The Islamic Economy Solution

How does the Islamic perception of the economic problem differ from the materialistic perspective of the same and in general what are the mechanisms that Islam proposes for the maintenance of economic justice in society?

Lionel Robbins in 1932 defines economics as “the science, which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” In simpler terms it is how to utilize the limited resources in a way that maximize the needs and wants are met.
There are four basic problems in economics:
1. Determination of priorities
2. Allocation of the limited resources
3. Distribution of income
4. Development
Under the materialistic perspective, the above problems are considered at two opposite extremes. The capitalist system sponsors the notion ‘every man for himself’ at the expense of the society. The socialist system goes to the other extreme by assuming that all of the economic problems will be met by the perfect planning by the government, leaving no room for basic freedom to an individual to pursue profit.

In Islamic economic system the basic goal is to ensure that the utilization of the limited resources are such that it meets the maximum needs and wants for every segment of the society and not just the individual. This is evident in Al-Baqarah verse 143, where the term ‘wasat’ clearly indicates that the Muslim ummah is a world model for moderation of the economic ideals, values and principles that it advocates. Individual rights and liberties are guaranteed and protected in order to encourage innovation, production and growth in a manner that will serve the common good without infringing the right of the individuals or endangering the society as a whole.

Islam has set the following mechanism in place in order to maintain economic justice in the society:

1. Zakat  

Zakat is one of the basic principles in the Islamic economics, based on social welfare and fair distribution of wealth. Islam has made zakat a compulsory obligation on every Muslim (Al-Baqarah: 83). Scholars infer that zakat purifies a Muslim’s wealth and also suppresses ego, jealousy, greed and miserliness. It is not a form of tax but rather a divine duty and considered as a right of the poor over the rich, not a charity. Verse 60 of the At-Taubah clearly defined those who have the rights to zakat.
As zakat is imposed on wealth, it makes wealth circulate in the body of the nation, which acts a powerful inducement to invest capital in productive enterprises thus, helps to encourage growth.
In the current situation, the gap between the rich and the poor are getting wider. Even the United Nations has recognized that a small fraction of the wealth can alleviate the poverty of the poor since even now the rich countries struggle to give 0.3% of their GDP as charitable aid. We should not therefore underestimate the potential of zakat to transform the lives of the poor.

2. Prohibition of riba


One of the problem with an interest based economy is that it favors the rich over the poor as the lender focus more on the collateral that the borrower has to secure the loan (in case of a default) rather than the reason behind the borrowing. This way, the lender will get a return regardless of the outcome of the transaction over time.


This is in total contrast with Islam where it prohibits interest as method of lending and borrowing. The main prohibition of riba is outlined in Al-Baqarah verse 275 – 276. In Islam, reward, returns and benefits must always accompany liability or risks. There is a clear distinction between loan capital and investment where you are only allowed to get a reward or return on the latter. The main reason behind this is that you would carry out a due diligence check on the investment to ensure that the funds are used in a manner which is in line with syariah and benefits the society as a whole.

3. Charitable assistance

It is an obligation on a Muslim to offer assistance to those who needs it according to his means. This can involve financial assistance (sadaqa), public service or any other action to provide help to those in need. Charity purifies the human personality by removing selfishness, greed and materialism. It creates compassion, care, love and kindness among Muslims and it makes a person more thankful to Allah.

4. Maintenance of family

In Islam, the family is an important institution and it is the responsibility of a Muslim to ensure that they are provided for within his means.
5. Application of shariah law to business and financial transactions

Islam stresses transparency in transactions. The laws laid out for these transactions include:



a. The items involved are identifiable, exist and quantifiable

b. No element of uncertainty (gharar) or ambiguity in the contract

c. Not in transactions prohibited by syariah e.g. gambling

d. All facts are made clear at the outset

e. The contract has to be in writing



This will help to remove the risk of potential disagreement in the future.



Within this framework of balance and moderation, every constructive talent, ability, aptitude, and activity is nourished and encouraged to grow and play its part in the society.