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Islam & Economics

What is Economics? Usually, it is defined as“a system or science that identifies limited resources which are allocated for unlimited human wants and desires”, or “a study of resource which are limited against the unlimited human wants.” While studying at the academic level, or working in the commercial or business environment, it is a common statement from all classes of people that resources are getting to an end and the world is moving towards starvation. When I look around myself, I feel that either we are confused or we just do not have a proper system to identify the system for production, distribution and consumption of resources. We might be using wrong methods and mean of economic activities.

 As a student of Islamic economics, I discard the concept of scarce resources and look into my status as a human being, a “Unique Creation,” created by The Almighty Allah, who can never  allocate scarce resources for His proclaimed Unique Creation.

The Holy Quran is a code of conduct, which identifies a system that confirms the available resources blessed by Almighty Allah to the mankind.  It ensures how these  resources are sought, utilized and distributed by men, through social justice. This can be done by applying, knowledge, experience, ability and efforts through power of pen, granted by Almighty Allah.  Almighty Allah has marked humans as “Custodian” of all the resources, which is owned by Him alone. This concept was put into a system known as Islamic economic, that leads not only to economic development, but also socioeconomic development. It gives a transparency of the system that the resources are blessed by ALLAH in unlimited quantity and quality to the human beings. In return, the human nature shows limited efforts to explore these unlimited resources, resulting in the scarcity of resources.

If we look at the definition of Islamic economics system; as compared to the conventional economic system, we can find a difference which we might not consider important, but in reality this difference is the route cause of all economic crises of the world. While I was working on the effects of modern economic principles,  I found that the modern economy, which we consider as contemporary, is basically decreasing the importance of  human and increasing the value of money.  Ultimately, the solution to economic crises is defined in Islamic economics as any activity for trade, commerce, economic and financial purpose with a priority of social benefit to mankind.


The system describes the man’s relationship with Almighty Allah,  on the basis of Tawheed, the Oneness of Almighty Allah. In short it is man’s total commitment to Allah through submission with the mission to mould human life in accordance with Allah’s will”.

In depth, I found that the bases of Islamic economics are crystal clear. It  is a system that enjoys a separate identity and  is a self-contained system with its own economic policy. It covers interests at Private and Public as well as Material and Spiritual levels. It has given a complete system of lifestyle, (Earning, Expenditure, Businesses, and Relationship) with Legal Framework. It emphasizes on Social Justice, Equality, Unity, love, Cooperation and Sharing at all cost. Evermore, it also emphasizes on transparencies in all affairs and respect. It guards the rights of minorities, non-Muslims, women,  orphan, employees, lenders, borrowers and rights of everyone without discrimination.

Islamic economy is based on four principles that all wealth belongs to Almighty Allah and Man is the trustee of this wealth. On contrary to the present practice, it prohibits hoarding of wealth and guides that the wealth should remain in circulation at all times. Moreover it also differentiates between basic needs and luxuries. The system does not have the concept of inflation due to the use and consumption of resources within the specific time and period. It also does not impose limits on the amount of wealth that an individual can acquire.

In contrary to the conventional economic system,  Islamic economic recognizes three factors of production, The man as the source, the money as a force and the commodity as the need. The three factors of productions are the wheels of Islamic finance that drives socioeconomic for healthy and flourishing community.

The three factors of production give birth to three basic usage of money and commodity under the guidance of Islamic economic principles which are, Consumption, Utilization  and the Exchange, in the understanding of Permissions, Restrictions and Prohibition.

In Islamic Economics, man is described as the prime factor of production who drives the economic and financial system as a beneficiary, Whereas money is exchangeable in volume. Money becomes the value of commodity and services and is used as a bridge between men, commodity and services. The role of the commodity is only to be consumed or used, but not exchanged, and to satisfy the need of the men in his daily life. Services are treated as usable commodity only in exchange of money in volume, which is fee, wages or commission.

The two factors of production man and money define the two exchange system to obtain commodity or services. These two systems are identified as Loan, which is based on the principle amount in  transaction by pricing the money with  time value without the concept of utilization or its impact on economic activity. Loan has to be secured by payback guarantee, which confirms the future success of the transaction in present time ie. Riba, as it is a way to speculate. Loan is usually given for stated or unstated purposes, on a fixed term, fixed period and fixed RATE, which is applied to the principle loan amount. Socioeconomic treats the excess amount as a Price of Money as it is agreed without considering the profit or loss on the exchange of money which is covered through collateral as a guard against Risk.

Finance is made available on the basis of man’s ability to use  money; multiply, divide, subtract and add the amount realized through the exercise of money. The difference between loan and financing is that  financing is an equity and not liability but loan is liable and not participation. Financing is made ; loan is given and is secure where as finance is supported. Financing is an investment and loan is a facility. Loan cannot be financed until it is agreed on the profit and loss sharing and financing cannot be a loan till return is guaranteed. Financing outcome to be a profit is shared in an agreed ratio of participation in the form of money or ability.

Finance has its own method of securing the transaction, either by acquiring the ownership in the form of equity participation and without having any maturity or in other case, in which ownership is decreased or increased for the participators at a pre-agreed terms.

It has been observed that Loan leads to inflation and liquidation and increases the liability, cost and decrease the net worth, whereas in case of financing, it increases the capital base as well as net-worth and ends at ownership. In short, financing is an act of money, which is classified as the opposite to loan.

Finance is made by way of equity participation in the new or in a running transaction, project, venture finance or acquiring the business operations by going into proper appraisal of purpose and verification of valid data of purpose. This is submitted by the user of money to the financier, who becomes direct or indirect partner in the venture with on profit and loss sharing in a ratio of participation.

Islam through its economic system has identified the concept of Riba and guided the means to keep the risk sharing as well in participation. The system treats money as potential capital till the money is merged with man’s ability to use it for commodity or services. The speculative behavior is believed as crossing the jurisdiction of Almighty Allah. To guard against the involvement of Riba, Islam has guided the act of human being in social, commercial or business income, earnings or profit only from the Shariah approved activities.

In today’s world, in most of the Muslim countries and the Western world, the common system is the interest based capitalist system. It  identifies its distinction from conventional economics and explain the accurate economic life of Muslims. Islamic system identifies the relationship on humanitarian basis rather to be on the basis of money and status in the society.


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