Economic System of Islam

Islam views life as a compact whole and does not divide it into many separate and conflicting parts. The economic aspect is one of the most important parts of our life, while not being the whole of it. The Islamic system is balanced and places everything in its right place. Islam has given detailed regulations for the conduct of our economic life which concerns mainly the earning and use of wealth.

Man needs bread to live but he does not live for bread alone. This means that earning and spending money is essential for our living, but we do not live only for this. We have a greater purpose in life. We are Allah’s agents (Khalifah) on earth. We not only have a body but we also have a soul and a conscience. Without our soul and conscience, we would be considered little more than animals.

Everything in Islam is for the benefit and welfare of mankind. The economic principle of Islam aim at establishing a just society wherein everyone will behave responsibly and honestly, and not as ‘cunning foxes’ fighting for as big a share of something as possible without regard for honesty, truth, decency, trust and responsibility.

The Islamic Economic System is based on the following fundamental principles:

1. Earning and expenditure by Halal means.

Islam has prescribed laws to regulate earnings and expenditure. Muslims are not allowed to earn and spend in any way they like. The must follow the rules of the Qur’an and the Sunnah:
a. Any earnings from the production, sale and distribution of alcoholic drinks are unlawful (Haram), as are earnings from gambling, lotteries and from interest (Riba) transactions (5:90-91, 2:275).
b. Earning by falsehood, deceit, fraud, theft, robbery and burglary is unlawful. Deceitful acquisition of orphans' property has been particularly banned (2:188, 4:2, 6:152, 7:85, 83:1-5).
c. Hording of food stuff and basic necessities, smuggling and the artificial creation of shortages are unlawful (3:180, 9:34-35).
d. Earnings from brothels and from such other practices which are harmful to society are also unlawful (24:23).

Islam strikes at the root of the evil and wants to establish a just and fair society. A Muslim must earn his living in Halal ways and he should always bear in mind that what ever he does, it is known to Allah. He will be accountable for his actions on the day of judgement. He cannot hide anything from Almighty Allah.
Unlawful expenditure is also not allowed in Islam. It does not at all befit a Muslim to spend money irresponsibly. His actions should be responsible and meaningful. Extravagance and waste are strongly discouraged (7:31, 17:26, 19:27-31, 25:68).

2. Right to property and individual liberty
Islam allows a person to own his earnings. The Islamic state does not interfere with the freedom of speech, work and earnings of an individual provided this freedom is not harmful to the greater good of society. Every individual will be answerable to Allah swt for his or her actions (4:7, 36:71, 16:111).

3. System of Zakah (welfare contribution).
Compulsory payment of Zakah is one of the main principles of an Islamic economy. Every Muslim who owns wealth more than his needs must pay the fixed rate of Zakah to the Islamic state. Zakah is a means of narrowing the gap between the rich and the poor. It helps the fair distribution of wealth. It is a form of social security. The Islamic state is responsible for providing the basic necessities of food, clothing, housing, medicine and education to every citizen. No-one should have any fear of insecurity or poverty (9:69, 103, 98:5).

4. Prohibition of interest (Riba).
An Islamic economy is free of interest. Islam prohibits all transactions involving interest.Interest is neither a trade nor a profit. It is a means of exploitation and concentration of wealth. The Qur’an says:

"They say, trade is like interest and Allah has allowed trade and prohibited interest." (2:275).
"Whatever you pay as interest, so that it may increase in the property of (other) men, it does not increase with Allah."(30:39).
"O you who believe, do not take interest, doubling and quadrupling, and keep your duty to Allah, so that you may prosper." (3:130).
"O you who believe, observe your duty to Allah and give up what remains (due) from interest, if you are believers. But if you do not do it, then be warned of war from Allah and His messenger; and if you repent, then you shall have your capital. Do not exploit and be not exploited." (2:278-279).

Interest is the basis of modern capitalism. It is completely opposite to Zakah. Zakah channels wealth from the rich to the poor while interest takes away wealth from the poor and hands it over to the rich.

Modern economics are so inter-linked with interest that people may think it is impossible to go without it.
The situation is really very complex. But, we must aim at getting rid of interest. Unless people fight against the tyrant rulers and establish an Islamic state -the problems will still be there. Further, until Islamic state established, it will make us feel impossible to solve this Riba (interest) problem.
Allah swt has not imposed on us something impossible. An interest-free economy will be a boon for all peoples of the world.

5. Law of Inheritance (Mirath).
The Islamic law of inheritance is a wonderful system of stopping the concentration of wealth. It provides very detailed laws regarding the rights of dependents over the property of the deceased person. Suratun Nisa (chapter four) of the Qur’an deals with the law of inheritance in great detail(4:7-12, 4:176).

Conclusion
In addition to the above basic principles Islam has laid down many more rules about economic life. An Islamic state must bring all productive resources into use, including unemployed man-power, unused land, water resources and minerals. An Islamic stare must take steps to root out corruption and all harmful pursuits even if they are economically lucrative. Individual freedom may have to be sacrificed for the social good.
Islam encourages simplicity, modesty, charity, mutual help and cooperation. It discourages miserliness, greed, extravagance and unnecessary waste.
Here, we have discussed the main points of the Islamic economic system and we have no scope to go into the details in depth. It would be better for you to study some standard books on Islamic Economic from reliable sources (ie Islamic book shop etc.) to have a good grasp of this important aspect of our life.