BASIC AND INSTRUMENTAL VALUES IN ISLAMIC ECONOMICS Yeni Salma Barlinti

DEFINITION Islamic Economic System is an economic system that occurred the economic principles that guide its work, influenced or restricted by the teachings of Islam, which is sourced from the Qur'an and Sunnah as developed by the human thinking

SYSTEM OF ISLAMIC ECONOMICS PHILOSOPHY PRINCIPLES OF ISLAMIC ECONOMICS BASIC VALUES OF ISLAMIC ECONOMICS Ownership; Balance; Fairness INSTRUMENTAL VALUES OF ISLAMIC ECONOMICS Zakat; Riba Free; Economic cooperation; Social security; Role of state

PHILOSOPHY PRINCIPLES OF ISLAMIC ECONOMICS The universe belongs to Allah absolutely Allah creates creatures and universe Man obliges to believe in judgement day and the hereafter

BASIC VALUES OF ISLAMIC ECONOMICS Ownership: Human has limited freedom of his wealth Balance : Between the world and the herafter; Between individual and common interest Fairness : For all parties, not only certain party(ies)

INSTRUMENTAL VALUES OF ISLAMIC ECONOMICS Zakat Free of Riba Economic cooperation Social Security Role of State

1. Zakat Zakat is the treasure that must be given by every Muslim who meet certain requirements to certain people with certain conditions

FUNCTION OF ZAKAT Zakat purifies and sanctifies muzakki’s live and treasure and increases his fortunes QS At Taubah verse 103: “On their goods, take alms, that so thou mightest purify and sanctify them”

2. FREE OF RIBA Riba covers any return of money on money, whether the interest fixed or floating, simple or compounded, and at whatever the rate (Daud Vicary Abdullah & Keon Chee, 2010)

Riba in Al Qur’an QS Ar Rum (30): 39 “And whatever you give for interest to increase within the wealth of people will not increase with Allah . But what you give in zakah, desiring the countenance of Allah - those are the multipliers.”

Cont’d QS An Nisa (4): 160-161 For wrongdoing on the part of the Jews, We made unlawful for them [certain] good foods which had been lawful to them, and for their averting from the way of Allah many [people], And [for] their taking of usury while they had been forbidden from it, and their consuming of the people's wealth unjustly. And we have prepared for the disbelievers among them a painful punishment.

Cont’d QS Ali Imran (3): 130 “O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.”

Cont’d QS Al Baqarah (2): 278-279 O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.

Kinds of Riba Riba Nasi’ah Riba Fadhl Money return as additional amount of debt Riba Fadhl Additional amount of goods on same goods exchange

Riba =/≠ Interest? Pragmatic Conservative Socio-Economic Prohibition of riba prevailed in the past Conservative Interest is riba because it is money return on on money or loan Socio-Economic Interest is fund raising for certain people only Risk transfer Profit is not obtained from self-effort

3. Economic Cooperation Qirad is a partnership between the owners of capital or money or investor to entrepreneurs who have the expertise, skill or effort in implementing the economic units or enterprises Kinds of Qirad: Mudaraba: Investor finance (100%) the activities managed by entrepreneurs Murabaha: Capital owner finance by purchasing of goods managed by entrepreneurs to get the profit margin

Impact of Economic Cooperation Creating productive works for society in daily life Rasing prosperity and avoiding misery of people Avoiding economic oppression and inequitable economic/wealth distribution Protecting poor people’s interest

4. SOCIAL SECURITY Islam guarantees a minimum level and quality of life for society, namely: All the creatures of God Almighty have to benefit from the wealth of natural resources Pay attention on the poor The wealth should not be enjoyed and rotated among the rich Do something good for society Wealth should be used for social purposes Social contribution is not intended to be praised by others Social security is given at least to those who written in the Qur'an

5. ROLE OF STATE Legal aspects Planning and supervision of resource distribution Equity income Growth and stability of economic

Factors in Islamic Economics 1. Production 2. Consumption 3. Circulation 4. Distribution

Factor of Production Land  welfare of society Human resources  power of cooperation Capital  free of riba, limited ownership Organization  based on capital equity, enterpreneur and worker are working together

Factor of Consumption Fulfilling human needs: primair needs, happiness, and wealth Pay attention on halal haram of consumption Pay attention on principles: justice, cleanliness, simplicity, generosity, and morality

Factor of Circulation Circulation of economic activities in goods and services is based on sharia Market price is determined by supply and demand Islam admits “controlled freedom”, freedom controlled by justice, religion and moral principles

Factor of Distribution Value of freedom in ownership management: believe in God and trust others (human / people) Value of justice in job opportunity, placement worker, giving rights of worker, and social security for the poor Social security for the poor. Such as zakat (alms) and charity

Thank You Wassalam

ASSIGNMENT FOR MONDAY, 22 SEPT 2014 Find institutions which manage islamic economics activities of bank, insurance, capital market, zakat, and waqf Describe the function of each institutions above Do the assignment in pairs