The Economic System
In Islam
Tijarah : Trade and Commerce
Distribution of Wealth
Guidance from
the Quran and
sunnah on
Islamic Economic
System
WHAT IS THE BASED?
HOW SHOULD
BUSINESS CARRIED
OUT?
•
Written in Quran according
to principle of trade
(al –
Tijarah)
& prophet teaching
(Ahadith)
•
There should no bil-batil /
wrong method (eg: bribery /
usury)
•
Must halal(lawful) and must
not haram (unlawful) acts
•
Should be no disagreement
between.
•
Must be honest in every
matter.
•
E
njoins the cardinal value of
equity, justice , mutual
co-operation , and self
Sale Transaction
1.Men and Women are allowed to engage in
lawful trade in the Shar’iah, there is no sex
disqualification.
2.The Shar’iah allows an auction. Trade in all
forms must be clean and honest according to
the guidance of the Quran and the Sunnah
3.Taking an oaths (sumpah/melanggar
sumpah) in sale transactions is forbidden,
the Quran lays stress on honest and straight
forward dealings in the very earliest
revelations.
4.The only trade that is declared unlawful is
that of dealing in Wine and other intoxicants
(minuman keras), Pigs and things made out
of it, Idols and Image.
Law of Contract
•
Contract =
al-‘aqd
(in arabic)
=
obligation / a tie.
act of “putting a tie to a
bargain”.
•
al-in’iqad
(2/ more parties enter into contract) , that is
joining or trying up the offer & the acceptance together. The
obligations of contract called ‘
uqud.
•
Milk
or ownership
a relationship between a man & his
property which is under his controls to the
exclusions(pengeluaran) of other claimants.
•
Type of ownership :
1.Milk al-Yad
→
one may have physical possession of the
property
2.Milk al-Tasarruf
→
right of disposal of the property
The Law of Contract (cont)
Mal : something exist and can be held in use &
beneficial at the need time.
Eg : - Grass , trees, - For property by renting
Consideration is an essential ingredient of a valid
contract, anything which is impossible to attain cannot form a valid & lawful consideration
Offer (see page:356 ) The offer can be made in a number
of ways:
1. verbally (Bil Kalam) this kind of offer is to be made in the same meeting.
2. written (Bil Kitabah)
3. message sent with some person (Rasul)
4. signs & gestures (for handicaped or different languages people)
5. conduct (Fil) an offer made through the silence, delivery of goods is valid.
Contract is made only both parties agreed(rights and duties) withfree
manner acceptance. The consideration must be lawful.
Withdrawal of an offer There is option of
withdraw his offer before agreement.
Time(Majalis al-aqd) needed in purpose of make
COMPETENCY OF PARTIES
The parties who wants to enter into a contract must be legally
competent to do so. A minor
(one who has reached the age of puberty or an insolvent or a
person of unsound mind, or an intoxicated person) it cannot enter into contract.
TERMINATION OF CONTRACT
The contract can be
terminated by the mutual consent of the parties
according to the terms stipulated in their
contract , or on the basis of the nature of the
contract. (see page: 358)
HAWALAH Is an assignment of debt , Some contracts are assignable, the conditions requisite for a valid Hawalah:
1. The debt which is the subject matter of the contract must be a lawfully subsisting obligation.
2. The original creditor (A) and debtor (B) must mutually agreed that the debt should be paid by B to C, the assignee debt which constitutes the object of the transfer
3. The debt must have fallen due, but it is not necessary that the debt owed to the transferor should have fallen due
4. Both debts must consist in objects of the same kind, equal in quantity or quality
THE CONTRACT OF SALE – ‘aqd al-by
•means the delivery of a definite object which possesses legal value
in exchange for something equivalent in value (price). includes barter.
•The seller (Mushtari) and the buyer (ba’i) are referred to by one
generic name al-aqid, that must posses qualifications(must):
Mumayyiz , able to understand the implications of the contract of
sale (not an insane or a minor person )
Have capablility of disposing of his property
free to use discretion (not be working under coercion, undue
influence, misrepresentation, fraud or mistake.
SUBJECT MATTER OF SALE
It must be :
oowned by the seller of his agent
oin a position to be delivered. The sale of a bird in the air or fish in the water is void.
The Gharar sale (Bay al- Gharar)
Uncertainty is involved because its resembles the presents sale of future goods recognised by a Sale of Goods Acts(common law system). This involves speculative risk in contract.
Example: the sale of fish or birds before they are caught or produced by the vendor.The Muzabanah and Ariyyah SalesMuzabana : a general rule
Ariyya : exception in the principles of contract of sale.
•Muzabana form of contract can be applied in any commodity, but Ariyya is only applicable in the case of sale of fruits for dried dates.
•Muzabana is possible in any form of corp in the field to be sold. (see page: 360)
The Forbidden Contracts of Sale
Based on the Sunnah of the Prophet:
1. Two transactions in one sale 2. Extra conditon attached to a sale
3. Sale of what one does not own 4. Mulamisah &
Al-Munabidhah Sales 5. Al-Najash (dishonesty & bad behaviour) (goods that not the own right or selling 7. Talaqa Rukban (tricking
people) something that is not appear) 8. Bai Hadir Lilbadi (city dweller
fraudulently acts as a self imposed agent for sale and purchase of the simple villagers)
PARTNERSHIP
Shirakah: Partnership
Shirakah or partnership contract signifies the conjunction of two or more persons to carry on a business to shares the profit by joint investment. In the widest sense of the term shirakah, the partnership exists where property is held in common between two or more coproprietors.
1. Shirakah al-Inan: Limited Partnership
Is a limited partnership in which on partner is not allowed to do anything without his co-partner.
2. Shirkah al-Abdan : Association of Bodies or Labour Association 1. Islamic Laws allows two or more persons to associate themselves for the
exercise of a profession or a handycraft. The profit will be practically equal for the partners with a view to lending mutual assistance even through the associates work separately.
3. Qiraad : Dormant Partnership
Qiraad agreement is a contract by which a persons entrusts funds to a
trader (amil) in order that he shall trade with it. Subject to the lender
having a share in the profit . Thus, in Qiraad the capital is handed over
to an agent to trade with, and the contract comes into forces when the
PARTNERSHIP( CONT
)
Mudarabah : Co-Partnership
Mudarabah is a contract in which certain property or stock (Ras
al-Mal) is
offered by the owner or proprietor (Rab al-Mal) to other party to make partnershipin which both parties will Participate in profit.
Organs in Partnership :
Wakalah: Agency → arises when one person authories another to replace him in the exercise of civil rights.
Wakil → the person thus authorised, can be entrusted with all acts which can be done by representative
Obligations of a Wakil → generally its responsible to sell or buy for the price, and should declare clearly to third party
Daman: Guarantee → is a form of contract by which the third person constitutes himself liable for the debt of another
Damin → the third person who constitutes himself liable for the debt
of anotherCapital in Qiraad Partnership and the different between ordinary
& Qirad partnership
the ordinary partnership has its existence when the partner is live , the share are mostly small, all partner has active role , & each person
IJARAH AND TAKHIM
• Ijarah : Hire derived from arabic word ajar: meaning reward or →
remuneration
• When one party sells to the other the temporary enjoyment of moveable
property other than ships and animals in return for a price it is called al-ijarah.
The price should be in proportion to the temporary enjoyment sold.
Tahkim : Arbitration Contract → is a form of contract in which it is agreed that in case of any dispute or disagreement in the terms of contractual agreement , it will be settled through the appointment of a arbitrator (hakam)
The remuniation for hire is to be paid day
by day but in the following cases, it is to be prepaid if:
1. consists of a definite object 2.Has been stipulated
3.Local custom
4. hire of any animal for some definite journey
which is not yet commended
Distribution
of
wealth
Ill-gotten wealth
Money or property which is aquired through unfair(unclean and
unlawful) will cause a great harm. - the prayers won’t find acceptance - the supplications won’t be answered - the petitions won’t be granted
Even, when he does something good, they won’t avail him
nothing. In the next world, there will be no share for him in the special favours of Almighty Allah.
It is ensured by shari’ah that the trader must not exploit the
buyer.
• Government took the interest in the
market condition and developed an
institution of hisah(responisble for
stopping adulteration, underweighing, over-work by employers, and so on
which pertaining unlawful
professions) .Such departments were
headed by muhtasibs.
• There are numerous instance to
suggest the government intervened if the rules of fairplay were violated.
• The holy prophet also participated
Warning to selfish and
dishonest traders
“They will
receive the eternal punishment.”
oSome traders are habituated to swear in the name of Allah while selling their commodities. And the prophet said that Allah won’t look on the Day of resurrection,nor would they be cleansed of their sins, they will be recipients of painful punishment because they sold the goods by swearing falsely
Al-riba: The usury
Some people says that usury and trade are same thing, but Allah has permitted trade and forbbiden usury.
Those who practice usury are ungrateful and wicked
True believers must give up the practice of usury
If one does not stop the usury,he is given notice of war from Allah and His messenger
The Next world is given to those who stop usury
Those who devour usury are the rejectors of faith
Usury was not new in Arabia
Before the advent of islam, this has been prevailed in
the Arabian Peninsula(economy bases) but Islam deny
& reject this unjust & criminal systemgive new basis
such as : zakat, of the goodwill loan, of cooperation
and mutual solidarity.
•
Certain aspects of usury which is forbidden are for
example :
1.Selling other land, unborn animal, selling uncaught
fish/birds
2.selling the comodities which defect have been
disguished,selling the goods which allow the buyer
just to touch it without seeing(examining),
3.selling the cloth without showing the buyer
adequately
4.selling the comodities without weighing/measuring,
5.selling agricultural produce not yet ripped,
Usury (Cont)
•There are also prohibited all kinds of invalid partnership, such as
partnerships in cultivating a tract of land in return for the products of a certain piece of it.
•And applied to all commodities that exchange something with the same type but one of the parties gives more than he receives except in respect of vegetables and fruits, and when exchange one type of good with the other type is prohibited except in equal quantities in direct and immidiate exchange.
•Here it may be mentioned that the shari’ah does not tolerate any profit which is stipulated at the time of contract
because apart from being riba it is risky in that it may not all be realised, or even realised, it may
•The policy of distribution of income and wealth in Islamic Law assures that in the process of distribution none of the factors of production exploit the other.
•As a practical religion and way of life, this policy compulsory retains a portion of produced wealth for those who are detained from contributing their share in production due to any social, physical, or economic handicap.
Distribution of Income and Wealth
The law of Allah delacred:
“Do not devour one another’s wealth by false and illegal means.”
A man who keeps someone’s property in trust is Amin, a trustworthy person
The trust may be various kinds: -Property, goods, credit, etc.
-Plans, confidences, secrets, etc.
-Knowledge, talents, opportunities, etc.
Men who misusing the property or abusing the confidence reposed in
them will be accounted by Allah, if not in this world, it will be on the day of Judgement
•When one has an economic trouble, he should ask other people for loan.
•In Islam, debt is also the kind of trust which should be returned to its owner.
•The verse on the injuction of debt and its repayment is among the detailed verse of commandments (ayat al-ahkama al Mufassal). It says:
-When money or something is lent for a specific term, it should be written down in a document.
-The scribe who is called upon to write should not refuse and he should write exactly as what is dictated.
-The person taking oath should dictate.
-Supposing such a person cannot dictate well or incapable, then his guardian or agent should dictate justly.
-Two witnesses from amongst the Muslims should be called to witness the deed.
-If two male witnesses are not available, then one Muslim man and two Muslim women should ne invited as witnesses
-In the entire affair, the parties concerned should fear Allah and do justice.
Al-Rahn: The Mortgage
means a proof or something that has been held in pledge.
In Shariah law, it means holding something that has a value while giving something on debt.
If the times stipulated while giving a debt on security expires, the debt can recovered from the mortgaged property.
• whose transactions are forbidden under shariah The agreement of mortgage will be considered
incomplete
until the article pledged is taken over.
Bayt al-Mal: The Centre of The Financial
Organization of the Ummah
•Bait in Arabic means a House, while Mal means the property.
•Bayt al-Mal means the treasury of the public.
•The concept of Bayt Mal is the concept of trust: the wealth of Bayt al-Mal is to be treated as Allah’s or Muslim’s wealth.
•The sources from which funds are collected in the Bait al-Mal are as follows:
- Zakat - Ushr - Sadaqah - Khums - Jizzyah - Fay -Kharaj - Dara’ib
• Abdallah bin Umar has said: “In your property, there are other rights other than Zakat”:
- Waaf - Amwal al-Fadilah
- Ushur - The estate left behind one who has no heirs
The Right of the Poor
and
the Handicapped
•As promised in the Quran, “Allah will deprive usury of all blessings, but will give increase for deeds of charity.” Thus, Islam lays great stress on the relief of the poverty by the rich.
•It is not considered to be a favor by the rich if they help the poor; on the other hand, it is a duty of the rich and prosperous men to take part in the economic uplift of the poor.
• While Muslim mustn’t live an extravagant life, those who are blessed with the bounties of Allah are not expected to live in rags, for the Prophet has said that Allah
likes to see traces of His bounty of His Servant.
• Miserliness is considered to be a sin in Islam. Islam doesn’t believe in merely collecting property and living a miserly life.
• A generous man is considered to be a friend of Allah in the teaching of the Prophet. With Muslim, the worship of Allah is linked up with kindness – to parents, kindred, those in want, those who are far from their homes though they maybe total strangers to us.
• The miserly persons are the brothers of Shaitan, the Devil, and hence are always ungrateful to Allah like Shaitan.
Miserliness condemned in Shariah
Begging: An unlawful act
•Muslims are asked to struggle to earn their lawful livelihood, and not merely depend on charity.
•The only time begging can be permitted is when a man is hard press and there is no other way to survive than asking for help.
•It’s not lawful to beg except for three categories of people:
-That a man who accepts to be a guarantor on someone’s behalf (and has no money to pay)
-That a man whose property is destroyed by calamity
Al-Rishwah
• Al-Rishwah or bribery is offered or promised to be offered to someone in order to influence him orpersuade him to do something wrong in favour of the giver.
• Al-Rishwah is dishonesty.
• It doesn’t prohibit the mutual exchange of gifts among friends and relatives. The Messenger of God said that “Exchange gifts, this will increase your love.”
• But the taking of gifts by the government officers and administrators in the process of discharging their duties is thus forbidden under Shari’ah. The Prophet has
warned: “There will come the period when bribe will be made lawful by people thorough gifts, and murder
The Devastating Effects of Modern
Economic System
• A man is not to live by bread alone. A man does not live to eat but eat to live and survive.
• If we attempt to build our society on economic foundation alone, it would really mean that a man’s position is being reduced to a grazing animal.
• The wealth people forgetting their role of Khalifa of Allah on earth, began to describe their
motto of life as “money, more money and yet more money.”
The Modern Banking System &
Interest-free Muslim Banks
• Dishonest ways of earning have been legalized and everything has been named a ‘business’ (al-tijarah)
• Usury meant any premium paid for the use of money, it
means the practice of demanding an exorbitant premium of interest.
• Every business man in need of loans is driven by force of circumstances to borrow from the Banks which charge high rates of interest.
Islamic Bank: A New Economic Order for
the Modern World
Guidelines for an ordered and centralized economic pattern of the world, that could be ordained thorough the Islamic Bank are suggested below:
1. The world Muslim currency should be immediately established. 2. The value of one barrel of crude oil should be fixes at one Dinar. 3. In foreign currencies, the oil price should be gradually increased
with an index based on the rate of inflation on a selected number of Technical Essentials.
5. Standard export of Muslim countries should in Islamic Dinars. All the Islamic countries must see and contain in all their requirements for development, including Education, technology and ideology.
6. All the surplus wealth of Muslim countries must be deposited with the Islamic Bank
7. The major functions of the Islamic Bank should be to invest its contribution, both at home and abroad.
8. Another body of experts should be formed to prepare
an International Price List of the Technical that Essentials Dinar 9. The Islamic Bank should give interest free Dinar Loans
to the Muslim countries for their projects.
10. The Islamic Bank should also deduct Annual Zakat on the stagnant wealth that could
The Concept of Lawful
(halal) and
Unlawful(haram) in
Shari’ah
Shariah give clear guidance regarding of lawful and unlawful acts based on al quran and the sunnah of prophet.
The Basic principles( from holy quran) : Juridical Dictum
“Al-ihaba aslan fil –ashya”
lawfulness recognize principle in all things
means : all is lawfull unless it is definitely prohibited by law (but some scholar think vice versa )
Allah has made obligatory deeds essential , do not waste them , and He has fixed limits, do not cross them. Whatever He has declared as
• some people trying to trick what is haram , by finding flimsy and excuses , to be able to do what’s unlawful or haram, and make it halal
eg : jews cant catch fish on Saturday ,so, dig ditches on Friday and accumulate fish on Sunday.
• some people in modern time people declare that waht is unlawful as lawful in the name of trade . but good musims need to be ‘taqwah’(piety) and keep away from all of those sin.
• People who is really in need can get zakat and sadaqah in purpose of sustain their life
Injunctions in
Respect of Halal
&
Haram
o The Creator asks all the creatures to follow His command
and eat ‘taiyib’ food( what is pure, cleans wholesome,
nourishing, and pleasing to the taste.) this is written in surat al baqarah verse 172
o The believer is given lesson from quran. And need to do
gratitude to Allsah and tHe prophets with doing ibadah.
o Al-Jahiliyah (ةيلهاجلااا) is the pre-Islamic time of ignorance. This
concept is part of the following classification in the ontology. People must need to eliminate this to be a true muslim with doing what has been taught, eg: worship with facing the qiblat
when pray.
o There are some 3 condiltional
( driven under necesity ) that
may allowed peoplre to eat what is hara,( based on quran ) wich is: 1. People in helpless condition to
save their life
Example : when people got nothing to
eat ,forcably to eat what is haram
2. Absolutely no intention to break the law of
Allah
3. Even eat, It should be not taken more than
Consideration of haram
food :
True muslim should abstain from this kind of food that forbiden to eat / haram food:
1.The flesh ofswine or a pig ( eg: pork )
Because of its habits, its unclean, may causes fever & leprosy 2. Dead or rooting flesh
Because of ‘maiata’ : has not been slaightered in the manner of prescribed life
3.Blood poured from an animal by force 4.The flesh of stranged animal
5.The flesh of an animal beaten to death
6.The flesh of animals which dies through fall;
7.The flesh of an animal which is smitten to death with the horn 8.The flesh of an animal a part of which is eaten by wild beast Because it is consider as un hydienic food
9.A flesh of an animal which is natural death 10.Animal slaughtered for idol
because of polytheism(to idol) consder as great sin; excet for islamic purpose / dabh
(this still need to have bismilahAllah-u-Akbar ) or ‘’id-al kabir (eg: circumcision; in this
Consideration of halal
food :
Consider as halal food
1.Milk (from cows, sheep, camels, and goats) 2.Honey
3.Fish
4.Plants which are not intoxicant
5.Fresh or naturally frozen vegetables 6.Fresh or dried fruits
7.Legumes and nuts like peanuts, cashew nuts, hazel nuts, walnuts, etc. 8.Grains such as wheat, rice, rye, barley, oat, etc.
o Dabh can be divide by 2:
i. Dabh al-Ikhtiari : killed by knife ii. Dabh al idtiari : killed by shoot
o There ais exception that known as id-al kabir which alloews people to eat beast flesh , but its better to give the flesh to the other , but not obligatory)
The Holy Qur'an, 5:3
“ Forbidden to you (for food) are: dead meat, blood, the flesh of swine, and that on which hath been invoked the name of other than Allah; that which hath been killed by strangling, or by a violent blow, or by a headlong fall, or by being gored to death; that which hath been (partly) eaten by a wild animal; unless ye are able to slaughter it (in due form); that which is sacrificed on stone (altars)... ”
The Holy Qur'an, 5:90
“O ye who believe! Intoxicants and gambling, (dedication of)