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Islamic Economic System


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Islamic Economic System

  2. 2. ISLAM – The Complete Code of Life <ul><li>Islam is not merely a religion or Economic system but a Deen. It provides guidance for all aspects of Individual and Collective lives. </li></ul><ul><li>Islam means peace and submission. Peace acquired through total submission. </li></ul><ul><li>There cannot be peace without Justice, which is the ultimate objective of sending down all Divine Books and Prophets. </li></ul>
  3. 3. Every system has two parts: <ul><li>Ideological basis </li></ul><ul><li>Detailed structure </li></ul>
  4. 4. THE IDEOLOGICAL BASIS <ul><li>The ideological basis of the two known Economic systems i.e. Capitalism and Socialism is Materialism </li></ul><ul><li>Ideological basis of Islam is Eemaan </li></ul><ul><li>Where real matter is not this world but the Hereafter </li></ul><ul><li>Islam has to be established on its own ideological basis and does not need and assistance or insertion from some other systems. </li></ul>
  6. 6. Two known Economic Systems <ul><li>Capitalism: An absolute and unconditional right to private property </li></ul><ul><li>The slogan:- Freedom </li></ul><ul><li>2. Socialism: Total denial of right to private property with the exception of owner ship of some articles of personal use. </li></ul><ul><li>The slogan:- Equality </li></ul>
  7. 7. THE ISLAMIC APPROACH: BALANCED VIEW <ul><li>Right to property but not absolute and unconditional to cause disorder on Earth </li></ul><ul><li>Freedom and equality are two basic essential human values and Islam does want to promote and maintain them but: </li></ul><ul><ul><li>Freedom not at the cost of equality </li></ul></ul><ul><ul><li>Equality not at the cost of freedom </li></ul></ul><ul><ul><li>Moderation </li></ul></ul>
  8. 8. SOCIALISM : … An Overview <ul><li>An emotional reaction against evil consequences of capitalist economy especially the element of inequitable distribution of income </li></ul><ul><li>Negation of private ownership and market forces </li></ul><ul><li>Curtailment of zeal of production by lack of personal incentives </li></ul>
  9. 9. SOCIALISM : … An Overview <ul><li>Development of an utopian idea of planned economy </li></ul><ul><li>Destiny of people left in the hands of ruling class </li></ul><ul><li>Existence of one big capitalist, the state which treats the people as parts of machines (Example of Soviet Russian government) </li></ul>
  10. 10. CAPITALISM : … An Overview <ul><li>Absolute and unconditional ownership </li></ul><ul><li>No criterion of differentiating between just and unjust earnings, creating inequities in distribution of wealth </li></ul><ul><li>The interest-based system does not allow common people to share the profits except to the extend of a fixed rate which is again taken by industrialists as it is charged to cost of production </li></ul>
  11. 11. CAPITALISM : … An Overview <ul><li>Gambling is a major instrument for concentrating the wealth of thousands of men in few hands </li></ul><ul><li>Speculative transactions disturb the natural market operations and contribute to the inequities in the distribution of wealth </li></ul><ul><li>The rich becomes richer and poor becomes poorer </li></ul><ul><li>Lack of sympathy for the deprived </li></ul><ul><li>… Yet failed attempt today </li></ul>
  12. 12. CAPITALISM: A FAILED PROJECT <ul><li>USA: </li></ul><ul><ul><li>20% population living at poverty level </li></ul></ul><ul><ul><li>In 2002, there were 23 M criminal victimizations; out of which 17.5 M were property and 5.3 M were violent victimizations </li></ul></ul><ul><ul><li>Demonstrations in Seattle, Washington, New York, London and Argentina etc </li></ul></ul>
  14. 14. THE POLICY STATEMENT OF ISLAM: JUSTICE <ul><li>“… in order that it may not become confined to the rich amongst you”. </li></ul><ul><li>(Al-Hashr: 7) </li></ul><ul><li>“ Verily Allah imposes upon them Sadaqah (alms) on their wealth to be taken from the rich and then given to the poor”. (Tirmizi) </li></ul><ul><li>… Better the circulation, better the economy </li></ul>
  15. 15. THE OBJECTIVES <ul><li>Everyone to function according to his ability, aptitude, own choice and liking. </li></ul><ul><li>Market forces to be operative. </li></ul><ul><li>Everyone to get what is rightfully his. </li></ul><ul><li>Equal participation in profit and loss. </li></ul><ul><li>Wealth to circulate in equitable manner. </li></ul><ul><li>Gap between rich and poor to be narrowed. </li></ul>
  16. 16. TWO DIMENSIONS <ul><li>Spiritual dimension </li></ul><ul><li>  Spiritual socialism </li></ul><ul><li>2. Legal dimension </li></ul><ul><li>  Controlled and internally managed capitalism </li></ul>
  17. 17. SPIRITUAL SOCIALISM <ul><li>Allah is the Real Owner </li></ul><ul><li>Whatever one has is bounty (Fazl) of Allah </li></ul><ul><li>The rightful share is the fulfillment of basic necessities </li></ul><ul><li>Whatever is in excess of one's basic needs is the right of others </li></ul><ul><li>But all this is voluntarily </li></ul><ul><li>Our beloved prophet (saw), Sahaaba (raa) and Aulia Allah lived on this level </li></ul><ul><li>These people are the model and pace-makers for the society </li></ul>
  18. 18. LEGAL SYSTEM <ul><li>It includes three aspects of Capitalism: </li></ul><ul><ul><li>Private Ownership </li></ul></ul><ul><ul><li>Personal Incentives </li></ul></ul><ul><ul><li>Market Economy </li></ul></ul>
  19. 19. CONTROL AND INTERNAL MANAGEMENT <ul><li>Equitable distribution of wealth </li></ul><ul><li>Process of earning is subject to Divine injunctions </li></ul>
  20. 20. EQUITABLE DISTRIBUTION OF WEALTH <ul><li>Due to freedom the gap of haves and have-nots is bound to emerge. </li></ul><ul><li>Steps taken for the equitable distribution and circulation of wealth. </li></ul><ul><li>Institution of Zakat. </li></ul><ul><li>Zakat is not a tax but farz Ibaadat; as such no evasion results. </li></ul>
  21. 21. THE CIRCULATION <ul><li>Flow of wealth from the rich to the poor & from the poor to the rich. </li></ul><ul><li>Increased purchasing power. </li></ul><ul><li>Boost in sales. </li></ul><ul><li>Higher volume of production. </li></ul><ul><li>Again – the circulation. </li></ul>
  22. 22. OTHER MEANS FOR CIRCULATION <ul><li>U’shr </li></ul><ul><ul><li>Form of Zakat, levied on land produce </li></ul></ul><ul><ul><li>The rate is 5% on irrigated lands and 10% on non-irrigated lands </li></ul></ul><ul><li>Kaffarat </li></ul><ul><li>Sadaqat and Infaaq </li></ul><ul><li>Wirasat (Inheritance) </li></ul><ul><li>Khiraj & Jizyah </li></ul><ul><li>Anfal & Fay </li></ul>
  23. 23. Process of Earning Subject to Divine Injunctions <ul><li>Objectives </li></ul><ul><li>To prevent monopolies and curb the unjust/immoral earnings detrimental to the collective interest of society </li></ul><ul><li>Wealth is kept under constant circulation and chances of concentration are eliminated </li></ul>
  24. 24. Process of Earning Subject to Divine Injunctions <ul><li>Islam provides mechanism to keep market forces operative with their natural force without their being hindered by monopolies </li></ul><ul><li>Allah made trade HALAL (Al-Baqarah: 279) and with mutual consent (An'Nisa: 29) </li></ul><ul><ul><li>Profit & loss sharing </li></ul></ul><ul><ul><li>Natural market forces </li></ul></ul><ul><ul><li>Mutual consent </li></ul></ul>
  25. 25. DIVINE INJUNCTIONS <ul><li>Islam has prohibited: </li></ul><ul><li>Usury, interest </li></ul><ul><li>Hoarding </li></ul><ul><li>Speculation </li></ul><ul><li>Insurance </li></ul><ul><li>Overtrading </li></ul><ul><li>Sale without possession </li></ul><ul><li>Securing profits by exploiting immoral desires of people etc </li></ul>
  27. 27. IMPACTS OF INTEREST <ul><li>Elimination of unemployment needs extinguishment of interest. </li></ul><ul><li>Inverse relation between interest & savings. </li></ul><ul><li>Interest  Earnings  Savings  Investment </li></ul><ul><li>Source: Keynes General Theory of Employment, Interest and Money. </li></ul>KEYNES ON INTEREST:
  28. 28. IMPACTS OF INTEREST PAKISTAN 5 16-17 1985 13 5 1965 Savings % Interest % Year
  29. 29. IMPACTS OF INTEREST <ul><li>Huge borrowing on interest in 1988 and </li></ul><ul><li>onwards through Structural Adjustment Prog. </li></ul>PAKISTAN Poverty Economic growth Year 50% 3.3% 2000 40% <ul><ul><li>4.6% </li></ul></ul>1990 30% 6.5% 1980
  30. 30. THE REAL TASK AHEAD <ul><li>All these Divine injunctions and their beauty and benefits are still in theoretical form and no living example is available </li></ul><ul><li>Some natural process of revolution is bound to find its way due to injustice prevailing in the world </li></ul><ul><li>The need of the hour is to establish the Deen of Allah, which is the ultimate objective of sending all prophets, books and Divine Law (Al-Hadeed: 25) </li></ul>
  31. 31. QUAID’S QUOTE <ul><li>“ I shall watch with keenness the work of your Research Organization in evolving banking practices compatible with Islamic ideals of social and economic life. The economic system of the West has created almost insoluble problems of humanity and to many of us it appears that only a miracle can save it from disaster that is now facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. </li></ul><ul><li>(Speech on the occasion of the opening ceremony of </li></ul><ul><li>State Bank of Pakistan: July 1, 1948) </li></ul>
  32. 32. QUAID’S QUOTE <ul><li>We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind.” </li></ul><ul><li>(Speech on the occasion of the opening ceremony of </li></ul><ul><li>State Bank of Pakistan: July 1, 1948) </li></ul>