Islamic Economy and Shariah Law

1. Islamic Economy and Shariah Law

2. Basic Needs of Human • Daruriyyah-Keperluan Asasi • -makanan,pakaian, pendidikan, kesihatan, sistem • Haajiyyah-Keperluan Sederhana/Middle class • - rumah yg baik, kenderaan yg cukup, makanan yg sempurna • Tahsiniyyat- Keperluan kemewahan • -rumah besar, kenderaan besar,perubatan yg mahal dll.

3. Compliance with Shariah Laws • These laws or values are not man-made; but ordained by Allah. These laws are derived from Al-Quran and Al-Sunnah. • Fard or Wajib – An obligatory duty, the omission of which is punishable • Mandub or Mustahab – An action which is rewarded, but the omission is not punishable • Jaiz or Mubah – An action which is permitted, and the law is indifferent • Makruh – An action which disliked yet not punishable, but the omission is rewarded • Haram – An action which is absolutely forbidden and punishable

4. Shariah compliance • Islam prohibits riba (interest) as practiced in conventional finance and banking operations • It is an obligation or Fard Kifayah (Wajib) for the government, financial and banking intermediaries to establish the Islamic financial and banking systems which are Shariah-compliant.

5. Maxim Al-Ghanam Bil-gharm • Shariah provides sufficient tools of finance to meet all the lawful needs of man for commercial and investment transactions. • Based on the maxim of al-Ghanam bil-gharm: • Al-Ghanam in this context means economic gain, profit and yield, whereas al-gharm refers to loss, risk and liability. • The principle:- no person is allowed to invest in a way that generates profit without exposing himself to the risk of loss, rather, it exposes both parties to the outcome of their deal, be it a profit or a loss (Rosly, 2005)

6. The Shariah position is simply that if you lend a man money, then you do not receive any interest. But if you are prepared to go with him into business, then you share in the risks with him.

7. Business Concept from Islamic Perspective • 1. Exchange goods with goods or with money • 2. Profit making purposes. • 3. Legal Contract based on shariah law. • 4. Agreement between buyer and seller

8. Fairness in Islamic Financial System • Shefrin and Statman (1992) - 7 classes of fairness : • freedom from coercion, • freedom from misrepresentation, • right to equal information, • right to equal processing power, • freedom from impulse (imperfect self-control), • right to trade at efficient prices, and • right to equal bargaining power.

9. Norm of Islamic Ethics • Obaidullah (2005): • 1)Freedom to Contract • Allah has made trade lawful. (Al Quran 2:275). • 2)Freedom from Al Riba • All forms of contracts and transactions must be free from riba -no reward for time preference alone. Reward, returns or benefits must always accompany liability or risk. • 3)Freedom from Al Gharar (Excessive Uncertainty)

10. Islamic ethics • 4.Freedom from Al-Qimar (Gambling) and Al-Maysir (Unearned Income) • Contracting under excessive uncertainty and uninformed speculation (gharar) is akin to gambling (al-qimar). Also prohibit gains made from games of chance, which involve unearned income (al-maysir). • 5. Freedom from Price Control and Manipulation • Islam envisages a free market where prices are determined by forces of demand and supply.

11. Islamic ethics • 6. Entitlement to Transact at Fair Prices • Prices that are an outcome of free play of demand and supply without any intervention or manipulation. • 7. Entitlement to Equal, Adequate and Accurate Information • Release of inaccurate information is forbidden • 8. Freedom from Darar (Detriment) • A third party being adversely affected by a contract between two parties. If a contract between two parties executed with their mutual consent is detrimental to the interests of a third party, then it may enjoy certain rights and options

12. Hadis Rasulullah s.a.w.: • “Peniaga yang jujur dan amanah akan ditempatkan bersama dengan para Nabi, orang-orang soleh dan para syuhada.” Hadith Hassan, Riwayat Tarmizi. • Contohi Akhlak Rasulullah s.a.w.- sabar, amanah dan jujur.