MANAGEMENT OF ZAKAT, WAQF AND SADAQAH FUNDS                             (MIFB 6063)                          TERM PAPER   ...
1Discuss the conceptions of horizontal and vertical equity and critically analyzetheir relationship to the required standa...
2INTRODUCTIONIslam as a comprehensive system of life encompasses principles which govern all our worldlylife matters as it...
3negative elements such as riba, gharar, maysir (gambling) hoarding (kanzul mal), monopoly(ihtikar) and the other negative...
4bracket will have a different tax rate, with higher income brackets paying the highestpercentages.3           Even though...
5The principle of needs basically ensures that the rich people with surplus should transfer someof this surplus to the nee...
6workers across the countries under their control. Socialism also violated the principle ofhorizontal equity by the denial...
7income. An effective, efficient, and fair market which is free from all negative elements will helpthe economic well-bein...
8Difference between equity and equalityMany people confuse the conception of equity with equality yet they are two distinc...
9In another verse Allah says: “Then when the (Jumuah) Salât (prayer) is ended, you maydisperse through the land, and seek ...
10income redistributive measures such as Zakat, waqf, sadaqah and other forms of charity. Tosupplement the income of those...
11And their Prophet (Samuel A.S.) said to them, "Indeed Allâh has appointed Talût (Saul) as a kingover you." They said, "H...
12ConclusionHorizontal and vertical equity are discussed in economics at a great length as twocomplementary measures in in...
13The present distributive injustices in Muslim societies are mainly due to thefailure of market organization rather than ...
14           As discussed in the earlier sections, the income distribution measures in Islam are basedon the two principle...
15effective to cover the unavoidable irregularities which will usually arise even though the marketis functioning accordin...
16The following is how one of the negative elements, negative monopoly, adversely affects theeconomy in general and the cu...
17measures provided in Islam to correct the fundamental economic problem and a total marketorganization failure will be po...
18Upon reading the Noble Qur’an, there are numerous verses which encourage the Muslims togive away portions of their wealt...
19negative elements is the main cause of market organization failure and unless these areeliminated or at least drasticall...
20REFERENCESAlbani(n.d)Dza’if Al-jami’ Hadith No.2434Begg .D. et al (1984) Economics, McGraw Hill Book Company, Berkshireh...
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Zakat

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Mohamed Ibrahim, a master student at
Insaniah University College, Alor Setar, Kedah, Malaysia

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Zakat

  1. 1. MANAGEMENT OF ZAKAT, WAQF AND SADAQAH FUNDS (MIFB 6063) TERM PAPER Prepared by Mohamed Ibrahim Ismail [Matric Number: A1111477M04] Session: 2011/2012 Semester: Second Semester Date: March 2012 Submitted to:Associate Professor Haji Zakaria Man, Deputy Rector of Academic Affairs
  2. 2. 1Discuss the conceptions of horizontal and vertical equity and critically analyzetheir relationship to the required standards of distributive equity as propagatedby Islam
  3. 3. 2INTRODUCTIONIslam as a comprehensive system of life encompasses principles which govern all our worldlylife matters as it also guides us to the Right Path for us to achieve the best reward in theHereafter.1 Detailed discussions of tenets of Islam are elaborated by the qualified Muslimscholars by interpreting the Qur’an and the Sunnah of the Prophet –may the blessings andpeace of Allah be upon him. However, the fundamental guiding principles are well-described inthe Qur’an and the Sunnah and the sub-principles are based on these basic ones. Any newdevelopment has to be related to the principles of Islam so that a viable and lasting solution canbe found for contemporary issues.This paper is divided into two parts. The first part of the paper attempts to delineate theconceptions of horizontal and vertical equity and how they are related to the requiredstandards of distributive justice or equity according to the teachings of Islam. The paper willfirst introduce the conception of equity in the context of modern economic discussions,horizontal equity and vertical equity. It will highlight the striking difference between equity andjustice according to Islam. The paper will finally discuss the concepts of vertical equity andhorizontal equity which are equivalent to the principle of productivity and the principle ofneeds as propagated by Islam.The second part of the paper attempts to highlight the present distributive injustices in Muslimsocieties, and will then critically analyze the present market organization and the relationshipbetween the market failure and the schemes of redistribution such as Zakat, waqf andsadaqah(charity) provided in Islam. In the market organization, the paper will look into the1 Allah says: “Whoever works righteousness, whether male or female, while he (or she) is a true believer(of Islâmic Monotheism) verily, to him We will give a good life (in this world with respect, contentmentand lawful provision), and We shall pay them certainly a reward in proportion to the best of what theyused to do (i.e. Paradise in the Hereafter).” (97) ~Al-Nahl
  4. 4. 3negative elements such as riba, gharar, maysir (gambling) hoarding (kanzul mal), monopoly(ihtikar) and the other negative elements which are hampering the efficiency, effectiveness andfairness of the marketThe conceptions of horizontal and vertical equityEquityEquity is a normative concept, one which has a long history in religious, cultural andphilosophical traditions (World Bank, 2005) and is concerned with fairness and social justice,topics which are also the subject of fierce debate among political philosophers. As such, therewill always be debates about the precise meaning of equity, and it is likely that a number ofconceptions will compete to be the ‘correct’ definition.2Vertical Equity One of the ways that vertical equity can be defined is: A method of collecting incometax in which the taxes paid increase with the amount of earned income. The driving principlebehind vertical equity is the notion that those who are more able to pay taxes shouldcontribute more than those who are not.The two main types of vertical equity are proportional and progressive taxation. In proportionaltaxation, the amount of taxes paid increases directly with income. For example, a 5% increasein earnings will cause a 5% increase in taxes. Progressive taxation includes tax brackets, wherepeople pay taxes based on the tax bracket into which their income places them. Each tax2 World Bank (2005) World Development Report 2006: Equity and Development. See also Jones. H.(2009) Equity in development Why it is important and how to achieve it, Overseas DevelopmentInstitute, London
  5. 5. 4bracket will have a different tax rate, with higher income brackets paying the highestpercentages.3 Even though, the above definition is among the ways which vertical equity is definedand the conception stated in the above paragraph is similar to what this paper is attempting toanalyze in such a way that all conceptions lead to different treatment to different people, theobjective of this paper is took into this conception in relation to distributive justice ordistributive equity.People are created with different faculties, capability, creativity and intelligence. Some arestronger than the others, others are more intelligent than the rest and some were born to behard-working. Logically these differences in their creature should lead to differences in theirachievements and the productivity. A person who contributes a factor of production such aslabour or land should be paid accordingly. If two people, one works hard enough and gets auniversity degree and the other one does not study well and finally drops out, it will be fairaccording to the vertical equity to reward the person who made the effort and completed hisstudies. To do the otherwise and reward the drop-out will be unfair provided that the jobrequires such a postsecondary qualification.The principle of vertical equity is also equivalent to the principle of needs which is recognized inIslam to help those members of Muslim societies such as the old and the children who cannotget an income to maintain their basic necessities of life. Furthermore, those members of thecommunity whom their earned income is not sufficient to maintain their basic necessities of lifeshould be assisted through the schemes of redistribution. However, this does not necessarilymean that the fundamental needs of the individuals are shouldered but instead their earnedincome is complemented so that their received income (income received through work andincome received through the re-distributive measures) is enough to fulfill his basic necessitiesof life.3 th http://www.investopedia.com/terms/v/vertical_equity.asp#axzz1qFYC1zsg retrieved on 28 March 2012
  6. 6. 5The principle of needs basically ensures that the rich people with surplus should transfer someof this surplus to the needy to avoid circulation of wealthy in a few hands –a situation warnedby the Almighty Allah to happen.4It is worth mentioning that Capitalism does not recognize the principle of needs as can beunderstood from the following statement that Adam Smith wrote in his book, the Wealth ofNations. Adam Smith wrote: “It is not from the benevolence of the butcher, the brewer, or thebaker, that we expect our dinner, but from their regard to their own self-interest. We addressourselves, not to their humanity but to their self-love, and never talk to them of our ownnecessities but of their advantages” .Thus, capitalism recognized only individual being butdenied to recognize the social being. Capitalism only propagated the standard of productivity orearning through work or through the provision of factors of production such as land and labour.On the other hand, socialism, an economic system founded on the ideas of Karl Marx, cameagainst the very basic principles of human nature, which is the right of individual ownership.Apart from the many economic and social repercussions associated with this system, itemerged as a state capitalism whereby the elite who were in control of the state enrichedthemselves at the expense of the masses. They came up with the slogan “From everyoneaccording to his ability, to everyone according to his needs”. In the case of socialism (statecapitalism), the people who were in power used to decide what to give to every workingindividual which was absolutely unfair as these workers contribute to different amounts ofwork and their capabilities and personal creativity differ from person to person. As socialismdenied the right of individual ownership or individual being and recognized only social being, itdid not last long.The reason why this economic system collapsed within a few decades is because it cameagainst the human nature by violating the principles of horizontal equity and vertical equity. Invertical equity which is equivalent to the principle of needs in Islam, socialism violated byallowing those who are in control to dictate what portion each and every body should get.Obviously, those elites who are in power could not decide the various needs of millions of Almighty Allah says: “so that it[wealth] may not circulate only between the rich among you” Al-Hashr: 74
  7. 7. 6workers across the countries under their control. Socialism also violated the principle ofhorizontal equity by the denial of individual ownership, rewards and payments based on theamount of contribution provided by the workers.In essence, a system like socialism cannot be expected to contribute to distributive equity orfairness since it discouraged productivity by the denial of individual ownership. For economy togrow, the system in place must encourage productivity and rights of individuals by rewardingeveryone fairly according to the factors of production he provided, there must be distributivejustice in income i.e. the market must be free from all negative elements and the redistributivemeasures should be used to correct any market irregularities which are not expected to besignificant provided that the market is effective, efficient and fair..Horizontal EquityIn modern economic discussions the conception of equity is discussed at a great length, butmost of the equity-related economic theories are discussions on tax systems and the amount orpercentage each taxpayer is expected to pay.According to Investopedia, horizontal equity is an economic theory that states individuals withsimilar income and assets should pay the same amount in taxes. Horizontal equity should applyindividuals considered equal regardless of the tax system in place. It further explains thathorizontal equity is hard to achieve in a tax system with loopholes, deductions and incentives,because the presence of any tax break means that similar individuals do not pay the same rate.For example, by allowing mortgage payments to be deducted from income tax, governmentscreate a difference in tax payments between two tax filers who may otherwise be consideredeconomically similar.5Horizontal equity refers to identical treatment to identical people. In the discussions ofdistributive justice, the market is the main factor that can affect the distributive measures of5 th http://www.investopedia.com/terms/h/horizontalequity.asp#axzz1qFYC1zsg retrieved on 27 March 2012
  8. 8. 7income. An effective, efficient, and fair market which is free from all negative elements will helpthe economic well-being.Under the principle of horizontal equity which is equivalent to the principle of work orproductivity in Islam, individuals which contribute to the generating the same amount of outputin an economic activity should be given equal rewards. For example, two professors with thesame qualification and experience who are lecturers in a university should be paid equally. Ifone of the professors is underpaid or overpaid because of his race or colour, this will violate theprinciple of horizontal equity because the two of them contributed the same amount of work.The level of absolute poverty in the world is a clear indication that the criterion of horizontalequity which was based on work and productivity has been violated. According to the WorldBank report of 2008, 21% of world population or about 1.4 billion people were poor based onthe poverty line income of USD 1.25 a day per person. If the poverty line were raised to USD 2.5a day per person then 3 billion or 50% of the world population would be categorized asabsolutely poor. This is a clear indication of the failure of the existing man-made economicsystem. The dismal economic position of the world could be expressed in terms of the incomeshared by different classes of the people. The bottom 40% of the world population whichhappen to be the poorest share only 5% of the world income whereas the top 20% of the worldpopulation enjoy 75% of the world income according to World Bank 2008 report. 6This very wide gap or disparity indicates that the principle of horizontal equity has beenviolated and disregarded. This economic system empowered a small class of the worldpopulation who are enriching themselves at the expense of the suffering of the many. In otherwords; the man-made economic system enabled the very few rich people to enslave billions ofpoor people. In short, in today’s economic system, principles of equity, whether it is horizontalor vertical are no longer functioning.6 http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:21882162~pagePK:641654 nd01~piPK:64165026~theSitePK:469382,00.html retrieved on 2 April 2012
  9. 9. 8Difference between equity and equalityMany people confuse the conception of equity with equality yet they are two distinctconceptions. While equality refers to differences in the amounts, quantities, magnitude orvolumes of income earned by individuals, equity refers to the fairness in the income and wealthdistributive and redistributive schemes. In essence, equity refers to the two standards offairness in Islam which are the principle of productivity or work and the principle of needs.In Islam, there should be acceptable disparities in income distribution in order to maintain areasonable gap between the rich and the poor provided the gap between the two will notproduce adverse effects to the productivity of all classes of individuals (the rich and the poor)and to ensure the existence of harmonious relationship between classes of people. The relationship between horizontal equity, vertical equity and Islamic standards of distributive justiceIn Islam, the equivalents of horizontal equity and vertical equity are the standard of work orproductivity and the principle of needs. Since Islam recognizes both individual being and socialbeing, Islam encouraged the most important aspect of distributive justice –the principle ofwork, or productivity. For someone to earn he should provide factors of production andcontribute to the generation of an output. Allah, the Almighty, says in the Quran narratingabout the story between Prophet Shu’ayb and prophet Musa7:“And said one of them (the two women): "O my father! Hire him! Verily, the best of men foryou to hire is the strong, the trustworthy." (26) He said: "I intend to wed one of these twodaughters of mine to you, on condition that you serve me for eight years, but if you completeten years, it will be (a favour) from you. But I intend not to place you under a difficulty. IfAllâh wills, you will find me one of the righteous." (27) Al-Qasas7 It should be noted that at the time of this story between Musa and Shu’ayb, prophet Musa was not yet sent as aprophet.
  10. 10. 9In another verse Allah says: “Then when the (Jumuah) Salât (prayer) is ended, you maydisperse through the land, and seek the Bounty of Allâh (by working, etc.)” Al-Juma’:10In another verse Allah, the Almighty says: “Then if they give suck to the children for you, givethem their due payment” Al-Dalaq: 6The examples in the Noble Qur’an which encourage the principle of work are numerous. In theabove, the verses in surah Al-qasas, prophet Musa is providing a factor of production which islabour and Prophet Shu’ayb promises that he will compensate fairly based on their agreement.Such a story in the Qur’an is a clear approval and encouragement towards the principle of work.The verse is surah Al-juma’ encourages us to work after Friday prayers. The verb used in theverse came as a form of order or command which shows the importance that Islam placed uponwork and productivity. The verse in surah al-dalaq, Allah commands men to pay fairly forwomen who suckle the men’s children. In this case, the women mentioned in the verse providethe service of suckling and in exchange should be paid fairly. All these are in line with theprinciple of work or productivity for each of the individuals mentioned in the above versescontributes a factor of production.Upon a closer study of these Quranic verses, one can understand how Islam valued productionand work and that income re-distribution measures are supplementary to correct irregularitiesof market conditions and to help the community members who cannot fulfill their basicnecessities of life as they are either old, blind, young or disabled. The narrations handed downfrom the prophet –May the blessings and peace of Allah be upon him, further explain howIslam stressed the importance of work or productivity.8Apart from work, which focuses on income distributive measures resulting from the provisionof factors of production, Islam also legalized other measures of income distribution known as8 It is related from az-Zubayr ibn al-Awwam that the Prophet, may Allah bless him and grant him peace,said, "It is better for one of you to take a rope and bring a faggot of firewood on his back and sell it sothat Allah gives him what he needs than for him to ask people who then give to him or refuse." Sahih Al-Bukhari, the book of Zakat, Hadith No.1402
  11. 11. 10income redistributive measures such as Zakat, waqf, sadaqah and other forms of charity. Tosupplement the income of those people whose earnings are not sufficient to maintain basicnecessities or those members of the society who cannot even earn at all due to an acceptablereason, the principle of needs has to be applied. In modern economic discussions, verticalequity focuses on different treatment to different people. According to Robin Hood verticalequity is taking from the rich to give to the poor.9Even though, the horizontal principle of equity or the standard of productivity is clearlyexplained in the teachings of Islam, perfect equality is not established in the teachings of Al-Qur’an. In fact the inequality is approved in the teachings of Al-Qur’an.The followings two verses explain beyond any doubt that equality cannot be achieved and isnot sought after in this worldly life. The reason why equality among humans is not possible iselaborated below.Allah, the Almighty says:“Is it they who would portion out the Mercy of your Lord? It is We Who portion out betweenthem their livelihood in this world, and We raised some of them above others in ranks, so thatsome may employ others in their work. But the Mercy (Paradise) of your Lord (O MuhammadSAW) is better than the (wealth of this world) which they amass.” (32)9 Begg .D. et al (1984) Economics, McGraw Hill Book Company, Berkshire
  12. 12. 11And their Prophet (Samuel A.S.) said to them, "Indeed Allâh has appointed Talût (Saul) as a kingover you." They said, "How can he be a king over us when we are fitter than him for thekingdom, and he has not been given enough wealth." He said: "Verily, Allâh has chosen himabove you and has increased him abundantly in knowledge and stature. And Allâh grants HisKingdom to whom He wills. And Allâh is All-Sufficient for His creatures needs, All-Knower."(247) Al-baqaraIbn Kathir in his commentary in the book, Tafsir Al-Qur’an Al-Adzim writes: “and then the MostHigh said, clarifying that He made His creatures different in what He bestowed upon them suchas wealth, sustenance, brains, understanding and the like of the external and internal powers,He [the Almighty Allah] said: “It is We Who portion out between them their livelihood in thisworld, and We raised some of them above others in ranks” Al-Zukhruf : 32In the second verse in surah al-baqara, the prophet- peace be upon him, tells his people eventhough they claim to be wealthier than him, that Allah bestowed upon the chosen king morestrength and more knowledge and thus they are not equal to him. The wisdom behind thedifferences among the humans in terms of wealth, intelligence, capability and other bounties ofAllah is justified. Allah created people and raised some of them above others in ranks so thatthey work for each other, help one another, lead one another, teach each other and join handsto achieve their respective goals in this world and the next world.A thoughtful study on the above verses clearly reveals that equality (earning equal income andhaving equal of everything) cannot be achieved as this will come against the natural way of life(sunnatullah). Thus while extreme inequality will lead to unwanted consequences, a tolerablegap is required so that life follows the universal rules as laid down by the Almighty Allah.
  13. 13. 12ConclusionHorizontal and vertical equity are discussed in economics at a great length as twocomplementary measures in income distribution. While horizontal equity refers to identicaltreatment to identical people, vertical equity calls for different treatment to different people. InIslam, the standard of work or productivity is equivalent to horizontal equity whereas verticalequity is similar to the principle of needs. Based on this, distributive justice can be achieved byfully implementing the two Islamic standards.To eliminate absolute poverty, the first principle should be enforced by ensuring that themarket is free from all negative elements and all working people have the opportunity toprovide their factors of production to earn a living. Upon implementing the first standard, thecriterion of needs, which is the second principle, should be used to support the smallpercentage of people who cannot earn an income sufficient enough to meet their basicnecessities of life.However, it is quite impossible to follow those standards and implement a market free from allnegative elements while capitalism, a corrupt man-made economic system, is dominating theworld markets including those of Muslim countries.
  14. 14. 13The present distributive injustices in Muslim societies are mainly due to thefailure of market organization rather than the failure to implementredistribution schemes provided in Islam. Discuss
  15. 15. 14 As discussed in the earlier sections, the income distribution measures in Islam are basedon the two principles or standards, the standard of work and the criterion of needs. However,from the Quranic verses and narrations it is quite evident that everybody is encouraged to workor provide a factor of production. For the standard of work to be effective there should beeffective, efficient and fair market which is free from all negative elements such as riba, maysir,gharar, ihtikar and other negative elements. An important issue to critically and objectivelyanalyze is whether it is the redistributive measures of Islam or a market free from all negativeelements that can correct the injustice in the income distribution in the Muslim societies.In order to understand the importance of market or the standard of work among the Muslims,the following text should be studied closely. ”“Encouraged upon you is trade, for in it is nine out of 10 parts of your sustenance” 10It is noteworthy, even though the Hadith cannot be attributed to the Prophet –May theblessings and peace of Allah be upon him, due to its weak position, it is related to the realeconomic situation on the ground and is valid to serve as an indication that the role and impactof the market greatly outweighs the significance of redistributive measures.The meaning of the Hadith does not necessarily mean that every person gets 90% of hissustenance from trade while he should look for the rest from other sources such as agriculture.If the case were so everybody would have been fakir11 and miskin12 who cannot get enoughincome to maintain basic necessities of life. Upon further interpretation of the Hadith, it is canbe concluded that 90% of the people can earn an income which is enough to maintain theirbasic necessities provided that the market is free and fair and is functioning according to therules laid down in Shariah. Once the people in the market are guided by moral and ethicalvalues and the market is free from all negative elements, the measures of redistribution can be10 Sheikh.Albani declared it[this hadith] to be weak in his book Dza’if Al-jami’ Hadith No.243411 Someone who does not have any income to fulfill his basic necessities of life12 , miskin has some income but is not sufficient to fulfill his basic necessities of life
  16. 16. 15effective to cover the unavoidable irregularities which will usually arise even though the marketis functioning according to Shariah rulings.As implied by the Hadith, there will always be some people about 10% that cannot get enoughincome to fulfill their basic necessities of life. In this case, the criterion of needs should beapplied. Apart from those who cannot earn enough income through work, there will be otherswho will be unable to get any income to fulfill their basic necessities of live. Such peopleinclude, the old, the children, the handicapped or disabled or people who are struck by naturaldisasters.Having said this, the idea that Islamic re-distributive measures can correct today’s economicfailure is not logical. Redistributive measures cannot resolve the fundamental problems of theeconomy. These problems are the resultant of total market failure.The present market, which would have served as the most important source of incomedistribution, was hampered by the following negative elements;  Riba  Gharar  Maysir(gambling)  Corruption  Discrimination  Ihtikar and kanz-al-mal(artificial shortage of supply and hoarding)  Negative monopoly
  17. 17. 16The following is how one of the negative elements, negative monopoly, adversely affects theeconomy in general and the customers in particular. In a competitive market, the customerscan buy more goods at a lower price, (Q0, P0) but in a monopolistic situation, customers payhigher prices, P1, and the quantity of goods is reduced to Q1.13 This situation negatively affectsthe customers and the wealth is unjustly transferred from the customers to the producers.Other negative elements such as riba, which is strictly prohibited in Islam, corruption, hoardingand the like have similar or even worse effects as monopoly.All these elements contribute to unfair and unjustified increase of prices whereby the marketdictates the pricing and controls the supply and demand while it was expected to only providean appropriate environment for the parties involved in business. The outcome of thesenegative elements comes against the basic goal of Islamic economy which is to promote ahigher economic wellbeing so that the people can fulfill their obligation and responsibility as acreated being.While all such negative elements are present in our economic system, the realization ofdistributive justice within the Muslim society is impossible and the reliance on redistributive13 http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-31/03.htm
  18. 18. 17measures provided in Islam to correct the fundamental economic problem and a total marketorganization failure will be pointless.According to 2008 World Bank report, the number of people who were below the poverty lineof USD1.25 at that time was about 21% of the world population or around 1.4 billion people,and if the poverty line were raised to USD 2.5, the number of people who lived in absolutepoverty stood at 50% of the world population. The report also tells that 75% of the income ofthis world is enjoyed by the top 20% of the world population whereas the lowest 40% shareonly 5% of the world income. This is a clear indication of the failure of the current economicsystem and the subsequent failure of market organization. There is no way that measures ofdistribution can correct such a fundamental failure.14While a tolerable degree of inequality is acceptable in Islam, the gap of disparity mentioned inthe report is intolerable and indicates extremely appalling conditions of poverty. The fact that asmall percentage of people are getting richer every year and the great majority of the worldpopulation is suffering due to extreme conditions of poverty is a clear manifestation that themarket organization failed due to immorality and materialism.15 A situation where the wealth isconcentrated in a few hands was warned to happen by the Almighty Allah 16 but today thewealth is circulating in a few hands.The adoption of western capitalist ideas by Muslims severely crippled the economy of theMuslim societies and the trading parts in the market are heavily indulged in immoral activitiesand practices such riba, gharar, maysir, corruption, bribery and discrimination to unjustly makemoney out of nothing. In this situation, the market economy will fail as long as the people inthe market are not morally guided and their strife for wealth is not motivated by spirituality andnoble values but by unlimited desire of having more wealth.14 http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:21882162~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html15 A belief system or a theory that holds that the only thing which exists is matter or energy and nothing is beyond Almighty Allah says: “so that it[wealth] may not circulate only between the rich among you” Al-Hashr: 716
  19. 19. 18Upon reading the Noble Qur’an, there are numerous verses which encourage the Muslims togive away portions of their wealth as a charity17 but the important point to think about is thepossibility of paying Zakat, waqf or other forms of charity without productivity or work. ForMuslims to contribute to the development of the society and give charity they should be givena chance to earn through the provision of their factors of production (the necessary conditions)in a free and fair market. In surah, Al-Rum Allah states that it is not by taking usury that thewealth grows but by giving charity.18Once the interpretation of verse 39 of surah Al-rum (see the footnote blow) is further analyzedand deeply studied, it would be obviously understood that while the act of taking riba is a majorcontributor of market failure, the act of giving charity would require the existence of a free andfair market so that the people could earn, save, invest and would subsequently pay obligatoryand voluntarily charities afterwards.ConclusionIslam, as a comprehensive way of life, encouraged Muslims to work and strive both for thisworld and the next world. Based on this, it is evident that relying on redistributive measuresprovided in Islam such as Zakat, waqf and other forms of charity are too small, even if theircollection and distribution are effectively and efficiently managed, to resolve the fundamentalproblems of economy. The reality on the ground is that most the Muslims are poor not due tothe failure of Islamic schemes of redistribution but due to the failure of the market. Thepresence of all negative elements such as riba, gharar, maysir, hoarding, corruption and other17 Almighty Allah says: “and spend of that whereof He has made you trustees”. Al-Hadid: 7Almighty Allah says :”And spend (in charity) of that with which We have provided you, beforedeath comes to one of you and he says: "My Lord! If only You would give me respite for a littlewhile (i.e. return to the worldly life), then I should give Sadaqah (i.e. Zakât) of my wealth[] , andbe among the righteous” Al-Munafiqun :1018 Almighty Allah says And that which you give in gift (to others), in order that it may increase(your wealth by expecting to get a better one in return) from other peoples property, has noincrease with Allâh, but that which you give in Zakât seeking Allâhs Countenance then those,they shall have manifold increase. (39) Al-Rum
  20. 20. 19negative elements is the main cause of market organization failure and unless these areeliminated or at least drastically reduced through the introduction of an Islamic economicsystem guided by morality and values, extreme poverty and intolerable distributive injusticeswill prevail over the world.Regarding the issue of distributive justice in income and wealth, it should be dealt withearnestly and with great effort. In resolving this problem, the matter should be viewed intotality and the whole system of economy including the market organization should bereviewed. Once the fundamental problems of the economic are corrected, the measures ofdistribution can serve as a completion to supplement the process and cover approximately 10to 15% of the income distribution irregularities. Allah knows best.
  21. 21. 20REFERENCESAlbani(n.d)Dza’if Al-jami’ Hadith No.2434Begg .D. et al (1984) Economics, McGraw Hill Book Company, Berkshirehttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:21882162~pagePK:64165401~piPK:64165026~theSitePK:469382,00.htmlhttp://www.investopedia.com/terms/v/vertical_equity.asp#axzz1qFYC1zsghttp://www.treasury.govt.nz/publications/research-policy/wp/2003/03-31/03.htmJones. H. (2009) Equity in development Why it is important and how to achieve it, OverseasDevelopment Institute, LondonWorld Bank (2005) World Development Report 2006: Equity and Development. Washington, DC: WorldBank.Translation of the Noble Qur’an by Dr.Mohsin from www.quranexplorer.com/quran/

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