The Islamic Economic System

Interest-free Islamic economic system is partly followed and partly not followed within Muslim countries about the world. The only country, which has followed this method completely in every single minute detail is Malaysia. So the application methods within this post are mostly those applied in Malaysia subsequent the Interest-free Islamic Economic system.
Typically the main feature associated with the Islamic marketplace is that this is Interest-Free. Since the Qur’an states in Sura al-Baqara Chapter 2 Passages 278 & 279, “O ye who else believe! fear Allah and give upwards what remains regarding your demand for usury if ye usually are indeed believers. When ye do that not take notice of war from Jahve great Apostle: yet if ye switch back ye shall have your capital sums; do not necessarily deal unjustly in addition to ye shall not necessarily be handled unjustly. “
Qur’an condemn all evil deeds, but never provides the Qur’an warned of a conflict against God Changeless wonderful Messenger except regarding taking Curiosity and Usury.
There are several evils of the attention based economy, typically the reason why Islam has prohibited that.
For example, in case a person takes a loan from your bank and according to the cost price regarding a certain article is 10 money and he would like to money associated with one dollar. Therefore the selling price would range from the 10 money cost price one buck profit and 1 dollar interest plus the selling cost would be 12 money. The selling cost would go upward because of attention so when the selling price rises typically the demand comes straight down so when the need comes down the supply comes down in addition to as supply arrives down production passes down causing labour trouble and unemployment.
There exists Social Injustice.
For instance , if a particular person needs a loan from the bank in addition to no matter when he earns a profit or goes in loss he offers to pay that will fixed amount associated with interest. Even when some natural calamity befalls his family, such as flooding or even earthquake, the person still has to pay out the loan using the interest and a delay would only boost the amount of interest. It is usually social injustice.
Right now there is no social consideration.
Suppose, when two businessmen come to ask for a new loan from a contemporary bank and one business person wants to start up a social or hospital while the some other businessman wants to be able to start an alcohol factory or even a gambling den. But organic the businessman, that wants to commence an alcohol manufacturer or even a gambling den could have better returns as well as the loan offered to him might be more protected and would provide a higher level of interest as compared to the company, who wants to open the school or medical center. Modern banks usually are only interested within getting better and increased returns. That’s exactly why they finance betting dens rather than schools or hospitals. That is why in the 80s thousands of gambling dens were financed by modern banks around the world. For name benefit only a couple of social projects are usually financed by modern day banks and many regarding their loans depend on better interest.
Modern day banks encourage individuals to store money and maintain the money idle for small set return on that every year. Ultimately, power is focused in some hands, the particular bankers.
In the same way there are several great things about Islamic banking.
Because there is zero interest involved, there is profit plus loss sharing. So if a person wants to sell his / her goods, it would simply have the price price and revenue inside the selling value and instead of 12 dollars, their selling price would be only eleven dollars. When the selling price comes down, the demand increases and if the need raises the supply boosts and as supply increases the production raises causing more work for your people plus higher employment. Because a result encourages people to work and earn their living.
There will be Social Justice inside Islamic banking.
If a business needs a loan and goes in loss, the loss is shared simply by the bank and if he gets a profit, the particular profit is contributed by the financial institution. If in situation any natural calamities befalls him, typically the Islamic bank offers him additional time in order to repay, unlike the modern bank, where the particular more time you take to pay the more interest you will have to pay. Many a times in the event the Islamic financial institution finds the circumstance very bad, these people even release away that loan.
Right now there is Social Consideration in Islamic banking.
Islamic bank are unable to give a loan to the businessman, who else is doing any kind of activity, which can be leading to harm to typically the society. For illustration, if a businessman wants to start an alcohol manufacturing plant and approaches an Islamic bank regarding a loan, the Islamic bank will not lend him a single penny, not actually if he guarantees to provide 100% income for the Islamic lender. In Islamic bank there is certainly social consideration plus they encourage jobs necessary for the society, such as building colleges, hospitals and nurseries. In other words, the Islamic bank encourages the society to improve.
In the Islamic bank, you usually are not encouraged in order to keep your money idle. You usually are encouraged to invest your current money and become a partner in the business and within the end, power is usually not concentrated inside the hands of some individuals. Because in the Islamic banking the money and loss usually are shared by typically the business, the banker and also the depositor. Typically the power is both equally shared among all the particular people.
The fantastic philosopher, Aristotle provides beautifully defined Attention as “An making based on the use of money and never about labour, and all such earnings(interests) are against nature. inch
Enables quickly analyze typically the objectives in the Islamic economic order just before we analyze typically the theory and practical application of the Islamic economic system.
The Targets of the Islamic Economical Order
1- Financial well-being
Islam promotes an individual to appreciate the bounties associated with God Almighty, to work for his living and stay away from begging.
2- Universal Brotherhood and Rights
Qur’an says in Sura al-Hujurat Part 49 Verse thirteen, “O mankind! All of us created you coming from an individual (pair) associated with a male in addition to a female to make you into nations around the world and tribes that ye may understand each other (ofcourse not that ye may possibly despise each other). Verily the the majority of honored of a person in the look of Allah is usually (he who is) the most righteous of you. “
From this we appear to know the particular criteria that the criteria of judgement in the view of God is not wealth, not sexual intercourse, not color, not really Caste, but this is “Taqwa” God consciousness, piety in addition to righteousness.
Qur’an claims in Sura an-Nisa Chapter 4 Passage 135, “O en who believe! endure out firmly with regard to justice as witnesses to Allah even as against yourselves or your parents or your kin plus whether it be (against) rich or poor: regarding Allah can greatest protects all. inches
In accordance with this all of us have to stand for truth and proper rights be it towards anybody even towards our own selves plus sacrifice your own interests.
3- Equitable Distribution of Prosperity
Islam is towards the philosophy that the wealth ought to be concentrated in a few hands. Typically the difference between the particular rich and typically the poor should be decreased. Otherwise they might turn out to be enemies unto each and every other. For this, Islam has invented a method of “Zakat” that all Muslim, who has excess riches exceeding the total amount equivalent to or a lot more than 85 grams of Gold. This amount is invested on the indegent, orphans, needy and so on. In case every individual on the planet practices this method of “Zakat”, not a single person in the entire world would pass away of hunger. Islam teaches to find lawful employment regarding the unemployed and also to pay him an excellent remuneration.
According to be able to Islam if a person dies his wealth should be distributed among his future heirs according to the particular guidelines laid straight down in Qur’an and Ahadith and that should not visit just one or perhaps two individuals in the society as this is done nowadays.
4- Individual Independence within the Context of Social Well-fare
According to Islamic man is born free and no-one not even the condition can abrogate their freedom nor subject his life to strict regimentation. Each individual is free of charge as long because he does not necessarily harm the society because in Islamic the larger wellbeing of the modern society takes precedence above the individual freedom.
Working and time as well as the benefit in business are the two important principles regarding Islam, but functioning and labour consider precedence over typically the benefit in operation. In case you are doing business, a big reduction can not end up being inflicted to relieve a small loss, nor can a big profit can be sacrificed for a small profit. In short, Islam features individual within the particular context of interpersonal welfare.
There usually are mainly four factors involved in manufacturing;
1- Land
Both in the Modern in addition to Islamic theories, an individual pay rent on the land.
2- Labor
You spend wages around the work in both the current and Islamic hypotheses.
3- Capital
In the Modern theory, you spend Interest on money, while in the particular Islamic theory presently there is profit in addition to loss sharing.
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4- Organization
In the fourth factor associated with production, Organization, there is profit and loss sharing within both theories.
Therefore the major difference inside the four factors regarding production is the particular third factor of Capital. The Modern day Theory says that a fixed curiosity should be recharged on the capital, whilst the Islamic theory says there is profit and loss sharing on capital. Since Islamic theory really does not differentiate between third factor Funds and the fourth factor Organization due to the fact the money lent by the lender does not belong to the financial institution itself, it is one of the depositor. The depositors are usually the part associated with Organization and typically the money deposited in the bank (the capital) should become contained in the Organization. In the Islamic principle Capital and Organization are clove collectively and there is usually profit and reduction sharing on the particular capital.
When you have to do business, there are usually naturally two sorts of units. A single is the excess unit, who have excess of wealth, but do not really know how to spend it. 2nd is the deficit product, the folks who carry out not have cash, but have very good ideas for people who do buiness. Typically the best examples of a surplus in addition to deficit unit in the Islamic history is Lady Khadijah (may Allah become pleased with her) had excess of wealth, but was missing avenues to devote in and being a female the lady couldn’t travel abroad too much in order to specialize in business transactions. The deficit device, in terms of wealth, was Prophet Mohammed (peace be upon him). He had good concepts and use of business avenues, but did not have riches. So Lady Khadijah (may Allah become pleased with her) gave wealth, which often Prophet Mohammed (peace be upon him) used business techniques on her behalf plus the profit was shared on a repaired pre-determined ration.
Typically the System of Islamic Banking and Modern Banking
Lets examine the options available for individual depositors to be able to deposit their money in an Islamic bank.
Current Accounts
The amount of money you deposit within an Islamic lender is utilized along with your permission, yet if the lender goes in loss, typically the loss is not really contributed by the depositor. If the financial institution goes in profit, neither will be the profit discussed with the depositor. The particular depositor is fascinated in only the safety of his cash, not profit. The particular Islamic banks gives you a examine book and a new slip book together with the functions because that of a new modern bank.
Savings Account
Even right here the depositor is primarily interested in the particular safety of his money. Since the financial institution gets a profit through this money, the bank can gift some of that revenue for the depositor, if the bank desires, but the depositor can not requirement a fixed part.
In Islamic financial, if a lender goes bankrupt then your depositors get their own money first plus then, the creditors. While in Modern day Banking creditors get their money first and majority of the particular depositors lose their money. So also if you would like your hard earned money safe, the Islamic banks usually are preferable and less dangerous than Modern banking institutions.
Investment Accounts
They are similar to the Repaired Accounts of Modern financial institutions and are further divided into several sorts
Mudariba (Profit & Loss Sharing)
The depositor deposits a set amount associated with money in the bank for a fixed time period, which usually maybe a multiple of three or even a multiple of four. Here the excessive unit is the depositor and the deficit unit is the bank. The financial institution uses this funds to do business with the businessmen in addition to whatever profit typically the Islamic bank tends to make, it really is divided about a pre-determined ratio, which can become negotiated. In the particular Islamic Banking associated with Malaysia, the percentage is 7 part to 3 portion, meaning 70% goes to the depositor plus 30% is held by the financial institution. So there will be sharing of income, the greater the money the greater the particular share of every.
Suppose, if you have the loss of $ 100, then hundred would be deducted from typically the depositor’s money. So theoretically only typically the depositor bears typically the loss. Practically studying even the Islamic bank is going in loss since they are having to pay money for typically the rent, administration plus salary, but the reduction ratio in the bank is less as compared to regarding the depositor, as even the particular profit in the financial institution is less than that of the depositor.
Project Financing within the Mudariba Program
If a businessman approaches an Islamic bank with a project idea in addition to asks for a financial loan for a fixed period, the Islamic bank analyzes the particular project, then typically the businessman and the Islamic bank work out the profit percentage. In Modern bank interest is agreed, in Islamic banking profit ratio is negotiated.
Suppose, the businessman takes a loan of $5000 from an Islamic lender for six a few months and the pre-determined profit ratio is usually 60% to typically the bank and forty percent to the businessman. In case the businessman is usually working for his / her business, even their salary would be contained in that $5000 and suppose the particular salary of the businessman is one-hundred dollar per month.
Assume, if the entrepreneur earns a profit of $5000, the business would obtain (his 40%) $2000 from your profit in addition to the businessman might get paid one-hundred dollar salary per month through the $5000 loan, amounting $1200 regarding six months time. So the particular businessman gets his profit and also the income for his time, if he is functioning for his company.

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