Understanding Islamic Finance - Doha Academy of Tertiary Studies

32 Understanding Islamic Financethe difference between the Islamic economic system and the capitalistic or the socialisticsystems.The integrated model of the Islamic social framework is based, among other things, on thefollowing criteria, which provide a positive motivation for economic activities, steered by theconcept of a fair balance between material and spiritual needs and between the individual’sand social needs:1. Equilibrium between work and worship.2. Human equality.3. Mutual responsibilities in society.4. Distributive justice.5. Balanced and beneficent use of the “bounties of God”.6. Limited sovereignty of individuals in terms of “self interest” for the benefit of fellowbeings and society.7. The principle of co-existence.8. The freedom of conscience.2.5 PARAPHERNALIA OF ISLAMIC ECONOMICSThe objective of the Islamic economic system, like any other economic system, is the realizationof efficiency and equity in allocation and distribution of resources, for which itrecognizes the role of market forces and the freedom of individuals. But it also recognizesthe possible adverse impact of the totally unregulated market on various sections of society,particularly the poor and the disadvantaged. The pure materialistic “positive” approach hasnever been capable of serving social interests and realizing such goals. The “invisible hand”of market forces, as contended by Adam Smith, has failed to fulfil the social obligationsrequired for the ultimate socio-economic outcome of human actions. Hence, Islamic economicsprovides ample room for State intervention to achieve an optimal mix of functioningof market players guided by individual self-interest and serving the social interest by theState’s facilitation and overseeing activities.The urge for maximization of wealth by individuals without taking care of its impacton the well-being of others or society as a whole cannot generate long-term sustainablegrowth and well-being of individuals or societies. Therefore, both positive and normativeobjectives are to be realized through market functioning supported by State facilitation andintervention aimed at realization of socio-economic goals like need-fulfilment, an optimumand stable growth rate, equitable distribution of income and wealth with class and ecologicalcoherence.As indicated above, an economic system has to be discussed as a thought based uponany ideology, while economic science should be considered a science which deals with thecreation of wealth. An economic system relates to the management of wealth distributionin a society and enables or restricts its members from utilizing the means of production andsatisfaction. Production of goods and services and their distribution among various groupsin society, sources of funds for the State and their spending were the main areas of Islamiceconomics and the system up to the Middle Ages. Commercial activities of that perioddepicted a number of techniques of production, distribution, trade, payment and mobility ofmoney and credit.Thus, the system comprises the following three main elements: