Islamic Business Law, Report

7/28/2019 Islamic Business Law, Report

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Graduate School of Business, Islamabad

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Islamic Perspective ofBusiness

Ijaz Hussain Bajwa Muhammad Waseem

Muhammad Ali Abbas Muhammad Farooq

Course Instructor: Naveed Khan Advocate.


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Capitalism

Capitalism is an economic system in which wealth, and the means of producing

wealth, are privately owned.

Through capitalism, the land, labor, and capital areowned, operated, and traded for the purpose of generating profits, without forceor fraud, by private individuals either singly or jointly, and investments,distribution, income, production, pricing and supply ofgoods, commodities andservices are determined by voluntary private decision in a market economy. Adistinguishing feature of capitalism is that each person owns his or her ownlabor and therefore is allowed to sell the use of it to employers. In a "capitaliststate", private rights and property relations are protected by the rule of law of a

limited regulatory framework. In the modern capitalist state, legislative action isconfined to defining and enforcing the basic rules of the market, though thestate may provide some public goods and infrastructure.

Some considerlaissez-faire to be "pure capitalism."Laissez-faire (French,"leave to do (by itself)"), signifies minimizing oreliminating state interferencein economic affairs and the competitive process, allowing the free play of"supply and demand." Laissez-faire capitalism has never existed in practice.Because all large economies today have a mixture of private and publicownership and control, some feel that the term "mixed economies" more

precisely describes most contemporary economies. In the "capitalist mixedeconomy", the state intervenes in market activity and provides many services.During the last century, capitalism has often been contrasted with centrally

planned economies. The central axiom of capitalism is that the best allocation ofresources is achieved through consumers having free choice, and producersresponding accordingly to meet aggregate and individual consumer demand.This contrasts with planned economies in which the state directs what shall be

produced. A consequence is the belief that privatization of previously state-provided services will tend to achieve a more efficient delivery thereof. Furtherimplications are usually in favor offree trade, and abolition ofsubsidies.Although individuals and groups must act rationally in any society for their owngood, the consequences of both rational and irrational actions are said to bemore readily apparent in a capitalist society.

Capitalistic economic practices incrementally became institutionalized in

Englandbetween the 16th and 19th centuries, although some features of
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capitalist organization existed in the ancient world, and early aspects ofmerchant capitalismflourished during the Late Middle Ages. Capitalism has

been dominant in the Western world since the end of feudalism. From Britain, itgradually spread throughout Europe, across political and cultural frontiers. In

the 19th and 20th centuries, capitalism provided the main, but not exclusive,means ofindustrialization throughout much of the world.

Political advocacy

World's GDPper capita shows exponential acceleration since the beginning ofthe Industrial Revolution.

Many theorists and policymakers in predominantly capitalist nations haveemphasized capitalism's ability to promote economic growth, as measured byGross Domestic Product (GDP), capacity utilization orstandard of living. Thisargument was central; for example, to Adam Smith's advocacy of letting a freemarket control production and price, and allocate resources. Many theoristshave noted that this increase in global GDP over time coincides with theemergence of the modern world capitalist system. While the measurements arenot identical, proponents argue that increasing GDP (per capita) is empirically

shown to bring about improved standards of living, such as better availability offood, housing, clothing, and health care. The decrease in the number of hoursworked per week and the decreased participation of children and the elderly inthe workforce have been attributed to capitalism. Proponents also believe that acapitalist economy offers far more opportunities for individuals to raise theirincome through new professions or business ventures than do other economicforms. To their thinking, this potential is much greater than in either traditionalfeudal ortribal societies or in socialist societies.

Milton Friedman has argued that the economic freedom of competitivecapitalism is a requisite ofpolitical freedom. Friedman argued that centralizedcontrol of economic activity is always accompanied by political repression. Inhis view, transactions in a market economy are voluntary, and the wide diversitythat voluntary activity permits is a fundamental threat to repressive politicalleaders and greatly diminishes power to coerce. Friedman's view was alsoshared by Friedrich Hayekand John Maynard Keynes, both of whom believedthat capitalism is vital for freedom to survive and thrive.
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Austrian School economists have argued that capitalism can organize itself intoa complex system without an external guidance or planning mechanism.Friedrich Hayek coined the term "catallaxy" to describe what he considered the

phenomenon ofself-organization underpinning capitalism. From this

perspective, in process of self-organization, the profit motive has an importantrole. From transactions between buyers and sellers price systems emerge, and

prices serve as a signal as to the urgent and unfilled wants of people. Thepromise of profits gives entrepreneurs incentive to use their knowledge andresources to satisfy those wants. Thus the activities of millions of people, eachseeking his own interest, are coordinated. This decentralized system ofcoordination is viewed by some supporters of capitalism as one of its greateststrengths. They argue that it permits many solutions to be tried, and that real-

world competition generally finds a good solution to emerging challenges. Incontrast, they argue, central planning often selects inappropriate solutions as aresult of faulty forecasting. However, in all existing modern economies, thestate conducts some degree ofcentralized economic planning (using such toolsas allowing the country's central bankto set base interest rates), ostensibly as anattempt to improve efficiency, attenuate cyclical volatility, and further particularsocial goals. Proponents who follow the Austrian School argue that even thislimited control creates inefficiencies because we cannot predict the long-term

activity of the economy. Milton Friedman, for example, has argued that theGreat Depression was caused by the erroneous policy of the Federal Reserve.

Ayn Rand was a prominent philosophical supporter oflaissez-faire capitalism;her novel Atlas Shrugged was one of the most influential publications everwritten on the subject of business and continues to be a best-seller. The first

person to endow capitalism with a new code of morality (Rational Selfishness),she did not justify capitalism on the grounds of pure "practicality" (that it is the

best wealth-creating system), or the supernatural (that God orreligion supportscapitalism), or because it benefits the most people, but maintained that it is theonly morally valid socio-political system because it allows people to be free toact in their rational self-interest. These thinkers have had a substantial influenceon the Libertarian Party. The Libertarian Party strongly advocates theelimination of most, if not all, state involvement in the marketplace. TheRepublican Liberty Caucus is the libertarianbranch of the Republican Party.
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Criticism

Prominent leftist critics have included socialists (like Karl Marx, FriedrichEngels, Vladimir Lenin, Mao Zedong, Leon Trotsky, Antonio Gramsci, Rosa

Luxemburg, Slavoj Zizek, Che Guevara, Fidel Castro) and anarchists (includingBenjamin Tucker, Lysander Spooner, Pierre-Joseph Proudhon, MikhailBakunin, Peter Kropotkin, Emma Goldman, Murray Bookchin, Rudolf Rocker,

Noam Chomsky, and many others). Movements like the Luddites, Narodniks,Shakers, Utopian Socialists and others have opposed capitalism for variousreasons. Marxism advocated a revolutionary overthrow of capitalism that wouldlead eventually to communism. Marxism also influenced social democratic andlabour parties, which seek change through existing democratic channels instead

of revolution, and believe that capitalism should be heavily regulated rather thanabolished. Many aspects of capitalism have come under attack from therelatively recent anti-globalization movement.

Some religions criticize or outright oppose specific elements of capitalism.Some traditions ofJudaism, Christianity, and Islam forbid lending money atinterest, although methods ofIslamic banking have been developed. Christianityhas been a source of both praise and criticism for capitalism, particularly its

materialist aspects. The first socialists drew many of their principles fromChristian values (see Christian socialism), against "bourgeois" values of

profiteering, greed, selfishness, and hoarding. Christian critics of capitalismmay not oppose capitalism entirely, but support a mixed economy in order toensure adequate labor standards and relations, as well as economic justice. Inaddition, there are many prominent Protestant denominations (particularly in theUnited States) who have reconciled withor are ardently in favor ofcapitalism, particularly in opposition to secular socialism. However, in the U.S.

and around the world there are many Protestant Christian traditions which arecritical of, or even oppose, capitalism. Another critic is the Indian philosopherP.R. Sarkar, founder of the Ananda Marga movement, who developed theSocial Cycle Theory as a solution to the problems of capitalism called theProgressive Utilization Theory (PROUT).[120][121]

Some problems said to be associated with capitalism include: unfair andinefficient distribution of wealth and power; a tendency toward market

monopoly oroligopoly (and government by oligarchy); imperialism and variousforms of economic and cultural exploitation; and phenomena such as social
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alienation, inequality, unemployment, and economic instability. Critics havemaintained that there is an inherent tendency towards oligolopolistic structureswhen laissez-faire is combined with capitalist private property. Because of thistendency either laissez-faire, or private property, or both, have drawn fire from

critics who believe an essential aspect of economic freedom is the extension ofthe freedom to have meaningful decision-making control over productiveresources to everyone. Economist Branko Horvat asserts, "it is now well knownthat capitalist development leads to the concentration of capital, employmentand power. It is somewhat less known that it leads to the almost completedestruction of economic freedom." SMU Economics Professor and New YorkTimes #1 best-selling author, Ravi Batra, has long maintained that excessiveincome and wealth inequalities are a fundamental cause of financial crisis and

economic depression in the capitalist economy.

Near the start of the 20th century, Vladimir Lenin argued that that state use ofmilitary power to defend capitalist interests abroad was an inevitable corollaryof monopoly capitalism. This concept ofpolitical economy concerning therelationship between economic and political power among and within statesincludes critics of capitalism who assign to it responsibility for not onlyeconomic exploitation, but imperialist, colonialist and counter-revolutionary

wars, repressions of workers and trade unionists, genocides, massacres, and soon.

Some environmentalists argue that capitalism requires continual economicgrowth, and will inevitably deplete the finite natural resources of the earth, andother broadly utilized resources. Such thinkers, including Murray Bookchin,have argued that capitalist production externalizes environmental costs to all ofsociety, and is unable to adequately mitigate its impact upon ecosystems and the

biosphere at large. Supporters maintain, however, that it would be imprudent forcapitalist societies to deplete resources to such an extent.

Some labor historians and scholars, such as Immanuel Wallerstein, Tom Brassand, latterly Marcel van der Linden, have also argued that unfree labortheuse of a labor force ofslaves, indentured servants, criminal convicts, political

prisoners, and/or other coerced personsis compatible with capitalistrelations.
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Socialism


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Socialism in political thought refers to economic theories of social organization

advocating collective ownership and administration of the means of productionand distribution of goods, and a society characterized by equality for allindividuals, with an egalitarian method of compensation. Modern socialismoriginated in the late 19th-century intellectual and working classpoliticalmovement that criticized the effects of industrialization and private ownershipon society. Karl Marxposited that socialism (the disappearance of class andtherefore state) would be achieved via class struggle and a proletarian revolutionafter a transitional stage from capitalism called the dictatorship of the

proletariat.

The utopian socialists, including Robert Owen, tried to found socialist factoriesand other structures within a capitalist society. Henri de Saint Simon, the firstindividual to coin the termsocialism, was the originator of technocracy andindustrial planning. The first socialists predicted a world improved byharnessing technology and combining it with better social organization, andmany contemporary socialists share this belief. Early socialist thinkers tended tofavor more authentic meritocracy, while many modern socialists have a moreegalitarian approach.

Socialists mainly share the belief that capitalism unfairly concentrates powerand wealth among a small segment of society that controls capital, creates anunequal society, and does not provide equal opportunities for everyone insociety. Therefore socialists advocate the creation of a society in which wealthand power are distributed more evenly based on the amount of work expendedin production, although there is considerable disagreement among socialists

over how and to what extent this could be achieved.
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Socialism is not a concrete philosophy of fixed doctrine and program; itsbranches advocate a degree ofsocial interventionism and economicrationalization, sometimes opposing each other. Another dividing feature of thesocialist movement is the split between reformists and the revolutionaries on

how a socialist economy should be established. Some socialists advocatecomplete nationalization of the means of production, distribution, andexchange; others advocate state control of capital within the framework of amarket economy. Socialists inspired by the Soviet model of economicdevelopment have advocated the creation ofcentrally planned economiesdirected by a state that owns all the means of production. Others, includingYugoslavian, Hungarian, German and Chinese Communists in the 1970s and1980s, instituted various forms ofmarket socialism, combining co-operative

and state ownership models with the free market exchange and free price system(but not prices for the means of production). Social democratspropose selectivenationalization of key national industries in mixed economies, with privateownership of property and of profit-making small business. Social Democratsalso promote tax-funded welfare programs and the regulation of markets.Libertarian socialism (including social anarchism and libertarian Marxism)rejects state control and ownership of the economy altogether and advocatesdirect collective ownership of the means of production via co-operative workers'

councils and workplace democracy.

Origins

The English wordsocialism (1839) derives from the Frenchsocialisme (1832),the mainstream introduction of which usage is attributed, in France, to PierreLeroux and to Marie Roch Louis Reybaud; and in Britain to Robert Owen in1827, father of the cooperative movement.

Western European social critics, including Robert Owen, Charles Fourier,Pierre-Joseph Proudhon, Louis Blanc, Charles Hall and Saint-Simon, were thefirst modern socialists who criticized the excessive poverty and inequality of theIndustrial Revolution. They advocated reform via the egalitarian distribution ofwealth and the transformation of society to small communities without private

property. Saint-Simon delineated collectivist principles to reorganize societyand build socialism upon planned, utopian communities.
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Linguistically, the contemporary connotation of the wordssocialism andcommunismaccorded with the adherents' and opponents' cultural attitudetowards religion. In Christian Europe, of the two, communism was believed theatheist way of life. In Protestant England, the word communism was too

culturally and aurally close to the Papist Roman Catholiccommunion rite, henceEnglish atheists denoted themselves socialists.

In 1847, Friedrich Engels said "socialism was respectable on the continent,while communism was not." The Owenites in England and the Fourierists inFrance were considered socialists, while working-class movements that"proclaimed the necessity of total social change" denoted themselvescommunists. This latter branch of socialism was powerful enough to produce

the communisms oftienne Cabet in France and Wilhelm Weitling in Germany.

Revolutions of 19171923

Vladimir Lenin (background) and Joseph Stalin

By the year 1917, the patriotism propelling the First World Warmetamorphosedto political radicalism in most of Europe, the United States (cf. Socialism in theUnited States), and Australia. In February, popular revolution exploded inRussia when workers, soldiers, and peasants established soviets (councils)wielding executive power in a Provisional Government valid until convocationof a Constituent Assembly. In April, Lenin arrived in Russia from Switzerland,calling for "All power to the soviets." In October, his party (the Bolsheviks)won support of most soviets while he and Trotsky simultaneously led theOctober Revolution. On 25 January 1918, at the Petrograd Soviet, Lenindeclared "Long live the world socialist revolution".

On 26 January, the day after assuming executive power, Lenin wroteDraftRegulations on Workers' Control, which granted workers control of businesseswith more than five workers and office employees, and access to all books,

documents, and stocks, and whose decisions were to be "binding upon the
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owners of the enterprises". Immediately, the Bolshevik Governmentnationalized banks, most industry, and disavowed the national debts of thedeposed Romanov royal rgime; it governed via elected soviets; and it sued for

peace and withdrew from the First World War. Despite that, the peasant

Socialist-Revolutionary (SR) Party won the Constituent Assembly against theBolshevik Party, who then acted resolutely the next day.

The Constituent Assembly convened for 13 hours (16.00 hrs 5 Jan4.40 hrs 6Jan 1918). Socialist-revolutionary leaderVictor Chernov was elected Presidentof a Russian republic and the next day, the Bolsheviks dissolved the ConstituentAssembly. The Bolshevik Russian Revolution of January 1918 engenderedCommunist parties worldwide, and their concomitant revolutions of 1917-23.

Few Communists doubted that the Russian success of socialism depended uponsuccessful, working-class socialist revolutions affected in developed capitalist-economy countries. In 1919, Lenin and Trotsky organised the world'sCommunist parties into a new international association of workerstheCommunist International, (Comintern), also denominated the ThirdInternational.

In November 1918, the German Revolution deposed the monarchy; as in

Russia, the councils of workers and soldiers were comprised mostly ofSPD andUSPD (Independent Social Democrats) revolutionaries installed to office as theWeimar republic; the SPD were in power, led by Friedrich Ebert, in January1919. The left-wing Spartacist Putsch challenged the SPD government, andPresident Ebert ordered the army and Freikorps mercenaries to violentlysuppress the workers' and soldiers' councils. Communist leaders KarlLiebknecht and Rosa Luxemburg were captured and summarily executed. Alsothat year, in Bavaria, the Communist rgime ofKurt Eisnerwas suppressed. In

Hungary, Bla Kunbriefly headed a Hungarian Communist government.Throughout, popular socialist revolutions in Vienna, Italy's northern industrialcities, the German Ruhr (1920) and Saxony (1923) all failed in spreadingrevolutionary socialism to Europe's advanced, capitalist countries.

In Russia in August 1918, assassin Fanya Kaplan shot Lenin in the neck,leaving him with wounds from which he never fully recovered. Earlier, in June,the Soviet government had implemented War Communism to manage theforeign economic boycott of Russia and invasions by Imperial Germany,Imperial Britain, the United States and France (interfering in the Russian Civil
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War beside royalist White Russians). Under war communism, private businesswas outlawed, strikers could be shot, the white collar classes were forced towork manually, and peasants could be forced to provide to workers in cities.

By 1920, as Red Army commander, Trotsky had mostly defeated the royalistWhite Armies. In 1921, War Communism was ended, and, under the NewEconomic Policy (NEP), private ownership was allowed for small and medium

peasant enterprises; industry remained State-controlled, Lenin acknowledgedthat the NEP was a necessary capitalist measure for a country mostly unripe forsocialism, thus the existence of NEP businessmen and NEP women (NEP Men)flourished and the Kulaks gained capitalist power as rich peasants.

In 1923, on seeing the Soviet State's greatly coercive power, the dying Leninsaid Russia had reverted to "a bourgeois tsarist machine... barely varnished withsocialism." After Lenin's death (January 1924), the Communist Party of theSoviet Union then controlled by Joseph Stalin rejected the theory thatsocialism could not be built solely in the Soviet Union, and declared theSocialism in One Countrypolicy. Despite the marginal Left Opposition'sdemanding restoration of Soviet democracy, Stalin developed a bureaucratic,authoritarian government, that was condemned by democratic socialists,

anarchists and Trotskyists for undermining the initial socialist ideals of theBolshevik Russian Revolution.

The Russian Revolution of October 1917 brought about the definitiveideological division between Communists as denoted with a capital "" on the

one hand and other communist and socialist trends such as anarcho-communistsand social democrats, on the other. The Left Opposition in the Soviet Uniongave rise to Trotskyism which was to remain isolated and insignificant foranother fifty years, except in Sri Lanka where Trotskyism gained the majorityand the pro-Moscow wing was expelled from the Communist Party.

In 1922, the fourth congress of the Communist International took up the policyof the United Front, urging Communists to work with rank and file SocialDemocrats while remaining critical of their leaders, who they criticized for"betraying" the working class by supporting the war efforts of their respectivecapitalist classes. For their part, the social democrats pointed to the dislocationcaused by revolution, and later, the growing authoritarianism of the Communist
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Parties. When the Communist Party of Great Britain applied to affiliate to theLabour Party in 1920 it was turned down.

Economics

Economically, socialism denotes an economic system of state ownership and/orworker ownership of the means of production and distribution. In the economyof the Soviet Union, state ownership of the means of production was combinedwith central planning, in relation to which goods and services to make and

provide, how they were to be produced, the quantities, and the sale prices.Soviet economic planning was an alternative to allowing the market (supply anddemand) to determine prices and production. During the Great Depression,

many socialists considered Soviet-style planned economies the remedy tocapitalism's inherent flawsmonopoly, business cycles, unemployment,unequally distributed wealth, and the economic exploitation of workers.

In the West, neoclassical liberal economists such as Friedrich Hayekand MiltonFriedman said that socialist planned economies would fail, because plannerscould not have the business information inherent to a market economy (cf.economic calculation problem), nor would managers in Soviet-style socialist

economies match the motivation of profit. Consequent to Soviet economicstagnation in the 1970s and 1980s, socialists began to accept parts of theircritique. Polish economist Oskar Lange, an early proponent ofmarket socialism,

proposed a central planning board establishing prices and controls ofinvestment. The prices of producer goods would be determined through trial anderror. The prices of consumer goods would be determined by supply anddemand, with the supply coming from state-owned firms that would set their

prices equal to the marginal cost, as in perfectly competitive markets. The

central planning board would distribute a "social dividend" to ensure reasonableincome equality.

In Western Europe, particularly in the period afterWorld War II, many socialistparties in government implemented what became known as mixed economies.In the biography of the 1945 Labour Party Prime Minister Clem Attlee, FrancisBeckett states: "the government... wanted what would become known as amixed economy". Beckett also states that "Everyone called the 1945government 'socialist'." These governments nationalized major andeconomically vital industries while permitting a free market to continue in the
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rest. These were most often monopolistic or infrastructural industries like mail,railways, power and other utilities. In some instances a number of small,competing and often relatively poorly financed companies in the same sectorwere nationalized to form one government monopoly for the purpose of

competent management, of economic rescue (in the UK, British Leyland, RollsRoyce), or of competing on the world market.

Also in the UK, British Aerospace was a combination of major aircraftcompanies British Aircraft Corporation, Hawker Siddeley and others. BritishShipbuilders was a combination of the major shipbuilding companies includingCammell Laird, Govan Shipbuilders, Swan Hunter, and Yarrow ShipbuildersTypically, this was achieved through compulsory purchase of the industry (i.e.

with compensation). In the UK, the nationalization of the coal mines in 1947created a coal board charged with running the coal industry commercially so asto be able to meet the interest payable on the bonds which the former mineowners' shares had been converted into.

Some socialists propose various decentralized, worker-managed economicsystems. One such system is the cooperative economy, a largely free marketeconomy in which workers manage the firms and democratically determine

remuneration levels and labor divisions. Productive resources would be legallyowned by the cooperative and rented to the workers, who would enjoy usufructrights. Another, more recent, variant is participatory economics, wherein theeconomy is planned by decentralized councils of workers and consumers.Workers would be remunerated solely according to effort and sacrifice, so thatthose engaged in dangerous, uncomfortable, and strenuous work would receivethe highest incomes and could thereby work less. Some Marxists and anarcho-communists also propose a worker-managed economy based on workers

councils, however in anarcho-communism; workers are remunerated accordingto their needs (which are largely self-determined in an anarcho-communistsystem). Recently socialists have also been working with the technocracymovement to promote such concepts as energy accounting.

Criticism
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Criticisms of socialism range from claims that socialist economic and politicalmodels are inefficient or incompatible with civil liberties to condemnation ofspecific socialist states. There is much focus on the economic performance andhuman rights records ofCommunist states, although there is debate over the

categorization of such states as socialist.

In the economic calculation debate, classical liberal Friedrich Hayekargued thata socialist command economy could not adequately transmit information about

prices and productive quotas due to the lack of a price mechanism, and as aresult it could not make rational economic decisions. Ludwig von Mises arguedthat a socialist economy was not possible at all, because of the impossibility ofrational pricing of capital goods in a socialist economy since the state is the only

owner of the capital goods. Hayek further argued that the social control overdistribution of wealth and private property advocated by socialists cannot beachieved without reduced prosperity for the general populace, and a loss of

political and economic freedoms.

Hayek's views were echoed by Winston Churchill in an electoral broadcast priorto the British general election of 1945:

Islamic Economic
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Islamic economics can refer to the application of Islamic law to economicactivity either where Islamic rule is in force or where it is not; i.e. it can refer tothe creation of an Islamic economic system, or to simply following Islamic lawin regards to spending, saving, investing, giving, etc. where the state does not

follow Islamic law.

The former paradigm, particularly as developed by modern Shia scholars suchas Mahmoud Taleghani, and Mohammad Baqir al-Sadr, seeks not only toenforce Islamic regulations on issues such as Zakat, Jizya, Nisab, Khums, Riba,insurance and inheritance, but to implement broader economic goals and

policies of an Islamic society. It seeks an economic system based on upliftingthe deprived masses, a major role for the state in matters such as circulation and

equitable distribution of wealth and ensuring participants in the marketplace arerewarded for being exposed to risk and/or liability. Islamists movements andauthors will generally describe this system as being neitherSocialist norCapitalist, but a third way with none of the drawbacks of the other two systems.

The latter paradigm is of necessity more limited, revolving around a few maintenets of Islam: the payment ofzakat charity by believers, borrowing andlending without payment of fixed interest (riba), and socially responsible

investing. The key difference from a financialperspective is the no-interest rulesince most other religions favor charitable giving and socially responsibleinvesting. The belief that the prohibition of investment with interest charges isessential for an Islamic society is widespread, though liberal movements withinIslam may deny the need for this prohibition, since they see Islam as generallycompatible with modern secular institutions and law.

History

Traditional Islamic concepts having to do with economics included

zakat- the "taxing of certain goods, such as harvest, with an eye toallocating these taxes to expenditures that are also explicitly defined, suchas aid to the needy."

Gharar- "the interdiction of chance ... that is, of the presence of anyelement of uncertainty, in a contract (which excludes not only insurance

but also the lending of money without participation in the risks)" Riba- "referred to as usury"
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These concepts, like others in Islamic law, came from the "prescriptions,anecdotes, examples, and words of the Prophet, all gathered together andsystematized by commentators according to an inductive, casuistic method."Sometimes other sources such as al-urf, (the custom), al-aql (reason) or al-ijma

(consensus of the jurists) were employed.

In addition, Islamic law has developed areas of law that correspond to secularlaws ofcontracts and torts.

Early reforms under Islam

Some argue early Islamic theory and practice formed a "coherent" economicsystem with "a blueprint for a new order in society, in which all participantswould be treated more fairly". Michael Bonner, for example, has written that an"economy of poverty" prevailed in Islam until 13th and 14th century. Under thissystem God's guidance made sure the flow of money and goods was "purified"

by being channeled from those who had much of it to those who had little byencouraging zakat (charity) and discouraging riba (usury/interest) on loans.Bonner maintains the prophet also helped poor traders by allowing only tents,not permanent buildings in the market of Medina, and not charging fees andrents there.

Capitalist market economy

The origins ofcapitalism and free markets can be traced back to the IslamicGolden Age and Muslim Agricultural Revolution, where the first marketeconomy and earliest forms ofmerchant capitalism took root between the 8th12th centuries, which some refer to as "Islamic capitalism". A vigorousmonetary economy was created by Muslims on the basis of the expanding levels

ofcirculation of a stable high-value currency (the dinar) and the integration ofmonetary areas that were previously independent. Innovative new businesstechniques and forms ofbusiness organisation were introduced by economists,merchants and traders during this time. Such innovations included the earliesttrading companies, big businesses, contracts, bills of exchange, long-distanceinternational trade, the first forms ofpartnership (mufawada) such as limited

partnerships (mudaraba), and the earliest forms ofcredit, debt, profit, loss,capital (al-mal), capital accumulation (nama al-mal), circulating capital, capital

expenditure, revenue, cheques, promissory notes,[9]

trusts (seeWaqf), startupcompanies,[10] savings accounts, transactional accounts, pawning, loaning,
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exchange rates, bankers, money changers, ledgers, deposits, assignments, thedouble-entry bookkeeping system, and lawsuits. Organizational enterprisessimilar to corporations; independent from the state also existed in the medievalIslamic world, while the agency institution was also introduced. Many of these

early capitalist concepts were adopted and further advanced in medieval Europefrom the 13th century onwards.

The systems ofcontract relied upon by merchants was very effective. Merchantswould buy and sell on commission, with money loaned to them by wealthyinvestors, or a joint investment of several merchants, who were often Muslim,Christian and Jewish. Recently, a collection of documents was found in anEgyptian synagogue shedding a very detailed and human light on the life of

medieval Middle Eastern merchants. Business partnerships would be made formany commercial ventures, and bonds ofkinship enabled trade networks toform over huge distances. Networks developed during this time enabled a worldin which money could be promised by a bankin Baghdad and cashed in Spain,creating the cheque system of today. Each time items passed through the citiesalong this extraordinary network, the city imposed a tax, resulting in high pricesonce reaching the final destination. These innovations made by Muslims andJews laid the foundations for the modern economic system.

Classical Muslim economic thought

To some degree, the early Muslims based theireconomic analyses on the Qu'ran(such as opposition toriba, meaning usury orinterest), and from sunnah, thesayings and doings of prophet Muhammad.

Perhaps the most well known Islamic scholar who wrote about economics wasIbn Khaldun (13321406), who is considered a father of modern economics. Ibn

Khaldun wrote on economic and political theory in the introduction, orMuqaddimah(Prolegomena), of hisHistory of the World(Kitab al-Ibar). In thebook, he discussed what he called asabiyya (social cohesion), which he sourcedas the cause of some civilizations becoming great and others not. Ibn Khaldunfelt that many social forces are cyclic, although there can be sudden sharp turnsthat break the pattern. His idea about the benefits of the division of labor alsorelate to asabiyya, the greater the social cohesion, the more complex thesuccessful division may be, the greater the economic growth. He noted that

growth and development positively stimulates both supply and demand, and that
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the forces of supply and demand are what determines the prices of goods. Healso noted macroeconomic forces of population growth, human capitaldevelopment, and technological developments effects on development. In fact,Ibn Khaldun thought that population growth was directly a function of wealth.

Other important early Muslim scholars who wrote about economics include AbuHanifah, Abu Yusuf(731-798), Ishaq bin Ali al-Rahwi (854931), al-Farabi(873950), Qabus (d. 1012), Ibn Sina (Avicenna) (9801037), Ibn Miskawayh(b. 1030), al-Ghazali (10581111), al-Mawardi (10751158),Nasr al-Dn al-Ts(1201-1274), Ibn Taimiyah (12631328) and al-Maqrizi.

Post-Colonial Era

During the modern post-colonial era, as Western ideas, including Westerneconomics, began to influence the Muslim world, some Muslim writers soughtto produce an Islamic discipline of economics. Because Islam is "not merely aspiritual formula but a complete system of life in all its walks", these writers

believed that it should logically follow that Islam also had its own economicsystem unique from and superior to non-Islamic systems. To date, however,there have been no agreements as to the methodological definition and scope of

Islamic Economics.In the 1960s and 70s Shia Islamic thinkers worked to develop a unique Islamiceconomic philosophy with "its own answers to contemporary economic

problems." Several works were particularly influential,

Eslam va Malekiyyat(Islam and Property) by Mahmud Taleqani (1951), I qtisaduna(Our Economics) by Mohammad Baqir al-Sadr(1961) and Eqtesad-e Towhidi(The Economics of Divine Harmony) by Abolhassan

Banisadr(1978) Some I nterpretations of Property Rights, Capital and Labor from

Islamic Perspective by Habibullah Peyman (1979).

Al-Sadr in particular has been described as having "almost single-handedlydeveloped the notion of Islamic economics"

In their writings Sadr and the other authors "sought to depict Islam as a religion

committed to social justice, the equitable distribution of wealth, and the cause ofthe deprived classes," with doctrines "acceptable to Islamic jurists", while
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refuting existing non-Islamic theories ofcapitalism and Marxism. This versionof Islamic economics, which influenced the Iranian Revolution, called for

public ownership of land and of large "industrial enterprises," while privateeconomic activity continued "within reasonable limits."

These ideas helped shape the large public sector and public subsidy policies ofthe Iranian Islamic revolution.

In the 1980s and 1990s, as the Islamic revolution failed to reach the per capitaincome level achieved by the regime it overthrew, and Communist states andsocialist parties in the non-Muslim world turned away from socialism, Musliminterest shifted away from government ownership and regulation. In Iran, it is

reported that "eqtesad-e Eslami (meaning both Islamic economics andeconomy) ... once a revolutionary shibboleth, is indubitably absent in all officialdocuments and the media. It disappeared from Iranian political discourse about15 years ago [1990]."

But in other parts of the Muslim world the term lived on, shifting form to theless ambitious goal of interest-free banking. Some Muslim bankers andreligious leaders suggested ways to integrate Islamic law on usage of moneywith modern concepts ofethical investing. In banking this was done through theuse of sales transactions (focusing on the fixed rate return modes) to achievesimilar results to interest. This has been heavily criticized by many modernwriters as a means of covering conventional banking with an Islamic facade.

In 2008 an economist and former advisor to Tony Blair, Tahir Iqbal, resolvedthe existing issues in Islamic economics of both providing a fully shariahcompliant Islamic political economy (including the problem of government

borrowing and mortgages) in his book "what is the sound of an invisible hand

clapping", published by maison mascara books. The foundation of this was thequard al hasana (good debt)which when introduced with zakat on all assets setsin place a new framework that solves boom and bust and implies that povertyitself could be stopped using Islamic economics.

Traditional approach

Propertywhilemany Muslims believe Islamic law is perfect by virtue of its

being revealed by God, Islamic law on economic issues was/is not "economics"in the sense of a systematic study of production, distribution, and consumption
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of goods and services. An example of the traditionalist ulama approach toeconomic issues is Imam Khomeini's workTawzih al-masa'ilwhere the term`economy` does not appear and where the chapter on selling and buying (Kharido forush) comes after the one on pilgrimage. As Olivier Royputs it, the work

"presents economic questions as individual acts open to moral analysis: `Tolend [without interest, on a note from the lender] is among the good works thatare particularly recommended in the verses of the Quran and the in theTraditions.`"

The Qur'an states that God is the sole owner of all matter in the heavens and theearth. Man, however, is God's viceregent on earth and holds God's possessionsin trust (amanat). Islamic jurists have divided properties into three categories:

Public property State property Private property

Public property

Public property in Islam refers to natural resources (forests, pastures,uncultivated land, water, mines, oceanic resources etc.) over which all humanshave equal right. Such resources are considered the common property of thecommunity. Such property is placed under the guardianship and control of theIslamic state, and can be utilized by any citizen, as long as it does notundermine the right of other citizens over it.

Some types of public property can not be privatized under Islamic law.Muhammad's saying that "people are partners in three things: water, fire and

pastures", has led some scholars to believe that the privatization ofwater,

energy and agricultural land is not permissible. Other types of public property,such as gold mines, were allowed by Muhammad to be privatized, in return fortaxes to the Islamic state. The owner of the previously public property that was

privatized has to pay Zakah and, according Shiite scholars, khums as well. Ingeneral the privatization and nationalization of public property is subject todebate amongst Islamic scholars. Public property thus, eventually, becomesstate or private property.

State property
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State property includes certain natural resources, as well as other property thatcan't immediately be privatized. Islamic state property can be movable, orimmovable, can be acquired through conquest, or peaceful means. Unclaimed,unoccupied and heir less properties, including uncultivated land (mawat), can be

considered state property.

During the life of Muhammad, one fifth of military equipment captured fromthe enemy in the battlefield was considered state property. During his reign,Umar(on the recommendation ofAli) considered conquered land to be state

property, instead of private property (as was usual practice). The reason for thiswas that privatizing this property would concentrate resources in the hands of afew, and prevent this property from being used for the general good of the

community. The property remained under the occupation of the cultivators, butthe taxes collected on it went to the state treasury.

Muhammad said "Old and fallow lands are for God and His Messenger (i.e.state property), then they are for you". Jurists draw from this the conclusionthat, ultimately, private ownership takes over state property.

Private property

There is consensus amongst Islamic jurists and social scientists that Islamrecognizes and upholds the individual's right to private ownership. The Qur'anextensively discusses taxation, inheritance, prohibition against stealing, legalityof ownership, recommendation to give charity and other topics related to private

property. Islam also guarantees the protection of private property by imposingstringent punishments on thieves. Muhammad said that he who dies defendinghis property was like a martyr.

Islamic economists have classified the acquisition of private property into threecategories: involuntary, contractual and non-contractual. Involuntary means areinheritance, bequests, and gifts. Non-contractual is acquisition involves thecollection and exploitation of natural resources that have not previously beenclaimed as private property. Contractual acquisition includes activities such astrading, buying, renting, hiring labor etc.

A tradition attributed to Muhammad, with which both Sunni and Shi'ite jurists

agree, in cases where the right to private ownership causes harm to others, thenIslam is in favor of curtailing the right in those cases. Maliki and Hanbalijurists
http://en.wikipedia.org/wiki/Umarhttp://en.wikipedia.org/wiki/Alihttp://en.wikipedia.org/wiki/Shaheedhttp://en.wikipedia.org/wiki/Malikihttp://en.wikipedia.org/wiki/Hanbalihttp://en.wikipedia.org/wiki/Hanbalihttp://en.wikipedia.org/wiki/Malikihttp://en.wikipedia.org/wiki/Shaheedhttp://en.wikipedia.org/wiki/Alihttp://en.wikipedia.org/wiki/Umar

Islamic Business Law, Report

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Transcript of Islamic Business Law, Report