Iftekhar Ahmed, Ahmadiyya Archive & Research Centre
Introduction
The Islamic faith understands itself as the holistic path to a perfect life in every respect. The sources of Islamic teachings, the Holy Quran as the Word of God and the Holy Scripture of Muslims, and the sunnah as the exemplary way of life of the Holy Prophet Muhammadsa, encompass all aspects of human existence from birth to death and beyond. In this world, they serve as an exemplary guide with the aim of enabling people to live a successful and prosperous life in harmony with their divinely ordained purpose.
One of the most profound aspects of human existence on earth is the economy and economic life. Thus, this article discusses the principles of Islam for economic coexistence.
Before I begin with the actual topic, I would like to make some remarks on the current overall economic situation we find ourselves in and outline some of the fundamental shortcomings and weaknesses of the economic system that still prevails today, namely capitalism, so that what I then derive from the sources of Islamic teachings may be recognised as a solution.
Capitalism’s moral bankruptcy
Capitalism is the pursuit of wealth, driven by self-interest, which takes precedence. Hence, capitalism is geared towards promoting and protecting self-interest. On this basis, capitalism adopts a purely materialistic attitude in which man, detached from any origin or destiny, confines himself exclusively to the aspects of his material life fed by considerations of utility. Driven by self-interest, capitalism is nevertheless supposed to miraculously promote the common good, without striving for it in any way. Now, self-interest can either be compatible with the common good or detrimental to it. Since self-interest that is not compatible with the common good not only threatens other legitimate interests but also the common good itself as the prerequisite for the success of interests per se, people in pure capitalism must constantly be on guard against such a threat to the common good by the pressure of self-interest. Bluntly speaking, one could say that the capitalist maxim of egoistic self-interest in its purest form basically makes it impossible to build mutual trust, selflessness and true compassion in economic matters. On the contrary, one constantly senses the danger of interests that could collide with one’s self-interest everywhere, and life becomes a never-ending, almost social Darwinist struggle for survival.
Furthermore, capitalism as practised as an economic system has largely given free rein to certain exploitative institutions and their activities based on the philosophy of the free market and has even granted them legal protection. Such institutions are largely responsible for much of the injustice in the distribution of wealth in today’s world.
The end of history postulated by political scientist Francis Fukuyama after the collapse of the Soviet Union, according to which capitalism, inextricably linked in his view with liberal democracy, had now definitively prevailed as the most sustainable and successful system and would spread to all nations, proved to be an illusion in the further course of history. Rather, the negative effects of the ethical emptiness of capitalism, the unbridled pursuit of self-interest in production and consumption, the interest-based financial and monetary system, and the indifference to collective responsibility became more apparent than ever in the subsequent economic and financial crises, and continue to be the greatest obstacles to justice.
The prevailing economic worldview since the late 19th century, the neoclassical school of economics, forms the backbone of modern capitalism. It assumes that self-interest would determine economic behaviour. Therefore, the individual would take precedence and private property would be inviolable. The ownership of property would be based on the notion that one is the owner of oneself, which is why every individual would have a natural right to one’s own labour and thus also a right to the property that one acquires or produces in exchange for this labour. A person’s well-being could best be maximised by allowing them to act freely in their own interest, according to this view. Pleasure and pain would be the ultimate objects of economic calculation. The aim and purpose of economics would be to satisfy one’s needs with the least effort as much as possible, or, in other words, to maximise pleasure. The usefulness of something would be measured by the extent to which it increases a person’s well-being and pleasure.
This view is based on three unrealistic assumptions about human beings, namely that human beings would have unlimited reason, unlimited willpower and be infinitely selfish. The foundations and assumptions underlying this view not only differ from the Islamic economic view but are diametrically opposed to it.
A look into the Quran and the sunnah shows that financial matters were given great importance by Allah and His Prophetsa. The scope of guidance in financial matters, however, is not limited to legal provisions on permissible and impermissible transactions. Rather, the Quran and sunnah focus strongly on human experiences and behaviours regarding wealth and assets, which are the prerequisites for sound economic decisions. By concentrating on human experience and behaviour regarding wealth and assets, and reformulating important economic concepts, the Islamic teachings also attempt to overcome cognitive and spiritual distortions regarding wealth and assets that lead to inappropriate and often harmful economic decisions.
Redefining ownership: Allah as true Owner
From an Islamic perspective, it is neither the satisfaction of needs and desires nor the maximisation of pleasure that constitutes the ultimate goal of economic activity. The Islamic conception of property itself is entirely different since Allah Himself owns us and thus also our assets. Allah says in the Holy Quran:
“Surely, Allah has purchased of the believers their persons and their property [in return] for the [heavenly] Garden they shall have”. (Surah at-Taubah, Ch.9: V.111)
Nevertheless, the Islamic system of divine law grants man the right to private property. It allows him to strive for personal wealth, and to acquire worldly goods, and establishes the legal framework to protect this property.
Zakat: Antidote to interest and economic individualism
Furthermore, economic individualism is far removed from Islamic conceptions of the common good and community rights. The fact that zakat entitles others to a part of our wealth and that withholding it is considered reprehensible and a cause of our downfall negates the compatibility between Islam and economic individualism. Allah says:
“And spend in the cause of Allah, and cast not yourselves into ruin with your own hands, and do good; surely, Allah loves those who do good.” (Surah al-Baqarah, Ch.2: V.196)
It should be noted, however, that the Islamic perspective is just as incompatible with the counterpart to economic individualism, namely economic collectivism, but rather represents a middle way between these two extremes.
In numerous places in the Quran, Allah points out that man has a strong desire for material goods.
For example, it says:
“And you love wealth with exceeding love.” (Surah al-Fajr, Ch.89: V.21)
Or:
“And, surely, he is passionate in his love for wealth.” (Surah al-‘Adiyat, Ch.100: V.9)
The Messengersa of Allah illustrates this insatiable thirst for wealth as follows:
“If the son of Adam had a valley full of gold, he would love to have two valleys.” (Sahih al-Bukhari, Kitab ar-Riqaq, Bab Ma yuttaqa min fitnati l-mal, no. 6439)
He also warned of the possible dangers of the obsessive pursuit of wealth, saying: “By Allah, I do not fear poverty for you, but I fear that the wealth of the world may be given to you as it was given to those before you. Then you will vie for it as they vied for it, and it will ruin you as it ruined them.” (Ibid., Bab Ma yuhdharu min zahrati d-dunya wa-t-tanafus fiha, no. 6425)
What the warning that the pursuit of wealth can destroy a person aims to foster is a conscious and vigilant attitude towards such a pursuit. But instead of merely warning against the possible perils of mammon, the Islamic teachings attempt to reshape man’s relationship to wealth in such a way that he spends it appropriately according to Allah’s directives, that is, in His service.
In Islam, Allah is the true owner of everything, including all wealth, and the individual is merely a trustee or custodian. Man’s task is to deal with wealth and assets in a way that pleases their Owner, that is, God. The Quran states:
“Believe in Allah and His Messenger, and spend [in the way of Allah] out of that to which He has made you heirs. And those of you who believe and spend will have a great reward.” (Surah al-Hadid, Ch.57: V.8)
The fact that wealth ultimately belongs to Allah alone and that man is only a trustee has a significant impact on how wealth is spent and invested. Once one has internalised one’s role as a trustee, one is responsible for upholding the trust and understanding the conditions of the trust in order to know who has a right to assets and then distribute those assets to those who have a claim to them.
The conditions of the trusteeship are clearly formulated in the Quran and the sunnah. These include the rules of inheritance, the regulations on zakat, the prohibition of hoarding capital, the incentive to be generous and redistribute wealth in society, the incentive to be moderate in spending, and the principles of investment.
The scourge of interest
Another important pillar of the Islamic economic system is the absolute prohibition of interest, which is very clearly and unequivocally established in the Quran and the sunnah. Interest is the mother of all economic injustices.
Interest-based lending as an instrument for the distribution of resources secures a fixed return for one party and a variable or uncertain return for the other. This dichotomy in returns increases the concentration of wealth and impedes entrepreneurship since the interest-based system guarantees the wealthy capitalist a fixed return. Regardless of the initial distribution of wealth in society, interest-based lending eventually leads to a concentration of wealth in every society. In fact, the inequality of wealth is not only a problem in the Third World, but a fact in every country where a sophisticated interest-based financial system is at work.
The lack of willingness on the part of capitalists to risk capital while having the opportunity to earn a fixed-interest income prevents them from engaging in entrepreneurial activities themselves, leading to a decline in investment in the economy. The decline in potential investment in productive activities slows economic growth, keeps unemployment high, burdens public budgets through transfer payments, and reduces competitiveness in markets, which can lead to welfare losses and other problems associated with market imperfections.
In the case of productive loans, it may happen that the borrower incurs losses, but in the case of interest-based loans, he will still be obliged to repay the capital plus interest. In some cases, it may happen that the borrower makes large profits while the lender receives only the agreed interest rate, which is typically only a fraction of the actual profit. Interest thus leads to an inefficient allocation of societal resources overall and contributes to systemic instability. It also exacerbates inequality in the distribution of income and wealth, as it guarantees a continuous increase in the funds lent, especially by the wealthy, and shifts the burden of losses onto entrepreneurs and – through the loss of jobs – onto workers.
Now I would like to briefly dispel a myth related to the prohibition of interest. It is claimed that interest is the price of risk. However, it is simply wrong to claim that lending money involves such a risk that would not be present in business ventures. In today’s interest system, the lender receives interest in any case, while businesses, after taking an operational risk, either make profits or incur losses. With every entrepreneurial investment, the entire process of economic activity must be gone through, which involves risk at every stage, and any compensation for an investment strictly depends on the outcome of the entrepreneurial activity. The time value of money is a problem for the investor who wants to avoid leaving his money unused and forgoing the use of money that could bring a positive value to his investment. This does not mean, however, that the investor can demand or receive an arbitrary increase in the cost of using the money without taking the entrepreneurial risk.
Distributive justice: Uplifting the underprivileged
On the subject of distributive justice, it should also be said that Muslims have their own system of welfare to address the problem of poverty alleviation. There are three verses in the Quran that are particularly important for Muslim thinking on issues of distributive justice. These verses specify who the legitimate beneficiaries of public revenues are. The first of these three verses is Surah at-Tawbah, Ch.9: V.60, which specifies who the legitimate recipients of sadaqat – also known as zakat, the third pillar of Islam – are. Zakat forms the antithesis of interest. The verse limits those who can receive these funds to eight categories: the poor, the needy, those in charge of administering zakat, those whose hearts are to be reconciled to Islam, the freeing of slaves, debtors, those who work for the cause of Allah, and travellers.
Zakat is sometimes understood as alms, but in Islamic law, it is an obligatory payment that those who have means owe to the state, which then has the duty to distribute it to those who are entitled to it. In the Quran, the payment is described as a right of the poor against the rich, with the state being able to enforce its obligation towards those who refuse to pay it. It is levied on savings exceeding a certain minimum amount, on basic staples exceeding a certain minimum amount, and on herds of a certain minimum size. The alleviation of poverty is a crucial objective of this Quranic legislation. The same concern for poverty alleviation is also found in the other two Quranic verses dealing with the distribution of public assets, Surah al-Hashr, Ch.59: V.8, and Surah al-Anfal, Ch.8: V.42, in which the poor and other marginalised groups are named as legitimate recipients of public property.
In general, one can point to Islamic principles of distributive justice that promote the transfer of public resources to the least advantaged members of society. The Islamic principles of distributive justice are clearly in line with a policy aimed at mitigating the disadvantages for the individual resulting from poverty. Islamic law makes receiving public support contingent solely on the objective neediness of the applicant and nothing else. Moreover, the definition of poor is quite broad. The Maliki school of law, for example, which is predominant in Muslim North Africa, Spain, and sub-Saharan Africa, defines anyone who does not have enough property to live on for a year as poor. This means that poverty is defined not only as a function of income but also includes savings: anyone whose savings are not sufficient to survive for a year is entitled to public support.
The Islamic concept of zakat is only intended to serve as a kind of income insurance and is not so generous as to deter the average person from improving their lot in life according to their God-given abilities. But what it does is change the decision-making basis facing individuals who sell their labour to survive.
On the subject of zakat, it should also be said that as a reflection of human behaviour, it strengthens human relationships with other members of society by dealing with the misery of the poor and the excess of the rich. Far more important than its legal implications is its role in an ethical economy. Zakat is the embodiment of several economic principles, such as the right to regulate property, the idea of using property for the greater good, the idea of supporting the needy while ensuring their integration into society, and the principle of purifying one’s own wealth in order to establish an economic and, more broadly, even an ecological balance. The institution of zakat is specifically reserved for the weak in order to balance out prosperity and increase social welfare among the population. In this context, zakat has not only legal but also socio-economic and, above all, moral aspects. Zakat is mentioned 82 times in the Quran in connection with the Islamic prayer, salat, which shows the significance and interrelationship between financial charity and spiritual efforts. Zakat is a clear indication that poverty in the Islamic tradition is both a social problem and a spiritual phenomenon. Conceptually, zakat as an obligatory levy on surplus wealth is no less than a milestone in the provision of social services and security.
Zakat must also be given more importance because calls from prominent politicians and economists for a wealth tax are becoming louder by the day. Zakat is indeed a wealth tax – albeit on idle wealth – those who hoard and do not invest in society are made to pay. Zakat is fairer and more equitable than current forms of wealth tax as formulated by its left-wing proponents, which seem more like a blind attack on the wealthy.
The Islamic system of divine law condemns the hoarding of capital and demands that capital must always be kept in circulation. Since capital is to remain in circulation on the one hand and cannot be invested in conventional interest-bearing transactions on the other, the principle of profit and loss sharing is applied. Accordingly, capital – if not invested as equity capital – may only be provided as equity capital. In such investment-related agreements, both the capital provider and the active partner participate in the profit achieved as well as in the risk. It should be noted that, from an Islamic perspective, capital generally has the function of continuously circulating within the national economy. This consideration underlies the general notion of property rights in the Islamic system of divine law.
Ethical entrepreneurship: An Islamic imperative
Ethical entrepreneurship as a development strategy and business style is also a concept rooted in Islamic economic teachings. A number of verses in the Quran promote entrepreneurship and call for business ethics, citing the example of the Prophetsa himself, who was a successful entrepreneur. In the following, I will outline the Islamic ethical principles that should regulate businesses and enterprises:
- This includes the commandment of honesty and reliability.
- Then, as mentioned before, the treatment of all company resources as a trust from God that must be managed with full responsibility.
- Furthermore, justice, which also includes fair dealings in business.
- Businesses should be conducted with humility and devotion as part of the worship of God, without harming others.
- This includes the pursuit of brotherhood and cooperation in order to achieve the well-being of humanity and not just personal advantage.
- Moreover, Islam calls upon businesses to pursue other ethical strategies as well, such as ethical considerations in choosing a line of business that does not harm others – hence some businesses are not permissible, such as alcohol, gambling, weapons, etc.
- Contracts must be honoured and complied with.
- Advertising must never be misleading or even untrue.
- To protect customers, any negligence in measurements is unacceptable.
- Surplus products must not be destroyed in order to secure high prices in the market, but must be released for use in order to increase the prosperity of society as a whole.
- There must be transparency in hiring employees, with equal opportunities offered to all, looking primarily at abilities and credibility instead of favouritism based on ethnicity, etc.
- A personnel management system that ensures an appropriate work environment, proper remuneration, reasonable working hours, etc.
- Accountability of entrepreneurs.
- Protection of the environment, prevention of environmental pollution and destruction of nature.
- Fair distribution of wealth.
- Payment of zakat.
- And adherence to the prohibition of interest.
Prophecies fulfilled: A call to reform
In conclusion, it should be said that the Holy Prophetsa prophesied about our time:
“A time will come when people will not care how they earn money, whether lawfully or unlawfully.” (Sahih al-Bukhari, Kitab al-Buyu‘, Bab Man lam yubal min hayth kasab al-mal, no. 2059) The Messengersa of Allah also made a prophecy regarding interest: “A time will come upon people when they will consume interest” It was asked: “All people?” The Prophetsa said: “Whoever does not consume it will still be affected by its dust.” (Musnad Ahmad, Musnad al-Mukthirin min as-sahabah, Musnad Abi Hurayrahra, no. 10410)
That is, a time should come when people would no longer care whether they earned their livelihood through permissible or forbidden means, and even those who would do everything to avoid consuming interest would be affected and permeated by this evil.
These prophecies have been fulfilled in our present time. The Promised Messiahas said about this:
“Now in this country, most jurisprudential issues have been turned upside down. There is some element of interest (riba) in almost all trades. Therefore, there is a need for new independent reasoning (ijtihad) at this time.” (Malfuzat, [2022], Vol. 7, p. 3)
Hazrat Khalifatul Masih Vaa said about this statement of the Promised Messiahas:
“In light of this guidance of the Promised Messiahas, the Ahmadiyya Muslim Jamaat continues to investigate and research into various issues in this regard whenever they arise and even currently, further research is being conducted on this matter.” (“Answers to everyday issues – Part VII”, Al Hakam, 22 January 2021, p. 10)
He said elsewhere: “Up until now, a clear and accurate concept of Islamic banking has not come to the surface.” He said that these days, so-called Islamic banking was based on interest, disguised in various ways. “Do research on this and if you come across some research, then I have an interest too; do send it to me and I will review it. Up until now, I have read and reviewed the research of people and it all seems like misplaced theories; there’s no reality to them.” (“I have seen that your khuddam have patience and determination…”, Al Hakam, 27 August 2021, p. 6)
The Islamic tradition has grappled with the interpretation of the relevant texts on economics in the Quran and sunnah over the centuries as economic conditions evolved, and a modern Islamic economic and financial system still requires contributions, foremost from us Ahmadis.
May Allah enable us to implement the Islamic principles of economic coexistence both at the individual and societal level. Amin.