The Islamic Economic System
Interest-free Islamic economic system is partially followed and partially not followed in Muslim countries around the world. The only country, which has followed this system completely in every minute detail is Malaysia. So the application methods in this post are mostly those implemented in Malaysia following the Interest-free Islamic Economic system.
The main feature of the Islamic economic system is that it is Interest-Free. As the Qur'an says in Sura al-Baqara Chapter 2 Verses 278 & 279, "O ye who believe! fear Allah and give up what remains of your demand for usury if ye are indeed believers. If ye do it not take notice of war from Allah and his Apostle: but if ye turn back ye shall have your capital sums; do not deal unjustly and ye shall not be dealt with unjustly."
Qur'an condemn all evil deeds, but never has the Qur'an warned of a war against God Almighty and His Messenger except in the case of taking Interest and Usury.
Islam In the Heartland of America
There are several evils of the interest based economy, the reason why Islam has prohibited it.
For example, if a person takes a loan from a bank and says the cost price of a certain article is 10 dollars and he wants to a profit of one dollar. So the selling price would include the 10 dollars cost price one dollar profit and one dollar interest and the selling price would be 12 dollars. The selling price would go up because of interest and when the selling price goes up the demand comes down and when the demand comes down the supply comes down and as supply comes down production comes down causing labour problem and unemployment.
For example, if a person takes a loan from the bank and no matter if he earns a profit or goes in loss he has to pay that fixed amount of interest. Even if some natural calamity befalls his family, such as flooding or earthquake, the person still has to pay the loan with the interest and a delay would only increase the amount of interest. It is social injustice.
There is no social consideration.
Suppose, if two businessmen come to ask for a loan from a modern bank and one businessman wants to start a social or hospital while the other businessman wants to start an alcohol factory or a gambling den. But natural the businessman, who wants to start an alcohol factory or a gambling den would have better returns and the loan given to him would be more secure and he would give a higher rate of interest as compared to the business, who wants to open a school or hospital. Modern banks are only interested in getting better and higher returns. That's why they finance gambling dens rather than schools or hospitals. That is why in the 80s thousands of gambling dens were financed by modern banks worldwide. For name sake only a few social projects are financed by modern banks and the majority of their loans are based on better interest.
Modern banks encourage people to store money and keep the money idle for small fixed return on it every year. In the end, power is concentrated in a few hands, the bankers.
In the same way there are several benefits of Islamic banking.
As there is no interest involved, there is profit and loss sharing. So if a person wants to sell his goods, it would only have the cost price and profit in the selling price and instead of 12 dollars, his selling price would be only 11 dollars. If the selling price comes down, the demand increases and if the demand increases the supply increases and as supply increases the production increases resulting in more labour for the people and higher employment. As a result encourages people to work and earn their living.
There is Social Justice in Islamic banking.
If a business takes a loan and goes in loss, the loss is shared by the bank and if he earns a profit, the profit is shared by the bank. If in case any natural calamities befalls him, the Islamic bank gives him more time to repay, unlike the modern bank, where the more time you take to pay the more interest you would have to pay. Many a times if the Islamic bank finds the situation very bad, they even let go off that loan.
There is Social Consideration in Islamic banking.
Islamic bank can not give a loan to any businessman, who is doing any activity, which is causing harm to the society. For example, if a businessman wants to start an alcohol factory and approaches an Islamic bank for a loan, the Islamic bank will not lend him a single penny, not even if he promises to give 100% profit to the Islamic bank. In Islamic banking there is social consideration and they encourage projects beneficial for the society, such as building schools, hospitals and nurseries. In short, the Islamic bank encourages the society to improve.
In the Islamic bank, you are not encouraged to keep your money idle. You are encouraged to invest your money and be a partner in the business and in the end, power is not concentrated in the hands of a few individuals. Because in the Islamic banking the profit and loss are shared by the business, the banker as well as the depositor. The power is equally shared among all the people.
The great philosopher, Aristotle has beautifully defined Interest as "An earning based on the use of money and not on labour, and all such earnings(interests) are against nature."
Lets quickly analyze the objectives of the Islamic economic order before we analyze the theory and practical application of the Islamic economic system.
The Objectives of the Islamic Economic Order
1- Economic well-being
Islam encourages a person to enjoy the bounties of God Almighty, to work for his living and refrain from begging.
2- Universal Brotherhood and Justice
Qur'an says in Sura al-Hujurat Chapter 49 Verse 13, "O mankind! We created you from a single (pair) of a male and a female and made you into nations and tribes that ye may know each other (not that ye may despise each other). Verily the most honored of you in the sight of Allah is (he who is) the most righteous of you."
From this we come to know the criteria that the criteria of judgement in the sight of God is not wealth, not sex, not color, not Caste, but it is "Taqwa" God consciousness, piety and righteousness.
Qur'an says in Sura an-Nisa Chapter 4 Verse 135, "O ye who believe! stand out firmly for justice as witnesses to Allah even as against yourselves or your parents or your kin and whether it be (against) rich or poor: for Allah can best protects all."
According to this we have to stand for truth and justice be it against anybody even against our own selves and sacrifice your own interests.
3- Equitable Distribution of Wealth
Islam is against the philosophy that the wealth should be concentrated in a few hands. The difference between the rich and the poor should be reduced. Otherwise they would become enemies unto each other. For this, Islam has devised a system of "Zakat" that every Muslim, who has excess wealth exceeding the amount equal to or more than 85 grams of Gold. This amount is spent on the poor, orphans, needy and so on. If every individual in the world practices this system of "Zakat", not a single person in the whole world would die of hunger. Islam teaches to find lawful employment for the unemployed and to pay him a good remuneration.
According to Islam if a person dies his wealth should be distributed among his heirs according to the guidelines laid down in Qur'an and Ahadith and it should not go to just one or two individuals in the society as it is done today.
4- Individual Freedom within the Context of Social Well-fare
According to Islam man is born free and nobody not even the state can abrogate his freedom nor subject his life to strict regimentation. Every individual is free as long as he does not harm the society because in Islam the larger welfare of the society takes precedence over the individual freedom.
Working and labour as well as the benefit in business are both important principles of Islam, but working and labour take precedence over the benefit in business. If you are doing business, a big loss can not be inflicted to relieve a small loss, nor can a big profit can be sacrificed for a small profit. In short, Islam believes in individual within the context of social welfare.
There are mainly four factors involved in production;
1- Land
In both the Modern and Islamic theories, you pay rent on the land.
2- Labor
You pay wages on the labour in both the Modern and Islamic theories.
3- Capital
In the Modern theory, you pay Interest on capital, while in the Islamic theory there is profit and loss sharing.
4- Organization
In the fourth factor of production, Organization, there is profit and loss sharing in both theories.
So the major difference in the four factors of production is the third factor of Capital. The Modern Theory says that a fixed interest should be charged on the capital, while the Islamic theory says that there is profit and loss sharing on capital. Because Islamic theory does not differentiate between the third factor Capital and the fourth factor Organization because the money lent by the bank does not belong to the bank itself, it belongs to the depositor. The depositors are the part of Organization and the money deposited in the bank (the capital) should be included in the Organization. In the Islamic theory Capital and Organization are clove together and there is profit and loss sharing on the capital.
When you have to do business, there are naturally two types of units. One is the surplus unit, who have excess of wealth, but do not know how to spend it. Second is the deficit unit, the people who do not have money, but have good ideas for business. The best examples of a surplus and deficit unit in the Islamic history is Lady Khadijah (may Allah be pleased with her) had excess of wealth, but lacked avenues to spend in and being a female she couldn't travel abroad too much to deal in business transactions. The deficit unit, in terms of wealth, was Prophet Mohammed (peace be upon him). He had good ideas and access to business avenues, but did not have wealth. So Lady Khadijah (may Allah be pleased with her) gave wealth, which Prophet Mohammed (peace be upon him) invested in business avenues on her behalf and the profit was shared on a fixed pre-determined ration.
The System of Islamic Banking and Modern Banking
Lets analyze the options open for individual depositors to deposit their money in an Islamic bank.
Current Account
The money you deposit in an Islamic bank is utilized with your permission, but if the bank goes in loss, the loss is not shared by the depositor. If the bank goes in profit, neither is the profit shared by the depositor. The depositor is interested in only the safety of his money, not profit. The Islamic banks gives you a check book and a slip book with the functions as that of a modern bank.
Savings Account
Even here the depositor is mainly interested in the safety of his money. As the bank gets a profit from this money, the bank can gift a portion of that profit to the depositor, if the bank wants, but the depositor can not demand a fixed portion.
In Islamic banking, if a bank goes bankrupt then the depositors get their money first and then, the creditors. While in Modern Banking creditors get their money first and majority of the depositors lose their money. So even if you want your money safe, the Islamic banks are preferable and safer than Modern banks.
Investment Accounts
They are similar to the Fixed Accounts of Modern banks and are further divided into several types
Mudariba (Profit & Loss Sharing)
The depositor deposits a fixed amount of money in the bank for a fixed period of time, which maybe a multiple of three or a multiple of four. Here the surplus unit is the depositor and the deficit unit is the bank. The bank uses this money to do business with the businessmen and whatever profit the Islamic bank makes, it is divided on a pre-determined ratio, which can be negotiated. In the Islamic Banking of Malaysia, the ratio is 7 part to 3 part, meaning 70% goes to the depositor and 30% is kept by the bank. So there is sharing of profit, the greater the profit the greater the share of each.
Suppose, if there is a loss of a hundred dollars, then hundred would be deducted from the depositor's money. So theoretically only the depositor bears the loss. Practically analyzing even the Islamic bank is going in loss because they are paying money for the rent, administration and salary, but the loss ratio of the bank is less than that of the depositor, as even the profit of the bank is less than that of the depositor.
Project Financing in the Mudariba System
If a businessman approaches an Islamic bank with a project idea and asks for a loan for a fixed period, the Islamic bank analyzes the project, then the businessman and the Islamic bank negotiate the profit ratio. In Modern banking interest is negotiated, in Islamic banking profit ratio is negotiated.
Suppose, the businessman takes a loan of $5000 from an Islamic bank for six months and the pre-determined profit ratio is 60% to the bank and 40% to the businessman. If the businessman is working for his business, even his salary would be included in that $5000 and suppose the salary of the businessman is $200 per month.
Suppose, if the businessman earns a profit of $5000, the business would get (his 40%) $2000 from the profit and the businessman would get paid $200 salary per month from the $5000 loan, amounting $1200 for 6 months. So the businessman gets his profit as well as the salary for his labour, if he is working for his business.
But in case of loss, the bank bears the complete loss and in turn passes the loss to the depositors. But technically even the business also goes in loss because he is only paid for labour, not for his thinking and ideas.
In Mudariba System, the bank can not interfere in the management of the business. The business can not tell the businessman to build a 12 story building instead of a 10 story building. The bank can not tell the business to produce a certain article instead of another article. The bank can not interfere in the administration of the business.
Mushariqa System (Partnership)
In Mushariqa system or Partnership the Islamic bank can interfere in the management of the business. The bank can tell the business to build a 12 story building rather than a 10 story building. The bank can tell the businessman to make a certain product instead of another product. In Mushariqa system the businessman has part of the capital and the other part he takes from the bank. The profit is shared on a pre-determined ratio. Suppose, if the businessman and bank give 50-50% capital, they would get 50-50% profit. But in case of loss, loss is shared on pre-determined ration and the Islamic bank bears more loss. The Islamic bank may have to bear 60% loss, while the businessman would only bear 40% loss.
Mudhaba System
Suppose, you want to purchase a particular machinery from abroad costing $10000, in the Modern Bank you open a LC (Letter of Credit) or a TR (Trust Receipt/Sales Slip) and you deposit the money in the Modern bank and the Modern bank charges you a fixed amount of interest on the time it takes for the transaction. If you deposit the money in an Islamic bank and ask the bank to buy the machinery on your behalf, the Islamic bank would charge you a service charge/commission.
If you do not have money to buy the machinery, you can combine Mudhaba System with Mudariba System or if you have the money you can combine the Mudhaba System with the Mushariqa System and share the profit on selling that machinery with the bank on a pre-determined ratio.
Ijara (Leasing or Higher Purchasing)
Suppose, you don't to buy a car, you want to rent it. The Islamic bank charges you a certain profit and rents you the car. The price of the car and the profit are divided by the life span of that car to calculate the per month rent. The Islamic bank provides you Ijara ending with sale and also buying back facility. If you don't the car, the Islamic bank buys back the car, a facility which Modern banks do not provide.
Interest-free Loan
It is the loan the Islamic bank gives to the poor to do business without charging any Interest at all. There is nothing like Interest-free loan in Modern banking. In the Islamic system of banking in Malaysia 10% of profits are kept separately/ reserved for Interest-free loan for the poor. In Islamic terminology it is called "Karze Hasana" meaning "the good loan".
Liaqat Qazi is a student of Islam and Comparative Religions, who runs a blog called Peacebook, where he discusses issues about all major World Religions. He also discusses the most controversial issues about Islam and other religions in a logical way, with proof from the religious scriptures.
Article Source: http://EzineArticles.com/7236093
“Who is he that will loan to Allah (God) a beautiful loan which Allah will amply repay and multiply many times? It is God that giveth want or plenty, and to Him shall be your return.”
Quran 2:245 “Who is he that will loan to Allah (God) a beautiful loan which Allah will amply repay and multiply many times? It is God that giveth want or plenty, and to Him shall be your return.” Spending in the cause of God is called metaphorically a beautiful loan. It shows a beautiful spirit of self-denial and helping others, humanity at large. Cycle is defined as a series of recurring events or phenomena, the cycle of the seasons, an orbit of the heavens or planets. A period of time occupied by a set of events which will go on recurring in similar periods of time, an ordered series of phenomena in which some process is completed. In chemistry and physics, any series of changes which restores a system to its original state. A ring, wheel, an alternating electric current. The Water Cycle The water is drawn up from the earth in a fine mist that the eye cannot always see, it is drawn up by the moon and the sun’s attracting power over the water. Once it reaches a certain height and weight then it returns back to the earth in the form of rain, snow or sleet and brings great benefits to the earth and all of its creatures. Good works also recycle and return in beneficial ways for the doer of good. Quran 55:60 Allah says, “Is there any reward for doing good other than good.” A very short but powerful verse in the Quran that expresses a great phenomenon of equity and more.
The return of goodness for goodness, the return of service to God and humanity increases in the status of bounties. This effect is in accord with Allah’s laws in nature; if you plant a seed in the ground much more than you plant will return to you. Allah has written down the good deeds and the bad deeds. A hadith from the Prophet states: “He who has intended a good deed and has not done it, Allah writes it down as a full good deed. If he/she has intended it and has done it, Allah writes it down out of His mercy as 10 to 100 times or more as good deeds. If one intends a bad deed and does not do it, it is recorded as a good deed. If one intends a bad deed and carries it out it is written as one bad deed.” Good deeds and actions will benefit the doer of the deed as much or more than the receiver. Our good deeds will help us enter the paradise along with Allah’s forgiveness and mercy. Good deeds helps return us to the best nature in which we were created.
The Quran encourages us to spend in God’s way for the benefit of mankind. The best motive for, or the best kind of spending in God’s way should be to help others stand on their own feet, not to keep them permanently in the beggar’s seat. Indeed to help another person in a way which makes him to look for help all the time is inherently ill motivated. Give a man a fish; you feed him for a day.
Teach him how to fish and you feed him for a lifetime. (Confucius) The Prophet said, three things will continue to benefit man after his death: A useful knowledge A perpetual charity The prayer of a righteous child Prophet said: Three follows the dead person to the grave, two returns and one remains with him, His wealth, his loved ones and his deeds. There is absolutely nothing from the life of this world which endures and lasts beyond death except good or bad deeds, not your fame, fortune or wealth. Decades ago in Scotland, a young boy cried for help, someone please help me.
Islam In the Heartland in America
A poor Scottish farmer heard the cry and ran to help. He found a boy sinking in thick black mud. The poor farmer saved the boy. Later the poor farmer was visited by a wealthy gentleman in a stately carriage. He said, you saved my son yesterday and I am here to reward you. The poor farmer would not accept any of the money offered to him. The gentleman wanted to give a gift of gratitude to the man. The wealthy man saw a boy in the house and said, since you helped my son, I will help yours. I will see that your son will receive the finest education available in the country.
Later the farmer’s son graduated from St Mary’s Hospital Medical School of London. The poor farmer’s son in turn gave a gift to the world. He discovered penicillin. His name was Alexander Fleming. The wealthy mans son’s life would be threatened for a second time. Now grown, he lay dying of pneumonia. It was the poor farmer’s son who saved him this time when penicillin was prescribed.
The wealthy man, Randolph Churchill provided for the education of Alexander Fleming, that education saved his son Sir Winston Churchill. We pray for Allah’s forgiveness and guidance, Ameen.
With Allah’s name The Merciful Benefactor, The Merciful Redeemer. Religion Should Cultivate Moral Qualities
With Allah’s name The Merciful Benefactor, The Merciful Redeemer.
Religion Should Cultivate Moral Qualities
By Imam Omar Hazim
The gift of reasoning is one of the greatest gifts God has given to human beings. The ability to think and ponder, then initiate action based upon those thoughts is what has elevated humans above other creatures. It is in accepting moral and social responsibilities that leads us to moral excellence.
Islamic views on social responsibilities are based on kindness and consideration of others, not only to one’s immediate family, parents, relatives and neighbors, but to all of mankind, and the animal’s birds, trees and plants.
The Arabic word Jihad is greatly misunderstood. It is not synonymous with war. Jihad means struggle against a visible enemy, against Satan, and against self. The greatest struggle we may ever have is within self, or good vs. evil.
We all need to concern ourselves with ethics and upright conduct as exemplified by the prophets and messengers of God for human guidance. Racism is not the biggest problem anymore. Other kinds of problems caused by human behavior are.
These include ignorance, neglect of family, immorality, spiritual blindness, violence, senseless murder, greed, fraud, sexual perversion, dishonesty, injustice, white collar crime, corruption, drugs, babies having babies, etc. They are the product of faithlessness in God and the lack of fear of accountability for one’s actions.
We have the potential to be much better than we are. The human being is born the weakest creature on the Earth, but he grows to become the strongest mentally and the most wise. In Islam we believe God has given man and woman the potential to achieve human excellence. The real human being is within. The body is only the vehicle for certain physical needs and goals.
We must take care of the body and the mind to achieve our goals of excellence and we must use our best reasoning for sincere self evaluations this should lead to self improvement, self discipline, self management, self control and an improve morality for ourselves, family and community.
We cannot blame society or our mothers or fathers for our shortcomings. In Islam we do not believe man and woman was born in sin; we believe the human being was born free of it and is responsible for his or her deeds after the age of discretion (puberty) if and when a sin is committed.
We believe the family structure that begins with male and female is the cornerstone of society and should be protected. Muslims accept the tree that the Bible and Quran speak of as being the tree of immorality. We do not accept that the woman tempted man to eat fruit from it and thus began immorality for the world. We believe men and women are equal in the sight of God and will be judged on their intentions and actions and not their gender.
The moral qualities which are latent within us remain in a dormant condition unless they are called into action. The role of religion is to bring out the best moral qualities in us and guide the human being to the practical affairs of life. Religion should free our minds so we can advance our thinking and purpose on this Earth. Our intellect must grow spiritually to overcome the moral dilemmas of our times, and education should be a priority for our young.
Islam is a systematic way of life, which includes worship to God and service to humanity, Islamic laws, social life and an economic and political system that ensures justice and equality for all. It does not recognize any discrimination on the basis of language, color, country, sex or heritage. Islam stresses that being fair and just is next to piety.
The Islamic Center of Topeka is willing to work with others in our community for the solution of the problems that affect us all. Let’s strive for moral excellence.
With Allah’s name The Merciful Benefactor, The Merciful Redeemer. Islamic Contributions to a Pluralistic Society
With Allah’s name The Merciful Benefactor, The Merciful Redeemer .
Islamic Contributions to a Pluralistic Society
Historians agree that the brilliant achievements of the Twentieth Century science and technology, have been greatly enhanced and inspired by the early philosophers, scientists, chemist, mathematicians, architects and physicians of the Muslim World.
Islam has made great contributions to the cultivation of the physical sciences. Chemistry, as a science, is unquestionably the invention of Muslims. Abu Musa Jabir is called the true father of modern chemistry (The Geber of Christian writers).
Every branch of higher mathematics bears traces of Islamic genius. Zero comes from “sifr” in Arabic, and points to the fact that our numbering system, Arabic numerals, is an Islamic contribution to the world.
Muslims were especially strong in mathematics, algebra, trigonometry, astronomy, geography, agriculture and poetry. The word “algebra” comes from the Arabic word “Al-Jabr,” which is the Arabic name for that branch of Mathematics.
Muslims were pioneers in the research in Astronomy. The first observatory in Europe was built by Muslims, the Tower of Sevile (or the Giralda) in 1190 AC.
The Science of Medicine and the Art of Surgery has attained a high degree of excellence from Muslims. Intellectual development and the freedom of though among Muslims was the cause of great civilizations to be built during the centuries of moral, intellectual and social decay in Europe called The Dark Ages.
It was the literary and scientific spirit of Islam that gave inspiration and contributed immensely to the re-awakening of Europe , known as the Renaissance.
Reports indicate that there are more than six million Muslims in America today, who are making positive contributions to the success of the country in every field: medicine, science, technology, education and business. Muslims have established Information Center , Places of Worship, Academic Institutions, Elementary and High Schools.
One of the most profound contributions of Islam in this ere of American history was in 1975 when Imam Warith Deen Mohammed was elected unanimously leader of the Nation of Islam. He quickly influenced and led hundreds of thousand of its members and associates to mainstream Islam, which paved the way for a greater respect of tolerance for all creeds and religions. I believe through time and history the world will be able to perceive the greatness and real value of that contribution.
American Muslims have organized ad-Hoc Committees against crime across the country and have been very successful in many cities. Confronting the many problems that affect us all, these committees also work closely with law enforcement agencies.
It was a Muslim Chief Architect who designed the Sears Tower and John Hancock buildings in Chicago . Locally, we have Muslim doctors and nurses in every hospital in our city, working to save lives and to improve the quality of life of human beings. We have educators and business people.
It was Muslim Masonry Contractor who built the additions to the Young Men’s Christian Association, and the addition to Temple Beth Shalom.
Muslims live in peace and harmony, among themselves and other, in all cities in America .
Top Tips For Studying Community Speaking
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