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Islamic Economics

Islamic Economics. What is economics? “ To utilize the limited resources in a way that maximum needs and wants are met to ensure the well being of all members of the human society. ” The four basic economic problems: Determination of Priorities

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Islamic Economics

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  1. Islamic Economics

  2. What is economics? “To utilize the limited resources in a way that maximum needs and wants are met to ensure the well being of all members of the human society.” The four basic economic problems: Determination of Priorities Allocation of Resources (Land, Labor, Capital, Entrepreneur) Distribution of Income Development We will compare how Capitalism, Socialism and Islamic Economic system addresses to these problems. Economics & Its Problems

  3. Comparison of Capitalism & Socialism Capitalism Socialism • No individual has the right to participate in any business independently. • State will determine the priorities as per the overall planning. • Concept of collective interest. • Determination of Priorities • Every individual has unconditional right to participate in any business to maximize profits • Concept of Selfish Interest • Supply & Demand will determine the priorities. 2. Allocation of Resources • Market forces will decide where to invest resources • Govt. will decide where to allocate resources 3. Development • Market forces will decide • Govt. will decide

  4. Comparison of Capitalism & Socialism Capitalism Socialism 4. Distribution of Income • Land - Rent • Labor - Wages • Capital- Interest • Entrepreneur- Profits • Land – Rent fixed by Govt. • Labor – Wages fixed by Govt. .

  5. No bindings/ restrictions while maximizing profits. Blindly follows market forces that creates exploitation(misuse) of labor & poor people. No moral value limitations. Monopolies are created that exploit the society as a whole. Government & Industrialists join hands for mutual benefits. Flaws of Capitalism

  6. The other extreme of not even giving the natural freedom. Perfect Planning is assumed by Govt. Governments are assumed to be angels which can’t commit a deliberate(intentional) mistake. Cannot work without forceful dictatorship. Flaws of Socialism

  7. Islam is a Deen which gives guidance for Aqaid, Ibadat, Akhlaq & Mu’amalat. Hidaya- famous book of Fiqh has 70 % portion dedicated to Mu’amalat. Islam is a DEEN for well being. Spiritual satisfaction. Capitalism as well as Socialism have both failed to lead mankind What is Islamic Economics

  8. Islam accepts the market forces of supply and demand- Reference of Holy Quran. In fact Islam gave the concept of Market Forces 1300 years before Keynes presented the modern model of Economics in 1927. Islam accepts the right to private property and accepts the right to maximize profits. Islamic Economic System

  9. Divine Prohibitions: Islam has prohibited some economic activities that are not allowed at any time at any place.( Interest, Gambling جُوا , Gharar) Govt. Restrictions: Islam allows Govt. to interfere where it feels appropriate , but these restrictions are temporary as per the need of the time. Moral Considerations & Restrictions Maximum benefit in the life for hereafter. Islamic Economic System- The prohibitions & considerations

  10. The Prohibition of Riba’ Meaning of Riba’ • Literally: excess, increase, expansion or growth. Definitions of Riba’ predetermined excess or surplus over and above the loan received by the creditor conditionally on relation to a specified period.

  11. “O you who believe, fear ALLAH and give what still remains of Riba, if you are belivers. But if you do not ( give it up) then listen to the declaration of war from ALLAH and his messenger.”( sura baqara:278&279) • “From Jabir(R.A) the Prophet (S.A.W) cursed(لعنت) the receiver and the payer of riba’, the one who records it and the two witnesses to the transaction: they are alike in guilt(fault)”

  12. . Riba is a cause of injustice and exploitation • Riba is considered a form of injustice and exploitation(misuse), which contradicts(opposite) the core Islamic teachings of social justice. • It is unjust for lenders to guarantee return with no involvement in risk. • Because riba entails taking advantage of a man’s inferior economic position it breeds hatred, jealousy and ill-will towards the rich • This behavior kills the spirit of cooperation in the society and discourages people from doing good to each other.

  13. . Riba discourage productive work • Interest-based financing results more wealth collected by lenders without exerting much effort or contributing to productive activity. • From an Islamic point of view, money should not be rewarded. Money functions as a medium of exchange or a store of value and cannot be utilized for fulfilling human needs directly. It can only be used for acquiring goods or services, which have a fundamental use.

  14. Basic Difference between Islamic and Conventional Modes of Finance Conventional money Bank Client money + money (interest)

  15. Goods & Services money Basic Difference between Islamic and Conventional Modes of Finance Islamic Bank Client

  16. Theoretical Comparison ISLAMIC BANKING ------------------- • Is based on profit or rent • Deals in assets. • Is based on profit sharing on deposits side, and on profit on assets side. • Actively participates in trade, production and valid services through valid contracts. CONVENTIONAL BANKING ------------------------ • Is based on interest. • Deals in money or papers. • Is based on fixed return on both sides of the balance sheet. • Does not involve itself in trade and business

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