The followers of Islam are required to lead a material life in such a way that it becomes a source of happiness and prosperity in the existing world. It proves to be source of benevolence for them in the next world. With this point in view we now define Islamic economic system in line with the technical definitions given for other system.
“Islamic economic system consists of institutions, organizations
And the social values by which natural, human and man made
Resources are used to produce, exchange, distribute and consume
Wealth/goods and services under the guiding principles of Islam
To achieve FALAH in this world and also after it”
From the definition it is clear that Muslims are required to follow the principles of Islam in all aspects of an economy. For example production of wealth should take place strictly with in the limits described by Islam to find that ultimate consumption pattern of the people is evolved in line with the injunctions of Islam.
The silent features or the main characteristics of the economic system of Islam are as follows.
Islam gives a unique concept of ownership or right to private property. According to this concept every thing belongs to Allah and the people are trustees of what is being given to them by Allah. Thus, they are allowed to own and use property earned by them in accordance with the guidelines of Islam. This shows that Islam recognizes the individual’s right to private property and it permits ownership of all type of property.
Basic principles laid down in Islam for the consumption and investment of private property are as follows:
One has to distinguish between HALAL and HARAM in the pursuit of his/her earning or in the production and consumption of wealth.
Parading of ones wealth or ostentation is not allowed.
A property cannot be used against public interest.
Extravagance or spending lavishly on consumer goods and also miserliness on the contrary, is forbidden.
Real/money capital cannot be used for gambling.
People are not allowed to lend their money capital to earn interest.
Payment of Zakat and Ushar is compulsory and obligatory and therefore evasion in this regard would be illegal.
In an Islamic society people are not allowed to satisfy their wants by the way they choose, as it is their in other economic systems. According to Islamic principles, people are allowed to consume necessaries and comforts in life and luxuries are not allowed to be used in any way because this is against the concept of TAQWA. Hence Islam shows HALAL and HARAM. Only HALALS are required to be consumed and not the HARAM ones.
Price mechanism plays a key role in carrying out the production process in an Islamic society. To start with, prices of factors of production i.e. land, labour, capital and organizations are determined in the factor market through free competition between the owners of the factors and the entrepreneurs.
In the Islamic society, entrepreneurs are free to initiate, organize and run any business they choose and in any form they like, but only those goods and services will be produced whose production is allowed by Islam. Following types of production of wealth and the business thereof is not allowed by Islam and it cannot operate in an Islamic society.
1. Production of drugs, alcoholic drinks, gambling, prostitution, lottery, music and dance etc.
2. Lending and borrowing on interest.
3. Black marketing, hoarding, smuggling etc.
Islam does not advocate equal distribution of wealth in the sense that all individuals should have the same or equal means from livelihood and that there should be no difference in their economic status in society. It favors fair (not equal) distribution of wealth in the sense that it should not be confined to any particular section of the society. It is therefore required that wealth should spread out in the community and all individuals should have equal opportunities to seek employment or to do a business of their own choice.
Zakat/Ushar is a major source of revenue for the government in an Islamic state. It is a compulsory levy, on cattle, crops, merchandise, gold, silver and cash. It is a levy, not on income but on total wealth, which has been in the possession of an owner for one year. Whether the owner has utilized his wealth in production or not, he is liable to pay Zakat every year in the month of Rajab or after it.
An Islamic economy is always an interest free economy. Therefore, the earning of income an interest is totally forbidden in an Islamic state.
Islam advises its followers to invest their money capital in different forms of business organizations like sole proprietorship, partnership etc. In sole proprietorship entrepreneurs invest their own money capital to earn profit, while partner’s pool up their capital for investment to run the form of business called partnership. The profit earned thereof is distributed according to an agreement signed between the two parties. In the case of loss in business, the whole loss is borne by the person who makes capital investment while the other person loses his labor only.
The amount of capital in an Islamic state depends on the amount of saving. Therefore, to increase the amount of capital for economic growth in the Islamic economy it is absolutely necessary that (i) people should endeavor to increase their income, (ii) they should spend their income very carefully, (iii) there should be a sound security system to enable people to earn wealth freely and easily.
An Islamic government mostly assumes administrative responsibilities to achieve economic growth and stability in the state.
From the silent features of Islamic economic system it becomes evident that the system meets quite naturally the material and spiritual requirements of human beings as opposed to capitalism and communism wherein only the material wants are satisfied. Under this system, basic material needs in life i.e. food, shelter, clothing, health, education etc are provided to the people and the needy in particular. As far as spiritual needs are concerned, they are provided through spiritual values.
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