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Islam and Economics

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Relevance, Definition and Methodology of Islamic Economics
By Monzer Kahf
Muslim Economic Expert
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Islamic economics provides scientists with a new area for research, namely, analysis of economic behavior under the paradigm of the Islamic system
Islamic economics

Islam as a Way of Life

The word deen (religion) itself means a path and a way of life for which humans are accountable, and this definition of religion applies to all religions in the world regardless of their source and origin.

This definition holds true for Islam, Christianity, Judaism, Hinduism, etc. However, it holds even truer to Islam than to other religions, as Islam is the only religion that categorically and repeatedly declares that its essence is submission of the inner and the outer sides of human beings to the will of God as indicated in the revelation to His Messenger Muhammad (peace be upon him).

This submission is signified by the very name of this religion since the Arabic word Islam means "submission" and by the first article of faith: "I bear witness that there is no deity but God and that Muhammad is His messenger".

The Quran emphatically announces:  

{Say: Truly, my prayer and my service of sacrifice, and my life and my death, are (all) for God, the Cherisher of the worlds. No partner hath He. This am I commanded, and I am the first of those who bow to His Will.} (Al-An’am 6: 162-63)

The idea that faithful persons, the believers, are commanded to behave in a certain way according to what was revealed to the Prophet Muhammad, is repeated so many times throughout the Quran as to become a major theme. For example: {Say: if ye do love God, follow me; God will love you.} (Al-Imran 3: 31), and {O ye who believe: obey God, and obey the Apostle, and make no vain your deeds} (Muhammad 47: 33)

This idea is also emphasized by the fact that the teachings of Islam cover all aspects of life individually and collectively. These teachings are found in the Quran and the Sunnah, i.e., the traditions of the Prophet Muhammad, or derived from principles and norms laid down therein.

As such, Islam contains a system for life according to which believers are called on to organize their interrelations as well as their relationships with non-believers. An important observation is that many early verses of the Quran that were revealed in Makkah, several years before the establishment of the Islamic state in Madinah, present social, political, and economic precepts in order to teach new believers to take Islam as a whole system of life, and to prepare them for the stage of actualizing these precepts in a society and a state later in Madinah.

Therefore, you find in the Makkan revelation verses like: {And We made them leaders, guiding by Our command, and We sent them inspiration to do good deeds, to establish prayers and to practice zakah; and they constantly served Us} (Al-Anbiya’ 21: 73), although zakah was not made obligatory until the second year of Hijrah, i.e., after the establishment of the Islamic state in Madinah.

One can go on quoting from the Quran and the Sunnah to the effect that Islam has its own system for life at all its individual and social levels. Obviously, this system covers the political, social, legal, and economic aspects, in addition to the spiritual and moral aspects.

Islam and Economic Activity

Islam considers the worldly life as a passage to the heavenly life. It aims at improving its material quality and at enjoying it as a grace from God ...

Although all religions deal with economic matters, they differ in their stand concerning economic activities. Certain religions look at the material activities of man as a mere necessity of life, an indispensable evil, which ought to be undertaken only to the extent that provides man with minimum sustenance and livelihood. They consider any economic exercise that goes beyond this limit as a bad allocation of human resources or as an act of evil. Accordingly such religions consider those who are less occupied with economic works closer to God and look at holding wealth itself as an evil too.

On the other hand, Islam considers the worldly life as a passage to the heavenly life. It aims at improving its material quality and at enjoying it as a grace from God, as long as this is done without violating His commandments or the rights of other human beings.

There are many verses in the Quran that refer to wealth, security, power and material joys as bounties given by God to reward those who have good deeds and creed. For example, the Quran suggests that one should even take one's ornament to prayers:

{O children of Adam, wear your ornament at every (time and place of) prayer. Eat and drink but waste not by excess, for God loves not the wasters} (Al-A’raf 7: 31)

In dealing with material issues of individuals and societies, the Quran and the Sunnah have many statements that present behavioral norms and policy guidance. They also have statements of descriptive nature. For example, the verse: {O ye who believe, devour not riba [interest] doubled and multiplied} (Al-Imran 3: 130), gives a commandment of behavior. So does the saying of the Prophet Muhammad: "Zakah is not lawful to a rich person or to a sound and capable one" (Muslim). These two statements provide policy guidance to individuals and communities. Therefore, they are ingredients of the Islamic economic system.

At the same time we find the verse: {Fair in the eyes of men is the love of things they covet: women and sons, heaped up hoards of gold and silver, horses...} (Al-Imran 3: 14), and the saying of the Prophet:

"If a son of Adam has two valleys of gold, he would seek to get a third valley, and nothing fills the inner of sons of Adam except soil" (Al-Bukhari and Muslim)

Islam and Economic System

Throughout the twenty-three year period of the revelation of the Quran to the Prophet Muhammad, a continuous effort was made to lay down the foundations of the Islamic economic system and to explain it to new believers as well as to all humanity.

The Quran and the Sunnah are loaded with statements that deal with aspects of this system. This applies to the Makkan period, i.e., before the Islamic economic system was put in practice, as well as to the Madinah period. Consequently, one finds references to the economic behavior of humans in many Makkan verses.

Some early Makkan verses deal with honesty in business:  

{Woe to those who deal in fraud, those who, when they have to receive by measure from men, exact full measure, but when they have to give by measure or weight to men, give less than due. Do they not think that they will be called to account on a Mighty Day, a Day when (all) mankind will stand before the Lord of the worlds.} (Al-Mutaffifin 83: 1-6)

{Will you not fear Allah? I am to you an Apostle worthy of all trust. So fear Allah and obey me. No reward do I ask of you for it; my reward is only from the Lord of the worlds. Give just measure and cause no loss (to others by fraud). And weigh with scales true and upright. And do not withhold things justly due to men, nor do evil in the land, (in) working mischief.} (Ash-Shu'ara’ 26: 178-83)

Other Makkan verses deal with certain pillars of the Islamic economic system, like the obligation of zakah and the prohibition of usury:

{That which you lay out for increase (by way of riba) through the property of (other) people will have no increase with Allah; but that which you lay out for zakah seeking the Countenance of Allah, (will increase); it is these who will get a recompense multiplied.} (Ar-Rum 30: 39)

{The believers must eventually win through. Those who humble themselves in their prayers. And those who avoid vain talk. And those who practice zakah.} (Al-Mu’minun 23: 1-4)

Divine revelation offers many pieces of knowledge that add up to the amount of information man has about himself and his environment

It is noteworthy that while providing early hints of the forthcoming economic system of Islam, these Makkan verses associate economic behavior with the doctrine of accountability before God on the Day of Judgment.

The building of the economic system was completed in Madinah with the establishment of the state by the Prophet Muhammad. Therefore, in the Madinan period, verses came down spelling out the main pillars of the new economic order that this religion requires, such as justice and freedom.

Revelation sometimes gives minute details of certain aspects such as the distribution of deceased's estate, and, in some other times, it touches on the main principles such as the prohibition of usury. More details are usually given by the Prophet by way of explaining the Quran and putting its principles to actual implementation during his ten year life as the first head of state in Madinah.

It is natural that principles and guidelines would have a variety of applications with the development of societies and cultures, the evolution of human stock of knowledge and relationships and the growth of human capabilities relative to material resources. Therefore, a dynamic system must contain an internal mechanism of evolution, and the Islamic system has, among its principles, the concept of entrusting the human mind with the task of evolving new applications on the basis of the given premises. This exercise is called ijtihad in Islam.

Islamic Economics and Human Knowledge

The study of economic phenomenon during the last two hundred years has taken place essentially in the West. Inevitably, this stamped economics with the Western cultural imprint. Therefore, studying the behavior of man with regard to using material resources and the economic phenomenon at large from an Islamic point of view enriches this area of research and expands the vision of researchers and scholars as it adds a new dimension to understanding economic phenomena.

Islamic economics contributes to human economic knowledge in three major areas: First, Divine revelation offers many pieces of knowledge that add up to the amount of information man has about himself and his environment. Such pieces of knowledge form a scientific challenge to researchers in economics regardless of their faith and ideological affiliation, as such revealed premises stand in need of explanation, exemplification, and testing regardless of whether the researcher accepts them by faith or not.

Secondly, Islamic economics offers students of economics an opportunity to study the Islamic economic system that is based on, and derived from, the prescriptive statements in the Quran and Sunnah. This system is considered by Muslims an alternative to other economic systems and paradigms.

Thirdly, Islamic economics provides scientists with a new area for research, namely, analysis of economic behavior under the paradigm of the Islamic system. It must be noted, in this regard, that Western economic analysis has been conducted under the paradigm of capitalism for two centuries, and it was only during a 70 year span of the twentieth century that Soviet economists conducted economic analysis under a socialist paradigm.

Consequently, it will be very elucidating to economic researchers to elaborate on the possible outcome of the implementation of the Islamic economic system and its effects on the behavior of economic units and variables.

The importance of this sort of economic analysis is further enhanced by the fact that there exist in the “Third World” many cries against the Western pattern of organizing the economic activity and against the Western model of growth. Many people question the suitability of Western prescriptions for economic development to the conditions of “Third World” countries, because of numerous cultural differences between these countries and the capitalist “First World”.

Islamic banks also have an impact that cannot be overlooked on trade and financial relations between the Muslim countries and their trading counterparts.

In such a situation, studying the results of the application of Islam's economic system may lead to new approaches and ideas for the economic development of the “Third World” countries, especially since Islam prevails in more than one half the “Third World” today. Furthermore, Islamic culture influences many “Third World” countries whether these countries are predominantly Muslim or not.

Islamic Economics and People

Islamic economics is relevant to all people today as individuals as well as societies. Its importance to Muslims needs not to be emphasized. For Muslims, Islamic economics deals with a part of their religion and way of life. Therefore, understanding it is part of comprehending Islam itself.

Moreover, this kind of study challenges Muslim economists and scholars to search for solutions to the economic problems of their countries within a paradigm that is already accepted by the masses of these countries and to provide answers, compatible with the cultural and historical environment, to the questions related to the economic development of the Muslim societies.

Islamic economics is also important to Muslim societies and governments for the same reasons for which it is relevant to Muslim individuals, particularly that the experience of the last fifty years revealed that the importation of alien economic prescriptions proved to be a wasteful and frustrating attempt.

As far as non-Muslims are concerned, studying Islamic economics gives a better understanding of the Islamic religion and the internal factors that affect modes of thinking and social changes that take place in the Muslim world. With the world becoming smaller because of improvement of communication and information systems, it has become imperative to know more about "neighbors" especially since Muslims today make about one fifth of the human race and dominate good part of the two largest continents in the world.

Many developments that relate to Islamic economics in the Muslim countries have taken place during the last twenty five years. These developments have a natural overflow into the Western hemisphere. For instance, the establishment of Islamic banks in many Muslim countries and their financial activities affect the banking system and practices in the rest of the world.

Islamic banks also have an impact that cannot be overlooked on trade and financial relations between the Muslim countries and their trading counterparts. Some of these Islamic banks were also established outside the boundaries of the Muslim countries and they function completely within the Western banking arena.

Some Muslim countries have introduced certain dimensions of the Islamic economic system in their economies such as the collection and distribution of zakah, the Islamization of the whole banking system, etc. These phenomena cannot be understood without giving sufficient attention to Islamic economics, and the non-Muslim world cannot afford to neglect it any longer.

This article is part of the paper “Relevance, Definition and Methodology of Islamic Economics”. It is republished from http://www.kahf.com with the author's kind permission.
Related Links:
The Purpose of the Islamic State
Islamic Economics: An Alternative?
The Economic Theory of Ibn Khaldun
Property Rights in Islam
The Economic Life of Islam
Dr. Monzer Kahf is currently working as an independent Consultant/Trainer on Islamic Banking, Finance, Zakah, Awqaf, Islamic Inheritance, Islamic estate planning, Islamic family law, and other aspects of Islamic Economics, finance, Islamic transactions (Mu'amalat). He has written in the field of Islamic Economics, Finance, and Banking during his career.

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