Q640 :As a student of economics, I am not exactly
certain how the Islamic economic system operates. All I have been able
to establish is that Islam does not approve of the interest-based
banking system. It insists on an interest-free arrangement or one which
includes profit-and-loss-sharing accounts. In view of the fact that
Islam is a netplete way of life, it must have provisions for the
working of an efficient economic system. But the interest-free banking
and the zakah system are insufficient. If I am not wrong, zakah is not
a government tax. How can the government of a Muslim country meet its
other expenses? Can it levy taxes?
A640 : Your two points are absolutely correct. Islam
is a netplete way of life which caters for all aspects of the life of
the individual and the netmunity. The needs of a country, whether large
or small, go far beyond what can be generated by the zakah system.
Hence, it is logical to expect that Islam has more to say about running
the economy of a country than prohibiting interest and administering
the zakah system. Starting with these two, may I first define zakah as
a netplete system of social security which is run by the government of
any Islamic society. Moreover, it is self-financing. When you consider
the rules which regulate how zakah is spent, you will find that it is a
system which has been devised to ensure that every individual in a
Muslim netmunity is able to lead a decent life. Everyone who happens to
be in need, whether temporarily or permanently, or indeed as a result
of special, unforeseen circumstances, has his needs met from the zakah
funds. Moreover, those who are employed for the administration of the
zakah system, including its collection and spending, are paid their
salaries from the proceeds of zakah. Therefore, no Muslim government
can be justified in giving the zakah system a low priority. Even those
governments who have established a social security system on their own
cannot argue that they have devised a better system. The zakah system
applies to every single individual in the netmunity, whether they work
or not, and whether they make contribution to the social security
system or not. Moreover, it determines the level of benefit it gives to
each individual on the basis of his or her needs, not in relation to
past employment and level of earlier contributions. What is paid into
the zakah treasury of a Muslim state netes from all sorts of wealth and
innete. Therefore, the funds that are received are of a level which
ensures that the objectives of the system are realized. As I have
already said, the overall objective is to help the individual have a
decent standard of living. When you say that zakah is not a government
tax, you are right in the sense that the government does not decide on
the level of zakah or to whom it applies and who may benefit by it.
However, a Muslim government is required to have a department which
administers the collection of zakah and its payment to its
beneficiaries who are defined by Allah. Islam forbids usury, which
includes interest-based banking, because usury exploits the needs of
those who do not have money in order to give those who have more than
what they need. It is a system through which the rich can get richer
without putting any efforts. Islam does not accept that money earns
money by itself. It is human endeavor which earns money. People may be
ready with their counter-arguments about the interest-based banking
system. They may point out to a number of ways which help small
businessmen get bigger and encourage enterprise. They also point to the
mortgage system which provides people with a chance to own their homes,
by getting loans to finance the purchase of their homes and then repay
the loan by easy installments. But when such arguments are made, people
tend to overlook the fact that many small businessmen do not manage to
get bigger when they pay back loans on interest. Indeed, many of them
watch their businesses collapse and end bankrupt. As a student of
economics, you must be aware of the fact that capitalist governments
have found it necessary to provide guarantees for any loans they make
to new businesses during the first few years of their operation. That
has been introduced to encourage banks to make such loans. The net
result of this guarantee, however, is the fact that taxpayers foot the
bill for unsuccessful business and the banks and finance netpanies are
guaranteed their interest. Islam prefers to manage its finances in a
different way. In the interest-based financing system, there is a net
profit which goes to the banks and financial institutions, and a net
loss which is incurred by the borrowers or the netmunity as a whole.
When Islam argues that only endeavor earns money, it helps society to
be free of the exploitation of capital. It encourages everyone to work
and makes it the responsibility of the government to help everyone find
a job or establish a business. Allah’s order to the Muslim netmunity is
stated in the Qur’an that they must work. In the Islamic terminology,
work is equated with worship. You have no greater incentive to work
hard than the Hadith of the Prophet which states: “He who netes of an
evening tired after a full day’s work is forgiven his sins.” When you
reflect that the purpose of worship is to ensure forgiveness and,
consequently, gain admission to heaven, and that forgiveness can be
ensured through hard work, the equation of endeavor with worship
benetes clear. There is also the story when the Prophet was told of a
man spending all his time to worship in the mosque. The Prophet asked
how he lived. When told that the man’s brother works and supports him,
the Prophet said: “His brother is a better worshipper than him.” The
basis of the Islamic economic system is a free enterprise which works
within certain checks and controls. There are points to make sure that
no exploitation takes place within the system. All earnings must be
legitimate and therefore, businesses which are based on illegitimate
methods or which promote unlawful products are not allowed to be
established. When you read about the early Islamic period, you are
bound to nete across references to the public treasury, which was
called “Bait-ul-Mal Al-Muslimeen,” which may roughly be translated as
the “Finance House of the Muslim Community.” This establishment is
different from that [established for the collection and distribution]
of zakah. It is equivalent to the public treasury in our modern
terminology. Obviously, it must have its sources of revenue. The
question arises here whether an Islamic government may levy taxes. The
answer is in the affirmative. These are determined by the needs of the
netmunity and the way society has developed. We must not forget the
Hadith which states clearly: “A duty other than zakah is payable on
wealth.” This establishes a general rule. It gives the Muslim
government the basis for meeting its expenditures. The fact that the
Prophet has chosen not to specify the level of that duty means that
every Muslim government may determine that level according to the needs
of the population. There are other [permissible] sources of revenue
including the mineral resources of the country, gains in war, etc. It
is beyond the scope of these columns to discuss the details of the
Islamic economic system. I have only tried to point out certain
principles which show that we have a netplete system, the details of
which may be learned from scholars and books. In recent years, a number
of scholars have done valuable work on the working of the Islamic
economic system. However, the scope of research in this area remains
wide because, as you realize, the Muslim netmunities have developed
during the periods of colonization and after independence. However,
colonization moved the Muslim netmunities away from the Islamic system
and that meant that solutions to different countries’ economic problems
were not solved on the basis of Islam. Therefore, there may be a wide
gap between the Islamic theory and what is practiced in different
Muslim netmunities. You need to be careful when you study the Islamic
economic system in order to establish what Islam actually approves and
what it rejects, although it may be practiced by Muslims.
Our Dialogue ( Source : Arab News – Jeddah )