This document provides an overview of different economic systems including capitalism, socialism, and the Islamic economic system. It discusses key aspects of each such as property ownership, motivation, decision-making, and implementation. The Islamic economic system is based on principles that all wealth belongs to God, the community is responsible as trustees of wealth, hoarding is prohibited, and wealth circulation is a duty. It differs from other systems in its emphasis on ethics, universal brotherhood and justice, and prohibition of riba. Alternatives to riba like qard hassan and waqf are also explained.

1. LECTURE 12: REVISION
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2. LEARNING OBJECTIVES
At the end of this topic students will be
able to understand the views of the
Capitalism, Socialism & the Islam
economic system.
 Property Ownership
 Role of Government
 Motivation
 Decision Making
 Islamic Economic Structure
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3. ECONOMIC SYSTEM
An economic system is a mechanism which deals with the
production, distribution and consumption of goods and
services in a particular society.
 It is composed of people, institutions and their
relationships.
 It addresses the scarcity problem, and asked the
following questions:
1-What and how much to produced?
2- How to produce?
3-To whom to produced?
 An economic system is a way of answering these basic
questions. 3

4. HOW TO PRODUCED?
There are many ways to produce a desired item.
 It may be possible to use more labor and less capital, or
vice versa.
 It may be possible to use more unskilled labor to
substitute for fewer units of skilled labor?
 Choices must be made about the particular input mix,
the way the inputs should be organized, how they are
brought together, and where the production is to take
place.
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5. FORWHOMTO PRODUCED?
 Once a commodity is produced, some
mechanism must exist that distributes
finished products to the ultimate consumers
of the product.
The mechanism of distribution for these
commodities differs by the different
economic systems.
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6. ECONOMIC SYSTEM
The economic system is a way of answering
these basic questions. Different economic
systems answer them differently according to
the following systems:
 Socialism
 Market System or Capitalism
 Mixed System
 Traditional System
 Islamic Economic System
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7. Socialism
Socialism: A political and economic theory that a
country’s land, transport, natural resources and chief
industries should be owned and control by the whole
community or by the state, and the wealth should be
equally distributed.
The government should have control over economic
activities, and private ownership of land and capital put
under tight restrictions.
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8. Characteristics of Socialism
• Social Justice
• Better allocation of resources
• Improving productive efficiency
• Social security and welfare
• Economic stability
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9. Failures of Socialism
Lake of incentive or encouragement
Abolish of Private property
Bureaucracy
Not successful in business
Loss of economic freedom
Economic equality not achieved
Concentration of power at state level
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10. MARKET SYSTEM / CAPITALISM
Adam Smith is widely cited as the father of modern
economics
Motivation – Each participants act in their own self-
interest. Sellers are to attain profit maximization
whereas buyers are to seek wants satisfaction.
• Edgeworth had proudly declared that “the first
principle of economics is that every agent is activated
only by SELF INTEREST.
• Friedman “it is to INCREASE HIS/HER PROFIT”
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11. MARKET OR CAPITALISM SYSTEM
• Ownership – Private enterprises own all property
and resources.
• Decision making – every decision is made by
buyers and sellers through market.
• Role of government is to protect private property
and enhance the environment for market system.
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12. COMPREHENSIVE
ISLAMIC ECONOMIC SYSTEM
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13. DEFINITION OF AN ISLAMIC ECONOMIC SYSTEM
Why is it comprehensive?
It reminded man on three important issues:
About TIME and how it has been spend during youth and
throughout the whole life?
About WEALTH how it has been ACQUIRED How it has been
SPEND?
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14. BASIS OF THE ISLAMIC ECONOMIC SYSTEM
The prophet also mentioned that in his hadith:
"
‫وسنتي‬ ‫هللا‬ ‫كتاب‬ ً‫ا‬‫أبد‬ ‫تضلوا‬ ‫لن‬ ‫به‬ ‫تمسكتم‬ ‫إن‬ ‫ما‬ ‫فيكم‬ ‫تركت‬
"
…I have left two things behind me for you (the
Ummah). You will never go astray as long as you
follow these two things.
One of these two things is the Quran and the
Sunnah).
Muwatta Imam Malik
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15. Islamic Economic System is Based on Four
Principles
1. All the wealth belongs to Allah (swt):
"And give them of the wealth of Allah which He has given you." [An-Nur: 33]
2. The community is the trustee of the wealth:
"Believe in Allah and His Messenger, and spend whereof He has made you heirs.“
[Al-Hadid: 7]
3. Hoarding of wealth is prohibited:
"And those who hoard up gold and silver and spend not in the way of Allah;
announce to them a painful chastisement." [At-Tauba: 34]
4. Circulation of wealth is a duty:
"Whatsoever Allah may restore unto His Messenger - is due unto Allah and unto
His Messenger - the orphans and the needy ...so that it may not be confined to the
rich amongst you." [Al-Hashr:7]
Based on these principles, Islam differs fundamentally from man-made systems such as
socialism and capitalism in defining the economic problem.
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16. ISLAMIC ECONOMIC SYSTEM
• Motivation
• Ownership
• Decision making
• Implementation
IN ADDITION
• EconomicWell-Being with Ethic (Moral Norms of Islam)
• Universal Brotherhood and Justice
• Prohibition of taking and given riba
• Re-Distribution of wealth
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17. MOTIVATION
• Islam, man is motivated to work because he
is entrusted by Allah as the khalifah
vicegerent on this earth and to obey Allah’s
will.
• Since work is a kind of worship, so man has
to work to get both rewards on this world and
on the hereafter
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18. OWNERSHIP
Public property such as water, fire and pastures as come in the
following Hadith:-
“Men are partners in 3 things namely water, fire and
pastures/forests”.
Private ownership is allowed in Islam
“To man is allocated what they earn, and to woman what they earn.”
(4:32)
ْ‫ك‬‫ا‬ ‫ا‬َّ‫م‬ِ‫م‬ ٌ‫يب‬ ِ
‫َص‬‫ن‬ ِ‫اء‬َ‫س‬ِ‫لن‬ِ‫ل‬ َ‫و‬ ‫وا‬ُ‫ب‬َ‫س‬َ‫ت‬ْ‫ك‬‫ا‬ ‫ا‬َّ‫م‬ِ‫م‬ ٌ‫يب‬ ِ
‫َص‬‫ن‬ ِ‫ل‬‫ا‬َ‫ج‬ ِ
‫لر‬ِ‫ل‬
َ‫ْن‬‫ب‬َ‫س‬َ‫ت‬
Allowing private ownership is important in Islam as this allow Islamic
contract like trading (al ‘bay) activities.
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19. OWNERSHIP
Muslim have a right to possess any amount of wealth
or property with the following conditions:
• To accept that his ownership is temporary and not
absolute.
• It is acquired by lawful means.
• Performing his duties towards the society through
zakat and other voluntary deeds.
In the event that his ownership is in conflict with
legitimate social interest, nationalization is the
solution because common interest has greater priority
than self interest.
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20. DECISION MAKING
There are two types of decision making
in Islam:
1. Individual Decision Making, which is
tied by the concept of accountability.
ُ‫ه‬ َ‫ر‬َ‫ي‬ ‫ا‬ً‫ْر‬‫ي‬َ‫خ‬ ٍ‫ة‬َّ‫ر‬َ‫ذ‬ َ‫ل‬‫ا‬َ‫ق‬ْ‫ث‬ِ‫م‬ ْ‫ل‬َ‫م‬ْ‫ع‬َ‫ي‬ ْ‫ن‬َ‫م‬َ‫ف‬
ُ‫ه‬ َ‫ر‬َ‫ي‬ ‫ا‬ًّ‫َر‬‫ش‬ ٍ‫ة‬َّ‫ر‬َ‫ذ‬ َ‫ل‬‫ا‬َ‫ق‬ْ‫ث‬ِ‫م‬ ْ‫ل‬َ‫م‬ْ‫ع‬َ‫ي‬ ْ‫ن‬َ‫م‬ َ‫و‬
“On that Day, will men proceed in companies
sorted out to be shown the Deeds that they had
done, then shall anyone who has done as atom’s
weight of good, see it and anyone who has done an
atom’s weight of evil, shall see it”. (99 : 6-8)
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21. DECISION MAKING
2- Shurah: Individuals are also
encouraged to make shurah which is a
collective of individuals making
decisions, an important issues that
affected larger number of people.
In this case the role of the government is
to establish the good society with
peace, justice and security.
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22. IMPLEMENTATION
 Thus in Islam, implementation i.e. role of
man should be guided by shariah
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23. Misconception of performing Ibadah/concept of
tawaakwul
How to perform worshiping and
achieve economic development
according to Islam?
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24. HOWTO ACHIEVE DEVELOPMENT IN ISLAM
To be involved in the process of any economic activity two types of
monitoring is needed in Islam.
1. Self Monitoring
Through practicing Ihsan man can convert his daily activities into
worshiping Allah swt with such a presence and concentration as if
one can see Allah and if being unable to see Allah, Allah nevertheless
sees man.
2. State Monitoring
Islam gives the state a great responsibility in setting up the guidance
for ‘imar al-ard and through close monitoring through the institution
of Al-Hisbah which is to encourage all halal/lawful activities in the
society and to discourage all haram/unlawful activities form the
society.
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25. QARD HASSAN AN ALTERNATIVE
INSTITUTION TO RIBA
َ‫ض‬ُ‫ي‬َ‫ف‬ ‫ا‬ً‫ن‬َ‫س‬َ‫ح‬ ‫ا‬ً‫ض‬ ْ‫ر‬َ‫ق‬ َ َّ
‫اَّلل‬ ُ‫ض‬ ِ
‫ر‬ْ‫ق‬ُ‫ي‬ ‫ي‬ِ‫ذ‬َّ‫ال‬ ‫ا‬َ‫ذ‬ ْ‫ن‬َ‫م‬
ً‫ة‬ َ‫ير‬ِ‫ث‬َ‫ك‬ ‫ا‬ً‫ف‬‫ا‬َ‫ع‬ْ‫ض‬ََ َُُ‫ل‬ ََُُِِ‫ا‬
Who is he That will loan to God A beautiful
loan, which God Will double unto his credit
And multiply many times?
(Surat al-Baqarah 2:245)
Qard can not be workable in financial
institution but in general deals can be
beneficial via Ehasan/ benevolent loans
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26. SPENDINGWEALTH FOR MAN’S NEED
HIERARCHY OF MUSLIM’S NEED
Daruriyyat
(Necessities)
Hajiyyat
(Conveniences)
Tahsiniyyat
(Refinements/Beautifi
cation)
zakah Sadaqah, takaful,
waqf
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27. HIERARCHY OF MUSLIM’S NEED
Daruriyyat /Necessities: needs to protect al-nafs/man’s
physical existence, i.e. food, clothing and shelter; protection of
din/ religion; protection of al-‘aql/mind, protection of al-
nasl/progeny or pedigree, and al-mal/property.
Hajiyyat/Conveniences: which include things that improve on
the quality of life and remove bearable hardship and difficulties.
Tahsiniyyat/Refinements/Beautification: which adds beauty
and elegance to life without transgressing the limits of
moderation as defined by the Shariah.
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28. RE-DISTRIBUTION OF WEALTH IN ISLAM
Part of the acquired income and wealth
must be redistributed in order to ensure a
just and equitable distribution of wealth.
This is done through the process of
redistribution which is classified into
compulsory and voluntary financial
institutions
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29. WAQF AN ALTERNATIVE FINANCIAL
INSTITUTION TO RIBA
This is the voluntary act which is much recommended
in Islam because it provides perpetual services.
The beauty of this institution is that it provides
different institutions offering perpetual services needed
in each society.
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30. ALTERNATIVE FINANCIAL INSTITUTIONSTO RIBA
UNDERWAQF
Waqf Institution to Finance:
•Agriculture sector
•Industry sector
•Services sector
•Infrastructure sector
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31. WASALAM
Q & A
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