Introduction to Islamic Economics & Finance
The basic difference between capitalist and Islamic Economy
Islam and Islamic Economics do not deny the market forces and investments in market economy. Even the profit motive is acceptable to a reasonable extent. Private ownership is not totally negated. Yet, the basic difference between capitalist and Islamic economy is that in secular conventional capitalism, the profit motive or private ownership are given unbridled power to make economic decisions. Islamic economy is the ethical alternative to speculative Capitalism.
The liberty which Islam guarantees is not controlled by any divine injunctions. If there are some restrictions they are imposed by human beings and are always subject to change through democratic legislation, which accepts no authority of any super-human power. This attitude has allowed a number of practices which cause imbalances in the society. Interest, gambling, speculative transactions and all those activities which deal with unethical economics tend to concentrate wealth in the hands of the few. Unhealthy human instincts are exploited to make money through immoral and injurious products, unbridled profit making monopolies which paralyze the market forces or, at least, hinder their natural operation.
Thus the capitalist economy which claims to be based on market forces, practically stops the natural process of supply and demand, because these forces can properly work only in an atmosphere of free competition, and not in monopolies. It is sometimes appreciated in a secular capitalist economy that a certain economic activity is not in the interest of the society, yet, it is allowed to be continued because it goes against the interest of some influential circles who dominate the legislature on the strength of their majority. Since every authority beyond the democratic rule is totally denied and ‘trust in God’ (which is affirmed at the face of every U.S. dollar) has been practically expelled from the social-economic domain, no divine guidance is recognized to control the economic activities.
Mohsin S. Khan, a senior economist at the IMF, explains what is meant for Islamic economics and finance:
“Broadly speaking, the term “Islamic economics” defines a complete system that prescribes a specific pattern of social and economics behavior for all individuals. It deals with a wide-ranging set of issues, such as property rights, incentive system, allocation of resources, types of economics freedom, system of economic decision-making and proper role of the government. The over-riding objective of the system is social justice and specific patterns of income and wealth distribution and consequently economic policies are to be designed to achieve these ends.”
The evils emanating from conventional Capitalism can never be curbed unless humanity submits to the divine authority and obeys its commands by accepting them as absolute truth and super-human injunctions which should be followed in any case and at any price. This is exactly what Islam does. After recognizing private ownership, profit motive and market forces, Islam, through Islamic Economics, has put certain divine restrictions on the economic activities. These restrictions being imposed by Allah Almighty, Whose knowledge has no limits, cannot be removed by any human authority. The prohibition of riba (usury or interest), gambling, hoarding, dealing in unlawful goods or services, short sales and speculative transactions are some examples of these divine restrictions. All these prohibitions combined together have a cumulative effect of maintaining balance, distributive justice and equality of opportunities, in the name of Islamic economic laws.