ISLAMIC ECONOMICS
CHAPTER 1
ISLAMIC WORLDVIEW AND
ISLAMIC ECONOMICS
FATIMAH SALWA ABD HADI
LEARNING OUTCOMES
• Understand the relationship between religion and economics.
• Compare between basic economic thinking in Islamic economics and
conventional economics.
• Understand the meaning and concept of the world view.
• Explain the Islamic world view.
Islam and its Component
ISLAM
Aqidah Shariah Akhlaq
Pillars of Iman
Belief in:-
Allah
Angels
Revealed Books
Messengers
Day of Judgment
Predestination
ISLAM
Aqidah Shariah Akhlaq
Human with Human with human
Creator (Ibadah) (Muamalah’Ammah/’Adah)
Shahadah
Munakahat Muamalat Jinayat
Prayer
Fasting Politic Economic Social
Almsgiving
Pilgrimage Political Commercial Law (family,
system, non- transaction, civil, criminal),
Muslim in public finance, administration
Islamic state, economic of justice
foreign system and
relationship Islamic finance
ISLAM
Aqidah Shariah Akhlaq
Human with Human with
Creator Creation
Human
Non Human
RELIGION AND ECONOMICS
• Religion as an institution is inseparable from economics as a science. Although religion may primarily be concerned with the
spiritual aspects of humankind, this spirituality inadvertently influences one’s dealings in the material aspects of life. The
reverse is also true.
• Religion and economics share an interrelationship that is facilitated by interconnectivity at various levels (there are
interactions between several religious and economic ideals and practices).
• At the micro level, the degree of religiosity is one of the determinants of demand and supply of a particular market.
(Examples of non-halal and non-kosher meat.)
• At the macro level, religiosity will also guide public choice and government policy in matters of material welfare in society.
(Example of a religiously committed government.)
Religion and Economics: The Western Experience
•Religious relevance and its subsequent prominence has fluctuated throughout the history of Western civilization.
•Karl Marx (1818–1883)
Not only is religion an impediment to economic welfare, but it is the result of an economic phenomenon (material
deprivation).
•Max Weber (1864–1920)
Religion and economics shared a complementary relationship. Economic welfare depended on religion since the
state of economic welfare was seen as a metric that determined the condition of one’s faith.
• Secularism: separation between the governing authority of a region and its religious authority.
•Materialism: is the idea that something only truly exists when it can be proven through sense experience or scientific
observation.
•Utilitarianism: is the idea of how economic agents perceive value within an economic system.
•It appears that despite different ideological stances being taken on the relevance of religion in economics, the last five
centuries (since at least the 1600s) are characterized by a decreasing role of religion in economic affairs.
Religion and Economics: The Western Experience
• The exclusion of nonempirically quantifiable realms (including religion) has led to much intellectual
criticism of mainstream economics. Such concerns have even led to the establishment of a heterodox
economic movement that unites several different schools of economics in their opposition to the restrictive
nature of neoclassical (mainstream) economics.
• The heterodox movement allows the economic discipline to, once again, be open to religious ideals and
values followed by a majority of the world’s population.
• The question of whether religion should play a part in economics is becoming increasingly relevant at a
time when many are questioning the shortcomings of mainstream economics because of its exclusion of
crucial human value systems. Therefore, the relevance of Islamic economics nowadays must not be
undermined.
Religion and Economics: The Case of Islam
• The word ‘Islamic’ in the phrase ‘Islamic economics’ implies that the economic system is a
derivative of Islamic norms and values.
• Islam is the submission of oneself to the Creator’s (Allah’s) will, if one truly wanted to find peace.
• Unlike the West’s focus on material welfare, Islam proposes submission to Allah’s prescribed way
of life as a means of attaining peace and tranquility.
• The word Islam connotes the idea of subordinating economic interests and objectives to Allah’s
mechanisms and designs.
Religion and Economics: The Case of Islam
• The gratitude to God is expressed in one’s everyday actions including economic life.
• Life (including economic life) are a means to acknowledge and express one’s gratitude towards the
Creator. In this sense, the economy is a means to express one’s gratitude and indebtedness (religious
obligation).
• Islam regards this life as borrowed capital from God. We have to return and repay this borrowed capital
to God, otherwise we will be at a great loss.
• Conventional economics focus on positive economics (what is), and its restrictive approach towards
normative economic (what ought to be) analysis.
Religion and Economics: The Case of Islam
• The Future of Economics—An Islamic Perspective by Chapra (2000) is an
example of the great works about Islamic economics. The most important
two ideas in his book are:
1 Islam has its own vision, and during the heyday of Islamic civilisation
this vision was being realised in the form of a multidimensions system that
aimed towards achieving an Islamic society.
2 Islamic social sciences including Islamic economics must be developed
to guide nations towards their original goals.
Religion and Economics: The Case of Islam
• Siddiqi (2013) proposes five strategies to organically develop Islamic economics from the ground
up:
1 Ensuring that family institutions are the focal point of economic analysis, rather than market
institutions.
2 Ensuring that cooperation play a greater role in the economy, complementing competition.
3 Financial markets should focus on real transactions, and debt markets should play a
subsidiary role in financial markets.
4 The elimination of interest and interest-bearing instruments that aid money creation.
5 Maqāṣid-based thinking that supplants analogical reasoning in Islamic economic
jurisprudence.
Religion and Economics: The Case of Islam
• Islam is a multidisciplinary entity that is meant to affect and enhance all aspects of human welfare
(economic, political and social).
• Although spiritual welfare is the ultimate objective in Islam, this does not imply that material welfare
should be neglected.
• In Islam, worship is an all-encompassing activity that includes every action in life. Meaning that
economic transactions and undertakings in the marketplace also qualify as legitimate acts of worship.
• This integrated approach, where this world (dunyā) facilitates the aims of the hereafter (ākhirah),
represents the Islamic economic vision.
WORLD VIEWS AND ECONOMICS
• A world view may be described as ‘a set of presuppositions…which we hold…about the
makeup of our world’ (Sire, 1990 , p. 30) or a person or group’s general perception of reality.
• This reality would include a person’s view of existence in a vast universe, his notion of truth
and morality, his ethos about God, religion and creation, his ideas about communal life and
so on.
• The secular world view is the antithesis of the religious-based world view. The former is a
religiousless mind’s view of the universe while the latter is an inherently religious view of
the world.
Islamic World View and Economics
• Life in this world is seen as a preparation for the afterlife; hence, the hereafter has ultimate and
final significance, though the importance of worldly affairs is not to be neglected as an essential
prerequisite of the hereafter (Al-Attas, 1995).
• The world view of Islam, therefore, covers the physical as well as the metaphysical realms of
existence.
• The world view of Islam cannot be subjected to philosophical speculation that undermines its
foundational tenets, such as, all creation originating from God and His absolute superiority over
them; or, man’s indebtedness to God and his belief in the Day of Reckoning and the hereafter.
Islamic World View and Economics
• This is not to say that scientific enquiry has no relevance to the Islamic world view and in
developing its concepts and theories. It means that scientific observation and sensory
experience should be used to affirm the fundamental tenets of the Islamic world view and
develop concepts therefrom.
• The Islamic world view is not restricted to scientific observation and sense-experience but
extends beyond this to include a spiritual and metaphysical realm
• The Islamic world view is the starting point to developing a knowledge framework that
can lead to the formation of Islamic bodies of knowledge (disciplines).
Core Elements of the Islamic World View
1. God 2. Man and His Rationality
3. Aim in Life 4. Nature
1. God
• Since the world view of Islam is based on the Islamic faith, the position of God in this world view is
very fundamental.
• The concept of the Oneness of God (tawḥīd), the Lord and the Creator of the world, is the essence
of the Islamic world view.
• By being aware of the will of the Creator, humankind is made to abide by rules of exchange and
trade that uphold the values of his Creator.
• Based on Islamic world view, God is the source of all laws that govern existence and creation. He is
the one and only Law-maker and Law-provider.
• All economic activities must be in accordance with the legal framework that has been revealed by
God. The activities of production, consumption, distribution and exchange must always be within
the boundaries of the Sharīʿah (Islamic law).
2. Man and His Rationality
• Man, in the world view of Islam, is not only a rational being, but is also a spiritual being. In
fact, in the Islamic world view, rationality is not separated from spirituality.
• In conventional economics, a derivative of the secular-materialist world view, the rational man
is a being who is not spiritually or socially inclined, but is motivated by self-interest.
• Self-interest takes a very material form, where its pursuit entails material acquisitions and
accumulation. In this sense, the conventional economic man’s welfare is restricted to conquests
in the economic realm only. This rational economic man (also called homo economicus) is not a
realistic human being, because he or she is construed as a simplistic one-dimensional being.
2. Man and His Rationality
• Morality, emotion, empathy and altruism, which are some of the most defining characteristics of a human
being, have no place in the rationality of the economic man in the conventional context since they will lead
him or her to sacrifice self-interest. Therefore, the conventional economic man falls short of reality.
• In direct contrast to this view, the Islamic world view requires that man be seen as one of the finest and noble
creations of God.
• The role of khalīfah (vicegerent) implies that nature, the universe and other creations are entrusted to man for
his utilisation, while the role of ʿabd (servant) means that man does not have any ultimate authority or
absolute rights other than to follow the will of God. Both these roles have to be lived simultaneously and any
neglect of either one would not enable man to function as his true self.
3. Aim in Life
• Man’s aim in life is related to his rationality, in that, his aims in life are aligned with how he
rationalises a successful life to himself.
• A person’s success is often equated with how satisfied or happy a person is with his life. The
conventional economic man views happiness within a secularist material frame of mind or
world view.
• According to the Islamic world view, the same principle of success and happiness applies.
However, the definition of success and happiness is very different as it is grounded in both
the material and spiritual world.
• Based on the characteristics of happiness under the Islamic world view, the aim in life of an
individual is to attain falāḥ (success) and thereby attain a comprehensive and everlasting
happiness in both the spiritual and material domains of life.
4. Nature
• An economic good is defined as a good that has utility and to a certain extent has a degree of scarcity in
relation to its demand, and therefore has an opportunity cost.
• The concept of scarce resources is central in economics to the extent that the discipline considers
scarcity as the basic economic problem.
• Relative scarcity can be viewed as a motivating mechanism to address temporal resource shortcomings.
It falls within the ambit of the Islamic world view.
• God has provided sufficient sustenance for His creations. However, the availability of these resources
depends on the responsible usage of these resources as well as the efforts to discover new ones.
Connections Between Islamic World View
and Economics
• The Islamic world view is the starting point to developing a knowledge framework that can
lead to the formation of Islamic bodies of knowledge (disciplines).
• The differences between Islamic economics and conventional economics originate in their
different world views. While Islamic economics includes considerations for metaphysical and
afterlife welfare, conventional economic theory is concerned only with the temporal world.
• This extra dimension of the Islamic world view has additional bearings on various aspects of
the economic discipline in terms of the interpretation of economic phenomena, its
terminologies and methodology, and the construction of the discipline itself.
Connections Between Islamic World View
and Economics
• To fuse the Islamic world view into economics, a systematic process is necessary. This involves
reinterpreting the key economic phenomena from an Islamic perspective.
• The quality and nature of the interpretation of economic phenomena depends on the world view of the
interpreter .
• Once these phenomena are interpreted, the next step requires developing economic models that will be
utilised for theoretical analysis and making predictions.
• The impact of the Islamic world view shall be recognised even in the process of discovering economic
facts that are positive by nature (Example: inverse relationship between bond prices and interest rates).
SUMMARY
• The concept of world view is a philosophical idea that refers to man’s perception of reality
and any subject matter therein (e.g. man’s view or philosophy about his existence,
knowledge, universe, religion, society and ethics).
• Since the world view is one’s view of reality and existence, world views can be
categorised as secular or religious.
• The secular world view regards existence through a materialistic and utilitarian point of
view, which is only derived through sense-experience, rationality and empirical
observations. These form the bases of knowledge in conventional disciplines.
SUMMARY
• World views pertaining to religions generally have an outlook involving a material world that
culminates into a spiritual ending.
• The Islamic world view encompasses both dunyā (this world) and ākhirah (hereafter), where the
worldly affairs are intricately and inseparably affiliated with the affairs of the hereafter.
• The fundamental elements of the Islamic world view include: the perspective of God, His revelation
and sources of knowledge, His creations including humankind and human soul, religion as a way of
life, and the nature of freedom, virtues and happiness.
• Islam, being an all-encompassing entity, is inseparable from all other aspects of life including
economic undertakings. Thus, Islamic economics could be considered a multidisciplinary study.
• As Islamic economics depends on Islamic values, normative economics is a unique and key feature.
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