ISLAMIC ECONOMY: AN ALTERNATIVE SOLUTION

DR. ISMAIL ADARAMOLA ABDUL AZEEZ

•Email: [email protected]
 Introduction:
• Prohibition of Riba (Interest):
Islamic economics prohibits the charging or receiving of interest on loans, viewing it as
exploitative.
• Profit-Sharing (Mudarabah and Musharakah):
These partnership-based financing models allow for sharing both profits and losses between
investors and entrepreneurs.
• Zakat (Charity):
A mandatory form of charity that involves giving a portion of one's wealth to the poor and needy.
• Fairness and Justice:
Islamic economics emphasizes fair and equitable distribution of wealth and resources, ensuring
basic needs are met for all.
• Sustainable Development:
Islamic principles encourage responsible use of resources and discourage wasteful
consumption, contributing to sustainable development.
 Examples of Islamic Finance in Practice:
• Islamic Banking:
Banks operate according to Sharia principles, offering interest-free loans,
profit-sharing arrangements, and other Sharia-compliant financial
products.
• Sukuk (Islamic Bonds):
These bonds are structured in a Sharia-compliant manner, allowing
governments and corporations to raise capital without violating Islamic
principles.
• More Ethical and Sustainable Economy:
Islamic economics can promote more ethical and sustainable business
practices, leading to a more responsible and environmentally conscious
economy.
 Challenges and Criticisms:
• Implementation Challenges:
Transitioning to a fully Islamic economic system can be
complex and require significant changes to existing legal
and regulatory frameworks.
• Limited Empirical Evidence:
While Islamic economics offers a compelling framework,
more empirical research is needed to assess its
effectiveness in different contexts.
 Misconceptions and Misinterpretations:
• The corner stone of Islamic economics is a system of usury free business interactions. To
deal with usury (or commercial interest) is a mighty sin in Islam. Some people wonder as
to why the religion Islam has its own economic system. What the uninitiated do not
realize is that Islam is not like many other religions limited only to focusing on the aspects
of Man’s relationship with God, rather Islam is a complete system of life – guiding
mankind in every sphere of life.
• Those unaware often question the concept of no usury in Islamic economic dealings. The
explanation is such: Usury or Riba mars the very purpose of Islamic economics. Islamic
economics aim for moral development, promoting unity, social justice, fair and equitable
distribution, circulation of wealth and providing basic human needs. In an interest based
economy, there is no share kept aside for the poor. The rich amass all the wealth while
the poor are left with nothing. Since the aim of Islamic economics is to promote economic
prosperity for one and all, there can be no system of charging interest. For the Muslims
who ignore this code and continue to deal in interest-based economics, there exists a
Hadith to shake their very soul of and intimate them to their grave fallacy:
 Misconceptions and Misinterpretations:
• Coming to the technical part of Islamic economics, there
are different types of financial dealings in Islamic
economics. The only difference between these
enterprises and conventional ones is that Islam never
recognizes any business if it involves interest at any point
of dealing.
 Here is a list of different financial dealings in Islam:

1) Bai Salam: Bai in Arabic means business. Bai salam is a spot payment
of the price before the goods are delivered. In simple terms, here the
buyer pays the price of the goods before goods are handed over to him.
However, the quality of the product is to be fully specified before the
payment. Also, the payment in this dealing has to be in toto.
2) Bai Muajjal: In Bai Muajjal dealing, the price of an item is payable on a
deferred basis either in lump sum or in instalments. It is necessary,
however, in this dealing that the price and date of payment must be fixed.
3) Bai Murabaha: This is a financial dealing in which a person purchases
a commodity at a certain price, adds to it a sum with determined rate and
then sells it to another person. The critical difference between this dealing
and riba is that the product must not be currency.
4) Sharakat (Partnership): Here, a fixed amount of capital is set
between two or more persons, sharing equally both the loss and profit
in the business according to a fixed ratio. The critical point in this type
of dealing is that the business must be lawful. However, there are also
other conditions like: partners must be sound and mature, mutual
agreement between the partners and the rate of profit and loss has to
be predetermined.
5) Modarabah: In this type of dealing, one person provides money or
capital (known as rabb ul maal) to another person as an investment in
a commercial project. The condition in this type of financial dealing is
that the rate of profit sharing has to be set beforehand.
6) Ijara: Ijara is an Arabic word which means “wages”. It is to gain
profits from a thing. This is the very purpose of Ijara. The thing, in this
regard, may be a physical commodity or the service of an individual
 Conclusion
Avoiding the interest system, which is the root cause of the global crisis, is
necessary because it is usury that Sharia prohibits. In addition, the concept of
the caliphate which is understood as a policy maker or government has a
central role in efforts to develop sharia. Financial institutions which are
considered stronger in facing the onslaught of the global crisis.
The failure of the conventional economic system has been clearly evident in
the journey of the world economic history stage. The occurrence of alternating
global crises which were the result of the application of the interest system as a
child of capitalism and the collapse of the Soviet Union as a real form of the
failure of the socialist economic system led to the awareness of economists to
review the two conventional systems and even needed other alternatives that
were more ethical and humane so that the same thing would not happen.