Question

1.Discuss the socio-economic impact of zakah as a redistribution instrument. ( 20 mark )

2.What are the guiding principles on consumption in Islamic Economics? How do they differ from conventional economics ( 20 mark )

Answer 1

1. Amongst the most fundamental problems the world is facing currently is the distribution of the national product and how to balance between the growth of the society, while at the same time attain justice.

Linking between growth and distribution holds such a significant importance in the current economic theory of our days, especially after it has become more acute under the secular economic systems. Capitalism for example, which is founded on competition, allowed usury and monopoly. The public interest is achieved only through self-interest. It did not give much care for the issue of distribution except in terms of domestic consumption. Hence, profit is achieved only through monopoly and revenue is usurious.

Wealth has become a perpetual distribution among the rich. Consequently, the structure of both production and distribution became disturbed. Capitalistic societies, thus, suffered from deep crises and became threatened by internal conflicts.

Socialism, on the other hand, has founded its economic system on the justice of distribution. However, it went too far when applying it. It resorted to confiscation of capital. It put an end to some things such as 'profit, rent, ownership and inheritance'. This resulted in it falling short to balance between freedom and equality and even neglected them. Furthermore, it neglected the principles of social justice.

The society lost the incentives for development, so poverty penetrated the society. Production weakened. They even used coercion to push the wheel of production. Usury was again back to the scene. The balance between growth and distribution in the society was greatly missed.

This is where the importance of the Islamic economic policy emerges. Essentially, Islam works on minimizing the gap between income and growth in the society through a number of ways, among of which is inheritance, ownership, prohibition of usury, monopoly, aleatory, theft, abuse of power and consuming people’s wealth unjustly. It also calls for spen

Islam acknowledges difference between individuals in terms of their physical, mental, and emotional capabilities. Such differences are quite normal. They are attributed to the unchangeable universal laws. However, we can still soften them through some human procedures

In this context, Islam does not see a contradiction between this difference and the essence of the social balance as long as human labor is real source of value. Any differentiation, then between the members of the same society, should be based only on this principle. The balance, which is guaranteed by Islam, is founded on securing the same standard of living for all members of the society not the same standard of income.

A state should endeavor to achieve a kind of balance in the standard of living for the members of the society so there should be no clear difference in the standard of living of the members of the Muslim community.

According to the unified standard of living in the Muslim community, the individuals then differentiate according to their labor and work not their ranks or lineage.

As explained before, the differentiation acknowledged by Islam is meant to be in the standards of income. However, it does not mean that Islam approves absolute differentiation in the distribution of incomes in the Muslim community. Rather, it approves the tolerable differentiation in distribution, as long as it is based on labor and it is kept within the frame defined by the objectives of the Islamic law.
Islam, with all its high principles, has urged cooperation and empathy between the members of the Muslim community. It has also urged them to stand by the weak and the poor who cannot afford for their basic needs of clothes or food. Therefore, the rich in the Muslim community are urged to spend their money on these groups through charity and zakah. It is mentioned in a noble hadith that when the Messenger (PBUH) was sending Mo’adhIbn-Jabal to Yemen, he said, “…tell them that Allah has made it obligatory on them to pay zakahh which will be taken from the rich among them and given to the poor among them.”

2. Consumption in Islamic economics is viewed as a positive action that would contribute to human wellbeing. Islam sees consumption as having a moral agenda and noble goals rather than viewing it as a mere wants-fulfillment enterprise in a personal self-pleasure agenda. The goal of consumption in an Islamic framework is not to gain personal wants satisfaction per se, as such effort would be a waste of time and meaningless. The goal instead, is to direct the consumption in achieving the individual and social wellbeing (maṣlaḥah) and the higher purpose of achieving God’s pleasure. With that perspective, the Qur’ān and Sunnah have laid down the guiding principles in consumption that would form the framework for consumption behavior in an Islamic economic perspective. The Islamic economic agents are expected to adopt the Islamic morality principles in their actual consumption. The orientation of the paper is normative in nature with the aim of conceptualizing the principles and behavioral framework of moral consumption in an Islamic perspective and elaborating the goals and guiding principles of consumption in an Islamic economic framework.

1. Underlying philosophy

Islam as a way of life provides guidance on how Muslims perform its daily activities, including transactions and othereconomic activities. Pertinent to this is the way society inteprets and solve man’s economic needs and problems. Islam has established some standards on how economic system should be organized, which are based on justice and equity.

Justice cannot be achieved without considering the effects of a particular action or actions towards society. Therefore Islam guides and encourages man to become non-self-centric wherein life’s goals is not only about personal gains. This is contrary to the conventional economic system that prioritises self-interest over public interest. In Adam Smith’s theory of “invisible hand”, the assumption is that a free market economy works well when everyone works for his/her own interest.

In an Islamic economic system, social and economic development are like 2 branches of the same tree that needs to grow on par. Whereas in the conventional economics theory, social development is secondary or accidental. This is exemplified by Adam Smith’s description of the invisible hand which is the unintended social benefits of individual self-interested actions.  


2. Financing principles

Within the Islamic economic system exists the financial system that facilitates the allocation of resources such as physical goods and financial resources.

In allocating these resources, the Islamic system emphasises on the underlying activities that has to be real and productive. This is unlike the conventional financial system in which the price of financal resources or interest rates is the focus of any financing activities.

In an Islamic economic and financial system, the growth of wealth must be accompanied with increased economic and productive activities. It cannot be a growth of wealth per se, as how the conventional financial system is largely based on.


3. Economic freedom

In a conventional economic system, one has unrestricted economic freedom to initiate, organize and establish any type of enterprise, business or trade. A person has the right to earn income and spend it any way they like.

While Islam allows one to earn and spend at will, he/she is also limited on how that is done. This is because Islam distinguishes between what is permissible and non-permissible. Therefore to set up an enterprise or work in sectors dealing with alcohol, tobacco, and adult entertainment for instance is not permissible. In spending one’s wealth, Islam also discourages extravagant and decadent living as one should not be absorbed with material and wealth gains. In one’s wealth, Islam has mandated that a portion of it belongs to the poor and needy which a person needs to give away in the form of tithe or donations.


4. Operational supervision

The conventional economic system is supervised in accordance with government regulations and the national law. While the Islamic economic system is not only overseen by the government but also monitored by the board of Shariah scholars well versed in Islamic knowledge.