The Economic System In Islam

1. The Economic System In Islam • Tijarah : Trade and Commerce • Distribution of Wealth • The concept of lawful (halal) & Unlawful (haram)

2. WHAT IS THE BASED? HOW SHOULD BUSINESS CARRIED OUT? • Written in Quran according to principle of trade (al – Tijarah) & prophet teaching (Ahadith) • There should no bil-batil / wrong method (eg: bribery / usury) • Must halal(lawful) and must not haram (unlawful) acts • Should be no disagreement between. • Must be honest in every matter. • Enjoins the cardinal value of equity, justice , mutual co-operation , and self sacrificing to re- organising the socio-economic Guidance from the Quran and sunnah on Islamic Economic System

3. Sale Transaction Men and Women are allowed to engage in lawful trade in the Shar’iah, there is no sex disqualification. The Shar’iah allows an auction. Trade in all forms must be clean and honest according to the guidance of the Quran and the Sunnah Taking an oaths (sumpah/melanggar sumpah) in sale transactions is forbidden, the Quran lays stress on honest and straight forward dealings in the very earliest revelations. The only trade that is declared unlawful is that of dealing in Wine and other intoxicants (minuman keras), Pigs and things made out of it, Idols and Image. It is Unlawfull in trading to Swindle (penipuan/pengecohan), Cheat or Lie in respect of price, or to deceive.

4. Law of Contract • Contract = al-‘aqd (in arabic) • = obligation / a tie. act of “putting a tie to a bargain”. • al-in’iqad (2/ more parties enter into contract) , that is joining or trying up the offer & the acceptance together. The obligations of contract called ‘uqud. • Milk or ownership a relationship between a man & his property which is under his controls to the exclusions(pengeluaran) of other claimants. • Type of ownership : • Milk al-Yad→ one may have physical possession of the property • Milk al-Tasarruf → right of disposal of the property • Milk al-Ragabah → proprietary rights (hak-hak pemilik)

5. The Law of Contract (cont) • Mal: something exist and can be held in use & beneficial at the need time. • Eg : - Grass , trees, - For property by renting • Consideration is an essential ingredient of a valid contract, anything which is impossible to attain cannot form a valid & lawful consideration • Contract is made only both parties agreed(rights and duties) withfree manner acceptance. The consideration must be lawful. • Offer (see page:356 )The offer can be made in a number of ways: verbally (Bil Kalam) this kind of offer is to be made in the same meeting. written (Bil Kitabah) message sent with some person (Rasul) signs & gestures (for handicaped or different languages people) conduct (Fil) an offer made through the silence, delivery of goods is valid. • Withdrawal of an offerThere is option of withdraw his offer before agreement. • Time(Majalis al-aqd) needed in purpose of make up his/her mind whether to accept or reject the offer.

6. COMPETENCY,TERMINATION AND HAWALAH COMPETENCY OF PARTIES The parties who wants to enter into a contract must be legally competent to do so. A minor (one who has reached the age of puberty or an insolvent or a person of unsound mind, or an intoxicated person) it cannot enter into contract. TERMINATION OF CONTRACT The contract can be terminated by the mutual consent of the parties according to the terms stipulated in their contract , or on the basis of the nature of the contract. (see page: 358) HAWALAHIs an assignment of debt , Some contracts are assignable, the conditions requisite for a valid Hawalah: The debt which is the subject matter of the contract must be a lawfully subsisting obligation. The original creditor (A) and debtor (B) must mutually agreed that the debt should be paid by B to C, the assignee debt which constitutes the object of the transfer The debt must have fallen due, but it is not necessary that the debt owed to the transferor should have fallen due Both debts must consist in objects of the same kind, equal in quantity or quality The two debts must not consist of foodstuffs which have been purchased

7. THE CONTRACT OF SALE – ‘aqd al-by • means the delivery of a definite object which possesses legal value in exchange for something equivalent in value (price). includes barter. • The seller (Mushtari) and the buyer (ba’i) are referred to by one generic name al-aqid, that must posses qualifications(must): • Mumayyiz , able to understand the implications of the contract of sale (not an insane or a minor person ) • Have capablility of disposing of his property • free to use discretion (not be working under coercion, undue influence, misrepresentation, fraud or mistake. • SUBJECT MATTER OF SALE • It must be : • owned by the seller of his agent • in a position to be delivered. The sale of a bird in the air or fish in the water is void. • lawful (Halal) and wholesome (Tahir). The sale unwholesome things like wine. Pigs and dead animal (except fish) is void (tak berlaku).

8. SALE (CONT) The Gharar sale (Bay al- Gharar) Uncertainty is involved because its resembles the presents sale of future goods recognised by a Sale of Goods Acts(common law system). This involves speculative risk in contract. Example: the sale of fish or birds before they are caught or produced by the vendor. • The Muzabanah and Ariyyah Sales • Muzabana : a general rule • Ariyya : exception in the principles of contract of sale. • Muzabana form of contract can be applied in any commodity, but Ariyya is only applicable in the case of sale of fruits for dried dates. • Muzabana is possible in any form of corp in the field to be sold. (see page: 360) • The Forbidden Contracts of Sale • Based on the Sunnah of the Prophet: • 1. Two transactions in one sale 2. Extra conditon attached to a sale • 3. Sale of what one does not own 4. Al-Mulamisah & Al-Munabidhah Sales 5. Al-Najash (dishonesty & bad behaviour)(goods that not the own right or selling 7. Talaqa Rukban (tricking people) something that is not appear) • 8. Bai Hadir Lilbadi (city dweller • fraudulently acts as a self imposed • agent for sale and purchase of the • simple villagers)

9. PARTNERSHIP • Shirakah: Partnership • Shirakah or partnership contract signifies the conjunction of two or more • persons to carry on a business to shares the profit by joint investment. • In the widest sense of the term shirakah, the partnership exists where • property is held in common between two or more coproprietors. • 1. Shirakah al-Inan: Limited Partnership • Is a limited partnership in which on partner is not allowed to do anything without his co-partner. • 2. Shirkah al-Abdan : Association of Bodies or Labour Association • Islamic Laws allows two or more persons to associate themselves for the exercise of a profession or a handycraft. The profit will be practically equal for the partners with a view to lending mutual assistance even through the associates work separately. • 3. Qiraad : Dormant Partnership • Qiraad agreement is a contract by which a persons entrusts funds to a • trader (amil) in order that he shall trade with it. Subject to the lender • having a share in the profit . Thus, in Qiraad the capital is handed over • to an agent to trade with, and the contract comes into forces when the • agent starts his trading journey. (see page: 366)

10. PARTNERSHIP( CONT ) • Mudarabah : Co-Partnership • Mudarabah is a contract in which certain property or stock (Ras al-Mal) is • offered by the owner or proprietor (Rab al-Mal) to other party to make • partnershipin which both parties will Participate in profit. • Organs in Partnership : • Wakalah: Agency → arises when one person authories another to replace him in the exercise of civil rights. • Wakil → the person thus authorised, can be entrusted with all acts which can be done by representative • Obligations of a Wakil→ generally its responsible to sell or buy for the price, and should declare clearly to third party • Daman: Guarantee → is a form of contract by which the third person constitutes himself liable for the debt of another • Damin → the third person who constitutes himself liable for the debt of another Capital in Qiraad Partnership and the different between ordinary & Qirad partnership the ordinary partnership has its existence when the partner is live , the share are mostly small, all partner has active role , & each person contribute its shares of capital. But , in Qirad / dormant partnership , a capitalist furnish the fund, but active agent operate the business almost without control.

11. Ijarah : Hire → derived from arabic word ajar: meaning reward or remuneration • When one party sells to the other the temporary enjoyment of moveable property other than ships and animals in return for a price it is called al-ijarah. The price should be in proportion to the temporary enjoyment sold. • valid ijarah requirenment: • the ingredients essential are the lesser and the lesse, • the thing which is to be hired, • the price or remuniation for the hire, • the consent of the hire • the contracting parties must be legally capable to enter in to the ijarah contract • there must be proper stipulation of price or remuniation • Tahkim : Arbitration Contract → is a form of contract in which it is agreed that in case of any dispute or disagreement in the terms of contractual agreement , it will be settled through the appointment of a arbitrator (hakam) • The remuniation for hire is to be paid day by day but in the following cases, it is to be prepaid if: • 1. consists of a definite object • 2.Has been stipulated • 3.Local custom • 4. hire of any animal for some definite journey • which is not yet commended IJARAH AND TAKHIM *the ijarah contract will be valid if it is combined with a conditional agreement. (see page:370)*

12. Ill-gotten wealth • Money or property which is aquired through unfair(unclean and unlawful) will cause a great harm. • - the prayers won’t find acceptance • - the supplications won’t be answered • - the petitions won’t be granted • Even, when he does something good, they won’t avail him nothing. In the next world, there will be no share for him in the special favours of Almighty Allah. • It is ensured by shari’ah that the trader must not exploit the buyer. • Government took the interest in the market condition and developed an institution of hisah(responisble for stopping adulteration, underweighing, over-work by employers, and so on which pertaining unlawful professions) .Such departments were headed by muhtasibs. • There are numerous instance to suggest the government intervened if the rules of fairplay were violated. • The holy prophet also participated himself visiting the market place advising the traders to use moral principles in trade. Distribution of wealth

13. Warning to selfish and dishonest traders “They will receive the eternal punishment.” • Some traders are habituated to swear in the name of Allah while selling their commodities. And the prophet said that Allah won’t look on the Day of resurrection,nor would they be cleansed of their sins, they will be recipients of painful punishment because they sold the goods by swearing falsely • Al-riba: The usury • Some people says that usury and trade are same thing, but Allah has permitted trade and forbbiden usury. • Those who practice usury are ungrateful and wicked • True believers must give up the practice of usury • If one does not stop the usury,he is given notice of war from Allah and His messenger • The Next world is given to those who stop usury • Those who devour usury are the rejectors of faith • Wealth doesnt increase but decreases (leads to poverty)

14. Usury was not new in Arabia • Before the advent of islam, this has been prevailed in the Arabian Peninsula(economy bases) but Islam deny & reject this unjust & criminal systemgive new basis such as : zakat, of the goodwill loan, of cooperation and mutual solidarity. • Certain aspects of usury which is forbidden are for example : • Selling other land, unborn animal, selling uncaught fish/birds • selling the comodities which defect have been disguished,selling the goods which allow the buyer just to touch it without seeing(examining), • selling the cloth without showing the buyer adequately • selling the comodities without weighing/measuring, • selling agricultural produce not yet ripped, • etc

15. Usury (Cont) • There are also prohibited all kinds of invalid partnership, such as partnerships in cultivating a tract of land in return for the products of a certain piece of it. • And applied to all commodities that exchange something with the same type but one of the parties gives more than he receives except in respect of vegetables and fruits, and when exchange one type of good with the other type is prohibited except in equal quantities in direct and immidiate exchange. • Here it may be mentioned that the shari’ah does not tolerate • any profit which is stipulated at the time of contract • because apart from being riba it is risky in that it may • not all be realised, or even realised, it may • be less than be stipulated amont.

16. Distribution of Income and Wealth • The policy of distribution of income and wealth in Islamic Law assures that in the process of distribution none of the factors of production exploit the other. • As a practical religion and way of life, this policy compulsory retains a portion of produced wealth for those who are detained from contributing their share in production due to any social, physical, or economic handicap. Al-Amanah: The Trust • The law of Allah delacred: “Do not devour one another’s wealth by false and illegal means.” • A man who keeps someone’s property in trust is Amin, a trustworthy person • The trust may be various kinds: • Property, goods, credit, etc. • Plans, confidences, secrets, etc. • Knowledge, talents, opportunities, etc. • Men who misusing the property or abusing the confidence reposed in them will be accounted by Allah, if not in this world, it will be on the day of Judgement

17. Al-Dayn: The Debt • When one has an economic trouble, • he should ask other people for loan. • In Islam, debt is also the kind of trust which should be returned to its owner. • The verse on the injuction of debt and its repayment is among the detailed verse of commandments (ayat al-ahkama al Mufassal). It says: • When money or something is lent for a specific term, it should be written down in a document. • The scribe who is called upon to write should not refuse and he should write exactly as what is dictated. • The person taking oath should dictate. • Supposing such a person cannot dictate well or incapable, then his guardian or agent should dictate justly. • Two witnesses from amongst the Muslims should be called to witness the deed. • If two male witnesses are not available, then one Muslim man and two Muslim women should ne invited as witnesses • In the entire affair, the parties concerned should fear Allah and do justice.

18. Al-Rahn: The Mortgage • means a proof or something that has been held in pledge. • In Shariah law, it means holding something that has a value while giving something on debt. • If the times stipulated while giving a debt on security expires, the debt can recovered from the mortgaged property. • A valid mortgage must satisfy the following 3 conditions: • Both the mortgagor and mortgagee must have the legal capacity to possess and dispose of the property • While making the agreement terms of the mortgage must be expressed • The debt as well as the mortgaged property should not be unlawful commodities • There are 3 essential requisites for a valid mortgage: • The presence of the mortgagor and the mortgagee • The thing to be mortgaged and the debt to given in lieu of it • Consideration • and acceptance • whose transactions are forbidden under shariah • The agreement of mortgage will be considered incomplete • until the article pledged is taken over. • Responsibility for damaged or loss of the article • mortgaged shall be borne by the mortgagor.

19. Bayt al-Mal: The Centre of The Financial Organization of the Ummah • Bait in Arabic means a House, while Mal means the property. • Bayt al-Mal means the treasury of the public. • The concept of Bayt al-Mal is the concept of trust: the wealth of Bayt al-Mal is to be treated as Allah’s or Muslim’s wealth. • The sources from which funds are collected in the Bait al-Mal are as follows: • - Zakat - Ushr - Sadaqah - Khums - Jizzyah - Fay -Kharaj - Dara’ib • Abdallah bin Umar has said: “In your property, there are other rights other than Zakat”: • - Waaf - Amwal al-Fadilah • - Ushur - The estate left behind one who has no heirs • - Kira al-Ard

20. As promised in the Quran, “Allah will deprive usury of all blessings, but will give increase for deeds of charity.” Thus, Islam lays great stress on the relief of the poverty by the rich. • It is not considered to be a favor by the rich if they help the poor; on the other hand, it is a duty of the rich and prosperous men to take part in the economic uplift of the poor. • The Muslims have been ordered to work for the uplift of all mankind and to show by their conduct that their minds and hearts are free from national or religious hatred. The Right of the Poor and the Handicapped • While Muslim mustn’t live an extravagant life, those who are blessed with the bounties of Allah are not expected to live in rags, for the Prophet has said that Allah likes to see traces of His bounty of His Servant.

21. Miserliness condemned in Shariah • Miserliness is considered to be a sin in Islam. Islam doesn’t believe in merely collecting property and living a miserly life. • A generous man is considered to be a friend of Allah in the teaching of the Prophet. With Muslim, the worship of Allah is linked up with kindness – to parents, kindred, those in want, those who are far from their homes though they maybe total strangers to us. • The miserly persons are the brothers of Shaitan, the Devil, and hence are always ungrateful to Allah like Shaitan. • Begging: An unlawful act • Muslims are asked to struggle to earn their lawful livelihood, and not merely depend on charity. • The only time begging can be permitted is when a man is hard press and there is no other way to survive than asking for help. • It’s not lawful to beg except for three categories of people: • That a man who accepts to be a guarantor on someone’s behalf (and has no money to pay) • That a man whose property is destroyed by calamity • One who is starving and three people of his locality confirm that he is really starving

22. Al-Rishwah • Al-Rishwah or bribery is offered or promised to be offered to someone in order to influence him or persuade him to do something wrong in favour of the giver. • Al-Rishwah is dishonesty. • It doesn’t prohibit the mutual exchange of gifts among friends and relatives. The Messenger of God said that “Exchange gifts, this will increase your love.” • But the taking of gifts by the government officers and administrators in the process of discharging their duties is thus forbidden under Shari’ah. The Prophet has warned: “There will come the period when bribe will be made lawful by people thorough gifts, and murder thorough adminitions.”

23. The Devastating Effects of Modern Economic System • A man is not to live by bread alone. A man does not live to eat but eat to live and survive. • If we attempt to build our society on economic foundation alone, it would really mean that a man’s position is being reduced to a grazing animal. • The wealth people forgetting their role of Khalifa of Allah on earth, began to describe their • motto of life as “money, more money and yet more money.” • Dishonest ways of earning have been legalized and everything has been named a ‘business’ (al-tijarah) The Modern Banking System & Interest-free Muslim Banks • Usury meant any premium paid for the use of money, it means the practice of demanding an exorbitant premium of interest. • Every business man in need of loans is driven by force of circumstances to borrow from the Banks which charge high rates of interest. • Muslim dynasties ruled all over the world and inherited this well established banking system, but they never engaged in the practice of riba or interest without which the modern banks, as the general impression is given to all of us, cannot work.

24. Islamic Bank: A New Economic Order for the Modern World • Guidelines for an ordered and centralized economic pattern of the world, that could be ordained thorough the Islamic Bank are suggested below: • The world Muslim currency should be immediately established. • The value of one barrel of crude oil should be fixes at one Dinar. • In foreign currencies, the oil price should be gradually increased with an index based on the rate of inflation on a selected number of Technical Essentials. • Standard export of Muslim countries should in Islamic Dinars. All the Islamic countries must see and contain in all their requirements for development, including Education, technology and ideology. • All the surplus wealth of Muslim countries must be deposited with the Islamic Bank • The major functions of the Islamic Bank should be to invest its • contribution, both at home and abroad. • 8. Another body of experts should be formed to prepare • an International Price List of the Technical that Essentials Dinar • The Islamic Bank should give interest free Dinar Loans • to the Muslim countries for their projects. • The Islamic Bank should also deduct Annual Zakat • on the stagnant wealth that could • be used as Aid to the poor Muslim countries.

25. The Concept of Lawful (halal) and Unlawful(haram) in Shari’ah • Shariah give clear guidance regarding of lawful and unlawful acts based on al quran and the sunnah of prophet. • The Basic principles( from holy quran) : Juridical Dictum • “Al-ihaba aslan fil –ashya” • lawfulness recognize principle in all things • means : all is lawfull unless it is definitely prohibited by law (but some scholar think vice versa ) • Allah has made obligatory deeds essential , do not waste them , and He has fixed limits, do not cross them. Whatever He has declared as unlawful, do not violate them, and He has kept quite about certain things , it is a sort mercy for you, do not enter the unecessary discussion about them

26. HALAL AND HARAM • some people trying to trick what is haram , by finding flimsy and excuses , to be able to do what’s unlawful or haram, and make it halal • eg : jews cant catch fish on Saturday ,so, dig ditches on Friday and accumulate fish on Sunday. • What has been declared as unlawful in sunnah • wine (drinking , selling ,brew ) • murder , • adultery , • theft , • brigandage, • usury. • Making wool using • death animal hair, etc • some people in modern time people declare that waht is unlawful as lawful in the name of trade . but good musims need to be ‘taqwah’(piety) and keep away from all of those sin. • People who is really in need can get zakat and sadaqah in purpose of sustain their life

27. The Creator asks all the creatures to follow His command and eat ‘taiyib’ food( what is pure, cleans wholesome, nourishing, and pleasing to the taste.) this is written in surat al baqarah verse 172 • The believer is given lesson from quran. And need to do gratitude to Allsah and tHe prophets with doing ibadah. • Al-Jahiliyah (الجاهلية) is the pre-Islamic time of ignorance. This concept is part of the following classification in the ontology. People must need to eliminate this to be a true muslim with doing what has been taught, eg: worship with facing the qiblat when pray. • There are some 3 condiltional ( driven under necesity ) that may allowed peoplre to eat what is hara,( based on quran ) wich is: • People in helpless condition to save their life • Example : when people got nothing to • eat ,forcably to eat what is haram • Absolutely no intention to break the law of • Allah • Even eat, It should be not taken more than • necesity. • Injunctions in Respect of Halal • & • Haram

28. Consideration of haram food : True muslim should abstain from this kind of food that forbiden to eat / haram food: The flesh ofswine or a pig ( eg: pork ) Because of its habits, its unclean, may causes fever & leprosy 2. Dead or rooting flesh Because of ‘maiata’ : has not been slaightered in the manner of prescribed life Blood poured from an animal by force The flesh of stranged animal The flesh of an animal beaten to death The flesh of animals which dies through fall; The flesh of an animal which is smitten to death with the horn The flesh of an animal a part of which is eaten by wild beast Because it is consider as un hydienic food A flesh of an animal which is natural death Animal slaughtered for idol because of polytheism(to idol) consder as great sin; excet for islamic purpose / dabh (this still need to have bismilahAllah-u-Akbar ) or ‘’id-al kabir (eg: circumcision; in this state , better give the meat for othe too, but not obligatory) The beast of prey with canine teeth(according to ‘hidaya’)

29. Consideration of halal food : • Consider as halal food • Milk (from cows, sheep, camels, and goats)  • Honey  • Fish  • Plants which are not intoxicant  • Fresh or naturally frozen vegetables  • Fresh or dried fruits  • Legumes and nuts like peanuts, cashew nuts, hazel nuts, walnuts, etc.  • Grains such as wheat, rice, rye, barley, oat, etc.  • Animals such as cows, sheep, goats, deer, moose, chickens, ducks, game birds, etc., are also Halal, but they must be Zabihah (slaughtered according to Islamic Rites) in order to be suitable for consumption. The procedure is as follows: the animal must be slaughtered by a Muslim. The animal should be put down on the ground (or held it if it is small) and its throat should be slit with a very sharp knife to make sure that the 3 main blood vessels are cut. While cutting the throat of the animal (without severing it), the person must pronounce the name of Allah or recite a blessing which contains the name of Allah, such as "Bismillah Allah-u-Akbar". 

30. The Holy Qur'an, 5:3 “ Forbidden to you (for food) are: dead meat, blood, the flesh of swine, and that on which hath been invoked the name of other than Allah; that which hath been killed by strangling, or by a violent blow, or by a headlong fall, or by being gored to death; that which hath been (partly) eaten by a wild animal; unless ye are able to slaughter it (in due form); that which is sacrificed on stone (altars)... ” The Holy Qur'an, 5:90 “O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are an abomination, of Satan's handwork: eschew such (abomination), that ye may prosper.” • Dabh can be divide by 2: • Dabh al-Ikhtiari : killed by knife • Dabh al idtiari : killed by shoot • There ais exception that known as id-al kabir which alloews people to eat beast flesh , but its better to give the flesh to the other , but not obligatory)