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An ecosystem of (i) economic sciences*, (ii)

natural sciences, (iii) social sciences and (iv)


spiritual sciences for advancement of justice
and human welfare
Founded on principles not interests

Mohammad Naeem Khan, FCA


Petroleum Economist
Eni Pakistan Ltd
*Science refers to irreversible laws

Principles
of Islamic
economic
system

Devine Economic Plan


Malik 2

Wealth is a test

Not related to efforts

Anam 165/Nahal 71

Zumr 49

And Allah has made some of you excel others in wealth. (Nahal 71)

And Allah has made you successors in the land and raised some of you above
others in different levels, to test you for what is given to you. (Araf 165)




When a man gets in trouble he cries for help of Allah, and when he is
granted favors, he says I have got it due to my knowledge. In fact
wealth is a trial but most of people do not know. (Zumr 49)

Mission of Islam ()
Prayer

Charity

Fasting

Hajj

Spiritual Power

Economic Power

Piety

Unity

Work ()


)(

Output/Resource

Human Welfare

Social System

Economic System

Political System


Outcome
()

Spiritual System

) ( Target of Islam
Belief

Good deeds

Morality System
)(

Economic System
)(

Distribution
of
wealth
Accumulation
of
Wealth




)(

)(

The focus
of
Islamic
economic
system
tois
stop
the
lust
of

the
Those
in
who,
We if
give
the
them
lust
power
of

land,
establish
twin

regular
prayer

possession
and
pleasure
plagues
and give regular charity, enjoin the right and forbid wrong: with Allah
)55
responsible
)fordecision
killing
the
humanity
(Baqra
)277
(Hajj
)41

rests
the end (and
of
)(all
affairs.
(Noor

Economic Principles of Islam


Usage Side

)( ) State( Individual
Distribution

Frugality & Sharing

Earning Side

Usury

Business

(Hashar

)7

(Baqra
)279

(Baqra
)219


But
if ask
you
do
not
stop
taking
usury,
then
be ready
for
waris
They
you
how
much
they
should
;spend
Say:
"What

in
order
that
wealth
may
not
become
confined
to
the
Allah
has
allowed
business
and
forbidden
usury

with
Allah
and
His
Messenger
beyond
your
"needs.
Thus
Allah
makes
clear
to
you
His
rich
amongst
you.
)(Baqra 275
)21934-35)(Baqra

revelations: In order that you (Tauba
may ponder.
)(34

Islam abhors DEBT and strongly discourages it


1. Prophet (PBUH) said: "Whoever asks for money while he has what
suffices him has asked for a lot of Hellfire's embers." People asked him,
"What is the sufficient amount of money above which one should not
ask?" He said, "The amount he needs for his lunch and dinner." (Abu
Dawud)
2. He also said: "Whoever asks people for their money to increase his
wealth, has asked for embers, so let him ask a little or a lot.
3. A man came to the Prophet (PBUH) and said, "O Messenger of Allah! If I
was killed in Allah's cause, observing patience, awaiting Allah's reward,
attacking, not retreating, would Allah forgive my sins?" The Prophet
(PBUH) said, "Yes, except for the debt." The Prophet (PBUH) said, "A
believer's soul is attached to his debt till it is paid.
4. A dead person was brought to the Prophet so that he might lead the
funeral prayer for him. He (PBUH) asked, "Is he in debt?" When the
people replied in the negative, he led the funeral prayer. Another dead
person was brought and he asked, "Is he in debt?" They said, "Yes." He
(refused to lead the prayer and) said, "Lead the prayer of your friend."
Abu Qatada said, "O Allah's Apostle! I undertake to pay his debt."
Allah's Apostle then led his funeral prayer. No. 2154 (Sahih Bokhari)

Islam prohibits and strongly CONDEMNS


usury or RIBA.
1.

Allah will deprive usury of all blessing, but will increase


benefits of charity" (Baqra 276);

2.

If you do not stop taking usury, then be ready for a war with
Allh and His Messenger (Baqra 279)

3.

Abdullah ibn Hanjalah related that the Prophet said: A dirham


of Riba (interest) knowingly taken by a man is a sin worse than
committing Zina (fornication) 36 times (Ahmad, Daraqutni).

4.

Narrated Jabir ibn Abdullah: Allah's Messenger cursed the


accepter of interest and its payer, and one who records it, and
the two witnesses; and he said: They are all equal (Muslim).

5.

Hazrat Abu Hurairah r.a. reported that the Prophet said : A


time will certainly come when none will remain who will not
devour usury. If he does not devour it, its vapors will fall on
him [Ahmed,Abu Dawood,Nisai,Ibn Majah]

Legal System

Spiritual System

Limited Capitalism

Spiritual Socialism

(surplus wealth for personal use)

(human rights on surplus wealth)

Inter-dependent &
Inter-connected (Synthesis)
Restricts luxury &
wealth accumulation

Channels excess
wealth to needy

Immune System
(Regulatory)

Treatment system
(Repair/Maintenance)

Elevating ethical/
spiritual values

Restricting
evils/crimes

Dimensions of
Islamic Economic System

Primary focus of Islam is on the spiritual System (test of Taqwa/free will)


Legal system provides only safety valve for safeguarding basic human rights
Keeping excess wealth and generating income from it is allowed legally but
spiritually is it detested.

Economics: A life blood system of Society

Individual
Distribution
(Arteries)

State
Collection &
Re-distribution
(Veins)

Status of Sources of Income


Labor
+
Capital

Ideal

(Entrepreneurship)

Permitted
Restricted

Prohibited

Partnership
(Labor + Capital)
Mi
dd

l em

en

Land

Money

ac
M

e
n
i
h

Distribution Channels ()
Compulsory

% of contribution

Marriage payment and


penalties on certain faults

Taxes ()

Taxes imposed by state to


provide basic needs of its citizens

Zakat ()
Payable on wealth of individual

Inheritance ()
Strictly in accordance with injunction of Quran

Voluntary Charity ()
Entire wealth in access of basic needs

Stock Exchange Transactions


Interest based
Load taken/given at interest
with security against fully
insured property (margin
financing)

Gambling
Profit/loss without efforts at the
expense of someone else

Trade*
Risk capital investment at
profit/loss + Work + Public
benefit
*Limited liability is an exclusion

Public Benefits
Does the activity lead to
employment/resource
generation or brings harm to
the public interest

1. Limited liability concept in anti-Islam


2. Primary purpose of the transaction is to make quick money rather than long term
investment
3. Mostly investment is made from loan taken from banks or brokers
4. It is a gambling business (gain at the loss of someone else

Property business (Plots)


Interest based
Loan taken/given at interest
with security against fully
insured property (margin
financing)

Gambling
Profit/loss without efforts at the
expense of someone else

Trade*
Risk capital investment at
profit/loss + Work + Public
benefit
*Limited liability is an exclusion

Public Benefits
Does the activity lead to
employment/resource
generation or brings harm to
the public interest

As per Islamic law house is right of every Muslim. Anyone trying to grab the property for
the purpose of trade/profit making is haram because it is a gamble (profit/loss at the
expense of others) and it is also not a business/trade as it does not lead to any fruitful
business activity which entails hardwork. As a consequence of profit making price of the
property rise and takes it out of the reach of legitimate buyer for building his house

State Financial Crime: Inflation


4,690

Value Rs

5,000

4,000

An item costing Rs
100 now costs Rs
4,690 in year 50
@8% inflation rate

3,000

3,192

2,172

2,000

1,479
1,006

1,000
100

147

216

317

10

15

466

685

0
20

25

Year

30

35

40

45

50

Faceless dragon eating humanity


Islam does not
permit
limitation
of liability. Every
individual is fully
responsible for
his deeds

Resources Credit

Judges
Production

Corporate
Capitalist Citizen Commerce
Law
(limited liability)

(1886)
Trade
Politicians


Jobs Media

Corporation:
An
ingenious
device
for
obtaining
individual
profit


without individual responsibility.
(Fatir 18)
aduty
but
to
the

Allah does not impose upon
anyone
Nor can a bearer of burdens bear another's burdens if one heavily laden should
Moto: Profit,
Competition
and for
amorality,
extent
of hisgrowth
ability;&He
gets reward
every good deed,
call another to (bear) his load. Not the least portion of it can be carried (by the
dehumanization,
opposition
to nature.
and
suffers
forhe
every
ill that
he earns. (Barea 286)
other).
Even though
be nearly
related.

Does Islam allow any Banking System?


1. Banks were created for taking public deposit and
lending at interest and investment in treasury
bonds, derivatives, securities etc.
2. Interest is against natural laws. Proper functioning
of natural laws and economy implies a zero rate of
interest
3. Islam detests borrowing even at zero interest rate.
4. Banking was conceived in iniquity (against natural
law) and was born in sin (for the benefit of rich).
5. An interest rate of zero means the end of the
money & banking system.

Three economic modes of Muslims


Hallal means of living
Moral Distribution of entire excess wealth

(Height of
spiritual
living)

Hardy any situation of Zakat


Simple lifestyle

Legal

Hallal means of living

Illegal

No distinction of hallal/harram

(Minimum
threshold
of living)
(State of
practical
kufr)

Pays Zakat and other compulsory dues


Charity (infaq) up to the level of Taqwa
Modest lifestyle

Does not care to pays Zakat/other dues


Charity for image building
Extravagant and luxurious lifestyle
Stinginess/wealth piling up

Mirror
Mirror view
view before/After
before/After Implementation
Implementation

Deprivation

After (Natural Society)

Tyranny
Piety
Savagery
Courage
Cut-throat competition
Happiness
Self-centeredness
Justice
Criminality
Content
Non-contributory
Robbery
Satisfaction
/Contributory
Theft
Chastity
Social Security
Intellect
Racism
Humility
Compassion
Cowardice
Plan
Care of kin
Ignorance
(Surplus Pool)
Affection
Tensions
Sincerity
Fear
Freedom
Hunger
Fortitude
Servitude
Munificence
Debt
Zeal & Endeavor
Threats

Harmony

Exploitation

Before (Savage Society)

Summary of natural economic System of Islam


1. Islamic view is that real economy controls, and the money is only a
supportive function. Protects labour/work.
2. Stop earning money through money and compels people to work and invest
money in business ventures
3. Eliminates sources of unearned income (interest/speculation)
4. No protection to capital and uses wealth in real economic activities integrated
with physical laws of nature.
5. Collect zakat (wealth tax) no tax on income or consumption.
6. It is responsibility of individuals for meeting needs of poor and social welfare
of society
7. State is responsible for meeting basic needs of citizens and taking
administration/legal measure for checking concentration of wealth in few
hands.
8. Business in Islam is not an grabbing the opportunity but a Ibadah covered
under the ethos of Islamic principles of life.

Principles
of current
economic
system

Modern Economic Drivers


Government
1.
2.
3.
4.

GDP growth
Free market
Credit
Tax on income/
Consumption
5. Deficit financing

Companies
1.
2.
3.
4.
5.

Sales growth
Money
Credit
Consumerism
Profit
maximization

Individuals
1.
2.
3.
4.
5.

Income growth
Money
Credit
Consumption
Wealth
maximization

Ownership/Competition
Short-term approach
Islamic Economic Drivers

1. Economics is a Science of wealth (to teach selfishness). K.K Dewett


2. Economic is made to study wealth rather than welfare.
1. Earned income ()
1. Wealth Tax ()
Restrictswith:
2.3. Guarantee
basic
Whatever the
economics is concerned with it is not2.
concerned
consumption
Study
human
needs
of relation of real goods (physical science) and wealth
(monetary ()
3. Distribute surplus
science)wealth
3. Restricting
Study of relation of material welfare (of individual) and general
wealthwelfare
(( )of
accumulation

Trusteeship/Cooperation
Long-term approach

humanity).
Study of relation of short term needs: and long-term needs

Major problem of Humanity:


Operating under incompatible Systems
Matter ()

Money ()

Natural (Real) Economy

Financial (Shadow) Economy

Operates under
physical/biological constraints

Organic Resources


(Manpower, animals, plants)

Inorganic Resources


(Natural Resources)

Operates under unconstrained


compound interest rate growth

Taxes ()
Gov. Deficit (

Money ()
Credit ()

Profound change in the underlying dynamics:


Money and credit rather than goods/services had become the real economy
Energy and automation has become real contributor rather than manpower and animals

Framework of integrated human ecosystem


External Political &
Economic Conditions

Social
Process
Demography
Technology
Economy
Institutions
Culture
Information

Ecological
Process

Interactions

Human
Systems

Land use
Land cover
Production
Consumption
Disposal

Natural
Systems

Primary
production
Populations
Organic matter
Nutrients
Disturbances

External Biological, Geological


& Physical Conditions

Biggest tragedy of our time is that modern priests (economists) do


not know that something must be physically possible before it can be
economically possible.

Basic types of growth patterns


Growth
c

natural curve
(natural resources)
linear curve
(machines)

exponential curve
(money)

Time

U.S. National Debt Clock


US Population
Current Interest Rate

298,342,731
10.0%

Year Outstanding US Debt


1
8,199,252,799,551
25
88,836,493,038,639
50
962,517,279,115,525
75
10,428,591,684,647,000
100
112,990,724,306,816,000
125
1,224,221,272,194,810,000
150
13,264,077,493,871,600,000
175
143,712,379,256,415,000,000
200
1,557,081,369,667,970,000,000
225
16,870,518,770,280,900,000,000
250 182,787,109,988,408,000,000,000

As of 25th January 2006

Debt/Citizen
27,483
297,767
3,226,213
34,955,072
378,727,928
4,103,405,731
44,459,194,462
481,702,298,476
5,219,102,756,246
56,547,443,652,250
612,674,923,822,453

77 times
of national
total now

http://www.brillig.com/debt_clock/

Impracticable (Financing Decisions)


Year
10
200
400
600
800
1000
1200
1400
1600
1800
2000

Kg (Gold, Sliver or any other commodity)

Interest
Rate (8%)

8%
cc

1
1 Kg
4,838,950
in year 1
23,415,433,085,206
Weight
113,306,100,207,918,000,000
of Earth
No of
548,282,506,567,769,000,000,000,000
Kgs in
earths
2,653,111,407,564,170,000,000,000,000,000,000
year 2000
12,838,272,344,326,700,000,000,000,000,000,000,000,000
62,123,752,631,416,000,000,000,000,000,000,000,000,000,000,000
300,613,707,008,236,000,000,000,000,000,000,000,000,000,000,000,000,000
1,454,654,572,742,820,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000
7,039,000,140,947,130,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000
5,972,000,000,000,000,000,000,000
1,178,667,136,796,240,000,000,000,000,000,000,000,000,000

The economist sees economic activity as a function of infinite "money creation",


rather than a function of finite natural resources".
Organisations in the West with money to invest, especially those which like to
consider themselves as being ethical, might have rather more to learn from Islam
than is generally acknowledged. By applying the Islamic approach, a lot of human
misery could have been avoided.
Wayne A.M. Visser and Alastair McIntosh
http://www.che.ac.uk/publications/usury.htm

Un-natural (Investing Decisions)


Quantities @10%

120

100 100 100 100 100 100 100 100 100 100 100

100
80

Capitalist Way

62

60

39

40
20
0

Islamic Way

24
Year 1
Quantities

Year 1

10

15

15

20

Year 50
Quantities

25

30

35

40

45

50

1. Under discounting system, we need less and less quantities in


future to survive.
2. Under natural system, we need a constant quantity of food to
meet our biological needs
3. Hence, discounting concept is in conflict with nature

3
Outcome of
current
economic
practices

Outcome of modern economic system


Explosion of
Explosion
of
Explosion
of

Debt


Competition
Over-supply






*****
(26)

And give to the relatives due and to the


needy and the wayfarer, and do not squander
Explosion
of
Explosion
Explosion
of Surely
wastefully.
the squanderers
are theof
Over-wastage
Over-production
fellows of theOver-utilization
devils and the satan
is ever
to
ungrateful
his Lord.
(Isra 26-27)

World Economy at Crossroad

1.
2.
3.
4.

Products
economy

Industrial
Economy

Industrial
Economy

Employment

Real
Economy

Paper
Economy

Economic
Principles

Social
Principles

Primary products economy uncoupled from Industrial Economy


Industrial Economy uncoupled from Employment
Symbol economy disconnected from real economy
Economic principles (self-interest/short term focus) disconnection
from social principles

Modern tragedy of Contradictory Laws


l
a
c
i
s s
y
Ph Law
ge

M
or
La al
ws

ic
u
Q

Overnight Profit

en
ter
ed

Integral
System

Economic
Laws

Se
lf-C

s
U
k

"It is well that the people of the nation do not


understand our banking and monetary
system, for if they did, I believe there would
be a revolution before tomorrow morning."
Henry Ford

1. Sixty percent of the


families in America can
maintain their standards
of living for only one
month
2. The next 20% can
maintain it for only three
months.
3. That means that 80% of
the population is living at
an incredibly high level of
economic insecurity

work-and-spend lifestyle.

Consumption & Waste Culture

Mind
control

The Earth can no longer support the lifestyle of the cool hunting American-style
consumer. We have sought, bought, spewed and devoured too much, too fast, too
brazenly, and now we're about to pay. Economic "progress" is killing the planet.
(Kellay Lason)

March towards Destruction?

Each U.S citizen


requires energy
of 300 persons
working round the
clock

Lifecycle is no more sustainable


100%

Stacked presentation of
work done over time in
Wood
United States by labor, Domesticated animals, Fuels
as a percentage of Total Horsepower in the Economy

80%

Labor

60%

La
bo
r

40%

20%

0%

Oil is capitalism's crack cocaine

Fuel
Domesticated
Animals
Domesticated
Animals

1850

1870

1890

1910

6000 products
(Fertilizers &
pesticides!!!!)

Energy is
now
life blood of
economy

1930

p.79 BEYOND OIL. J. Gever et al. 1991

1950

1970

Importance of Energy
How Much Human Energy Is Contained in One
Barrel of Oil?
***
1 Barrel of Oil = 5,800,000 BTUs
**
1 Barrel of Oil = 23,200 Hours of Human Work Output
Human work cost of 1 barrel of oil
Rate per hour= US$ 8/hour
Total cost= $185,600 per barrel equivalent human
work
Switchover is possible only when the oil cost
increases $185,600/barrel
Or Rupees 70,000/Litre
http://lifeaftertheoilcrash.net/Research.html

Greatest Threat to Life: Food Scarcity


from planting, irrigation, feeding and harvesting,
through to processing, distribution and packaging.
In addition, fossil fuels are essential in the
construction and the repair of equipment and
infrastructure needed to facilitate this industry,
including farm machinery, processing facilities,
storage, ships, trucks and roads
Pesticides (Gas)

FROM THE CAVES, TO THE MOON, TO THE CAVES

Richard C. Duncan, Ph.D. Institute on Energy


and Man, June 27, 1996

Even if the entire mass of the earth were petroleum, it would be


exhausted in 500 years at 5% increase in rate of consumption. For
addition 100 year 157 earths would be required (current production is 10

Story of Past Rebels


Tower of Babel


X

How many populations have We destroyed, which were given to wrongdoing? They tumbled down on their roofs. And how many wells are lying
idle and neglected, and castles lofty and well-built? (Hajj 45)
X

Period of Namrood (let us revolt) 2500 BC

What
should we
do?

Penalties on various crimes


Level

Crime

Action

Moral

various

Disliking/Curse of
Allah

Social

Sex

100 Lashes

Killing

Revenge (Qasas)

Political
Economic

Interest

War with
Allah & Rasul

Steps for healing the money system


1.
2.
3.
4.
5.
6.
7.
8.
9.

Limit growth and focus on wellbeing


Limit Debt & encourage entrepreneurs
Introduce zero rated
debts
The
money
Impose Charge on money holding
system is like a
Make speculation a criminal offence
cancer that
Incentivise productive work and investment;
consumes its
Tax Unearned Gains
host and
Replace labor for energy use
ultimately
Strengthen the social fabric of family and
destroys itself
community
10. Lease land for living/business purposes
Healing the Money System David C. Korten:

http://www.converge.org.nz/pirm/money.htm

Action at personal level


1. Adopt simple lifestyle (Resource conservation &
sharing)
2. Get out of interest/speculation based investments
3. Fully utilize goods before replacement
4. Eliminate morbid craving for extravagant gadgetry
5. Get rid of fashion (a bio-economic disease of the
human mind )
6. Demand durable goods to be made still more
durable by being designed so as to be repairable.
7. Get closer to the nature as possible
8. Join hands to fight for reform at state level

Final outcome

(7

) (8

)(9

*****

Let the man of means spend according to his means: and the man whose
resources are restricted, let him spend according to what Allah has given
him. Allah puts no burden on any person beyond what He has given him.
After a difficulty, Allah will soon grant relief. And how many a community
revolted against the ordinance of its Lord and His messengers and We took
detailed accountability of their deeds and punished them severely. Then did
they taste the evil result of their conduct, and the End of their conduct was
great loss.

)(Talaq 7-10

PEOPLE

POWER SHIFT:
GLOBAL FINANCE

MARKET
ECONOMY

CAPITALIST
ECONOMY

Globalization
Deregulation
Concentration

Small & Local

Large & Global

Global Financial System

People

Ownership
Culture &
Choice

Rules

Ownership

Global Corporation
Culture &
Choice

Local
Enterprises
Source: Life after the Dominance of Capital, by David C. Korten
http://www.bke.hu/~kg_korny/altern/korten/kortpres.html

Rules

People

Most frequent
question is: Where
is modern Islamic
Economic System?

Surprisingly, the Quran troughs the question back to


us?
Create it based on the guiding principles keeping in
view needs and deeds of the society. Then keep on
modifying it based on the emerging needs of the
Humanity