ISLAMIC ECONOMICS

Islamic economics

Table of Content

Introduction1

Discussion2

Islamic Economic System2

Islamic Economic Principles4

The Principle of Moderation4

The Principle of Economic Efficiency4

The Principle of Social Justice6

Interest Free Economy6

Factors of Production8

Positive and negative aspects of Islamic economics9

Positive Aspects9

Negative Aspects10

Conclusion10

Islamic economics

Introduction

Islamic economic thought has evolved through the development of Islamic law, the Shariah. The law incorporates the rules of life for Muslims economically, socially and religiously. It is a code for living. As such, the Shariah and the development of its sources are worth studying before addressing the economic issues (Arekat 2006, p. 19).

The Prophet's life could be regarded as a significant factor in dividing the sources of Islamic law, the Shariah, into two main sources: those that the Prophet himself established during his lifetime and others which Muslims derived after his death. The first source incorporates the Quran and the Sunnah, while the second encompasses the body of jurisprudence (Arekat 2006, p. 19).

There are various studies that have highlighted the issues of the Islamic Economy in terms of the risk associated with it. The credit risk is the loss of profit or the expected amount of profits that arise due to default on the borrower's side. The risk is the less than expected return on the investment (Arekat 2006, p. 19). The concept of the Islamic Economy and the credit risk is combined in order to analyse the concept of risk within the conventional economic systems.

An important aspect of the Islamic Economic system is the interest free economy. Since the Islamic Economic System does not include the interest based profits, it does not ensure the absolute and the maximum levels of profit (Arekat 2006, p. 19). Thus, it becomes difficult for firms to invest the capital. The risk is the most important risk for the firms.

Discussion

Several papers have outlined the specific risks inherent in Islamic Economic system.

Islamic Economic System

Perhaps the question may be asked, what is the business of Islamic religion with economics? The answer to this question from the Islamic point of view is, religion is a set of beliefs, which regulates man's relationship with his Creator, other human beings, other elements or creatures (both animate and inanimate) in the universe and finally himself. In other words, religion intends to regulate human behaviour and, of course, human economic behaviour is one of the most important aspects of human behaviours (Abdulmalik 2006, p. 123). Therefore, it is not strange to have an economic system that solely establishes on the teaching of a religion.

Studies show that all economic regulations are not entirely value-free or value neutral. By this assertion, we mean that an economic system, be it capitalist economic system, socialist economic system or welfarist economic system among others, is not devoid of certain values on which it is based. Economics in an Islamic framework operates with its feet firmly rooted in the value-pattern embodied in the Quran and the Sunnah (Abdulmalik 2006, p. 123). The scope of Islamic economics is wider than that of economics. Its approach has to be more global and ...