Islamic Economics is a term often referred to as a sub branch of Islamic

jurisprudence; fiqh in Arabic. The term of Islamic Economics literally translated from
Arabic word al iktisatul Islam, or rarely al fiqhul Iktisat.
To give a more professional definition; referring Umar Chapra; that branch of
knowledge which helps to realize human well being through an allocation and
distribution of scarce resources that is in conformity with Islamic teachings
without unduly curbing individual freedom or creating continued macroeconomic
and ecological imbalances. Also according to Chapra and many other Scholars;
there are 4 sources of Islamic systems; they are;
1-) Quran, such a divine sources
2-) Sunnah, the sayings and practices of the Prophet Mohammed (pbuh)
3-) Ijma, the common belief of Muslim scholars
4-) Qiyas, the other principles that are compared to those three sources.
These resources are widely accepted as the main sources of Islamic sciences. We will
break down each and every one of them later on InshAllah.
***
Islam, a religion born in a territory where the agricultural potential is limited but
commercial possibilities were great; such as trade and tourism. Prophet Mohammed
(pbuh) himself had been a merchant; and very successful businessman actually;
so We can see that Islam always regarded merchants with honor and esteem. Along
with Prophet (pbuh); many of His Sahabah were also merchants; Abu Bakr, Usman and
many others were successful merchants.
After the death of Prophet (pbuh); Muslims continued that tradition of successful trade.
Many of that era Scholars were successful merchants as well, like Abu Hanifa. They
faciliated in a really wide location; between Mediterrenian an China. It is an interesting
point that people of those countries like Malaysia and Indonesia were converted
to Islam not without war but with the efforts of that brilliant Muslim merchants like
Abu Hanifa.

During the Middle Ages, with that remarkable success in making converts; Muslims
were started to seen as worlds leaders in business, science, medicine and
philosophical thought. Many ancient Greek authors are known to us today only through
Arabic translations. Modern mathematics is based on the Arabic system of
notation, and algebra was an Arab invention. During the intellectual revival of
Western Europe in the eleventh and twelfth centuries many Christian scholars went to
Cordoba and other Muslim intellectual centers to study classical philosophy and
science. The word of college was derived from Arabic word of klliye; and the
oldest college of English speaking Europe, the Oxford College was founded as a copy
of those klliye system. At the same time, Christian merchants learned Muslim
commercial practices and techniques. As a matter of fact, the word of cheque
(literally means a printed form, used instead of printed money) was invented by
Muslim merchants of that time; and its original Arabic word was akk. Many
other advanced finance techniques were also being used during that time period.
In short; it can be clearly seen that Islamic economic system of that time is very close to
todays free market and so called capitalism or liberal economy. However; Islam has
two main and very important differences when compared to those other economic
systems. Islamic Economics is based on prohibition of interest (usury or riba in Arabic)
and presence of zakat (almsgiving). Those two point can be regarded as indispensible
points of Islamic economics. Prohibition of interest and obligatory alsmgiving could be
sounded like somewhat socialism, but; its not. Islamic economics is so much different
than capitalism and socialism. However, I think it should be a good implication
thatdynamism of capitalism and equality of socialism are combined in the
economics system of Islam. Moreover, it embraces both this and other world as a
whole; direct

One of the overriding concepts of Al Ghazali based upon Shara which encompasses all human
activities, including economic, is ma la a which promotes social welfare of community7. All matters
and activities of human being have to be seen as a means to achieve goals in increasing the social

welfare. The institution of ma la a is well defined by Al Ghazali, concerning individual as well as

social needs.
According to Al Ghazali there are five compulsory Shara based foundations or components for a
proper and just individual and social life: 1. dn (religion), 2. naf(life of soul), 3. na l (family)
4. mal (wealth) and 5. aql ( intellect, reason).8 Ma la a as a public good is inextricably related to
Shara, which key objective is advocating what is according to the Quran perceived as good in the
mundane and in the Hereafter (ma la a al dn wa al duny). Thus the noblest deed in the sight of
Allah is the promotion of general (public) good in the society. Al Ghazali discusses three aspects
of ma la a in a hierarchical form: necessities (darurt), conveniences or comforts (hajt), and
refinements or luxuries (tahsint).9 These foundations have to be constantly revised by the people
themselves. The second foundation comprises all activities and things that are not vital to the
preservation of the five foundations, but, rather, are needed to relieve or remove impediments and
difficulties in life10, whereas the third foundation includes activities that are perceived as a surplus or
additional to the basic necessities.

Islamic economics, the notion of Hereafter (ira), basic needs,

sharing and just conduct
Since Al Ghazali positions economic activities within the parameters of the Islamic worldview, the
Hereafter is seen as the ultimate goal of human beings. Quranic verseL tana na baka min alduny, (do not forget your share in the world)11 can be understood in the light of not neglecting
ones share/contribution/effort in this world for the Hereafter. On the other hand, duny or mundane
is not seen primarily as a temporal place but rather a struggle and preparation for the salvation, and
this struggle has to be utilized through human endeavours and affairs, which include also the
economic pursuits. Thus, economic activity is a prerequisite for the salvation.
In accordance with fiq Al Ghazali has analyzed three elements of trade: agreements of buyer and
seller, commodities of the transaction, and the content of the agreement. 12 He criticised those who

believe that economic activities are related only to the substance of survival or living. 13 He states that
Cities have been destroyed, the places turned into dust, bodies decayed, and sjulls are all rolling in
dust. The world is a brilliant bowman, of which man is a target. Take only that much of goods from
the world as are absolutely necessary for your earthly sojourn. If you want to be saved from the
mischief of the world, then consider your wealth and dust as equal. 14
Level of consumption thus has to range between necessity and extravagance. 15 Whilst necessity has
to be fulfilled by the consumer for it is perceived as a religious obligation, extravagance is arm.
According the Al Ghazali all economic activities have to provide basic human needs food, clothing,
and shelter.16 These basic human needs are consistent with Shara, thus Al Ghazali tries to deliver
information from his economic inquiry of various material matters that relate to provide and please
human conditions, as part of the idea of Islamic social welfare. In Mizn al Amal, Al Ghazali
mentions three levels of consumption: the lowest, the middle, and the highest, and each of the basic
things can be applied to each of the three levels as a necessity, convenience or luxury. His
discussion on need and surplus of material things is linked with the percept of the relation between
wealth and poverty. Abu Hazem pointed out that that the basic human needs are what one needs in
order to reach the state of content: If you seek in this world what suffices you, then the least of this
world will suffice you. And if you seek what fulfills you and you cant be fulfilled by what suffices you,
then nothing in this world will fulfill you.17
Acquiring wealth is intrinsic to human nature and a means for providing wellbeing for society. Al
Ghazali recognizes that Man loves to accumulate wealth and increase his possessions of all kind of
property18. And the reason behind it is according to him high aspirations, an infinite luck men
strive for the percept that the wealth will last. He is also critical towards the disproportionate
upsurge of income in a society. He maintains that the umma (Islamic community with its spiritual
features) ought to exercise also humanitarian charity endowment (waqf). He mentions three stages
of sharing: 1. A lower stage where a person sacrifices for his brother without expecting anything in
return, 2. A higher level, presupposes that a person considers his brother as himself and spends

upon him as if he would spend on himself, whilst the highest level indicates that brothers need are
to be preferred over ones own needs.
If voluntary (humanitarian) sharing and feeling of brotherhood is not intrinsic constituent of Islamic
belief, meant for those who are in a material (financial) need, two culpable consequences are likely
to emerge in the society: extravagance and miserliness or avariciousness.

19

Both are in clear

opposition to the Shara, for excessive activity (wasting, spending etc.) is illicit: Make not thy hand
tied to thy neck, nor stretch it forth to its utmost reach, so that thou become blameworthy and
destitute. (Quran 17:29) Those who when they spend are not extravagant and not niggardly, but
hold a jus (balance) between these extremes. (Quran, 25:67). Thus, Al Ghazali states that money
(ml) has been created for a specific purpose in order to fulfil needs of human beings. Miserliness
means that where money should be spent is restricted, whilst extravagance suggests the opposite,
where money should not be spent, there is an excessive expenditure of it. Utilization of wealth
should be therefore in accordance with Islamic jurisprudence, which would secure not only ones
welfare but rather the procedure of spending on lawful products in a lawful way. By following Islamic
principles misuse of monetary activities would be minimized due to the regulations of Shara.
Nevertheless, the ultimate goal is the remembrance of the Hereafter. The Qurn encourages the
acquisition of wealth20, along the strict rulers of Shara, but does not advocate the lust of money or
spending and fulfilling personal goals over the needs of community and those in need. Therefore, as
indicated by Al Ghazali, an individual should realize the objectives of wealth and money as indicated
by the Shara; follow the righteous means of acquiring income; earn and spend no more than one
needs; and not forget about the truthful intention behind ones economic activities all stages have
to be realized not for the sake of acquiring wealth but in the name of Allah. This is the Islamic idea of
the piousness (taqw).

Most of his ideas on economics are to be found in I ya Ulm al-Dn. Seven requirements have to be
met by a human being for an overall preservation of the dnor religion, while practicing the economic
purchase.21 First is the good intention at the very beginning of economic activity, in order to free

oneself from envy and assistance from others, as well as to provide for ones own household. In this
respect one has to have in mind the state of other Muslims, adl and i n (equity and goodheartedness), and amr bi al-marf wa nay an al-munkar (leading the path of rightness). Secondly,
human being has to fulfil the requirement of social utility also in trade and commerce, otherwise the
repudiation of economic activities can become a threat for human kind. Thirdly, economic activities
should not renounce humans from the Islamic principles, therefore the pursuit of the mundane
market should be in reliance with the Hereafter. Fourth, remembrance of Allah (s.w.t.) should be
present in the market or trading processes. Further, humans should not be greedy, albeit economic
engagement is permited in Islam.22 Apart from legal opinions (fatw) a Muslim should listen to his/her
own voice in order to achieve resonance in trading along with the Islamic principles 23. The last
constituent is a fair trade and behaviour.

Voluntary exchange, trade and evolution of markets

For Al Ghazali markets evolve naturally, since self-motivated human desire to satisfy economic
needs exist. Al Ghazali explains how people from different walks of lives come together in order to
exercise products exchange: Peoples own needs and interests create the need for each other
and for transportation. Then, a class of professional traders who carry goods from one place to
another is created. The motive behind all these activities is the accumulation of profits, no
doubt.24 The necessity of division and specialization of labour is thus seen in the light of covering all
aspects of human (economic) activities and providing different ways of trading with respect to
people. Mutuality and interexchange of economic activities necessitates division of labour 25, which
has to rest upon the business or trade ethics.
According to Ghazanfar, Al Ghazali indicated the relation between the market and price relation
correctly when stating that the farmer sells his product at a low price due to the necessity of not
having enough buyers. Further, he suggests that seller should out of his benevolence not accept
high profit of particular product just because the buyer is anxiously interesting in buying it. The limit

of the profit is not clear by Al Ghazali, nevertheless given the role of benevolence and overall
injunction of Shara, the rate should not exceed 5-10 % of the price of a good 26.
Since food is perceived as a basic human necessity27 trading in food should not be motivated by
profit but rather to fulfil the needs of the community. Profit itself is not a necessity 28, but rather a
surplus of living conditions. Food has to be thus available at low prices so that everyone could afford
it. The emphasis is put on the exploitation of prices of food, which is in Al Ghazalis perception clearly
illicit. Other necessities e.g. clothing, shelter and medicine are also placed in the same category of
basic needs for which no extra profit should be extracted from the price. Although Al Ghazalis
intentions are indeed noble and praiseworthy, according to Ghazanfar and Islahi he does not
consider certain negative effects of supplying such necessities. However, detailed and sufficient
description of those effects is not provided by them.
Market has to function according to moral standards and basic ethical principles of Shara which
would be beneficial for society as a whole. The example of hoarding foodstuff in order to increase
food price is prohibited, as everyone has the right to buy food directly from the market at the
affordable prices. If there are enough supplies in society then hoarding might be allowed under
certain conditions and Hoarding of medicines and other items which are not part of food and
nutrition and not part of general needs is not quite harm.29 The price of products is a very sensitive
matter and that is why Al Ghazali is very affected by the notion of truth when declaring the price of a
good or in a transaction. Economic truthfulness is a prerequisite and a significant component of a
Shara-based economic conduct. Since prices are set by the market activities, economic
engagement should thus reflect Islamic values, attitude and benevolence (ihsn), as an activity
which transcends pure material exchange of goods. Markets therefore ought not to function
freely30 and not according to set prices. Benevolence in market should be exercised through the
advertisement of the fair price of a product; leniency when purchasing from a poor seller; fair
repayments; paying ones debt; and extension of credit or delay of payment when selling to the
poor.31

In order to achieve the Hereafter from an economic perspective, the following guidelines should be
taken into consideration32: the trader ought to act in accordance with Islamic principles of correctness
and pure intentions; one should desire business in order to contribute towards public good
(ma laa); succession of material should not precede the succession of spiritual (desires of
the duny vs. the Hereafter); and one should restrict oneself from the unlawful manners.

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