The Economic Policy of Islam - An Overview

Introduction
Islam is that comprehensive way of life which has been chosen by the Creator Allah subhaana-Hu wa-ta`aalaa for His people to follow in order to achieve spiritual satisfaction as well as material benefits. Indeed, monetary needs cannot be neglected by man and nor can the requirements of the soul. For this, Islam has set the perfect standards in order for us to evaluate our demands and to further our objectives in all fields of our mortal life.
Being a divinely inspired system, Islam provides the perfect equilibrium between spiritualism and materialism. It guides us in the material aspect of life, whilst at the same time it nourishes the soul. It gives us a set of rules that, if implemented sincerely, not only help the individual but also the society at large.
The financial system of Islam encourages the correct utilisation and the even flow of capital in the society in general, rather than to an individual or an elite group. Cutting a long story short, the economic system according to Islam tends to deal with the needs of individuals with respect to social requirements whilst simultaneously providing a balance in order to maintain a progressive society.

The Policy
The policy of the economic system in Islam is to guarantee the fulfilment of all basic needs of every person and to enable every individual to satisfy his additional needs as much as possible, given that he lives in an Islamic society which has a special way of life.
The laws of Shari`ah, therefore, contain the fulfilment of man's basic needs like food, drink and shelter for every person and that is achieved by encouraging those capable to work, so that their basic needs and those of their dependants are met. Islam has obliged the father to provide for his dependants, and obliged his next of kin to provide for these needs if the father is unable to do so. If there is no one who is capable to provide for these needs, the Baitu-l-Mal (state treasury) will provide for them. In this way, Islam has guaranteed to fulfil the basic needs which every individual requires as a human being.

Ownership of Capital
Capital is, originally, the property of Allah subhaana-Hu wa-ta`aalaa alone and Allah la-Hu-l`azmatu wa-l-kibriyaa'u has given it, or delegated it’s proprietorship, to man. The whole of mankind is, collectively, a trustee to Him for what He has entrusted to them. This is how man has the right to own it. It is Allah ta`aalaa Who has permitted the individual to own it, and through this special permission, the individual becomes its real and rightful owner. Allah jalla majdu-Hu says:

“To Allah belongs all that is in the heavens and on the earth…” [The Majestic Qur’aan (hereinafter TMQ) 2:284]
In other words, all wealth and all resources are ultimately owned by Allah subhaana-Hu wa-ta`aalaa.

"So give them from the wealth of Allah which He has given you." [TMQ 24:33]
Here, the capital is described as belonging to Allah `azza wa-jalla. In another verse Allah jalla sha'nu-Hu says:

"So spend from that in which He has made you heirs." [TMQ 57:7]
This verse tells us that He has made the people heirs of property and finance that originally belongs to Him.

Distribution of Wealth
Islam does not disallow the massing of wealth by an individual and nor does it oblige anyone to do away with it. In fact, it encourages every person to work for a decent living and earn legitimately all that they need. This, of course, is of an individual nature, but the collective nature of wealth production also finds positive support in Islam.
What the Lawgiver (Allah subhaana-Hu wa-ta`aalaa) is in actual fact asking us to give attention to is not the less important production of wealth, but the more important distribution of wealth [TMQ 59:7]. The society may be producing vast amounts of output and profits, but it is of no value if its distribution to the masses is not in process. The centralisation of wealth is a sin, as well as morally unjustified, because its benefits are not being attained and its true objectives are not being met. The benefits of wealth can only be achieved when it is spent well, in a positive and constructive manner, for the benefit of the community, and, at the same time, it is in continuous circulation. Moreover, wealth must be accessible to all, be it meagre or plenty, in order for it to flow smoothly and benefit the individuals who spend it positively. Here, wealth and finance may be seen as blood and the state bank would be the heart, whereas the major organs of the body are the monetary institutions such as private banks and companies that play a major role in the nation’s infrastructure. The cells of the body are the people. Just a little imagination would help one realise the disastrous consequences if the wealth, or blood, was centralised in any one institution or individual. This is why Islam disallows hoarding [TMQ 104:1-4; 9:34].

Financial Equality
Not only should wealth be circulating with an even flow, but that each individual and institution must receive his rightful and equal share. Financial inequality is to be found in that society where the rich get richer, and the poor, poorer. Financial inequality is financial injustice.
In such systems, the wealthy live off the labours of the poor. This can be seen in domestic places such as small businesses and factories, to international levels of ‘parasitism’ whereby richer nations feed off the fruits, the labour and the output of poorer ones. Many nations in the African, Asian and the South American continents have never received their fair share of financial gain from their natural resources, whereas the oppressors are up to this day taking undue benefit by the minute. Islam forbids such anarchy.
In an Islamic society, beggars should not be seen. In fact, there must be no beggars at all due to their just and dignified status in the society as human beings. Each individual must be a worker, toiling and striving to earn his share of the wealth that has been bestowed upon him by the Divine Provider subhaana-Hu wa-ta`aalaa. All must work for the progress and welfare of the society and not just to fulfil personal needs. The rich must invest and provide jobs to the jobless and pay them promptly and accordingly. The workers, in turn, provide manpower to the company and, simultaneously, aim to enhance the nation-building process. Everyone must play his part justly and sincerely, and this way the employer and the employees shall be deemed equal with respect to national progress and development.

The Zakaah System
Islam has provided mankind with a unique system of the distribution of wealth and the elimination of poverty. The Zakaah system enables the wealthy to provide the poor with financial assistance, which consequently results in the lifting of poverty from the society. It is, basically, a right enjoyed by the destitute [TMQ 51:19] and an obligation on the wealthy.
Zakaah (or Zakaat), literally, means ‘purification, blessing, to increase or expand’. As a religious obligation [TMQ 2:44], a financially qualified individual is required to hand over 2.5%, or 1/40 of the surplus of his wealth, including his invested capital, to the deserving, the poor and the needy, on an annual basis.
This fraction of a percentage, small as though it may seem to the recipient, could prove enormous when coupled with the amounts from various contributors. For example, if one receives 2.5% from each of four persons having the assets of £10000, then the Zakaah from each individual would be £250, making a total of £1000, which is not a small amount after all. On the other hand, that is from the point of view of the giver, this percentage may seem enormous when it is calculated from his assets. Then again, we may very well ask, is £2.50 out of £100, or £250 out of £10000 for that matter, a too large an amount to be losing sleep over?
Not only is Zakaah payable on monetary wealth, but other forms of possessions, such as gold and silver ornaments and jewellery, cattle, goats, camels, profitable goods such as merchandise, agriculture and vegetation, etc. are also dealt with under the Zakaah system.
Zakaah purifies one’s wealth [TMQ 9:103] whilst simultaneously helping to maintain a link between the rich and the poor, and thus, encouraging a healthy and harmoniously unified society.

Inheritance and Succession
When the rest of the world was warring over weighty issues such as successions to thrones and kingdoms, to paltry concerns such as inheritance to a table or a chair, Islam was teaching the true nature of equal and fair distribution in the inheritance of property and succession to heirs. In England, for example, inheritance and succession was the sole right of the eldest child of the deceased, in the name of primogeniture. The remainder of the siblings were, thus, deprived of any share in the inheritance. In India, the females were disallowed any share in the legacy, and the same goes for other places such as pre-Islamic Arabia where inheritance rights were confined exclusively to the male relatives, etc. The Jews would not allow the females to inherit other than in the event when no male issue remained, whereas the wife was never recognised as an heir anyhow, according to Rabbi Epstein, and the Christian attitude towards female inheritance was that the wife and daughters had no right of succession to the family estate, but were rather considered a part of the estate and as remote from the legal personality of an heir as the slave; they were owned before marriage by the father and after marriage by the husband. Even in today’s technologically advanced and ‘civilised’ world we may find societies, cultures and creeds that fail to draw fair procedures for distribution of inheritance. They either tend to favour an individual or a specific class of relatives as rightfully qualified inheritors whilst brushing aside others. Females tend to be the general victims of such deprivation.
Islam, on the other hand, tends to concentrate primarily on the justified shares of inheritance of the female heirs which is why it deals with its disposal firstly and swiftly, before moving on to the shares of the male heirs [TMQ 4:7]. Islam, generally speaking, has allocated one share for the female to every two shares for the male [TMQ 4:11-12], considering the financial burden and responsibility that the male must bear in family as well as in society. Once the inheritance has been equally and fairly distributed, nothing in law can deprive the heirs from their due shares. Islam is here for the alleviation of poverty from the society which is why it will not allow a single person to remain under the poverty banner without justification, be they male or female. If there is inheritance to be distributed, Islam demands it to be shared properly and promptly.

Financial Investment
Islam does not permit the investment of finance in unhealthy, illegal, immoral or unfair forms of trade [TMQ 24:19]. This may include monetary investment in products that are practically harmful to human consumption such as cigarettes, alcohol and illegal drugs, in products and businesses of an immoral nature such as pornography, etc. [TMQ 24:33], in ventures where unfairness and undue profiting are the main elements of success such as interest-based financial gains [TMQ 2:275, 278-280] in banking as well as some forms of shareholding, etc., and in games of chance such as gambling and other ventures where investment is insecure and the capital is not guaranteed to remain safeguarded.
Islam does, however, encourage the investment of capital in economically healthy ventures [TMQ 62:10] where the rich and the poor are offered equal opportunities for financial gain. For this, there must exist a mutual understanding and an atmosphere of trust between all classes of those participating in such projects, be they labourers or investors. Such investment must be based on honesty, fair competition, decency and cooperation. It must promote itself for the welfare of the society, in general, and provide equal opportunities for others to share in the trade and the profits of the enterprise. Monopoly, in other words, is forbidden.
Where the basic objective of an Islamic system is the alleviation of poverty, the intention behind any form of financial investment must be positive. Wealth should not be secured away in treasuries away from public eyes [TMQ 9:34] but utilised in the funding of public facilities and to further enhance the infrastructure. One may invest in the furtherance of his own business with the intention to create more jobs for the unemployed. This shall, consequently, have many positive impacts on the society as a whole including one’s personal financial gain as well as the promotion of his social repute. They include, in consequence of the creation of new jobs, a decrease in unemployed as well as in poverty, the encouragement of fair and healthy competition with respect to the public sector, a decline (and total elimination) of criminal activities and illegal means of financial achievement, and a gift to the infrastructure.
Then again, there are not many that may possess the wealth or the means to invest in a project of such a vast scale, but the opportunities are always immense. Out there, the field of positive public investment is always on the increase and one must not always have to wait for the right moment to appear; for a Muslim, every moment is a moment of opportunity.
To sum it all up, we may base Islamic investment and finance on five easy principles:
1. Any predetermined payment over and above the actual amount of principal is prohibited (Riba - usury, interest)
2. The lender must share in the profits or losses arising out of the enterprise for which the money was lent
3. Making money from money is forbidden (Riba)
4. Gharar (uncertainty, risk or speculation) is also prohibited (as in games of chance and gambling, etc.)
5. Investments should only support practices and products that are legitimate and permissible.

Legitimate Means of Acquirement
Islam allows all means of acquiring wealth as long as they are based on one basic element; Halaal. Halaal means permissible, legitimate, legal, lawful, allowed, acceptable, etc. Any form of earnings that does not cross the boundaries of fairness, morality, decency, fair competition and legality shall be within the limits set by the Shari`ah and deemed as Halaal [TMQ 62:10]. Anything outside these set limits is forbidden from an Islamic point of view [TMQ 4:29].
Whilst on the job, one must consider his position with respect to financial income as this will determine the amount of benefits, or losses, as the case may be, from what he has earned and how he has earned it. Illegal and illegitimate forms of income can only provide limited material advantages in this mortal world whereas the benefits of legitimate means of acquirement are countless and the fruits of their benefits shall also, rather definitely, be seen in the Hereafter. The material benefits are meagre when compared to the benefits seen from the spiritual aspect.
In the long run and from any angle we may observe, the legitimate, or Halaal means of acquiring wealth have the upper hand.
Furthermore, the five main principles that we have mentioned above must always be borne in mind when carrying out transactions, dealing in trade and business or going about one’s daily life. Contractual obligations must only be profited from when they fall within the limits set by the Shariah, either the practice, the product or the investment thereof must be legitimate from an Islamic point of view.

Conclusion
In a nutshell, whatever has been stated above shows the true picture of Islam when observed from the financial perspective. It shows Islam as the pioneer of the so-called ‘welfare state’ theory where everyone has the opportunity to enjoy the material benefits of his efforts; it shows the natural equality one is entitled to where wealth and property are the main concerns; it shows that no human, however rich or poor he may be, is above the divine law and that justice is the stationary Islamic pendulum between the natural rights and duties of man. This proves the genuineness of Allah `azza wa-jalla as the prime financial policy provider with Islam as the financial system and true practical Muslims as the beneficiaries.
The economic policy of Islam provides a means of social insurance whereby everyone in an Islamic society is supplied with at least the basic necessities of life. No worker can ever be forced, through fear of starvation or any other reason, to accept conditions of employment which may be unfairly imposed on him by the employer.
Islam does not approve of an economical, or political, organisation which aims at submerging the identity of the individual beneath that of the community and depriving him of the freedom essential for the proper development of his personality and talent (e.g. as in Communism).
Islam encourages economic freedom to the individual so that he may earn his living, maintain the integrity of his conscience and to develop his moral and intellectual faculties according to his own inclinations and aptitudes. It does not, however, favour a system of unbridled economic and social freedom which may give the individual a blank cheque to achieve his objectives at the possible cost of the good of the community as a whole or which enables him to misappropriate the wealth of others (e.g. as in Capitalism). Between these two extremes, Islam has adopted the middle course according to which the individual is primarily called upon, in the interest of the community, to accept certain conditions and restrictions, and is then left free to regulate his own affairs.

Copyright ©2006 Tahir Mahmood Kiani