Economic Doctrines of Islam
As mentioned in the introduction, Muslim economists claim that religion is the backbone of all aspects of the human life including economic activities. The essence or the main source of economic doctrines of Islam is the Quran. The Quranic verses relating to economics have been an integral part of the Quranic code for human life. Below are a few Quranic verses which highlight economic aspects of life, such as the prohibition of usury / interest (riba), encouragement of trade and its ethics and the obligation of zakat as a mean of distribution of wealth from the rich to the poor.
1 Prohibition of Riba
The Quran strictly prohibits Muslims from any dealings that involve usury (riba). The Quranic verses highlighting this prohibition are as follows: –
a) “Allah will deprive usury of all blessing, but will give increase for deeds of charity; for He loveth not creatures ungrateful and wicked” (Al-Baqarah, 2:276).
Based on the above Quranic verse, Muslims have been reminded to abstain themselves from riba, and violating this prohibition constitutes a great sin.
b) “Ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers. If ye do it not, take notice of war from Allah and His Messenger: but if ye turn back, ye shall have your capital sums; deal not unjustly, and ye shall not be dealt with unjustly” (Al-Baqarah, 2:278-279).
As usury was not uncommon during the days of the Prophet (pbuh), the Quran has urged people to refrain from such activity. Where a usurious transaction had already commenced, people were told to halt and discontinue from involving themselves with such a practice.
c) “Ye who believe! Devour not Usury, doubled and multiplied; but fear Allah; that ye may (really) prosper” (Al-Imran, 3:130). Economic gains can only be achieved when there is no riba element in transaction or trading.
d) “That which ye lay out for increase through the property of (other) people (usury), will have no increase with Allah: but that which ye lay out for charity, seeking the Countenance of Allah, (will increase): it is these who will get a recompense multiplied” (Ar-Rum, 30:39).
Based on the above Quranic verse, success or wealth is measured based on transactions acceptable to Allah – not in terms of mere material gains. The verse prohibits Muslims from accumulating wealth by means of transactions which are tainted with riba. Furthermore, the verse also encourages Muslims to be charitable as by being so, Allah will multiply their wealth.
e) “Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say: “Trade is like usury,” but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are Companions of the Fire; they will abide therein (forever)” (Al-Baqarah, 2:275).
Some people, during the Prophet’s (pbuh) time, argued that trade is just like riba. In fact, the two terms are total contradictions. Allah encourages Muslims to contribute towards the restoration of the free and fair market (with different business ethics to that of riba-based capitalism) by encouraging bai’ (business) in place of riba, and the raising of capital by way of mudarabah and musyarakah investments, rather than via interest-based loans. The explanation on the prohibition of riba in Islam (i.e. borrowingand lending via the interest mechanism) is as stated below:
• In today’s economic activities, it may be quite impossible to live a life which is completely free of riba. The above explanation assists Muslims to free themselves from being involved with riba, and helps them to preserve their faith (iman).
• To warn Muslims of the inevitable collapse of the present system of non-redeemable artificial money, such as paper, plastic and electronic money, and to encourage them to return to the use of real money created by Allah, e.g. gold and silver
2 Selling, Trade and Earning as Highlighted in the Quran
a) As mentioned earlier, Allah encourages and permits trade, and prohibits riba. Allah says, “Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say:
“Trade is like usury,” but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are Companions of the Fire; they will abide therein (forever)” (Al- Baqarah, 2: 275).
Within the Islamic economic framework, trade can be done on the basis of mudarabah (or profit-sharing arrangement), i.e. an arrangement between the entrepreneur and the capital owner to share profits or losses. The profit-sharing ratio or percentage between the entrepreneur and the capital provider can range from 20:80 up to 50:50, but this proportion must be agreed upfront. With such a profit-sharing arrangement,
the distribution of wealth is envisaged to be fairer, more balanced and just.
b) The Quran declares “O ye who believe! When ye deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to writing, let a scribe write down faithfully as between the parties; let not the scribe refuse to write: as Allah has taught him, so let him write. Let him who incurs the liability dictate, but let him fear his Lord Allah, and not diminish aught of what he owes. If the party liable is mentally deficient, or weak or unable himself to dictate, let his guardian dictate faithfully. And get two witnesses, out of your own men, and if there are not two men, then a man and two women, such as ye choose, for witnesses, so that if one of them errs, the other can remind him/her. The witnesses should not refuse when they are called on (for evidence). Disdain not to reduce to writing (your contract) for a future period, whether it be small or big: it is just in the sight of Allah, more suitable as evidence, and more convenient to prevent doubts among yourselves but if it be a transaction which ye carry out on the spot among yourselves there is no blame on you if ye reduce it not to writing. But neither take witnesses whenever ye make a commercial contract; and let neither scribe nor witness suffer harm. If ye do (such harm), it would be wickedness in you. So fear Allah; for it is Allah that teaches you. And Allah is well acquainted with all things” (Al-Baqarah, 2: 282).
In entering a contract which involves future payments, the Quran has guided mankind of their responsibilities, as follows:
• Responsibilities of a Muslim (who is indebted) are:
i) to write down all about the transaction, i.e. amount (principle), period (tenure), pay back amount so as to avoid doubt;
ii) to settle all liabilities in accordance with the agreement; and
iii) to get two witnesses to witness the agreement.
• Responsibilities of witness:
i) Should not refuse when called for evidence; and
ii) If one of the witnesses forgets then the other should remind him/her.
• Responsibilities of the provider of the facility:
i) only able to claim the amount due on the specified date;
ii) changes to the agreement are allowed only if there is consent from both parties involved in the agreement; and
iii) if any party involved in the agreement is mentally deficient, then the claim can be made by his guardian, in accordance with the agreement.
c) Muslims are encouraged to work during the day to get their earnings, as declared in the following Quranic verse, “We have made the Night and the Day as two (of Our) Signs; the Sign of the Night have We obscured, while the Sign of the Day We have made to enlighten you; that ye may seek bounty from your Lord, and that ye may know the number and count of the years: all things have We explained in detail” (Al Israa’, 17:12).
d) As declared in the following Quranic verses, one can gain Allah’s bounty from land and sea:
i) “Behold! In the creation of the heavens and the earth; in the alternation of the Night and the Day; in the sailing of the ships through the Ocean for the profit of mankind; in the rain which Allah sends down from the skies, and the life which He gives therewith to an earth that is dead; in the beasts of all kinds that He scatters through the earth; in the change of the winds and the clouds which they trail like their slaves between the sky and the earth, (here) indeed are Signs for people that are wise (Al-Baqarah, 2:164).
ii) “It is He Who has made the sea subject, that ye may eat thereof flesh that is fresh and tender, and that ye may extract there from ornaments to wear, and thou sees the ships therein that plough the waves, that ye may seek (thus) of the bounty of Allah and that ye may be grateful” (An-Nahl, 16:14).
iii) “Your Lord is He that makes the Ship goes smoothly for you through the sea, in order that ye may seek of His bounty: For He is unto you Most Merciful”. (Al-Israa’ 17:66).
iv) “Among His Signs is this, that He sends the Winds, as heralds of Glad Tidings, giving you a taste of His (Grace and) Mercy, that the ships may sail (majestically) by His Command and that ye may seek of His Bounty: in order that ye may be grateful.” (Ar-Rum, 30:46).
v) “Nor are the two bodies of flowing water alike, the one palatable, sweet, and pleasant to drink, and the other, salt and bitter. Yet from each (kind of water) do ye eat flesh fresh and tender, and ye extract ornaments to wear; and thou sees the ships therein that plough the waves, that ye may seek (thus) of the Bounty of Allah and that ye may be grateful” (Fatir, 35:12).
e) Muslims are also guided in their choice of selling things, as mentioned in the following Quranic verse, “Avoiding unlawful things in selling” (Ar-Rahman, 55:9). The Quran instructs Muslims to avoid the selling of prohibited and unlawful products such as intoxicants. Hence, selling and buying unlawful products are strictly prohibited.
f) “And come not nigh to the orphan’s property, except to improve it, until he attains the age of full strength; give measure and weight with (full) justice; no burden do We place on any soul, but that which it can bear, whenever ye speak, speak justly, even if a near relative is concerned; and fulfill the Covenant of Allah: thus doth He command you, that ye may remember” (Al-An’am, 6: 152).
This Quranic verse, requires Muslims to be strictly truthful in their transactions especially so when dealing with property belonging to the under privileged e.g. orphans.
g) A number of Quranic verses highlight the need for accuracy in measurement:
i) “Give just measure, and cause no loss (to others by fraud)” (Shu’araa, 42: 181).
ii) “And weigh with scales true and upright” (Shu’araa, 42:182).
iii) “And withhold not things justly due to men, nor do evil in the land, working mischief” (Shu’araa, 42: 183).
iv) “In order that ye may not transgress (due) balance” (Ar-Rahman, 55: 8).
v) “So establish weight with justice and fall not short in the balance” (Ar-Rahman, 55: 9).
h) It has also been mentioned in the Quran that both parties to a transaction must consent to it, “O ye who believe! Eat not up your property among yourselves in vanities: but let there be amongst you traffic and trade by mutual goodwill: nor kill (or destroy) yourselves: for verily Allah hath been to you Most Merciful!” (An-Nisaa, 4: 29).
2.3.3 Quranic Verses about Zakah
Zakat and prohibition of riba play very important roles in the macroeconomic theory of Islamic economics. The institution of zakat is assumed to be a part of the larger socio-economic structure within an Islamic economy. Zakat is to be collected and distributed in accordance with Islamic injunctions. Below are verses from the Quran that mention zakat:
a) The Quran declares, “…take alms out of their assets to cleanse and purify them thereby” (At-Tauba, 9 : 103). Wealth must never be above the duties of brotherhood, and hence, it is subject to zakat. Zakat is obligated so that Muslims’ wealth is cleansed and purified.
b) “And those in wealth, is a recognize right for the needy who asks and him who is deprived” (Al Ma’arij, 70 : 24-25). The above Quranic verse has clearly stated that rich Muslims have the responsibility of assisting those in need. The main reason behind the obligation for zakat payment is to care for the poor (from the zakat received). Hence, within the Islamic economic system, zakat is a significant means of income distribution.
c) The verse below deliberates further on who is eligible for zakat:- “It is not righteousness that ye turn your faces towards east or west; but it is righteousness –To believe in God and the last Day, and the Angels, and the Book, and the Messengers; to spend of your substance, out of love for Him, for your kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the ransom of slaves to be steadfast in prayer, and practice regular charity; to fulfill the contracts which ye have made” (Al-Baqarah, 2: 177).
DOCTRINES FROM THE HADITH (TRADITION)
Hadith or Sunnah refers to the actions or traditions of the Prophet (pbuh). The Hadith is weighted as the second source of Islamic doctrines, after the Quran. The Hadith is given authenticity, and value, based on the line of transmission. In the Islamic economic system, Muslim economists depend strongly on Hadith (after the Quran). This section covers the following subject matter:
1 Prohibition of Riba
a) In the Hadith, the Prophet (pbuh) elaborated/expanded on the definition of riba when he said, “The selling of gold for gold is riba except if the exchange is from hand to hand and equal in amount, and similarly, the selling of wheat for wheat is riba unless it is from hand to hand and equal in amount, and the selling of barley for barley is riba, unless it is from hand to hand and equal in amount, and the selling of dates for
dates is riba, unless it is from hand to hand and equal in amount.” (Hadith, Bukhari Volume 3, Book 34, Number 382) From the Hadith, two categories of riba can be ascertained:
i) Riba al-fadl – riba by way of excess of one of the exchanged counter values
ii) Riba al-nasi’a – riba by way of deferment of completion of exchange
b) Following the revelation of the Quranic verse pertaining to the cancellation of riba, the Prophet (pbuh) further elaborated, “Know well, every bit of riba which has been contracted into during the period of pre-Islamic ignorance is now cancelled. You will have the capital of your wealth. Do not oppress and you will not be oppressed.” (Abu Daud, Chapter no. 5, part of Hadith 3318).
c) Abdullah bin Mas’ood narrated his father’s conversation, “Rasullullah SAW cursed the eater of riba, the one who Islamic Economics and Finance Theory and Ethics 38 ©International Centre for Education in Islamic Finance provides (gives) riba, he who is witness to it (i.e. the transaction) and also the person who records it.” The prohibition of riba in this Hadith covers all aspects i.e. from the recording of the transaction, being a witness to the transaction and of course the two parties who are giving and taking the riba.
There are a number of Hadiths that elaborate on earning and the permissibility of trade:
a) According to the Prophet (pbuh), “nine-tenths of all rizk (the bounty of Allah SWT) which include income is derived from commerce.” This explains that the major sources of income are through commerce, industry and various forms of free enterprise. Profits are very much a part of such activities, provided they are lawfully obtained.
b) “The cleanest food is that which has been earned by the labor of his own hand. Indeed, the Prophet Dawood used to work with his own hands for the food he ate.”
In Islamic economics, there is neither injunction (haram) nor disapproval (makruh) on debt incurrence. Several Hadiths cited the Prophet (pbuh) purchasing goods on credit. However, it is forbidden to incur debt if there is no chance of repayment. Below are two Hadiths that refer to debt:
a) “No Muslim incurs a debt, and God knows that he wishes to repay it, but God repays it for him in this world and the next.”
b) “Borrowing is allowed because of one’s circumstances at times. Unnecessary borrowing is repugnant, because the Prophet (pbuh) says: Avoid borrowing, for it is the cause of shame during the day, and worries at night. And if no means for repayment exists, borrowing then is forbidden, because it is clear cheating….”
The Prophet (pbuh) was very strict in dealing with debt. He urged borrowers to do their best to pay back their debts quickly. In the following two incidences, the Prophet (pbuh) said:
a) “If a person is killed in the path of Allah, all his sins will be forgiven (by virtue of his martyrdom), but if he owes anyone anything, even his martyrdom will not secure his release from it.”
b) “By the Lord in whose power rests the life of Muhammad, if a person falls as a martyr in the path of Allah and returns to life only to be killed once more in the cause of Allah, and there is still a debt outstanding against him – even he will not be able to enter Paradise (until it is settled).”
Islam does not deny prosperity or wealth. However, these must be earned in conformance with the laws of Allah and without depriving others of their rights. Hence, debts due from a deceased’s estates must be discharged before distribution to any inheritors.
Abu Rafii said, “The Prophet (pbuh) borrowed a young camel. He there after received zakat (in the form of camels); so he ordered me to discharge to the person (creditor) his young camel. I thus said (to the Prophet), “I did not find among the camels except a choice camel that is in its seventh year.” The Prophet (pbuh) then stated, “Give him that very one for surely the best of people are those who best fulfill their obligations.”
Delay in the payment of debt is discouraged, especially when the debtor is financially able to discharge the debt. Such deferment thus prevents the creditor from possible profitable investment. The Prophet (pbuh) said, “Procrastination of a wealthy person in discharge of debt is zulm (oppression) and if anyone of you (i.e.
Creditors) is referred to an able person (i.e. the debtor and transfers liability of the debt to another person) then he (the creditor) should accept.”
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