The entire structure of Islamic economics is based on interest free transaction. The abhorrence to interest is such that not only giving and taking it is disallowed, but also recording it in writing! Interest based dealings are so much hateful in the sight of Allah(SWT) that Allah(SWT) has declared war against those who deal in interest based transaction. Economic laws of Islam does not recognize money as a 'good', hence it cannot be traded. Money can be made to grow through investments, which also involves risk. Therefore the investors have to make investments judiciously. Islam does not allow a person to sit back and enjoy devouring wealth generated from wealth; but it encourages people to take part in economic activities around.
The growth of Islamic banking and finance and their outstanding performance has shattered the myth that 'an economic system without involving interest based transaction is unthinkable.' Unfortunately many Muslims are prey to this myth and propaganda. No doubt, interest based transaction was there since very early times, but history bears witness that it has always been condemned and money-lenders who lend on interest have always been portrayed as a cruel being of his time; exploiting the society; enslaving people and degrading them.
Definitition of Islamic Economics:
Islamic economics may be defined as that branch of knowledge which helps realize human well being through an allocation and distribution of scarce resources that is in conformity with Islamic teachings without unduly curbing individual freedom or creating continued macroeconomic and ecological imbalance.
Paradigm of Islamic Economics:
Socio economic justice is the paradigm on which the Islamic economics is based. Adl or justice is an important display of character that the creator demands from his beings. Allah (SWT) says in Surah Al Hadid in verse 25: "We sent Our Messengers with clear signs and instructions and sent down with them the Book and the Balance so that the people may stand by justice……"
To explain this Maulana Maududi writes: "In this brief sentence the whole essence of the mission of the Prophets bas been compressed, which one should clearly understand......"
The object for which the Prophets were sent with three things (signs, book, and balance) was that man's conduct in the world and the system of human life, individually as well as collectively, should be established with justice. On the one hand, every man should precisely know the rights of God, the rights of his self and the rights of all. Those people with whom he may have to deal in any way, and should fulfill them faithfully; and, on the other, the system of collective life should be built on such principles as should eliminate every kind of injustice from society, should safeguard every aspect of civilization and social life against extremism, should establish correct balance and equity in all spheres of collective life, so that all elements of society should receive their rights equitably and fulfill their obligations and duties responsibly. In other words, the object of sending the prophets was to establish individual as well as collective justice. They wanted to establish justice in the personal life of each individual so as to bring about poise and equilibrium in his mind, his character, his conduct and his dealings. They also wanted to establish the whole system of human society on justice so that both the individual and the society should assist and cooperate with each other in their spiritual, moral and material well-being instead of being a hindrance and obstacle.
Allah has made human beings his Khalifa on earth. Whatever is present on earth is for us to use it for our own benefit. We should see to it that we hurt nobody while using the earthly resources. Our wants should not be so much that it turns into greed. In acquiring wealth for ourselves we should not neglect the people around us. It is our duty to look after our neighbors, kith and kin and those who need our help. We shall be answerable to Allah (SWT) for this on the Day of Judgment.
Islam is a complete way of life. There should be a balance between both the spiritual and material aspects of Islamic life. Only Salat, hajj and tasbihaat does not bring us near to Allah. We have some material duty to perform. Allah has created this world for us; if we don't derive benefit from it then we will be ungrateful to Allah. Our test lies in the fact that we have to obey Allah (SWT) by living in this world and participating in the worldly activities.
Elements of Islamic Economic system:
The main elements of Islamic economic system are:
1. Ownership: some important characteristics of it area. Ownership can be public or private. No transgression in ownership is allowed. The use of wealth, either private or public, should be not detriment the peace and security of the society.
2. Motivation: some important characteristics of it are: From the hadith of prophet (PBUH) which says "the best that man can earn is that resulting from his work". This gives the motivation to work hard. Apart from our good public good should also be a motivating factor To work righteously, because we are answerable to Allah for what we do.
3. Decision making process: some characteristics are: Methods of decision making should be Public and private. Decision making should be based on present and future generation. Every decision should be made after careful planning.
4. Government role: some characteristic are State is the guide and supervisor of the economy. Ensures better distribution of income. Justice is an important characteristic of Islamic Government
5. Economic activity: some characteristics are:
Forbiddance of monopoly.
No exploitation of consumers.