Islamic Economics Concepts and Thoughts - Essay Example

Islamic Economics Concepts and Thoughts

Introduction

Islamic economics is a phenomenon that has been there for a long time. Generally, Islamic economics is made up of some fundamental principles that include: resources are perceived as granting or the trust of Allah to humanity; Islamic religion acknowledges private property within specific limits; cooperation is the key motivating force of Islamic economics; Islamic economics does not support accumulation of wealth that only a few people can control; Islamic economics support community ownership and also use is designed for the interests of numerous individuals; any individual who confesses Islamic faith should fear Allah and the fortitude in the in future; people should pay Zakat on wealth that has fulfilled the limit and lastly; Islamic faith forbid usury at all levels (Haneef, 2009).

The theory of the firm

Theory of the firm in Islamic theory values investor, entrepreneurs as well as the function of entrepreneur in reducing poverty, and also takes all firms with such aims as benefactors to the society (Choudhury, 2006). Activities of the firms should be guided by Qur’an and Sunnah teachings that call for all firms to be socially responsible. The firm’s production is governed by ethical rules of the sheriah. They include; maximization of the public interest, privacy of social benefits over private benefit. The firms are ethically conscious market and the market injustices. This therefore means that the firms have limited liability (Kuforiji, 1994).

Scarcity of resources

According to Kuforiji (1994), Islamic economics views scarcity of resources as a constructive economic reality and hence there are plentiful and adequate resources to be used by all individuals and other creations such as animals as plants. Therefore, it is in order for resources to be comparatively scarce. This is supported by Quran that quotes that “For us God sufficed, and He is the best organizer”. Islamic economics focuses on ensuring that the resources are used efficiently and equitably. This ensures that the wellbeing of resources remains and that the scarcity of resources is reduced and there is no depletion of resources (Kahf, 2013).

Property rights

In regard to property rights, Islam stands on three basic pillars regarding ownership of assets (al-milkiyah), management of property ownership, and also how wealth is distributed within the society (Haneef, 2009). Property ownership fundamentally belongs to Allah and is based on the Koran verse “give to them, treasure Allah which he has bestowed unto you”. According, only Allah owns the wealth and provides wealth to human beings to use and share with them. The Islamic perception of property ownership includes: individual owners for private property; collective property that is owned by the community; as well as the state property that is owned by the state (Choudhury, 2006).

Social Justice – fairness and equity

Islamic economics also ensures that the economy upholds social justice - fairness and equity. Th Islamic economics tries to provide solutions to the struggle that exists between the capitalist and socialist economic system since the system is not in a position to sole all economic problems. The Qur'an and Sunnah provide guidance on how Muslims are supposed to conduct themselves as producers, consumers as well as property owners (Shams, 2014). Islam economics provides the widest opportunity for all businesses. Additionally, Islamic economics puts focus on four properties and they include: unity; balance; freedon (free will) as well as responsibility. Accordingly, since man has been put on earth to act as God’s deputy (khalifa), the wealth should not be individualistic since all wealth belongs to Allah and human beings only depend on the wealth. In economic activities of Muslims, Islam strongly prohibits usury activities that mean excess (Haneef, 2009).

Consumer behavior

Consumer behavior in Islam is based on economic rationalism and fear of Allah. A consumer should design his/her consumption behavior in a way that pleases Allah and it is an issue of thankfulness and worship (Ibadah) (Choudhury, 2006). Consumer behavior should avoid waste because Quran (6:141) stipulates that “But waste not! For Allah loves not the wasters”.

Market Systems

For market systems, Islamic economics provide that the market is not the only institution where individuals interact within the human society. Interaction of human beings also happens within the family, community, as well as the government and their interaction within all these institutions is closely interconnected. Choudhury (2006) explains that Islam economics indicates that self-interest does not assist in raising efficiency within the market place. Nonetheless, in case self-interest is overstated and there no moral limitations on personal behavior, other institutions might not function efficiently where the family can break up, the society can stop caring and the government may become partisan and full of corruption scandals.

Product Market

In product market, mutual sacrifice is fundamental to ensure that families stay together. Because people are the most significant input within the market as well as in the society, family and the government, and that the family forms the basis for the input, nothing can function in case there is disintegration of families and families are not able to provide care to their children. Therefore, family plays an important role in the economy and also sustains economic developments (Kahf, 2013).

Prices within the Economy

In regard to prices within the economy, individual and social reforms play an important role in Islamic economics. These changes include changing the human behaviors and hence complementing the price mechanism to promote general well-being. Prior to getting in the market place and experiencing price filter, consumers should ensure their claims pass through the moral filter. This assists in filtering out the obvious consumption of all uneconomical and redundant claims on resources. The price mechanist can decrease the claims on resources and result to market equilibrium (Addas, 2008). These two filters ensure that there is an optimum economy in regard to resources usage which is essential in satisfying the material and spiritual needs of people. This also decreases the concentration of wealth among few people and increases savings which are important in promoting increased investments as well as employment (Shams, 2014).

Factors of production

Factors of production supply a distinct productive service for which they should receive distinct reward, which is remuneration or rent. In Islam, factors of production are categorized in accordance with the method used to determine their reward or prince. Islamic framework acknowledges two classifications of factor prices and they include Ujrat and profit which can be positive or negative (Siddiqi, 2006). Ujrat refers to rents which encompasses the rent of human services that is usually acknowledged as pay in conventional economics. Therefore, all factor inputs are remunerated Ujrat for their utilization. Islam permits Ujrat just for the inputs that have no direct consumption during the production process. On the other hand, profit refers to reward for visualizing a cost-effective productive business enterprise and bearing all risks allied to the venture of the activities (Siddiqi, 2006).

Financial Market

Financial market concept compels all financial institutions to contribute richly in achieving all the significant socio-economic objectives of Islam. This means that the financial market should focus on financial welfare with full employment and excellent economic growth, socio-economic justice as well as an equitable distribution of profits, wealth, stability in the value of currency, as well as the enlistment and investment of savings for economic growth in a manner that ensures just profit- sharing to all involved parties (Siddiqi, 2006). This is supported by Quran that envisages a social welfare of Islamic financial market in regard to the social security, safeguarding individual rights and fair distribution and mobilization of resources .

Form of business organizations

Form of business organizations as per Islam should maintain justice when conducting their businesses. Quran provides specific guidelines whose purpose is protection. Fundamental principles of business organizations should include Islamic business contracts like written contracts, Mudaraba (profit-sharing code) as well as the codes of entity responsibility. Contracts are supposed to be in black and white for all forms of credit transactions as per Quran 2:282. The transaction terms acts as a means of safeguarding against any false claims that can arise from any party. When forming an organization, one should assess the financial needs of the receivers of Islamic finance, understand organizational structures allowed by the Islamic law, and the organization should meet regulatory approval (Rizal, 2014).

Conclusion

The paper provides an overview regarding the economics concepts and thoughts. These concepts and thought provides aspects on how the economic problem can be solved through efficient financial management, the appropriate consumer behavior that avoids wastage, social justice - fairness and equity that ensures property is not accumulated among few people, and also property rights.