Islamic economy guided by moral values
Research conducted by Muhammad Asif
An Islamic economy is a market economy guided by moral values. Economic activities are based on principles of cooperation and responsibility. Cooperation means that an economic exchange shall be beneficial to both parties involved. Transactions in which one party wins at the expense of the other are not permissible in Islam. Thus, monopolistic dealings, usury, and exploitation are prohibited. Transactions that allow both parties to win are permissible, and these include most types of activities needed for economic prosperity. Performance-based arrangements, like profit sharing or partnership, represent the most cooperative form of beneficial agreements, and thus are highly encouraged in Islam. Responsibility means that each individual is entitled for reward or return based on his effort and contribution. Thus gambling and lotteries are not permissible. Gambling allows an individual to gain based on pure luck, not on merit or effort. It shifts wealth blindly among participants leading to improper distribution of wealth. Gambling is a clear form of a zero-sum game where one party wins only if the other loses, and thus causes hatred and enmity among participants. A society where lotteries or gambling-like activities prevail is a zero-sum society, where the winner takes all, and the rest is doomed to fail.

Islamic economics

Islamic economics is a framework for studying economic activities that allow mutual benefit of exchange to be realised. It provides proper tools and techniques for evaluating economic decisions, showing when and how to achieve win/win outcomes and avoid win/lose or lose/lose ones. Islamic economics is based on the principle that Allah the Almighty created this world with plenty of resources that satisfy the needs of everyone. Thus one person's success is not necessarily achieved at the expense or exclusion of the success of others. This "win/win" framework leads to better economic behaviour and performance, and thus promises better future for mankind. Islamic banks are financial institutions established according to principles of Islamic economics. They provide finance and financial services in a manner leading to mutual benefit. Although finance activities are deeply rooted in Islamic history, formal Islamic banking is a recent phenomenon, whereby the first Islamic bank was established around 1963. Since then Islamic banks have developed and proliferated, reaching total assets of around $137 billion held by more than 160 financial institutions distributed throughout the world.

Guiding principles

The guiding principles for an Islamic financial system is a set of rules and laws collectively referred to as Shariah, guiding economic, social, political, and cultural aspects of Islamic societies. Shariah originates from the rules dictated by the Quran and its practices, and explanations rendered (more commonly known as Sunnah) by the Prophet Muhammad. Further elaboration of the rules is provided by scholars in Islamic jurisprudence within the framework of the Quran and Sunnah. In a sense, the combination of law and finance in Islam is inevitable.

Islamic law, by its nature, is resilient enough to accommodate modern financing modes and institutions with great ease. Rather, it can be, perhaps, said, that Islam is not a rigid methodology which insists that certain specific directions be taken to reach a destination, but a framework which provides directional guidance when directions for certain types of activities have not been documented yet, or those that are already documented need to be re-engineered to suit changing scenarios.

Islam, however, expects that the principles it enshrines be not breached while redefining, re-engineering and adopting the same in practice.

Whereas the conventional financial system focuses primarily on the economic and financial aspects of transactions, the Islamic system places equal emphasis on the ethical, moral, social, and religious dimensions, to enhance equality and fairness for the good of society as a whole. The system can be fully appreciated only in the context of Islam's teachings on the work ethic, wealth distribution, social and economic justice, and the role of the state.

Undoubtedly, prohibiting the receipt and payment of interest is the nucleus of the system, but it is supported by other principles of Islamic doctrine advocating risk sharing, individuals' rights and duties, property rights, and the sanctity of contracts. Similarly, the Islamic financial system is not limited to banking but covers capital formation, capital markets, and all types of financial intermediation.

Shariah guidelines for investments

Dealing in equity shares can be acceptable in Shariah subject to the following conditions:

-- If the main business of the companies is halal, like automobiles, textile, etc. but they deposit there surplus amounts in a interest-bearing account or borrow money on interest, the share holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.

-- If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the shareholder must be given charity, and must not be retained by him. This is called purification or dividend cleansing. According to many prominent Islamic fund companies, a Muslim investor cannot invest in the shares of a company if the non-Shariah compliant sources of income contribute 5 per cent or more of the company's total income.

-- The shares of a company are negotiable only if the company owns some non-liquid assets. If all the assets of a company are in liquid form, i.e. in the form of money that cannot be purchased or sold, except on par value, because in this case the share represents money only and the money cannot be traded in except at par.

What should be the exact proportion of non-liquid assets of a company for the negotiability of its shares? The contemporary scholars have different views about this question. Some scholars are of the view that the ratio of non-liquid assets must be 51 per cent at least. They argue that if such assets are less then 50 per cent, then most of the assets are in liquid form, therefore, all its assets should be treated as liquid on the basis of the juristic principle. The majority deserves to be treated as the whole of a thing. Some other scholars have opined that even if the non-liquid asset of a company are 33 per cent, its shares can be treated as negotiable.

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