Islamic Economic System

Economic Problem
Khilafah

Capitalist Democracy

Human needs are of two types

Human needs are unlimited while

there are limited resources to

fulfil them

Basic Needs (limited)

Luxurious Needs

World resources are enough to fulfil

basic needs of all the people of world

Solution:
Solution:
Distribution of wealth and resources to Needs of all the people wont be
guarantee all basic needs to each
fulfilled
individual
Increase Production to fulfil
Create opportunities so that maximum
needs of as many people as
number of people can work to fulfil there
possible
luxurious needs
Rules related to collection of funds and its distribution constitute

Economic System and cannot be taken from other than Islam

Methods to increase production is Economic Science and can
be taken from other civilizations including the West

Resources are limited- Non sense

The United Nations Development Program (UNDP) reported in 1998 that the
world's 225 richest people now have a combined wealth of $1 trillion. That's
equal to the combined annual income of the world's 2.5 billion poorest people.

As of 1995 (the latest figures available), Federal Reserve research found that the
wealth of the top one percent of Americans is greater than that of the bottom 95
percent

The wealth of the three most well-to-do individuals now exceeds the combined
GDP of the 48 least developed countries

UNDP calculates that an annual 4 percent levy on the world's 225 most well-to-do
people (average 1998 wealth: $4.5 billion) would suffice to provide the following
essentials for all those in developing countries: adequate food, safe water and
sanitation, basic education, basic health care and reproductive health care.

Ownership

Economic System:

Ownership & Types of

Khilafah
Capitalism
Properties
Three types of ownership
Individual
Public
State

Oil, Gas, non-delectable minerals etc

and anything on which society depends

and people will disperse in pursuit for it,
remains in public ownership
If these were owned individually this will
deny the public from benefiting from
these huge resources, creating misery
for the common man

Freedom of ownership
Individuals or companies

can own anything and

everything
Multinational companies are
free to own public properties
such as oil, gas, parks etc
They are free to spend or
hoard the wealth as they
please

Taxation

Economic System:

Taxes
Khilafah
No Taxes on common man1
VAT, Income Tax, toll taxes etc are all

haram and will be abolished

There will be following permanent

sources of revenues

Capitalism
Tax the poor and average man
Indirect taxation are to be paid by even a
beggar, unemployed, handicapped, widow,
elderly people and children without any
differentiation.

Al-Kharaj 2
Al-Jizya 3
Give tax-breaks to the
Al-Ushr 4
Rich
The fifth of Al-Rikaz 5 (hidden treasures
minerals)
Multinational companies
Import and export duty on foreign
Landlords
traders 6
Zakat on import and export of the
Muslim Trader 7
Hima (Protecting from public properties)

Laws related to
Agricultural land

Economic System:

Agriculture and Land

laws Khilafah
Lease

of
agricultural
(Muzariyat) is haram1

Capitalism
lands Leasing of agricultural lands is
permitted

Agricultural land if not used for 3 No such restriction applies to an

years will be confiscated2 and

allotted to someone who would
cultivate it

owner. He is free to do whatever

he pleases

Anybody who occupies a dead No such incentive

land (outside the planned city area)

and revives it by building a house
or a factory etc becomes the owner
of the land as well

Prohibition of Muzarat coupled with obligation to cultivate

land will give rise to land distribution of optimum

productivity
Eradicates injustice to Muzarays. Delivers a fatal blow to
the colonialist Feudal system (jageer darana nizam)

Evidences
1.
2.
3.

4.

It was narrated by al-Bukhari that the Messenger of Allah said: Whoever has land let him plant upon it or grant it to his
brother. If he declined let him hold his land.
Muslim also narrated, The Messenger of Allah forbade a rent or a share be taken for the land.
The Sunan of An-Nisai states: The Messenger of Allah forbade leasing the land.We said, O Prophet of Allah, can we
then lease it for some of the grain. He said, No. We said, We used to lease it for the straw. He said, No.We said,
We used to lease it in return of that on the irrigating Rabeea. He said, No, plant it or grant it to your brother.
Abu Dawud has narrated from Rafia ibn Khadeej that the Prophet also said, Whoever has land, he has to plant upon it
or let his brother plant upon it, and he cannot lease it for its third or fourth or a specified food.

Evidences
1.
2.
3.

Bukhari related from Aisha (ra) that the Messenger of Allah said: Whosoever cultivated a land that is not owned by
anybody, then he deserved it more.
Abu Dawud narrated that the Messenger of Allah said: Whosoever fenced a (dead) land it becomes his
Bukhari narrated from Umar (ra) that he said: Anyone who cultivated a dead land it becomes his. Muslims and the
Dhimmi are equal in this matter, because the Hadith is general in its words.

Evidences
1.

By completing the revival, ownership is completed and the land is officially transferred to the peasant. All this must happen
before the end of three years after the allocation. This came in the narration narrated by Tawus from Umar ibn Al-Khattab
who said: The muhtajir (who shield a land) has no right after three. Umar implemented this ruling while Sahabah were
present and they all approved of this. Hence it becomes Ijma as-Sahabah for us and a Shari daleel.

Residential Land
Khilafah

Capitalism

The State guarantees housing for The

the one who is in capable to build a

house for himself and his relatives
are also poor cannot support him
The Prophet (SAW) said: The Son
of Adam has rights to food, clothing
and shelter.

system doesnt allow the

people to use the resources which
Allah has bestowed to man

Common mans biggest problem in building a house is the

inflated prices of residential land that can easily be solved

through the Khilafah state.

Currency

Currency
Khilafah

Capitalism

Metallic Currency
Fiat currency backed by confidence
Gold
Dollar
Silver
Euro
Any other precious metal
Currency notes can be used in lieu
of gold and silver
Protects the currency from foreign control
Puts a check on devaluation and fake inflation
Return of the Gold standard will strike a fatal blow to the

colonialist economy

Riba

Riba
Khilafah

Capitalism

Interest transactions not allowed1

Freedom of ownership allows people

to hoard money
Encourages the wealthy to under Riba is the bate for the people to take
money out of circulation/ investment
take local investment rather than
and to put into deposit account
depositing their money in high
interest deposit accounts
No interest based debt servicing

Relief to common man/ investor

No interest servicing to IMF and WB.

Evidences
1.

That is because they say: Selling is just like usury. Whereas Allah permitted selling and prohibited usury. [AlBaqarah: 275]

Investment before the advent

of Banks
In a society devoid of Banks
investors are in need of
entrepreneurs and businessmen
to help increase their wealth
On the other hand the skilled
labour, inventors and
businessmen are in need of
investment in order to generate
more wealth
Hence it is a marriage of
convenience for both parties
They join together in a
partnership to benefit from
each other such that the
investor bears the risk and the
other partner does the work

Investor
Investor

Skilled labour

Entrepreneur

Investor
Trader
Investor
Investor
Investor

Businessman
Inventor

Bank monopolizes the wealth of the

society
The Bank drains the society off of
its wealth by guarantying the
investor of sure profit (interest)
As a result an entrepreneur and
skilled labourer is forced to
borrow money from the bank on
exploitative terms.
According to the contract not only
the borrower has to pay hefty
interest but he also has to return
the principle amount in full even
though if his business was in loss.
This produces a win-win situation
for the investor and the bank.
Hence the rich becomes richer
and the poor poorer

Investor

Skilled labour

Investor

Entrepreneur

Investor
12%
Investor
Profit
Investor
Investor

20%

Bank
Banks Profit = (20-12)%

Interest

Trader

Businessman
Inventor

Banking System

Khilafah

Capitalism

Bank do not serve as financial Banks acts as financial intermediaries

intermediaries. Hence in capitalist

sense there are no banks.
They provide services like debit card,
They will provide services of the
LC for import export, Online fund
like debit card, LC for import
transfer, internet payments, credit
export, Online fund transfer,
cards. Financing for various heads on
internet payments, etc.
interest etc
They will facilitate/establish
communication
between
the A source of hoarding of wealth
investor (Muwakkil) and worker
(Mudharib)
Khilafah takes advantage of financial institutions providing

financial services and networking whilst protecting the

masses from the current banks system which spread their
evil through hoarding of wealth, marginal reserve system
and interest etc.

Banks in the Khilafah

The banks can continue to
undertake all non-interests based
services and take service charges
on them such as:
Current accounts for its
customers
Money Transfer
Cash Station Cards
Lockers for valuable items
LC (Bank as a Guarantor)

The banks can also act as

financial advisors and facilitate
the marriage of investors and
entrepreneurs /businessmen etc.
Government bank will also
provide grants and interest free
loans to its citizens to enhance
economic activity

Investor
Trader
Investor
Businessman

Investor

Inventor

Investor

Only introduces the two

parties and takes
service charges for its
effort

Bank

Bank is not a part of the

financial contract
Bank is only a financial
adviser and facilitator similar
to that of a property dealer

Company
Structure

Company Structure
Khilafah

Capitalism

All contracts should conform to Man made laws aimed at benefiting

contracts laid down by shariah.

Hence exploitation of the needy is
not possible

Public limited companies Illegal.

i.e. no stock exchanges, futures

trading etc. in Khilafah

corporates are to be complied.

Rules have been written to benefit
those who wrote them. Golden rule!
he who has the gold rules

Stock-exchange an integral part of

western corporate business.

Speculative contracts lead to fiat (Alternative) economy

and indexes which is used by the corporations to loot

common mans money while keeping them in dark as
happened in the latest saga of energy giant Enron and
second largest telecom company WorldCom.
Khilafahs economy will be protected from economic crisis
as were witnessed in South East Asia during the late 90s
when Asian Tigers were wiped by the powerful foreign
investors

Stock exchanges

Khilafah

Capitalism

No stock exchanges are there in A major portion of investment is done

Khilafah.

No speculative transactions are

in stocks whose more than 90 %

portion has nothing to do with real
trade.

allowed as per Islam. Investment

is done only in real trade Real trade has gradually been
strengthening economy.
reduced to less than 10 % of
international trade and 90% is only
financial transaction.
No chance of drowning of money
in stocks as recently happened
Stock market crash is routine and
sometimes deliberate to loot common
investors
Stock exchanges are a source of diversion of investment from

real trade to speculative business.

If all the money that is invested in stocks is directed to real
trade it will give rise to a robust economy

Valid Companies in Islam

Khilafah

Capitalism

The Company of Equal (Al-Inan)

Public Limited Company
The Company of Bodies (Al-Abdan)
The Company of Body and Capital Private Limited Companies

(Mudharaba)
The Company of Reputation Faces Guarantee Limited
(Wujooh)
Company of Negotiation (Mufawadha)
Unlimited Company
A Man is

not separate from his The Company and the owner

company
are two separate distinct bodies
He is responsible for the debt of the Owner is not responsible for the
company. He the stake holder money is
debt of company beyond his
safeguarded
investment
A man can not hide behind the Owners always hide behind the
corporate rules at the time of
corporate rules at the time of
bankruptcy
bankruptcy.

Zakat

Zakat
Zakat is only taken from Muslim citizen after the passage of one year if his

wealth exeeds Nisab which is different for different catagories

Liquid Currency
Stocks (Raw material or Finish Goods)
Receivable Debts
Live Stock
Land (Ushr)
Any tradable commodity including property

Hence as a whole more than 2.5% of the total wealth of the economy is

collected from the society and injected back into the poorest echelons
of the society.
This is a tremendous mechanism of producing a balance in the
distribution of wealth within the economy apart from other Ahkam of
Islam which allow the down trodden people to improve their economic
situation

Foreign Loans

Foreign Loans- no way

Khilafah

Capitalism

Taking Foreign loans would not be Foreign loans are the integral part

allowed 1

Membership

in
colonial
organisation is also not allowed like
Paris
club,
ADP,
Islamic
Development Bank, World bank
and of course IMF.

of capitalist economy in Muslim

lands
In 1980 Nigeria took a loan of $3.5
billion from the Paris club. By 1985
this debt had risen $5.8 billion. By
1998 it had risen to 20.9 billion, and
is today estimated at 27 billion.

Sovereignty of Muslim lands was mainly eroded due to

foreign loans
IMF and WB dictate all our internal policies under the
guise of reforms and good governance
Khilafah would liberate us from IMF & WB Structural

Adjustment programmes (SAPs), Poverty reduction

strategy Papers (PRSP) conditionalities and improve our
economy

Economic System:

Foreign Traders not

Khilafah
MNCs
Foreign trade is assessed on the basis of the citizenship of the
trader and not the origin of the goods except goods from countries
we are in actual war with like Israel.

Merchants from countries that have treaties with the State are

treated according to the terms of the treaties

Merchants from countries in a state of war with the State are

prevented from trading in the State, unless given a special

permission

Any country with whom we have actual war with, its citizens (such

as Israel) is excluded from these rules. The rules applicable to the

actual land of war (Dar al-Harb Falan) apply to such country in all
the relations

Trade

Economic System:

Local Traders
Khilafah

Capitalism

Merchants who are subjects of No such provision, hence Pakistan for

the State are prevented from

exporting any goods that the
enemies
could
benefit
of
militarily,
industrially
or
economically

example is helping India fulfil her

energy needs by building two gas
pipelines. Which would further
strengthen Indian industry and Military
to be used against Muslims of
Pakistan

This Trade Policy protects the state from potential enemies

in the future
They are not prevented from The government hurts the local trader

importing any property they own

under the pretext of protecting
the local industry

under the pretext of Smuggling while

reduces import duty to give monitory
benefit to the foreign trader under the
guise of foreign investment

There is nothing known as Smuggling in Islam as long as

the citizen of the state imports Halal items

Import export duties

Khilafah

Capitalism

A Muslim trader only has to pay Zakat Import and export duties

(2.5%) of the property during import and

may be as high as 15 to
1
export once a year
20%.
No import or export duty other than zakat
Import duties on luxury cars
reduced to suit the rich
A Zimmi (non-Muslim citizen) will pay No such distinction

according to the contract he had with state

at the time of conquest 1

A Harbi (foreigner non-Muslim) will pay the No such distinction

same percentage of duty as his country

applies on the traders of the Khilafah 2

Low import and export duties will enhance trade and

improve not only the conditions of the trader rather it will

also help our exports
In a Capitalist state people in the legislative assemblies
reduce and increase duties to suit their interests and
make money.

Miscellaneous
Ahkam

Evidences
1.

The hoarding of gold and silver was prohibited explicitly in the Quran. Allah (SWT) says: And let those who hoard
gold and silver and do not spend them in the way of Allah know that a severe and painful punishment is awaiting
them. [At-Tauba: 34] This warning of severe punishment for those who hoard gold and silver serves as a clear
evidence that the Law Giver has decisively ordered us to refrain from doing so; it is therefore forbidden to hoard gold and
silver.

2.

Islam prohibited pricing absolutely, due to what Imam Ahmad narrated from Anas who said: Prices increased at the
time of the Messenger of Allah , so they said, O Messenger of Allah, we wish would you price (fix the prices). He
said: Indeed Allah is the Creator, the holder (Qabidh), the Open-handed (Basit), the Provider (Raziq), the Pricer
(who fixes prices); and I wish I will meet Allah and nobody demands (complains) of me for unjust act I did
against him, neither in blood or property. Also Abu Dawud narrated from Abu Huraira, he said, A man came and
said, O Messenger of Allah, fix prices. He said: Rather Allah reduces and increases.

3.

Said ibn Al-Musayyab narrated from Muammar ibn Abdullah Al-Adawi in Bukhari that the Prophet (saw) said: No one
monopolises except the wrongdoer. Al-Athram narrated from Abu Umamah, he said: The Messenger of Allah
(saw) forbade that a foodstuff be monopolised. And Muslim narrated through his chain of narrators from Said ibn AlMusayyab that Muammar said: The Messenger of Allah (saw) said: Whoever monopolised is a wrongdoer.
Monopoly is prohibited (Haram) in all things without a difference between the human foodstuff or animals foodstuff, a
foodstuff or not, and of the peoples necessities or luxuries. This is because the linguistic meaning of the word
monopolised (Ihtakara) is to compile a thing in its absolute sense (without specification). The word monopolised did not
come in the meaning of compiling the foodstuff or the peoples necessities, rather compiling the thing, so it should not be
confined to other than its linguistic meaning.

Economic System:

Hoarding of Wealth & Price Fixing

Khilafah

Capitalism

Hoarding of wealth (money) is People are free to hoard wealth for no

haram and state will take practical

steps to prevent it 1

reason

Islamic system ensures circulation of wealth

In Capitalist system banks offer interest to encourage

people to inject money into economy

Islam prohibits price fixing 2
Islam prohibits monopoly 3

Capitalist are still in dilemma as to how

to get rid of monopolies; e.g. Microsoft

break up litigation

Evidences
1.

The Islamic economic system came to secure basic needs, irrespective of market conditions for such products.
Muhammad (SAW) said, The son of Adam has no better right than that he would have a house wherein he may
live and a piece of cloth whereby he may cover his nakedness and a piece of bread and some water. According
to this principle the Islamic State must ensure for all its citizens (Muslims or Non-Muslim) of the Islamic State a security
which western people will never achieve in the heartless obduracy of the application of its free market.

Economic System:

Basic needs of the

masses
Khilafah
Capitalism
Basic needs of all citizens are In the purest form of capitalism

guaranteed such as food, clothing,

shelter, education, health etc.
The land laws discussed earlier
allow people to attain self-sufficient
in food and housing as explained
above

there is
welfare.

no

concept of public

Khilafah alleviates the suffering of the masses

Decreases crime and insecurity in the society
Produces a secure economic atmosphere which increases

economic activity and investment as the investor doesnt

run the risk of being homeless and struck by hunger in
case of a loss

Economic System:

State Revenues
Khilafah
Sources of Bait -ul-Mal

The booties and the spoil of war1, Al-Fai2 and the fifth3
Al-Kharaj
Al-Jizya
Protecting some Public property (Hima) 4
State property of land, building utilities and their
revenues)
Al-Ushur
Money attained illegally by the rulers, the employees of
the State, illicit money and money from penalties
The fifth of Al-Rikaz (hidden treasures) minerals 5
The inheritance property of the one who has no
inheritors 6
The property of apostates 7
Charity Funds Zakat
Taxes (only from the rich Muslims and in specific situations)

Capitalism
Predominant

source
of income is Taxes
from the common
people. People in the
west are taxed upto
35% of their income

State Expenditure Priorities

Khilafah
The expenditures of the State are based around seven areas:
The Zakat funds on fix 8 categories mentioned in the Quran.
Spending money on the destitute and the poor to ensure their basic needs is a must

on the State.
Spending on defence, heavy industry and security of the State as well as carrying the
Islamic Message to other lands.
Allowances of State employees such as salaries of soldiers, civil servants, judges,
teachers and the like.
Provide utilities to the people such as roads, water services, power services,
mosques, schools and hospitals and any other utility considered as necessity for the
people.
Emergency expenditures such as during famine, flood, earthquake or attack by
enemy.
Spending on development projects Only if funds available