Ismail Barreh

Property in Islam Capitalism vs. Islam Socio-economic Objectives of Islam The Institution of Zakat Prohibition of riba/interest Rationales for the prohibition of riba Time value: money vs. credit sale (bay’Mu’ajjal) The alternative to interest-based system Mudaraba, entrepreneurship and Venture Capital Advantages of the Profit and loss Sharing system

“O mankind! Eat of that which is lawful and wholesome in the earth, and follow not the footsteps of the devil. Lo! he is an open enemy for you.” Al-Baqarah [2:168]

“Say: Lo! my worship and my sacrifice and my living and my dying are for Allah, Lord of the Worlds. [6:162] He hath no partner. This am I commanded, and I am first of those who surrender (unto Him).”Al-An’am [6:163]

Therefore, our economy and finance must be organized according to the principles of Shariah.

Allah is the true owner◦ “Unto Allah belongeth whatsoever is in the

heavens and whatsoever is in the earth; and unto Allah all things are returned.” Al-Imran [3:109]

Man is a trustee, God’s vicegerent◦ “He it is Who hath placed you as viceroys of the

earth and hath exalted some of you in rank above others, that He may try you by (the test of) that which He hath given you. Lo! Thy Lord is swift in prosecution, and Lo! He verily is Forgiving, Merciful.” Al-An’am [6:125]

Right to ownership Economic freedom Monopoly Institutions of interest Exploitation Distribution of wealth

Achievement of falah◦ The first and foremost objective of Islam is falah

or well-being of the mankind in this world and in the next world

◦ The economic system of Islam, therefore, aims to achieve economic well-being and betterment of the people through equitable distribution of material resources and through establishment of social justice

• Fair and equitable distribution – Of wealth and income– Islam discourages concentration of wealth in few

hands and ensures it circulation among all the sections of society

– Al-Qura’n says:“That which Allah giveth as spoil unto His messenger from the people of the townships, it is for Allah and His messenger and for the near of kin and the orphans and the needy and the wayfarer, that it become not a commodity between the rich among you. And whatsoever the messenger giveth you, take it. And whatsoever he forbiddeth, abstain (from it). And keep your duty to Allah. Lo! Allah is stern in reprisal.” Al-Hashr [59-7]

• Provision of basic human needs– Food, clothing and shelter

• Establishment of social justice and Promotion of brotherhood and unity– Islam obliges the rich to surrender apart of their

wealth for helping the poor and unfortunate members of the community

• Zakat literally means purification, growth, blessing and appreciation

• Zakat payment is not a favor to the poor• Zakat and alms pave the way for national solidarity

and cohesion by cementing the bond of fraternity between the rich and the poor

• Zakat gives purchasing power to the poor• Zakat should increase the availability of funds for

investment• Zakat levy is lower than any prevailing taxing

system in any industrialized country• Zakat can be a crime deterrent

• Riba in Qur’an– Riba al-jahiliya: pay or increase

• Riba in SunnahRiba al-fadl: – “The Prophet (pbuh) said: “ Gold for Gold, Silver for Silver,

Wheat for Wheat, barley for barley, dates for dates, salt for salt - like for like, hand to hand. Whoever pays more or takes more, indulges in Riba. The taker and giver are alike (in guilt).”Narrated by Abu Saeed Khudri, reported by bukhari

– Every loan[qard] that attracts a benefit is riba

• The majority of the Muslim scholars are unanimous in holding that riba in every form is prohibited including bank interest

Avoiding commercial exploitation◦ Fear of the strong exploiting the weak “pay or

increase” Preventing the rich from remaining forever

rich and the poor poor by forcing the investor to bear risks

Minimizing commerce in currency Linking lawfulness of gain to risk-taking

◦ “Gain accompanies liability for loss”

Riba prevents people from busying themselves for gain

Riba creates injustice to one of the parties Riba has also adverse consequences and

negative growth for the economy

Riba results in inefficient allocation of society’s resources because the major criteria for the distribution of credit is fundamentally not the productivity of the project, but the credit-worthiness of the borrower

The use of availability of credit on interest also creates inherent instability in the financial system

Money has no time value, it is neutral medium of exchange◦ Hadith: Gold for gold…

Credit sale has time value◦ E.g. if wheat is presently worth $1 a pound, one

can sell one hundred pounds of wheat for $120 in currency after one year.

◦ But one cannot sell one hundred pounds of wheat for one hundred pounds of wheat after one year.

Partnership, particularly mudaraba, is the model for non-interest-based economic system

Two principles◦ Return on capital cannot be fixed in advance but

must be a proportion of profits◦ Capital, not labor, is liable to the financial risks of

the venture

Mudaraba offers the opportunity of pure finance, enabling the owner of capital without being involved in managing that capital and without exposing himself to liability in excess of that capital

PLS maintains a fair balance between the owner of the capital and the entrepreneur

In the modern industrial world, entrepreneurs and small businesses are the engine of the economy

Islam gives much importance to organisation and enterprise◦ In chapter 12 of the Qur’an, prophet Yusuf says:“He said: Set me over the storehouses of the land. Lo! I

am a skilled custodian.” Yusuf [12:55]Two words ‘aleem’ and ‘hafeez’ means knowledgeable

and trustworthy

Venture Capital is from European Commenda Commenda is from Islamic Qirat (or mudaraba)

◦ Professor Udovitch writes:  “Although commercial arrangements resembling the Commenda were known in the Near Eastern and Mediterranean world from the earliest times, it is the Islamic form of the contract (qirad, muqarada, mudaraba) which is the earliest example of a commercial arrangement identical with that economic and legal institution which became known in Europe as the Commenda.”

Silicon Valley, California, adopted the mudaraba model (named it Venture Capital), made it a success story and produced great technology companies the likes of Google

Meanwhile, Islamic banks are busy mimicking debt-based conventional banks

A system based on profit sharing would be more stable

The allocation of financial resource of an interest-free financial system gives maximum weight to the profitability of the investment

Monetary flows through Islamic financial modes are tied directly to the flow of goods and services, so there is little room for destabilizing speculation

An interest-free Islamic system of financial intermediation will remove the main reasons for the increasing inequality in the distribution of income and wealth

Islam aims to raise the spiritual as well as the material well-being of all people and to establish socio-economic justice, which is the central objective of the Islamic message.

On the spiritual side, the peace of mind cannot be attained except by increasing the nearness of the human being to his Creator

On the material side, Islam demands the allocation and distribution of all resources, a trust from God, in such an efficient and equitable manner that the maqasid are realised

“O ye who believe! Obey Allah, and the messenger when He calleth you to that which quickeneth you, and know that Allah cometh in between the man and his own heart, and that He it is unto Whom ye will be gathered.” Al-Anfal [8:24]

Questions