Principles and definitions in the Islamic economy

In the Name of Allah the Most Gracious, the Most Merciful

Money is Allah’s property and He has entrusted us with it:

This means that Allah holds us accountable for money issues; how we earn it and who we spend it.
We are obliged to earn money in a legitimate and honest fashion and refrain from using it to hurt others or spending it in an unlawful manner

The role of money:

Money is a means to value items and to facilitate the exchange or trading of goods; it is not a commodity in and of itself, nor is it a tradable item, consequently money itself, is not to be sold, bought or leased.

The Islamic economy is attached to the religion of Islam:

The economic laws of Islam are consistent with the principles, ethics and values that Islam

The Islamic economy is an act of worship:

Namely, if the craft of a Muslim, through which he makes living, is legitimate itself, is earned by legal ways, is meant to be a living for him and his family and to server people, doesn’t refrain him form his religious duties, and doesn’t stop him from a good deed through which he sublimes, thereupon it turns into an act of worship. Hence, a believer habits are considered as acts of worship. Therefore, the financial motive in Islamic economy is not the only purpose, as it is related to pleasing Allah and strive for the hereafter.
Allah says:

(Say (O Muhammad): “Verily, my Salat (prayer), my sacrifice, my living, and my dying are for Allah, the Lord of the ‘Alamin (mankind, jinns and all that exists))

[Al-An’am, 162]

The Islamic economy is self-monitored:

Everyone working within the Islamic economy practices self-monitoring rather than needing to be monitored by someone else; hence the control and monitoring of the economy is very efficient and powerful. It serves a variety of goals and prevents individuals from escaping their duties, rights and responsibilities:

(Lo! nothing in the earth or in the heavens is hidden from Allah)

[Al-E:Imran: 5]

Because self-restraint is much more efficient and effective than outer restraint.

There is a balance between individual and group interests:

In an Islamic economy, the interests of both individuals and communities are addressed, because individuals and communities are not foes and work in harmony. Furthermore whenever there is a conflict of interest between an individual and the greater good of the community, priority is given to the community’s needs. Under this quality monopolies are forbidden under Islamic law.

There is a balance between spiritual needs and material needs:

Islam encourages such a balance.
Allah says:

(O ye who believe! When the call is heard for the prayer of the day of congregation (Friday), haste unto remembrance of Allah and leave your trading. That is better for you if ye did but know. (9) And when the prayer is ended, then disperse on the land and seek of Allah’s bounty, and remember Allah much, that ye may be successful)

[Al-Jumua: 9]

And Allah says:

(But seek, with that (wealth) which Allah has bestowed on you, the home of the Hereafter, and forget not your portion of legal enjoyment in this world, and do good as Allah has been good to you, and seek not mischief in the land. Verily, Allah likes not the Mufsidun (those who commit great crimes and sins, oppressors, tyrants, mischief-makers, corrupts))

[Al-Qasas, 77]

Islamic economy is an ethical economy:

In Islam the economy and ethics are inseparable unlike other economic systems used in the world,. Consequently, the required qualities of a Muslim economist include being honest, trustworthy, tolerant, decent, humble, merciful and caring. These qualities are one of the reasons why Islam spread throughout the Far East, to both Indonesia and China.

Islamic Economy is objective and comprehensive:

All laws are applied to both Muslims and non-Muslims in the same way.

Principles Governing an Islamic Economy Risk-sharing:

This is the basis of all Islamic economies and the characteristic that distinguishes an Islamic economic system from other systems around the world.
The sharing of profits and losses is a rule designed to divide wealth between the capital and the efforts and it’s the principle that supports justice in wealth distribution.

Unique resources for the country:

The Islamic economic system is the only system that incorporates Zakah (money collected annually and paid to the needy).
While this principle is similar to some of today’s taxation laws, there is a very important difference, which is, Zakah is applicable only to savings and not one’s entire income. Hence, Zakah applies to saved and frozen money, the system encourages people to invest their money instead of piling it up and this ensures the wheel of the economy continues to roll

Private ownership:

In an Islamic economy, the right to private ownership is protected providing it does not hurt other members of the society, which can occur when a monopoly exists. This characteristic differs from the communist economic system, which considers everything as public property

Public ownership:

In an Islamic economy system, public utilities that are essential to people’s lives are the property of the State or under its supervision. This approach helps facilitate the basic needs for al human life and the community’s interest and is contrary to a capitalist economic system, which allows the ownership of everything or anything.

Islam’s system of inheritance:

In an Islamic economy system the wealth of deceased individuals is distributed among family members. It is not left to accumulate; rather it is divided and distributed to inheritors in a specific and detailed system as outlined in the Holy Quran.

Charities and endowment funds:

Charity is one of the main characteristics of an Islamic economy. It seeks to promote social solidarity and to address the needs of the poor, by identifying some projects to raise funds for the needy.

The superiority of public interest over private one:

Market monitoring:

An Islamic economic system has a market monitoring system, however it does not interfere by setting or changing prices, such actions are undertaken only to prevent wrongful action and adjust things should a transaction be performed wrong.


An Islamic economy stresses the need for transparency in all economic and financial transactions.
The Prophet Muhammad forbade traders from waiting for commercial convoys at a country’s border to buy the goods being transported before they actually enter the general market.

Differentiation between public and private properties:

It doesn’t mean to separate this from that, rather it means to follow the Islam law that says: “avoiding the public damage by the private one.”

Usur: is Haram

Usury is best described as the interest one is charged when offered a loan. Under Islamic law it is strictly forbidden to charge interest on the loaning of money as this practice leads to taking advantage of people and turning the money into a commodity itself.

Monopolies is Haram:

Monopolies are strictly forbidden in Islam because they go against the interests of the general public.
Muslims believe when one monopolizes they are taking advantage of those who need certain commodities.
Monopolies are considered subjugating people and their operations are not considered appropriate within a Muslim economy.

Selling and purchasing loans is Haram:

Because, in most cases, loans basically represent money, from an Islamic perspective such practices turn Islamic funds into a commodity itself. And, as stated earlier, under Islamic law, money can be neither bought, nor sold.

Selling what you don’t yet own is Haram:

Such activity is forbidden because it is equated with gambling and taking unnecessary risks, since you would be selling something you think you will soon have. Like when you participate in contests on TV channels, or through cellular phones (call this number to win so and so), and all these are faces of gambling that is forbidden in Islam.

Limitations on trade practices:

The trading of illegal items is strictly forbidden – this would include transactions for drugs, prostitution services, pornographic materials and alcoholic beverages.

An Islamic economic system believes in the role of the market:

The market was established following construction of the great mosque, Most companions were merchants, such as Abu Bakr, Uthman, AbduRahman Bin Aof, and many others.

Mudaraba (Islamic speculation):

This is when an investor pays money to someone to invest in an exchange for a specified percentage of the profit. However the amount to be paid back does not correlate to the amount invested. as in conventional banking systems. In Islamic banking, the profit derived from speculation is distributed after giving the investor back his invested capital.


This is when investors pay money to someone in order to invest in purchasing certain commodities and then sell it with a profit margin at a later stage, or sell it through installments.

Musharakah (contribution):

This is when individuals contribute to a specified investment with their money, or efforts, or both.
Such investment projects are jointly owned by all the contributors and they all share in the profits or losses the activity generates.

Ijara (sub-contracting):

This is when an investor purchases an asset or equipment through a sub-lease arrangement. The lease income is considered the profit of such an investment project after deducting the operational costs.

Al Salam (Handing over):

This is the opposite of the delayed selling, in a transaction of this nature money is paid in exchange for a commodity that will be delivered at a later stage, the commodity to be provided must be clearly specified and detailed.

Praise be to Allah, the Lord of the Worlds

Prepared by: Noora Al Sharabi




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