Chapter 16: Fundamentals of Islamic Economic System by Dr. Muhammad Sharif Chaudhry



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Fundamentals of Islamic Economic System

By Dr. Muhammad Sharif Chaudhry



  1. General Meaning

  2. Islamic Concept

  3. Foundations of Islamic Social Justice

  4. Elements of Social Justice of Islam

I- General Meaning

The term social justice is of recent vintage. It first appeared in political debate in the early nineteenth century. It was employed by political thinkers like John Stuart Mill and its use has since become widespread. Social justice implies that overall pattern of distribution in a society ought to be brought into line with principles of justice. There have been two major conception of social justice, one embodying the notions of merit and desert, the other those of need and equality.

The first conception entails that each person’s social position and material rewards should as far as possible correspond to their place on a scale of merit, an idea also expressed in demands for ‘careers open to talents’ and ‘equality of opportunity’. It implies the ending of hereditary privilege and an open society in which people have the chance to display their desert. The second conception entails that goods should be allocated according to each person’s various needs. It is closely allied to an idea of equality, since a programme which successfully satisfies need makes people materially equal in one important respect.

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II- Islamic Concept

Islam, being religion of nature, understands that human beings are born with varying gifts. As they differ in their bodies and their features so they differ in their mental and other capabilities. Their environment, their circumstances and their hereditary gains also differ. In this situation there can be no possibility of economic equality. Thus the existence of economic inequalities among the human beings is but natural. It is also there because Islam allows individual initiative in earning wealth and gives right of private ownership of property. Moreover, existence of inequalities in economic and social life is a part of Divine scheme whereby God tests and tries the people to know who are good and who are bad. To this fact, the Holy Qur’an refers when it says:

  • He it is who hath placed you as viceroys of the earth and hath exalted some of you in rank above others, that He may try you by (the test of) that which He hath given you………

-(6 : 165)

  • And Allah hath favoured some of you above others in provision………

-(16 : 71)

  • ……… We have apportioned among them their livelihood in the life of the world, and raised some of them above others in rank that some of them may take labour from others…….

-(43 : 32)

However, despite recognising inequalities as natural and part of Divine world order, Islam permits differences in wealth within reasonable limits only. It does not tolerate that these differences should grow so wide that some people live their life in absolute luxury while millions are left to lead a life of abject poverty and misery. It does not allow economic disparities turn into an extreme position wherein millions of have-nots’ become serfs and slaves in the hands of few ‘haves’ of the society. In other words, we can say that Islam does not believe in equal distribution of economic resources and wealth among the people rather it believes in equitable, just and fair distribution. It bridges the gulf between the rich and the poor by taking very effective measures to modify the distribution of wealth in favour of the poor.

Islam, on the one hand, ensures just and equitable distribution of wealth among the people and, on the other hand, provides social security to the poor and the destitute in the form of basic necessities of life. Besides that, Islam also protects the weak from the economic exploitation by the strong. All there are various aspects and manifestations of what is called Islamic social justice.

Thus social justice (which is also referred to as economic justice or distributive justice) according to Islamic conception includes three things, namely : (1) fair and equitable distribution of wealth, (2) provision of basic necessities of life to the poor and the needy, and (3) protection of the weak against economic exploitation by the strong.

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III- Foundations of Islamic Social Justice

Ideological basis of the above mentioned concept of Islamic social justice are found in the following verses of the Holy Qur’an, Ahadith of Prophet Muhammad (PBUH) and traditions of Prophet’s companions :-

1.   Give unto orphans their wealth. Exchange not the good for the bad (in your management thereof) nor absorb their wealth into your own wealth. Lo ! that would be a great sin.

-(Al-Qur’an 4 : 2)

2.       ……..Give full measure and full weight, in justice……….

_(Al-Qur’an 6 : 152)

3.       And know that whatever ye take as spoils of war, Lo! A fifth thereof is for Allah, and for the messenger and for the kinsman (who hath need) and orphans and the needy and the wayfarer. If ye believe in Allah and that which We revealed unto Our slave on the Day of Discrimination, the day when the two armies met. And Allah is Able to do all things.

-(Al-Qur’an 8:41)

4.       The alms are only for the poor and the needy, and those who collect them, and those whose hearts are to be reconciled and to free the captives and the debtors, and for the cause of Allah, and (for) the wayfarers; a duty imposed by Allah. Allah is Knower, Wise.

-(Al-Qur’an 9:60)

5.       And Allah hath favoured some of you above others in provision. Now those who are more favoured will by no means hand over their provision to those (slaves) whom their right hands possess, so that they may be equal with them in respect thereof. It is then the grace of Allah that they deny?

-(Al-Qur’an 16 : 71)

6.       He placed therein firm hills rising above it, and blessed it and measured therein its sustenance in four Days, alike for (all) who ask.

-(Al-Qur’an 41 : 10)

7.       And the sky He hath uplifted; and He hath set the measure, that ye exceed not the measure, but observe the measure strictly, nor fall short thereof.

-(Al-Qur’an 55 : 7-9)

8.       Believe in Allah and His messenger, and spend of that whereof He hath made you trustees……….

-(Al-Qur’an 57 : 7)

9.       We verily sent our messengers with clear proofs, and revealed with them the scripture and the Balance, that mankind may observe right measure………..

_(Al-Qur’an 57 : 25)

10.   That which Allah giveth as spoil unto His messenger from the people of the townships, it is for Allah and His messenger and for the near of kin and the orphans and the needy and the wayfarer, that it become not a commodity between the rich among you.

_(Al-Qur’an 59 : 7)

11.   And in whose wealth there is a right acknowledged. For the beggar and the destitute;

-(Al-Qur’an 70 : 24-25)

12.   The Prophet of Islam is reported to have said: If anyone spent a night in a town and he remained hungry till morning, the promise of God’s protection for that town came to an end.

-(Musnad Ahmad)

13.   The Messenger of Allah said: The government is the guardian of anyone who has no guardian.

-(Abu Daud, Tirmizi)

14.   Abu Hurairah reported that the Messenger of Allah said: One who strives for the widows and the poor is like one who fights in the way of Allah.……..

-(Bukhari, Muslim)

15.   The Messenger of Allah said: No one’s faith amongst you is reliable until he likes for his brother (in Islam) what he likes for himself.


16.   Prophet Muhammad (PBUH) is reported to have said : The son of man has no better right than that he would have a house wherein he may live, and a piece of cloth whereby he may hide his nakedness, and a piece of bread and some water.

-(Al-Muhalla by Ibn Hazm)

17.   Abu Saeed Khudhri reports that the Holy Prophet said; “Anyone who possesses goods more than his needs, should give the surplus goods to the weak (and poor); and whosoever possesses food more than his needs should give the surplus food to the needy and the destitute.” He further added that the Holy Prophet went on referring to different kinds of goods in similar manner until we thought that none of us had any right over his surplus wealth.’

-(Al-Muhalla by Ibn Hazm)

18.   The Prophet of Islam is reported to have once said : One who has an extra camel (transport), should give it to the one who has no camel (transport); one who has surplus provision, should give it to the one who has none; one who has two persons’ food, should take a third (as his guest), and if it is for four, he should take fifth or sixth person (as his guest).

19.   Caliph Umar once said : Each and every Muslim has a right in the property of Bait-ul-Mal whether he exercises it or not.


20.   It is reported that Umar in the last year of Caliphate, said: “The thing which I have known today, had I known before, I would never have delayed it and would have, undoubtedly, distributed the surplus wealth of the wealthy among the poor Muhajrin.”

‑(Al-Muhalla by Ibn Hazm)

21.   Ali is reported to have said that “God has made it obligatory on the rich to meet the economic needs of the poor up to the extent of their absolute necessities. If they are hungry or naked or involved in other financial difficulties, it will be merely because the rich are not doing their duty. Therefore God will question them about it on the Day of Judgement and will give them due punishment.”

-(Al-Muhalla by Ibn Hazm)

IV- Elements of Social Justice of Islam

We have already defined social justice of Islam and have also mentioned that it comprises three elements i.e., equitable distribution of wealth, provision of social security and protection of the weak against the strong. All these elements have been dealt with in detail at proper places in this book. Let us briefly discuss them here.

1. No doubt Islam accepts unequal distribution of wealth as natural and part of Divine Scheme of world order, yet it does not allow existence of wide disparities in distribution of wealth. If distribution of wealth in a community is unfair and unequitable, social peace in that community is always at stake and conflict between the poor and the rich is bound to result in war and class struggle. Islam being religion of peace is against such class conflict. It establishes fraternity and brotherhood in the ranks of the members of Islamic community. Islam believes in well-being of its followers and, therefore, ensures fair and equitable distribution of income and wealth among them. For bridging the gulf between the rich and the poor and for ensuring just and equitable distribution of economic resources and wealth, Islam has taken very effective measures. Positive measures taken by it are Zakat and Sadaqat, laws of inheritance and bequest, monetary atonements, voluntary charities and compulsory contributions in the form of taxes and various levies. To prevent concentration of wealth in few hands, Islam has taken some prohibitive measures also. These include abolition of interest, prohibition of acquisition of wealth through illegal and unfair means, prohibition of hoarding of wealth, etc.

2. Islamic economic system guarantees basic human needs to all the citizens of the Islamic state. Islam enjoins upon the well-to-do to fulfil the needs of the poor and the destitute. According to Al-Quran, the poor and the needy have share in the wealth of the rich. The Quran says: And in whose wealth there is a right acknowledged for the poor beggar and the destitute”-(70 : 24-25).

To the question as to how much wealth should be spent by the rich for the cause of the poor, the Qur’an replies : “……. And they ask thee how much they are to spend; say : “What is beyond your needs”-(2:219). Thus the revealed book of Islam expects from the rich to spend all their surplus wealth for their poor brothers if the circumstances so demand. Abu Zarr Ghaffari, a close companion of the Prophet, who is considered a great champion of the cause of social justice, holds the view that it is unlawful to keep any surplus wealth after meeting one’s personal needs and so the same must be spent on satisfying the needs of the deprived of members of the Muslim Ummah (community). In his view, so long as there is even one poor person who is unable to meet his basic needs of life, surplus wealth of the rich must be collected by the state and spent on poor. It is reported that he was expelled from Syria by Governor Muawwiya for preaching such views and later on even caliph Usman asked him to stop propagating such views or to leave Madinah and he preferred the latter option.

According to some Muslim jurists, the Islamic state should provide social security cover to all its citizens and undertake especially to provide basic necessities of life to all those poor, destitute, deprived of, disabled and unemployed citizens who themselves are not able to provide for them and their families. If the Islamic state fails to do so it has no right to demand allegiance from its citizens.

About holding of surplus wealth by the rich and responsibilities of the Islamic state to provide basic necessities of life to the poor, it would be pertinent if we produce the views of Ibn Hazm, a great Muslim jurist. He says : “It is the duty of the rich that they should meet the needs of the poor and the destitute of their village or town. And if the treasury is not sufficient to meet their needs, then the state has the right to take their surplus wealth, if necessary by force, to meet the needs of the poor in the community. He further says that all the companions of the Holy Prophet are agreed upon this that if there is anyone hungry or naked or without shelter, it is incumbent upon the state to supply his needs from the surplus wealth of the rich (in case its own treasury is insufficient).”

3. Elimination of economic exploitation of the weak by the strong is another element of Islamic social justice. Many steps have been taken by Islam in this direction. Riba or usury is one of the worst instruments of human exploitation and this has been abolished root and branch. Other means of human exploitation such as bribery, gambling, speculative transactions, fraudulent practices, prostitution, embezzlement, etc. have also been prohibited in Islamic society.

Interest of the weaker classes of the society like women, orphans, slaves, labourers, tenants, consumers, etc. have been protected through detailed legislation by Islam.

The women were treated as chattel and were denied the status of human being before emergence of Islam. Islam restored their human status and gave them equal social and economic rights along with men. In the economic field, for example, women have been given rights to own property, to acquire property and to dispose it off at their discretion. They are given rights of inheritance from their parents, their husbands, their children and near relatives. They are allowed to work to earn their livelihood through any dignified profession or vocation of their choice. The orphans have been another economically exploited class in society as their property is generally devoured by their guardians and near kindred. Islam has declared devouring the property of the orphans a major sin. The Qur’an warns the devourers of orphan’s property in these words : “Lo ! Those who devour the wealth of orphans wrongfully, they do but swallow fire into their bellies, and they will be exposed to burning fire”- (4:10). The slaves were perhaps the most exploited class in human history. Islam declared the emancipation of slaves as the most pious act and enjoined upon its followers to set the slaves free and thus earn God’s pleasure. The Qur’an has made emancipation of slaves an expiation of some kinds of sins of the believers. The Muslim men and women were encouraged to marry the believing maids and slaves in preference to non-believers even if the non-believers were very rich and good looking. Islamic state is obliged to financially assist the slaves in their manumission out of its Zakat revenues.

Islam has protected the labourers against the economic exploitation by the capitalist by providing that fair wages should be fixed before employing the labourers and that they should be promptly paid their wages before their sweat dries up. To eliminate the exploitation of the tenants by the landlords, Islam almost abolished Jagirdari system. Interests of consumers have been protected by ordering ban on certain exploitive business malpractices like hoarding, monopoly, speculation, and short-weighing and short-measuring.

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