An ecosystem of (i) economic sciences*, (ii) natural sciences, (iii) social sciences and (iv) spiritual sciences for advancement of justice

and human welfareFounded on “principles” not “interests”

Mohammad Naeem Khan, FCAPetroleum Economist

Eni Pakistan Ltd

*Science refers to irreversible laws

1Principles of Islamic economic

system

Devine Economic PlanMalik 2

And Allah has made you successors in the land and raised some of you above others in different levels, to test you for what is given to you. (Araf 165)

When a man gets in trouble he cries for help of Allah, and when he is granted favors, he says “I have got it due to my knowledge”. In fact wealth is a trial but most of people do not know. (Zumr 49)

Not related to effortsZumr 49

Wealth is a testAnam 165/Nahal 71

And Allah has made some of you excel others in wealth. (Nahal 71)

Output/Resource ()

Outcome ()

Work ()

Mission of Islam ()

Human Welfare

Spiritual Power Economic Power

Piety Unity

Prayer Charity Fasting Hajj

Social System Economic System

Political System Spiritual System

Target of Islam ()

Good deeds Belief

(Baqra 277) (Noor 55)

Those who, if We give them power in the land, establish regular prayer and give regular charity, enjoin the right and forbid wrong: with Allah rests the end (and decision) of (all) affairs. (Hajj 41)

Economic System( (

Morality System( (

Accumulation of Wealth

( (XDistribution of wealth( (

The focus of Islamic economic system is to stop the lust of possession and the lust of pleasure – twin plagues responsible for killing the humanity

Economic Principles of Islam

Earning Side

State ()Distribution

Individual ()Frugality & Sharing

Usage Side

(Tauba 34-35)

)34(

But if you do not stop taking usury, then be ready for war with Allah and His Messenger

(Baqra 279) Allah has allowed business and forbidden usury (Baqra 275) They ask you how much they should spend; Say: "What is beyond your needs." Thus Allah makes clear to you His revelations: In order that you may ponder. (Baqra 219)

(Baqra 219)

“… in order that wealth may not become confined to the rich amongst you”.

(Hashar 7)

Business

Usury

Islam abhors DEBT and strongly discourages it1. Prophet (PBUH) said: "Whoever asks for money while he has what

suffices him has asked for a lot of Hellfire's embers." People asked him, "What is the sufficient amount of money above which one should not ask?" He said, "The amount he needs for his lunch and dinner." (Abu Dawud)

2. He also said: "Whoever asks people for their money to increase his wealth, has asked for embers, so let him ask a little or a lot”.

3. A man came to the Prophet (PBUH) and said, "O Messenger of Allah! If I was killed in Allah's cause, observing patience, awaiting Allah's reward, attacking, not retreating, would Allah forgive my sins?" The Prophet (PBUH) said, "Yes, except for the debt." The Prophet (PBUH) said, "A believer's soul is attached to his debt till it is paid.“

4. A dead person was brought to the Prophet so that he might lead the funeral prayer for him. He (PBUH) asked, "Is he in debt?" When the people replied in the negative, he led the funeral prayer. Another dead person was brought and he asked, "Is he in debt?" They said, "Yes." He (refused to lead the prayer and) said, "Lead the prayer of your friend." Abu Qatada said, "O Allah's Apostle! I undertake to pay his debt." Allah's Apostle then led his funeral prayer. No. 2154 (Sahih Bokhari)

Islam prohibits and strongly CONDEMNS usury or RIBA.

1. Allah will deprive usury of all blessing, but will increase benefits of charity" (Baqra 276);

2. If you do not stop taking usury, then be ready for a war with Allâh and His Messenger (Baqra 279)

3. Abdullah ibn Hanjalah related that the Prophet said: A dirham of Riba (interest) knowingly taken by a man is a sin worse than committing Zina (fornication) 36 times (Ahmad, Daraqutni).

4. Narrated Jabir ibn Abdullah: Allah's Messenger cursed the accepter of interest and its payer, and one who records it, and the two witnesses; and he said: They are all equal (Muslim).

5. Hazrat Abu Hurairah r.a. reported that the Prophet said : A time will certainly come when none will remain who will not devour usury. If he does not devour it, its vapors will fall on him [Ahmed,Abu Dawood,Nisai,Ibn Majah]

Primary focus of Islam is on the spiritual System (test of Taqwa/free will)Legal system provides only safety valve for safeguarding basic human rightsKeeping excess wealth and generating income from it is allowed legally but spiritually is it detested.

Dimensions of Islamic Economic System

Legal SystemLimited Capitalism

(surplus wealth for personal use)

Spiritual System Spiritual Socialism

(human rights on surplus wealth)

Treatment system (Repair/Maintenance)

Restricts luxury & wealth accumulation

Immune System (Regulatory)

Channels excess wealth to needy

Inter-dependent & Inter-connected (Synthesis)

Re

str

icti

ng

e

vils

/cri

mes

Ele

vati

ng

eth

ical

/sp

irit

ual

val

ue

s

IndividualDistribution

(Arteries)

StateCollection &

Re-distribution(Veins)

Economics: A life blood system of Society

Money

Labor+

Capital(Entrepreneurship)

Land

MiddlemenMach

ine

Partnership (Labor + Capital)

Status of Sources of Income

Ideal

Permitted

Restricted

Prohibited

Voluntary Charity ()

Entire wealth in access of basic needs

Inheritance ()Strictly in accordance with injunction of Quran

Zakat (ةةةة) Payable on wealth of individual

Taxes (ةةةة)Taxes imposed by state to

provide basic needs of its citizens

Compulsory

Marriage payment and penalties on certain faults

% o

f co

ntr

ibu

tio

nDistribution Channels ()

Stock Exchange Transactions

Trade* Risk capital investment at profit/loss + Work + Public

benefit*Limited liability is an exclusion

Public Benefits Does the activity lead to

employment/resource generation or brings harm to

the public interest

Interest basedLoad taken/given at interest with security against fully insured property (margin

financing)

GamblingProfit/loss without efforts at the

expense of someone else

1. Limited liability concept in anti-Islam2. Primary purpose of the transaction is to make quick money rather than long term

investment3. Mostly investment is made from loan taken from banks or brokers4. It is a gambling business (gain at the loss of someone else5. Short term focus leads to extreme damage of public interest.

Property business (Plots)

Trade* Risk capital investment at profit/loss + Work + Public

benefit*Limited liability is an exclusion

Public Benefits Does the activity lead to

employment/resource generation or brings harm to

the public interest

Interest basedLoan taken/given at interest with security against fully insured property (margin

financing)

GamblingProfit/loss without efforts at the

expense of someone else

As per Islamic law house is right of every Muslim. Anyone trying to grab the property for the purpose of trade/profit making is haram because it is a gamble (profit/loss at the

expense of others) and it is also not a business/trade as it does not lead to any fruitful business activity which entails hardwork. As a consequence of profit making price of the

property rise and takes it out of the reach of legitimate buyer for building his house

State Financial Crime: Inflation

100 147 216 317466

685

1,006

1,479

2,172

3,192

4,690

0

1,000

2,000

3,000

4,000

5,000

0 5 10 15 20 25 30 35 40 45 50

An item costing Rs 100 now costs Rs 4,690 in year 50

@8% inflation rate

Year

Val

ue

“Rs”

Faceless dragon eating humanity

Corporation: An ingenious device for obtaining individual profit without individual responsibility.

Moto: Profit, growth & Competition and amorality, dehumanization, opposition to nature.

Allah does not impose upon anyone a duty but to the extent of his ability; He gets reward for every good deed, and suffers for every ill that he earns. (Barea 286)

Nor can a bearer of burdens bear another's burdens if one heavily laden should call another to (bear) his load. Not the least portion of it can be carried (by the other). Even though he be nearly related.

(Fatir 18)

Resources Credit

Judges

Law

Politicians

Jobs Media

Trade

Commerce

Production

Corporate Capitalist Citizen(limited liability)

(1886)

Islam does not permit

limitation of liability. Every individual is fully responsible for

his deeds

1.Banks were created for taking public deposit and lending at interest and investment in treasury bonds, derivatives, securities etc.

2. Interest is against natural laws. Proper functioning of natural laws and economy implies a zero rate of interest

3. Islam detests borrowing even at zero interest rate.

4.Banking was conceived in iniquity (against natural law) and was born in sin (for the benefit of rich).

5.An interest rate of zero means the end of the money & banking system.

Does Islam allow any Banking System?

1. (http://www.biblebelievers.org.au/usury.htm)

Hallal means of living Distribution of entire excess wealth Hardy any situation of Zakat Simple lifestyle

Moral(Height of spiritualliving)

Hallal means of living Pays Zakat and other compulsory dues Charity (infaq) up to the level of Taqwa Modest lifestyle

Legal(Minimum threshold of living)

No distinction of hallal/harram Does not care to pays Zakat/other dues Charity for image building Extravagant and luxurious lifestyle Stinginess/wealth piling up

Illegal(State of practical

kufr)

Three economic modes of Muslims

CowardiceIgnoranceTensionsFearHungerServitudeDebtThreats

TyrannySavageryCut-throat competitionSelf-centerednessCriminalityRobberyTheftRacism

Before (Savage Society)

Exp

loit

atio

nD

epri

vat

ion

IntellectCompassion

Care of kinAffection Sincerity FreedomFortitude

MunificenceZeal & Endeavor

PietyCourage

HappinessJustice

ContentSatisfaction

ChastityHumility

After (Natural Society)

Harm

on

y

Non-contributory/Contributory

Social SecurityPlan

(Surplus Pool)

Mirror view before/After ImplementationMirror view before/After Implementation

Summary of natural economic System of Islam

1. Islamic view is that “real economy” controls, and the money is only a “supportive function”. Protects labour/work.

2. Stop earning money through money and compels people to work and invest money in business ventures

3. Eliminates sources of unearned income (interest/speculation)

4. No protection to capital and uses wealth in real economic activities integrated with physical laws of nature.

5. Collect zakat (wealth tax) no tax on income or consumption.

6. It is responsibility of individuals for meeting needs of poor and social welfare of society

7. State is responsible for meeting basic needs of citizens and taking administration/legal measure for checking concentration of wealth in few hands.

8. Business in Islam is not an grabbing the opportunity but a “Ibadah” covered under the ethos of Islamic principles of life.

2Principles of current economic

system

1. GDP growth2. Free market3. Credit4. Tax on income/

Consumption5. Deficit financing

Modern Economic Drivers

Government Companies Individuals

1. Economics is a Science of wealth (to teach selfishness). K.K Dewett

2. Economic is made to study “wealth” rather than “welfare”.

3. Whatever the economics is concerned with it is not concerned with: Study of relation of real goods (physical science) and wealth (monetary

science) Study of relation of material welfare (of individual) and general welfare (of

humanity). Study of relation of “short term needs: and “long-term needs”

1. Wealth Tax ()2. Guarantee basic

human needs3. Restricting wealth

accumulation

1. Earned income ()2. Restricts

consumption ()3. Distribute surplus

wealth ()

Islamic Economic Drivers

1. Sales growth2. Money3. Credit4. Consumerism5. Profit maximization

1. Income growth2. Money3. Credit4. Consumption5. Wealth maximization

“Ownership/Competition”Short-term approach

“Trusteeship/Cooperation”Long-term approach

Profound change in the underlying dynamics:•Money and credit rather than goods/services had become the real economy•Energy and automation has become real contributor rather than manpower and animals

Organic Resources

(Manpower, animals, plants)

Inorganic Resources

(Natural Resources)

Taxes ()

Money ()

Credit ()

Gov. Deficit ()

Operates under physical/biological constraints

Operates under unconstrained compound interest rate growth

Matter ()Natural (Real) Economy

Money ()Financial (Shadow) Economy

Major problem of Humanity:Operating under incompatible Systems

Framework of integrated human ecosystem

SocialProcess

DemographyTechnologyEconomy

InstitutionsCulture

Information

EcologicalProcess

Primary production

PopulationsOrganic matter

NutrientsDisturbances

Biggest tragedy of our time is that modern priests (economists) do not know that something must be physically possible before it can be economically possible.

External Biological, Geological & Physical Conditions

External Political & Economic Conditions

Interactions

Land useLand coverProduction

ConsumptionDisposal

Human Systems

NaturalSystems

natural curve (natural resources)

linear curve (machines)

exponential curve (money)

Time

Growth

Basic types of growth patterns

a

c

b

298,342,731 10.0%

Year Outstanding US Debt Debt/Citizen1 8,199,252,799,551 27,483

25 88,836,493,038,639 297,767 50 962,517,279,115,525 3,226,213 75 10,428,591,684,647,000 34,955,072

100 112,990,724,306,816,000 378,727,928 125 1,224,221,272,194,810,000 4,103,405,731 150 13,264,077,493,871,600,000 44,459,194,462 175 143,712,379,256,415,000,000 481,702,298,476 200 1,557,081,369,667,970,000,000 5,219,102,756,246 225 16,870,518,770,280,900,000,000 56,547,443,652,250 250 182,787,109,988,408,000,000,000 612,674,923,822,453

U.S. National Debt Clock US Population

Current Interest Rate

http://www.brillig.com/debt_clock/

77 times of national total now

As of 25th January 2006

Wayne A.M. Visser and Alastair McIntoshhttp://www.che.ac.uk/publications/usury.htm

“Organisations in the West with money to invest, especially those which like to consider themselves as being ethical, might have rather more to learn from Islam than is generally acknowledged. By applying the Islamic approach, a lot of human misery could have been avoided.

8%

Year Kg (Gold, Sliver or any other commodity)0 1

200 4,838,950 400 23,415,433,085,206 600 113,306,100,207,918,000,000 800 548,282,506,567,769,000,000,000,000

1000 2,653,111,407,564,170,000,000,000,000,000,000 1200 12,838,272,344,326,700,000,000,000,000,000,000,000,000 1400 62,123,752,631,416,000,000,000,000,000,000,000,000,000,000,000 1600 300,613,707,008,236,000,000,000,000,000,000,000,000,000,000,000,000,000 1800 1,454,654,572,742,820,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 2000 7,039,000,140,947,130,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000

5,972,000,000,000,000,000,000,000 1,178,667,136,796,240,000,000,000,000,000,000,000,000,000

1 Kg in year 1Weight

of EarthNo of earthsKgs in

year 2000

Interest Rate (8%)

The economist sees economic activity as a function of infinite "money creation", rather than a function of finite “natural resources".

1

Impracticable (Financing Decisions)cc

Un-natural (Investing Decisions)

1. Under discounting system, we need less and less quantities in future to survive.

2. Under natural system, we need a constant quantity of food to meet our biological needs

3. Hence, discounting concept is in conflict with nature

100

62

3924

15 9 6 4 2 1 0

100 100 100 100 100 100 100 100 100 100 100

0

20

40

60

80

100

120

1 5 10 15 20 25 30 35 40 45 50Year

Qu

an

titi

es @

10%

Capitalist Way Islamic Way

Year 50 Quantities

Year 1Quantities

3Outcome of

current economic practices

)26(

*****And give to the relatives due and to the

needy and the wayfarer, and do not squander wastefully. Surely the squanderers are the fellows of the devils and the satan is ever

ungrateful to his Lord. (Isra 26-27)

Outcome of modern economic system

Explosion of Over-utilization

Explosion of Over-production

Explosion of Over-wastage

Explosion of Over-supply

Explosion of Debt

Explosion of Competition

World Economy at Crossroad

Industrial Economy

Productseconomy

EmploymentIndustrial Economy

Paper Economy

Real Economy

SocialPrinciples

Economic Principles

1. Primary products economy uncoupled from Industrial Economy2. Industrial Economy uncoupled from Employment3. Symbol economy disconnected from real economy4. Economic principles (self-interest/short term focus) disconnection

from social principles

Modern tragedy of Contradictory Laws

IntegralSystem

Moral Laws Physical

Laws

Eco

no

mic

Law

s

Self-Centered

Ove

rnig

ht

Pro

fit

Quick Usage

"It is well that the people of the nation do not understand our banking and monetary

system, for if they did, I believe there would be a revolution before tomorrow morning."

Henry Ford

The Earth can no longer support the lifestyle of the cool hunting American-style consumer. We have sought, bought, spewed and devoured too much, too fast, too brazenly, and now we're about to pay. Economic "progress" is killing the planet. (Kellay Lason)

Mindcontrol

1. Sixty percent of the families in America can maintain their standards of living for only one month

2. The next 20% can maintain it for only three months.

3. That means that 80% of the population is living at an incredibly high level of economic insecurity

Consumption & Waste Culture

“wo

rk-a

nd

-sp

en

d li

fes

tyle

.”

March towards Destruction?

Each U.S citizen requires energy of 300 persons

working round the clock

Wood

Labor

Domesticated Animals

Lifecycle is no more sustainable

0%

20%

40%

60%

80%

100%

1850 1870 1890 1910 1930 1950 1970

p.79 BEYOND OIL. J. Gever et al. 1991

Fuel

Labor

Domesticated Animals

Energy is now

life blood of economy

6000 products(Fertilizers & pesticides!!!!)

Oil is capitalism's crack cocaine

Stacked presentation of work done over time in United States by labor, Domesticated animals, Fuels as a percentage of Total Horsepower in the Economy

http://lifeaftertheoilcrash.net/Research.html

Importance of EnergyHow Much Human Energy Is Contained in One

Barrel of Oil?***

1 Barrel of Oil = 5,800,000 BTUs**

1 Barrel of Oil = 23,200 Hours of Human Work Output

Human work cost of 1 barrel of oilRate per hour= US$ 8/hour

Total cost= $185,600 per barrel equivalent human work

Switchover is possible only when the oil cost increases $185,600/barrel

Or Rupees 70,000/Litre

Greatest Threat to Life: Food Scarcity

from planting, irrigation, feeding and harvesting, through to processing, distribution and packaging. In addition, fossil fuels are essential in the construction and the repair of equipment and infrastructure needed to facilitate this industry, including farm machinery, processing facilities, storage, ships, trucks and roads Pesticides (Gas)

FROM THE CAVES, TO THE MOON, TO THE CAVES

Richard C. Duncan, Ph.D. Institute on Energy and Man, June 27, 1996

Even if the entire mass of the earth were petroleum, it would be exhausted in 500 years at 5% increase in rate of consumption. For addition 100 year 157 earths would be required (current production is 10 Trillion Ton/year)

X

How many populations have We destroyed, which were given to wrong-doing? They tumbled down on their roofs. And how many wells are lying idle and neglected, and castles lofty and well-built? (Hajj 45)

X

Story of Past Rebels “Tower of Babel”

Period of Namrood (let us revolt) 2500 BC

4What

should we do?

War with Allah & RasulInterest Economic

Revenge (Qasas)Killing Political

100 LashesSex Social

Disliking/Curse of Allahvarious Moral

ActionCrimeLevel

Penalties on various crimes

1. Limit growth and focus on wellbeing

2. Limit Debt & encourage entrepreneurs

3. Introduce zero rated debts

4. Impose Charge on money holding

5. Make speculation a criminal offence

6. Incentivise productive work and investment;

7. Tax Unearned Gains

8. Replace labor for energy use

9. Strengthen the social fabric of family and community

10. Lease land for living/business purposes

Steps for healing the money system

The money system is like a

cancer that consumes its

host and ultimately

destroys itself

Healing the Money System “David C. Korten”: http://www.converge.org.nz/pirm/money.htm

Action at personal levelAction at personal level1. Adopt simple lifestyle (Resource conservation &

sharing)

2. Get out of interest/speculation based investments

3. Fully utilize goods before replacement

4. Eliminate morbid craving for extravagant gadgetry

5. Get rid of fashion (a bio-economic disease of the human mind )

6. Demand durable goods to be made still more durable by being designed so as to be repairable.

7. Get closer to the nature as possible

8. Join hands to fight for reform at state level

Final outcome

7( )8( )9( *****

Let the man of means spend according to his means: and the man whose resources are restricted, let him spend according to what Allah has given him. Allah puts no burden on any person beyond what He has given him. After a difficulty, Allah will soon grant relief. And how many a community revolted against the ordinance of its Lord and His messengers and We took detailed accountability of their deeds and punished them severely. Then did they taste the evil result of their conduct, and the End of their conduct was great loss.

(Talaq 7-10)

GlobalizationDeregulation

Concentration

MARKET ECONOMY

Small & Local

CAPITALISTECONOMY

Large & Global

Global Financial System

Global Corporation

Culture &Choice

Rules

People

Ownership

POWER SHIFT:PEOPLE GLOBAL FINANCE

Culture &Choice

Rules

LocalEnterprises

People

Ownership

Source: Life after the Dominance of Capital, by David C. Kortenhttp://www.bke.hu/~kg_korny/altern/korten/kortpres.html

Most frequent question is: Where is modern Islamic

Economic System?

Most frequent question is: Where is modern Islamic

Economic System?

Surprisingly, the Quran troughs the question back to us?

Create it based on the guiding principles keeping in view needs and deeds of the society. Then keep on

modifying it based on the emerging needs of the Humanity