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Basic Features of Islamic Economics

The basic features of Islamic economic organisation, as derived from the theoretical principals mentioned earlier are:

  1. It is a morally directed economy, being part of a whole moral philosophy: Islam. This is in contrast to morally neutral economic organisation in capitalistic societies.
  2. Individual initiative has to be discharged within the framework of social responsibility i.e. no free market as such and no absolute ownership.
  3. The economy has a clear goal of establishing and maintaining a social welfare ‘solidarity’ organisation for the needier sectors of the society.
  4. Work is the basic factor of production, it is a means to wealth generation and distribution. It is the legitimiser of wealth acquisition. It is an asset orientated economy, money is just a means of exchange and store of value. It is not allowed to be a commodity: It cannot in view of the prohibition of interest which allows trading in ‘loans’.
  5. In view of its strong moral framework and social aims, the basic recycling agent of wealth is a mandatory — very fixed and very stable religious obligation ‘Zakat’ which is a social tax on wealth specifically directed to the protection of the society. It is not a fiscal measure subject to variations of governments’ policies. There are other means of recycling: inheritance laws in Islam distribute wealth among a wider base than in capitalistic societies. There is also strong moral pressure to give freely (Sadaqa). Fiscal taxes as known today, have been levied and can be levied over and above Zakat if the state deems it necessary. Zakat is calculated at % of the total value of capital and profits, minus bad debts and depreciation. In case of tradeable assets i.e. rent, it goes upto 10%. In agriculture, it varies from 2-y % to 10% according to the type of irrigation. There is a different way for calculating animal tax. Zakat should be collected and distributed locally — only the surplus can go elsewhere and has definite avenues of distribution — the poor, the needy, the indebted who have no way to repay, the newly introduced to Islam, the defence of the society, the employees who collect Zakat, the emancipation of slaves in old times and the needy traveller.

It is clear then that there are basic differences between both theoretical and organisational orientation, aims and framework of an Islamic economy and a traditional (capitalistic) one. When it comes to the instruments of economic policy (e.g. monetary policies, prices, market organisation etc.) Islam has not specified detailed procedures for the very reason mentioned earlier: these are matters of organisation which an Islamic society has to design and adapt whatever way it sees fit to implement the basic features of its economic organisation.

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Source: Islamic Banking, Abdur Rahim Hamdi. Republished with permission.