ECONOMIC POLICY IN ISLAM

The economic policy is the objective of the laws, which deal with the management of human basic needs (food, shelter, education, health, security). Prophet Mohammad (pbuh) is narrated to have said: “Whom who ends his day with security at home, with healthy body, and with food at home has acquired his needs in this life”. Also, he states: “Allah breaks covenant with any group of people living in a close vicinity, whereby one of them goes to bed while hungry”.

The economic policy in Islam aims at securing the complete satisfaction of all basic needs for every individual, and to enable each individual to satisfy his luxuries as much as he can, as a person living in a particular society, which has a certain way of life. So Islam looks at every individual by himself rather than the total of individuals who live in the country. It looks at him as a human being first, who needs to satisfy all of his basic needs completely, then it looks to him in his capacity as a particular individual, to enable him to satisfy his luxuries as much as possible. Islam looks to him at the same time, as a person living in a society with other people just like him who have similar needs.

The purpose of the economic policy in Islam is not to only raise the standard of living in the country without looking to secure the rights of life for every individual completely. Nor is it just to provide the means of satisfaction in the society, leaving people free to take from such means as much as they can, without securing the right of livelihood for each individual. This is achieved by obliging each capable person to work, so as to achieve the basic needs for himself and his dependants. Islam obliges the children or the heirs to support the parents if they are not able to work, or obliges the State Treasury (Bait ul-Mal) to do so, if there is nobody to support them. As such, Islam requires that the individual secures for himself and his dependants the satisfaction of the basic needs i.e. adequate foodstuffs, clothing, education, medication and housing. Islam then encourages the individual to secure the luxuries of life as much as he can.

Islam also prevents the government from taking property through the imposition of taxes, except in cases where it is obligatory upon all Muslims to care for e.g. famine. Tax then is taken only on the wealth which exceeds that which each individual normally uses to satisfy his basic needs and luxuries. In this way, it achieves the right of livelihood for everyone individually, and facilitates the securing of the luxuries. At the same time, Islam sets certain limits within which the individual can earn in order to satisfy his basic needs and luxuries. So Islam prohibits the production and consumption of wine by Muslims, and it does not consider it an economic material. Islam prohibits the taking of riba (usury, interest, etc.) and its usage in transactions for everyone who holds Islamic citizenship. It does not consider riba as an economic commodity, whether for Muslims or non-Muslims. So Islam considers what the society ought to be when utilizing any property as a fundamental basis for utilizing the economic commodity.

Islam did not detach the individual from being human, nor the human being from being a particular individual. Furthermore, Islam does not consider what the society ought to be separate from the issue of securing the satisfaction of the basic needs for every individual, and enabling him to satisfy his luxuries. Rather, Islam makes the satisfaction of the needs and what the society ought to be, as two inseparable matters from each other, but by making what the society ought to be as a basis for satisfying the needs. For the sake of satisfying all the basic needs completely, and to enable satisfaction of the luxuries, the economic commodity should be available to people, and it will not be available to them unless they strive to earn it. Therefore, Islam urges people to earn, seek the provision and strive. And it made striving to earn the provision compulsory upon Muslims.

Allah said:

“So walk in the paths of the earth and eat of His sustenance which He provides.”[Al-Mulk: 15]

Many Ahadith came to encourage the earning of property. In one Hadith, the Prophet Mohammad shook the hand of Sa’ad ibn Muadh (ra) and found his hands to be rough. When the Prophet asked about it, Sa’ad said: “I dig with the shovel to maintain my family.” The Prophet kissed Sa’ad’s hands and said: “(They are) two hands which Allah loves.” The Prophet said: “Nobody would ever eat food that is better than to eat of his own hand’s work.”

It was also narrated that Umar b. Al-Khattab (RA) passed by some people, who were known as readers of the Qur’an. He saw them sitting and bending their heads, and asked who they were. He was told: “They are those who depend (Al-Mutawwakiloon) upon Allah .” Umar replied: “No, they are the eaters who eat the people’s properties. Do you want me to describe those who really depend upon Allah (Al-Mutawwakiloon)?” He was answered in the affirmative, and then he said: “He is the person who throws the seeds in the earth and then depends on his Lord The Almighty, The Exalted (‘Azza wa jalla).”

Thus we find that the verses and the Ahadith encourage striving to seek provision, and working to earn property, just as they encourage the enjoyment of the property and eating of the good things.

Allah said:

“Say: who has forbidden the beautiful gifts of Allah, which He has provided for His servants, and the things, clean and pure, (that He has provided)?”[Al-A’raf: 32]

“And let not those who are niggardly, who withhold the gifts which Allah has given them from His Grace, think that it is good for them. Rather it is worse for them. That which they hoard will be their collar on the Day of Resurrection. To Allah belongs the heritage of the heavens and the earth, and Allah is informed of what you do.” [Al-Imran: 180]

“O you who believe! Spend of the good things which you have earned, and of that which We bring forth from the earth for you.” [Al-Baqarah: 267]

And:

“O you who believe! Do not prohibit the good things which Allah made halal for you.” [Al-Ma’idah: 87]

These verses, and the like, denote clearly that the divine rules (AhkamShari’ah) related to the economy, aim at acquiring property and enjoying good things. So Islam obliged individuals to earn, and ordered them to enjoy wealth that they earned, so as to achieve economic growth in the country, to satisfy the basic needs of every person, and to enable the satisfaction of his luxuries.

However, the economic progress through motivating every capable individual to work, assigning properties to the State and the investing of public property, all that is a means to satisfy the needs, not for the sake of having property for itself, nor for boasting, nor to spend it in sin, nor for arrogance and oppression.

The Messenger of Allah said: “Whosoever sought the life (matters) legitimately (halal) and decently he will meet Allah with his face as a full moon; and whosoever sought it arrogantly and excessively he will meet Allah while He is angry at him.”

The Prophet also said: “Do you have, son of Adam, of your property except that which you ate and consumed, that which you wore and exhausted, and that which you donated and kept (for yourself)?”

Allah the Supreme said:

“Don’t commit Israaf (spending or going beyond the limits imposed by Islam);surely He does not like those who condone Israaf.” [Al-A’raf: 31]

Islam made the aim of owning property a means towards satisfying the needs and not for the purpose of boasting. It also made managing the economy as a whole according to Allah’s orders obligatory. It ordered the Muslim to seek the Hereafter through what he earns and not to forget his share of this worldly life.

Allah said:

“But seek the abode of the Hereafter in that which Allah has given you, and do not neglect your portion of worldly life, and be kind as Allah has been kind to you, and seek not corruption in the earth.” [Al-Qasas: 77]

Islam secured the observance of the rules by motivating the Muslim to adhere to this economic policy through the fear of Allah (Taqwa), and the abiding of the people, in general, to it through the legislated laws which the State implements upon the people.

Allah said:

“O you who believe! observe your duty to Allah and give up what remains (due to you) from riba, if you are (in truth) believers.” [Al-Baqarah: 278]

ALLAH CREATED ALL RESOURCES IN THE WORLD

In the Quran, Allah states that all the resources in the world are created by Him, and made usable to the humans by the virtue of the laws that Allah injected into the resources:

“It is He who created for you all that exists on earth.” [Al-Baqarah: 29]

“Allah is He Who put at your disposal the sea so that the ships may sail by His command, and so as you may seek His bounty.” [Al-Jathiyah: 12]

“He put at your disposal that which is in the heavens and that which is in theearth, all from Him.” [Al-Jathiyah: 13]

“And We sent down iron, in which is great might, as well as many benefits for mankind.” [Al-Hadid: 25]

“Let man consider his food. How We pour water in showers. Then split the earth in fragments. And cause the grains to grow therein. And grapes and fresh vegetation. And olives and dates, and enclosed gardens, dense with lofty trees. And fruits and grazes. Provision for you and your cattle.” [‘Abasa: 24-32]

Allah illustrated in these verses and others, that He created property and created man’s efforts, and He did not discuss anything else that may be linked to them, which indicates that He did not interfere in the property or in man’s effort, except that He showed that He created them for people to utilise. He also did not interfere in the production of wealth; there is no Shari’ah text (divine legal text) which denotes that Islam interferes in the production of wealth. On the contrary, we find the Shari’ah texts indicate that the Shari’ah has left to the people the matter of extracting the property and improving man’s effort.

It was narrated that the Prophet said in the issue of manual pollination of date trees: “You are more aware of the routine issues of your daily life (amr dunyakum).” It is also narrated that the Prophet (pbuh) sent two of the Muslims to Jurash of Yemen to learn weapons manufacturing.

These examples indicate that the Shari’ah has left the matter of production of wealth to the people, to be produced according to their experience and knowledge. Thus, it is apparent that Islam focuses on the economic system and not economic science.

ISLAMIC FINANCE & I

This should be the introduction to my blog..but hey, better late than never, right.

I am a Muslim but believe it or not, I was not aware of Islamic banking and finance until after I graduated and entered the workforce – I worked for the biggest local bank in Malaysia. It was here that I was introduced to the realm of Malaysian’s Islamic banking scene. Yes, I too thought that profit is just like “interest” blah blah blah….but then something triggered my interest, so I went to a couple of courses on Islamic banking and finance on my own – but the explanations/revelations of the trainers somehow did not satisfy me….I know there’s more to it than meets the eye…

When I pursued my postgraduate degree, I decided to take on a subject on Islamic financial transactions, with the intent and high hopes that I will learn something new. Unfortunately, the lecturer was a conventional banker and provided information that I have already knew. Therefore, I made a career change and joined the largest Islamic bank in the world – here was where I knew that the variations that exist between Malaysia and the GCC. This was when I decided to further my studies on Islamic finance.

Problem? I don’t know Arabic and the knowledge I could gather are only based on English literatures/books. However, I am determined to do my doctorate degree – but the next question is where to do it? It took me about a year to search for the right higher learning institution – because what I needed is not merely doing research on Islamic finance but most importantly, I want to learn a lot of things about Islam, especially on Shariah and finance from the perspective of Islam.

Finally, I enrolled in the institution that I think can best suit my needs. I can still remember my first class – Islamic Economics. Before entering the class, I envisioned it to be the same as Economics class that I attended in my undergrad course – however, I was surprised that it did not. It was about economics, yes, but it was then explained from the Islamic view – which was a different dimension altogether. It overwhelmed me. Right there and then I knew – this was what I have been searching for – knowledge which as a Muslim I know that I must gain. This is my responsibility – I must share my knowledge with the others, especially those who do not have the privilege to learn about Islamic finance formally and those who are still skeptical about Islamic finance out there.

Being a person who has been exposed to conventional finance since my undergrad years, it is not easy for me to reach to this level – and with the shortcomings of not having a Shariah background and the non-ability to read and understand Arabic language – but I am trying very hard and insha allah, I believe that Allah is right here with me – after all, learning is a kind of fisabilllah - and I hope that all my hard work and efforts will be useful, some way or another – to myself, to my family, to my ummah, to my country….

THE BEAUTY OF FAITH-CONSISTENT INVESTMENT

Islam seeks to facilitate the surrendering to the will of the Creator, which means giving up short-term self-interests for the sake of attaining long-term felicity of drawing near to Him; a difficult task for impatient and myopic humans. Surrendering operationalizes through compliance with a comprehensive and interrelated set of rules governing all dimensions of behavior, including those specific to economic operations such as investment. These rules are derived from the divine objective for humans to establish justice. Therefore, they focus individual and collective behavior on attaining and sustaining justice which, according to the Qurān, was the main reason why messengers were commissioned: to induce humans “to stand forth steadfastly for justice” (Qurān verse 25: chapter 57). Establishing and sustaining justice is to serve the further objective of achieving the unity of mankind.

The Qurān informs that all humans are created from one united soul and that their final destination is back to the Creator also as one united soul: “neither your creation (was) nor your resurrection (will be) except as one united soul” (Qurān 28:31; 1:4). All ordained rules of conduct are directed at achieving this all-important objective. Compliance with the rules—inter alia, hard work, frugality, moderation in consumption, no extravagance or opulence, faithfulness to the terms and conditions of contracts, trustworthiness, truthfulness, patience, forgiveness, cooperation, and sharing—promotes trust, cooperation, integration, solidarity and unity. Their violation—inter alia, cheating, theft, bribery, shirking, lying, hording, backbiting, impatience, abuse of trust, and contract violation—leads to mistrust, discord, disintegration, and disunity. The unity of mankind is a corollary to the central axiom of the Unity of the Creator. Long ago, Muslim philosophers established that from the One Creator only one creation can issue forth.

The rules governing economic behavior are based on the axiom that creation belongs to the Creator. He has provided, in “exact measure,” all the resources required by humans to combine with work in order to produce life-sustaining necessities. At a cosmological-global level sufficient resources, in exact measure, are provided to sustain a comfortable life for all humans at any given moment (Qurān: 49:54). Scarcity can be a binding constraint at the level of individual and perhaps at the level of collectivity. This limited notion of scarcity serves as a vehicle for the test of strength of the humans’ belief in the Creator. Strong faith compels humans to work hard, individually and collectively, to ease the scarcity constraint through the use of resources endowed by the Creator and through sharing income and wealth so that no one would be left without access to the means of acquiring the necessary means to sustain a comfortable life.

Sharing is not a charity but a mandated duty stemming from the axiom that property right to all resources belong to the Creator (Qurān: 26:3). Humans take possession of properties created by their mental-physical abilities combined with the resources. The Creator maintains the “permanence of ownership” on property because He owns all things, including humans who have equal right of access to the resources created for them (Qurān: 70:17) as an expression of the dignity accorded to humans as the crowning achievement of creation (Qurān: 70:17). The right of access and use of the created resources by those who are able to do so does not negate the right of the less able in the final product or its monetized value. These resources are also an instrument for the performance of the duties of office of agent-trustee bestowed on humans. Combined with affirmation of human dignity, the instrumentality of property rights and the principle of “permanence of ownership” of the Creator provide the foundation for the role of sharing as a duty and not as charity. The right of those unable to use the created resources has to be redeemed from either the final product or from its monetized value (Qurān: 19:51).

The remaining income and wealth, after they have become cleansed by redeeming the right of the others, are then available for consumption, saving, or investment. There are qualitative and quantitative constraints on consumption: no extravagance, waste, or opulence; frugality and moderation are ordained. There is also a tax on savings that serves as a disincentive to hording, and the prohibition of interest-based transactions does not allow accrual of any return to savings. This disincentive does not negate capital formation since the only remaining alternative to consumption or saving is investment. It is worth noting that Islam considers excess income and wealth as the life-blood of the economy that should not remain idle and must circulate (Qurān: 7:59). Also important is the fact that, while prohibiting interest-based transactions, Islam simultaneously mandates risk-reward sharing (Qurān: 275:2) and encourages direct participation of financial surplus holder in the project being financed.