The Islamic Economic System

Interest-free Islamic economic system is somewhat followed and somewhat not followed inside Muslim countries around the world. Typically the only country, which has followed this method completely in every minute detail is usually Malaysia. So typically the application methods in this post are usually mostly those implemented in Malaysia subsequent the Interest-free Islamic Economic system.
The particular main feature associated with the Islamic economic system is that this is Interest-Free. Because the Qur’an states in Sura al-Baqara Chapter 2 Passages 278 & 279, “O ye that believe! fear Thor and give up what remains associated with your with regard to usury if ye are usually indeed believers. In case ye do it require notice of war from Jahve wonderful Apostle: but if ye change back ye shall have your funds sums; do not necessarily deal unjustly plus ye shall not necessarily be handled unjustly. “
Qur’an condemn all evil deeds, but never offers the Qur’an cautioned of a battle against God Changeless and His Messenger other than when it comes to taking Curiosity and Usury.
Right now there are several evils of the curiosity based economy, the reason why Islamic has prohibited that.
For example, in case a person requires a loan from your bank and according to the cost price of a certain post is 10 dollars and he wants to money of one dollar. Therefore the selling price would certainly range from the 10 money price range one buck profit and one dollar interest in addition to the selling cost can be 12 money. The selling cost would go upwards because of interest and once the marketing price goes up the demand comes down so when the need comes down the supply comes down and as supply comes down production boils down causing labour problem and unemployment.
There exists Social Injustice.
For instance , if a person needs a loan from the bank plus no matter when he earns a profit or goes within loss he has to pay that will fixed amount associated with interest. Even when some natural calamity befalls his family, such as flooding or earthquake, the person continues to have to pay the loan with all the interest and a delay would simply boost the amount associated with interest. It is usually social injustice.
Right now there is no social consideration.
Suppose, in case two businessmen come to ask for a loan from your modern bank and one businessman wants to start up a social or hospital while the other businessman wants in order to start an alcohol factory or even a betting den. But normal the businessman, who else wants to start an alcohol factory or a gambling den could have better results plus the loan given to him would certainly be more secure and would provide a higher price appealing as in comparison to the business, who would like to open the school or medical center. Modern banks are usually only interested within getting better and larger returns. That’s why they finance gambling dens instead of universities or hospitals. That will is why inside the 80s countless numbers of gambling dens were financed by simply modern banks globally. For name reason only a couple of social projects are usually financed by modern day banks and lots of associated with their loans derive from better interest.
Modern banks encourage visitors to store money and keep the money nonproductive for small fixed return on it every year. In the end, power is targeted in a few hands, typically the bankers.
In typically the same way presently there are several great things about Islamic banking.
Since there is zero interest involved, there is profit plus loss sharing. So if a person wants to sell their goods, it would simply have the cost price and income inside the selling cost and instead associated with 12 dollars, their selling price might be only 11 dollars. If the selling price comes lower, the need increases and if the demand raises the supply increases and as supply increases the production raises causing more labour for your people in addition to higher employment. Because a result stimulates people to work and earn their particular living.
There is usually Social Justice inside Islamic banking.
In case a business requires a loan and goes into loss, the damage is shared by simply the bank in addition to if he makes a profit, the profit is shared by the bank. If in case any natural calamities befalls him, typically the Islamic bank provides him more time in order to repay, unlike the modern bank, where typically the more hours you get to pay typically the more interest you should have to pay out. Many a times in the event the Islamic lender finds the situation very bad, they even let go away that loan.
Presently there is Social Concern in Islamic financial.
Islamic bank cannot give a loan to any businessman, who else is doing virtually any activity, which can be creating harm to typically the society. For instance, if a business person wants to commence an alcohol factory and approaches an Islamic bank regarding a loan, the particular Islamic bank will not lend him an individual penny, not even if he guarantees to give 100% revenue for the Islamic financial institution. In Islamic banking there is social concern plus they encourage jobs good for the modern society, for example building schools, hospitals and nurseries. In other words, the Islamic bank encourages the society to improve.
In the Islamic bank, you are usually not encouraged to keep your money idle. You are encouraged to invest your current money and become somebody in the particular business and within the finish, power is not concentrated within the hands of some individuals. Because within the Islamic banking the profit and loss are shared by the business, the banker and also the depositor. Typically the power is both equally shared among all the people.
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The excellent philosopher, Aristotle has beautifully defined Interest as “An generating based on the use of money and never upon labour, and all such earnings(interests) are towards nature. inch
Allows quickly analyze the objectives of the Islamic economic order before we analyze the theory and program of the Islamic marketplace.
The Goals of the Islamic Economical Order
1- Economic wellbeing
Islam promotes someone to appreciate the bounties of God Almighty, to be able to work for his / her living and refrain from begging.
2- General Brotherhood and Justice
Qur’an says inside Sura al-Hujurat Part 49 Verse 13, “O mankind! All of us created you through an individual (pair) associated with a male and a female to make you into nations around the world and tribes that will ye may understand each other (not that ye might despise each other). Verily the the majority of honored of an individual in the look of Allah is usually (he who is) the most righteous of you. “
Using this we come to know the criteria that the criteria of judgement in the view of God is just not wealth, not sexual intercourse, not color, not necessarily Caste, but that is “Taqwa” God consciousness, piety in addition to righteousness.
Qur’an says in Sura an-Nisa Chapter 4 Verse 135, “O en who believe! stand out firmly with regard to justice as witnesses to Allah also as against yourselves or your mother and father or if your kin plus whether it be (against) wealthy or poor: for Allah can greatest protects all. inches
In accordance with this we have to indicate truth and rights be it against anybody even against our personal selves plus sacrifice your own interests.
3- Equitable Distribution of Prosperity
Islam is towards the philosophy that the wealth ought to be concentrated in the few hands. Typically the difference between the particular rich and the poor should be decreased. Otherwise they will turn out to be enemies unto each other. For this specific, Islam has invented a system of “Zakat” that each Muslim, who else has excess wealth exceeding the amount the same to or more than 85 grms of Gold. This particular amount is invested on poor people, orphans, needy and so forth. In case every individual on the planet practices this program of “Zakat”, not really a single particular person in the complete world would perish of hunger. Islam teaches to locate lawful employment with regard to the unemployed and to pay him a great remuneration.
According in order to Islam if a new person dies his wealth ought to be dispersed among his heirs according to typically the guidelines laid straight down in Qur’an plus Ahadith and it should not visit just one or perhaps two individuals in the society as that is done nowadays.
4- Individual Freedom within the Circumstance of Social Well-fare
According to Islam man is created free and no-one not even the state can abrogate his freedom nor subject his life in order to strict regimentation. Each individual is totally free as long since he does not harm the community because in Islam the larger wellbeing of the modern society takes precedence more than the individual flexibility.
Working and time as well since the benefit within business are both important principles regarding Islam, but working and labour get precedence over the particular benefit in business. If you are doing business, a big reduction can not become inflicted to reduce a small reduction, nor can a big profit can be sacrificed for a small profit. In short, Islam believes in individual within the particular context of social welfare.
There are mainly four factors involved in manufacturing;
1- Land
In the the Modern and Islamic theories, you pay rent about the land.
2- Labor
You spend wages around the labour in both the present day and Islamic hypotheses.
3- Capital
In the present00 theory, you pay out Interest on funds, while in the particular Islamic theory presently there is profit in addition to loss sharing.
4- Organization
In typically the fourth factor regarding production, Organization, presently there is profit plus loss sharing in both theories.
So the major difference inside the four factors of production is the third factor associated with Capital. The Contemporary Theory says of which a fixed attention should be recharged around the capital, although the Islamic concept says that there is profit and loss sharing on capital. Due to the fact Islamic theory really does not differentiate involving the third factor Funds and the 4th factor Organization due to the fact the money loaned by the bank does not belong to the bank itself, it belongs to the depositor. The depositors are usually the part regarding Organization and the money deposited in the bank (the capital) should become within the Organization. Within the Islamic principle Capital and Organization are clove together and there will be profit and loss sharing on typically the capital.
If you need to perform business, there are usually naturally two sorts of units. 1 is the excess unit, who have got excess of riches, but do not necessarily know how to be able to spend it. 2nd will be the deficit unit, the folks who perform not have money, but have good ideas for business. Typically the best examples regarding a surplus in addition to deficit unit in the Islamic history is Lady Khadijah (may Allah be pleased with her) had excess of wealth, but lacked avenues to devote in and becoming a female the girl couldn’t travel abroad too much to be able to specialize in business dealings. The deficit device, when it comes to wealth, has been Prophet Mohammed (peace be upon him). He previously good concepts and use of company avenues, but performed not have riches. So Lady Khadijah (may Allah be pleased with her) gave wealth, which usually Prophet Mohammed (peace be upon him) committed to business strategies on her behalf behalf and the profit has been shared on the set pre-determined ration.
Typically the System of Islamic Banking and Modern day Banking
Lets evaluate the options available for individual depositors to be able to deposit their funds in an Islamic bank.
Current Bank account
The cash you down payment within an Islamic bank is utilized together with your permission, nevertheless if the lender goes in loss, the particular loss is not really shared by the depositor. If the bank goes in profit, none may be the profit contributed by the depositor. The particular depositor is interested in the particular safety of his money, not profit. The particular Islamic banks provides you a verify book and a slip book with the functions because that of the modern bank.
Financial savings Account
Even here the depositor is principally interested in the particular safety of his money. Since the financial institution gets a profit coming from this money, the bank can gift a part of that income to the depositor, when the bank wants, but the depositor can not need a fixed part.
In Islamic banking, if a financial institution goes bankrupt then a depositors get their own money first plus then, the collectors. While in Contemporary Banking creditors get their money first plus majority of the depositors lose their money. So also if you need your money safe, the Islamic banks are usually preferable and less dangerous than Modern financial institutions.
Investment Accounts
These people are similar to the Set Accounts of Modern financial institutions and are additional divided into a number of types
Mudariba (Profit & Loss Sharing)
The depositor deposits a set amount of money in typically the bank for a fixed time frame, which often maybe a several of three or perhaps a multiple of several. Here the excessive unit is the depositor and the shortage unit is the bank. The lender uses this funds to do company using the businessmen plus whatever profit typically the Islamic bank tends to make, it truly is divided upon a pre-determined proportion, which can be negotiated. In the Islamic Banking regarding Malaysia, the percentage is 7 portion to 3 part, meaning 70% would go to the depositor in addition to 30% is held by the lender. So there is usually sharing of profit, the greater the money the greater typically the share of each.
Suppose, if you have a new loss of $ 100, then hundred will be deducted from the particular depositor’s money. Thus theoretically only the depositor bears typically the loss. Practically analyzing even the Islamic bank is going in loss due to the fact they are spending money for typically the rent, administration and salary, nevertheless the damage ratio in the bank is less as compared to that of the depositor, as even the particular profit in the lender is less than regarding the depositor.
Project Financing in the Mudariba Method
If a entrepreneur approaches an Islamic bank with a project idea in addition to requests a financial loan for a repaired period, the Islamic bank analyzes typically the project, then typically the businessman and the Islamic bank make a deal the profit ratio. In Modern bank interest is negotiated, in Islamic bank profit ratio is negotiated.
Suppose, the businessman takes a new loan of $5000 from an Islamic bank for six weeks and the pre-determined profit ratio will be 60% to the bank and 40% to the businessman. When the businessman will be working for his business, even his salary would end up being a part of that $5000 and suppose the particular salary of the businessman is $200 per month.
Suppose, if the businessman earns a income of $5000, the particular business would get (his 40%) $2000 from the profit plus the businessman would certainly get paid one-hundred dollar salary per calendar month from your $5000 financial loan, amounting $1200 regarding six months. So the businessman gets their profit and also the salary for his work, if he is operating for his enterprise.

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