Achievement of social justice through zakat and prohibition of interest

Prohibition of interest or Riba

One of the distinguishing characteristics of Islamic economic system is the prohibition
of interest.

The Holy Book Quran uses the word 
Riba for interest and defined as excessive interest or usury. 
Islam has categorically prohibited the
giving or receiving of interest in any form. 

Allah said that  “O you who believe! Fear God and give up what remains of your demand for usury, if you are indeed believers” [Al-Baqarah 2:278].

One of the Hadith the Prophet condemns the person who gives, receives, bears, witness or records any transaction that involves Riba.

As Ibrahim (2000) quoted from the Islamic Law
Academy‟s declaration, that forms of Riba can be in: 

 i) “any increase or profit on a loan which has matured in return for an extension of the maturity date, in the case where the borrower is unable to pay, 

ii) and any increase or profit on the loan at the inception [beginning] of the loan agreement”


Ibrahim (2000) also briefly discusses some of the reasons why interest or Riba is against the Islamic spirit of justice and equity. 

Here they are:

👎It discourages innovation by small businesses.

👎It leads to bankruptcy and results in loss of productive potential for the society as a
whole and causes unemployment.

👎The debt burden makes it difficult for a depressed economy to recover, bringing
additional suffering to the whole society.

👎Banks working in this system has no incentive to participate a venture. That is, they have no interest in the venture except in so far as there are possibilities of recovering their capital and earning interest, any investment plan put to them is evaluated on the basis of this criterion.

Reference : Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-200 V.9 Is.31

Achievement of social justice through zakat and prohibition of interest

ZAKAT

Zakat is a religious tax and an act of worship to please the God Almighty.

According to Rakiya Ibrahim (2000), :

The idea behind zakat “is to purify wealth and enhance its redistribution within the society and to prevent its hoarding.” 

Certain categories of people are eligible to receive zakat:

👍the poor, 

👍the needy, 

👍debtors,

👍new converts, 

👍slaves, 

👍wayfarers, 

👍zakat officials 

👍and those that fight in the cause of God). 

The types of assets that are subject to zakat are not specified. 

 Mohammed B. Sadr have a point of view according to this matter that “instances of zakat and Nisb [exemption limit] and their amount in each period are determined by ijitihad with regard to the condition of time and place” (Taheri, 2000, quoted from Sadr, 1994: p.237)

Reference: Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-200 V.9 Is.31

BASIC PRINCIPLES OF ISLAMIC ECONOMY (CONTINUE)

2. The principle of economic freedom within a define limit 

The second basic component of the Islamic economy is to allow individuals, at the economic level, a certain freedom, within the limits of the spiritual and moral values of Islam. 
Two ways of the implementation of this principle in Islam: 
👣 Islamic law provides the textual stipulation ➔ to forbid a group of social and economic activities such as usury, monopoly, and so on.
👣 Islamic law in principle lays down the supervision of the ruler over general activities and the intervention of the state to protect and safeguard public interest ➔ through the limitation of freedom of individuals in their actions.


     Ⅰ. Self-Interest

⇰ According to Islamic view, balancing between spiritual and materials need of man means the success of both individual and the society. 
⇰ Man does not have the right to possess as much as he desires or to obtain wealth in anyway he likes because he is neither the absolute owner nor the total possessor of the earth and its resources. 
⇰ Man is the vicegerent of God and this vicegerency belongs to all
people, each individual is a guardian of the public trust. 
⇰ When the spiritual life is separated from the economic struggle of man, the required balance will be deteriorated. 
⇰ Therefore, the maintenance of such a constructive balance is very crucial to economic stability as well.

     Ⅱ. Rationality

Difference between Western thought and Islamic thought with respect to the meaning of rationality concept is: 
          
➽ Western thought - rational action as delimiting characteristics in terms of the ways adopted to reach the ends are specified which values or emotions are not considered as rational.

➽ Islamic thought - the life of a Muslim in this world is a temporary phase in his permanent life the Hereafter so his success in the Hereafter is dependent on the utilization of the resources of this world in the best and right way.

💓 We should also note that while seeking the abode of the Hereafter, we could not neglect his share of the world. A right balance between the material and spiritual needs is necessary to accomplish this end. 💓

     Ⅲ. Free market 

💫 Markets played an important role as distinctive places for transactions in Islamic economic history and regulated by price mechanism. 
💫 The forces of supply and demand to bring the market in equilibrium have been well recognized.
💫 People are left free to transact and exchange goods and services.
💫 The state authority can only intervene if a transgression is illegally committed against one party.
💫 Shari'ah calls for fair and free trading, fully complying with principles.
💫 Price controls merely with the aims of justifying this freedom and fighting corruption are reasonably accepted. 

🔴 Islam has recognized the market system because of the freedom it offers to individuals. However, this system is not considered to be inviolable and unchangeable. 
🔴 The goals of the Muslim society are more important and the hoarding and profiteering of people's urgent needs for particular commodities, especially for imperative ones are absolutely prohibited.


3. The principle of social justice

Social justice is embodied in Islam by the elements and guarantees, which Islam provided for the system of distribution of wealth in the society. The Islamic image of social justice contains two general principles:
🌈 principle of general mutual responsibility. 
🌈 the principle of social balance.

Three elements necessary for the execution of social justice are
tawhid, Ijitihad, and ethics.

a) Tawhid (monotheism)

➤ Man believes that Allah is the only one need to be worship.
➤ Man believes that what happened in this world is by Allah desires and power.
➤ Also define as man-God relationship. 
➤ The key of Islamic social justice lies in man's relationship with God, people, nature, universe and the purpose of man's life on the earth. 

b) Ijtihad

➠ Technical term of Islamic law that describes the process of making a legal decision by independent interpretation of the legal sources, the Qur'an and the Sunnah.
➠ An Islamic scholar who is qualified to perform ijtihad is called a mujtahid. 
➠ Ijtihad can be use to solve Muslim's problems in political, economical and social, particularly issues for which, there are no clear injunction in Qur‟an or Hadith (i.e., Prophet‟s actions or sayings). 

c) Ethics

📍 Western view ⇝ those who tried to connect economics with ethics considered it in a purely humanistic vein created by man.
📍 Islamic view ⇝ economics is related to ethics and ethics in turn is related to religion in Islamic view.  


Reference : Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-200 V.9 Is.31

Capitalism as Economic System

Generally, Capitalism is a free market system where individuals in the system pursuit for their self-interest and the legal framework is not very regulated by the government. The market will only listen to the dollar. Capitalism promotes functional distribution as if you work hard, you will get the reward.
Islam supports the functional distribution as long as it is equitable to the community. The income and wealth should not only be concentrated in the rich people hands rather the distribution should take consideration of poor people.

Here, a short video attached regarding the history of Capitalism.

https://www.youtube.com/watch?v=dIuaW9YWqEU

Example of Economic System : Traditional Economic System

 

Traditional economy means an economy where customs, traditions, and beliefs prescribe the principles of economic organization for the production of goods and services.

The sectors of economic activity include agriculture, hunting, fishing, and gathering. 

In many situations, a traditional economy may have no official currency.

A primitive barter trade is used instead of money,

The next possible development of a traditional economy is a farmer’s economy centered on stable agrarian production structures (Rosser et al., 1999).

References: Mamedov, O., Movchan, I., Ishchenko-Padukova, O., Grabowska, M. (2016), Traditional Economy: Innovations, Efficiency and Globalization, Economics and Sociology, Vol. 9, No 2, pp. 61-72. DOI: 10.14254/2071-789X.2016/9-2/4

BASIC PRINCIPLES OF ISLAMIC ECONOMY

According to Mohammed B. Sadr, (1980) three basic principles of Islamic economy are multi-faceted ownership, economic freedom within a certain limit, and social justice. 

These are the three basic components of Islamic economic doctrine, according to which its theoretical content is defined. Islamic economics can also be distinguished from other economic regimes in terms of the broad lines given by these components.

1. Multi-faceted ownership 

Islamic economic doctrine acknowledges different forms of ownership at the same time. Ownership is accepted in a variety of forms instead of only one kind of ownership, that's why it adopts the principle of multi-faceted ownership. 

Types of ownership are: 

✉ Private ownership 

✉ Public ownership 

✉ State ownership 

Private ownership is for a number of kinds of property and means of production. Also, public ownership and state ownership are allows for some kinds of wealth and property. All three of the ownership are three parallel forms in Islamic law (Shari‟ ah).

(Surah Al-Baqarah: 284)

Based on verse above, it can be simplify that real ownership belongs to Allah and man holds property in trust for which he is accountable to him, in accordance with the rules clearly defined by the Shari‟ ah. Therefore, absolute ownership of man is an alien concept in Islam, as it belongs to God alone.

(Surah Al-Imran: 189)

He is the real owner of everything. 💖 

Reference: Assist. Prof. Dr. M. Kutluğhan Savaş ÖKTE, FUNDAMENTALS OF ISLAMIC ECONOMY AND FINANCE: THEORY AND PRACTICE (2010), Electronic Journal of Social Sciences, Winter-2010 V.9 Is.31

Historical and Ideology Background had Influence Economic System

     Historical and ideology background has influenced the development of the economic system. Before the era of capitalism, the social system in Europe was dominated by feudalism. Feudalism works when the king divides a country into pieces of land and a landlord will take over the land. The king will impose a tax on the landlords and the landlords will pass the tax to the workers. In the feudal society, people at one level of society will receive land from the higher rank people to live and work on. In return, they have to work for them and give food that had produced to them.


     However, in Islamic Economic system, the history of the economic system can be found in the seerah during prophet time.Islamic Economic also based on the principle of tawheed and shariah legal framework.


Reference : Dr.Mohd Nahar Mohd Arshad, A manual for foundation of Islamic economics basic Principles and illustrations.