🌟 1.

Introduction & Theory of Islamic Economics

📘 Explanation:

Islamic Economics is the study of how to use resources (land, money, labor) according to
Islamic principles. Unlike Western economics, it doesn’t focus only on profit and
consumption, but also on morality, fairness, and accountability to Allah.

It answers:

“How should a Muslim earn, spend, save, and invest in a way that pleases Allah?”

Islamic Economics is based on:

 Tawheed (Oneness of Allah)

 Adl (Justice)
 Akhirah (Hereafter)

🧠 Daily Life Example:

 A shopkeeper avoids overcharging because he knows he will be

accountable in Akhirah.
 A farmer uses fair weights when selling wheat, even if no one is
watching.

🎯 Use:

 Creates a balanced society, prevents exploitation, and promotes

ethical behavior in business.

🌟 2. Economic Problem & Islamic View of Life

📘 Explanation:

In conventional economics, the economic problem is:

Unlimited wants, limited resources.

But in Islam:
  Wants are limited by moral values (a Muslim cannot desire haram
things).
 Resources are given by Allah as a trust (Amanah), and should be
used responsibly.

Islam discourages greed, extravagance, and wastage.

🧠 Daily Life Example:

 A rich Muslim may be able to buy 5 cars, but Islam teaches him to buy only what he
needs and give rest in charity (zakat or sadaqah).
 People often waste food at weddings. Islam teaches: "Do not waste, indeed Allah does
not like the wasters" (Qur’an 7:31).

🎯 Use:

 Helps reduce materialism, promotes moderation, and encourages

social justice.

🌟 3. Sources of Islamic Economics

📘 Explanation:

Islamic Economics is not man-made; it is based on divine sources:

1. Qur’an: Main source. Gives rules about riba, trade, charity, justice, etc.
Example: Riba (interest) is haram – Surah Al-Baqarah (2:275).
2. Hadith: Sayings and actions of Prophet Muhammad (‫)ﷺ‬.
Example: “The seller and the buyer have the right to cancel the deal as long as they have
not parted.”
3. Ijma’: Consensus of Islamic scholars.
4. Qiyas: Analogical reasoning (e.g., modern banking practices judged by analogy).

🧠 Daily Life Example:

 Riba-free Islamic banking was established using Qiyas and Ijma’ based
on Qur’an and Hadith.
 Modern insurance is replaced with Takaful because conventional
insurance involves gharar (uncertainty).
🎯 Use:

 These sources provide guidance in all financial matters: trade,

investment, contracts, banking.

🌟 4. Nature & Need of Islamic Economics

📘 Explanation:

Islamic economics is:

 Moral + Practical: It deals with earning and spending money with

ethical limits.
 It promotes:
o Justice
o Brotherhood
o Charity
o Risk-sharing instead of risk-transfer

Need arises because:

 Western capitalism causes inequality, poverty, and corruption.

 Islamic economics aims for social welfare, not just personal gain.

🧠 Daily Life Example:

 Zakat system supports poor families, widows, and orphans.

 Islamic microfinance provides small halal loans without interest to help
poor start businesses.

🎯 Use:

 Reduces poverty and economic injustice.

 Promotes circulation of wealth instead of hoarding.

🌟 5. Moral Values & Economic System of Islam

📘 Explanation:

Islamic economics is deeply linked to morality and ethics. Key values:

  Honesty in trade
 Justice in contracts
 No cheating, no bribery, no gambling (maysir)
 Fair wages and rights of workers

Economic activity must be halal (permissible), and intentions must be pure (niyyah for pleasing
Allah).

🧠 Daily Life Example:

 A Muslim employer pays workers on time with fair wages—this is a

Sunnah.
 A seller tells the customer if a product has a defect—this is honesty.

🎯 Use:

 Builds trust in the market.

 Encourages long-term social stability.

✅ Final Summary Table:

Topic Key Idea Example Daily Use

Intro & Islam + economics Shopkeeper avoids Promotes halal

Theory + ethics fraud business

Economic Encourages
Moral limits to wants Avoid food waste
Problem moderation

Qur’an, Hadith, Islamic finance,

Sources Riba is haram
Ijma’, Qiyas contracts

Nature & Ethical + just Zakat, interest-free

Reduces inequality
Need system loans

Builds trust in
Moral Values Honesty, no fraud Pay fair wages
society
🌟 Topic: Islam and Other Economic Systems

✅ 1. Economic System of Islam (‫)اسالمی اقتصادی نظام‬

📘 Definition:

An economic system in which the production, distribution, and consumption of goods and
services is done according to Shariah (Islamic law). It combines individual freedom with
moral control.

🔸 Subtopics & Explanation:

a) Ownership

 Islam allows private ownership, but with limits.

 Everything belongs to Allah; humans are trustees (khalifah).

Example: You can own land, but you cannot use it to harm society or avoid zakat.

b) Production & Trade

 Islam promotes halal production and lawful trade.

 Work is worship, and earning halal rizq is a duty.

Example: Selling halal food, using honest weights, avoiding fraud.

c) Wealth Distribution

 Zakat, sadaqah, inheritance laws, and prohibition of hoarding

ensure wealth is circulated.

Example: A rich person must give 2.5% of savings to the poor.

d) Prohibition

 Islam prohibits:
o Riba (interest)
o Gharar (uncertainty)
o Maysir (gambling)
o Monopoly (Ihtikar)
Example: Keeping goods to raise prices (hoarding) is a sin.

e) Moral & Social Responsibility

 Every action must aim at pleasing Allah, not just profit.

🧠 Real-life Application:

 Islamic banking
 Interest-free loans
 Zakat programs
 Ethical business codes

✅ 2. Capitalism (‫)سرمایہ داری نظام‬

📘 Definition:

An economic system based on:

 Private ownership of resources

 Freedom of profit-making
 Market-driven economy
 Minimal state interference

🔸 Subtopics & Explanation:

a) Main Features

 Freedom of choice
 Profit as the main motive
 Prices decided by demand and supply
 No moral or religious restrictions

b) Problems

 Inequality of wealth
 Exploitation of poor
 Greed and materialism
 Economic depression and inflation
Example: A factory may pay low wages to maximize profit—legally allowed in capitalism.

🧠 Real-life Example:

 USA, UK, and other Western countries

 Huge income gaps: Billionaires vs homeless people

✅ 3. Socialism (‫)اشتراکی نظام‬

📘 Definition:

An economic system where:

 Government owns all major resources

 Aims for equality and classless society
 Profit is not individual, but collective

🔸 Subtopics & Explanation:

a) Main Features

 No private ownership of industries

 Focus on equality, not freedom
 State controls prices, jobs, production
 No religion in economics (mostly atheistic base)

b) Problems

 Kills personal motivation

 Wastage of resources due to state inefficiency
 Absence of moral values
 Denial of private property (against human nature)

Example: In USSR, all factories and farms were owned by the government. Citizens had no
private rights.
🧠 Real-life Example:

 Former USSR, China (before economic reform)

 Failed due to lack of innovation and motivation

🔁 4. Comparison Table: Islamic Economics vs Capitalism

vs Socialism
Aspect Islamic System Capitalism Socialism

Limited Private + Full

Ownership Full Private
Social Government

Welfare +
Objective Profit Equality
Accountability

Interest (Riba) Prohibited Allowed Allowed

Wealth Through Zakat, No

Equal by force
Distribution Inheritance mechanism

Compulsory (from
Moral Values Ignored Ignored
Shariah)

Economic Yes, No, state

Yes, with Halal limits
Freedom unlimited control

🎯 Key Benefits of Islamic Economic System (as per Dar

A.H & M. Akram)
1. Balanced between rich and poor
2. Fair distribution of wealth
3. Encourages work + ethical behavior
4. Avoids exploitation and greed
5. Based on Divine Guidance, not man-made laws
✅ Final Summary in Simple Words:
System Main Focus Problem Islamic View

Capitalis Freedom &

Inequality Too materialistic
m Profit

Socialis Equality & Denial of private

No motivation
m State rights

Moral + Economic Best for human

Islamic Justice + Halal
Balance nature

📌 Real-Life Uses of Islamic System Today:

 Pakistan’s State Bank is trying to shift to Islamic Banking.
 Zakat departments collect and distribute funds annually.
 Halal food markets, Islamic insurance (Takaful), and interest-
free microfinance are growing in Muslim countries.

🟩 1. Islam & Consumption of Wealth

📘 Explanation:

Islam guides not just how we earn wealth, but also how we spend (consume) it.
Consumption in Islam is based on:

 Halal (permissible) spending

 Avoidance of Israaf (wastage)
 Moderation (‫)اعتدال‬
 Purposeful usage: for one’s needs, family, charity, and community

🔹 Key Principles:

 Wealth is a trust from Allah (Amanah)

  Accountability (Hisab) in Akhirah
 Encouragement of useful consumption and discouragement of
extravagance

🧠 Examples:

 Eating to stay healthy is halal; overeating or wasting food is israf

(haram).
 Buying a car for transport is good; buying 3 luxury cars to show off is
discouraged.

🟩 2. Theory of Consumer Behavior in an Islamic Society

📘 Explanation:

In Western economics, consumer behavior is based on:

 Utility maximization
 Self-interest

But in Islam, consumption is guided by:

 Taqwa (God-consciousness)
 Accountability
 Social responsibility

🔹 Key Concepts:

 Wants are limited by Shariah

 Ethical behavior matters more than desire
 Encouragement of contentment (Qana'at)

🧠 Examples:

 A Muslim avoids buying lottery tickets even if tempted, because

gambling is haram.
 Instead of wasting money on fashion brands, a believer donates to
orphans.
🟩 3. Islamic Approach to Production Purpose
📘 Explanation:

Production is not just to maximize profit, but to:

 Fulfill human needs

 Promote halal trade
 Ensure social welfare
 Obey Allah’s laws in the process

🔹 Main Objectives:

 Halal inputs
 No harm to environment or people
 Distribution of benefits
 Employment generation

🧠 Examples:

 A company producing halal food with fair wages to workers.

 A factory avoids producing alcohol even if it’s profitable.

🟩 4. Musharakah (Partnership)
📘 Explanation:

Musharakah means a partnership contract where:

 Two or more parties contribute capital

 Profit is shared according to agreement
 Loss is shared according to capital ratio

🔹 Features:

 Based on mutual consent

 Risk and reward both shared
 Encourages cooperation, not exploitation
🧠 Examples:

 Two brothers invest in a bakery business. One gives 60%, the other
40%. Profits are shared 50-50, but loss is 60-40 as per capital.

🟩 5. Mudarabah
📘 Explanation:

Mudarabah is a trust-based partnership:

 One party provides capital (Rabb-ul-Mal)

 The other party provides skills/management (Mudarib)
 Profit is shared as agreed
 Loss is borne only by capital provider (unless due to Mudarib’s
negligence)

🔹 Types:

 Restricted: Mudarib is limited in how/where to invest.

 Unrestricted: Mudarib has full freedom.

🧠 Examples:

 A businessman gives Rs. 1,00,000 to a trader. Trader invests it in a

halal clothing business. Profits 50-50. If there’s loss without cheating,
investor bears it.

🟩 6. Behavior of Firm under the Influence of Islamic Spirit

📘 Explanation:

In Islam, a firm (business) is not just profit-driven. It is influenced by:

 Amanah (trust)
 Adl (justice)
 Avoiding haram
 Honoring contracts
🔹 Islamic Responsibilities of Firms:

 Fair wages to employees

 No exploitation
 Truthful advertising
 Halal products and services

🧠 Examples:

 A company does not cheat on weights to increase profits.

 It refuses to open on Friday prayer time, showing commitment to
Islamic values.

🟩 7. Islam & Price Mechanism

📘 Explanation:

Islam recognizes the market mechanism (supply & demand), but with moral control.

🔹 Rules in Islamic Price System:

 No hoarding
 No artificial shortage
 No monopoly
 Honest competition

Islam allows prices to rise or fall naturally but prohibits manipulation.

🧠 Examples:

 Prophet Muhammad (‫ )ﷺ‬did not fix prices unless there was injustice.
 If a trader hides goods to raise prices, it is haram.

✅ Final Summary Table (From Dar A.H & M. Akram)

Topic Islamic Principle Practical Example

Avoid luxury to
Consumption Moderation, no waste
show-off

Consumer Ethical limits No gambling, no

 Topic Islamic Principle Practical Example

Behavior haram

Halal goods, social

Production Avoid toxic goods
benefit

Musharakah Shared capital + profit Joint bakery

Investor + trader
Mudarabah Capital + skills
deal

Firm Behavior Honesty, justice Fair wages, no fraud

Price No hoarding, fair

Market + ethics
Mechanism pricing

📘 Use for Exam Preparation:

 All these points are directly from Dar A.H & M. Akram’s latest
edition.
 Easy to memorize with examples and subheadings.
 Matches Punjab University Islamic Economics course outline.

🌟 Main Topic: Islam and Distribution of Wealth ( ‫اسالم میں‬

‫)دولت کی تقسیم‬
Islamic economic system strongly emphasizes just and fair distribution of wealth to prevent
inequality, poverty, and social unrest. Distribution in Islam includes:

 Earning wealth through halal means

 Spending wealth in fair, productive, and moral ways
 Ensuring that the poor and needy get their share
✅ 1. Circulation of Wealth (‫)دولت کی گردش‬
📘 Explanation:

 Islam discourages the concentration of wealth in the hands of a

few.
 Promotes continuous movement of money through trade, zakat,
charity, inheritance, spending on family, and society.

Qur'an (59:7): “So that wealth may not circulate only among the rich.”

🔹 Key Points:

 Circulation prevents hoarding (‫)کنجوسی‬

 Encourages zakat, sadaqah, and spending in the way of Allah
 Discourages saving money without use or investment

🧠 Example:

 A businessman pays his workers well, gives zakat, and reinvests his
profit — wealth circulates and benefits society.

✅ 2. Rent, Profit, Wages & Dignity of Labour

📘 Explanation:

Islam recognizes different forms of lawful earnings and gives dignity to all forms of work.

🔹 a) Rent (‫)کرایہ‬:

 Islam allows rent on assets (like house, tools, land), as long as there’s
no exploitation.
 Conditions must be clear, fair, and agreed.

Example: Renting a shop for a fair market rate, with mutual agreement.
🔹 b) Profit‫)م ن ا ف(ع‬:

 Islam encourages profit in halal trade.

 Profit must be earned through risk-taking and hard work, not interest
(riba).

Example: A merchant buys and sells goods at a margin—this profit is halal.

🔹 c) Wages (‫)اجرت‬:

 Islam orders fair and timely wages for workers.

 Prophet ‫ ﷺ‬said: “Pay the laborer his wages before his sweat dries.”
(Hadith)

Example: A tailor is paid justly after completing clothes—this is his right.

🔹 d) Dignity of Labour (‫)محنت کی عزت‬:

 All work (physical or intellectual) is respected in Islam.

 No work is low — only haram work is shameful.

Example: A sweeper or farmer is honored if working with honesty.

✅ 3. Measures to Stop Concentration of Wealth ( ‫دولت کی‬

‫)ارتکاز کی روک تھام‬
Islamic system uses legal and voluntary tools to:

 Prevent monopolies
 Ensure equitable wealth access
 Reduce extreme poverty and over-richness

🔹 a) Legal Measures
i) Zakat ( ‫)زکٰو ۃ‬:

 Compulsory charity (2.5% of wealth annually) for eligible Muslims.

  Distributes wealth to 8 categories (poor, needy, etc.)

Example: A rich man with Rs. 10 lakh pays Rs. 25,000 as zakat annually to help the poor.

ii) Inheritance Laws ( ‫)وراثت‬:

 Clearly defined shares for family members.

 Stops one person from hoarding all wealth.
 No “Will” can cancel Quranic shares.

Example: After a father’s death, property is divided among children, wife, and parents according
to Shariah law.

🔹 b) Optional Measures (‫)اختیاری اقدامات‬

i) Sadaqat ( ‫ & )صدقہ‬Alms:

 Voluntary charity at any time, in any amount.

 Brings barakah, reduces social gap.

Example: A person gives Rs. 1,000 every Friday to poor families in the mosque.

ii) Charity of Surplus ( ‫)اضافی دولت کی خیرات‬:

 Islam encourages rich people to give from extra (surplus) wealth for
social welfare.
 Builds love and care in society.

Example: A businessman builds a water filtration plant in a poor area.

iii) Auqaf ( ‫)وقف‬:

 Permanent donation of land, buildings, or wealth for religious/social

benefit (schools, hospitals, mosques).
 Cannot be sold or inherited.

Example: A family donates land for a madrasa – this becomes a waqf forever.
✅ Final Summary Table: Islamic Distribution of Wealth
Subtopic Islamic Concept Real-life Example

Businessman gives zakat, pays

Circulation Wealth should keep moving
wages

Allowed on assets, not

Rent Shop rental with agreement
exploitative

Profit Halal if from fair trade Buying/selling with honesty

Wages Fair, timely, no exploitation Tailor paid on time

Dignity of
Every job has respect Sweeper working honestly
Labour

Rich man donates to 8 needy

Zakat Compulsory, 2.5% charity
groups

Son, daughter, wife receive

Inheritance Legal division by Qur’an
shares

Sadaqat Voluntary charity Giving food/clothes to poor

Charity of
Sharing extra with society Building wells, hospitals
Surplus

Endowment of assets Donating land for

Auqaf
forever mosque/madrasa

🎯 Purpose and Wisdom Behind Islamic Distribution

System:
 To reduce economic inequality
 To support social justice
 To keep wealth in circulation
 To establish a balanced society
🟩 1. Prohibition of Interest (‫)سود کی ممانعت‬
📘 Definition of Riba (‫)ربا‬:

In Islam, Riba (interest/usury) is defined as:

“An excess or predetermined return on a loan or debt without any risk or effort.”

❌ Why Interest is Prohibited:

 It leads to exploitation of the poor.

 Wealth accumulates in the hands of lenders, not productive
workers.
 Creates injustice, greed, and social imbalance.

📖 Qur'anic References:

1. Surah Al-Baqarah (2:275):

“Those who devour interest will not stand except as stands one whom the Devil has driven to
madness by (his) touch... Allah has permitted trade and forbidden riba.”

2. Surah Al-Baqarah (2:278-279):

“O you who believe! Fear Allah and give up what remains of interest, if you are indeed
believers. And if you do not, then be warned of war from Allah and His Messenger.”

3. Surah Aal-e-Imran (3:130):

“Do not consume riba, doubled and multiplied, but fear Allah so that you may prosper.”

🧠 Real-Life Example:

 A poor man borrows Rs. 10,000 and pays back Rs. 15,000. That extra
Rs. 5,000 is riba – it’s haram even if done by mutual agreement.
🟩 2. Interest-Free Banking (‫)بال سود بینکاری‬
📘 What is it?

Interest-Free Banking means a system of banking where:

 No riba (interest) is charged or paid.

 All financial transactions are based on Shariah-compliant contracts.
 Banks earn profit through real trade, leasing, and investment, not
lending on interest.

🔹 Key Features:

 Assets-based financing (not money-to-money)

 Partnership and risk-sharing
 Avoidance of gharar (uncertainty) and maysir (gambling)

🧠 Example:

 Instead of giving a car loan with interest, an Islamic bank buys the
car and sells it to the client on installments with agreed profit
(Murabaha).

🟩 3. Model of Interest-Free Banking (‫)اسالمی بینکاری کا ماڈل‬

📘 Islamic Banking works through:

 Partnership (Musharakah, Mudarabah)

 Trade (Murabaha, Bai’ Mu’ajjal, Salam)
 Leasing (Ijara)

🔹 Institutional Model includes:

1. Current Accounts – Deposits kept as trust (no interest given).

2. Savings/Investment Accounts – Based on Mudarabah; profits
shared.
3. Financing Products – Instead of lending money, banks sell goods,
rent assets, or partner in businesses.
🧠 Real-life Examples:

 Meezan Bank, Al Baraka Bank (Pakistan): Offer home financing, car

leasing, agriculture loans using Islamic modes.

🟩 4. Islamic Modes of Financing ( ‫)اسالمیمالیاتی طریق‬

Islam replaces interest-based financing with Shariah-compliant contracts. These are:

🔸 1. Bai’ Salam‫ – )بی ع س ل( م‬Advance Payment Sale

 Buyer pays full amount in advance

 Seller delivers goods at a later date
 Used in agriculture and industry

Example: A bank pays a farmer Rs. 1,00,000 in March to deliver 100 sacks of wheat in June.

🔸 2. Bai’ Murabaha (‫ – )بیع مرابحہ‬Cost-Plus Sale

 Bank buys goods and sells to customer at a profit

 Profit is pre-agreed and transparent
 Most commonly used in Islamic banking

Example: A bank buys a car for Rs. 1,000,000 and sells it to client for Rs. 1,200,000 in monthly
installments.

🔸 3. Bai’ Mu’ajjal (‫ – )بیع مؤجل‬Deferred Payment Sale

 Goods are sold with delayed payment, either lump sum or

installments
 No extra charge for late payment

Example: Bank sells equipment worth Rs. 5,00,000 to be paid in 12 months.

🔸 4. Ijara (‫ – )اجارہ‬Leasing

 Bank leases an asset (e.g., house, car) to client

 Ownership remains with bank; rent is charged
 At end, asset can be transferred to client

Example: Islamic car leasing – client pays monthly rent and owns the car at end of contract.

🔸 5. Mudarabah (‫ – )مضاربہ‬Capital + Management Partnership

 One party gives capital, other gives expertise

 Profit shared as agreed
 Loss borne by investor unless due to negligence

🔸 6. Musharakah‫کت‬
( ‫ – )ش ر ا‬Joint Partnership

 All partners invest capital

 Profit shared as agreed
 Loss shared in proportion to investment

✅ Final Summary Table:

Topic Islamic Teaching Example

Loan with 10% extra return is

Riba (Interest) Prohibited in all forms
haram

Interest-Free Based on trade, not Bank sells you a car with profit
Banking interest instead of loan

Advance payment
Bai’ Salam Pay now, receive wheat later
sale

Murabaha Cost + profit sale Buy goods via bank

Mu’ajjal Deferred payment Buy now, pay later in halal way

Ijara Leasing Rent a car/house from bank

Mudarabah Capital + skill Investor + trader partnership

 Topic Islamic Teaching Example

Musharakah Shared capital & risk Joint business

📖 Islamic Wisdom Behind Prohibition of Riba:

 Prevents exploitation
 Promotes productive investment
 Encourages risk-sharing
 Creates a just and balanced society

🧠 Real-Life Use Today:

 Islamic banks now provide:
o Home finance via Ijara or Diminishing Musharakah
o Business loans via Mudarabah
o Auto finance via Murabaha
o Agricultural support via Bai’ Salam

🟩 1. Islamic State & Its Fiscal Policy (‫)اسالمی ریاست اور مالیاتی پالیسی‬

📘 Explanation:

In Islam, a fiscal policy is a system of managing:

Public revenue (income of the state)

Public expenditure (spending for society)

The Islamic state’s fiscal policy must ensure:

Justice (‫)عدل‬

Elimination of poverty

Social welfare

Collection of halal revenue only

No interest, corruption, or oppression

🕌 Prophet Muhammad (‫’)ﷺ‬s Time:

Revenue sources: Zakat, Ushr, Khums, Jizya, Fay’, Kharaj

Spending: poor, widows, education, defense, public works

📖 Qur’an Reference:

 Surah Al-Tawbah (9:60)

“Zakat is for the poor and the needy, and those employed to administer it…”

This shows Islam’s focus on redistribution and fairness.

🟩 2. Instruments of Fiscal Policy in Islam ( ‫)اسالممیںمالیاتیپالیسی ک ذرائع‬

📘 Explanation:

Islamic fiscal tools are designed to:

Collect revenue from halal sources

Avoid excessive taxation

Spend for social welfare

🔹 Main Instruments:

1. Zakat – 2.5% on savings, gold, silver, business goods

2. Ushr – 10% on irrigated crops, 5% on naturally watered crops

3. Kharaj – Land tax on conquered lands

4. Jizya – Tax on non-Muslims under Islamic state protection

5. Fay’ – Wealth captured without war

 6. Custom duties (if approved by Shariah) – Limited and fair

📖 Qur’an Reference:

 Surah Al-Hashr (59:7)

“…So that wealth may not circulate only among the rich among you.”

🟩 3. Bait-ul-Mal (‫ – )بیت المال‬Public Treasury

📘 Explanation:

Bait-ul-Mal is the central fund or state treasury of an Islamic state.

🔹 Sources of Income:
Zakat, Ushr, Khums

Taxes (if required by Shariah)

Natural resources

Gifts, fines

🔹 Expenditure Areas:

Poor, widows, orphans

Public projects (roads, schools, hospitals)

Salaries of government workers

Defense and security

🧠 Example:
During Hazrat Umar (RA)’s time, Bait-ul-Mal paid stipends to the elderly and children.

📖 Qur’an Reference:

 Surah Al-Hashr (59:7) – “…Whatever the Messenger gives you, take it. And
whatever he forbids you, leave it…”

This verse forms basis for state-controlled income and expense.

🟩 4. Theory of Taxation in Islam ( ‫ر‬

‫)اسالممیںٹیکسکا نظی‬

📘 Explanation:

Zakat is the basic tax in Islam.

Additional taxes are allowed only in public need and must:

Be fair

Avoid burdening the poor

Not contradict Shariah

🔹 Principles:

Tax is not punishment but duty

No exploitation

Rich contribute more

🧠 Example:
Islamic state may collect temporary tax in time of emergency or war, but must abolish it when no
longer needed.

📖 Qur’an Reference:

 Surah Al-Tawbah (9:103)

“Take alms from their wealth to purify and sanctify them…”

🟩 5. Public Expenditures in Islamic Economy (‫)اسالمی معیشت میں سرکاری اخراجات‬

📘 Explanation:

Government expenditure must be:

Halal

Purposeful
For the benefit of society

🔹 Main Areas of Expenditure:

Poverty reduction (food, shelter)

Infrastructure (roads, water, electricity)

Education and religious learning

Health facilities

Security and defense

Administration and governance

📖 Qur’an Reference:

 Surah Al-Baqarah (2:261)

“The example of those who spend their wealth in the way of Allah is like a seed of grain which
grows seven ears…”

🟩 6. Zakat & Ushr Ordinance ( ‫)زکٰو وعشرآرڈیننس‬

📘 Explanation:

These are legal implementations in modern Islamic states for collecting and distributing zakat
and ushr.

🔹 Zakat Ordinance (Pakistan – 1980):

Zakat collected from bank accounts above nisab

Distributed through Zakat Councils

Beneficiaries: poor, widows, students, hospitals

🔹 Ushr Ordinance:

Collected on agricultural produce

5% or 10% depending on water source

Given to Bait-ul-Mal or local deserving people

📖 Qur’an Reference:

 Surah Al-An’am (6:141)

“Give its due (zakat/ushr) on the day of harvest…”

✅ Final Summary Table

Topic Main Idea Qur’anic Reference

Fiscal Policy Revenue & Spending must follow Shariah Al-Tawbah 9:60

Instruments Zakat, Ushr, Kharaj, etc. Al-Hashr 59:7

Bait-ul-Mal Public treasury for welfare Al-Hashr 59:7

Taxation Theory Only halal, fair taxes Al-Tawbah 9:103

Public Expenditure Spend for justice, needs Al-Baqarah 2:261

Zakat & Ushr Legal tools for redistribution Al-An’am 6:141

✅ 1. Economic Implication of Zakat ( ‫)زک ٰوۃ کے معاشی اثرات‬

📘 Explanation:

Zakat is a mandatory financial obligation in Islam, and a core tool for economic balance. It is
not just spiritual—it has strong economic consequences.

🔹 Key Economic Impacts:

 Reduces Poverty – transfers wealth from rich to poor

 Increases Consumption – poor spend zakat on basic needs
 Promotes Investment – discourages idle hoarding of wealth
  Circulation of Wealth – avoids concentration in few hands
 Social Stability – reduces class conflict

🧠 Example:

A businessman gives Rs. 100,000 in zakat. 20 families use it for food, small business, and
education. Consumption increases → production increases → economy grows.

📖 Qur’an Reference:

Surah Al-Tawbah (9:60):

“Zakat is only for the poor and the needy... and those in debt...”

📜 Hadith Reference:

Sahih Muslim:
“Protect your wealth by paying zakat...”

✅ 2. Islamic Inheritance Law and Its Economic Implications ( ‫اسلامی‬

‫)وراثت کا معاشی تجزیہ‬
📘 Explanation:

Inheritance laws in Islam ensure fair, automatic wealth redistribution upon death. No one can
block others' share (like daughters, widows).

🔹 Economic Implications:

 Prevents wealth hoarding within a single family

 Distributes assets across multiple households
 Reduces inequality across gender and generations
 Supports economic activity when heirs use inherited property

🧠 Example:

A man dies with property worth Rs. 1 crore. It is divided among wife, sons, and daughters.
Wealth spreads instead of concentrating.
 📖 Qur’an Reference:

Surah An-Nisa (4:7):

“For men is a share of what parents and close relatives leave, and for women is a share...”

Surah An-Nisa (4:11):

“Allah commands you concerning your children: to the male, a portion equal to that of two
females...”

📜 Hadith Reference:

“Give the Faraid (fixed shares) to those entitled to them...” (Sahih al-Bukhari)

✅ 3. Theory of Taxation in Islam – Ibn Khaldun's View‫نظری’ٔہ‬

( ‫ابن خلدون کا‬
‫)ٹیکس‬
📘 Explanation:

Ibn Khaldun (14th-century scholar) gave one of the earliest theories of progressive taxation and
economic behavior.

🔹 Main Ideas:

 Excessive taxation reduces total tax revenue

 Lower tax rates encourage economic activity
 Taxes should be:
o Just
o Predictable
o Economically neutral
 Public expenditure must increase productivity

📖 Islamic Basis:

Surah Al-Baqarah (2:286):

“Allah does not burden a soul beyond its capacity.”
This justifies reasonable taxation, not burdensome.

🧠 Modern Relevance:

Pakistan’s informal economy avoids heavy taxes. A fair and Islamic taxation model based on Ibn
Khaldun can widen the tax net.

✅ 4. Takaful and Islamic Insurance in Pakistan ( ‫ اسلامی انشورنس‬:‫)تکافل‬

📘 Explanation:

Takaful is an Islamic alternative to insurance, based on:

 Mutual cooperation
 Risk-sharing
 Donation (Tabarru')

🔹 Types of Takaful:

 Family Takaful – Like life insurance

 General Takaful – Property, vehicle, health

🔹 Key Features:

 No riba (interest)
 No gharar (uncertainty)
 No maysir (gambling)
 Surplus is returned to participants

📖 Qur’an Reference:

Surah Al-Ma’idah (5:2):

“Help one another in righteousness and piety...”

📜 Hadith Reference:

“The Muslims are bound by their conditions.” (Abu Dawud)

🧠 Current Practice in Pakistan:

 Pak-Qatar Takaful, EFU Takaful, Jubilee Takaful, etc.

 Regulated by SECP under Takaful Rules

✅ 5. Islamic Financial System: Theory and Practice ( ‫ نظریہ اور‬:‫اسلامی مالیاتی نظام‬
‫)عمل‬
📘 Explanation:

Islamic Financial System aims to:

 Replace riba-based banking

 Use halal contracts for investment
 Link finance to real assets

🔹 Key Theoretical Principles:

 No interest (riba)
 Risk-sharing (Mudarabah, Musharakah)
 Real economic activity (Murabaha, Ijara, Salam)
 Ethical investment

🔹 Practical Application:

 Islamic banks offer Shariah-compliant products

 Islamic microfinance helps poor without riba
 Islamic bonds (Sukuk) for infrastructure and development

📖 Qur’an Reference:

Surah Al-Baqarah (2:275):

“Allah has permitted trade and forbidden riba...”
📜 Hadith Reference:

“Avoid the seven destructive sins...”

Including eating riba (Sahih Muslim)

🧠 Current Practice in Pakistan:

 Islamic banks: Meezan, Al Baraka, Dubai Islamic Bank

 State Bank of Pakistan targets full Islamic banking by 2027
 Sukuk used to fund highways, dams, hospitals

✅ Final Summary Table

Qur’an /
Topic Main Economic Benefit
Hadith

Redistribution & poverty

Zakat 9:60, Muslim
reduction

4:7, 4:11,
Inheritance Fair wealth division
Bukhari

Taxation (Ibn
Growth via low, fair taxes 2:286
Khaldun)

5:2, Abu
Takaful Risk-sharing, no interest
Dawud

Shariah-compliant
Islamic Finance 2:275, Muslim
investment
📚 Ibn Khaldun’s Theory of Taxation

From: “Muqaddimah” (1377 A.D.) – Foundation of Islamic Economic Thought

👤 Who Was Ibn Khaldun?

A 14th-century Muslim historian, sociologist, and economist

Known as the father of modern economics and sociology

His book Muqaddimah contains deep insights into taxation, government finance, and economic
cycles

🟩 Core Ideas of Ibn Khaldun’s Tax Theory:

✅ 1. Low Taxation Increases Revenue

 “At the beginning of the dynasty, taxation yields a large revenue from small
assessments. At the end of the dynasty, taxation yields a small revenue from large
assessments.”

(— Muqaddimah, Ibn Khaldun)

When tax rates are low, people are motivated to work and invest.

It leads to economic growth → larger tax base → more total tax revenue.

High taxes, on the other hand, discourage productivity and lead to tax evasion or collapse of
economic activity.

✅ 2. Taxation Must Be Just and Moderate

Tax collection should be fair, predictable, and light on citizens.

Oppressive taxation leads to:

Decline in production

Public anger

Migration or rebellion
Excessive taxation is seen as economic injustice (‫ )ظلم‬in Islam.

✅ 3. Governments Tend to Increase Taxes Over Time

Ibn Khaldun observed that rulers, as their states aged and became less productive, tried to
maintain their income by:

Increasing taxes

Imposing new levies

Burdening citizens

But this strategy backfires—leading to economic collapse and decline of the dynasty.

📖 Qur’anic Basis of Ibn Khaldun’s Tax Philosophy:

🔹 Surah Al-Baqarah (2:286):

 “Allah does not burden a soul beyond its capacity.”

→ Taxes should be within people’s ability to pay.

🔹 Surah Al-Hashr (59:7):

 “So that wealth may not circulate only among the rich among you.”

→ Fair taxation promotes equity and circulation of wealth.

🕋 Islamic Principles Reflected in His Theory:

Islamic Principle Ibn Khaldun’s Reflection

Adl (Justice) Low, fair taxes create economic balance

Maslahah (Welfare) Encouraging work and trade benefits society

Avoidance of zulm (oppression) Heavy taxation is unjust and harmful

📊 Example (Simplified):

Tax Rate Economic Activity Revenue Collected

10% High (more trade, jobs) Rs. 100,000

40% Low (businesses decline) Rs. 60,000

This reflects Ibn Khaldun’s version of what’s now called the “Laffer Curve” in modern
economics.

🧠 Modern Relevance of Ibn Khaldun’s Theory:

1. Tax evasion in high-tax countries confirms his view.

2. Developing economies (like Pakistan) suffer from a narrow tax base due to:
High indirect taxes

Lack of business confidence

3. His ideas support the Islamic concept of:

Zakat-based redistributive tax

Avoidance of burden on the poor