13th Week

Islamic Public Finance

With the fall of the Roman Empire, the world witnessed the emergence of Muslims as a source,
civilization, culture, science and system of government. Rising from the Arabian Peninsula in the late
seventh century, the Islamic state extended its boundaries to North Africa and Spain in the west to Central
Asia and China in the east. As a matter of fact, it is quite obvious that such a large empire which existed
for several year centuries and dealt with a large population with a huge budget must have established a
consistent and operational system for fiscal administration. From the historical records of the early
Islamic history, we find that fiscal planners and policy makers of the period dealt with a host of fiscal
issues that we classify today under the scope of public finance such as revenue collection, rate and
structure of taxation system, the distribution of tax burden in accordance with the Islamic values of equity
and justice, disbursement of revenue for the welfare of the people and development of economy and so
on. The Muslim contribution to the evolution of public finance remained almost neglected by the
historians of the subject till now. Interestingly these ideas came in an era when Europe was sinking into
what historians commonly called “the Dark Ages of Europe”. The public finance as practiced in the early
Islamic period had a clear basis in the overall ethical and social philosophy of Islam. It was not merely a
fiscal operation at the discretion of the ruler. Rather it was based on the guidance from Islamic shari’ah
and aimed at public interest. The general principles of public finance in Islam are derived from the verses
of the Holy Qur’an. It should be noted that the Holy Qur’an does not provide details of fiscal policies but
there are some economic teaching and guiding principles which determine such policies. The necessary
details and guiding principles were classified by the Prophet Muhammad (peace be upon him) for
practical and functional purposes of public finance. Thus the sunnah (i.e. the saying, the practices, and
approvals) of the Prophet (peace be upon him) became the second important source of public finance in
Islam after the Holy Qur’an.  How the sunnah helps in formulating principles for fiscal operation, can be
clarified in case of zakah (the poor due, the first and foremost important levy on wealthy Muslims). The
Qur’an (Surah at-Tawbah, verse 103) asked the Prophet (peace be upon him) to collect zakah from the
wealth of Muslims. As stated:
“Of their wealth take alms”.
But it does not provide details regarding its rate, liabilities, exemption limits, etc. it is the  sunnah that
shed the light on these aspects. The system of fiscal administration at the time of the Prophet (peace be
upon him) was not very complex. The Prophet lived in the tiny state of Madinah and his fiscal policies
were very simple. After his demise (d.632. a.d) the Islamic state crossed the boundaries of Arabian
peninsula, especially during the reign of caliph Umar (d. 644 A.D). The complexity in the fiscal
administration in conquered territories made imperative the need for an organized system of public
finance. Although the caliph did not hesitate to reap benefits from the structure of contemporary states,
for the establishment of functional structure under the Islamic spirit, detailed rules were needed for the
proper financial management of the new state. Thus in the light of the verses of the Holy Qur’an, and
the sunnah of the Prophet (peace be upon him), various rules were adopted after mutual consultation
(shura) and consensus (ijma) of the companions of the Prophet. The main thrust of the consensus was that
policies adopted must be based on the basic principles of shari’ah and guided for the public interest
(maslahah). Thus the sources from which ideas on public finance are derived in Islam are:
a. The Holy Qur’an
b. Sunnah of the Prophet (peace be upon him)
c. Consensus of the opinion
d. Analogical reasoning of experts of Islamic law for the public interest.
In the Islamic system of public finance, the public money is regarded as a trust in the hands of the ruler
and must be directed, in the first place, to the weaker and needy sections of the society in order to bring
social security, general prosperity and equitable distribution of income among various sections of the
society. In Holy Qur’an, Surah Hashar, verse 7 recommends:
 “What Allah has bestowed on His Messenger (and taken away) from the people of the township,
belongs to Allah, to His Messenger and (his) kindred, the orphans, the needy, and the wayfarer in
order that it may not (merely) make a circuit between the wealthy among you”.
Besides serving these purposes, the general welfare of the people and the growth of the economy were the
focus of fiscal policy in early Islam. The eminent jurist and fiscal planner of second century of Islam,
Imam Abu Yusuf advised the ruler (Caliph Haroon al-Rasheed) thus:

“You are responsible for the welfare of the people and must do everything that you think good for
them”
The viability of a state depends on the ability of its government to collect revenue and disburse it on the
collective needs of the society. The Prophet (peace be upon him) after establishment of the state of
Madinah turned his attention to this urgent need. In the early days of Madinah there was no fixed source
of income. At that time the voluntary contribution of wealthy Muslims constituted the major part of state
finance and helped in financing the expenses of wars and fulfillment of various social and economic
obligations. Besides voluntary contribution, the Holy Qur’an names zakah. Jizyah, and khumus as the
sources of public revenue
1-Zakah: This is a determined right of the have-nots in the wealth of prosperous Muslims. It is a religious
obligation rather than an ordinary tax which served as a primary source of revenue in the early days of
Islam. 
2-Khumus: It which comprises one-fifth share of the state from war booty, was another important source
of revenue in the period of the Prophet (SAW). The khumus was utilized by the Prophet for his personal
and family needs as well as for the help of the poor and needy and for public works.
3-Jizyah (poll tax) and 4-Kharaj (land tax) constituted the main source of income of the early Islamic
state. Although these taxes were practiced during the Prophet’s period, their details and rules were
worked out in the reign of the second caliph Umar. He also introduced tariffs on merchandise being
transported for sale in Muslim territory. In the early centuries of Islam, these conventional sources of
public revenue were capable of raising enough revenue to finance government expenses. However, if
these sources were not enough to meet the expenses of the economy, the Islamic shari’ah permitted
imposing new taxes and the state may even resort to public borrowing for contingencies. In the early
Islamic literature on public finance, there is much emphasis on equity and justice in tax collection and its
assessment. On the other hand, the manhandling of tax payers and oppression are severely condemned.
The imposition of taxes is rationalized on the ground that their income should be spent on the care of the
have-nots in the society. The second caliph Hazrat Umar (may Allah be pleased with him) justified them
and he elaborated thus:
“Taxes are justified only when they are collected in a just  and legal way and they are spent justly and
legally”.

Islamic International Law (Siyar)

Definitions:
Shams Din Muhammad ibn Ahmad Sarakhsi defined siyar as follows:
“It described the conduct of the believers in their relations with the unbelievers of enemy territory as
well as with people with whom the believers had made treaties, who may have been temporarily
(musta’mins) or permanently (Dhimmis) in Muslim lands; with apostates who were the worst of the
unbelievers, since they abjured after they accepted Islam, and with rebels (baghis) who were not
counted as unbelievers; though they were ignorant and their understand of Islam was false”.
In modern times scholars such as Muhammad Hamidullah who was recognized as one of the most
authoritative scholars in the research of Islamic International Law and Islamic Constitutional Law and
who helped draft the constitution of Pakistan, and Islamic legal scholar and U.N. legal advisor
Mohammad Talaat Al Ghun-aimi offer other definitions. Hamidullah contends that Muslim jurists and
scholars were responsible for the origin of international law as a whole. For Hamidullah:
“Muslim international law is that part of the law and custom of the land and treaty obligations which a
Muslim de facto or de jure state observes in its dealings with other de factor de jure states. Its ultimate
sanction or authority is no different from any other branch of Muslim Law.”
Whereas for Al Ghunaimi defines Muslim International law as
“the sum total of rules and practices which Islam ordains or tolerates in international relations.”

Sources:
In theory the sole source of Islamic law is Allah, the head of the Islamic states, who alone is the fountain
of right and justice. In Islamic law the term used for source is dalil. The word dalil means guide. The
person leading a caravan is called dalil, and so is a telephone directory, because it leads to a number.
Islamic law contains several dalils. The jurists state that some dalils are agreed upon unanimously. These
are the Quran and the Sunnah. Both are the only sources of law from the prophet’s lifetime.

1-The Quran is the principle source and is believed by Muslims to be the exact words of God revealed to
the Prophet Muhammad over a period of approximately twenty-three years for the guidance of humanity.
Out of its approximately 6,666 verses, which cover both the spiritual and temporal aspects of life, Muslim
jurists estimate between 350 to 500 verses contain legal elements. Muslims believe that the Quran is a
book revealed piecemeal to the Prophet Muhammad. The Quran contained the divine law. After the
Prophet’s death, this divine legislation ceased since the caliphs were not entitled to communicate with the
divine legislature.

2-The Sunnah as a source of law consists of the Prophet’s lifetime sayings, deeds and tactic approvals on
different issues, both spiritual and temporal. It is a compilation of Mohammad’s sayings and doings and is
intended to serve as an example to future generations of pious Muslims. As the human representative of
God, the Prophet provided divine instruction to the Muslim community. Muslim traditions and
commentary are validated by their proximity to the Prophet, most often through a chain of transmission
analyzing and authenticating each subsequent narrator.
The Quran and Sunnah are the primary sources of both formal and material sources of international
law.  Many scholars maintain that the first source to be approached is the Quran and the second is the
Sunnah. Therefore, in the case of any irresolvable conflict between a verse of the Quran and a reported
Sunnah, the formal prevails, because of its indubitable authenticity in Islamic Law. The Quran contains
some general provisions on the initiation of hostilities, the conduct of war, the termination of war and the
general nature of treaties. In addition to these primary sources there are secondary sources. These
secondary sources include practices of the early caliphs, the practices of latter caliphs provided they did
not contravene the Quran and the Sunnah the opinions of learned and respected jurists, arbitral awards,
treaties or similar agreements, official instructions to military commanders, ambassadors and other state
officials, and customs accepted as beneficial. Like other branches of the Shariah, juristic techniques
served to expand its rules. Today, analyzed in terms of the modern laws of nations, the sources of the
Islamic law of nations conform to the categories defined by modern jurists and the stature of the
International Court of Justice, namely agreement, custom, reason and authority.  The Quran (continuers
to) represent the authoritative source of law; the sunnah is equivalent to custom; rules expressed in
treaties with non-Muslims fall in the category of agreement; and the opinions of the caliphs and jurists,
based on legal deduction and analogy, may be regarded as reason. Such opinions, fatwas, or decisions had
great influence in the development of law.

1. Treaties:
Treaties have long been among the most important instruments of international relations both in ancient
and modern times. In dar al Islam proper, a set of contractual agreements (or in a sense a treaty) grew out
of the need to regulate relations between former combatants in a newly conquered territory. International
treaties were of particular interest to classical Muslim jurists, chief among them Muhammad
Shaybani.  These jurists constructed a system of drawing up such instruments that covered all aspects of
the process, such as establishment, conclusion, effects and termination of international treaties. Classical
Muslim scholars focused on specific aspects of these treaties, in particular the fulfillment of the contract
and the ramifications of acts of treachery and violation. In the fifth chapter of Shaybani’s compilation, he
discusses the ability of Muslims to enter into treaties when Islamic territory has been invaded by a non-
Muslim enemy. According to the siyar, if the Imam determines that the nonbelievers are stronger than the
Muslims, it would be better to make peace with them than to risk destruction. The Imam continued to
specify that the peace should be for a limited duration. The model treaty which later the caliphs and the
jurist often cited from the Prophet’s tradition is the so-called Habaybiya treaty which, in its form
procedure of negotiation, and duration supplied a precedent (if not indeed a source for the law of treaty-
making) which was followed by the Muslims. The Hudaybiya Treaty, negotiated between Mohammad
and the Meccans in the year 628 CE, was the first treaty in Islam and has been touted as an exemplary
authoritative source and precedent for international agreements between Muslims and non-Muslims tepas
698. This treaty, which stipulated that the duration of peace was to last for ten years, supplied a precedent
for the jurists that no peace treaty with the enemies should last longer than that (kh 365). Other treaties
which the prophet Muhammad concluded with the non-Muslims were models which the caliphs followed
after his death. With the exception of the treaties which the caliphs or their representatives had concluded
with the peoples of the occupied territories, all Muslim treaties were concluded for a limited period to
fulfill certain specific functions. The classical siyar, although holding treaty obligations in enormous
esteem, expressly denied treaty-making with non-Muslims anything more than a temporary character
subject to dissolution the moment Islam’s conquest could be profitably resumed. There is some debate on
this subject. Some jurists argue that the duration must be no longer than ten years, while the Hanafi and
Maliki schools of Sunni jurisprudence maintain that three years is the accurate period of a treaty’s
validity. While there is disagreement over the precise length, clearly the principle of non-recognition, as
represented by some form of durational limitation, remains. Traditionally, the Muslims duty to implement
treaties, external or internal was derived from Quranic verses as well as Prophetic words and deeds. The
written treaties of the Prophet and the Rashidun, (or four Rightly Guided caliphs, that is the first four
leaders of the Islamic community) became models for other treaties in later Islamic practices. Treaties in
Islam are viewed as an obligation that falls under muamalat (mutual relations of Muslims with other
nations). As such, once a treaty had been signed by the Muslims, though the Muslims were reluctant to
come to terms with the non-Muslims, the terms of the treaty were strictly observed.  This was urged not
only by Quarnic injunctions, but also by the hadiths and supported by practice. The Quran urges Muslims
“not to break oaths after making them,” and if the non-Muslims did not break them, then “fulfill their
agreement to the end of the term.” The Treaty making power in Islam rested in the hands of the head of
the state who, as the person charged with the duties of prosecuting the jihad, was ipso facto the ultimate
authority who would decide when the jihad was to be relaxed and a peace treaty signed. Many jurists
claim that permanent treaties with non-Muslims could never be permanent in character. Abu Hanifa did
not agree with the above jurists for he clearly maintains that permanent treaties with non-Muslims could
be made since a treaty had the character of a contract and a contract can assume a permanent character.
Yet another interpretation of the classical doctrine is that treaties are of two kinds: temporary treaties
which are valid up to specified time, and absolute treaties which did not specify a time limit.  The
absolute versions do not, however, imply perpetuity since they are contingent on circumstances. They can
be annulled by aggression of one party. On this detail, it is mentioned in Quran, Surah Tawbah, verse 7:
“So long as they are true to you, be true to them.”.

2. Division of the World

Four basic and interrelated concepts of Islamic international law determine the relations of the Islamic
state with the external. These principles are: Jihad, dar al Islam, dar al ahd; and dar al Harb. Islam
established the foundation of relations between people on the basis of whether they are believers or non-
believers. Ibn Qayyim, in his Zad al Maad, indicated that relations between the Prophet and the
unbelievers remained ill-defined until a portion of surah “al_Tawbah”, (verses 1-4) in the Quran was
reveled, dividing unbelievers into three groups: muharibun (those in a state of war with Muslims), ahl al
ahd (people in a treaty relationship with Islam), and ahl al dhimma (non-Muslims who are protected by a
treaty of surrender). These relationships and distinctions lay at the heart of the system of relationships that
the Prophet was developing, and that emerged as the bipartite division of the world into additional
classifications. Interestingly there is no little to support this division. The division has no textual support
for it either in the Quran or in the Hadith.  It is instead a transient description of what happens when war
flares up between Muslims and others.  It is a narration of facts, similar to those confirmed by scholars of
international law, namely that war splits the international community into two parties: belligerents, in
particular the States involved in war; and non-belligerents and neutral, which comprise the remaining
members of the international community. Those classifications were based on the world being bifurcated
into two worlds. On known as dar al Islam, encompassed all of the bilad al Islam (Muslim world), where
the rulings of the Shariah apply, and the other made up of all the nations where law is based on rulings
other than Shariah, called dar al Harb (territory of war). Again the scholars do not agree on how to define
these terms. There are differences between those of the various madhabs and between classical and
medieval thinkers with modern thinkers. However, there appears to be a general agreement that dar al
Islam is the territory that is under the full control of Muslims and where all submit to Islamic rulings. Dar
al harb can become dar al Islam when the Muslims conquer it and impose Islamic law. There is a
consensus among scholars that a dar al harb becomes a dar al Islam whenever Islamic rulings are applied
and enforced.   

3. Diplomatic Missions and Immunities:

 One of the major contributions by siyar to modern day international law is the treatment of diplomats and
towards establishing diplomatic immunities for foreign missions. It can be said that within the traditional
Shariah, diplomats enjoy immunities not dissimilar to the ones provided for in modern international law.
Classical Islamic law granted widespread concessions to foreign diplomats and emissaries and their
arrival was often a ceremonious occasion. Muslims carefully respected the immunity of envoys and
diplomatic missions. Non-Muslims were permitted to enter the dar al Islam unmolested as official
messengers, even without securing aman, provided they declared that they were carrying diplomatic
messages. The rule of diplomatic immunity goes back to the time of the prophet Muhammad when two
envoys were received from Musaylima, the so-called liar Prophet,” who, in spite of their unfavorable
declarations to Muhammad, were secured in their lives. Ambassadors, including members of their
delegation, enjoyed full personal immunity. All that was needed to enter Muslim lands was simply to
identify themselves as ambassadors.  They were not to be molested or maltreated. Ambassadors had the
full liberty to practice their religion and rites. This is based on the Sunnah of the prophet who allowed the
Christian Arabs of Narjan to conduct religious services in his mosque at Median. The personal properties
of ambassadors were exempt from import duties. Exemption from other duties, taxes or properties were
granted on a reciprocal basis. In the same vein, and only in extraordinary circumstances, could
ambassadors be detained or temporarily imprisoned. The latter might occur when a Muslim counterpart
was detained or imprisoned. According to Islamic law, If Muslims ambassadors were maltreated or killed
by an enemy state, the Muslims were not permitted to retaliate. Just as in the case of hostages, this rule
was based on the Quranic prescriptions that underscored the notion that a soul ought not to bear the load
of another. The blame in this case was to fall on the enemy government.

4. Jihad:
The very early works on siyar dealt mainly with jihad. This term is derived from the Arabic verb jahaba,
which means to exert, to strive or to struggle. In juristic terms it came to connote a struggle for the cause
of God by all means including speech, property or wealth and life. It also means the “exertion of one’s
effort in repelling the enemy.” As such it can be classified into three forms: striving against a visible
enemy, against the devil, and against the ego or selfish interests. Jihad correctly defined can be interpreted
as having both greater and lesser dimensions or qualities In its more popular sense, jihad means the
repulsion of aggression, resisting submission to the enemies of Islam, protecting the faith and defending
the umma. Based on the above :minor jihad” it becomes no different from fighting or qital. One of the
classical Sunni jurists of the Maliki school, Ibn Arafa, defined Jihad as “warfare waged by a Muslim
against a disbeliever, with whom he has no oath, to raise the word of God Almighty, or against his
presence in or penetration into the [Muslim] territory. Jihad is lawful in Islam as a necessity to suppress
aggression. It was prescribed in the second year of the Hegira, after Muslims had patiently borne for
fourteen years the harm done to them by the pagans. Nevertheless, religion was not the motive for in
jihad, nor was its purpose to subordinate others and compel them to convert to Islam. Jihad was intended
instead to ward off injustice, champion the cause of the weak and drive back the enemy. Before
declaration of either war or jihad, the enemy should be made to choose one of three options: Islam, as a
token of peacefulness; reconciliation or a peace treaty with Muslims, or finally war, if the enemy insists
on waging war. It is evident that giving the choice between three options excludes the character of
compulsion. 

5. Prisoners of War:
Islam recommends that prisoners of war be treated kindly. Classical jurists based their rulings on the
Quran and the precedents of the Prophet. On the one hand, the Quranic revelation (Surah Muhammad,
verse 4) that directly addresses the rulings on the prisoners of was commands Muslims to:
“Set them free either graciously or by ransom.”
Thus, this Quranic command states that Muslims are obliged, after the cessation of hostilities, to free their
prisoners of war either freely, or in exchange for Muslim prisoners of war or for ransom. Allah Almighty
says in Surah Ad Dahr, verse 8 :
“And they feed, for the love of God, the indigent, the orphan and the captive”.
The sick and wounded should be given medical treatment, and the dead should be buried to preserve their
dignity. On the other hand, a few jurists based their ruling on the prisoners of war upon another Quranic
revelation in Surah Tawbah, verse 5:
“Kill the polytheists wherever you find them.”
The precedents set by the Prophet in his treatment of prisoners of war indicate that he adopted four
courses of action: first, the execution of three Meccans; second, releasing prisoners freely, this, settling
prisoners free in exchange for Muslim prisoners or for money and some of the prisoners taken at the
Battle of Badr were set free in exchange for teaching ten Muslim children to read and write; fourth
enslaving prisoners of war. These Quranic references and the Prophet’s precedents caused a great
controversy among the jurists. Most of the Islamic position on the treatment of the prisoners of war is
based on the incident of the seventy prisoners taken at the Battle of Badr. During the Prophets lifetime,
prisoners of war were either held in the mosque or divided among the Companions of the Prophet. When
the Prophet divided the prisoners taken at Badr to be housed with the Companions, he instructed them to
“Observe good treatment towards the prisoners.” The jurists agree that prisoners should be fed and,
following the precedent set by the Prophet with one of the prisoners taken at Badr, clothed if need be.
Prisoners should be protected from the heat, cold, hunger thirst and any kind of torture. Furthermore, it is
prohibited to torture enemy prisoners of war to obtain military information. It is important to add here that
the jurists commonly agree that it is prohibited for the Islamic state to execute enemy hostages under its
control, even if the enemy slaughtered the Muslim hostages it held.  Here some jurists refer with pride to
the precedent of the Caliph Muawiyah ibn Abi Sufyan (may Allah be pleased with him) when he refused
to execute the Roman hostages under his control after the Roman emperor had broken the treaty with the
Muslims be executing the Muslim hostages he held. The jurists also agree that, during the prisoner’s
captivity or enslavement, members of the same family should not be separated; children should not be
separated from their parents or grandparents or siblings.