Islamic Banking-Session 2

7/30/2019 Islamic Banking-Session 2

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Islamic BankingSession-2


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Comparative Study of Various

Economic Systems


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Islamic Economic System

The question of Economic Activity-Whether abasic problem or a necessary requirement?

Economic Activity-not a basic problem but may

be a necessary requirement. According to Quran-Seek benevolence of Allah

The connotation of Ad-Dunya-negative

connotation Apparent contradiction-but in essence have

same implications


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The real Nature of Wealth and Property

According to Holy Quran "wealth" in all itspossible forms is a thing created by Allah, and is,

in principle His "property" Allah delegates right of property

"Give to them from the property of Allah which

He has bestowed upon you." (24:33) Al-Quran The reason is simple-Man can invest in labor

and rest is Almighty Allah


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Man has the "right of property" over the thingshe exploits, but this right is not absolute orarbitrary or boundless, carries responsibility and

limitations "Seek the other world by means of what Allah

has bestowed upon you, and do not be negligentabout your share in this world. And do good asAllah has done good to you, and do not seek tospread disorder on the earth." (28:77) Al-Quran


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The Right of Property

A summarized version in Islam

All wealth received from Almighty Allah

Use in such a way that ultimate purpose is the

Other World

Wealth must be subject to the commandments

of Allah

Allah may command to use in a specified way Allah may forbid the use of wealth in a certain

way


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Materialistic and Islamic

Economic System-A Comparison

Point of

Difference

Materialistic System Islamic System

Livelihood A fundamentalProblem-Ultimate end

Necessary but nottrue purpose of life

Property Unconditional right-

CapitalismNo right-Socialism

Admits right but

not in absoluteterms


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Factors of Production


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Factors of Production

Capitalistic View

1) Capital-"the produced means of production" acommodity which has already undergone one processof human production, and is again being used as ameans of another process of production

2) Labour-Any exertion on the part of man

3) Land- ''natural resources'' Means of productionwithout having previously undergone any process of

human production).

4) Entrepreneur- Manipulates all the factors, utilizesand bears the risk of profit and loss


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Rewards for Factors of Production

Capitalistic View

1) Capital- Interest

2) Labour-Wages3) Land-Rent

4) Entrepreneur- Residue (Balance of Income)


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Socialist View

Capital and Land- Collective Property

instead of private ownership- No provisionfor rent or interest

EntrepreneurState not individual hence

no question of profit

Labour-Has right to wages


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Islamic View

Different from Both

Two kinds of People have right to wealth

A) Primary right-Direct contribution in factorsof production

B) Secondary right-who dont participate in

factors of production-Co-Sharers


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Islamic and Socialist views

Comparison

Concept of Private Property

Almighty Allah-Being the owner of all resources

Socialism- Concentration of resources at handsof state-in efficiencies and redundancies

The extreme situation- creates a number of evils

while cures a few


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Islamic and Capitalist views

Comparison

The entrepreneur, as a regular factor excluded-

three factors have been recognized, instead of

four

Existence of entrepreneur not denied but

merged with other three

Profit reward of capital instead of interest

Capital-"the produced means of production but

according to Islamic must be consumed such as

machinery cant be capital


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Islamic and Capitalist views

Comparison

Land- used in more general sense as asset

Labour- Broad definition as mental and physical

labor

The ways to invest capital

1) Private business-Profit and wages only one

person 2) Partnership-Joint sharing of profit and loss

3) Cooperation-(Modarba)- One person invests

and other manages-shares profits


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Money Lending Business

in Pre-Islamic Day

"In the pre-Islamic period, the tribe of Banu

Amr bin Auf used to take interest from the tribe

of Banu-al-Mughira, and the Banu-al-Mughira

used to pay this interest. When Islam came, thelater owed a considerable amount of money to

the former". And further on: ''The Banu-al-

Mughira used to pay interest to the BanuThaqif"


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Money Lending Business

Islamic Injunctions

Let it be understood that the position of every

Arab tribe was like that of a joint company,

carrying on trade with the joint Capital of its

individual members. So, when a tribe wouldborrow collectively from another tribe, it would

usually be for the purposes of trade. The Holy

Quran prohibited even this practice


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The objective of

Distribution of Wealth

a) The establishment of a practicable system

of economy

b) Enabling every one to get what isrightfully due to him

c) Eradicating the concentration of wealth

Documents

Islamic Banking-Session 2