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Islamic Economic System

Capitalism, Communism and Mixed Economics system has purely a materialistic approach in which human social life has no importance. But in Islamic System

The followers of Islam are required to lead a material life in such way that it becomes a source of happiness and respect of others in this world for making secure himself for next world.

Islamic Economic System consist of institutions, organizations and the social values by which natural, human and man made resources are used to produce, exchange, elistribute and consume wealth?goods and services under the guiding principles of Islam to achieve “FALAH” in this world and also other it.

Salient Features of Islamic System

Main characteristics of Economic System of Islam are.
1. The Concept of Private Property
2. Consumption of wealth
3. Production of wealth
4. Distribution of wealth
5. The concept of Zakat
6. Interest free Economy
7. Economic Growth
8. Responsibilities of the Government.

1. The Concept of Private Property
Basic Principles in Islam for Consumption or Investment of private property are

  • Concept of “HALAL” and “HARAM” for earning or in production and consumption of wealth.
  • A property cannot be used against public interest.
  • Show much as you have something.
  • Real/money Capital cannot be used for gain.
  • Payment of Zakat is compulsory.

2. Consumption of Wealth
In Islamic System uses of luxuries are not allowed because it against the concept of “TAQWA” should have distinguish between “HALAL” and “HARAM”.”BUKHAL” and “ISRAF” are to be avoided.

3. Production of Wealth
Price mechanism plays a key role in carrying out the production process in an Islamic Society. As Price system results in the expectations of workers and consumers the Govt. Interferences with the price mechanism to over come the problem. These things are not allowed in Islamic System.

  • Production of drugs, gambling, lotery, music, dance etc.
  • Lending and borrowing on interest
  • Black marketing, Smuggling etc.

4. Distribution of Wealth
Islamic Economics System favour fair (not equal) distribution of wealth in the sence that it should not be confined to any particular section of the society. For fair distribution of wealth Islam gives following steps

  • “BUKHAL” and “ISRAF” are to be avoided.
  • Payment of Zakat
  • Interest not allowed
  • Monopoly of Private firm not allowed
  • Earning from Black Market.

5. The Concept of Zakat
Zakat is a major source of revenue the government in an Islamic state. It levy on all goods and money or on wealth if have to pay yearly on the month of RAJAB or RAMADAN.

6. Interest free Economy
The whole financial system the bank structure in particular is run on the basis “SHARAKAT” and “MUZARABAT” in Islamic state. Therefore, Islamic economics is an interest free economy.

7. Responsibility of the Government
Responsibility of the Islamic Government are
1. Should Check un islamic activity like gambling, smuggling, black marketing etc.
2. Should secure poor people by giving them necassity of life i.e. food, clothing, health etc.
3. Should provide equal employment opportunity.
4. Social and Economic Security is required to guaranteed by the Govt.


An Islamic Setup provides a graceful economic and social life. it distribute the wealth in all family.

Qs. Explain the importance of Zakat in the process of Distribution of wealth in Islamic State?

The Concept of Zakat

Zakat has two meanings in Arabic
i. That which purifies
ii. That which causes growth.

i. That Which Purifies
This indicates that Zakat purifies the human soul by keeping a person away from illegal source of earning, eliminating the love for materialism and overcoming the sense of pride for being wealthy.

ii. That Which Causes Growth
This means that ALLAH protected the wealth from which Zakat had been paid and in the way the peace of mind of the person who pay Zakat.

In economics technically Zakat defined as

Zakat is a “transfer payment” which Sahib-e-Nisab muslim pay to poor given rate in the month of RAJAB.

Assessment of Zakat

1. Sahib-e-Nisab Muslim
A muslim who owns and keeps his/her possession at least 7 1/2 total gold of 52 1/2 total silver or cash money to the equivalents value is considered a Sahib-e-Nisab Muslim.

2. Exposed and Unexposed Wealth
Zakat is paid from two types wealth i.e. exposed (e.g. Bussiness, Salary, and goods) and Unexposed (e.g. gold, silver, cash money etc)

3. The Rate of Zakat
If paid on atleast 7 1/2 total golds or 52 1/2 total silver or the equivalents value of cash, goods, salary etc.
i. The rate of Zakat is 2 1/2 of total value of (cash, goods, salary, building etc)
ii. The rate of Zakat is 10% for the Agricultural Produce of land.

Beneficiares of Zakat

Beneficiares of Zakat are
1. The Poor. Those people who are below than Sahib-e-Nisab.

2. The Needy. They are the people who are unable to earn their living e.g. handicapped disabled, unemployees person.

3.The Converts. Those who convert to Islam have right to get Zakat.

4. The Debtors. Those who heavily indebbed can get zakat to repay their Zakat.

5. Mujahideen. Zakat can also be given to Mujahideen.

It is clear that Zakat is a source of financial assistance to the poor and needy to become economically independent.

Economic Significance / Importance of Zakat

1. Fair Distribution of Wealth
Islam does not permit that the wealth is distributed in few hands. Therefore people have to pay 2 1/2 % Zakat to poor.

2. Elimination of Class Conflict
Zakat makes the poor obliged and thus the problem of class conflict does not arise at all.

3. Economic Stability
Zakat promotes the velocity of Calculation of money due to which aggregate demand for goods and services increases. This determines the lives of investment, income and employment on stable footing. Hence an Islamic economy is always stable.

4. Social Security
Zakat fund not only covers the poor and the disabled but it also provides social security to the unemployed who may later on prove to be valuable assets of the nation.

5. Discouragement of Anti-Social Activities
Zakat which is paid from (rizq-e-halal) stop muslims from anti social activities like smuggling etc.

6. Social Welfare
Hospitals, schools, and handicrafts for the poor can be constructed by making use of the zakat fund.

7. Self Reliance
Zakat enables peoples to take care of each others needs.

8. Control of Crimes
The Major causes of crimes particularly the poverty of people. This can be overcome by paying Zakat regularly. Zakat decrease the crime rate.

Qs. In what respect Islamic Economic System is superior to Capitalism and Socialism. Discuss?


Discuss the basic principles of Islamic Economic System and and compare it with Capitalism?

Comparison of Islamic Economic System with other Economic System

Islamic Economic System possesses the character of both capitalism and socialism and it is free from their evils. Following are the comparison of Islamic state with others.

1. Distinguishing Characteristics
Capitalist says “Economic Freedom” to producers and Consumers.
Communism says Economic Equality achieved through state ownership of the means of production.
The distinguish characteristics of an Islamic System is “Economic and Social Justice” so that every body gets his / her due.

2. The Concept of Private Property
In a Capitalist system unlimited liberty and right of ownership for private property is given which has resulted in the capitalist exploitation of workers. Islam allows the right of private ownership and freedom of enterprise in limited capitalism but not leave the property for the long period.

3. Consumption of Wealth
In Capitalism any thing can be consumed while a communist society only consumer goods and services which are allowed to be produced in the country. In Islamic Country only “HALAL” are allowed to be produced and consumed “HARAM” goods and services are not allowed to be produced and consumed.

4. Production of Wealth
Capitalism motive is only profit they produced goods for only profit. In communist society central plan authority made decision what to produce and how much to produce. But in Islamic System only have to produce “HALAL” goods and “HARAM” goods like alcohol drink, drug etc are not allowed.

5. Distribution of Wealth
In Capitalism concentration of wealth is goes on few hand due to unlimited right of ownership and free competition. In communism system dicta for ship is created due to concept of private property. In Islamic System, Due to “ZAKAT” and “SADQAT” automatically wealth transfer to poor from rich.

6. The Role of Interest
The interest made brings equal between saving and investment to promote, capital formation in a capitalist society. In communism, interest does not pay any role for saving and investment. In the Islamic system interest based economic activities are strictly banned. Hence interest is not a source of capital formation in an Islamic.


We conclude that Capitalist and communist are materialistic in nature and they only looking for to satisfy the material wants of the people. But Islamic economic system provides a fine blend of materialism and spiritualism.

Fahim Patel

By Fahim Patel

Fahim Patel is the Content Manager of guesspapers.net. A graduate from Karachi University, he has intensive experience in content production.