Unit 1 Overview of Economics

IE1001 CIFP/IE5033 MIFP
ISLAMIC ECONOMICS/ ECONOMICS FOR ISLAMIC FINANCE
Assoc. Prof. Dr. Magda Ismail
magda@inceif.org
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TOPIC 1
OVERVIEW OF ECONOMICS
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• The Nature and Method of Economics
• Definition of Economics
Contents • The Economizing Problem
• Islamic Perspective and the
Economizing Problem
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The Nature and Method of Economics
 Economics is the social science that is concerned with the production,
distribution and consumption of goods and services.
 Economics aims to explain how economies work and how economic agents
interact.
 Economic analysis is applied throughout society, in business, finance and
government, but also in crime, education, the family, health, law, politics,
religion, social institutions, war, and science.
 Even though it tells that economics can be used for raising the living standard of
people and their welfare, yet:
 it also shows that economic issues or economic objectives might become a tool
in the hands of people, who want to exploit it for hidden motives.
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ECONOMICS
FROM
SECULAR PERSPECTIVE
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WHAT IS ECONOMICS? (SECULAR PERSPECTIVE)
 Economics is the social science that studies the allocation of

scarce resources to satisfy unlimited wants.
 The social science concerned with the efficient use of limited or
scarce resources to achieve maximum satisfaction of human
materials wants.
 Economics is the study of choice and decision-making in a
world with limited resources.
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THE ECONOMIZING PROBLEM
1. Unlimited wants
• Economic wants are desires of people to use goods and
services that provide utility, which means satisfaction.
• Products are sometimes classified as luxuries or
necessities, but division is subjective.
• Services satisfy wants as well as goods.
• Businesses and governments also have wants.
• Over time, wants change and multiply.
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2. Scarce Resources
• Economic resources are limited relative to wants.
• Economic resources are sometimes called factors of production and include four
categories:
• Land or natural resources,
• Labour or human resources, which include physical and mental abilities used
in production,
• Capital or investment goods which are all manufactured aids to production
like tools, equipment, factories, transportation, etc.,
• Entrepreneurial ability, a special kind of human resource that provides four
important functions:
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3. CHOICE
People make choices about what goods and services they
wanted.
People work harder and do business to earn income or make

profits in order to satisfy their unlimited wants.
Commodities, money and profits constitute their happiness.
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HAPPINESS IN THIS WORLD
Human life is to enjoy the pleasure and delight of this world.

Means gratification of desires for food and sex, possession
of enormous wealth, widespread fame and influence.
To maximize profit/interest
To satisfy wants with the limited resources at any cost.
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CASE STUDIES 1
Blood in the Mobile

http://bloodinthemobile.org/
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Cont., case 1
POOR FORGO FOR THE RICH
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Discussion
What are the advantages and the disadvantages of this

system? (Capitalist/Secular)
The economizing problem and its effect on the economy

at large
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EXAMPLE: THE ECONOMIZING PROBLEM AND ITS EFFECT ON THE ECONOMY
AT LARGE
 Scarcity of Resources: Row materials to manufacture cell phones/mobile

phone, etc.
 Unlimited Wants:
Supply side: people need to maximize their profit.
Demand side: people’s needs new designs/new brands for cell phones
 Choice: Scarcity of resources requires choices to be made, at any cost, in
order to satisfy human desires for maximum profit and maximum
satisfaction of wants.
Website: http://bloodinthemobile.org/
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CASE STUDIES 2
What will happen when the rivers goes dry?
• Egypt, whose population of 68 million
may reach 97 million by 2025, gets
essentially not rainfall. All agriculture
is irrigated by seasonal floods from
the Nile River, and from water stored
behind the
• Egypt is seeking to develop ties with
South Sudan as its relations with
Ethiopia and Sudan deteriorate over
the distribution of Nile water.
• Source:
http://whyfiles.org/131fresh_water/2.htmlhttp://whyfiles.org/131fresh_water/2.html
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CASE STUDIES 3
What happened when oil ceased?
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WAR IN IRAQ
Antonia Juhasz, Special to CNN April 15, 2013
"Of course it's about oil; we can't really deny
that," said Gen. John Abizaid, former head
of U.S. Central Command and Military
Operations in Iraq, in 2007. Former Federal
Reserve Chairman Alan Greenspan agreed,
writing in his memoir, "I am saddened that it
is politically inconvenient to acknowledge what
everyone knows: the Iraq war is largely about
oil." Then-Sen. and now Defense Secretary
Chuck Hagel said the same in 2007: "People
say we're not fighting for oil. Of course we
are."
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ECONOMICS
FROM
ISLAMIC PERSPECTIVE
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DEFINITION OF ISLAMIC ECONOMICS
 Islamic Economics is a social science which studies the

economic problems of people imbued with the values of
Islam.
 It is the study of social science which enables people to

perform their obligation to Allah and to their society.
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CONT. DEFINITION OF ISLAMIC ECONOMICS
It studies man not only as an isolated individual but of a social

individual having;
Faith,
Ethics (believing in the six articles, his deeds is accountable to
Allah as it is guided by Shari’ah.
Propagate good doing and prohibit bad doing al-Amr bil Maruf wa
al-Nahy anil Munkar in the society (watch his business ethics)
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FUNDAMENTALS OF ISLAMIC ECONOMIC PHILOSOPHY
 Tawhid: a comprehensive concept, implying complete submission of oneself to the

one and unique being, who is the creator, sustainer, owner of everything, all-knowing,
all-wise, and the most powerful.
 Risalah: an institution of prophethood, which brings the revealed guidance in all
dimensions of human life from Allah in the form of the Kitab, and demonstrates its
application through practice which is recorded in the form of Sunnah.
 Akhirah: the hereafter for accountability, and for getting the outcome of all deeds
including economic activities, in an eternal life.
 Economic well-being for leading a good life and discharging socio-Islamic obligations
in this world for achieving the home of the hereafter.
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DEFINITION OF ISLAMIC ECONOMICS
 Islamic Economics is a social science which studies the economic

problems of people imbued with the values of Islam.
 It is the study of social science which enables people to perform their
obligation to Allah and to their society.
 It studies man not only as an isolated individual but of a social
individual having;
• Faith/Iman,
• Ethics (believing in the six articles, his deeds is accountable to
Allah as it is guided by Shari’ah.
• Propagate good doing and prohibit bad doing al-Amr bil Maruf wa
al-Nahy anil Munkar in the society (watch his business ethics)
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HOW ISLAM VIEWS THE ECONOMIZING
PROBLEMS?
 Scarcity of Resources
 Unlimited Wants &
 Choice
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RESOURCES IN AL-QURAN
(many resources between the sky and the land)
‫اء َما ًء فَأ َ أخ َر َج ِب ِه ِم َن‬ ِ ‫س َم‬‫ض َوأ َ أنزَ َل ِم َن ال ه‬ َ ‫ت َو أاْل َ أر‬ ‫َّللاُ اله ِذي َخلَقَ ال ه‬
ِ ‫س َم َاوا‬ ‫ه‬
‫س هخ َر‬َ ‫ي ِفي أالبَ أح ِر ِبأ َ أم ِر ِه َو‬ َ ‫س هخ َر لَ ُك ُم أالفُ أل َك ِلت َ أج ِر‬ ِ ‫الث ه َم َرا‬
َ ‫ت ِر أزقًا لَ ُك أم َو‬
َ ‫لَ ُك ُم أاْل َ أن َه‬
‫ار‬
It is Allah Who hath created the heavens and the earth and sendeth
down rain from the skies, and with it bringeth out fruits wherewith
to feed you; it is He Who hath made the ships subject to you, that
they may sail through the sea by His command; and the rivers
(also) hath He made subject to you. (Ibrahim 14:32)
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(Never will you be able to count the favors of Allah)
ِ ‫سأ َ ألت ُ ُموهُ َو ِإ أن تَعُدوا نِ أع َمةَ ه‬

ُ ‫َّللا ََل ت ُ أح‬
‫صو َها ِإ هن‬ َ ‫َوآَتَا ُك أم ِم أن ُك ِل َما‬
ٌ ‫ظلُو ٌم َكفه‬
‫ار‬ َ َ‫ان ل‬
َ ‫س‬ ِ‫أ‬
َ ‫اْل أن‬
And He giveth you of all that ye ask for. But if ye count the favors
of Allah, never will ye be able to count them. Verily, man is given
up to injustice and ingratitude. (Ibrahim 14:34)
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(abundant but in due balance)
‫ي َوأ َ أنبَتأنَا ِفي َها ِم أن‬

َ ‫س‬
ِ ‫ا‬‫و‬َ ‫ر‬
َ ‫ا‬ ‫ه‬
َ ‫ي‬‫ف‬
ِ ‫َا‬ ‫ن‬‫ي‬‫أ‬ َ ‫ق‬‫ل‬‫أ‬ َ ‫أ‬‫و‬َ ‫ا‬‫ه‬َ ‫َا‬ ‫ن‬‫د‬‫أ‬ ‫د‬
َ ‫م‬
َ ‫ض‬
َ ‫ر‬
‫أ‬ َ ‫َواْل‬
‫ون‬ ‫ُك ِل ش أ‬
ٍ ‫َي ٍء َم أو ُز‬
Allah (swt) mentioned in the Quran:

And the earth We have spread out (like a carpet); set thereon mountains firm and
immovable; and produced therein all kinds of things in due balance (Hijir 15:19)
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(everything … but in due and ascertainable measures)
ٍ ُ‫َي ٍء ِإَله ِع أن َدنَا خَزَ ا ِئنُهُ َو َما نُن َِزلُهُ ِإَله ِبقَ َد ٍر َم أعل‬
‫وم‬ ‫َو ِإ أن ِم أن ش أ‬
And there is not a thing but its (sources and) treasures

(inexhaustible) are with Us; but We only send down thereof in
due and ascertainable measures. (al Hijir 15:21)
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ISLAMIC PERSPECTIVE ON SCARCITY
 When it comes to Islam, it analyzes the concept of scarcity from a

different perspective where there is no concept of ‘relative scarcity’
in the economy as believed by the secularism.
 To Islam, ALLAH SWT has created ‘abundant and sufficient’ resources
for the usage of all people and His other creations inclusive of
animals and plants.
 Thus, there is no ‘a big deal’ to recognize the factors of production
being relatively scarce.
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Cont.,
 As a result, the scarcity issues only arise due to the ‘availability’ which
caused by limited knowledge and capability of men to search the
location of created resources, to derive the method to extract and to
formulate its usage for benefits of the people.
 The limited knowledge of men occurred because ALLAH SWT releases

knowledge to them bit by bit and up to certain limitations. The men
would not know everything about themselves and other creations. Only
He knows at utmost. Due to this, ALLAH SWT said in Surah al-Baqarah :
“…He said: “I know what you know not” (Surah al-Baqarah :30)
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Cont.,
 From the above assertion, there is no scarcity in term of quantity in

Islamic economy. Summarily, it can be written as:
 Sufficient Resources Created by God + (Human’s constraints to
acquire, to locate and to use of the resources + Unlimited
Wants)=Scarcity in Availability
 All the three economic agents that are households, firms and state
face the availability scarcity in land, capital , labor and entrepreneur
towards the limited knowledge and physical constraints and their
unlimited wants and needs. Not because of the factors of production
are limited in nature.
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UNLIMITED WANTS
 Islam recognizes that human desires are

unlimited.
 This is explained in Quran and in Hadith.
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MAN’S UNLIMITED WANTS IN AL-QURAN
‫ط َر ِة ِم َن‬ َ ‫ير أال ُمقَ أن‬ ِ ‫ين َو أالقَن‬

ِ ‫َاط‬ َ ‫اء َو أالبَ ِن‬
ِ ‫س‬ َ ‫الن‬
ِ ‫ت ِم َن‬ ِ ‫ش َه َوا‬ ‫اس ُحب ال ه‬ ِ ‫ُز ِي َن ِللنه‬
ِ‫ع أال َحيَاة‬ ُ ‫ث َذ ِل َك َمتَا‬ِ ‫س هو َم ِة َو أاْل َ أنعَ ِام َو أال َح أر‬
َ ‫ض ِة َو أال َخ أي ِل أال ُم‬
‫ب َو أال ِف ه‬ِ ‫الذه َه‬
‫ب‬ِ َ ‫َّللاُ ِع أن َدهُ ُح أس ُن أال َمآ‬
‫الد أنيَا َو ه‬
Fair in the eyes of men is the love of things they covet: Women and sons; Heaped-up
hoards of gold and silver; horses branded (for blood and excellence); and (wealth of)
cattle and well-tilled land. Such are the possessions of this world's life; but in nearness
to Allah is the best of the goals (To return to). (Al-i- Imran 3:14)
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CONT. MAN’S UNLIMITED WANTS
‫ون أال َما َل ُحبًّا َج ًّما‬

َ ‫َوت ُ ِحب‬
And ye love wealth with inordinate love!

(al Fajr 89:20)
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CONT. MAN’S UNLIMITED WANTS
ُ‫ب أ َ هن َمالَهُ أ َ أخلَ َده‬

ُ ‫س‬
َ ‫يَ أح‬
Thinking that his wealth would make him last for

ever!(Surat al Humazah 104:3)
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MAN IS GREEDY
:)‫قال رسول هللا (ص‬
‫ ولو أعطي‬، ‫« لو أن ابن آدم أعطي واديا من ذهب أحب إليه ثانيا‬
‫ ويتوب‬، ‫ وَل يمأل جوف ابن آدم إَل التراب‬، ‫ثانيا أحب إليه ثالثا‬
» ‫هللا على من تاب‬
“If man is given a valley of gold, certainly, he wants

the second and third one and he will …..” Hadith
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CHOICE IN ISLAM
Choice in Islam should be ranking according to:

•Need fulfillment and not to greediness.
•Concept of brotherhood
•Concept of sharing
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IS ACQUIRING WEALTH IN ISLAM
PROHIBITED ?
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CONT. ACQUIRING WEALTH IN ISLAM
PILLARS OF ACCOUNTABILITY IN THE HEREAFTER
‫عن ابي الدرداء قال قال رسول هللا صلى هللا عليه وسلم لن يزول‬
‫قدما عبد يوم القيامة حتى يسأل عن أربع عن شبابه فيما اباله‬
‫وعن عمره فيما افناه وعن ماله من اين اكتسبه وفيما أنفقه‬
When a man dies he will be asked on four:

1- His youth how he spend it?
2- His age how he spend it?
3. His wealth how he acquires it? &
4. How he spends it?
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RELATION BETWEEN ETHICS AND ISLAMIC ECONOMICS
Muslims are bound by Islamic ethics and morals in their society. They
should jealously guard their behaviour, deeds, words, thoughts,
feelings and intentions.
Quran had laid down may Quranic verses which highlighted how the
Muslim should behave as an individual and as a member in the society
towards others.
The Quran and the hadith gave the framework within which people
should think how to apply it in their daily life as individuals and as
collective.
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ETHICS IN AL-QURAN
&
ITS RELATION WITH ECONOMICS
(Case: Blood in the Mobile)
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1. KNOWING AND DEALING WITH EACH
OTHER
‫شعُوبًا‬ ُ ‫اس ِإنها َخلَ أقنَا ُك أم ِم أن ذَ َك ٍر َوأ ُ أنثَى َو َجعَ ألنَا ُك أم‬ ُ ‫يَا أَي َها النه‬
ٌ ‫ع ِلي ٌم َخ ِب‬
‫ير‬ َ ‫َّللا أَتأقَا ُك أم ِإ هن ه‬
َ ‫َّللا‬ ِ ‫ارفُوا ِإ هن أ َ أك َر َم ُك أم ِع أن َد ه‬
َ َ‫َوقَبَائِ َل ِلتَع‬
O mankind! We created you from a single (pair) of a male and a

female, and made you into nations and tribes, that ye may know
each other (not that ye may despise (each other). Verily the
most honoured of you in the sight of Allah is (he who is) the
most righteous of you. And Allah has full knowledge and is well
acquainted (with all things). (al-Hujurat 49:13)
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2. CONCEPT OF BROTHERHOOD
‫َّللا لَعَله ُك أم‬

‫ص ِل ُحوا بَي َأن أَخ ََو أي ُك أم َواتهقُوا َه‬ َ ُ‫ِإنه َما أال ُمؤأ ِمن‬
‫ون ِإ أخ َوة ٌ فَأ َ أ‬
َ ‫ت ُ أر َح ُم‬
‫ون‬
The Believers are but a single Brotherhood: So make peace and

reconciliation between your two (contending) brothers; and fear
Allah, that ye may receive Mercy. (al-Hujurat 49:10)
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… CONCEPT OF BROTHERHOOD
‫َل يؤمن أحدكم حتى يحب ْلخيه‬

‫ ما يحب لنفسه‬-‫ لجارة‬:‫– او قال‬
It is reported on the authority of Anas ibn Malik (r.a.‘) that the

Propeht (pbuh) said; None of you (truly) believes till he loves for his
brother- or he said: for his neighbor- that which he loves for
himself”
(Narrated by Bukahari and Muslim)
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… CONCEPT OF BROTHERHOOD
:‫قوله صلى هللا عليه وسلم‬

‫(مثل المؤمنين في توادهم وتراحمهم وتعاطفهم كمثل الجسد الواحد إذا‬
)‫اشتكى منه عضو تداعى له سائر الجسد بالسهر والحمى‬
Meaning: the example of a believers with his friend, in

terms of mercifulness and sympathy, like a body if any
part complained from any weakness, the rest of the
body will weaken too and caught fever.
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3. CONCEPT OF MUTUAL COOPERATION
‫ قال النبي صلى هللا عليه وسلم‬:‫وحديث اْلشعريين رواه أبو موسى قال‬
" ‫إن اْلشعريين إذا أرملوا في الغزو أو قل طعام عيالهم بالمدينة جمعوا ما كان‬
‫ فهم مني وأنا‬،‫ ثم اقتسموه بينهم في إناء واحد بالسوية‬،‫عندهم في ثوب واحد‬
‫منهم‬
) ‫(رواه اْلمام البخاري‬
The Ash’ari when they were afflicted with a period of deprivation they would
collect all of their provisions and divide them amongst themselves equally - as
mentioned in the Hadith.
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DISCUSSION
How to apply ethics as come in al-Quran
and al-Sunnah in the case of
bloodinthemobile?
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The Economizing Problem
(Secular perspective)
 Scarcity of Resources: Row materials to manufacture cell phones or

mobile phones.
 Unlimite Wants:
Supply side: people need to maximize their profit.
Demand side: people’s needs new designs/new brands for cell phones
 Choice: Scarcity of resources requires choices to be made, at any cost, in
order to satisfy human desires for maximum satisfaction of profit & wants.
Website: http://bloodinthemobile.org/
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CASE 1: BLOOD IN THE MOBILE
(Islamic Perspective)
 Abundant of row material but in another country: need to apply the concept of
• (knowing and dealing with each other legally)
 Unlimited Wants:
 Supply side: people need to maximize their profit but through profit sharing through lawful
ways. (Concept of brotherhood)
 Demand side: people’s needs new designs/new brands for cell phones
• -acquires it after knowing the whole process is lawful and not harming any society,
• - its consumption should be made after giving the due amount to the needy and the poor
before going to luxury items.
 Choice: Lawful to bring this raw material, and at the same time the profit has been shared
between the two parties or two countries. (Concept of Mutual Cooperation)
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CASE 2: OIL CEASED
• Wind power
• Electric car factory
• Biomass energy sources on the farm/plants and organic
wastes can be used to produce heat, power, or fuel.
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CASE 3: SHORTAGE OF WATER
HADITH
‫(ما من عام بأقل مطرا ً من عام ولكن هللا يصرفه) صدق رسول هللا‬
There is not year that have less rain than another year, but Allah directs it
Special prayer call Istisqah

It has been practiced by the Prophet (pbuh) and it is two Rak‘ah
َ َ‫ َوقَل‬،َ‫ فَا أست َ أقبَ َل أال ِق أبلَة‬،‫صلهى فَا أست َ أسقَى‬

‫ب‬ َ ‫ي خ ََر َج ِإلَى أال ُم‬
‫صالة اَل أستِ أسقَاء سنة مؤكدة أ َ هن النهبِ ه‬
‫صلهى َر أكعَتَي ِأن‬َ ‫ َو‬،ُ‫ِر َدا َءه‬
© INCEIF 2017
© © INCEIFCentre
INCEIF
2012.
LIMITED WANTS AND THE WAY OUT FROM THE LOCKED SMALL
PLACE
• Group of people Locked for a month in a small

place with only few bottles of water and some
food which can sustain them for only 3 days.
• What do you think will happen?
• Islamic perspective.
© INCEIF 2017
© © INCEIFCentre
INCEIF
2012.
CONCEPT OF RELIEF
)6( ‫س ًرا‬ ْ ُ‫) ِإ َّن َم َع ا ْلع‬5( ‫س ًرا‬

ْ ُ‫س ِر ي‬ ْ ُ‫فَ ِإ َّن َم َع ا ْلع‬
ْ ُ‫س ِر ي‬
So, verily, With every difficulty, There is relief:Verily, with every

difficulty There is relief( Inshirāḥ 94: 5-6)
© INCEIF 2017
© © INCEIFCentre
INCEIF
2012.
Q&A
© INCEIF2016.
© INCEIF 53
2012.

Unit 1 Overview of Economics

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Unit 1 Overview of Economics

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IE1001 CIFP/IE5033 MIFP

ISLAMIC ECONOMICS/ ECONOMICS FOR ISLAMIC FINANCE

Assoc. Prof. Dr. Magda Ismail

 Economics is the social science that studies the allocation of

People work harder and do business to earn income or make

Commodities, money and profits constitute their happiness.

Human life is to enjoy the pleasure and delight of this world.

Blood in the Mobile

What are the advantages and the disadvantages of this

The economizing problem and its effect on the economy

 Scarcity of Resources: Row materials to manufacture cell phones/mobile

What happened when oil ceased?

 Islamic Economics is a social science which studies the

 It is the study of social science which enables people to

It studies man not only as an isolated individual but of a social

 Tawhid: a comprehensive concept, implying complete submission of oneself to the

 Islamic Economics is a social science which studies the economic

ِ ‫سأ َ ألت ُ ُموهُ َو ِإ أن تَعُدوا نِ أع َمةَ ه‬

‫ي َوأ َ أنبَتأنَا ِفي َها ِم أن‬

Allah (swt) mentioned in the Quran:

And there is not a thing but its (sources and) treasures

 When it comes to Islam, it analyzes the concept of scarcity from a

 The limited knowledge of men occurred because ALLAH SWT releases

 From the above assertion, there is no scarcity in term of quantity in

 Islam recognizes that human desires are

‫ط َر ِة ِم َن‬ َ ‫ير أال ُمقَ أن‬ ِ ‫ين َو أالقَن‬

‫ون أال َما َل ُحبًّا َج ًّما‬

And ye love wealth with inordinate love!

ُ‫ب أ َ هن َمالَهُ أ َ أخلَ َده‬

Thinking that his wealth would make him last for

“If man is given a valley of gold, certainly, he wants

Choice in Islam should be ranking according to:

When a man dies he will be asked on four:

(Case: Blood in the Mobile)

O mankind! We created you from a single (pair) of a male and a

‫َّللا لَعَله ُك أم‬

The Believers are but a single Brotherhood: So make peace and

‫َل يؤمن أحدكم حتى يحب ْلخيه‬

It is reported on the authority of Anas ibn Malik (r.a.‘) that the

:‫قوله صلى هللا عليه وسلم‬

Meaning: the example of a believers with his friend, in

 Scarcity of Resources: Row materials to manufacture cell phones or

Special prayer call Istisqah

َ َ‫ َوقَل‬،َ‫ فَا أست َ أقبَ َل أال ِق أبلَة‬،‫صلهى فَا أست َ أسقَى‬

• Group of people Locked for a month in a small

)6( ‫س ًرا‬ ْ ُ‫) ِإ َّن َم َع ا ْلع‬5( ‫س ًرا‬

So, verily, With every difficulty, There is relief:Verily, with every

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