Islamic Economics

THE ECONOMIC RELEVANCE OF THE SHARIA MAXIMS

2009-03-08T10:00:00.001-07:00

KINGDOM OF SAUDI ARABIA
Ministry of Higher Education
King Abdulaziz University
Centre for Research in Islamic Economics

THE ECONOMIC RELEVANCE OF THE SHARIA MAXIMS (al Qawaid al Fiqhiyah)

S.M. Hasanuzzaman

Scientific Publishing Centre
King Abdulaziz University
P.O. Box 1540, Jeddah 21441
Jeddah, Saudi Arabia

Contents

Acknowledgement
A b s t r a c t
Introduction
Legal Maxims On:
- Claim and Practice
- Doubt and Certainty
- Eliminating Detriment
- The Rules of Relaxation
- Give and Take
- The Rules About Benefit Versus Liability
- Public Welfare vis-à-vis the Discretion of the Government
- The Role of Custom and Usage
- Penalty for Evasion
- Limitations:
(i) As to analogy
(ii) As to tricky device

ACKNOWLEDGEMENT

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In finalizing the paper I am grateful to Shaykh Husain Hamid Hassan, Rector, International Islamic University, Islamabad, Dr. Justice Tanzilur Rahman, Chief Justice, Federal Shariat Court, Mr. Khalid M. Ishaq, Advocate, and Dr. Mahmood Ghazi, for their valuable comments. In particular I am indebted to Mr. Justice Mufti Muhammad Taqi Usmani, Judge, Sharia Appellete Bench, Supreme Court of Pakistan and my brother Dr. Zafar Ishaq Ansari, Director General, Institute of Islamic Research, Islamabad, for a thorough review of the paper, in addition to useful explanations and guidance given to me by Mufti Muhammad Rafi Usmani of Darnl Ulum, Karachi, the errors still left are my own.

S.M. Hasanuzzaman

FOREWORD

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al Qawaid (maxims) enjoy an important place in Islamic jurisprudence. They encapsulate concepts and precepts that can help one understand details of Law as it stands. More important than that, they are capable of helping one in arriving at the appropriate ruling where no explicit law exists.

Islamic economists are frequently called upon to look into situations not covered by existing rules. They also need guide posts when charting the vast expanse of rules that are already there. They are, like all students of Islamic Law, in need of “maxims”.

The Centre was pleased to endorse Dr. S.M. Hasanuzzaman’s proposal of a study dealing exclusively with maxims relevant for economic issues. It is still more pleased to present the fruits of Dr. Hasanuzzaman’s labour to scholars. Credit goes to the author, for this is the first-ever work on this subject in English. However, it is only a beginning. In all humility it is being published to invite further deliberation and discussion. We are especially keen to discover more instances of modem applicability of these and other maxim.

Any contribution to the subject will be welcome.

Dr. Mohamed A. EIgari
Director

A B S T R A C T

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The rules of the Sharia signify the set of principles determined with precision and their subordinate legal maxims which the great Muslim jurists have derived from the Quran and the Sunna to determine the Islamicity of any act, institution and policy. They are the systematic exposition of the spirit of the text which coincide and guide man towards different situations in human society throughout the ages. This study is an attempt at selecting the largely accepted rules (legal maxims) that are relevant to economic life of individuals and society, and applying them to contemporary situations. These maxims, if broadly classified, relate to claim and practice, doubt and certainty, eliminating detriment, the rules, of relaxation, give and take, benefit versus liability, public welfare vis-a-vis the discretion of the government, the role of custom and usage, and penalty for evasions. The study begins with a statement of limitations to restrict their liberal application.

The subject has been discussed in all major works of jurisprudence including some works dealing only with legal maxims. But it will be found that in almost all these works the scholars have confined themselves to applying these maxims either on rituals or on citing the precedents of the few economic activities which were prevalent in the medieval period. This study, while retaining this latter part, is an attempt at applying the maxims to contemporary economic activities, institutions and policies. Being perhaps the first attempt of its kind, the study does not include all the maxims that may possibly be applied on economic matters nor those which are controversial as judged by the majority of jurists.

INTRODUCTION

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One of the proposed definitions of Islamic economics (Journal of Research in Islamic Economics, Vol. 1, No. 2) reads thus:

“Islamic economics is the knowledge and the application of the injunctions and the rules of the Sharia in regard to acquisition and disposal of the available resources for providing satisfaction to the individuals in order to enable them to perform their obligations to Allah’ and the society”

In this definition the word injunctions signifies the prescriptive and the prohibitive injunctions of the Qur’an and the Sunna. The rules of the Sharia used in the definition signify the set of principles determined with precision and their subordinate legal maxims which the great Muslim jurists have derived from the Do’s and Don’ts, to ensure and to determine the Islamicity of any act, institution or policy. These rules are the systematic exposition of the spirit of the legal text (nass) intended to guide man towards different situations in human society throughout the ages. They provide broad contours within which policy making can be pursued and its validity judged. The legal maxims, on the other hand, are amenable to trade-offs and substitutions.

Before reproducing these rules and applying them, as far as possible, to contemporary economic situations and problems it is necessary to take care of the following precautions that are necessary to protect one from fallacious analogy, misleading over-confidence and lapse:

(1) Recourse may be made to reasoning based on these rules only if the Qur’an and the Sunna do not provide guidance on an issue. Consensus of early jurists (Ijma) also commands priority over the legal maxims. Injunctions of the Qur’an and instructions of the holy Prophet are also to be taken as a whole. The method of deriving conclusions from them are known and should be followed. Legal decisions based on them are contained in the compilations made by great jurists and scholars.

Jurists have also recorded the judgements and the opinions that are based on the consensus (Ijma) of early ‘u/ama’. This leaves a large number of issues that require a decision keeping within the limits of the Sharia. For example, the legal opinion in regard to profit-sharing in a joint venture is that:

“Profit is to be distributed according to the agreement but loss is to be borne in proportion to capital contribution”.

In this rule the ratio of the distribution of profit according to agreement can be reviewed in light of business conditions. It may be left to the partners to decide the ratios of profit- sharing or otherwise an Islamic government or central bank may fix a range within which the partners should share profits. The government may even lay down that, like losses, profit-sharing would also follow the ratio of respective capital
contributions by different partners. The liability of loss, however, has to be borne strictly in proportion of capital contribution since this rule enjoys the consensus of the scholars. The government has no right to change this ratio nor can the business partners make an agreement that violates the rule. Similarly in Bay ‘sa/am advance payment of cash is a condition that has been laid down by consensus of ‘Ulama’.
Deferred payment or adjustment of price against loan is not permissible. It is the consensus of ‘Ulama’ that business partnerships/(Shirka and Mudaraba) are treated as legal forms of joint venture. Thus there can be disagreement about forming a joint stock limited liability company, a trust, a cartel, a syndicate or a corporation but the legality of Shirka and Mudaraba may not be doubted.
It has to be fully kept in mind that all the injunctions of the Sharia seek to benefit human beings and eliminate harm. But those benefits and harms are not entirely left to the judgement of man. In a large number of cases those benefits and harms have been specified in the Qur’an and Hadith and should be made the criteria of judgement. In cases where benefits and harms are not pointed out human intellect will judge the virtue or vice of any act. Thus intellect would be guided by sound reasoning, experience, prevalent practice and sound judgement of scholars who have well understood the spirit of the Sharia and are scrupulous. Whether or not state trading should be allowed depends largely on experience. Should there be a difference in the wages of different workers and in the pay-scales different categories of employees depends upon custom and prevalent practice. Should any industry be nationalized in the interest of the community depends upon sound judgement of competent persons. The Sharia prohibits those trades and activities that involve ignorance and
uncertainty since they may lead to disputes, strife and animosity.* It is sound judgement that will decide which forms of present day trades and activities should be prohibited and which should be allowed and protected by law.

(3) The exigencies of the situation sometimes require that a lawful act should be disallowed for preservance of public interest. Similarly there are situations under which an unlawful act has to be tolerated during a short period of contingency. But of the two situations, allowing an unlawful act is much more serious than banning a lawful act. The safe and preferable way is to retain the essential illegality of the act even when it is unavoidable to have recourse to it under compulsion of circumstances. A government, for instance, may be compelled to pay interest on credit purchases of military hardware. Despite this compulsion, however, it should not be disregarded that payment of interest is unlawful and that serious thought should be given to eliminate that situation as quickly as possible.

(4) We are attempting here to identify only a few of the vast number of rules that the great jurists have laid down. Interpretation and application of these rules require thorough knowledge of Islamic law and jurisprudence. Emphasis on a single rule ignoring the total perspective, its scope, qualifications and limitations may often lead to a blunder. Such is the case that Muslim economists are advised to ignore these rules unless they are guided by reliable experts of Sharia. Nevertheless, possibility of error in interpretation and application by the author cannot be ruled out. The readers who may like to apply them ought to discuss their problems with scholars of authoritative competence on the subject rather than building upon this discussion.

With the above precautions the rules that seem to be relevant to economic policies and institutions may be briefly reproduced in the following pages. The discussion mostly contains the examples that early jurists have adduced. In some cases, however, examples of contemporary situations have also been added.

(1) Claim and Practice:

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The Qur’an insists that Muslims should demonstrate consistency in faith and practice and in words and deeds (2:208; 24:51; 30:30; 33:70; 41:30; 61:2,3). It is this basic requirement that has led to the formation of a number of rules in the Sharia to determine and judge the relationship between intention and deed and between claims and acts.

The first legal maxim in this respect reads as following:

* “The basis of every order is the intention thereof a judgement based on an order should follow the intention and purpose of that order” .

The rule embodied in this maxim has been applied by early jurists mostly on acts of rituals, but it is just as equally applicable to other spheres of activity. The liability of a person who finds somebody’s goods lying in the way and picks it up will be contingent upon the intention with which he has picked it up. If he intends to hand it over to the owner and has made it known to others he will be treated as a trustee and will not be required to indemnify the owner in case the property is destroyed while in his possession. But if he has kept it as owner he would be treated as a usurper, Ghasib, and will be required to indemnify the owner in case the property is destroyed. The rule is also amenable to performance of visibly different acts leading to the achievement of the same object. Let us take an example from our own times.

Nationalization of financial institutions in some countries may be the result of political ambitions while in some others it may aim at correcting mismanagement and regulating credit; and yet in some other countries it may be aimed at preventing foreign domination.
Nationalization in socialist countries has a deep-rooted philosophical basis and underlying rationale quite different from the one which prompts nationalization of key industries in non-socialist countries. On the other hand, different actions by different

countries by way of granting rebates on export, making available easy credit to exporters, fixation of import tariffs, laying down licencing procedures and quota restrictions in connection with imports etc., may aim at achieving a common cause of improving the balance of payments position. The relationship between
intention and act could further be elaborated by the following examples:

(A) A man makes an earning:

(1) for the satisfaction of his selfish urges.

(2) for personal consumption and demonstration effects

(3) for complying with the divine command to earn for the sake of survival and spending on noble causes.

In all above cases the act is the same but the intention/object is different.

(B) A man may grow and sell grapes to the consumer or to the manufacturer of wine.

(C) A farmer may grow poppy for sale of seeds or to prepare opium or drugs. In all these cases it is the intention that determines the legality or illegality of the act of an individual.

The same is also true in the case of public policies. Inscription of sacred words on coins may intend to symbolize a distinctive feature or the inscription may be desecration of sacred words. The former may be acceptable but the latter would be treated to be offensive.

In short it is the intention of the government in carrying out an act or in making policy that matters.

The relationship between an act and intention could take the following forms.

(1) Acts/policies that are good in themselves and are actuated by good objectives/intentions. For example, a government might seek to promote public welfare through Zakat and charity funds, donations, government revenues and just and equitable taxes.
(2) Acts and policies that are not good in themselves but are resorted to for achieving commendable objectives. The instances that immediately come to mind are winking
over smuggling in order to allow some people to earn their livelihood or mobilising funds for charity by means of games of chance and by floating interest-bearing
loans and bonds.
(3) Acts and policies that are actuated by objectionable intentions but lead to good results. An example is the nationalization of an industry or of an industrial unit
with a view to harassing or black-mailing one’s political opponents but the step might result in providing job security to workers, reduction in the prices of products,
elimination of cut-throat competition and waste, and standardisation of the products and avoidance of incongruent growth of industry.
(4) Objectionable intentions with objectionable policies. The example is conniving at smuggling of wine into the country for use by Muslims.*

It will be found that form No. 1 (good acts with good objectives) is an ideal situation and has to be pursued. Form No. 4 is to be rejected outright. In Nos. 2 and 3, the government has to make amendment of policy in the former and of objective in the latter. It should be noted that the announced phraseology of the policy sometime betrays the implicit objectives. The government may announce its policy of providing a house to each shelterless family but in practice it could be inaffordable by a shelterless man. It is actual acts and policies rather than proclamations that determine the intention. This is so because of a sub-rule which governs contractual obligations.

** “Contracts are to be understood in relation to their intention and substance, not by the words and phrases used’ so a bay bi ‘l-wafa’ will be held as a mortgage”.

Suretyship (kafala) implies coextensive liability while transfer of debt (hawala) implies discharge of the principal debtor. If a contract of transfer of debt (hawala) is made with the condition to hold the principal debtor liable in case the transferee fails to discharge the debt, contract even though termed as a contract of hawala will be treated as a contract of kafala, suretyship. Similar will be the treatment of a contract of kafala in case the principal debtor is discharged after contract of surety ship is signed.

In case a government issues a licence to set up an industry, or start a trade or import some merchandise it will not be lawful to sell the licence because the object of the licence was the authorization to set up an industry or trade or purchase of goods but not to make the licence itself an article of trade.

Likewise if the banks declare their policy of financing their clients on non-interest bases it would be necessary to do so and not merely continue the same practice and seeking to rationalize it in Islamic terms by changing the relevant nomenclature such as calling it “buy-back” or “mark-up”.

It will not be permissible for the banks to practice Shirka and Mudaraba in such a way as to ensure a fixed rate of return for the banks while the liability of bearing loss or an uncertain amount of remaining profit is transferred to the working partner.

To take another case, if the government allots plots of land to individuals with the object of providing accommodation for themselves the allotted will be violating the implicit terms of the agreement by converting it into a commercial or industrial site or by treating it as merchandise.

In case the government allots agricultural land to a farmer for the purpose of cultivation, the land will have to be used for the purpose for which it was allotted. This allotment will not confer absolute right authorizing the allottee to claim the royalty of sub-soil wealth if it has been found on exploration, nor will he be allowed to convert it into a forest or a commercial or residential area because these objectives are not covered under the terms of allotment. Authorizing the possession and use would not be stretched to imply a use which the owner does not intend to allow. Leaving land unused deprives the allottee his right over land.

2. Doubt and Certainty:

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The basic rule that resolves the conflict between doubt and certainty is contained in the principle:* “A belief amounting to conviction cannot be caused to disappear by a doubt”.

The rule is based on a Quranic verses: “Most of them follow naught but conjecture. Assuredly, conjecture can by no means take the place of truth” (10:37). The Prophet (peace by upon him) also rejected entertaining doubts in the face of valid abolution (wudu). The rule thus discards the effect of doubt that disturbs the original position. This provides guidance where discretion or personal judgement and subjective evidence are relied upon; the rule is of great significance in the event of controversy on rights and obligations of contending parties in the absence of a proof on either side. The benefit of doubt arising out of a controversial position can never go to a person on whom the onus of proof lies; thus the position of an indebted person even after his death will not be affected by doubt as to a probable discharge of debt.

Similarly a claim as to the discharge of a debt will not be rejected on the basis of presumption to the contrary. A contract between two parties will be treated as binding even though there may be reasons to doubt its Fait Du jour. The rule, if read with its following subrules, provides a broader canvas of its application.

(a) *“As to incorporeal matters that do not prove themselves, the basic principle (presumption) is that they do not exist”: so that if between the active partner and the financier there be a dispute as to profit, the word of the active partner will be taken, and the financier may lead evidence to prove the actual profit”

In case a firm declares a particular amount of income during the year this will have to be accepted by the Income Tax authorities in the absence of an evidence to the contrary. Thus doubts of the assessee’s statement cannot be unilaterally or arbitrarily sustained unless the income statement filed by the assessee is proved to be containing discrepancies. Business partners whether individual or banks will also be required to accept it for purpose of sharing the profit. The rejection of this declaration would require convincing proof.

In the case of a dispute over a defective merchandise the above sub-rule requires presumption of defect occurrence after sale unless the buyer could prove prior presence thereof.

Similarly, a partner has no right to assume a minimum rate of profit earned by his business partner and claim his share in that profit as different from the amount stated to have been actually earned by the partner. The sub-rule provides that in case the working partner declares a certain amount of profit no more will bpresumed unless the contrary is proved to be a fact

(b) The above sub-rule is further strengthened by another sub-rule that *“no reliance (should be made) on mere imagination”.

(c) **Another rule is that of “freedom from obligation: so that if one destroys the property of another, and they differ as to the extent of damage, the word of the person destroying may be taken, but the owner of the property may bring evidence to prove the excess.”

Thus in case of loss in business a partner cannot allege wilfuneglect and require the latter to indemnify him for the loss, unless he proves the contrary. Failing this proof the partner will not bpersonally made liable to the loss nor to indemnify the othe partner. Any doubt affecting his position of freedom from liabilitwill be untenable. No arbitrary judgement of the contender woul be acceptable.

3. Eliminating Detriment

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* “No wrong, no wrong-doing.”

This most important rule of the Sharia is based on a Hadith with similar wording. This guiding rule, read with its sub-rule, **”wrong is to be undone”, provides a guideline to regulate the entire economic and financial system in such a way that prohibits harm imposition and discourages retaliation. This basic rule is treated as a pillar of Islamic law. The rule forms the basis of the laws of option, inhibition, return of defective merchandise, pre-emption, requittal, Hudud, compensation and indemnity, etc. This also allows individuals to act unilaterally to protect themselves or others from harm. It is, therefore, necessary that an Islamic state should legislate and manage in such a way that would plug the sources of causing harm or damage. It is on this basis that the government has a right to blacklist those traders who indulge in illegal and anti-social activities such as smuggling and adulteration.

It can also take action against those influencial persons who provide support or give protection to unlawful practices or to miscreants.

It is on this basis that a landlord is not allowed to eject the tenant from the cropped land even on the expiry of the period of the contract of tenancy so that the cultivator is protected from the loss of his crop. The landlord is bound to extend the period of tenancy against payment of standard rent till the crop sown by the tenant is harvested.

In case the buyer of perishable goods absents himself without taking possession of the purchased goods the seller, in order to protect himself and the buyer from loss, has a right to unilaterally revoke the contract of sale and sell the goods to some other party lest the commodity should perish.

The application of the rule has the following prerequisites : )

(i) * “Let the ancient rest on its age.

Thus it is not permissible to close an age-old thoroughfare or to prevent the livestock from grazing in jungle or public pasture which has been in use since a long time. These rights have to be guaranteed unless their exercise is harmful to general interest. This is so because of the operation of another rule that

** “A wrong is a wrong even though it be ancient”.

Thus if an age-old canal is causing water logging and salinity it should not be allowed -to flow simply on account of previously held rights.

If a well has become dangerous to the neighbouring population it will be levelled up even if it is very old.. The government may ban cycle rickshaws in case it is found to
seriously impair the health of the rickshaw-pullers or in case it has become a nuisance to traffic. The government may also ban fishing on boats in high seas on account of high risk in case motor-operated boats are available. It can also order for shifting age-old noxious workshops and factories from congested areas. Thus ancientnesswould not be an excuse to continue a thing that has become hazardous.

(ii) *“Unlawful things are to be prevented irrespective of benefit”.

There may be situations in which an act might have certain benefits while it produces corruption and inequity. In such a case the Sharia would ban that act despite the benefits that it. might apparently yield.

Trading in unlawful items and earning with unlawful ways might provide employment to a large number of persons and bring substantial revenues to the government. Nonetheless the unlawful items in trading must be eliminated since the removal of comiption has priority over acquisition of benefits - economic, social or
otherwise.

Gambling or wager might be an effective source of collecting funds for philanthropic objectives; nevertheless, they have to be avoided since the acquisition of benefits is less important from the viewpoint of the Sharia than the avoidance of corruption.

There may be situations in which a trade, technique or a policy is not unlawful but involves both benefit and harm, such situations are governed by the following subsidiary rules:

(a) ‘injury is to be resisted to the extent possible.

This rule provides us with a guideline to adjust our policies in those situations which, although lawful, are fraught with risk and harm.

Automation would, in the short run, lead to unemployment. Industrialization may lead to pollution of atmosphere and overcrowding. Public expenditure on economic development may have an inflationary effect.

These risks or damages would not suggest that the efforts towards economic development should be discontinued. What the rule amounts to is that such effort should be continued with a serious effort to minimise the adverse effects as far as possible. The following further rules present the practical guidelines:

(b) **”A wrong is not avoided by another of the same kind”.

The law of sustenance binds a person to provide to kinsmen if they are struck by hunger and want. But enforcing this requirement on a pauper who possesses a single meal would merely transfer the harm from one person to another. This is repelling a harm with a similar harm and is not recommended.

In case a buyer gets a faulty article he is given the option to return the goods. But if the purchased article has developed similar fault while in possession of the purchaser he will lose his option to return the goods because, in order to protect himself from harm, he will also be harming the seller. This would amount to repelling a
harm by causing a similar harm.

The rule also lays down an important policy criterion for the government.

It is not lawful for any government to rob a person or a group in order to provide benefit to some other person or a group.

Thus it may not provide employment to some by denying it to others.

Likewise it may not irrigate some farms by drying up similar other farm.

In short, it is not allowed to use public property for the benefit of some at the cost of others’ benefit.

(c) * A greater injury may be avoided (enduring) a lesser injury.

The principle is that one may not ordinarily compel a well-to-do person in order to distribute his income among the have-nots.

But in situations where relatives are needy the government has a right to compel him under the law of sustenance to bear their expenses, as well, because the harm that is caused by the poverty of the poor relative is more serious than the harm caused by the
compulsory distribution of a portion of well-to-do’s wealth among his near relatives.

Similarly, the government may compel a resourceful debtor to redeem the debt on stipulated time.

The rule also provides some important choices in order to endure a minor harm to counteract a major harm. For example, in case a customer loses his coin in a slot, his coin may be allowed to go waste rather than to dismantle the machine which has much greater value than the coin. But in case a very expensive piece of jewellery is lost in a less expensive washing machine of a laundry its recovery, then, requires damage to the machine; the same will be effected to recover the piece of jewellery that is more expensive than the machine.

In all such cases where the choice is between two harmful alternatives the one fraught with less harm may be chosen.

(d) The rule in the case of conflict between a particular harm and a general harm is that *“To avoid public injury, a private injury may be suffered”.

The Sharia is inclined to allow free market operation and, under normal conditions, is disinclined to price-regulation. But in case traders manipulate the market and reap exorbitant profits in a manner that the interest of the consumers, i.e., the general public, is seriously jeopardised the government action is justified in regulating prices or profits to protect the interests of the consumers.

This is so because protecting public interests is more important than securing traders’ interests. By doing so the government will be preventing the general harm by tolerating a particular harm.

It is this rule of lesser evil that guides a choice among alternative uses of economic resources. The question of theory needs to be decided by competent experts who should be guided by objective rather than subjective factors in their judgement.

It is this rule which guides inquiry into population planning, nationalization, price control and rationing, ceiling on using land for fanning, interlocking of directors of business firms and a large number of similar economic issues and policies. In addition, there is another rule which contains the same spirit but is laid down in different words. It reads as * “The lesser of two evils is to be chosen”.

Thus fiscal and monetary restrictions on incomes and borrowing are undesirable, but inflationary pressure caused by monetary expansion is all the more undesirable.

Ordinarily, it is not justifiable for the government to compel someone to sell, but it is all the more unjustifiable for the seller to hoard foodgrain.

Price controls are generally undesirable but exploitation of the general public by making excessive profits on necessities like bread, milk, and medicines is much more undesirable.

In the Prophet’s (peace be upon him) time middlemen used to purchase articles from suppliers before they reach the towns-market. This had adversely influenced free market operation and proved to be detrimental to the interest of bonafide sellers and consumers. With a view to protecting the interest of both groups the holy Prophet (peace be upon him) is reported to have disallowed the middlemen to bargain with visiting village suppliers before they reached the market.

Thus the rule of choosing lesser evil gives the government wide powers to impose restrictions and controls on traders and members of other professions, and to regulate ownership and consumption.

In all the above cases the occurence of harm is real and calculable. There may be harm which has imaginary existence and has remote probability of occurrence. Such is not to be considered as a valid ground of policy choice as the rule is that there is * “no reliance on mere imagination”

Hence production of grape or barley may not be banned simply on the presumption that it may lead traders to manufacture wine or beer.

The sale of molasses may not be banned for fear of its misuse by some manufacturers.

4. THE RULES OF RELAXATION:

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The Quranic policy is:

Allah desireth for you ease; He desireth not hardship for you. (2:185)

We hath chosen you and hath not laid upon you in religion any hardship. (22:78)

The Prophet (peace be upon him) i s a l s o r e p o r t e d t o h a v e insisted on the same point on a number of occasions. This is one of the most misinterpreted and most misused rules for want of clarification. Hardship for physical persons as hinted in the Quran has been defined by jurists as a situation in which acting upon an injuction of the Sharia causes loss of life or limb or leads one to performance of a prohibited act. Islam insists that one should earn by lawful means alone and should only consume what is permissible. These restrictions may sometime lead a person to die of starvation for want of a lawful earning or availability of a permissible esculent. When a person is - placed in such dire circumstances the Islamic law permits the use of an unlawful item.

Muslims are prohibited from shedding the blood of their brethren. Thus if an aggressor on dar-al-Islam* deploys Muslim soldiers on the front line. Islamic law considers it permissible to disregard the presence of Muslims in the front line of the enemy in repelling the attack even though that would entail the killing of innocent Muslims which, as a rule, is absolutely prohibited. In both cases the primary objectiveof the Sharia is the protection of Muslims and the defence of dar-al-Islam. Thus theobstacle that confronts the achievement of this primary objective will have to be overcome by relaxing the two conditions.

There are cases in which the Quran and/or the Hadith have outlined the nature of hardship which forms the basis/cause of relief. In such cases no other hardship is taken into account for claiming similar or further relief. There are, however, situations where the Quran and the Hadith have not laid down the hardship which calls for relief or relaxation while acting upon some injunctions. It is here that experts of high calibre may determine whether this really deserves relief. An important point that needs to be emphasised here is that the object of providing relief in case of a hardship consists of facilitating a more efficient achievement of the objective of the Sharia. This provision of relief is motivated by the spirit of compliance rather than escapance.

Similarly, there are situations in which the Quran or the Hadith grant a relaxation in principle. In such cases the relief is restricted to those laid down in the text and only to that extent, but no further.

It is prohibited to sell the fruits on the tree before they come to maturity.

It is also prohibited to sell foodgrain for the same quantity and specie of foodgrain for delivery in future. Moreover, the quantity sold should be determinable and not conjectura1. The Hadith relaxes this principle to the extent of 5 wasqs in the case of date and grape for those cultivators who need them but they have to wait long for their own produce. Those cultivators are allowed to sell conjecturally a quantity of their expected fresh produce for a quantity of dry produce available promptly. The relaxation so granted cannot be further expanded in items, quantity or in situation.

Similarly a contract to sell a commodity which one does not possess at the time of making the sale contract is not lawful.
Bay’ Sa/am which technically means prompt payment for a commodity that the seller does not possess is permissible in the case of producers who need finance for inputs. If finance is not forthcoming at the time of sowing, production will cease which will
be harmful for the entire community. To ensure productive .activity is not hampered the cultivator is allowed to sell his expected produce against advance .payment. In this particular case, however, the Prophet (peace be upon him) made a relaxation in the law of sale of goods. Thus the relaxation in the principle of “sale before possession” will remain confined to Bay’ Sa/am only and cannot be used in other sale transactions.

In contracts of hire and commission one party agrees to pay for a benefit (hire) or a part of the proceeds (commission) which does not exist at the time of making the contract. In principle this absence of the consideration should have nullified the contract but it was the rule of universal need that such contracts were permitted.

While elaborating this application, early scholars have cited a number of examples applicable to economic life:

Hardship may be faced because of compulsion, distress and universal affliction (umum balwa), physical handicap, ignorance, forgetfulness, sickness and journey. The relaxations that are granted in many of these situations take a variety of forms, for example:

(a) Relaxation (Suqut). The Quran prescribes eight different heads of expenditure of Zakat proceeds (9:60). In view of practical difficulties that an Islamic state would face in allocating Zakat proceeds among all the heads together it has been made optional to set priorities and neglect some of the heads.

It is because of this factor or hardship that Hanafites absolve the sahib mal (owner of wealth) from paying Zakat if his Zakatable property is destroyed.

The doctors who are in favour of levying Zakat on all the items of land-produce exempt vegetable produce from the levy. The probable reason is the hardship in their prompt distribution among the beneficiaries in a wholesome condition because they are perishable and cannot generally be stored. Moreover, there is also hardship in managing daily collection of Zakat on a large number of items of vegetables which are picked up every day.

A contract of sale must precisely specify the quality and the nature of merchandise on sale; failing, the contract would be treated as void. Yet, there are certain commodities whose quality cannot be ensured without damaging them.
Pomegranate or uncooked egg, for example, cannot normally be sold without skin. Removing the skin would be a damaging exposure. It is in such cases that the rule of precisely defining the content of merchandise will be relaxed.

(b) Decrease (tanqis). The Quran ordains Muslims to fulfil their promises / contracts (5:1; 17:34; 23:8). This does not accept nullification even though the conditions laid down become impracticable or injurious to either or both the parties. It is in view of this hardship that a large number of commercial contracts have been made revokable (aqd qhayr lazim).

The rate of levy of Sadaqa on land produce is 10% (Ushr). In view of hardship that a farmer has to face in irrigating his land as compared with rain-irrigated lands, the Prophet (peace be upon him) has reduced the rate of levy on irrigated produce to 5%.

(c) Advancing (taqdim). Sadaqa or Zakat is due on the completion of a full year or on harvest. In case the government is in desperate need for Zakat funds it may
request the payer to pay the same in advance of its becoming due. Advance payment of price in the case of bay salam and bay istisna* are also examples with the object of meeting the need of the cultivator or craftsman.

(d) Postponement (Ta’khir). A debtor is morally bound to settle his debt on or before the stipulated date. Default in timely discharge is not only sinful but also exposes the debtor to legal action. But there may be situations in which he is unable to pay the loan. This will require for deferment to a future date lest he should commit a sin by refusing to pay the loan.

(e) Permission (tarkhis). The Quran prohibits consumption of wine, pork, and carrion. But in case water is not available one is allowed to use wine for swallowing down if he fears death from choke-throat. The reason is protection of one’s life from sure death.

Similarly a man who is dying of starvation for want of permissible food is permitted to use carrion or pork in a quantity required just to save his life.

It should be noted that permission to act on this basis is restricted by time and extent in the sense that this permission is purely temporary and the quantity consumed or act rendered should be the barest minimum sufficient to save one from death or irreparable damage. This qualification is applicable in the case of permission for all unlawful items and acts. The restriction is explained by the Quran in the following words:

“But he who is driven by necessity, neither craving nor transgressing, it is no sin for him. Lo; Allah is Forgiving, Merciful. (2: 173)”

It will be found from the above discussion that all these relaxations are amenable to the situation of necessity. But any necessity cannot qualify for relaxation. This requires defining the Sharia concept of necessity which plays a very important role in
elaborating the main rule. The concept not only forms the basis of many subsidiary rules but also lays down the limitations within which the main rule has to operate. The rule “necessities (ad-darurat) justify that which may be unlawful” is the most important principle that provides us with guideline to bypass the impasse in practising upon the principles of the Sharia. The scholars, while defining necessity, have distinguished between darura (compulsive necessity), and haja (need). For them darura is an indispensable necessity which, if not met, may cause severe hardship resulting in loss of life -- known or suspected. Haja on the other hand, is a need which when unsatisfied, does not cause hardship. It affects convenience and efficient performance of an act.*

In addition to the compulsive character of necessity jurists have laid down certain conditions which should be met before relaxation is sought. These conditions include:

(i) The necessity should be in esse but not speculative or imaginative.

(ii) No lawful alternative should be available to the suffering person than the one which calls for relaxation.

(iii) The solution should not infringe the inviolable rights of the people leading to homicide, apostasy, usurpation of property (ghasb) or indulgence in unlawful sex.

(iv) There should be a very strong justification such as the protection of life or limb, for relaxation to the extent of consuming an unlawful thing or performing an unlawful act. The relaxation is made only to the barest extent that may avert the threat to life or limb.

(v) In view of experts it should be a genuine solution and the only one available. For example, in the case of medical treatment, only an expert physician is competent to pronounce whether liquor alone is the available remedy for disease and that nothing else would be effective .

(vi) In addition to the above, a very important condition of permitting an act under constraint or compulsion is that

* “necessity does not destroy the right of others: for example one who is compelled to eat the food of another is still liable to pay the cost”

A government may compulsorily take over the property of other persons if it is necessary for achievement of important social and national objectives but it will be required to pay fair compensation.

It is under the above conditions that relaxation is allowed in the main principle. In case, however, the hardship is not so extreme as to endanger life o r l imb i t wi l l no l o nge r b e t e rme d darura. It may be termed as haja which, if faced casually or by individuals, will not justify any relaxation. However, if this haja has become general or universal and the entire society or a group of the society is confronted with hardship, this will call for relaxation. It is because of this consideration that the Prophet (peace be upon him) has allowed such as hire, bay salam and istisna even though they run counter to the rule of the sale of non existent commodity. The object of relaxation is to overcome the impediments in the smooth economic functioning of the society. Thus the relaxations that can be made for the society on the ground of general need cannot be allowed in the case of individual needs. As an example the general principle is that a person is allowed to use only what he owns.

In case the entire society is made to rigidly follow this principle economic activities would be confined to those actuated by purely selfish motives and would become altogether bereft of benevolence and mutual cooperation. No entrepreneur would like to offer his skill to the saver (mudaraba contract). No businessman would join the other to carry on joint business (shirka contract), nobody would borrow for his personal and business needs, nobody would sell on deferred delivery basis (bay salam) or take an advance for manufacturing an article (istisna) or rendering a service (ujra). An individual can do without all such contracts but if the entire society is made to refrain from such contracts it will drastically curtail production, consumption and investment and ultimately may ruin the economic structure of the Islamic state and might undermine the economic well-being of the people. The Sharia, in order to remove. such impediments, has legalized a number of contracts which are likely to expand the scope of economic activity and promote economic cooperation; Thus in certain cases, what is an ordinary need, haja, of the individuals becomes an indispensable need, darura, of the society.

Some scholars have classified the degrees of permission (tarkhis) taking into account the urgency of the situation and the benefit (maslaha) which the Sharia intends to achieve. According to them on some occasions the permission to do an unlawful act might become obligatory while at some other time it might only be recommended. While in some other situations it would simply be treated as optional. These three degrees can be made equally applicable to the individual acts as well as to government policies. Applying this classification to individuals it becomes obligatory if human life is at stake. For example, if a person is dying of choke-
throat but has nothing to swallow except with wine, he is obligated to use it and save his life.

The example of a recommended permission is transfer of the liability of debt (hawala) to a non-borrower. Optional permission lies in allowing the patient of scabies to wear silken attire which otherwise is prohibited for men.

A trustee of an orphan’s or an insane’s property, compelled by necessity, has the option to utilize the property to the extent of his service to the owner.

Relaxation in the case of society or government becomes obligatory when the community feels that it would suffer an irreparable loss. Payment of interest is not permissible for any Muslim including the Islamic State. But in case it is unable to make prompt payment for military hardware to prepare itself for the defence of dar-al-Islam it must make credit purchase even though the credit is available only at interest.

The same rule will apply in case the country is witnessing a famine and is threatened by the loss of a large number of lives. Ordinarily, the government is not allowed to compel traders to sell their goods or fix their prices. However, in the event of scarcity of bare necessities, their hoarding and mal distribution justifies the government intervention to control supply and price of the commodities concerned.

Relaxation becomes recommended when the original injunction implies some procedural difficulties. The element of gharar makes a contract/transaction void. But this does affect the enforceability of an unilateral offer of gratuitous payment. It would be advisable for government to announce the award of suitable prizes on good performance by its citizens.

As a general rule a trustee is not liable for the loss of trust property. But in the case of general misbehaviour of the trustee it may be recommended to make him liable for the loss of property inflicted on account of trustee's negligence.

Normally the government has no right to exact money from the people even though as a compulsory loan. But in order to relieve inflationary pressure and restrict the expansion of money it will be desirable to bind the wealthy individuals and financial institutions to compulsorily subscribe to contractionary loans/bonds floated by the government.

Wages are to be determined by contracts freely made between the concerned parties. But in case the government finds that one of the two contracting parties is, due to superior resources or bargaining power, inclined to exploit the other party by dictating unfair terms, it is desirable for it to fix minimum / normal wages.

Similarly, there may be situations in which it would be advisable for the government to freeze wages and salaries.

There are some situation in which relaxation is simply optional but not compulsory or desirable. It would be optional for the government, for instance, to fix prices of certain commodities and rents of some categories of premises at some places and to impose credit ceilings for financial institutions.

It may also fix the crops that should be grown in some regions and may put a ban on the manufacture of certain items provided that it finds those actions to be in the interest of some particular class or community rather than the community as a whole.

It should be noted carefully that there is a basic difference between the extent of relaxation on account of darura and on account of haja. Similarly, there is a difference between relaxation for individuals and for society. Hardship falling in the category of darura facing individuals involves loss of life or limb, and hence rightly calls for relaxation in basic principles of the Quran or Sunna. On the other hand, hardship faced by society which is not of the class of darura but is treated as haja is less severe and only affects smooth and efficient performance of social institutions. It does not claim relaxation in subsidiary rules that are based on analogical reasoning of the fuqaha. The former relaxation is purely temporary and ends with relief in hardship. The later relaxation continues for as long as it is found beneficial to the society.

While the rule* “necessities justify that which may be unlawful”

broadens the scope of activity there are counter-rules to prevent the misuse of the permissibility and relaxation. One such counter-rule, as laid down by some jurists, reads as ** ''permission when exceeds will be narrowed down".

This rule, though not discussed generally, has in fact been in practice since the earliest days of Islam* and provides us with significant policy guidelines.

According to most of the fuqaha an indebted person is exempt from Zakat on his non apparent wealth (mal batin) to the extent of his liability of debt. Presently this exemption could be misused by a large number of wealthy businessmen and industrialists. In Pakistan the use of the above quoted counter-rule led the Zakat and Ushr ordinance 1980 to discriminate between different categories of debt and narrowed down the legal exemption.

The holy Prophet (peace be upon him) permitted betting on horses with the object of encouraging horse rearing which was the most important riding animal during Jihad. As horses are of lesser importance in modem warfare, the entire sport of racing involving stakes needs to be reviewed in the light of the counter-rule.

Indiscriminate sale of birth control devices leading to their misuse also recommends for application of the counter-rule.

The use of platinum jewellery by men which is much more expensive than the prohibited gold jewellery and of much more expensive dress than silken which is not permitted for men need to be reviewed on the same ground.

Similar is the case of practising a large number of financing techniques adopted by contemporary interest-free banks.

Techniques of joint trading could be expanded into a number of interest-free modes of financing by banks. But in case these modes are made into a device for ensuring a fixed return, it will be necessary to impose restrictions to prevent their misuse.

The holy Prophet (peace be upon him) has allowed the right of tilling the unclaimed barren land to the one who reclaims it.
The point to see is if the general licence to occupy in this way would not be misused by the resourceful persons.

The situations where the relaxations of the Sharia seem to have been surpassed to an embarassing extent are many and varied and need to be carefully examined by the jurists. Should the customary withdrawal of a daughter from her right to inheritance in
landed property be taken on its face value?

Should an orphan be deprived of all rights in the inheritance of a grand-father?

Should mineral wealth hidden deep beneath the land be treated as a right of the person who possesses that land for cultivation?

Should state land be unconditionally leased out to individuals for very long periods?

Should all the revocable contracts and irrevocable ones be retained as they are treated fiqh literature?

Should “spoils of war” now left by vanquished enemy in the battle field be distributed among fighters?*

These and such issues need to be resolved in the light of the rule “'permission when exceeds will be narrowed down”. The second counter-rule to relaxation lies in the maxim.** “The extent of necessities limits action thereunder”.

This maxim aims at restricting the scope of relaxation only to the extent and nature of necessity. One is not allowed to extend this relaxation to cover situations that are not really necessary. In consumption, for example, as stated above a person may be allowed to save his life by eating an unclean stuff, but this permission is restricted to the extent of eating a quantity that may save him from death but not eating to his fill.

Everybody has a right to dispose of his property in any lawful manner he chooses. As a general principle he cannot be deprived of this right. But under the rule of necessity government may freeze or seize the properties of a defaulter who fails to discharge government claims or personal or institutional debts, in order to adjust the claims with the defaulter’s frozen accounts or seized properties. But the maxim that “the extent of necessities limits action thereunder” binds a government to attach only as much property as is sufficient to adjust the claims, not more than that. It will be offensive to deprive the defaulter of all his fixed and transportable property or to stop him from exercising his normal business operations that exceed the extent of claims.

Another counter-rule that prevents the misuse of the permissibility or relaxation provides that *”What is lawful for a reason becomes invalid when such reason disappears”

The maxim is equally applicable to individuals as to society and government. Individuals may, sometimes, be compelled to carry on their living through a job that is not religiously clean. When they get an opportunity to join a clean profession it will not remain permissible for them to continue their unclean job.

There was a time when, in some regions scrupulous lenders were not willing to advance loans to traders unless they had an axe to grind. It was on account of this excuse that “Ulama” in those regions legalised bay` bi’! wafa’ (buy-back arrangement) so that the traders had not to suffer due to lack of funds. The situation has now changed. The largest and the most organised source of finance are banks which mobilise and allocate most of national savings. Credit policy is controlled and monitored by central bank keeping in view the overall public interest. This has discarded the refusal of scrupulous money lender for not financing the needy producer or trader. The central bank may impose controls to ensure supply of funds to all the priority sectors or neglected sectors on terms and conditions that are in consonance with the Islamic principles of
finance, on the one hand, and attractive to both the parties on the other. Thus the legality of bay ‘bi’l-wafa will no longer remain permissible.

On higher level a government has the authority to levy tax for meeting budgetary requirements for public welfare projects only when it is short of public resources. In cases such as compensation for earthquake victims, the justification would cease after rehabilitation work is completed. Special purpose taxes thus need to be spent exclusively for those purposes. Any infringement would amount to a breach of trust.As soon as the purpose is achieved, the permissibility of the tax would cease.

5. GIVE AND TAKE

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The rule that governs giving and taking is governed by the principle: *“What is haram to take is haram to give”.
As a corollary of the above, another rule is that **“What is (52)haram to do is haram to demand”.

The rule alongwith its corollary is relevant not only for financial transactions like taking of interest, and illegal gratifications etc., but also for non-financial transactions like adopting professions that are rejected in the Sharia. The import of these rules is clear for individuals but requires some elaboration in regard to actions and policies of the government. It may be argued that the injunctions of the Sharia are addressed to individuals and have no effect on corporate bodies and government. Thus what is obligatory for the Muslim individuals is not binding on Muslim governments. For example, Muslims are required to offer prayers, pay Zakat and perform hajj but the government as such is not supposed to do nor can it do all that. Similarly it is the individuals who are required to refrain from engaging in interest but not the government or other legal persons. But the argument can be rejected on ground of the following Quranic verses:

Those who, if We give them power in the land, establish worship and pay Zakat and enjoin virtue (maruj) and forbid iniquity (munkar) (22:41).

All hath promised such of you as believe and do good works that He will surely make them to succeed (the present rulers) in the earth even as He caused those who were before them to succeed (others); and that He will surely establish for them their religion which He hath approved for them, and will give them, in exchange safety after fear. They serve Me. They ascribe nothing as partner unto Me. Those who disbelieve henceforth, they are the miscreants. Establish worship and pay Zakat and obey the messenger that haply ye may find mercy. (24:55, 56).

These verses not only point out the obligatory functions of an Islamic state but also emphasise the importance of making religious norms and values prevail in the human life. An Islamic government, for obvious reasons, may not be able to perform the
rites of worship. It is, however, under the obligation to establish institutions that are conducive to their performance by all those Muslims who are capable of so' doing. Moreover, its duty is to ensure that virtue, maruf is enjoined and vice, munkar is being forbidden (Q. 22:41). Hence the government may not legalize for itself an act which it prevents under its jurisdiction. This is what has been laid down in the above quoted rules. The Quran and the Hadith disapprove incomes arising out of interest, illegal gratification, or obscene professions, and of all those acts that are prohibited. As a consequence, it is obligatory for the Islamic state to ban the sources of such incomes. In case the government bans these incomes and professions for individuals, but exempts itself from doing so, the ultimate benefit and effect of the same will directly and indirectly pass on to those individuals because the government expends its incomes on their welfare. This will be in addition to creating the undesirable moral, spiritual and social effects that such practices are likely to bring about.

It needs to be pointed out that the above mentioned rules lay down the practical scope of the unlawful items and acts. In case of lawful acts, however, a distinction has to be made between the rights and powers of the government (Imam) and those of individuals. It is the prerogative of the Islamic government only to levy and collect taxes but not of individuals. The (Imam) alone can declare Jihad against an enemy but not an individual. Hudud can be enforced only by an Islamic government, not by individuals.

6. THE RULES ABOUT BENEFIT VERSUS LIABILITY:

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The relationship between the right to enjoy benefit from a property and the liability to incur loss due to proprietorship is governed by a number of rules that carry great significance in transactions of commercial nature. In cases where commercial nature is not involved the plain rule is that * “What is permissible in law cannot be a cause for liability”.

Thus if a person digs a well in his farm and somebody's animal falls in it and is drowned the owner of the well will not be liable to compensate for the loss because he is allowed to get a well dug at his farm.

Similarly it is presumed an Islamic government provides the best available transport facility to its citizens, to construct dams for irrigation and electricity, to devalue or revalue its currency in the national interest, and to carry on development projects for the benefit of its people. Now in case somebody is run over by a train due to his own fault or is killed in an air-crash, or is carried away alongwith his property by floods caused by breaches in the dam, the government will not be legally liable to compensate for the loss.

If a government expenditure on development creats inflationary pressures the government would not be bound to compensate the buyers for a fall in value of their money caused by this action.

Another rule dealing with non-commercial transactions is governed by the Prophet's (peace be upon him) saying that:

“There is no indemnity on usufructuary who does not breach (the terms) nor on depositary who does not breach (the terms)”.

Liability to indemnify the aggrieved party arises in a large number of non-commercial transactions like usurpation, slander, crime, found property, agency, marriage, sustenance, etc., under conditions of infringement of one's rights an~ negligence of duties and responsibilities. In cases, however, where commercial considerations are involved the rule provides that * “Damage and benefit go together. That is to say that a person who obtains the benefit of a thing, takes upon himself also the loss from it”.

This general rule is based on the Prophet’s (peace be upon him) saying:

“Al-kharaj bi’d-daman" (“Revenue goes with liability”).**

Another legal maxim that also has the same bearing is:

* “The blessings of a thing are in proportion to the evils thereof and vice versa”.

Thus when the thing used is destroyed while in the possession of the user compensation for use will be included in relation to its value; for example, if the buyer of an animal returns it because of a defect, after using it for a period, he is not liable to pay for the use of the animal, since if it had died before being returned, it would have died as his property. These rules imply that if the merchandise not yet possessed by the buyer is lost, it is the seller but not the buyer who would have to bear the loss because the former enjoys possession.

Or, in case the price of purchased goods still in possession of the seller increases, the increase will benefit the one who is deemed to be liable to suffer from an adverse fluctuation in price of the goods.

Contrarily, in a contract of Shirka a condition under which one party is entitled to a share in profit only while the other party is made liable to the entire loss alongwith his share in profit would contradict the above rule.**

Similarly renting out one's house on the condition that the tenant would be liable to the value of the house if the same is damaged due to flood or earthquake is also a contravention of the rule because the owner who is earning its rent should also bear the loss.

The depositary who is liable to return the deposit is entitled to take away the profit of the deposit if the same has been invested, even though the permission (express or implicit) has been given by the depositor.

But if the depositor lays down the condition of transfering profits to him he will have to bear the loss, when incurred, on these investments.

The depositor is liable to bear the expenditure of safe-keeping because it is he who benefits from this safety.

These rules are to be made applicable to all situations where an owner earns benefit from the property which he has transferred or intends to transfer fully or partially to others under a contract of sale, hire, lease, tenancy, agency, etc; or joins with another person with a view to earning through partnership (Shirka or Mudaraba) or sharecropping (Muzaraa). The rule guides us to decide whether all the partners in a partnership business will be similarly entitled to a return and liable to losses or a discrimination may be made 'between different partners on the basis of the time or amount of their deposits in assigning their shares in profit and loss? Can some share-holders be issued debentures or preference shares ensuring a fixed return while some others only ordinary shares whose owners are liable to bear the entire loss? Can an underwriter be treated differently in sharing the profit and loss in business? Which of the parties to a contract of leasing or hire purchase will be responsible for bearing the expenses of maintenance, repair and insurance? Can any set of terms and conditions of rent, hire or lease between a lessor and lessee be validly settled? To what extent a guarantee may be claimed from a partner, and against which kind of losses? The answers to these and similar questions should be judged on the basis of the criteria provided by the above mentioned rules.

7. PUBLIC WELFARE VIS-A-VIS THE DISCRETION OF THE GOVERNMENT

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Respect for ownership of property is a distinctive feature of the Islamic economic system. The objective of the Sharia seeks, interalia, to protect the earning and property (mal) of people. This objective can be achieved only when the legal system prevailing in a society prevents violation of the properties of people. The holy Prophet (peace be upon him) has emphasized this point on a number of occassions. He is reported to have said:

“It is not permissible for a man to take away the stick of his brother without the latter's Will”.

“The property of a Muslim person is not lawful (for anyone) except with his free Will”.

The spirit implicit in such traditions led to the formulation of the following rules in regard to the use of property by others. * “No one may dispose of the property of another, without the latter's permission”.

** “An order by one person to dispose of (Tasarruf) the property of another is null and void” .

Tasarruf (use or disposal) may be under or without a contract. Contractual tasarruf would imply that a person makes an agreement or authorizes someone to sell, gift, mortgage, hire, deposit or lend another's property without the owner's consent. Tasaruf or use without contract implies disposing of somebody's property without his permission. An agreement made to this effect is normally deemed to be legally ineffective while he who uses it without permission is liable to indemnify the owner. Absence of a licence, or permission to make such act renders it to be null and void. This right, however, does not deny the right of lawful claimants, where this provision is incorporated in the following rule:

* “No one may take the property of another, except for a lawful reason”.

The clause except for a lawful apparent reason makes this maxim applicable not only to authorization made by the owner but also to that laid down by law or reason. The authorization provided by law lies in levy or penalties by government which justifies the latter's claim on the owner's property or a part of it. This does not require the owner's wilful consent.

Reason sometime allows a -non-owner to dispose of the property of the owner to save him from loss or damage. The manager of a poultry farm, for instance, who is not authorized to sell the chicken, may dispose of the whole stock for fear of the owner's loss, let us say, due to the spread of an epidemic in case it is not possible to expediously obtain the permission of the owner for one reason or another within time. Fire fighters may drench, destroy or dismantle inflammable erections lying in the vicinity of a burning object, without seeking the permission of the owner.

The authority of disposal on legal or rational grounds is equally enjoyed by the government under a different rule which reads as follows:

* “Power in respect of the people's property must be exercised for the public benefit”.

The rule confers wide powers in the government to control. or regulate the acquisition and use of a private property by the owner subject to the following conditions:

(1) The action so taken by the government should aim at achieving public interest and general welfare; for the government officials are supposed to act on behalf of the entire ‘Umma for achieving public interest through maintaining justice, eliminating corruption in society and using all available resources for the sake of achieving what deems to be in the interest of the ‘Umma in the present and the future. Thus the action by the government officials should not be in conflict with these objectives.

(2) In case the government thus needs to acquire private property it should pay just compensation to the owner because of the rule already discussed above.

(3) According to some scholars the actions taken to achieve public interest should enjoy the support of the people.

The above conditions of the rule require that an Islamic government should clearly define the duration of ownership and the rights of disposal.

It should so legislate as to prevent others from misuse of public or private property. The administrative machinery should be competent to enforce the law in a just and honest manner. In case the government needs to acquire the property owned by some of its citizens it should publicize the contents of the property, the purpose of acquiring it and the rate of just compensation that it intends to pay. It should be ensured that the purpose for which the property is to be acquired enjoys the support of the people who can impartially judge the validity or otherwise of the purpose for which the government intends to take over somebody's property.

8. THE ROLE OF CUSTOM AND USAGE ‘URF AND ADA’

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The Holy Prophet (peace be upon him) is reported to have declared:

“If we appoint anybody on a job and pay him his subsistence and he then takes anything in addition to it, this isembezzlement”.

What constitutes the level of subsistence is a point that needs to be decided on the basis of custom and usage. Another Hadith that seems to be more specific than the above is reported by Abu Ubayd which is conveyed in the following words:

“Whosever gets an office in our administration he may marry if he is unmarried; he may get a house if he does not possess it; he may have a riding animal if he does not own any; he keep a servant if he does not have one. But if anybody hoards wealth and rears a flock of camels (with government funds) Allah shall make him rise up as theone who misappropriates or cheats us.”

It will be noticed that the Hadith does not provide for food, clothing, medical facility and education. The probable reasons seem to be that:

(i) Salary system as adopted later was not introduced by the Prophet (peace be upon him). Officials were often required to voluntarily perform government jobs. They were paid some sort of honorarium if the government had resources.

(ii) Education and medical facility had not yet been made available in an organized form nor was anything charged for it if it was provided in any form.

(iii) The two Hadiths can complement each other with the interpretation that the former Hadith provides for subsistence or for current or consumption expenditure while the latter Hadith lays down the extent of allowing for capital expenditure.

In all the above cases what comes out is that the nature of. payment depended upon custom and usage.

The most important jobs that could be assigned to an official were Jihad and collection of Zakat and Jizya which called for journey to remote places and hence the necessity of a personal riding animal and an attendant. This would not necessitate providing any such facility in the case of one who performs desk

work as is quite common these days. Thus in all such matters it is the custom and usage that has a bearing on interpreting the application of the principles of the Sharia. The rule is that * “Custom is a source of judicial decisions: custom whether general or private is to be taken as a judicial decision to establish a rule of law”.

But the conditions that qualify custom and usage to have a decisive force are:

(1) The custom and usage should not be in defiance of the injunctions of the Sharia. The practice of charging interest on loan has a universal usage, but it is prohibited and cannot be recognized.

The practice of share-cropping on the basis of fixed produce for the land-owner may be prevalent at many places but since it has been categorically prohibited by the Sharia, it cannot be cited as an evidence in support.

Raffle and prizes on Bonds involve qimar and interest and cannot be recognized.

The condition of non-refundment of earnest money in the event of repudiation of a contract or of the non-acceptance of a tender is against the spirit of the Sharia.

The practice of forcing a borrower to work at sub-standard wage by virtue of his indebtedness is also exploitative and hence prohibited.

Parents taking possession of dower money (mahr) of the daughter without passing it on to her which is still prevalent at quite a few places is also not acceptable according to the Sharia.

The practice of paying fixed amounts by way of bribe to officials are not permissible notwithstanding that custom and usage support them.

(2) * “The custom which is most widely prevalent and operative is to be relied upon”.

Foodgrain that was traded in the early Islamic period was measured in terms of mudd and sa’. But it is now universally weighed, but not measured. Thus all calculations whether for trading or for purposes of payment of ‘Ushr or Sadaqa or atonement (kaffara) will be made in terms of the prevalent units of weight.

Bimetallic standard has now been universally replaced by paper currency and should be validly subjected to all Sharia injunctions regarding receipt, payments, calculation of Zakat on wealth, repayment of loan, etc., in the same manner as when the bimetallic standard was prevalent.

It seldom happens that some parents present to their daughters returnable gifts. But the regular custom is to provide dowry for good. In case of any dispute on the point of ownership it is the , predominant custom that will be made a precedent.

Subject to the conditions laid down above the main rule “Custom is a source of judicial decisions" shall be made applicable. Thus ** "what is a matter of common practice has the same effect as an express condition.”

In case a person authorizes another to sell something on his behalf without laying down conditions as to sale price and unit of currency, the agent will be treated to be bound by conventional rules of charging a reasonable price and prevalent currency.

An attorney would be expected to rent his principal's house, machinery or workshop on the terms and conditions customarily prevalent in the market.

An owner can sell the fruits of his trees when they mature but cannot compel the purchaser to collect them before these are customarily usable.

(3) * “Credence is to be given to that which is publicly and generally operative, and not to what is rare (or little seen).

A contractor is expected to erect the premises of a standard which is customarily acceptable.

In none of the above cases the detail understood by common usage would need to be mentioned. Another rule supplementing the above lays down: * “Custom has force to make void a fact”.

It would be pertinent to clarify at this stage that general prevalence and universality do not necessarily involve the entire population, in regard to all the customs and usages. Different groups may have their customs and usages that unconcerned people are not supposed to know. For example, merchants may have their customs which all of them respect and follow. As a result ** “Matter of common practice amongst merchants has the same effect as express conditions between them.

This will not, however, bind non-merchants to follow the custom, nor allow them to make any claim on that ground.

Gestures, signals and code words in the stock exchange/commodity exchange may amount to a contract among brokers, but this may not be an effective mode of contract for others.

Sale by auction may have different techniques at different places, and those techniques might be given the force of law.

It is this rule that allows a government to take into account contemporary standards to determine the cost of living and subsistence level, to define the cost of production and to lay down exemption limit for taxation and fix salaries and wages.

9. PENALTY FOR EVASION

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The Rule that * “He who hastens an event in order to acquire a thing before its time will be punished by being denied that thing.
provides the government with wide powers to penalize evasions * * and circumventions through legal devices. Thus withdrawals of deposits to evade deduction of Zakat, transferring or gifting of property to the successors to escape land reforms, cordoning plots of land to qualify for grant of free/low priced land to the bonafide occupants and all such acts that are aimed at taking undue advantage of legal provisions and thus defeating the purpose of a law or an institution can be set aside by the government provided that the malafide of the person is proved.

10. LIMITATIONS

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(1) As to analogy

In the forgoing pages a number of instances have been adduced in order to show the practices and institutions which have been approved on account of necessity which otherwise could not be permissible under the ordinal)' rules of the Sharia. This explains the legality of mudaraba, muzaraa, bay salam, etc. Contracts like bay’ salam may be adduced by some to support the existing practices of mark-up or murabaha etc., in which the sale takes place without possessing the goods actually being transferred and without the seller even having the capacity to deliver the goods. The legal maxim that determines the Sharia position of such contracts is contained in the rule * “What is proved to be opposed to qiyas (analogy) cannot form the basis of further (81) qiyas.”
In other words if a contract / transaction is legalized in defiance of the basic principles of the Sharia the legality of such transaction / contract shall not be adduced by way of analogy in support of a similar other contract. The contracts like mudaraba, bay' salam etc., which cannot be otherwise justified on the basis of analogy were allowed by the Prophet (peace be upon him). The legality of these transactions is of an exceptional character and hence it may not be cited as an evidence for supporting any other contracts.

(2) As to tricky device (hila)

Concluding the above discussion it seems relevant to make a hint at the technique of adopting a tricky device, hila, to circumvent a prohibition. The early fuqaha’ ingeniously devised some techniques in case somebody got in trouble for want of a legal solution to his problem. Some unscrupulous persons at later times misused the technique to tread upon the prohibited path. When the financiers in some cities refuse to extend loans to traders, the fuqaha’ devised the technique of buy-back (bay’ bi’l-wafa’) which implied an incomplete sale transaction. The goods sold by the trader was treated as a mortgage with the purchaser and returnable after the price paid by the purchaser was returned to him. The transaction of a sale authorized the purchaser to benefit from the purchased goods which could not be permissible in the case of direct mortgage. In a lawful device, an indirect, and sometimes doubtful technique is adopted to achieve a lawful object. But if the object itself is unlawful the technique, even though legally permissible, would be condemned. Even in the case of lawful device and object the point that needs to be remembered is that such devices' are resorted to only for individuals in order to get out of an impasse and are confmed to a very short period. Thus hila cannot be adopted as bases for the policies of states, the Muslim societies, and social institutions and become a regular modus operandi on a permanent basis.

GUIDELINES FOR KEY ISSUES IN ISLAMIC ECONOMICS

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International Centre for Research in Islamic Economics King Abdulaziz University Jeddah, Saudi Arabia
1405 A.H, – 1985 A.D.

INTERNATIONAL CENTRE FOR RESEARCH IN ISLAMIC ECONOMICS

Research Series in English No. 21 (Discussion Paper)
All rights reserved.

contents

1. Introduction: Objectives and Assumptions
2. Islamic Socio-Economic Philosophy: An Overview
The integrated nature of Individual-Society-State
relationship in Islam
3. Islamic Key Thrust in Selected Micro Issues
- Private Ownership – Its principles
- Land as Factor of Production
- Labour as Factor of Production
- Capital as Factor of Production
- Consumption Behavior
- Distribution
- Market Mechanism and Islamic Policy Alternatives
- Industrial Relations
4. Islamic Key Thrust in Selected Macro Issues
- Money, Banking and Investment
- Fiscal Function and Policy: An Overview
- Monetary Policy: An Overview
- Economic Development
- Poverty
- Co-operative Insurance
5. Summary and Conclusion

1. INTRODUCTION: Objectives and Assumptions.

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The main objective of this paper is to highlight the Islamic synthesis of the predominant view in respect of some key issues in Islamic economics. It would be designed in a way so that some policy guidelines can be derived as well as conclusions drawn. This outline is expected to facilitate either further theoretical development of Islamic economics as a science or to provide a structure of analysis from which an operational policy package may be evolved.
This paper is written on the assumption that the reader has some elementary knowledge of economics as well as some knowledge of the Shari’ah (Islamic jurisprudence). As such, the relevant verses of the Our'an or Hadith have not been reproduced, although every effort is made to record faithfully the essence of the Shari'ah and its spirit to elucidate the Islamic position in respect of the issues involved. At this stage it is perhaps desirable to have an overview of Islamic socio-economic philosophy, so that an integrated view of Individual-Society-State relationship is properly understood.

2. ISLAMIC SOCIO-ECONOMIC PHILOSOPHY: An Overview.

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The integrated nature of Individual-Society-State relationship in Islam

A critique of Islamic thought patterns will reveal that different aspects of Islamic social framework have been united into one whole by their axiological, existential base – the principle of "Tawheed" (oneness of Allah) which owes its origin from the repeated Our'anic teaching of Oneness of Allah. Such unitary character is found in all dimensions of Muslim socio-structural order, system of knowledge and metaphysics. Islamic economic issues are simply a part of the integrated whole. Whatever may be the nature of investigations of the Our’an and the Sunnah, there is practically no differences of opinion as regards integrated overall-view of life and society. The social philosophy, owing to the unitary character of Islam, knows no distinction between a spiritual and a temporal realm nor between religious and secular activities in the society. The whole range of man - society and man - state relationship is to be understood against the background of this social philosophical thought of Islam.

Society or State in Islam is for the individual who is responsible for his actions and accountable to Allah for his conduct. It is evident that Allah could not possibly have made the individual accountable for his conduct if everything in his life was determined by the forces external to him. This notion of accountability gives him freedom to participate in the construction of the society in which he belongs as well as puts restriction on him not to degrade the society Islamically. In an Islamic state, the individual is seen as an integral part of his own family, his community, his State and the international community at large. Therefore, he has some economic and social responsibilities towards each of the components of his integrated life.

Now the question arises as to where individual freedom ends and social control begins. As a matter of fact this social control guarantees individual freedom as it enables the individual to perform his duties as prescribed by the Shari’ah. Therefore, freedom and control are not contradictory but complementary to each other, because it is control which protects the freedom and vice versa. It is the essence of Islamic concept of freedom and control. What is important then is to describe the operational limits of altruistic behaviour of individuals in a particular social and economic context. The social authority in the form of the State which is recognized by Islam for the prevention of exploitation and moral degeneration as well as for promotion of material and spiritual interest of man is to be understood from this angle of social vision.

Thus a purposive relationship based on good-will and co-operation is found in the Individual-Society-State relationship. It is the state which enforces the Islamic law and makes individuals fulfill their obligations towards society but it is the individuals who select their rulers to enforce the Shari’ah. The rulers cease to deserve obedience, should they transgress the Shari’ah. These checks and balances are found in all dimensions of Islamic social framework which can be expressed in terms of moral, social, economic and political dimensions.

In the moral sphere Islamic faith is essentially a unity. It is at once worship and work; secular conduct of life is not divorced from religious beliefs of Muslims. In social sphere its distinguishing feature lies in its complete human equality, just and coherent unity of existence and mutual responsibility of individuals and societies in Islamic scheme of things, nobody would be allowed to exploit the other; everybody should be given equal opportunity to go up the social ladder. This is operational not only through the institution of prayers in the mosques but also through acquisition of wealth and property.
The economic dimension is manifested through emphasis on the distributive justice and beneficent use of the “bounty” of Allah. According to the Qur’an, all resources of the universe belong to none but Allah. This concept of absolute ownership by Allah promotes redistribution of wealth among have-nots and also creates a non-capitalist
frame of mind. Individual ownership has been recognized to provide incentive to work but the state has even the right to deprive the ownership of property in extreme cases if it is remained unused or used against the interest of the community. Lastly, the political dimension of Islamic social framework can be expressed in terms of three fundamental conceptions: sovereignty of Allah, equality of mankind and the principle of co-existence.
The main conclusion which emerges from the preceding discussion is that the integrated model of Islamic social framework of which Islamic economics is a part, is among others, based on the following nine criteria:
(a) fair balance between worship and work;
(b) human equality;
(c) mutual responsibilities and co-operation in a society;
(d) distributive justice
(e) family, intra-family and collective obligations carrying individual responsibilities and accountability;
(f) balanced and beneficent use of the “bounty of Allah”;
(g) limited sovereignty of people in society;
(h) principle of co-existence and
(i) freedom of action and conscience.
These criteria on which Islamic social framework is based are coordinated and integrated so that they provide a positive motivation for economic activities, steered by the concept of fair balance between material and spiritual needs and between private and social needs.

3. ISLAMIC KEY THRUST IN SELECTED MICRO ISSUES

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Let us now take up a few Key micro-issues recognized in all economic system irrespective of their ideological bias in one way or other. The list of issues discussed in the succeeding paragraphs is in no way exhaustive, nor is it intended to be. Nevertheless they would provide a direction in understanding micro-economics of Islam.

A - Private Ownership – Its principles
B - Land as Factor of Production
C - Labour as Factor of Production
D - Capital as Factor of Production
E - Consumption Behavior
F – Distribution
G - Market Mechanism and Islamic Policy Alternatives
H - Industrial Relations

3(a) Private Ownership: Its Principles

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Islam recognizes private ownership of property. This ownership is relative, not absolute. For, the Qur’an categorically states that absolute ownership belongs to Allah alone. The state can intervene if individual misuses his ownership of property and causes harm to the society. This is a predominant Islamic position on the concept of private property in Islam. Although there is a consensus as regards the intervention of
Islamic state, opinions differ on the question of the extent of such intervention. There is in fact no hard and fast rule in this regard, although state intervention can be reduced to a bare minimum, when individual discharges his Islamic obligations voluntarily. In its final analysis, it depends on Islamically justified social awareness of the individual as well as the nature and the state of the economies and their concerned institutions.

However, from a careful study of the Shari’ah, it should be possible to derive at least the following eight rules governing private ownership of property:

1. Continuous use of property as non-use of property is not allowed having implications for land reform in many Muslim countries.

2. Payment of Zakah: Owner of the property must pay Zakah in proportion to property owned subject to the rules of the Shari’ah rules of the Shari’ah.

3. Beneficent use of property.

4. Use of property without causing any harm to others having implications for state intervention.
5. Lawful possession of property; acquisition of property through “halal” means.

6. Balanced use of property: use of property not in a prodigal or parsimonious way.

7. Use of property for the purpose of securing for himself due benefits; utilization of property for securing undue benefits in social, economic affairs to the neglect of the larger interest of the community is not permissible.

8. Rightful application of the law of inheritance, as the institutions of inheritance seeks to break up concentration of wealth and income that occurs through transfer of property in the secular economies.

The above mentioned basic rules governing the Islamic concept of private ownership have profound economic and social implications for contemporary Muslim societies particularly in countries where land tenure system is still linked to the colonial legacy. From the preceding discussion it is also evident that private ownership contains an element of public share. As such there is no pure form of private ownership as found under secular economies.

3(b) Land as a Factor of Production

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Islam has recognized land as a factor of production. In classical writings, land includes not only the surface of the earth but also all natural and mineral resources and other free gifts of nature. There is no evidence to prove that Islam does not approve this definition of land. But the way Islam looks upon land as a factor of production has its own distinctiveness which can be expressed in terms of productivity and distributive justice and inter-generational obligation. Thus the utilization and maintenance of land as a factor of production can be seen at least from three ways within the framework of an Islamic economic society:
(i) Land in the process of cultivation;
(ii) Land as natural resources; and
(iii) Land as exhaustible existence.

(i) Land in the process of cultivation.

Both the Qur’an and the Sunnah have laid down much emphasis on the proper cultivation of the land. The Qur’an has categorically drawn attention of Muslims to make use of the wasteland by turning it into garden by making appropriate arrangement for watering it and growing good crops. This emphasis on increased agricultural production is significant in case of many Muslim countries which are not yet self-sufficient in food production. This is also significant in case of those countries where most of the land belongs to non-cultivator owners or where the distribution of land is inequitable giving rise to emergence of a class of landless labour. Because the Prophet (be peace on him) tried to impress upon his followers to cultivate land by themselves. For, it is expected to ensure proper and efficient cultivation of land. Wastage of land in any form is condemned. But cultivation of land should not be the only occupation of the people in an Islamic State. The State can make rules to ensure that land as a factor of production is used in such a way that the objective of the balanced growth is achieved for the benefit of the community.

(ii) Land as Natural Resource.

A Muslim can acquire ownership of the natural resources after fulfilling his obligations towards his society. The use and maintenance of the natural resources can give rise two components of earnings. These are:
(a) earning from natural resources on its own right (i.e. pure economic rent) and
(b) earning from the improvement in the use of natural resources through human labour and capital; while the pure economic rent must be shared equally by all members of the community, one is entitled to proper compensation for human effort (i.e. wage and profit). It is therefore important to separate pure economic return from other factor compensation resulting from the use of natural resources.

(iii) Land as Exhaustible Resource.

It is an Islamic viewpoint that exhaustible resource belongs to the present as well as future generations. The present generation have no right to misuse the exhaustible resources now which may cause harm to the future generations.
From the above analysis, the following hypothesis or policy guidelines can be derived:
(a) The agricultural development in Muslim countries can be accelerated through intensive and extensive method of cultivation if it is supplemented by a program of moral education.
(b) The revenues generated from the use of exhaustible resources should be spent more on the development of social overhead (i.e. university, hospital) and physical infra-structure rather than current consumption.
(c) The pure economic rent may be spent more to meet current consumption expenditure.

3(c) Labour as a Factor of Production

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Labour as a factor of production is recognized in all economic systems irrespective of their ideological bias. Nevertheless the distinctive nature of this factor of production in Islam is due to the fact that labour, for that matter all factors of production, is not merely subject to a process of historical change as we find in the case of modern secular economics but also to a timeless moral and ethical framework under which all factors of production operate.
It is true that a modern worker has a property in his hand – labour which he is entitled to sell for as much as he can get, but in Islam he is not absolutely free to do what he wants to do with his own labour.
Normally he is not allowed to adopt the profession not permissible in the Shari’ah. Thus we see that in Islam, labor is used in a wider and restricted sense. It is wider, because it looks upon the labor services beyond pure monetary services; it is restricted because, he is not absolutely free whatever he wants to do with his own labour. Besides Islam provides a comprehensive moral code of conduct which is
expected to influence his work ethics. It is indeed a religious obligation that a labourer works sincerely and performs the task, assigned to him efficiently and honestly. This built-in psychological motivation can raise labor productivity and reduce labour alienation, if labourers are imbued with the Islamic values through appropriate training programs. This brings us to discussion on capital as a factor of production.

3(d) Capital as a Factor of Production

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The Islamic economic system must be free of interest. But capital is not costless in Islam despite the fact that interest is prohibited. The cost of capital can be expressed in terms of opportunity cost in an Islamic framework. Therefore, the rate of return in a particular economic enterprise can be used as one of the allocative devices for capital. Islam does recognize the share of capital – a share which is variable. Thus, it is because of the presence of the element of profit that capital can grow even in the interest-free economy of Islam. Various injunctions of the Qur’an go to prove that Islam can bring about a compromise between two opposites of capital creation: reduced current consumption and increased future consumption, thereby allowing capital to play its true role in the productive process as Islamic economy is essentially equity-based rather than loan-based. The ideal alternative to interest is profit and loss sharing. In Islam profit is distributed according to the condition agreed upon but the loss is to be borne by the financier.

3(e) Consumption Behaviour

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The Islamic injunctions on food and the order of priority in consumption should provide us some interesting insights to understand the nature of consumer’s behavior in Islam. In course of analyzing the consumer’s behavior one may take a narrow and static view by saying that consumer’s behavior in an Islamic society is to be guided strictly by the list of prohibited items (i.e. eating pork meat, drinking wine, wearing silken dress and gold ring for men, etc.). While the prohibited items have definite validity in the Shari’ah and Muslim consumers must not indulge in consumption of such prohibited items for social discipline, Islamic unity and spiritual significance, the author is however inclined to take a wider view of consumer’s behavior. To me, the key to its understanding lies not merely in prohibited items but in the concept of “moderation” in consumption guided by the altruistic behavior of Muslim consumer. What is needed then is to determine whether the current consumption level in a community is below or above the moderation level. In the context of present Muslim societies, it would be naive to assume that Islamic stress on moderation means lowering the level of already low level of consumption.
Consumption is essentially a positive concept in Islam. The prohibitions and injunctions concerning food and drinks should be seen as a part of the efforts to improve the quality of consumption behavior. By discouraging wasteful and unnecessary consumption expenditure, Islam stresses on the altruistic behavior on the part of the consumer. Moderation in consumption behavior comes then as a logical outcome of Islamic consumption style which is relative and dynamic in nature.

3(f) Distribution

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It is on the issue of distribution of national income that the widest controversy has been and is still going on between different sections of the people of democratic society. Since the economic welfare of the masses depends vitally upon the manner in which the total national income is distributed among the people, common sense suggests that the theory of distribution should deal with the problem of distribution of national income among different classes of people. In particular, it should be in a position to explain the phenomenon that a few are very rich, while the great many are poor. But the tradition among modern economists is to treat the distribution problem not as a problem of personal distribution but as a problem of functional distribution. “The modern economic theory of distribution is a theory of pricing of productive service. It seeks to find out the value of the service of different factors of production. In this respect, the distribution theory is but an extension of the general theory of pricing. The problem of personal distribution can, perhaps, best be solved as soon as we investigate into the problem of ownership of factors of production. The theory of factorial or functional distribution helps us to determine the prices of the services rendered by the different factors of production, such as land, labor, capital and organization”. But under a market economy a person may get rent. As a laborer, he may get wages. As a capitalist, he may earn interest. As an entrepreneur, he may also be the recipient of profit. In Islamic economics, we are concerned with both personal distribution as well as functional distribution.

On Functional Distribution

As regards functional distribution, Islam recognizes rent (i.e., earning of land), wages, (i.e., earning of labor), profit (i.e., earning of capital and entrepreneur). In the first instance, the payment of rent which generally refers to the conception of “surplus” earned by a particular unit of a factor of production in excess of the minimum amount necessary to keep that factor in its present occupation, does not seem to be inconsistent with the spirit of Islam. Secondly, wage differences resulting from differences in talents and capacities have been recognized by Islam. The fundamental conditions are that employers shall not exploit their laborers and must pay their “dues” and the workers shall not exploit their employers through trade unions and must do their job faithfully, sincerely and honestly. While there is a general consensus regarding the need to pay the workers’ “dues”, opinion differs as to whether this “dues” is to be determined according to his “marginal product”. Thirdly, the Islamic theory of capital does recognize the share of capital in national wealth only to the extent of its contribution, to be determined as a variable percentage of profits rather than the fixed percentage of capital itself which is interest. It is prohibited in an Islamic economy, because interest is responsible for the growth of Capitalism with all its attendant evils in society: it creates the problem of unemployment; it retards the process of recovery of depression; it aggravates the debt-servicing problem of the underdeveloped countries; finally, it uproots the basic principles of co-operation and mutual help and creates in man selfishness. The so-called allocative function claimed to be performed by interest rate in a market economy can be done by expected rate of return (i.e., derived from opportunity cost concept) in an Islamic economy. Fourthly, Islam has allowed normal profit – not monopoly profit or profit arising out of speculation which is not generally permissible in Islam.

On Personal Distribution

the Shari’ah provides a comprehensive framework for ensuring distributive justice including the impact of the prohibition of interest not only on productive loans but also on consumption loan. The main objectives of distributive measures are:
(a) to make provisioning for minimum level of living through fulfillment of basic needs, thereby reducing inequality;
(b) to foster social cohesion and co-operative spirit;
(c) to increase efficiency and producing positive climate for mutual help and involved participation.
It follows that in an Islamic economy, a given distribution of income and wealth will be acceptable only when the society is in a position of provide a guarantee of a minimum level of living to its each member as defined in accordance with the Shari’ah and socio-economic realities as well as there is a sustained effort to defuse the concentration of ownership of the means of production and wealth, thereby reducing both relative and absolute disparities of income and wealth.

Distributive Measures

A number of operational policy packages having far-reaching implications to reduce disparities of income and wealth may be evolved through the implementation of the Islamically justified obligatory and voluntary distributive measures which include:

1. payment of Zakah and Ushr;

2. prohibition of Riba on both consumption and productive loans;

3. entitlement of pure economic rent (i.e., income earned without any special effort by anyone) to all members of the community or to the state;

4. implementation of laws of inheritance to ensure equitable inter-generational transfer of property;

5. encouragement to give benevolent loan free of interest (i.e., Qared-Hasan) ;

6. discouragement to deplete exhaustible resources by the present generation to the disadvantage of all future generations;

7. encouragement to pay Sadaqah (charity) to the poor by those who have “surplus” funds beyond their needs);

8. encouragement to organise co-operative insurance;

9. encouragement to set up philanthropic trusts (i. e., Awqaf) in providing social goods, as well as private goods to deserving
individual;

10. encouragement to lend the productive asset without charge to those who are in need of it, the recipients are expected to return it to its original owners; after accomplishing the objective for which it was taken (i.e., Maa’un);

11. legal measures against the public treasury to enforce the guaranteed minimum level of living, once defined by an Islamic state in accordance with the Shari’ah as well as socio-economic realities;

12. provisioning of additional “taxes” beyond Zakah and Ushr (one tenth of the agricultural produce) by an Islamic state to ensure distributive justice.

3(g) Market Mechanism and Islamic Policy Alternatives

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The free-market mechanism is based on effective demand, making resources available to those who can buy them not necessarily to those who need them. As such in an Islamic economy, price offered by the market can not be accepted as a matter of rule. Competition as implicit in the market mechanism needs to be supplemented by conscious control, supervision and co-operation. This is where Islam enters. The key lies in mutual good-will and co-operation, while the market prices emerge from the wholly unsupervised interaction of competing buyers and sellers. Islamic equitable price need to emerge from the supervised competition, conscious control and co-operative interaction of the buyers and sellers. The drive to maximize profits as seen under the market economy is not merely an economic phenomenon: it is also the psychological as well as social phenomenon. It is the social mechanism and economic institution which create the necessary conditions to work in one way or another.

Three Policy Options

Now it can be said that an Islamic economy may face the following three policy options: (a) to eliminate the market mechanism and control price; (b) to allow the market mechanism to operate freely; make direct transfer payments to the poor so that they can enter into the market; and (c) to allow the market mechanism to operate through necessary control and corrective measures practically in providing basic needs to the community not necessarily in providing goods and services beyond the basic needs.
Option (a) is clearly not permissible in Islam, as it is against the principle of basic economic freedom of the individual which Islam seeks to preserve. The economic compulsion can be applied in an Islamic society only as a special case in order to strengthen the collective social and economic responsibility of the individual members.
Option (b) is also not acceptable to the author for several reasons: Firstly, it is based on the implicit assumption that the market mechanism will automatically ensure equitable re-distribution of goods and services through invisible forces of demand and supply. Here reality is far from this theoretical possibility. Secondly, the market is either inefficient, or ineffective or indifferent in providing all aspects of basic needs.

Lastly, there is no guarantee that transfer payments will be made available to the poor on a permanent basis. While the role of direct transfer payments can not be denied for the bottom 10 to 15 percent absolute poor or unemployables, the fact is that market can not always supply wage goods, particularly public services such as education, health care, safe water, sanitation etc. It is essential to expand and redistribute public services so that the poor have access to such services. A part of the income of the rich needs to be transferred to ensure this expanded and equitable redistribution of public services. “There is no rule for the optimum which says that any rich man is permitted to spend his productive income all for himself, or the other way round, a poor individual has only the right to spend as little as his or her low productive income permits”. In view of the above discussions the option (c) provides a pragmatic alternative to achieve the goals of an Islamic economy. In this connection must be noted here that Islamic markets should be free of unsocial monopolies, hoarding, and unlawful speculation and other anti-social business activities that do not fit into the Islamic code of business ethics. It is not out of place to throw some light on the behavior of a firm and its objectives in an Islamic economy.

The Behaviour of the Firm and its Objectives

The behavior of the firm is to be guided by the overriding concern for public interest as viewed by the principles of the Shari’ah. It is relative to social need. It is neither the profit-maximizing nor sales-maximizing behavior of the firm that matters most. What matters is the structure of the decision-making – institutional process that effects the substance of the decisions, so that different decisions will result from different kinds of organization, even if all else is unchanged. In such situations we may reasonably expect the firm’s goal to be not maximizing profits or sales but attaining a target level, or a rate of profit or a certain level of sales or a zero profit level (revenues equal to opportunity cost) or achieving an assigned social profit target. This means that the firm could come to rest in a large number of situations rather than in only one unique equilibrium situation. The main hypothesis is that in an Islamic economic analysis, equilibrium may not be unique. As such different theories may yield different predictions.

3(h) Industrial Relations

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The conflict between labour and capital is the go of the capitalistic world. The growth of workers’ and employers’ organisation during the last few decades has been accompanied by a distinct increase in the number and extent of strikes and lockouts. A lockout which is the employer’s answer to a strike is an act of closing a business enterprise by an employer for the purpose of enforcing a decision on the employees.
Islam does not recognise the exploitation of labour by capital, nor does it approve of the elimination of the business class and establishment of the classless society. Islam recognises the diversity of capacities and talents resulting in the diversity in earnings and material reward. It does not approve of a dead-level equality in the distribution of wealth as that would defeat the very purpose of diversity. Naturally, Islam recognises the existence of labour and capital in society. The two basic principles laid down in this connection, both in the Qur’an and the Hadith, are that the employee shall do his work faithfully and to the best of his ability and that the employer shall pay him fully for the service rendered. In fact, Islam brings about a happy marriage between labour and capital by giving the whole problem a moral bent.
It is clear that Islam has recognised the worker’s right to a fair wage. When the employer tries to exploit the labour, they may opt for collective bargaining to secure Islamically justified fair wage. For, labour, being perishable has a very weak bargaining power. Thus a trade union can correct the bargaining weakness of labourers, eliminate capitalistic exploitation and so enable labourers to raise their wages to the level of the full value of their marginal net product. In fact the state can intervene to protect the legitimate interests of both employee and employers while an Islamic state can declare an anti-social strike as unlawful, it can very well fix the minimum wage to protect the interest of the working class. It follows that in a properly run Islamic society, there is no need to have collective bargaining power to the labour, because institutional arrangements will generate forces, where an equitable and fair conditions of work tend to be established.
But how far should the right to strike and discharge be allowed to go? What degree of limitation would the state law exercise? It is an unanswerable question, as no satisfactory answer can be given in an absolute term. The whole problem depends on a number of variables such as existing level of concentration of industrial power, level and stage of labour movement, level of social inequality and income, level of Islamic awareness towards work ethics and so on.
It may however be repeated that if both workers and employers are imbued with the values of Islam, the whole question of strikes and lockouts would be relatively unimportant. But the fundamental problem is not how to prohibit or restrict strikes and lockouts but how to inject Islamic values into the existing framework of industrial development in Muslim countries.
The crucial policy implication is that Islamic business ethics should form an integral part of either general or specific training designed for workers. There is also a need for an Islamic orientation training programme for management.

4. ISLAMIC KEY THRUST IN SELECTED MACRO-ISSUES

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A - Money, Banking and Investment
B - Fiscal Function and Policy: An Overview
C - Monetary Policy: An Overview
D - Economic Development
E – Poverty
F - Co-operative Insurance

in details ..... continue reading

4(a) Money, Banking and Investment

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At this stage it is perhaps desirable to throw some lights on the concept of money, banking and investment in Islam.

Concept of Money and its Role

In Islam money is viewed as a medium of exchange, not a commodity. The widespread acceptance of this role of money is intended to eliminate possibilities of injustice, unfairness and exploitation under the barter economy. Since injustices under the barter economy can, among others, be classified as Riba-al-Fazal which is prohibited in Islam, the role of money as medium of exchange is justified. Therefore,
in Islam money does not in itself produce anything. As such interest (Riba) on money lending and borrowing is prohibited.
Once the role of money as a medium of exchange is recognised, money can play its role as a unit of account and as a store of value in an Islamic economy. It can very well serve as a measure of opportunity cost (i.e., foregone income).
At a theoretical level, abolition of interest and imposition of 2.5 percent annum Zakah levy on idle money are most likely to disco urge speculative motive for holding cash, thereby contributing stability in the value of money. This is not to suggest that stability of money depends only on abolition of interest and imposition of Zakah. It depends on other endogenous factors such as level of business activity, level of expected profit, commercial banks’ ability to respond to economic incentives as well as exogenous factors such as the control of the Central bank.
Nevertheless, absence of interest and presence of Zakah levy puts an Islamic economy in a better position to handle the problem of unfair speculation and hoarding of money, thereby enabling money to perform its other derivative functions in an easier way. This does not mean that Islamic economy does not need a sound monetary policy. Because there is still a controversy as to whether central banks should have the sole authority of money creation in an Islamic economy or whether the commercial banks should also be allowed to create money by credit.

Money as a Medium of Non-Exchange

In an Islamic economy money has a special social and religious role to play. Because, it provides the best measure for channelling purchasing power in the form of transfer payments to the poor. The trasfer payments has its special religious significance in an Islamic economic society. Because in Islam it is not merely a voluntary obligation on the part of the Muslims but also compulsory obligations particularly in respect of payment of Zakah by the rich to the poor. The religious significance of the role of money lies in the fact that it enables us to calculate Nisiib and to assess exactly the rates of Zakah. Under the money economy, it is relatively easy to assess one’s exact contribution in respect of one’s intra-family and community obligations particularly where there is no end-product available for bartering. The point is that a scale of Islamically justified way of channeling transfer payments can be laid down more effectively under the money economy.

Islamic Banking and Investment

As noted earlier, in Islam money does not in itself produce interest or profit and is not viewed as a commodity. Since riba (i.e., interest) is prohibited, the status of the Islamic bank in relation to its clients is that of partners, investors and traders whereas in commercial banks in the West, the relation is that of creditor or debtor.
In its actual operation Islamic banks use various techniques and methods of investments such as Mudarabah contract under which financiers provide capital and the Mudareb (labour partner) provides his technical know-how and skill and the profit is shared between the partners according to agreed percentage. Islamic banks are also involved in Murabaha (cost plus) contract under which banks purchase a certain commodity according to its clients’ specifications and gives delivery on the basis sharing agreed ratio of profit. Under Musharaka, both the banks and the clients enter into partnership by contributing capital in varying degrees and agree upon a ratio of profit in advance for a limited period of time gradually. The bank draws its contributions once the enterprise can stand on its own footing. Islamic banks are also involved in dealing with foreign exchange markets and other banking service operations such as letters of credit, and letters of guarantee. Islamic banks may also provide various non-banking services such as trust business, real estate and con-sultancy services.
It is to be noted here that Islamic financial market can provide a built-in-stabilizer to investment based on different types of financial instruments derived from Musharaka, Mudaraba and Murabaha concept. Besides, the cost of investment being the function of rate of return is likely to be less prone to speculative gains rather than capital gains.

4(b) Fiscal Functions and Policy: An Overview

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The way the fiscal policy is expected to perform the allocaiton, distribution and stabilization function in an Islamic state has its own distinctiveness arising out of value orientation, ethical and social dimensions in public income and expenditure. The fiscal policy in Islam ceases to be neutral; and is expected to explain the situation not merely as they are but as they ought to be. Thus in an Islamic state the process of allocating resource use between private and social goods, adjustment of the distribution of earning and redistribution of existing income and wealth and the use of budgetary policy as an instrument of price stability,high employment and growth must provide a clear manifestation of social and moral concern in addition to material upliftment. This value loaded Islamic bias based on the principles of benevolence and care for the have-nots should enable the Islamic state to solve the problem of co-ordination or conflict of fiscal functions in a relatively easy way, as in the real world setting, budget planning does not frequently permit evaluation of various objectives on their own merits resulting in multiple conflicts between allocation and distribution, growth and distribution, stabilization and allocation and so on.
This overriding Islamic humane bias in public finance, for that matter in other areas of economics, is derived from Zakah which contains an enormous potential for communal betterment in favour of the poor and disadvantaged members of the community. The Qur’an points out the items on which Zakah revenues can be spent. The Zakah which is to be collected only from the Muslims can be used for the welfare of the non-Muslims as well. But by payment of Zakah Muslims are performing their religious duties also. Thus Zakah levy has a double sanction - spiritual and temporal, not the double nature - religious and secular as wrongly maintained by some western scholars. This is true with regard to most of taxes of early Islamic state.
Inspite of the simplicity of the system, there were a number of taxes prevalent in the early Islamic state. Generally speaking, they are:
(a) Zakah,
(b) Jizia,
(c) Kharaj or land tax,
(d) Spoils of war,
(e) Taxes on mines and treasure trove,
(f) Custom duties and tolls.
It is possible to demonstrate that tax system of early Islamic state was elastic and dynamic in nature. For example, the categories of property to which Zakah is to be applied is not rigidly maintained even by Hadrat Umar himself who introduced a number of changes in the system of Zakah, because it is a means to an end, not an end in itself.

Basis of Budgeting

Again a careful study of the Shari’ah provides us some interesting clues as to what should be the basis of budgeting in Islam (i.e., revenue-vs-expenditure) .
In an Islamic state, the basis of budgeting is not merely the revenue which should determine the expenditure. It is the expenditure which should primarily serve as a basis for mobilisation of revenue. It stems from the Islamic requirement that a state should provide a basic minimum need to all its citizens. Therefore, if the Zakah revenue and contribution of the voluntary sector, recognised by Islam, are not sufficient to meet the basic provisioning for the poor, there is always a scope for additional taxation beyond Zakah provided they are spent in judicious manner. It is therefore implicit that a case of deficit financing can be made in an Islamic economy. This can be arranged through Mudaraba, Musharaka and Murabaha contract. Besides, Islamic government can also raise funds by issuing investment bonds and certificates to the public on the basis of profit-and-loss sharing. From the preceeding discussion, it is clear that an Islamic state should be able to use various fiscal instruments or policies designed to have an Islamic “Social Welfare Function” which describes society’s judgement on the question of weights to be given to the welfare of various individuals and groups (i.e., poor, aged, low-income group, minority).
Let us now have an overview of the monetary policy in an Islamic state on the assumption that fiscal and monetary measures can supplement each other, although they differ in their impact.

4(c) Monetary Policy: An Overview

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It is widely felt that in an Islamic economy monetary policy should pursue the goal of maintaining “stability in the value of money, economic well-being full employment and optimum economic growth and promotion of distributive justice”. It is thus widely believed that the central banking system in an Islamic state must control the supply of money and money supply be adjusted to the need of the economy in terms of both short term stability, long term growth and allocation of bank resources to help realise the goal of social welfare.
Thus despite the abolition of interest rate and non-availability of open market policy a number of monetary policy instruments such as cash reserve ratio, liquidity ratio, credit ceilings, “profit-sharing ratio” indifferent sector financing and moral suasion can be legitimately used in an Islamic economy as components of stabilisation, distribution and growth policy. Besides, due to its effects on international capital movements, monetary policy will have a special advantage in securing balance of payment equilibrium.
As regards power to create credit by commercial banks, there exist some controversies. But the predominant view is that commercial banks should have the power to create credit provided its benefit does not go only to big business firms controlled by a family or a group of inter-locking directorates of firms or banks to the neglect of the larger interest of the society. This has crucial policy implications particularly in the case of poor Muslim countries where conscious policy measures are to be taken by the central bank to bring about a more equitable distribution and allocation of the bank resources (in the form of rural credit) to help financing the agriculture sector, rural development, and agro based industries so that benefits go to rural areas, where bulk of the people live in most of the Muslim countries today.
As noted earlier, that Islamic economy, being essentially equity based rather than loan based, the ideal alternatives to interest are profit and loss sharing and Qard-Hasan in production and consumption areas respectively.

Policy Mix

An Islamic economy does provide a scope for securing a policy mix of monetary and fiscal policies which will permit to achieve more objectives than would be possible with the use of one policy instrument alone.

4(d) Economic Development

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The goals of Islamic concept of economic development can not be explained in terms of Gross National Product, and increase in per-capita income only. It must also be explained in terms of raising the absolute income levels of the poor to eradicate poverty, meeting material, non-material human needs, conservation of natural resources, wildlife and ecological environment. In addition, the goals of Islamic concept of development must be designed for the preservation of moral and spiritual values as reflected in the concept of tazkiyah (moral purification plus growth).
Despite the fact that the Islamic basis of development is multidimensional having its moral, social, political and economic dimensions, moral and spiritual development need to be integrated into the very concept of economic development right from the beginning. This is what is called Tazkiyah al-nafs.
Thus, economic development of Islam is not simply materialistic development. The spiritual and moral phases are assigned capital importance, and they were made explicit in takaful or tadamun, or mutual social security of Islam. Ideal pattern of Islamic belief contains enough motivational properties to work which can influence actual patterns of Muslim behaviour. It is possible to motivate economic achievement, thereby accelerating economic development through a systematic programme of moral educational training. In Islam “work” for the purpose of efficient utilisation of His resources is also a worship. Besides payment of Zakah, benevolent loan, voluntary and obligatory intra-family and intra community obligation carry the double notion of benefits; they do not merely bring material benefits to takers, but also give benefits to givers both morally and socially.

Let us now put forward some alternative strategies for development in an Islamic framework as hypothesis having clear Islamic dimensions.
1- Emphasizing people at a gross-root level and their Islamic values in a particular development context, thereby developing an appropriate model of development from within.
2- Emphasizing “basic need” rather than “effective demand” in development planning.
3- Emphasizing integrated rural development.
4- Emphasizing social appropriateness in technology.
5- Emphasizing education and schooling aiming at total human development.
6- Emphasizing mobilising resources through defining the scope for social help, individual freedom and group behaviour.
7- Emphasizing complementarities and substitutabilities in development for fostering co-operation among the Muslim countries.
8- Emphasizing conservation of humanity through fulfilling inter-generational obligation.
9- Emphasizing preservation of biological diversity and conservation of resources.

The alternative strategies discussed so far are by no means exhaustive. Economic development in Islamic framework has to be understood in its total relationship with social political, ethical variables. The difficulties often lie in lack of
(a) appropriate human attitudes, (b) inappropriate administrative and social institutions, (c) failure of bureaucracy to identify them with people, and (d) nepotism and corruption. Despite the fact that there are no fixed capital coefficients between resources spent and a desired change in human attitudes and individual motivation to work, scarce resources need to be allocated to carry out necessary social and institutional reform. In any given political structure, attempts to piecemeal reform may be self defeating. The system is likely to re-establish the initial distribution of power and wealth. It follows that each of the strategies as outlined must not be seen in isolation from one another. It is only through total relationship that full manifestation of Islamic concept of development should be possible. It is only then a deep structural reform will take its root.

4(e) Poverty

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Contrary to popular notion, human poverty in Islam is indeed concerned with both material as well as cultural and spiritual poverty. This dual notion of poverty has its roots in the Shair’ah. While it should be possible to identify a number of economic, social and moral value- oriented variables and indicators to assess the extent of poverty resulting from the de-Islamization process the current analysis is mainly confined to the discussion of material poverty and Islamic responses to it.
While it is difficult to quantify the level of extent of material poverty, it is possible to integrate “minimum subsistence”, “minimum adequacy” and “minimum comfort” into definitions of poverty. The Shari’ah requires that Islamic state must provide a guarantee of a minimum level of living to all. But it is conditional and relative. For, individual must first, try to earn his living through his efforts. Again, this guarantee is relative to socio-economic conditions of the society concerned. But when people are living at a subsistence or starvation level, it is important that we must attack absolute poverty rather than relative poverty as a matter of priority. Although the concept of human poverty involves considerable value-judgement particularly in construction of an index of relative deprivation or equivalence in consumption and income, it should be possible to identify the causes and to suggest remedies consistent with the spirit of the Shari’ah. In most cases poverty in Muslim countries arises due to colonial exploitation and legacy, implementation of inappropriate development policies resulting in economic and financial dualism, neglect of human resources, low labour productivity and so on.

Lastly, Islamic solutions to the problems of poverty may include
among other things, three basic lines of actions:
i. Initiating institutional and non-institutional reforms through legal and non-legal measures such as
(a) re-structuring the development policies geared to the need of the rural population,
(b) introducing necessary reform in land tenure
(c) progressive taxation to transfer funds for providing public goods such as education and training, health care and so on.
ii. Providing Guaranteed Minimum Provision (GMP) to all concerned, determined by the level and stage of social and economic development to meet the basic minimum needs rather than provision for a national minimum wage (NMW). Although a case can be made for NMW in an Islamic economy, it is only a partial solution to the problem of poverty as NMW concentrates its benefits upon those who remain in employment.
iii. Re-constructing and re-activating the conventional tools of redistribution such as (a) collection and disbursement of Zakah to achieve pre-planed objectives,
(b) redefining the scope and limits of intra-family obligatory allowances and obligatory social provision of certain goods and services in a particular social context,
(c) fuller implementation of Islamic laws of inheritance and so on.

Each of the above-mentioned lines of approach is rooted in the Shari’ah in one way or other. However, the question of minimum provisioning for living deserves a special treatment in view of its importance in the Shari’ah. Therefore, a brief explanatory note is needed.

Minimum Provisioning for Living: An explanatory note

While the Shari’ah stressed upon the individual to earn a livelihood, yet it is also recognised by the Qur’an and the Sunnah that a state of poverty and deprivation entitles one to community’s support, as guarantee of a minimum level of living is to be provided by an Islamic state. It is suggested by some scholars that an Islamic state must provide a constitutional guarantee for providing minimum provisioning for living so that court must have jurisdiction to take appropriate legal measures against the public treasury to enforce that minimum, if necessary. This is perhaps an ideal Islamic position.
But in the context of today’s reality, it is very difficult to give a categorical answer as to whether all Muslim countries (excepting a few oil rich countries in the Middle-East) are capable of giving a guarantee of a minimum provisioning for food, shelter, clothing, education and health care to their people. In the case of many least developed Muslim countries the minimum provisioning for the shelter alone can perhaps, eat up the budgetary resources leaving practically nothing for other items of the vital expenditure. The basic question which I am raising here is the following. When a state can not provide a guarantee of a minimum provisioning to its poor people as required by the Shari’ah, due to its resource constraints, it is perhaps in order to identify the order of priority in terms of minimum provisioning, thereby providing a guarantee for at least priority needs, although it may be a guarantee for sub-minimum provisioning. This is not to suggest that this second best solution should be a permanent feature in any Muslim society. Attempts should however,
be made to exploit the resources in such a way so that it becomes possi-ble to break the vicious circle of poverty. This is perhaps Islamically justified approach to the problem.

4(f) Co-operative Insurance

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There is a feeling that insurance is un-Islamic, because it is said that it is nothing but gambling or speculation. But there is a fundamental difference between gambling and insurance. While gambling promotes dissension and hatred and tends to deter those who indulge in it from remembrance of Allah, insurance is based on co-operation and the insured individual is enabled through mutual action to obviate poverty for himself and his dependents. There is nothing in Islam which prevents anyone from making provision for his dependents. In fact, through insurance, the society as a whole gets benefits out of accumulation of capital reserves.
The difference between modern insurance industry and Islamic insurance industry lies not only in its form but also in the nature of its handling the business. The present-day trend toward formation of cartel like associations of entrepreneurs in the field of insurance is the negation of Islamic values of life. We know that the modern insurance industry invest their funds in interest-bearing undertakings. But the Islamic
insurance companies will provide capital loans instead either directly on the basis of Mudarabah or in participation with Islamic banks and other specialised credit institutions.
Under Islamic scheme contributors to the insurance fund are donors, and their contributions are donations, with the aim being to share out the losses that befall on any of the contributors among them all. The compensation given is relevant to the loss incurred and not a fixed sum which is agreed between the insurer and the insured at the time when the contract is made.
Insurance schemes made by the government are also permissible since they are a kind of fulfilling the state’s duty to look after its citizens and alleviate the hardships that they encounter.
It is interesting to note that Islamic co-operative insurance has already been put into practice by the Faisal Islamic Bank of Sudan and Dar Al-Maal Al-Islami. Their initialsuccess are indeed encouraging and provides a scope for further expansion.

5. SUMMARY AND CONCLUSIONS

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Taken all in all, the following major conclusions emerge from the
preceding discussion on various key issues in Islamic economics.

(a) Islamic economic value is an integrated part of a social
framework which knows no distinction between a spiritual and a
material activity of man. Society or state in Islam is for the
individual who is accountable to Allah for his actions. It is the
state which enforces the Islamic laws and can make individuals
fulfill their obligations towards society. But the rulers cease to
deserve obedience, should they transgress the limits of Shari’ah.
These checks and balances are found in all dimensions of
Islamic social framework.

(b) It is a Muslim world-view that the concept of private ownership
of property is relative, as absolute ownership of everything belongs to Allah alone. So, the state can prevent individual from
misusing his ownership to the detriment of the society. There are
definitive rules of the Shari’ah governing private ownership of
property.

(c) Islam provides a comprehensive ethical framework under which
all factors of production must operate. While production is em-
phasized, distribution remains an integrated part of production
strategy right from the beginning. Thus, all members of the
community are entitled to pure economic rent. One must get
‘due’ compensation for one’s effort (i.e., fair wage and normal
profit). Islam also discourages misuse of resources to the
disadvantage of the future generation. Interest is prohibited,
because it helps growth of capitalism; creates unemployment
problem; retards the process of recovery during recession and
depression; introduces instability; aggravates debt servicing
problem and distributive justice and uproots the principles of co-
operation. The so-called allocative function claimed to be
performed by interest rate can be done by expected rate of return
in an Islamic economy. Capital is not costless in Islam.

(d) Consumption is a positive concept in Islam. The key to its
understanding lies in the concept of “moderation in
consumption” defined as such in a particular social and
economic context.

(e) Islamic economics is co-operative, competitive and controlled
all at the same time. The unique mix of such principles can
provide insights into the working of an Islamic market and a
firm which may be guided by multiplicity of objectives and
equilibrium of the firm may not be unique.

(f) Islam recognises the diversity of talents and capacities resulting
in the diversity of earning and material rewards. It is required that employee shall perform his work faithfully and the employer shall pay him fair wage.

(g) Islam views money as a medium of exchange not as a
commodity and the status of the Islamic bank in relation to its
clients is that of a partners, investors and traders. In its actual
operation Islamic banks use various techniques of investments
based on profit-and-loss sharing basis on the grounds of
stability, allocative efficiency, growth and distributive justice.
Islamic economy is essentially equity based. Cost of investment
being the function of the rate of return is likely to be less prone
to speculation.

(h) The value-loaded Islamic bias based on the principles of
benevolence and care for the have-nots should be manifested
through fiscal and monetary policy in an Islamic state. While
essential expenditure may primarily serve as a basis for
budgeting, a number of monetary policy instruments such as
cash reserve ratio, liquidity ratio, credit ceilings can be used to
perform stabilization, distribution and allocation functions.

(i) Lastly, Islamic concept of development is multi-dimensional
with a focus on development of man in its total relationship with
economic, social, moral, spiritual variables and physical natural
environment – both natural and institutional. Thus efforts must
be made to remove human poverty, as the Islamic state is to
provide a minimum level of living to all its members. Evidently,
co-operative insurance for making provision for one’s
dependents is permissible.