CHAPTER 1 IE

8/7/2019 CHAPTER 1 IE

1/23

COLLEGE OF BUSINESSCOLLEGE OF BUSINESS

BWBS 1013BWBS 1013

FOUNDATION OF ISLAMIC ECONOMICFOUNDATION OF ISLAMIC ECONOMIC

CHAPTER 1CHAPTER 1

AN OVERVIEW OF CONTEMPORARY AND ISLAMICAN OVERVIEW OF CONTEMPORARY AND ISLAMICECONOMIC SYSTEMECONOMIC SYSTEM

Prepared by:Prepared by:MohdMohd FarihalFarihal binbin OsmanOsman


2/23

The meaning and the concept of theory

ContentsContents

The distinction between conventional andislamictheory

The development of theory

Definition of islamic economic

Bism il-Lah ir-Rahman ir-Rahim

This chapter discusses:


3/23

Introduction

Objective in islamic economic is to identify and promote aneconomic order that conforms with islamic scriptures and

tradition.

Contribution to islamic economics typically begins withidentifying the distinguished characteristics of an islamic

economy.

Economi behaviour, as expressed by Muslim, refer to theproduction,distribution and consumtion of good and service.


4/23

Islamic economics is based on maral values and it isanalytically less rigorous. Islamic economics is something

unique,different and exclusive to islam.

Islamic economic is the knowladge and application ofinjunction and rules of shariah( islamic Jurisprudence).

Economic activity is categorised within these parameter ashalal and haram.

The key to the economic theory of islam lies in mansrelationship with God,His universe and his people.

1.The meaning and the concept of theory


5/23

The source of islamic economic consist of mixtureof quran verses,quotations from traditions anclassical theological interpretation ( the hadith)

Economic is only one dimension of the composite

philosophy of human life. The philosophy of islamiceconomics is based on several fundamental as listbelow:-

i. Tawhid

ii. Risalahiii. Akhirah

1.1 Source of islamic economic


6/23

1.2 Theory of Islamic Economic

The basic objectives are to ensure general human well-being and socio-economic juctice. Presented below are

the concept that are to be followed to be achieveequilibrium within a socio-economic framework:-

i. Economic will- being and the moral Norm of islam

ii. Universal brotherhoodiii. Justice

iv. Prohibition on taking interest( riba )

v. Zakat

vi. Ownership

vii. Economic freedom within reason


7/23

Islam prohibits begging and curges Muslims to earn theirlivehood. Emphasis of islam on economic well-being springsfrom the very nature of its overall message.

Islam is designed to be a blessing for mankind and aims atmaking life richer and worth living not poorer,with full of

hardships.

islam creates harmony between the material and the moral.Therefore, Muslims are urged to strive for material welfare butthey are stressed, simultaneously, to place this material-

seeking effort on a moral platform.

Islam aims at establishing a social order where all individualare united by bond of brotherhood and affection and at thesame time contribute to real human life welfare.

i. Economic well-Being and the moral norm of islam


8/23

ii ) Universal brotherhood

The concept universal brotherhood is mutual

co-operation and help, particularly amongMuslims who, besides being united to each otheras well as to the rest of mankind by a commonorigin, are further united by bonds of commonideology and have been characterised by the

Quran as brother-in-faith and merciful amongstthemselves


9/23

iii) Justice

Two elements are deemed to be the basiccharacteristics of Muslim:-

Social justice

There is no difference between the rich and poor,between the high and the low or between the black

and white. There is no discrimination based onrace,color,creed or position.

Economics justice

The most significant of economic relationship is that which

binds the employer and employee. An employee is entitle toa just wage for his constribution to output and it is unlawful

for a Muslim employee to exploit his employee. Minimisingthe inequality of income and bridging the gap between the

rich and poor.


10/23

iv) Prohibition on taking interest (Riba)

The most important of islamic economic is prohibiton onthe payment of and the acceptance of, interest,on anymoneytary transactions.

Related to the abolition of interest are the prohibition on

speculation and wasteful consumption- both belived to beassociated with the unchecked materialism of wasterncapitalism.

Riba can be responsible for unemployment, inflation,recession, stagflation and concentration of wealth, which

are strictly against the shariah.


11/23

Zakat is a voluntary tax on wealth( i.e, productive assets)

administered through mosque,which accumulate awelfare fund to pay for various charitable and socialproject.

Zakat is the system of islamic inheritance laws.Since,these laws enjoin property owners to treat their son

equally, with each daughter receiving half the share ofson, property is less likely to be concentrade in the handsof small number of people.

Islamic economic thinkers, they do belive that theproblem of severe inequality in income distribution will be

obviated by the combination of this system ofinheritance with zakat.

v) Zakat


12/23

Whatever is in the heavens and whatever is on the earthbelong to Allah(Al-Baqarah,2:284).

And Allah is the kingdom of the heavens and the earth,and Allah has power over everything.( Al-Imran,3:189).

Real ownership is belong to Allah. Man hold property intrust and he is accountable to Him, in accordance withthe rules which have been clearly laid down in theShariah Islamiiah.

vi ) Ownership


13/23

Islamic economy allows individuals freedom within theboundary of spiritual and moral value. The execution ofthis freedom is undertaken as follow:

i. There is textual stipulation that forbids activities such asusury, monopoly or hoarding

i. Islamic laws allow for the supervision of the ruler overgeneral activities and the intervention of the state toprotect and safeguard public interest through thelimitation of freedom of individual in the actions theyperform.

vii. Economic freedom with reason


14/23

Developed classical economist- 18th and 19th centuries(Malthus 1778, Ricardo 1817)

Neoclassical economists in the and late 19th century (Mill

1848,Walras and Marshall 1890)

Kynes-20th (1936)

Other economists including the rational expectations and thepost-Kynes schools.

All these are in the tradition of mainstream conventionaleconomics.

1.3 The Development of thoery


15/23

Economy and economics originated from the Greek

word oikos for house or settlement and nomos for law ornorms.

Economic divided into three phases:

i. Pre-modern(Greek,Roman,Arab)

ii. Early modern(mercantilist,physiocrats)

iii. Modern(since Adam Smith in the late 18th century)

Economic is a social science that typically studies theproduction, distribution, trade and consumption of goods and

services.

1.4 The significance of economic & finance theories


16/23

i. Moderm mainstream Economic

Opportunity cost creates an implicit price ralationship

between competing alternatives. In addition, in both

market-oriented and planned economies,scarcity is

often explicitly quantified by price relationship.

ii. Neoclassical Economic

Economicsts who believe that models based on utility

maximisation are applicable to a wide range of

activities, including the very long term and non-economic.


17/23

iv. New-Keynesian Economic

iii. Post-Keynesian Economic Kynes focus on macroeconomics rigidities and

adjustment processes and research micro foundations

for their models based on real-life practices rather

than simple optimising models.

The emphasis on models based on micro

foundantions and optimising behavior,but they focus

more narrowly on standard Kynes theme such as price

and wage rigidity.


18/23

1.4 The distinction between conventional and islamic theories

The value of islamiceconomics liein the principle that it is

an economicstrategy that can achieve unity nadharmony between the material and thespritual life ofpeople.

i. Moral value

moral uplift aims at changing the bahaviour, tastes

and preference of theindividuals,and therebyitcompliments the price mechanismein promoting

general well-being


19/23

ii. The importance of the hereafter

Thehereafteris a concept whichiscompletelyignore by

conventional economics,but isgreatlyemphasized byislam

and other major religion.whilst conventional economics alsoseekoptimal allocation of resources, the fact that is unable tooffer rewards for benevolent acts means that thehumaneside

of theeconomyis neglected.


20/23

iii. Rational economic man

Rationalityis defined in term of overall individual as wellassocial well-being, then the rational behaviorcan helpus to realise this particulargoal. Conventional economicis not define rationality.Rationality wuth theserving ofself-interest through wealth maximisation. Rationalityinislamiceconomicis not confined to theserving of onesself-interest in this world.


21/23

iv. Positivism

Positivism in theconventional economicssence of being entirely neutral between ends(Robbin) orindependent of any particularethical position ornormative judgment(Friedman) cannot find a placein

Muslim intellectual thinking.

Conventional economics, whichkeepsit away fromcharacteristicssuch as benevolence and equality; thesetwo beingidealsgreatlyencouraged in islamiceconomics.


22/23

v. Pareto optimum

Theconcept of Pareto optimum does not, therefore, fit

into the paradigm of islamiceconomics.This because

Pareto optimality does not recognise anysolution as

optimum,if it requires a sacrifice on the part of a few(rich)to raise the well-being of many(poor).


23/23

THANK YOU

END OF CHAPTER 1

Wassalamu alaikum

Documents

CHAPTER 1 IE