Understanding Islamic Finance - Doha Academy of Tertiary Studies

Distinguishing Features of the Islamic Economic System 35If some individuals are unable to earn and fulfil their needs, Sharī´ah obliges their fellowbeings – depending upon the nature of the relationship like neighbours, relatives, etc. – tosupport them in fulfilling their basic needs. If there is nobody to support such people, Islamobliges the State to be responsible for the support of all citizens, particularly mentally orphysically disabled people and the destitute. The holy Prophet has said: “The Imam (ruler)is incharge (Rā‘iee) and he is responsible for his citizens.”As regards basic needs, there is total agreement among Islamic economists that it is themost important objective of the Islamic distributive policy. However, there may be somedifference of opinion as to which needs should be guaranteed and how these should befulfilled. Nevertheless, maximization of Falah (welfare in this world and the Hereafter) hasfirm relevance with the Islamic concept of development, which can be achieved throughobedience to Allah (SWT) in worship (Ibādāt) as well as Mu‘āmalāt, including all kindsof economic activities related to production, consumption, exchange and distribution. Aslong as seeking the pleasure of Allah is set as the final goal, the latter will be in perfectconformity with the former.This describes the contents of the Islamic welfare function, incorporating a collectionof value judgements covering all noble things in life. However, by going beyond materialwelfare and for a reward in the world hereafter, these elements of the welfare function arevirtually impossible to quantify. That is what constitutes the greatest challenge for Islamiceconomists. As pointed out by Umer Chapra:“There is, however, no theoretical macroeconomic model that would show how the Islamic valuesand institutions, and different sectors of the economy, society and polity would interact to helprealize the vision. The field where very little progress has been made is microeconomics. It hasnot been possible to establish the relationship among the macroeconomic goals and the behaviour ofdifferent economic agents and the kind of socio-economic and political reform that the realizationof goals may require.” 152.5.3 The Factors of ProductionThe Qur’ānic injunctions on distribution of wealth help a lot in introducing a broader basisof the distribution of income and wealth and require that in the process of distribution, noneof the factors of production is deprived of its share nor does it exploit any other. Land, labourand capital jointly create value. As a result, the land-owner, the labourer and the owner ofcapital should jointly share the produce. The distinctive feature of the Islamic system is thatcapital has to bear the loss, if any. In addition to this, Islam compulsorily retains a portionof the produced wealth as Zakat for those who are prevented from contributing their sharein production due to any social, physical or economic handicap.Capitalism has four factors of production:1. Capital – the produced means of production – its compensation is “interest”.2. Land that includes all natural resources – things which are being used as means ofproduction without having previously undergone any process of human activity – itscompensation is the rent.3. Labour – any effort or physical exertion on the part of human beings – its compensationis wages.15 Chapra, 2000b, pp. 21–37.