‬ ‫اسالم‬‫ہدف‬ )
 Activity (‫:)عمل‬
 Prayer )‫ۃ‬ ٰ‫(صلو‬ ▪ Charity )‫انفاق‬ ‫و‬ ‫ۃ‬ ٰ‫(زکو‬ ▪ Fasting )‫(روزہ‬ ▪ Hajj
)‫(حج‬
 Resource (‫:)قوت‬
 Spiritual power (‫جہاد‬ ‫جانی‬) ▪ Economic power (‫جہاد‬ ‫مالی‬)
 Piety )‫جہاد‬ ‫کا‬ ‫(نفس‬ ▪ Unity )‫جہاد‬ ‫(اجتماعی‬
 Human Welfare (‫فالح‬ ‫کی‬ ‫)انسانیت‬  Output (‫:)مقصد‬
 Moral Welfare (‫المنکر‬ ‫عن‬ ‫نہی‬ ‫و‬ ‫بالمعروف‬ ‫امر‬) ▪ Spiritual Welfare (‫و‬ ‫دعوت‬
‫تبلیغ‬)
 System Welfare )‫دین‬ ِ‫ت‬‫(اقام‬
The focus of Islamic economic system is to stop the lust of possession and
the lust of pleasure – twin plagues responsible for killing the humanity
ECONOMIC PRINCIPLES OF ISLAM
 Earning Side (‫)آمدنى‬
 Business (‫)بیع‬  Usury (‫)ربا‬
Allah has allowed trading and forbidden usury (Baqarah2: 275)
But if you do not stop taking usury, then be ready for war with Allah and His Messenger
(Baqarah2: 279)
 Usage Side (‫)مصارف‬
 Individual (‫)فرد‬ Sharing ‫عفو‬
They ask you how much they should spend; Say: "What is beyond your needs." (Baqara:219)
Those who hoard up gold and silver, and spend it not in the Way of Allâh, -announce unto
them a painful torment. On the Day when that will be heated in the Fire of Hell and with it
will be branded their foreheads, their flanks, and their backs" (Tauba: 34-35)
 State (‫)حكومت‬ Distribution ‫تكاثر‬ ‫سدباب‬
“… in order that wealth may not become confined to the rich amongst you”. (Hashr59: 7)
ISLAM ABHORS DEBT AND STRONGLY DISCOURAGES IT
1. Prophet (PBUH) said: "Whoever asks for money while he has what suffices him has asked for a
lot of Hellfire's embers." People asked him, "What is the sufficient amount of money above which
one should not ask?" He said, "The amount he needs for his lunch and dinner." (Abu Dawud)
2. He also said: "Whoever asks people for their money to increase his wealth, has asked for
embers, so let him ask a little or a lot”.
3. A man came to the Prophet (PBUH) and said, "O Messenger of Allah! If I was killed in Allah's
cause, observing patience, awaiting Allah's reward, attacking, not retreating, would Allah
forgive my sins?" The Prophet (PBUH) said, "Yes, except for the debt." The Prophet (PBUH)
said, "A believer's soul is attached to his debt till it is paid.”
4. A dead person was brought to the Prophet so that he might lead the funeral prayer for him. He
(saw) asked, "Is he in debt?" When the people replied in the negative, he led the funeral prayer.
Another dead person was brought and he asked, "Is he in debt?" They said, "Yes." He (refused

2. ISLAMIC CODE OF LIFE Lecture-11: Economic System
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Primary focus of Islam is on the spiritual System (test of Taqwa/free will)
Legal system provides only safety valve for safeguarding basic human rights
Keeping excess wealth and generating income from it is allowed legally but
spiritually is it detested.
Islamic
Economic System
Legal System
Limited Capitalism
(surplus wealth for personal use)
Spiritual System
Spiritual Socialism
(human rights on surplus wealth)
Treatment system
(Repair/Maintenance)
Restricting wealth
accumulation
Immune System
(Regulatory)
Channeling excess
wealth to needy
Inter-dependent &
Inter-connected (Synthesis)Restricting
evils/crimes
Elevatingethical/
spiritualvalues
Money
Labor
+
Capital
(Self business)
Land
Trade/
Middlemen
M
achine
Partnership
(Labor + Capital)
Status of Sources of Income
Ideal
Permitted
Restricted
Prohibited
to lead the prayer and) said, "Lead the prayer of your friend." Abu Qatada said, "O Allah's
Apostle! I undertake to pay his debt." Allah's Apostle then led his funeral prayer. (Bukhari)
ISLAM PROHIBITS AND STRONGLY CONDEMNS USURY OR RIBA
1. Allah will deprive usury of all blessing, but will give increase for deeds of charity" (Baqarah2: 276)
2. If you do not stop taking usury, then be ready for a war with Allâh and His Messenger
(Baqarah2: 279)
3. Abdullah ibn Hanjalah related that the Prophet said: A dirham of Riba (interest) knowingly
taken by a man is a sin worse than committing Zina (fornication) 36 times (Ahmad, Daraqutni).
4. Narrated Jabir ibn Abdullah: Allah's Messenger cursed the accepter of interest and its payer,
and one who records it, and the two witnesses; and he said: They are all equal (Muslim)
5. Hazrat Abu Hurairah r.a. reported that the Prophet (saw) said: A time will certainly come over
the people when none will remain who will not devour usury. If he does not devour it, its vapors
will fall on him (Ahmed,Abu Dawood,Nisai,Ibn Majah)
DIMENSIONS OF
ISLAMIC ECONOMIC SYSTEM
 Primary focus of Islam is on the spiritual
System (test of Taqwa/free will)
 Legal system provides only safety valve
for safeguarding basic human rights
 Keeping excess wealth and generating
income from it is allowed legally but
spiritually is it detested.
ECONOMICS: A LIFE BLOOD SYSTEM OF SOCIETY
 Individual : Distribution (Arteries)  State : Collection & Re-distribution (Veins)
STATUS OF SOURCES OF INCOME
DISTRIBUTION CHANNELS (‫)عبادت‬
 Compulsory (‫:)واجبات‬ Marriage payment and
penalties on certain faults/crimes
 Taxes (‫:)تیكس‬ Additional taxes imposed by state to provide basic needs of its citizens
 Zakat (‫:)زكاة‬ Payable on wealth not, on the income of individual
 Inheritance (‫:)وراثت‬ Strictly in accordance with injunction of Quran
 Voluntary Charity (‫:)انفاق‬ Entire wealth in excess of basic needs
STOCK EXCHANGE TRANSACTIONS
1. Limited liability concept is anti Islam
2. Primarypurpose of the transactionis to make quick money rather, long term investment
3. Mostly investment is made from loan taken from banks or brokers
4. It is a gambling business (gain at the loss of someone else)
5. There is no public benefit of transaction
PROPERTY BUSINESS (PLOTS)
As per Islamic law house is right of every Muslim. Anyone trying to grab the property for
the purpose of trade/profit making is unacceptable because it is a profit-making at the
expense of others) and it is also not a business/trade, as it does not lead to any fruitful
business activity, which entails hard work. As a consequence of profit making price of the
property rise and takes it out of the reach of legitimate buyer for building his house

3. ISLAMIC CODE OF LIFE Lecture-11: Economic System
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STATE FINANCIAL CRIME: INFLATIONState Financial Crime: Inflation
100 147 216 317
466
685
1,006
1,479
2,172
3,192
4,690
0
1,000
2,000
3,000
4,000
5,000
0 5 10 15 20 25 30 35 40 45 50
An item costing Rs
100 now costs Rs
4,690 in year 50
@8% inflation rate
Year
Value“Rs”
FACELESS DRAGON EATING HUMANITY
Responding to the pressures of financial markets, corporations:
 Depletes social capital  Deplete human capital  Deplete natural capital
 Depletes institutional capital  Depletes business capital
http://www.yesmagazine.org/article.asp?ID=885
Corporation: An ingenious device for obtaining individual profit without individual
responsibility.
Moto: Profit, growth & Competition and amorality, dehumanization, opposition to nature.
Allah does not impose upon anyone a duty but to the extent of his ability. (Baqarah: 286)
Nor can a bearer of burdens bear another's burdens if one heavily laden should call another to (bear)
his load. Not the least portion of it can be carried. Even though he be nearly related. (Fatir: 18)
DOES ISLAM ALLOW ANY BANKING SYSTEM?
1. Banks were created for taking public deposit and lending at interest and investment in
treasury bonds, derivatives, securities etc.
2. Interest is against natural laws. Equality functioning of natural laws and economy
implies a zero rate of interest
3. Islam detests borrowing even at zero interest rate.
4. Banking system is only beneficial to rich (accumulation of money of mass for their use)
5. Banking was conceived in iniquity (against natural law) and was born in sin (for the
benefit of rich).
6. An interest rate of zero means the end of the money & banking system.
PRINICIPLES OF ISLAMIC BUSINESS (‫)بیع‬
Pre-requisite of
Business venture
Pre-requisite of house
property business
Pre-requisite of rentals of
vehicles/equipments
1. Partnership at profit/loss
2. No security for capital
contribution
3. No pre-determined profit
rate
4. Other party is not
engaged in interest based
activities
1. Not a ideal form of
business
2. Partnership at profit/loss
3. Sharing of rental at fair
market value (no pre-
determined rate)
4. On purchase of share
from one partner
settlement at prevailing
market rate of property
1. Rental at market rates
2. No agreement for sale at a pre-
determined price (sale at market
rate)
3. Specialized machines difficult
to rent out (should be based on
business profit)
THREE ECONOMIC MODES OF MUSLIMS
1. Moral (Height of spiritual living)

4. ISLAMIC CODE OF LIFE Lecture-11: Economic System
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 Halal means of living  Distribution of entire excess wealth
 Hardly any situation of Zakat  Simple lifestyle
2. Legal (Minimum threshold of living)
 Halal means of living  Paying Zakat and other compulsorydues
 Charity (infaq) up to the level of Taqwa  Modest lifestyle
3. Illegal (State of practical kufr)
 No distinction of halal/harram  Does not care to pays Zakat/other dues
 Charity for image building  Extravagant and luxurious lifestyle
 Stinginess/wealth piling up
NON-CONTRIBUTORY /CONTRIBUTORY SOCIAL SECURITY PLAN
(SURPLUSPOOL)
 Before (Savage Society)
 Exploitation  Deprivation
 After (Natural Society)
 Harmony
PRINCIPLES OF CURRENT ECONOMIC SYSTEM
MODERN ECONOMIC PRINCIPLES
 Government
1. GDP growth 2. Money 3. Credit
4. Tax on income/Consumption 5. Deficit financing
 Companies
1. Sales growth 2. Money 3. Credit 4. Consumption 5. Quick Profit
 Individuals
1. Income growth 2. Money 3. Credit 4. Consumption 5. Wealth making
1. Economics is a Science of wealth (to teach selfishness). K.K Dewett
2. Economic is made to study “wealth” rather than “welfare”.
3. Whatever the economics is concerned with it is not concerned with:
 Study of relation of real goods (physical science) and wealth (monetary science)
 Study of relation of material welfare (of individual) and general welfare (of humanity).
 Study of relation of “short term needs: and “long-term needs”
MAJOR PROBLEM OF HUMANITY:
OPERATING UNDER INCOMPATIBLE SYSTEMS
Matter (‫)ماده‬
Natural (Real) Economy =
Money (‫)دولت‬
Financial (Shadow) Economy
Operates under
physical/biological constraints ≠
Operates under unconstrained
compound interest rate growth
Organic Resources (‫اشیاء‬ ‫)حیاتى‬
(Manpower, animals, plants)
Declared
Redundant
Taxes (‫)محصول‬
Gov. Deficit (‫زر‬ ‫)افراط‬
Inorganic Resources (‫اشیاء‬ ‫)نامیاتى‬
(Natural Resources)
Extreme
Focus
Money (‫)كرنسى‬
Credit (‫)قرض‬
U.S. NATIONAL DEBT CLOCK
Debts of citizens is 77 times of the national debt
http://www.brillig.com/debt_clock/
IMPRACTICABLE (FINANCIAL DECISIONS)
The economist sees economic activity as a function of infinite "money creation", rather than
a function of finite “natural resources".
“Organisations in the West with money to invest, especially those which like to consider
themselves as being ethical, might have rather more to learn from Islam than is generally
acknowledged. By applying the Islamic approach, a lot of human misery could have been avoided.

5. ISLAMIC CODE OF LIFE Lecture-11: Economic System
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Wayne A.M. Visser and Alastair McIntosh - http://www.che.ac.uk/publications/usury.htm
WHY SO MUCH SHORT-TERM FOCUS?
1. This system leads to living for today
2. All misuse of resource is due to extremely short-term focus
3. Severely damages long term benefits of humanity which is against the social principal of
inter-generational equity.
4. We are in war of money against life; consuming Capital to make money
As such Rs.10m will become 0 after 100 years (Discounted rate = 20%)
OUTCOME OF CURRENT ECONOMIC PRACTICES
OUTCOME OF MODERN ECONOMIC SYSTEM
 Explosion of Debt (‫جال‬ ‫كا‬ ‫كاروبار‬ ‫)سودى‬  Explosion of Over-supply ( ‫كثرت‬
‫)ترسیل‬
 Explosion of Competition (‫بازى‬ ‫مقابله‬ ‫)اندهى‬  Explosion of Over-production ( ‫كثرت‬
‫پ‬‫یداوار‬ )
 Explosion of Over-utilization (‫استمال‬ ‫)كثرت‬  Explosion of Over-wastage (‫ضیاع‬ ‫)كثرت‬
And give to the relatives due and to the needy and the wayfarer, and do not squander wastefully.
Surely the squanderers are the fellows of the devils and the satan is ever ungrateful to his Lord.
(Isra: 26-27)
MODERN TRAGEDY OF CONTRADICTORY LAWS
 Integral System
 Moral Laws (Self-Centered)  Physical Laws (Quick Usage)
 Economic Laws (Overnight Profit)
CONSUMPTION & WASTE CULTURE
1. 60% families in America can maintain their standards of living for only one month
2. The next 20% can maintain it for only three months.
3. It means 80% of the population is living at an incrediblyhigh level of economic insecurity
The Earth can no longer support the lifestyle of the cool hunting American-style consumer.
We have sought, bought, spewed and devoured too much, too fast, too brazenly, and now
we're about to pay. Economic "progress" is killing the planet. (Kellay Lason)
MARCH TOWARDS DESTRUCTION?
Each U.S citizen requires energy of 300 persons working round the clock
LIFECYCLE IS NO MORE SUSTAINABLE
GREATEST THREAT TO LIFE: FOOD SCARCITY
from planting, irrigation, feeding and harvesting, through to processing, distribution and
packaging. In addition, fossil fuels are essential in the construction and the repair of
equipment and infrastructure needed to facilitate this industry, including farm machinery,
processing facilities, storage, ships, trucks and roads

6. ISLAMIC CODE OF LIFE Lecture-11: Economic System
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Dominates
Dominates
Dominates
To Feed To control
To liveTo Serve
To serveTo Rule
Foundation of Civilization:
Financial System: Servant/Master
Pesticides (Gas)
"You are basically treating the agricultural environment as if it was a factory where you
are making televisions or VCRs,if nature is not a machine, if organisms are not machines,
then to treat them as if they are, is going to create big problems." Martha Crouch
PETROLEUM POWER
Even if the entire mass of the earth were petroleum, it would be exhausted in 500 years at
5% increase in rate of consumption. For addition 100 year 157 earth would be required
(current production is 10 Trillion Ton)
STORY OF PAST REBELS “TOWER OF BABEL”
How many populations have We destroyed, which weregiven to wrong-
doing? They tumbled down on their roofs. And how many wells are
lying idle and neglected, and castles lofty and well-built? (Hajj 45)
Period of Namrood (let us revolt) 2500 BC
WHAT SHOULD WE DO?
PENALTIES ON VARIOUS CRIMES
Level Crime Action
Moral Various Disliking/Curse of Allah
Social Adultery 100 Lashes/Stoning to death
Political Killing Revenge (Qasas)
Economic Interest War withAllah & Rasul
STEPS FOR HEALING THE MONEY SYSTEM
1. Limit growth 2. Limit Debt
2. Introduce zero debts 4. Impose Charge on money holding
3. Make speculation a crime or penal 6. Incentivise productive work and investment;
4. Tax Speculative and other Unearned Gains
5. Create a just distribution to claims to real wealth;
6. Strengthen the social fabric of family and community
7. Eliminating the incentives for land speculation.
Healing the Money System “David C. Korten”: http://www.converge.org.nz/pirm/money.htm
ACTIONS AT PERSONAL LEVEL
1. Adopt simple lifestyle(Resourceconservation& sharing)
2. Get out of interest/speculationbasedinvestments
3. Fully utilize goods before replacement
4. Eliminate morbidcraving for extravagant gadgetry
5. Get rid of fashion(a bio-economicdisease of the human mind )
6. Demand durable goods to be made still more durable by being designedso as to be
repairable.
7. Get closer to the nature as possible
8. Joinhands to fight for reform at state level
FINAL OUTCOME
Let the man of means spend according to his means: and the man whose resources are restricted,
let him spend according to what Allah has given him. Allah puts no burden on any person beyond
what He has given him. After a difficulty, Allah will soon grant relief. And how many a community
revolted against the ordinance of its Lord and His messengers and We took detailed accountability
of their deeds and punished them severely. Then did they taste the evil result of their conduct, and
the End of their conduct was great loss. (Talaq 7-10)