Features Of Islamic Economic System With Special Emphasis On The Practice Of The Prophet And The Khulaffar Rashidun SS2 Islamic Studies Lesson Note

The Islamic economic system is based on rules and principles found in the Quran and the Sunnah (the practices of Prophet Muhammad, peace be upon him). This system was first put into practice by the Prophet himself and then by the four Rightly Guided Caliphs (Khulafa-ur-Rashidun): Abu Bakr, Umar, Uthman, and Ali. The Islamic economic system aims to create a fair and just society where wealth is not just in the hands of a few people. This lesson will look at the main features of this system and how it was practiced during the early days of Islam.

Prohibition of Interest (Riba)

One of the most important features of the Islamic economic system is the ban on interest (riba). Interest is when someone lends money and asks for more money back than what they gave.

Practice by the Prophet:

– The Prophet declared that taking or giving interest is forbidden (haram)

– In his Farewell Sermon, he announced that all interest dealings of the pre-Islamic period were canceled

– He said, “Allah has forbidden riba, so all interest due from before is canceled, and you are entitled only to your capital”

Practice by the Khulafa-ur-Rashidun:

– Abu Bakr continued to enforce the ban on interest

– Umar was very strict about making sure no interest-based transactions took place in markets

– Uthman and Ali both maintained this policy and punished those who engaged in interest-based dealings

Zakat: Wealth Distribution System

Zakat is a type of charity that is required in Islam. It is 2.5% of a Muslim’s saved wealth that must be given to specific groups of people each year.

Practice by the Prophet:

– The Prophet set up a system for collecting and distributing Zakat

– He appointed collectors to gather Zakat from different tribes and regions

– He instructed that Zakat should be taken from the rich and given to the poor within the same community

Practice by the Khulafa-ur-Rashidun:

– Abu Bakr fought those who refused to pay Zakat after the Prophet’s death, showing its importance

– Umar expanded the Zakat collection system and set up Bayt al-Mal (treasury) to manage it

– During Uthman’s time, wealth increased so much that sometimes it was hard to find people who qualified to receive Zakat

– Ali emphasized the fair distribution of Zakat and made sure it reached those who needed it most

Fair Trade Practices

Islam encourages trade but insists that it must be conducted fairly and honestly.

Practice by the Prophet:

– The Prophet was a trader before prophethood and was known as “Al-Amin” (the trustworthy)

– He regularly visited markets to ensure fair dealing

– He said, “The truthful and honest merchant will be with the prophets, the truthful, and the martyrs”

– He forbade practices like hoarding goods to raise prices

Practice by the Khulafa-ur-Rashidun:

– Umar often patrolled markets personally to check for fair trade practices

– He established the office of Muhtasib (market inspector) to regulate markets

– Umar would expel dishonest traders from the marketplace

– Ali was known for his strict stance against false measuring and cheating in business

Prohibition of Gambling and Uncertainty

The Islamic economic system forbids gambling (maysir) and excessive uncertainty (gharar) in business deals.

Practice by the Prophet:

– The Prophet banned all forms of gambling

– He prohibited selling fruits before they ripened because of the uncertainty involved

– He forbade “fish in the sea” or “birds in the sky” type sales (selling things not yet possessed)

Practice by the Khulafa-ur-Rashidun:

– The Caliphs continued these policies

– Umar particularly enforced rules against speculative transactions

– The Caliphs made sure contracts were clear and that both parties understood what they were trading

Land Ownership and Development

Islam has specific rules about land ownership and encourages productive use of land.

Practice by the Prophet:

– The Prophet said, “Whoever revives dead land, it belongs to him”

– He allocated land grants (iqta) to encourage development

– He established that natural resources like water, pastures, and fire (energy) are commonly owned

Practice by the Khulafa-ur-Rashidun:

– Umar introduced the system of kharaj (land tax) on conquered lands instead of dividing them among soldiers

– This kept land productive and generated revenue for the state

– Umar also established the diwan (register) system to distribute stipends to Muslims

– Ali took back lands that were not being used productively and redistributed them

Bayt al-Mal (Public Treasury)

The Islamic state established a public treasury to manage state finances.

Practice by the Prophet:

– The Prophet set up a simple treasury system to collect and distribute funds

– The money was usually distributed immediately rather than saved

Practice by the Khulafa-ur-Rashidun:

– Abu Bakr maintained this simple approach

– Umar greatly expanded the Bayt al-Mal system and organized it by regions

– He established separate departments for different types of revenue

– Uthman continued this system but faced criticism over some distribution decisions

– Ali reformed the treasury to ensure maximum fairness in distribution

Waqf (Endowment) System

Waqf is a charitable endowment where someone donates property for public benefit.

Practice by the Prophet:

– The Prophet encouraged waqf for ongoing charity

– Umar asked the Prophet about what to do with valuable land he owned, and the Prophet advised him to make it a waqf (charitable trust)

Practice by the Khulafa-ur-Rashidun:

– The Caliphs created many waqfs for public benefit

– These waqfs funded mosques, schools, hospitals, and services for the poor

– The waqf system became a major economic institution providing social services

Simplified Tax System

The Islamic economic system established a fair and simple tax system.

Practice by the Prophet:

– The Prophet established Zakat for Muslims

– For non-Muslims, he established Jizya (a protection tax)

– He also set up the Khums system (one-fifth of war booty for the state)

Practice by the Khulafa-ur-Rashidun:

– Umar developed a more comprehensive tax system including:

  – Kharaj (land tax)

  – Ushr (trade tax, like customs)

  – Jizya (for non-Muslims, based on their ability to pay)

– The taxes were reasonable and collected in a fair manner

– Tax collectors were warned against oppressing people

Spending on Public Welfare

The Islamic economic system emphasized using public funds for the welfare of all people.

Practice by the Prophet:

– The Prophet used state funds to help the poor, travelers, and those in debt

– He made sure orphans and widows were taken care of

Practice by the Khulafa-ur-Rashidun:

– Umar established stipends for all Muslims

– He created a welfare system for children, the elderly, and the disabled

– Umar also invested in public infrastructure like roads, canals, and rest houses for travelers

– During a famine, Umar opened state storehouses to feed the people

– Uthman was known for his generosity in using his personal wealth for public welfare

Labor Rights and Dignity of Work

Islam gives high importance to fair treatment of workers and the dignity of all types of work.

Practice by the Prophet:

– The Prophet said, “Give the worker his wages before his sweat dries”

– He encouraged all types of halal (permissible) work and discouraged begging

– He worked with his own hands and helped in building the mosque

Practice by the Khulafa-ur-Rashidun:

– The Caliphs continued to emphasize fair wages

– Umar would regularly check on the condition of workers

– Ali emphasized that rulers should be aware of the difficulties faced by workers and farmers

Conclusion

The Islamic economic system established by the Prophet Muhammad (peace be upon him) and developed by the Khulafa-ur-Rashidun was based on principles of justice, fairness, and social welfare. It prohibited practices that could harm society, like interest and gambling, while encouraging fair trade, charity, and productive work. The system aimed to create a balanced distribution of wealth through institutions like Zakat, Bayt al-Mal, and Waqf.

These principles and practices laid the foundation for an economic system that lasted for centuries and provided prosperity and stability to the Islamic civilization. Many of these principles continue to inspire modern Islamic finance and economic thinking today. The practices of the Prophet and the four Rightly Guided Caliphs remain the ideal model for how an Islamic economy should function.