The salient features of Islamic Economics in Contrast to Conventional Economics has been highlighted under the following headings.
INTEREST (RIBA)
The institution of banking and interest is the main principle of
conventional economics. Trade, business and economic ventures require huge sum
of money which no individual may be willing or able to single handedly give.
This leads to the institution of banking and interest where the bank acts as
intermediary collecting money from individual on low interest rates, adding its
own margin and lending out to businesses that needs the fund at a higher rate
of interest. This is the fundamental on which conventional economics is
premised. There is the belief that man is not motivated to give his money or
resources without any material gain associated with such lending in the form of
interest.
Conversely, Islam considers interest as the most unfair
institution for humanity and has abolished it in its entirety. Wealth can only
be generated through lawful deal and investment. Any profits relating to these
deals are shared between the person providing the resources and the person
providing the skill. According to the Qur’an, taking interest is compared to
war against God and the Prophet. This can be found in the following verse of
the Qur’an:
O ye who believe! Observe your duty to Allah, and give up what
remaineth (due to you) from usury, if ye are (in truth) believers. And if ye do
not, then be warned of war (against you) from Allah and His messenger. And if
ye repent, then ye have your principal (without interest). Wrong not and ye
shall not be wronged.
Also, the prophet (SAW) likened interest to adultery and he says
that interest is worse than adultery
Abdullah-bin-Hanjalah reported that the Messenger of Allah said: A
Dirham of usury a man devours with knowledge is greater than thirty-six
fornications.
(Ahmad, Darqutni)
DIVINE REVELATION/DEFINITION OF ECONOMICS
Islamic economics has its base deeply rooted in the Hadith which
is the life and teachings of the prophet (Sunnah) recorded by the Companions
and handed down to later generations, and the Qur’an revealed to Prophet
Mohammed. Islamic economics define the economic principle in accordance with
Islamic law which is based on divine revelations and it inculcate all aspect of
human life with accountability, and the resourceful and unbiased use of
resources.
S.M Hasanuz Zaman define economics as “the knowledge and
application of injunctions and rules of the shari’ah that prevent injustice in
the acquisition and disposal of material resources in order to provide
satisfaction to human beings and enable them to perform their obligations to
Allah and the society”. This shows that selfish accumulation of resources is
highly discouraged in Islamic economics.
On the other hand, conventional economics is majorly based on
man-made thinking, theories and beliefs which do not have any moral or
spiritual backing.
W. Stanley Jevons in the late 19th century define economics as the
mechanics of utility and self interest of humans. Activities of humans are all
based on self interest and no economic or welfare activity is embarked on if
there is no underlying gain to be derived from such activity. People always
aspire to maximize their own wealth selfishly without caring about the impact
on other individuals or on the general public.
PRIVATE-PUBLIC MIX OF OWNERSHIP
In conventional economics, right to ownership either belong to
individual (as in capitalism), to state (as in socialism) or to the general
public (as in communism).
In capitalism, the unlimited right to own properties by
individuals lead to the concentration of wealth in few hands and these disturbs
the balance of allocation of wealth in the society. In socialism, the
bureaucracy associated with running of the economy under socialism leads to
inefficiency and slow running of processes.
In contrast, the concept of ownership under Islam is a unique one
in that there is the principle that all resources belong to God. God has given
individuals the right to legal possession provided that the wealth is
accumulated in a morally permissible way. Man is a trustee of these properties
and they will be accountable in the hereafter.
Also, the state has the right to ownership of some certain things
for the benefit of the community as a whole. All man has equal rights to these
properties owned by the state and anybody can use them as long as they don’t
trample on the right of others to use the properties.
CONCEPT OF DIVINITY/ACCOUNTABILITY TO GOD
Islamic economics, is based on the belief that all wealth are
entrusted to human being by God and account will be given on how the wealth is
spent
This is in contrast to conventional economics which does not hold
such belief. It is assumed that human beings are product of their hard work and
there is no compellation to share the wealth they have amassed.
SCARCITY
Conventional economics believes that human needs are insatiable
while resources available are limited. This will lead us to concept of Pareto
Optimum. The concept does not recognize any solution as most advantageous if it
requires some sacrifice on the part of the rich to assist in sustaining the
underprivileged
In opposition, Islamic economics is hinged on the belief that
there are enough resources to satisfy the genuine need of all humans and any
scarcity is caused by selfishness of those who are favored by Allah to have
wealth in abundance. Any wasteful indulgence is not encouraged in Islam.
INCENTIVE SYSTEM
In conventional economics, incentive is meant to compensate
individual materially while promoting social awareness and solidarity. It is
also meant to promote sense of altruism and social responsibility towards the
general populace. There is the belief that availability of an incentive system
will propel an individual towards improved economic performance. Suffice to say
that without this incentive system in place, individual may not be motivated to
share his wealth (how the incentive system works).
On the contrary, securing the pleasure of God is the motivating
factor for man to undertake any economic activity. The desire to please and
earn God’s rama comes first and this is what motivates man to acquire wealth
and share amongst the less fortunate. If any activity is conducted with the
sole intention of earning God’s pleasure, he will be rewarded in this world and
the hereafter
TIME VALUE OF MONEY
In conventional economics, the popular belief is that a dollar
today is not the same as a dollar in future. It is argued that the dollar can
be invested and returns earned on it irrespective of the transactions involved.
It has been assumed that all investment will always earn a return. It does not
take into consideration the probability of a loss or no return. The lender can
go on charging the borrower the agreed rate without putting into consideration
the profitability or otherwise of the borrower’s business.
On the other hand, in Islamic economics, while a lender can keep
in view the time involved in transactions and lending of money, liabilities
once established cannot be increased beyond what is agreed upon as at the time
of creating them. Islamic Economics has always emphasized the mechanism of
profit and loss sharing. Partnership is considered more suitable and in harmony
with the doctrine of justice.
CONCEPT OF RISK
In conventional economics, risk in its entirety is transferred
from the provider of funds to the borrower. The lender (provider of capital) is
guaranteed a fixed rate of return on the capital invested irrespective of the
outcome of the business venture. In short words, the borrower is supposed to
bear any loss alone.
In comparison, Islamic economics is hinged on the belief that
there is no gain without pain. To receive a profit on any transaction/capital,
the lender must be willing to share the risk associated with the borrower’s
business including the risk of loss.
INVESTMENT IN CERTAIN PRODUCTS
In Islamic economics, investing in businesses that are considered
unlawful or "haraam" is prohibited. These businesses include
gambling, pornography, sales of alcohol or pork, and generally businesses which
are contrary to Islamic values and morals.
On the contrary, some of these businesses are allowed in
conventional economics provided they can produce viable return on capital
invested.
Reference:
1. Zia A., (2011). Objective of Sharia and Concept Welfare.
2. Dr. Chaudhry M.S. (MA, LLB, PhD). Fundamentals of Islamic Economic
System.
3. S.M. Hasanuz Zaman. Chief, Islamic Economic Division, State Bank
of Pakistan
4. Zapalska A., Dallas B., Steve S., (2005). Economic System of Islam
and Its Effect on Growth and Development of Entrepreneurship.
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