Islamic Economics: Principles and System

Foundational Principles

Islamic economics is based on the Quran and Sunnah and differs fundamentally from both capitalism and socialism. Its core principles include: Allah is the ultimate owner of all wealth and humans are trustees (khulafa'); wealth must circulate broadly and not concentrate among the rich (Quran 59:7); economic activity must be ethical, with clear prohibitions against exploitation; and wealth is a means to worship Allah and serve society, not an end in itself.

Key Prohibitions

Riba (interest): All forms of guaranteed interest on loans are prohibited (Quran 2:275-279). Gharar (excessive uncertainty): Transactions with excessive ambiguity or risk that could lead to disputes. This prohibits gambling (maysir), speculative derivatives, and insurance contracts in their conventional form. Haram industries: Investment in alcohol, pork, gambling, weapons of mass destruction, and other prohibited industries.

Economic Institutions

Zakat: The obligatory 2.5% annual wealth tax that functions as a poverty alleviation mechanism. Waqf: The endowment system that historically funded public services. Mudarabah: A profit-sharing partnership where one party provides capital and the other provides labor. Musharakah: A joint venture where all partners contribute capital and share profits and losses. Murabaha: Cost-plus financing used in Islamic banking. Bayt al-Mal: The public treasury responsible for welfare and public spending.

Modern Application

Islamic banking and finance has grown into a multi-trillion-dollar global industry. It operates on the principle of risk-sharing rather than guaranteed returns, making it inherently more ethical and stable according to its proponents. The 2008 financial crisis increased global interest in Islamic financial models.