Islamic Banking


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Islam views life as a compact whole and does not divide it into many separate and conflicting parts. The economic aspect is one of the most important parts of our life, while not being the whole of it. The Islamic system is balanced and places everything in its right place. Islam has given detailed regulations for the conduct of our economic life, which concerns mainly the earning and use of wealth.
Man needs bread to live but he does not live for bread alone. This means that earning and spending money is essential for our living, but we do not live only for this. We have a greater purpose in life. We are Allah’s agents (Khalifah) on earth. We not only have a body but we also have a soul and a conscience. Without our soul and conscience, we would be considered little more than animals.
Everything in Islam is for the benefit and welfare of mankind. The economic principle of Islam aim at establishing a just society wherein everyone will behave responsibly and honestly, and not as ‘cunning foxes’ fighting for as big a share of something as possible without regard for honesty, truth, decency, trust and responsibility.
Islam views life as a compact whole and does not divide it into many separate and conflicting parts. The economic aspect is one of the most important parts of our life, while not being the whole of it. The Islamic system is balanced and places everything in its right place. Islam has given detailed regulations for the conduct of our economic life which concerns mainly the earning and use of wealth.

Man needs bread to live but he does not live for bread alone. This means that earning and spending money is essential for our living, but we do not live only for this. We have a greater purpose in life. We are Allah’s agents (Khalifah) on earth. We not only have a body but we also have a soul and a conscience. Without our soul and conscience, we would be considered little more than animals.
Everything in Islam is for the benefit and welfare of mankind. The economic principle of Islam aim at establishing a just society wherein everyone will behave responsibly and honestly, and not as ‘cunning foxes’ fighting for as big a share of something as possible without regard for honesty, truth, decency, trust and responsibility.
While generating massive abundance and wealth of resources by eliminating all the restrictions and oppressive systems that prevent production, Islam will safeguard against abuses of exploitation in acquiring wealth by limiting the way in which wealth is acquired.

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For instance, Islam denies the "free" market of Capitalism which has led to the situation of "survival of the fittest". Such an unrestricted environment has led directly to the current situation where multinational companies have scavenged the resources of the world like parasites unrestricted in their "freedom." Under the Khilafah, natural and vital resources would be categorized as public property and a right of every citizen of the state - Muslim or otherwise - in accordance with the Prophet's (saw) Hadith that states, "The humans have a right to three things - water, green pastures, and fire-based fuels (An-Naar)."

What is capitalist system?

The essential capitalist value is freedom, every individual is as extreme freedom/ right to do whatever pleases him until and unless it doesn’t interfere with the right of the other members of society.
Secondly in capitalist system individuals have right to participate in any business they want to increase profits by using four factors of production. The main motive of people in capitalist society is to consume to its fullest. There is no limit to their consumption. This can be supported with the fact that these days even marketers encourage to consume more and more. For example Pepsi’s tag line “Dil Mangey More”, same goes for Mobilink “Unlimited talk time or SMS” etc.

Under capitalist economy, the wealth is produced by using four factors of production. That is Land, Labour, Capital and Entrepreneur or Organization.
Land gets rent, labour gets wages, Entrepreneur gets profit and capital earns interest over it. Wealth is distributed based on participation of these factors in production.

Lastly the major part of capitalist economy is the supply and demand rule. Production and distribution in a capitalist system are governed by the free market rather than state regulation.

What is Socialism?

Where as in socialism there is no concept of individualism. Everything is in the control by State or government. Individuals have not right to participate in any business individually. All the means of productions are central based, state government decides on its own that what goods and services would be produced, how many to be produced and at what would be the sale price.
In socialism instead of believing on individual interest, collective interest is taken care of.
As far as factors of production are concerned, Socialism consider capital and land as collective property. Wealth is distributed only inform of wages. Land and wages are fixed by Govt. There is no concept of individual being and entrepreneur as its only government who has right over everything so the profits just belong to it.

Islamic theory:
When it comes to Islamic concept of economy, its totally completely different from capitalism and socialism. Islam believes in right to private ownership, market forces and profit motives but there are some limitation attached to all of them. Following are the major difference between Islam and other economic systems.

Consumption pattern
Islam doesn’t consider consumption and accumulation end in itself. For Muslims this worldly life is just considered as journey and his final destination is beyond that, which is life after death. So Islam badly restricts its people to go towards the things that tempt him to become greedy. Because our main motive is not running behind more and more money like people in capitalist society because this worldly life is just path between human and its final destination so to spend life here in this word , man just need enough money to spend on the basic necessities or things essential to live this world life.

Ownership of everything:
In Islam, the ownership belongs to Allah only. There is surely the concept of right of property of man but that ownership is not absolute, it has limitations and rules and regulation to be followed, imposed by Allah the supreme owner of everything.

Factor of production
Unlike capitalism and socialism, Islamic economic system has only three factors of production. Labor and land remain the same and will wages and rent in return. However, when it comes to capital and entrepreneur, they both are considered as one. As Interest is haram in islam there fore the risk of profit and loss is attached with the capital. This means, anyone who is investing capital in any business should also bear the risk attached to it.

Right to do anything:
Islam is a complete religion in which every code of life is explained by Quran and Hadith. In Islam no one has given extreme right to whatever he wants to do. Unlike capitalism no individual has given absolute right, to participate in any business he wants to earn profits. In light of islam no one can put money in any activity/ businesss that has considered haram, eg. Gambling, financing in prohibited activites (eg. Alcohol , pork etc), interest, hording etc.

Real nature of wealth:

According to Islam original ownership belong to Allah only and with Allah’s “Taufeeq” no factor of production can produce anything. Man can only invest his labour any process of production but Allah can only give reward or make it fruitful in the end. For example, if some man has sow the seed in the soil but bringing out seedling from it, making the seedling to grow into a big tree is only under control of Allah Almighty.


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