Basically, incentive is anything that provides a motive for a particular course of action to be taken e.g. What drives people to work?
Incentives can be divided into three broad classes:
o Material/remunerative incentive – This exists when one can expect some form of material rewards in exchange for acting in a certain particular way.
o Moral incentive – This exists when a particular choice of action is regarded as the right thing to do, or admirable, or the failure to act in a certain way is condemned as indecent. A person acting on a moral incentive can expect a sense of self-esteem, and approval or admiration from the community. A person who acts against moral incentives can expect a sense of guilt, condemnation or even ostracism from the community.
o Coercive incentive exists when a person can expect failure to act in certain course of conducts will result in physical force being used against him/her e.g. imprisonment, confiscating property etc.
As far as capitalism is concerned, the economic system rewards people on the basis of their contributions in the economic activities (functional distribution). Here, material well-being is the motivating factor for people to work. Furthermore, the enormous freedom that bias towards private ownership in the system stimulates higher desire for material gains and consumerism which then, drive people to work hard to achieve those objectives..
While in socialism, state ownership of all factors of production and equality in the distribution of wealth and income requires proper moral incentive towards desirable behavior by appealing to the people’s responsibility to the society. Many times in the histories of socialism, coercive incentive was used for the communist party to fulfill its agenda.
In Islam, the incentive mechanism among others are driven by these motives:
o Pleasing Allah for the sake of getting His blessings. A person who achieves this level of iman would do anything even if he or she has to scarify his or her life.
o Heaven and hell are the ultimate place of getting rewards and punishments. We are given the freedom of choice to conduct our actions in this world but we must bear the consequences in the hereafter. All of our actions will be evaluated and judged by Allah in the hereafter.
o The people of the paradise are the successful servants of Allah. This manifests the ultimate meaning of falah.
o Good Muslim will always realize that any promising reward in the hereafter by Allah for any good deed is far more greater than any possible material reward in this world
o All good deeds in this world are considered as a form of worshipping if they are done correctly with sincere intention for Allah.
o There are a lot of verses and hadith that encourage Muslim to strive for excellence (al-Mulk:2, Ali-‘Imran:110)
o We must strive for excellence in this life because as Muslims, we are the role model to other mankind.
o Islam never prohibits material pursuit (al-Qasas:77)
o Apart from the material incentives, Muslim will be rewarded accordingly because:
- to give halal supplements (rizk) to one family is wajib as a nafaqah
- Muslim also must work to fulfill the obligations which require health financial position such as performing hajj and paying zakat
- 28:77
"But seek, with the (wealth) which Allah has bestowed on thee, the Home of the Hereafter, nor forget thy portion in this World: but do thou good, as Allah has been good to thee, and seek not (occasions for) mischief in the land: for Allah loves not those who do mischief."
- Abu Musa, may Allah be pleased with him, reported: The Messenger of Allah (may peace be upon him) said: Giving charity is obligatory upon each Muslim. It was asked: What do you say of him who does not find (the means) to do so? He said: Let him do manual work, thus doing benefit to himself and give charity. It was asked: What about one who does not have (the means) to do so? He said: Then let him assist the needy, the aggrieved. It was asked: What do you say of one who cannot even do this? He said: Then he should enjoin what is reputable or what is good. He asked: What if he cannot do that? He (the Holy Prophet) said: He should then abstain from evil, for verily that is charity on his behalf. (Sahih Muslim)
Thursday, August 11, 2005
Wednesday, August 10, 2005
Islamic vs Conventional Economics – Role of State
In any economic system, the role of state or the government is undeniable. However, the degree of state’s role in affecting the economy varies.
In capitalism, government plays very minimal roles in the economy such as maintaining law and order, defense, general health and providing public goods. Government also intervenes in the case of market imperfection or instability. In other words, the decision making process is decentralized. In fact, government intervention is seen as as a form of market distortion in many cases.
On the other hand, state plays the central role in socialism. The central planning unit decides what, how, when and for whom to produce. Here, the decision making process is very centralized
In the Islamic economic system, government is part of the integrated economic system of Islam. These are a lot of verses of Qur’an and hadith that emphasize on the importance of leader (state) in the Islamic system.
Allah says in al-Qur’an:
"O you who believe! Obey God and obey the Messenger and those from among you who are in charge of your affairs; and if you differ over any matter, refer it to God and the Messenger, if you do believe in God and the last day." (4:59)
As far as the economy is concerned, Islam prefers market as a mechanism to allocate resources and to distribute wealth. However, market alone is insufficient to achieve prosperous and fair level of well being. Therefore, the role of state is crucial to regulate, supergvise and complement the market.
Some of the essential economic functions of the Islamic state are:
o To eradicate poverty by creating conditions for full employment and a sustainable rate of growth
o To ensure stability in the real value of money (inflation controlling)
o To maintain law and order
o To ensure social and economic justice
o To ensure social security
o To foster equitable distribution of income and wealth
o To harmonize international relation
o To safeguard national sovereignty
It is also important to note that the decision makings in Islam should be based on shura (consultation). The emphasize is evident from the following verses:
o "(Believers are those) who run their affairs by consultation among themselves." (42:38)
o "And consult them (O Prophet) in matters (of public concern)." (3:159)
o "And let there among you be a group of people who invite to all that is good, who enjoin what is right and forbid what is wrong." (3:104)
Apart from shura, another important institution is known as al-hisbah which fundamentally functions as the body to enjoin good and forbid evil in the system.
In capitalism, government plays very minimal roles in the economy such as maintaining law and order, defense, general health and providing public goods. Government also intervenes in the case of market imperfection or instability. In other words, the decision making process is decentralized. In fact, government intervention is seen as as a form of market distortion in many cases.
On the other hand, state plays the central role in socialism. The central planning unit decides what, how, when and for whom to produce. Here, the decision making process is very centralized
In the Islamic economic system, government is part of the integrated economic system of Islam. These are a lot of verses of Qur’an and hadith that emphasize on the importance of leader (state) in the Islamic system.
Allah says in al-Qur’an:
"O you who believe! Obey God and obey the Messenger and those from among you who are in charge of your affairs; and if you differ over any matter, refer it to God and the Messenger, if you do believe in God and the last day." (4:59)
As far as the economy is concerned, Islam prefers market as a mechanism to allocate resources and to distribute wealth. However, market alone is insufficient to achieve prosperous and fair level of well being. Therefore, the role of state is crucial to regulate, supergvise and complement the market.
Some of the essential economic functions of the Islamic state are:
o To eradicate poverty by creating conditions for full employment and a sustainable rate of growth
o To ensure stability in the real value of money (inflation controlling)
o To maintain law and order
o To ensure social and economic justice
o To ensure social security
o To foster equitable distribution of income and wealth
o To harmonize international relation
o To safeguard national sovereignty
It is also important to note that the decision makings in Islam should be based on shura (consultation). The emphasize is evident from the following verses:
o "(Believers are those) who run their affairs by consultation among themselves." (42:38)
o "And consult them (O Prophet) in matters (of public concern)." (3:159)
o "And let there among you be a group of people who invite to all that is good, who enjoin what is right and forbid what is wrong." (3:104)
Apart from shura, another important institution is known as al-hisbah which fundamentally functions as the body to enjoin good and forbid evil in the system.
Thursday, July 21, 2005
Islamic vs Conventional Economics – Addressing Property Ownership
The issue on ownership right is always critical in any economic system. This is because wealth and well-being of the people, in term of material possession depend on how the economic system allocates the resources, rewards the factors of production and redistributes wealth created from the economic activities.
Briefly, we can say that capitalism emphasizes on private property ownership which gives freedom to economic agents to accumulate material wealth with loose intervention from the authority. Interestingly, the system has successfully created list of names of the richest men in the world and at the same time, also faces problem of severe poverty and widening income disparity.
Socialism, on the other side, confiscates the freedom of individual to own property. Basically, the state has full control in term of wealth creation, management and distribution. History has proven how Marx’s advocacy of equal distribution of wealth subtly, had been the cause and catalyst leading to the collapse of the system.
From an Islamic point of view, as far as property ownership is concerned, visions on the matter have been outlined clearly.
1. Fundamentally, absolute ownership exclusively belongs to Allah AWT (Qur’an, 1:2). This means, everything in the universe are all owned by Allah.
2. Man is given the responsibility as trustee to manage this world (Qur’an 33:72). Our possessions are relative and conditional.
3. Because of the responsibilities given, man is accountable for all possessions in this world before Allah, the Almighty in the hereafter (Qur’an 84:7-15).
4. Islam recognizes labor as a legitimate basis of ownership (Qur’an 4:32). At the same time, need also is another legitimate basis of ownership. For example, in the case of poverty.
5. Public and private property ownerships are both allowed by Islam.
Islam promotes the well-being of the people. Well-being here does not simply measured based on material possessions, but it also caters the spiritual and moral aspects. Hence, the Islamic economic system ensures freedom for mankind to progress within a guided parameter which suits the human nature (fitrah). At the same time, Islam also takes care of the welfare of the unfortunate people by many social security schemes in the religion which some are made obligatory (i.e. zakat) and some others are very recommended (i.e. sadaqah).
Briefly, we can say that capitalism emphasizes on private property ownership which gives freedom to economic agents to accumulate material wealth with loose intervention from the authority. Interestingly, the system has successfully created list of names of the richest men in the world and at the same time, also faces problem of severe poverty and widening income disparity.
Socialism, on the other side, confiscates the freedom of individual to own property. Basically, the state has full control in term of wealth creation, management and distribution. History has proven how Marx’s advocacy of equal distribution of wealth subtly, had been the cause and catalyst leading to the collapse of the system.
From an Islamic point of view, as far as property ownership is concerned, visions on the matter have been outlined clearly.
1. Fundamentally, absolute ownership exclusively belongs to Allah AWT (Qur’an, 1:2). This means, everything in the universe are all owned by Allah.
2. Man is given the responsibility as trustee to manage this world (Qur’an 33:72). Our possessions are relative and conditional.
3. Because of the responsibilities given, man is accountable for all possessions in this world before Allah, the Almighty in the hereafter (Qur’an 84:7-15).
4. Islam recognizes labor as a legitimate basis of ownership (Qur’an 4:32). At the same time, need also is another legitimate basis of ownership. For example, in the case of poverty.
5. Public and private property ownerships are both allowed by Islam.
Islam promotes the well-being of the people. Well-being here does not simply measured based on material possessions, but it also caters the spiritual and moral aspects. Hence, the Islamic economic system ensures freedom for mankind to progress within a guided parameter which suits the human nature (fitrah). At the same time, Islam also takes care of the welfare of the unfortunate people by many social security schemes in the religion which some are made obligatory (i.e. zakat) and some others are very recommended (i.e. sadaqah).
Tuesday, July 19, 2005
Islamic vs Conventional Economics - Why different definitions?
In the earlier part of the discussion, we have discussed briefly on the definition of Islamic economics. Apparently, from those definitions, there are some disagreements on basic elements in the definition of economics as given in the standard conventional textbooks.
Basically, economics is defined as a social science that studies how human beings use the limited resources to satisfy his unlimited wants. Disagreement exists when among the Muslim scholars; there are few opinions on the concept of scarcity (limited resources).
On one side, there are those who reject the idea of scarcity, claiming that scarcity is non-existence. They believe that Allah has created resources in abundance as mentioned in al-Qur’an in 4:100, 27:16, 108:1 – just to mention few. On the other side, there are scholars who accept the concept of scarcity and argue that economics as a discipline cannot exist without this concept.
In between of these two opinions, there are scholars who argue that scarcity only exists in term of availability but there is no scarcity in term of existence. To put it differently, there is no absolute scarcity since Allah has provided everything in abundance (existence of resourceful world for mankind to live) and with due proportion (65:3). Scarcity, according to the argument, is a relative concept where one could argue that at certain time and at a certain place, there might be a problem of scarcity of certain resources. However, Allah has equipped mankind with knowledge that would enable him to overcome the problem. Knowledge, therefore, is the key to make the resources available for our utilization.
Apart from disagreements on the concept of scarcity, the idea of unlimited wants is also being reviewed critically by Muslim economists. As a Muslim, do we admit that our wants are unlimited? Is the concept of unlimited want and insatiable desire the same?
I would argue that the two are different. As a Muslim, first, I found that it is hard to accept the idea of unlimited wants. The logic is simple - given the limitations and weaknesses that we have to face in this life, automatically our wants are constrained by many factors. For example, if you like someone and want to marry him or her, there are possibilities that the person my reject you or already married.
Second, if we grouped our wants, we could have groupings such as shelter, food, cloth, transportation, entertainment, safety, recognition, and many more. However, the list could not be that long and at certain stage, we might scratch our head to think of what else do we want. From such groupings, the degree of wants could differ and this is where I would agree that wants are actually insatiable. Desire for more is always there in human nature and this is also mentioned in the meaning of a hadith: “If man had two valleys of gold, he will seek a third” (Bukhari).
For instance, when a person is poor, he might live in a small house. But, when he is richer, he wants a bigger house. In the end, the crux is to have a shelter and due to insatiable wants, degree for a better shelter would always exist in mankind.
As we had discussed earlier, shari’ah limits our freedom. As a Muslim, we must follow the shari’ah. The worships that we perform as a Muslim trained us to curb our desire and to channel it according to the will of God.
Hence, because of these disagreements on the basic elements of economics, Muslim economists have various ways to define Islamic economics
Basically, economics is defined as a social science that studies how human beings use the limited resources to satisfy his unlimited wants. Disagreement exists when among the Muslim scholars; there are few opinions on the concept of scarcity (limited resources).
On one side, there are those who reject the idea of scarcity, claiming that scarcity is non-existence. They believe that Allah has created resources in abundance as mentioned in al-Qur’an in 4:100, 27:16, 108:1 – just to mention few. On the other side, there are scholars who accept the concept of scarcity and argue that economics as a discipline cannot exist without this concept.
In between of these two opinions, there are scholars who argue that scarcity only exists in term of availability but there is no scarcity in term of existence. To put it differently, there is no absolute scarcity since Allah has provided everything in abundance (existence of resourceful world for mankind to live) and with due proportion (65:3). Scarcity, according to the argument, is a relative concept where one could argue that at certain time and at a certain place, there might be a problem of scarcity of certain resources. However, Allah has equipped mankind with knowledge that would enable him to overcome the problem. Knowledge, therefore, is the key to make the resources available for our utilization.
Apart from disagreements on the concept of scarcity, the idea of unlimited wants is also being reviewed critically by Muslim economists. As a Muslim, do we admit that our wants are unlimited? Is the concept of unlimited want and insatiable desire the same?
I would argue that the two are different. As a Muslim, first, I found that it is hard to accept the idea of unlimited wants. The logic is simple - given the limitations and weaknesses that we have to face in this life, automatically our wants are constrained by many factors. For example, if you like someone and want to marry him or her, there are possibilities that the person my reject you or already married.
Second, if we grouped our wants, we could have groupings such as shelter, food, cloth, transportation, entertainment, safety, recognition, and many more. However, the list could not be that long and at certain stage, we might scratch our head to think of what else do we want. From such groupings, the degree of wants could differ and this is where I would agree that wants are actually insatiable. Desire for more is always there in human nature and this is also mentioned in the meaning of a hadith: “If man had two valleys of gold, he will seek a third” (Bukhari).
For instance, when a person is poor, he might live in a small house. But, when he is richer, he wants a bigger house. In the end, the crux is to have a shelter and due to insatiable wants, degree for a better shelter would always exist in mankind.
As we had discussed earlier, shari’ah limits our freedom. As a Muslim, we must follow the shari’ah. The worships that we perform as a Muslim trained us to curb our desire and to channel it according to the will of God.
Hence, because of these disagreements on the basic elements of economics, Muslim economists have various ways to define Islamic economics
Friday, July 15, 2005
Islamic Economics vs. Conventional Economics
To compare Islamic economics with conventional economics (capitalism and socialism), we would critically evaluate both systems based on several common criteria. These criteria are selected because both systems have their own distinctive features in providing mechanism and solutions to the real-world problems. Hence, with the common criteria of comparison, it is hoped that we could clearly see the difference between Islamic economic system and the conventional economic system.
What are the criteria which we are going to use in our attempt to evaluate the two economic systems?
We found that Islamic economics and the conventional economics are different in term of these six criteria:
1. Definition of economics.
2. Ownership of property.
3. Role of government.
4. Incentive mechanism.
5. Organization of decision making.
6. Activities – consumption, production, distribution and exchange.
What are the criteria which we are going to use in our attempt to evaluate the two economic systems?
We found that Islamic economics and the conventional economics are different in term of these six criteria:
1. Definition of economics.
2. Ownership of property.
3. Role of government.
4. Incentive mechanism.
5. Organization of decision making.
6. Activities – consumption, production, distribution and exchange.
Tuesday, July 12, 2005
Maqasid as-Shari'ah
In developing Islamic economics in the modern context, ijtihad in many times is required. To derive ijtihad, we need clear understanding of the primary sources. Usul al-fiqh provides us the methodology to derive rulings from the sources of shari’ah.
Sometimes, there are no Quranic texts or hadith (nass) addressing certain issues. In this situation, scholars or researchers need maqasid as-shari’ah (the objectives of shari’ah) as a guidance.
Click here for explanations on maqasid as-shari’ah.
Sometimes, there are no Quranic texts or hadith (nass) addressing certain issues. In this situation, scholars or researchers need maqasid as-shari’ah (the objectives of shari’ah) as a guidance.
Click here for explanations on maqasid as-shari’ah.
Thursday, July 07, 2005
Shari'ah, Fiqh and Usul al-Fiqh
From the above discussion on how to build model in Islamic economics, we can see the important role of shari’ah in shaping the Islamic economic system. To understand Islamic worldview and to establish visions on Islamic economics require deep understanding of Islam and its shari’at.
What is shari’ah? Shari’ah means path to the watering place; the clear path to be followed and the path which a believer has to track in order for him to obtain guidance in this world thus giving him true success in the hereafter. Shari’ah also refers to the commands, prohibitions, guidance and principles that Allah has addressed to mankind for them to follow in their conduct in this world. Only by obeying the shari’ah, one can enter the paradise (al-Jathiya, 45:18).
Basically, shari’ah covers the concepts of taufid (oneness of God), akhlaq (ethics and moral conduct) and fiqh (the practical shari’ah laws). Shari’ah makes a believer to be cautious at all time of his conduct in this world. This is because, for all of our actions, there are clear rulings of shari’ah in the form of obligatory, permissible, reprehensible, recommended and forbidden categories of actions.
Thus, in conducting our economic activities, the Islamic economic system is strictly being governed by the shari’ah. This does not mean that the Islamic economic system is lack of flexibility. Shari’ah is imposed upon mankind in order that they would be able to dynamically conduct their activities freely based on the limits and rules of the game which are prepared by the Creator of the Universe who knows best of His creations. The analogy could be seen in a football match where there are rules and regulations to be followed and those rules and regulations are not to restrict the game in a narrow sense but rather to make the game fun, fair and harmonious to everybody.
The first element of shari’ah is the concept of tauhid. One must accept by heart, toungue and body (through actions) that there is no other god but Allah; and Prophet Muhammad SAW is Allah’s Messenger. Without this confession, there is no eternal happiness (falah) for ones. One could be a wealthy person in this world, but if one rejects tauhid, he or she would remain forever in the hell fire (3:10, 3:116-117).
The second component of shari’ah is akhlaq. Akhlaq includes all the ethics and moral behaviors in life such as sincerity, benevolence, honesty, trustworthy and many more. All these are important in our economic activities. Only when the economic agents behave properly and follow the rules of the game, then the system could function smoothly.
Lastly, the third component of the shari’ah is fiqh. Fiqh literally means understanding and technically means the knowledge of practical shari’ah laws which are derived from the supporting evidences which include the primary sources of knowledge and the secondary sources of knowle,dge. Fiqh can be subdivided into muamalat, munakahat, jinayat, and ibadat which are all interconnected and cannot be seen separately in conducting our daily activities.
To derive fiqh, there is a methodology which is known as usul al-fiqh. In a simple word, we can say that usul al-fiqh is the knowledge of the principles and methods leading to the derivation of fiqh. Usull al-fiqh deals with the methods to interpret the Qur’an and hadith as well as the methods to derive ijtihad, qiyas and so on which involve the use of reasoning to derive the fiqh rulings.
What is shari’ah? Shari’ah means path to the watering place; the clear path to be followed and the path which a believer has to track in order for him to obtain guidance in this world thus giving him true success in the hereafter. Shari’ah also refers to the commands, prohibitions, guidance and principles that Allah has addressed to mankind for them to follow in their conduct in this world. Only by obeying the shari’ah, one can enter the paradise (al-Jathiya, 45:18).
Basically, shari’ah covers the concepts of taufid (oneness of God), akhlaq (ethics and moral conduct) and fiqh (the practical shari’ah laws). Shari’ah makes a believer to be cautious at all time of his conduct in this world. This is because, for all of our actions, there are clear rulings of shari’ah in the form of obligatory, permissible, reprehensible, recommended and forbidden categories of actions.
Thus, in conducting our economic activities, the Islamic economic system is strictly being governed by the shari’ah. This does not mean that the Islamic economic system is lack of flexibility. Shari’ah is imposed upon mankind in order that they would be able to dynamically conduct their activities freely based on the limits and rules of the game which are prepared by the Creator of the Universe who knows best of His creations. The analogy could be seen in a football match where there are rules and regulations to be followed and those rules and regulations are not to restrict the game in a narrow sense but rather to make the game fun, fair and harmonious to everybody.
The first element of shari’ah is the concept of tauhid. One must accept by heart, toungue and body (through actions) that there is no other god but Allah; and Prophet Muhammad SAW is Allah’s Messenger. Without this confession, there is no eternal happiness (falah) for ones. One could be a wealthy person in this world, but if one rejects tauhid, he or she would remain forever in the hell fire (3:10, 3:116-117).
The second component of shari’ah is akhlaq. Akhlaq includes all the ethics and moral behaviors in life such as sincerity, benevolence, honesty, trustworthy and many more. All these are important in our economic activities. Only when the economic agents behave properly and follow the rules of the game, then the system could function smoothly.
Lastly, the third component of the shari’ah is fiqh. Fiqh literally means understanding and technically means the knowledge of practical shari’ah laws which are derived from the supporting evidences which include the primary sources of knowledge and the secondary sources of knowle,dge. Fiqh can be subdivided into muamalat, munakahat, jinayat, and ibadat which are all interconnected and cannot be seen separately in conducting our daily activities.
To derive fiqh, there is a methodology which is known as usul al-fiqh. In a simple word, we can say that usul al-fiqh is the knowledge of the principles and methods leading to the derivation of fiqh. Usull al-fiqh deals with the methods to interpret the Qur’an and hadith as well as the methods to derive ijtihad, qiyas and so on which involve the use of reasoning to derive the fiqh rulings.
Monday, March 21, 2005
Building Models in Islamic Economics
These are the general steps taken in the process of building models in Islamic economics.
1. Understanding the Islamic worldview.
Since worldview shapes the ideology, and ideology shapes the system, we have to understand what is Islam and its worldview in order to build Islamic economics.
2. Establish visions of Islamic economics. Basically, the visions, aims and objectives of Islamic economics must be coherent with the maqasid as-shari’ah (objectives of the shari’ah). All economic goals in policy making such as to achieve economic growth, full employment, price stability, economic efficiency, economic freedom, economic stability and income equitability are all acceptable as these are supportive towards achieving the maqasid (we will discuss this later). To achieve all those goals, the tools and mechanisms must be compliance with the shari’ah.
3. Refer to primary sources
Al-Qur’an and hadith are the main sources of knowledge. These two must be referred as guidance in life. All economic theories, principles or laws must be parallel with the injunctions of the Qur’an and hadith. In the case of inconformity between man-developed theories and the primary sources, the latter hold the absolute prerogative to nullify the former.
4. Refer to past and present scholars of Islam and Islamic economists.
This is the next stage of literature review that we have to conduct in order to develop Islamic economics. Works by past scholars (like Ibn Taymiyyah, Ibn Khaldun, al-Ghazali etc.) especially those related to economics, play a crucial role to guide present scholars in the process of developing Islamic economics. Nonetheless, the works by contemporary scholars (like Siddiqi, Chapra, Mannan etc) are also as important as the previous works because they shed lights to the current dynamism of economics.
5. Refer to works of scholars in economics and finance.
Basically, most of economics applications have to be derived. This mainly involves the positive economics. However, only positive aspects which are inconformity with the shari’ah can be used in Islamic economics. Hence, works by the non-Muslim scholars that fulfill this criterion can be referred to in the process of building Islamic economics.
6. Establish assumptions, hypotheses, laws and principles based on step one until step five.
7. Test the hypotheses and models
Empirical work is usually required to prove the hypothesis. It is important to note that sometimes the empirical findings could be misleading in a case where a sample taken does not represent the correct behavior as urged by the shari’ah. For example, Islam clearly prohibits riba or usury but there are a lot of empirical facts that show the link between interest and economic activities. Due to these erroneous findings, it has come to a point that the present economic system is run under the interest-based economic mechanism.
The model building process in Islamic economics still applauds the scientific method of study. At the same time, we have to be cautious because not all phenomena could be explained scientifically. This is because the scientific method of study as widely being practiced today is only within the cosmos of mankind. We must remember that there are some other cosmoses like the angelic cosmos and the godly cosmos which could totally be out of our ability to comprehend.
To guide mankind, Allah SWT has sent down the revelations. In revelations, the normative aspect (what should be) of the system is explained. Hence, in testing the hypothesis:
i. If ‘what is’ ≠ ‘what should be’, go to step 8.
ii. If ‘what is’ = ‘what should be’, go to step 9.
8. Recheck the model
9. Put forward the hypotheses into theories, theories into policies to change ‘what is’ to conform with ‘what should be’.
1. Understanding the Islamic worldview.
Since worldview shapes the ideology, and ideology shapes the system, we have to understand what is Islam and its worldview in order to build Islamic economics.
2. Establish visions of Islamic economics. Basically, the visions, aims and objectives of Islamic economics must be coherent with the maqasid as-shari’ah (objectives of the shari’ah). All economic goals in policy making such as to achieve economic growth, full employment, price stability, economic efficiency, economic freedom, economic stability and income equitability are all acceptable as these are supportive towards achieving the maqasid (we will discuss this later). To achieve all those goals, the tools and mechanisms must be compliance with the shari’ah.
3. Refer to primary sources
Al-Qur’an and hadith are the main sources of knowledge. These two must be referred as guidance in life. All economic theories, principles or laws must be parallel with the injunctions of the Qur’an and hadith. In the case of inconformity between man-developed theories and the primary sources, the latter hold the absolute prerogative to nullify the former.
4. Refer to past and present scholars of Islam and Islamic economists.
This is the next stage of literature review that we have to conduct in order to develop Islamic economics. Works by past scholars (like Ibn Taymiyyah, Ibn Khaldun, al-Ghazali etc.) especially those related to economics, play a crucial role to guide present scholars in the process of developing Islamic economics. Nonetheless, the works by contemporary scholars (like Siddiqi, Chapra, Mannan etc) are also as important as the previous works because they shed lights to the current dynamism of economics.
5. Refer to works of scholars in economics and finance.
Basically, most of economics applications have to be derived. This mainly involves the positive economics. However, only positive aspects which are inconformity with the shari’ah can be used in Islamic economics. Hence, works by the non-Muslim scholars that fulfill this criterion can be referred to in the process of building Islamic economics.
6. Establish assumptions, hypotheses, laws and principles based on step one until step five.
7. Test the hypotheses and models
Empirical work is usually required to prove the hypothesis. It is important to note that sometimes the empirical findings could be misleading in a case where a sample taken does not represent the correct behavior as urged by the shari’ah. For example, Islam clearly prohibits riba or usury but there are a lot of empirical facts that show the link between interest and economic activities. Due to these erroneous findings, it has come to a point that the present economic system is run under the interest-based economic mechanism.
The model building process in Islamic economics still applauds the scientific method of study. At the same time, we have to be cautious because not all phenomena could be explained scientifically. This is because the scientific method of study as widely being practiced today is only within the cosmos of mankind. We must remember that there are some other cosmoses like the angelic cosmos and the godly cosmos which could totally be out of our ability to comprehend.
To guide mankind, Allah SWT has sent down the revelations. In revelations, the normative aspect (what should be) of the system is explained. Hence, in testing the hypothesis:
i. If ‘what is’ ≠ ‘what should be’, go to step 8.
ii. If ‘what is’ = ‘what should be’, go to step 9.
8. Recheck the model
9. Put forward the hypotheses into theories, theories into policies to change ‘what is’ to conform with ‘what should be’.
Friday, March 18, 2005
Introduction to Methodology of Islamic Economics
Islamic economics is relatively a new area of study. It is ‘new’ in the sense of how modern disciplines are developed. Although the Islamic way of conducting economic activities was established since the time of Prophet Muhammad SAW, and then further developed during the realm of the Islamic empires, but never any label or name was given to the economic conducts as Islamic economics.
From 1924 (the end of the caliphate system) until the end of World War II, the world was busy with wars. After that, when many countries got their independence, some of Muslim scholars started the blueprint of Islamization of knowledge. This includes the project of Islamic economics.
With that brief history, our focus now is to understand how to develop Islamic economics in the modern context? This is a pertinent question because, in the area of epistemology, for any discipline to be developed, certain methodologies must be followed.
Methodology is crucial because it concerns about finding the ‘truth’. To find the truth, correct methods are indispensable. Especially in Islam, the primary sources of knowledge (al-Qur’an and as-sunnah) cannot be neglected since the revelations come from Allah the Almighty, Creator of the universe who knows everything. Undoubted truth is definitely in the revelations (2:2).
Because of this, the process of building model in Islamic economics is different from the conventional approach. In Islam, revelation is central and prerogative in defining and determining the truth. For instance, even if all people did not follow or behave against the revelation, this would not change the fact of good and evil as describe in the Qur’an and the hadith.
From 1924 (the end of the caliphate system) until the end of World War II, the world was busy with wars. After that, when many countries got their independence, some of Muslim scholars started the blueprint of Islamization of knowledge. This includes the project of Islamic economics.
With that brief history, our focus now is to understand how to develop Islamic economics in the modern context? This is a pertinent question because, in the area of epistemology, for any discipline to be developed, certain methodologies must be followed.
Methodology is crucial because it concerns about finding the ‘truth’. To find the truth, correct methods are indispensable. Especially in Islam, the primary sources of knowledge (al-Qur’an and as-sunnah) cannot be neglected since the revelations come from Allah the Almighty, Creator of the universe who knows everything. Undoubted truth is definitely in the revelations (2:2).
Because of this, the process of building model in Islamic economics is different from the conventional approach. In Islam, revelation is central and prerogative in defining and determining the truth. For instance, even if all people did not follow or behave against the revelation, this would not change the fact of good and evil as describe in the Qur’an and the hadith.
Thursday, March 17, 2005
Factors of Production as an Amanah (Trust)
In conventional economics, resources are categorized into four, which are land, labor, capital and entrepreneur. These resources are said to be scarce and within this constraint, they are utilized to fulfill the unlimited wants of man.
As far as resources are concerned, we can divide them into two major categories. The first category is labor and entrepreneur and the second is land and capital. The former is man, himself while the latter is the universe (exclude mankind). We make these divisions because in our discussion on Islamic worldview before, we had seen the Islamic worldview views on man and the universe/nature.
Obviously, from an Islamic perspective, man is not simply a factor of production. Man is a servant and a vicegerent of Allah who bears the responsibility to manage this universe according to the divine laws. He is also responsible for his deeds and actions in this world.
Then, the universe is created to serve mankind (45:13). However, this does not mean we are allowed to explore and exploit the resources to fulfill our wants. In fact, the universe serves us in there broad manners:
First, the universe is created as a gift from Allah, the Most High to His servants. For this, we must be thankful and always glorify Him for His greatness and mercy upon us (1:2).
Second, Allah also has created the universe as a sign for mankind to know Him. From our observation and study of the universe, we could realize His power, greatness and attributes (67:3). This is how Allah wants us to know Him (6:101, 21:30, 51:47). Apart from that, the universe and the resources available in it are also function as the source of knowledge to us – another form of sign. From our observations of the environment, there we derive various forms of disciplines in science and social science.
Third, the universe is also the place where we get our resources and sustenance to maintain our existence (2:168, 67:30). We get food, air, water and material to build our civilization from the universe.
Therefore, in Islamic economics, the resources are not merely to be utilized for man’s material well-being. Resources are amanah from Allah, the Almighty and from this amanah Allah knows whose among us are the best in their deeds (67:2).
As far as resources are concerned, we can divide them into two major categories. The first category is labor and entrepreneur and the second is land and capital. The former is man, himself while the latter is the universe (exclude mankind). We make these divisions because in our discussion on Islamic worldview before, we had seen the Islamic worldview views on man and the universe/nature.
Obviously, from an Islamic perspective, man is not simply a factor of production. Man is a servant and a vicegerent of Allah who bears the responsibility to manage this universe according to the divine laws. He is also responsible for his deeds and actions in this world.
Then, the universe is created to serve mankind (45:13). However, this does not mean we are allowed to explore and exploit the resources to fulfill our wants. In fact, the universe serves us in there broad manners:
First, the universe is created as a gift from Allah, the Most High to His servants. For this, we must be thankful and always glorify Him for His greatness and mercy upon us (1:2).
Second, Allah also has created the universe as a sign for mankind to know Him. From our observation and study of the universe, we could realize His power, greatness and attributes (67:3). This is how Allah wants us to know Him (6:101, 21:30, 51:47). Apart from that, the universe and the resources available in it are also function as the source of knowledge to us – another form of sign. From our observations of the environment, there we derive various forms of disciplines in science and social science.
Third, the universe is also the place where we get our resources and sustenance to maintain our existence (2:168, 67:30). We get food, air, water and material to build our civilization from the universe.
Therefore, in Islamic economics, the resources are not merely to be utilized for man’s material well-being. Resources are amanah from Allah, the Almighty and from this amanah Allah knows whose among us are the best in their deeds (67:2).
Wednesday, March 16, 2005
Falah as a Goal
A Muslim is the one whose purpose in life is to achieve falah by being successful in his role as the vicegerent of God on this earth. Falah, according to al-Ghazali means eternal happiness and it can be divided into falah in this world and falah in the hereafter.
As a Muslim, our ultimate goal is to achieve falah in the hereafter because this is the eternal place where all of or deeds in the present world will be evaluated accordingly by Allah for us to receive reward or punishment. The most important criterion for our good deeds to be accepted by Allah is first, we must testify that there is no other gods but Allah and Prophet Muhammad SAW is His messenger. This is because Allah does not accept the good deeds done by the non-believer (Ali-‘Imran:91)
By stressing the importance of falah in the hereafter, it does not mean that we must neglect this world (al-Qasas:77). Muslims must also be successful in this world because this is the place and now is the time for us to put our ‘investment’ (in the form of good deeds and virtues) to be brought before Allah, the Almighty in the hereafter. To guide our economic activities, this is where Islamic economics is significant. It guides us on how to manage the resources which are given as a trust by Allah, for us to utilize them as a mean to achieve falah in the hereafter.
For a Muslim, success in this world is not the ultimate aim in life. Success in this world is a mean to achieve the eternal happiness in the hereafter. All material well-being, power, position, honor and glory that we have in this world as a result for our good deeds are just the ‘by-product’; not the ultimate purpose of our excellent efforts. They also could be a form of test upon us.
Therefore, in order to achieve falah, we need to make sure that our soul and body are both in a peaceful condition. To secure peace of the soul, we need divine guidance, while peace of the body could be achieved by good health, beauty, wealth, influence and good family.
As a Muslim, our ultimate goal is to achieve falah in the hereafter because this is the eternal place where all of or deeds in the present world will be evaluated accordingly by Allah for us to receive reward or punishment. The most important criterion for our good deeds to be accepted by Allah is first, we must testify that there is no other gods but Allah and Prophet Muhammad SAW is His messenger. This is because Allah does not accept the good deeds done by the non-believer (Ali-‘Imran:91)
By stressing the importance of falah in the hereafter, it does not mean that we must neglect this world (al-Qasas:77). Muslims must also be successful in this world because this is the place and now is the time for us to put our ‘investment’ (in the form of good deeds and virtues) to be brought before Allah, the Almighty in the hereafter. To guide our economic activities, this is where Islamic economics is significant. It guides us on how to manage the resources which are given as a trust by Allah, for us to utilize them as a mean to achieve falah in the hereafter.
For a Muslim, success in this world is not the ultimate aim in life. Success in this world is a mean to achieve the eternal happiness in the hereafter. All material well-being, power, position, honor and glory that we have in this world as a result for our good deeds are just the ‘by-product’; not the ultimate purpose of our excellent efforts. They also could be a form of test upon us.
Therefore, in order to achieve falah, we need to make sure that our soul and body are both in a peaceful condition. To secure peace of the soul, we need divine guidance, while peace of the body could be achieved by good health, beauty, wealth, influence and good family.
Tuesday, March 15, 2005
Defining Islamic Economics
Islamic economics is different from the conventional economic system. From our discussion on Islamic worldview, it is now clear that the frameworks of Islamic economic system must be within those parameters. Thus, the philosophy, aims and objectives, methodology and tools of policy of the system are clearly governed by and built based on, the principles of shari’ah.
Then, what is Islamic economics? Because of its dynamism, Muslim economists have different ways to define Islamic economics. Some of the definitions are:
1. Islamic economics aims at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation (Akram Khan, 1404)
2. Islamic economics is the knowledge and application of injunctions and rules of the shari’ah that prevent injustice in the application and disposal of material resources in order to provide satisfactions to human beings and enable them to perform their obligations to Allah and the Society (Hasanuz Zaman, 1404)
3. Islamic economics is the study of Muslim behavior who organizes the resources, which are a trust, to achieve falah (Muhammad Arif, (1405)
4. Islamic economics is an approach to, and process of, interpreting and solving man’s economic problems based on the values, norms, laws and institutions found in, and derived from the sources of Islam” (Aslam)
5. Economics, from the Islamic (Khaldunian) view point studies the behavior of men and women, individually and in their association and socialization, in order to understand the patterns and modes of this behavior, its motives and incentives, as well as its goals and objectives, and responses and reactions, with and without being restricted to a specific situation, norms, set of moral values, or legal, political, religious, etc. framework.(Monzer Kahf)
Basically, from the definitions given, we can highlight few important points that each of the abovementioned scholars would have in their respective definition of Islamic economics. First, it is clear that the objective of Islamic economics is to achieve falah. Second, in doing so, the resources must be managed, preserved, conserved and utilized according to the rules of shari’ah.
Obviously, Islamic economic system is very different from the conventional definition of economics which only focuses on the way how we utilize the limited resources to fulfill man’s unlimited wants.
Then, what is Islamic economics? Because of its dynamism, Muslim economists have different ways to define Islamic economics. Some of the definitions are:
1. Islamic economics aims at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation (Akram Khan, 1404)
2. Islamic economics is the knowledge and application of injunctions and rules of the shari’ah that prevent injustice in the application and disposal of material resources in order to provide satisfactions to human beings and enable them to perform their obligations to Allah and the Society (Hasanuz Zaman, 1404)
3. Islamic economics is the study of Muslim behavior who organizes the resources, which are a trust, to achieve falah (Muhammad Arif, (1405)
4. Islamic economics is an approach to, and process of, interpreting and solving man’s economic problems based on the values, norms, laws and institutions found in, and derived from the sources of Islam” (Aslam)
5. Economics, from the Islamic (Khaldunian) view point studies the behavior of men and women, individually and in their association and socialization, in order to understand the patterns and modes of this behavior, its motives and incentives, as well as its goals and objectives, and responses and reactions, with and without being restricted to a specific situation, norms, set of moral values, or legal, political, religious, etc. framework.(Monzer Kahf)
Basically, from the definitions given, we can highlight few important points that each of the abovementioned scholars would have in their respective definition of Islamic economics. First, it is clear that the objective of Islamic economics is to achieve falah. Second, in doing so, the resources must be managed, preserved, conserved and utilized according to the rules of shari’ah.
Obviously, Islamic economic system is very different from the conventional definition of economics which only focuses on the way how we utilize the limited resources to fulfill man’s unlimited wants.
Sunday, March 13, 2005
Islamic Worldview: View on Knowledge
In Islam, there are two sources of knowledge. The first one is known as the primary sources of knowledge. In the methodology of deriving any knowledge in Islam, the Qur’an and the sunnah of Prophet Muhammad SAW are the main references for guidance. These two sources are authentic and must be accepted even if the wisdom behind the rulings sometimes is inconspicuous.
The second source of knowledge is known as the acquired knowledge. Here we have to exert our reasoning to understand the wisdom of God’s creations. The knowledge here can be established through inductive or deductive frameworks. Part of the processes would involve observation, collection of data, experiment and hypothesis testing before certain conclusive principles, laws or theorem can be established. However, the empirical evident or fact derived from those process must not go against the primary sources of knowledge in Islam.
Many theories in science such as physics, chemistry and biology come from acquired knowledge. This also applies in social science like economics.
Another important note to make is that, ijtihad is categorized under the second source of knowledge which deals with the process of deriving the shari’ah law. Ijtihad is part of method of developing knowledge through reasoning which is very important next to Qur’an and Sunnah.
Ijtihad literally means striving or self-exertion in any activity which entails a measure of hardship. Technically, ijtihad is the total expenditure of effort made by a jurist in order to infer, with a degree of probability, the rules of shari’ah from their sources – al-Qur’an and as-sunnah.
Ijtihad is important because it is a continuous process of development whereas divine revelation and Prophetic legislation discontinued upon the demise of the Prophet SAW. In this sense, ijtihad continues to be the main instrument of interpreting the divine message and relating it to the changing conditions of the Muslim community.
The second source of knowledge is known as the acquired knowledge. Here we have to exert our reasoning to understand the wisdom of God’s creations. The knowledge here can be established through inductive or deductive frameworks. Part of the processes would involve observation, collection of data, experiment and hypothesis testing before certain conclusive principles, laws or theorem can be established. However, the empirical evident or fact derived from those process must not go against the primary sources of knowledge in Islam.
Many theories in science such as physics, chemistry and biology come from acquired knowledge. This also applies in social science like economics.
Another important note to make is that, ijtihad is categorized under the second source of knowledge which deals with the process of deriving the shari’ah law. Ijtihad is part of method of developing knowledge through reasoning which is very important next to Qur’an and Sunnah.
Ijtihad literally means striving or self-exertion in any activity which entails a measure of hardship. Technically, ijtihad is the total expenditure of effort made by a jurist in order to infer, with a degree of probability, the rules of shari’ah from their sources – al-Qur’an and as-sunnah.
Ijtihad is important because it is a continuous process of development whereas divine revelation and Prophetic legislation discontinued upon the demise of the Prophet SAW. In this sense, ijtihad continues to be the main instrument of interpreting the divine message and relating it to the changing conditions of the Muslim community.
Thursday, March 10, 2005
Islamic Worldview: View on Aim in Life
What is the purpose of our existence? Since Allah has given us great responsibilities to be His vicegerent and servant in this world, the success in undertaking those responsibilities is a great accomplishment of divinity mission of man. Allah has promised paradise to these people as mentioned in al-Qur'an in surah Al-Mukminun 23:10-11 and this is the ultimate definition of success to mankind.
Achieving falah is the ultimate aim in our life. As defined by Al-Ghazali, falah means ‘eternal’ happiness. The only place possible to achieve this is in the paradise. This world cannot be the place because our life in this world is short (life expectancy rate around 70-80 years). Furthermore, within this short period of life in this world, we are constrained by the process of aging, limitation of resources, time constraint, sickness and many more. Thus, pleasure in this world is mixed with pain, agony, sorrow etc.
Basically, we can say that the real success to man is when he enters the paradise of Allah, the Almighty in the hereafter.
Nonetheless, Islam does not neglect the importance of success in this world. In fact, this world is the place where we are being tested by Allah (Al-Mulk 67:2) to see whose among us are the best in deeds and conducts.
We are reminded not to forget our portion in this world (Al-Qasas 28:77). Islam, in fact, encourages material pursuit with the condition that material well-being must not divert us from our main purpose of existence – to achieve falah. This is suitable with the inherent nature of man who loves material well-being (Ali-'Imran 3:14). However, we must remember that wealth and success that we gain in this world are not the ultimate aim and definition of success. Striving for them is part of ibadah and they must be used as means to achieve the real success in the hereafter.
Achieving falah is the ultimate aim in our life. As defined by Al-Ghazali, falah means ‘eternal’ happiness. The only place possible to achieve this is in the paradise. This world cannot be the place because our life in this world is short (life expectancy rate around 70-80 years). Furthermore, within this short period of life in this world, we are constrained by the process of aging, limitation of resources, time constraint, sickness and many more. Thus, pleasure in this world is mixed with pain, agony, sorrow etc.
Basically, we can say that the real success to man is when he enters the paradise of Allah, the Almighty in the hereafter.
Nonetheless, Islam does not neglect the importance of success in this world. In fact, this world is the place where we are being tested by Allah (Al-Mulk 67:2) to see whose among us are the best in deeds and conducts.
We are reminded not to forget our portion in this world (Al-Qasas 28:77). Islam, in fact, encourages material pursuit with the condition that material well-being must not divert us from our main purpose of existence – to achieve falah. This is suitable with the inherent nature of man who loves material well-being (Ali-'Imran 3:14). However, we must remember that wealth and success that we gain in this world are not the ultimate aim and definition of success. Striving for them is part of ibadah and they must be used as means to achieve the real success in the hereafter.
Thursday, February 17, 2005
Islamic Worldview: View on Nature/Universe
This world, the place where we are living in is part of the universe. The concept of nature or universe in Islam includes the material world and also the unseen world. The resources for our economic activities we get them from the material world.
Apart from that, Muslims must believe in the existence of the unseen world. In fact, the existence of God, angels, hell and paradise are some examples of the unseen world which have significant implications in our conduct in this world.
There are reasons for why Allah has created this universe. Basically, this universe was created for man to realize the power of the Creator. Through observations, we could realize the attributes and greatness of Allah. This is how Allah wants us to know Him. Furthermore, this universe is a source of knowledge for man. Not only that we get knowledge from revelations, but we are encouraged to use our intellect to understand our existence. The creation of the universe facilitates us in doing the exercise.
Allah also has created this universe as a gift for mankind. This universe is for us to use and to utilize and these must be done based on the guidance provided in the Divine law of Allah. Allah has created the universe to serve mankind, His best creation. From the environment we get our resources and these are useful for our survival.
Therefore, it is important to note that, to ensure sustainability of our existence, we must observe three important relationships: relationship with God (as provided in view on God and religion), relationship with fellow man and relationship with the universe. Again, we emphasize that only by following the shari’ah, we can ensure harmony and balanced relationship of the three.
Apart from that, Muslims must believe in the existence of the unseen world. In fact, the existence of God, angels, hell and paradise are some examples of the unseen world which have significant implications in our conduct in this world.
There are reasons for why Allah has created this universe. Basically, this universe was created for man to realize the power of the Creator. Through observations, we could realize the attributes and greatness of Allah. This is how Allah wants us to know Him. Furthermore, this universe is a source of knowledge for man. Not only that we get knowledge from revelations, but we are encouraged to use our intellect to understand our existence. The creation of the universe facilitates us in doing the exercise.
Allah also has created this universe as a gift for mankind. This universe is for us to use and to utilize and these must be done based on the guidance provided in the Divine law of Allah. Allah has created the universe to serve mankind, His best creation. From the environment we get our resources and these are useful for our survival.
Therefore, it is important to note that, to ensure sustainability of our existence, we must observe three important relationships: relationship with God (as provided in view on God and religion), relationship with fellow man and relationship with the universe. Again, we emphasize that only by following the shari’ah, we can ensure harmony and balanced relationship of the three.
Friday, February 11, 2005
Islamic Worldview: View on Man
In the process to establish the Islamic economic system, the action and behavior of the economic agents determine the realization of the full- fledged success of the system. To materialize the system, man must conduct his actions based on the shari'ah.
Islam views the position of man as the best creation of Allah, the Almighty (Al-tin 95:4). Originally, man is born in fitrah (good in nature). Man is made up of physical body (jism) and soul (roh) where Allah has equipped him with ‘aql (intellect) and hawa (desire) in order for man to take the responsibilities as given by Allah.
What are the responsibilities of man? Man is given the responsibility to manage this universe as vicegerent (khalifah) of Allah (Al-baqarah 2:30). It is our responsibilities to manage the world based on the shari’ah because this is the only way that Allah wants us to follow in conducting our actions and activities to manage this world. Allah says: Then We put thee on the (right) Way of Religion: so follow thou that (Way), and follow not the desire of those who know not (Al-jathiya 45:18).
Man also is a servant of Allah, the Almighty. As servant of Allah, it is our responsibility to worship Him. Worship does not only mean to perform the specific rituals such as prayers, fasting, pilgrim and alms-giving, but conducting the entire actions and activities in life based on the shari’ah, lies the true meaning and way of worshipping. Clearly, these would include conducting our economic activities based on the divine law of Allah as one form of worshipping.
Apart from those responsibilities, as the last ummah, Allah has declared that the ummah of Prophet Muhammad SAW as the best ummah. To be the best ummah, we must call people to do good, to forbid people from doing evils and to have firm faith in Allah, the Almighty.
Islamic economic system can only be realized when man - the economic agent, has assimilated all those attributes and qualities as mentioned above. In man himself lies the real strength of the system.
Islam views the position of man as the best creation of Allah, the Almighty (Al-tin 95:4). Originally, man is born in fitrah (good in nature). Man is made up of physical body (jism) and soul (roh) where Allah has equipped him with ‘aql (intellect) and hawa (desire) in order for man to take the responsibilities as given by Allah.
What are the responsibilities of man? Man is given the responsibility to manage this universe as vicegerent (khalifah) of Allah (Al-baqarah 2:30). It is our responsibilities to manage the world based on the shari’ah because this is the only way that Allah wants us to follow in conducting our actions and activities to manage this world. Allah says: Then We put thee on the (right) Way of Religion: so follow thou that (Way), and follow not the desire of those who know not (Al-jathiya 45:18).
Man also is a servant of Allah, the Almighty. As servant of Allah, it is our responsibility to worship Him. Worship does not only mean to perform the specific rituals such as prayers, fasting, pilgrim and alms-giving, but conducting the entire actions and activities in life based on the shari’ah, lies the true meaning and way of worshipping. Clearly, these would include conducting our economic activities based on the divine law of Allah as one form of worshipping.
Apart from those responsibilities, as the last ummah, Allah has declared that the ummah of Prophet Muhammad SAW as the best ummah. To be the best ummah, we must call people to do good, to forbid people from doing evils and to have firm faith in Allah, the Almighty.
Islamic economic system can only be realized when man - the economic agent, has assimilated all those attributes and qualities as mentioned above. In man himself lies the real strength of the system.
Tuesday, February 08, 2005
Islamic Worldview: View on God and Religion
The concept of tauhid or the oneness of God is the central foundation of Islam. Allah says in surah Al-Ikhlas, verses 1-4: Say: He is Allah, the One and Only; Allah, the Eternal, Absolute; He begetteth not, nor is He begotten; And there is none like unto Him.
After man testifies that there is no god but Allah, and prophet Muhammad is His Messenger, all of his actions must be based on the teaching of Islam. This is where the meaning of true submission and obedience is manifested in a life of a true believer. In other words, the entire life of a true believer is only to worship his Lord, as commonly recited in the prayer from surah Al-an’am :162: Say: "Truly, my prayer and my service of sacrifice, my life and my death, are (all) for Allah, the Cherisher of the Worlds
Therefore, the guidance provided by Allah in the Qur’an and sunnah of His Prophet must be followed without any doubt and hesitation in order for man to achieve real success in this world and the hereafter. Of course, this would also include conducting our economic activities.
After man testifies that there is no god but Allah, and prophet Muhammad is His Messenger, all of his actions must be based on the teaching of Islam. This is where the meaning of true submission and obedience is manifested in a life of a true believer. In other words, the entire life of a true believer is only to worship his Lord, as commonly recited in the prayer from surah Al-an’am :162: Say: "Truly, my prayer and my service of sacrifice, my life and my death, are (all) for Allah, the Cherisher of the Worlds
Therefore, the guidance provided by Allah in the Qur’an and sunnah of His Prophet must be followed without any doubt and hesitation in order for man to achieve real success in this world and the hereafter. Of course, this would also include conducting our economic activities.
Sunday, February 06, 2005
Islamic Worldview and Islamic Economics
To develop Islamic economics, we need to understand the Islamic worldview first. This is because any system in this world is originated from certain ideology which is derived from, or influenced by the way we understand the meaning of our existence in this world (worldview).
Thus, what is worldview? Worldview is individual’s perception of the world, which on average tend to conform to the norms of what has socially been agreed (Zubair Hasan, Islamization, 1998). Or, worldview is the vision of reality and truth that appears before our mind’s eye revealing what existence is all about.
Islam provides the answers to the questions of reality of life and existence. The revelations (al-Qur’an and as-sunnah) explain where we are from and where we will go after death. With certainty of answers to such basic questions in life, any system that is derived from the ideology of Islam is very clear in its purposes and goals.
Basically, we could say that Islamic worldview is based on Islam (Aslam, 1996). The worldview of Islam encompasses both al-Dunya and al-Akhirah, in which the dunya aspect must be related in a profound and inseparable way to the Akhirah aspect and in which the Akhirah aspect has the ultimate and final significance to our purpose of existence.
Then, how would Islamic worldview affect our life? In our later discussions, we will see how Islamic worldview shapes our economic system after we address how Islamic worldview provides answers to the questions of god, religion, man, nature, aim in life and knowledge. All answers for these points, directly or indirectly affect the economic system which we want to establish – the Islamic economic system
Thus, what is worldview? Worldview is individual’s perception of the world, which on average tend to conform to the norms of what has socially been agreed (Zubair Hasan, Islamization, 1998). Or, worldview is the vision of reality and truth that appears before our mind’s eye revealing what existence is all about.
Islam provides the answers to the questions of reality of life and existence. The revelations (al-Qur’an and as-sunnah) explain where we are from and where we will go after death. With certainty of answers to such basic questions in life, any system that is derived from the ideology of Islam is very clear in its purposes and goals.
Basically, we could say that Islamic worldview is based on Islam (Aslam, 1996). The worldview of Islam encompasses both al-Dunya and al-Akhirah, in which the dunya aspect must be related in a profound and inseparable way to the Akhirah aspect and in which the Akhirah aspect has the ultimate and final significance to our purpose of existence.
Then, how would Islamic worldview affect our life? In our later discussions, we will see how Islamic worldview shapes our economic system after we address how Islamic worldview provides answers to the questions of god, religion, man, nature, aim in life and knowledge. All answers for these points, directly or indirectly affect the economic system which we want to establish – the Islamic economic system
Friday, February 04, 2005
Islam and islamic Economics
Before we can understand Islamic economic system, the understanding of Islam is crucial because the economic system here is part and partial of the ‘complete way of life’ of Islam.
Islam does not separate economic affairs and its teaching and there is no way the two can be separated because separation of the two could cause incomplete practice of the religion.
It is important to note that, all economic activities must be conducted according to the shari’ah in order to make them accepted as a form of worship to Allah, the Almighty. Hence, economic affairs must not divert man from his true purpose of existence which is to worship Allah, the Almighty and to conduct his activities (including economic activities) based on the divine laws.
Man must submit himself to Allah. He must obey his Lord’s laws. Only by following the revelation can man achieve peace in his life in this world and the hereafter. This is suitable with the literal meaning of Islam which means peace, obedience, surrender and submission.
Therefore, aqidah is the fundamental essence in the teaching of Islam and the establishment of its economic system. Crux of the term Islam and aqidah could be best understood from the following hadith:
On the Authority of `Umar r.a. who said:
One day while we were sitting with the Messenger of Allah there appeared before us a man whose clothes were exceedingly white and whose hair was exceedingly black; no signs of journey were to be seen on him and none of us knew him. He walked up and sat down by the Prophet SAW.
Resting his hands against his and placing the palms of his hands on his thighs he said:
O Muhammad, tell me about Islaam. The Messenger of Allah said: Islaam is to testify that there is no deity worthy of worship but Allah and Muhammad is the Messenger of Allah, to perform prayers, to make zakaah, to fast in Ramadaan, and to make the pilgrimage to the House if you were able to do so.
He said: You have spoken rightly; and we were amazed at him asking him and saying that he had spoken rightly.
He said: Tell me about eeman. He said: It is to believe in Allah, His angels, His books, His messengers, and the Last Day, and to believe in divine destiny, both the good and the evil thereof. He said: You have spoken rightly.
He said: Then tell me about ihsaan. He said: It is to worship Allah as though you are seeing Him and while you see Him not, yet truly He sees you.
He said: Then tell me about the Hour. He said: The one questioned about it knows no better than the questioner. He said: Then tell me about its signs. He said: that the slave-girl will give birth to her mistress and that you will see barefooted, naked destitute herdsmen competing in constructing lofty buildings.
Then he took himself off and I stayed for a time. The he said: O `Umar, do you know who the questioner was? I said: Allah and His Messenger know best. He said: It was Gabriel, who came to teach you your religion.
It was related by Muslim.
Only by realizing the true meaning of Islam, iman, ihsan and the Hour (Doomsday), man’s consciousness over his true purpose of creation and existence can be manifested to the fullest in this world. In order to achieve that, part and partial of the requirement is to conduct our economic activities based on the shari’ah. Hence, Islamic economic system is indispensable in that process so that man can manifest his obedience to Allah, in conducting his economic activities.
Islam does not separate economic affairs and its teaching and there is no way the two can be separated because separation of the two could cause incomplete practice of the religion.
It is important to note that, all economic activities must be conducted according to the shari’ah in order to make them accepted as a form of worship to Allah, the Almighty. Hence, economic affairs must not divert man from his true purpose of existence which is to worship Allah, the Almighty and to conduct his activities (including economic activities) based on the divine laws.
Man must submit himself to Allah. He must obey his Lord’s laws. Only by following the revelation can man achieve peace in his life in this world and the hereafter. This is suitable with the literal meaning of Islam which means peace, obedience, surrender and submission.
Therefore, aqidah is the fundamental essence in the teaching of Islam and the establishment of its economic system. Crux of the term Islam and aqidah could be best understood from the following hadith:
On the Authority of `Umar r.a. who said:
One day while we were sitting with the Messenger of Allah there appeared before us a man whose clothes were exceedingly white and whose hair was exceedingly black; no signs of journey were to be seen on him and none of us knew him. He walked up and sat down by the Prophet SAW.
Resting his hands against his and placing the palms of his hands on his thighs he said:
O Muhammad, tell me about Islaam. The Messenger of Allah said: Islaam is to testify that there is no deity worthy of worship but Allah and Muhammad is the Messenger of Allah, to perform prayers, to make zakaah, to fast in Ramadaan, and to make the pilgrimage to the House if you were able to do so.
He said: You have spoken rightly; and we were amazed at him asking him and saying that he had spoken rightly.
He said: Tell me about eeman. He said: It is to believe in Allah, His angels, His books, His messengers, and the Last Day, and to believe in divine destiny, both the good and the evil thereof. He said: You have spoken rightly.
He said: Then tell me about ihsaan. He said: It is to worship Allah as though you are seeing Him and while you see Him not, yet truly He sees you.
He said: Then tell me about the Hour. He said: The one questioned about it knows no better than the questioner. He said: Then tell me about its signs. He said: that the slave-girl will give birth to her mistress and that you will see barefooted, naked destitute herdsmen competing in constructing lofty buildings.
Then he took himself off and I stayed for a time. The he said: O `Umar, do you know who the questioner was? I said: Allah and His Messenger know best. He said: It was Gabriel, who came to teach you your religion.
It was related by Muslim.
Only by realizing the true meaning of Islam, iman, ihsan and the Hour (Doomsday), man’s consciousness over his true purpose of creation and existence can be manifested to the fullest in this world. In order to achieve that, part and partial of the requirement is to conduct our economic activities based on the shari’ah. Hence, Islamic economic system is indispensable in that process so that man can manifest his obedience to Allah, in conducting his economic activities.
Thursday, February 03, 2005
Why Islamic Economics?
Islam as a comprehensive religion is not only deals with specific worships like prayer and pilgrim. In fact, Islam is ad-deen, which is the way of life according to the divine laws of Allah, the Almighty. It covers various aspects of life and that includes economics.
In order to develop the Islamic economic system, a good understanding of Islamic worldview is important. The question of worldview is crucial because from a worldview we derive an ideology, and from an ideology we derive a system.
Since the Islamic worldview is different from the secular worldview (which lays the foundation of the conventional economic systems, namely capitalism and socialism), the establishment and development of Islamic economic system is obligatory for all Muslims.
Another reason why we need to establish Islamic economic system is due to different methodology used in its model-building process as compared to the methodology of model-building in the conventional economics. In Islamic methodology, the superiority and prerogative of the divine laws over any other laws will nullify the latter in a case where the two go against one another.
For example, according to the Qur’an, riba or usury is unlawful. Therefore, any economic theory, law, principle or logic which is backed by the idea of interest is fundamentally wrong from its very beginning and therefore, the system which exists from it, is basically a rotten and erroneous system.
Furthermore, the operational design of Islamic economics is also different from the conventional economics. The values, norms, laws and institutions in Islamic economic system are based on Islam. These then, shaped the market and the economic agents of the system to conduct their activities and to behave based on “the Islamic rules of the game”.
Our last point is that, the need and urgency to develop Islamic economic system is also attributed to the problems and shortcoming of the conventional economic systems. Failures of socialism to provide sound solutions to the problems brought by capitalism, and the heightening problems of capitalism today, require economists and scholars to find new alternatives and new paradigms to fix and solve the problems.
Islamic economic system provides many solutions and answers to the problems. The system is moderate, practical, dynamic, rational and compatible for every nation, society and individual at any time and place. Our discussion here will provide proves to all these claims.
In order to develop the Islamic economic system, a good understanding of Islamic worldview is important. The question of worldview is crucial because from a worldview we derive an ideology, and from an ideology we derive a system.
Since the Islamic worldview is different from the secular worldview (which lays the foundation of the conventional economic systems, namely capitalism and socialism), the establishment and development of Islamic economic system is obligatory for all Muslims.
Another reason why we need to establish Islamic economic system is due to different methodology used in its model-building process as compared to the methodology of model-building in the conventional economics. In Islamic methodology, the superiority and prerogative of the divine laws over any other laws will nullify the latter in a case where the two go against one another.
For example, according to the Qur’an, riba or usury is unlawful. Therefore, any economic theory, law, principle or logic which is backed by the idea of interest is fundamentally wrong from its very beginning and therefore, the system which exists from it, is basically a rotten and erroneous system.
Furthermore, the operational design of Islamic economics is also different from the conventional economics. The values, norms, laws and institutions in Islamic economic system are based on Islam. These then, shaped the market and the economic agents of the system to conduct their activities and to behave based on “the Islamic rules of the game”.
Our last point is that, the need and urgency to develop Islamic economic system is also attributed to the problems and shortcoming of the conventional economic systems. Failures of socialism to provide sound solutions to the problems brought by capitalism, and the heightening problems of capitalism today, require economists and scholars to find new alternatives and new paradigms to fix and solve the problems.
Islamic economic system provides many solutions and answers to the problems. The system is moderate, practical, dynamic, rational and compatible for every nation, society and individual at any time and place. Our discussion here will provide proves to all these claims.
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