10/12/2020

Islamic Banking & Finance BS Accounting & Finance

Fundamentals of
Islamic Banking
Theory | Concept | Belief

Rehan Waheed

The Islamic Economic System Outline of the Presentation

 Categories of Islamic Jurisprudence

 Nature of Shari’ah Rulings
 Sources of Shari'ah
 Quran
 Sunnah
 Ijma
 Qayas
 Ijtihad
 Economic Philosophy of Islam
 Distribution of Wealth
 The Importance of Economic Goals
 Real Nature of Wealth and Property
 Islam vs. Capitalism & Socialism

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The Islamic Economic System Categories of Islamic Jurisprudence

Introduction
 A system which is in conformity with the rules of Shari’ah
 Shari’ah can be explained as “Pathway to be followed” and can further be explained as a set of
divine injunctions and laws that regulates every aspect of human life
Aqa’id
Categories of Islamic Jurisprudence
 Beliefs (Aqaid)
Maishat Ibadat
 Acts of Worship (Ibadat)
Islamic
Jurisprudence
 Dealing with others (Muamalat)
 Manners (Ikhlaqiat)
 Economics (Maishat) Ikhlaqiat Muamalat

The Islamic Economic System Nature of Shari’ah Rulings

Halal

Nawafil Haram

Nature of
Shariah
Rulings

Sunnah Fara’iz

Wajibat

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The Islamic Economic System Nature of Shari’ah Rulings

Halal
 All those acts that are permitted and declared lawful by Shari’ah
Haram
 All those actions that are prohibited and declared unlawful by Shari’ah
 Impermissibility is derived either from Holy Quran or Hadith e Mutawatira* or Ijma

* The narrators are in such large numbers that it is impossible for all of them to have agreed on a false issue

The Islamic Economic System Nature of Shari’ah Rulings

Fara’iz
 All those actions that are declared mandatory by either Quran or Sunnah e Mutawatira or Ijma
Wajibat
 All those actions that are declared mandatory on Muslims by the narrations which are not strong in
terms of narrators as Sunnah e Mutawatira
Sunnah
 All those actions that are recommended to be performed by Muslims based upon the association of
those actions with Holy Prophet ‫ﷺ‬
Nawafil
 All those actions that are made optional and reward able on Muslims by Shari’ah

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The Islamic Economic System Nature of Shari’ah Rulings

The Islamic Economic System What is Shariah?

• Shariah lexically means a way or a path

• In Islam, it refers to the divine guidance & laws as given by
• The Holy Quran
• The Hadiths and the Sunnah of the Prophet Muhammad ‫ ﷺ‬and
• Supplemented by the juristic interpretations of Islamic Scholars
• Shariah embodies all aspects of the Islamic faith, including
• Beliefs and Practices that regulates every aspect of human life

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The Islamic Economic System Sources of Shariah

The Islamic Economic System What is Shariah?

Quran

Sunnah

Ijma (Consensus)

Qayas (Analogical Deduction)

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The Islamic Economic System Sources of Shari’ah

Quran Act Recite

 Quran is the word of Allah revealed over Prophet Muhammad ‫ﷺ‬
 The Holy Quran is the primary source of knowledge and Shari’ah rulings Ponder
 The injunctions mentioned in the Holy Quran are mandatory to follow
 Anyone who denies express injunctions of the Holy Quran Prophethood

is regarded as Non-Muslim
Godhead Hereafter
Allah says is the Holy Quran
“And obey Allah and His Messenger, if you are believers.”
[Surah Anfal, 8:1]
Provisions Stories

Examples

The Islamic Economic System Sources of Shari’ah

Sunnah
 Lexical Meaning: Sayings
 Idiomatic Meaning: The sayings, actions, description of personality and even silence on a certain
act by the Holy Prophet Muhammad ‫ﷺ‬
Acts
 Sunnah provides detailed information about the code of conduct
for all spheres of life and is also considered as Divine Revelation
 The details about Sunnah are preserved in the form of Ahadiths
 Sunnah can be regarded as secondary source of Islamic Shari’ah
Sunnah Hadith Sayings

 Rules of Riba Al Fadl has been extracted from Sunnah

Endorsements

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The Islamic Economic System Sources of Shari’ah

The Basis of Ijma

The consensus is based
Ijma
on the Hadith:
 Ijma is a consensus of scholars of Ummah on a particular issue “My people will never
agree on an error”
 It is one of the most authoritative sources of Islamic Shari’ah
 It encompasses the unanimous opinions of the Shari’ah scholars of a particular era over the
interpretation of Quran or Ahadith on a particular issue
 The authoritative status of Ijma has also been ascertained from the following saying of Holy
Prophet Muhammad ‫ﷺ‬ Quran

“My Ummah shall never be combined on an error.”

Qiyas
Ijma
Hadith

The Islamic Economic System Sources of Shari’ah

Qiyas
 Lexical Meaning: To estimate something
 Idiomatic Meaning: To apply a recognized rule of Shariah expressly mentioned in the Holy Quran
and Sunnah to a new similar thing or situation by way of finding the same Operative and Effective
Cause (illah | ‫ )ﻋﻠﺔ‬in the both
Known Ruling Unknown
Unk nown Ruling
Wine | ‫ﺧﻤﺮ‬ Effective Cause Cocaine

Haram Intoxication ?
Mentioned in Quran Not Mentioned in Quran

(‫ ))ﺧﻤﺮ‬is declared as Haram in the Quran, because of intoxication. If intoxication exist in Cocaine as well, what would be the status of cocaine ?
Wine (‫ﺧﻤﺮ‬

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The Islamic Economic System Sources of Shari’ah

Ijtihad
 Literary means “Utmost Effort”
 Technically means “To exert utmost effort to discover the ruling of Shari’ah regarding a particular
situation”
 The practice of Ijtihad has been duly endorsed by the Prophet Muhammad ‫ ﷺ‬and is evident from
the following Hadith

The Islamic Economic System Sources of Shari’ah

“When the Holy Prophet ‫ ﷺ‬intended to send his companion Mu’az (R.A.) to Yemen as a ruler and as
a judge, he asked him, “How will you adjudicate a matter when it will come to you?”
He said, “I shall decide on the basis of Allah’s Book (the Holy Quran).”
The Prophet ‫ ﷺ‬asked, “If you do not find it in Allah’s Book?”
He said, “On the basis of Sunnah of Allah’s Messenger.”
The Holy Prophet ‫ ﷺ‬asked, “If you do not find it even in Sunnah of Allah’s Messenger?”
He replied, “I shall make Ijtihad on the basis of my understanding and will not spare any effort.”
On this, the Holy Prophet ‫ ﷺ‬tapped the chest of Hazrat Mu’az (R.A.) with happiness and said,
“Praise be to Allah, who has let the messenger of the Messenger of Allah to do what pleases Allah’s
Messenger.”
(Abu Dawood, Hadith No. 3592)

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The Islamic Economic System Sources of Shari’ah

Ijtihad – Misunderstanding
 It is often misunderstood whether the doors of Ijtihad are still open or not?
 For all those issues where clear injunctions of the Holy Quran, Sunnah and Ijma are available,
Ijtihad can not be done
 Ijtihad can be done on those new issues and situations where no explicit injunctions of Shari’ah
are available or if there are some meticulous changes that require further exploration of the
issues by Shari’ah scholars

The Islamic Economic System Riba

Do YOU?

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The Islamic Economic System Economic Philosophy of Islam

Islam has no concept of Riba and renders it absolutely haram and strictly prohibits because it
encourages:
 Concentration of wealth in few hands
 Creation of monopolies
 Greed and selfishness leading to injustice and oppression
 In interest based economy, deceit and fraud prosper in trade and business
Whereas, Islam encourages:
 Highest moral of ethics
 Universal brotherhood
 Collective welfare and prosperity
 Social fairness and justice

The Islamic Economic System Distribution of Wealth

Distribution of Wealth
 This is one of the most important and controversial subject concerning the economic life of man
 This has given birth to global revolutions
 This has affected every sphere of human activity from private life to international politics
 The fact:
 Whatever has been said on the subject without seeking guidance from Devine Revelations and
relying on human reasons, has had the sole and inevitable result of making the confusion worse
confounded

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The Islamic Economic System Distribution of Wealth

Islamic model of distribution of wealth is based on two underlying principles

1. The importance of the economic goals
2. The real nature of wealth and property

The Islamic Economic System Distribution of Wealth

1. The importance of the economic goals

 Islam considers and views economic activities of man quite lawful, meritorious and at times
obligatory and necessary
 Islam acknowledges the economic progress of man and considers a lawful and righteous livelihood
 But at the same time, Islam does not consider “economic activity” to be the basic purpose of man
nor does it view economic progress as the be-all and end-all of human life
Misunderstandings about Islamic Economics
 Considering economics as the ultimate goal of life
 Considering it necessary to have a prosperous life

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The Islamic Economic System Distribution of Wealth

The importance of the economic goals (contd…)

According to materialistic economics
 Livelihood is the fundamental problem of man and economic developments are the ultimate goal of
human life
According to Islamic Economics
 Livelihood is necessary and indispensable but cannot be the true purpose of human life
Allah says in the Holy Quran
“And be aware that your possessions and your children are but a trial.”
[Surah AlAnfal, 8:28]
“And seek (betterment of) the Ultimate Abode with what Allah has given to you.”
[Surah AlQasas, 28:77]

The Islamic Economic System Distribution of Wealth

2. The real nature of wealth and property

 Wealth in all its possible forms is created by Allah and is, in principle, His property
 The right of property which accrues to man is delegated to him by Allah
Allah says in the Holy Quran
"Give to them from the property of Allah which He has bestowed upon you.“
[Surah AlNoor, 24:33]
“Well, tell Me about that (seed) which you sow? [63] Is that you who grow it, or are We the one who
grow?” [64]
[Surah AlWaqia, 56:63-64]
 Therefore Allah has the right to demand that man subordinate his use of wealth to the
commandments of Allah

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The Islamic Economic System Distribution of Wealth

The real nature of wealth and property (contd…)

Allah says in the Holy Quran
“And seek (betterment of) the Ultimate Abode with what Allah has bestowed upon you, and do not
neglect your share from this world, and do good as Allah did good to you, and do not seek to make
mischief in the land.”
[Surah AlQasas, 28:77]
 Allah may command man to convey a specified production of “wealth" to another man, because
Allah has done good to you, so He may command you to do good to others
 Allah may forbid you to use this “wealth” in a specified way. He has every right to do so because
He does not allow you to use “wealth” in a way which is likely to produce collective ills or to spread
disorder on the earth

The Islamic Economic System Conclusion

Capitalism
 Capitalism affirms an absolute and unconditional right to private property

Socialism
 Socialism totally denies the right to private property

Islam
 The truth lies between the two extremes of Capitalism and Socialism
 Islam admits the right to private property but does not consider it to be an absolute and
unconditional right that is bound to cause “disorder on earth”

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The Islamic Economic System BS Accounting & Finance

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