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Introduction to Islamic Economic System

One of the forms of capitalism, which has been flourishing in non-Islamic societies, is the interest-based investment. There are normally two participants in such transactions. One is the Investor who provides capital on loan and the other Manager who runs the business. The investor has no concern whether the business runs into profit or loss, he automatically gets an interest (Riba) in both outcomes at a fixed rate on his capital. Islam prohibits this kind of trading and the Holy Prophet enforced the ruling, not in the form of some moral teaching, but as the law of land. It is very important to know the definition and forbiddance of Riba and the injunctions relating to its unlawfulness from different angles. On the one hand, there are severe warnings of the Qur’an and Sunnah and on the other, it has been taken today as an integral part of the world economy. The desired liberation from it seems to be infested with difficulties. The problem is very detail oriented and has to be taken up in all possible aspects. First of all we have to deliberate into the correct interpretation of the Quranic verses on Riba and what has been said in authentic ahadith and then determine what Riba is in the terminology of the Quran and Sunnah, what transaction it covers, what is the underlying wisdom behind its prohibition and what sort of harm it brings to society. We will start from looking at the economic philosophy of Islam vis-à- vis interest.

The economic philosophy of Islam Vis-a-Vis Interest


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The economic philosophy of Islam has no concept of Riba because according to Islam, Riba is that curse in society, which accumulates money around handful of people, and it results inevitably in creating monopolies, opening doors for selfishness, greed, injustice and oppression. Deceit and fraud prospers in the world of trade and business. Islam, on the other hand, primarily encourages highest moral ethics such as universal brotherhood, collective welfare and prosperity, social fairness and justice. Due to this reason, Islam renders Riba as absolutely haram and strictly prohibits all types of interest based transactions. The prohibition of Riba in the light of economic philosophy of Islam can be explained with the cost of distribution of wealth in a society.

Distribution of wealth

The distribution of wealth is one of the most important and most controversial subjects concerning the economic life of man, which has given birth to global revolutions in today’s world, and has affected every sphere of human activity from international politics down to the private life of the individuals. For many a century now, the question has been the center not only of fervent debates, oral and written both, but also of

armed conflicts. The fact, however, is that whatever has been said on the subject without seeking guidance from Divine Revelation and relying merely on human reason, has had the sole and inevitable result of making the confusion worse confounded.

Islamic perspective of distribution of wealth

We propose to state as clearly and briefly as possible the point of view of Islam in this matter, such as we have been able to deduce from the Holy Qur'an, the Sunnah and the writings of the “Thinkers” on distribution of wealth in the Islamic context. Before explaining the point, it seems to be imperative to clarify certain basic principles which one can derive from the Quran, and which distinguish the Islamic point of view in economics from non-Islamic systems of economy.

Source: Dr. Muhammad Imran Ashraf Usmani, Meezan Bank’s Guide to Islamic Banking.