Question

1. Is profit maximization acceptable as the objective of production in Islamic economics? ( 20 mark )

2. What are the four (4) characteristics that define “prohibited interest rate”? Explain Muslim scholars’ arguments in justifying the prohibition of interest rates. ( 20 mark )

Answer 1

1. Profit maximization is acceptable in Islamic economics and it has been proven by scholars that the islamic religious texts (Quran and Hadith) put no restrictions on profit maximization. In fact, in some instances the Quran makes profit making a mandatory outcome of enterprise. However, islamic law strictly prohibits cheating, theft, and adoption of unfair means in making profit.

2. The prohibited interest rate in islamic texts is called riba. The riba is considered as an unequal exchange between two parties where one party takes undue advantage of another. It is considered unethical since the surplus is appropriated by the individual who does not produce it. If a loan is to be offered in islamic law, no interest is to be charged on it. Although some scholars say it is prohibited and those practising riba must be punished by sharia law, others say it is just not to be encouraged.

The islamic scholars justify the practice on the grounds that the law is meant to promote charity and kindness among individuals rather than exploitative motive. People must be encouraged to help each other for others benefit and not lend money to get undeserved benefits.