Wealth Creation: An Islamic Perspective

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Wealth Creation An Islamic Perspective

• Dr. Munawar Iqbal
• Former Chief of Research (Islamic Banking and
  Finance)
• IRTI, Islamic Development Bank
• Lecture in Distance Learning Program
• Islamic Development Bank
• October 2008.

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Islamic Perspective on Seeking Wealth

• Islam considers pursuing economic activities
  something very desirable. It abhors a life of
  asceticism and abstinence.
• Wealth is declared Gods blessing and seeking
  wealth in a proper way is considered an act of
  worship.

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What is Wealth

• Some Definitions of Wealth
• All things having monetary value
• (Colliers Dictionary)
• All goods and resources having economic value
• (The American Heritage Dictionary)
• The closest term for this in Quran is Maal
  which is defined as
• ?? ?? ??? ??? ???? ????? ??? ?????
• Anything that has a material value.
• We can see that Maal is almost exactly
  equivalent to wealth.
• Next we look for Quranic guidance on Maal or
  wealth creation.

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Guidance From Quran on Wealth Creation

• ?? ???? ????? ????? ???????? ??????? ?????
  ??????? ??? ?? ???? ????? ?? ???? ????.
• )???? ??????? ????? 29(.
• O Ye who believe! Eat not up your property among
  yourselves unduly. Let it be trade amongst you by
  mutual agreement.
• This verse is perhaps the most important verse of
  Quran on economic matters. It tells us both the
  dos and the donts in wealth creation.
• First the donts.

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What is Prohibited in Wealth Creation

• The verse rules out ALL illegal ways of wealth
  creation. Batil encompasses any way of
  acquiring wealth that violates the rights of (a)
  God (b) Contracting Parties and (c) Third
  Parties.
• First and foremost those ways of wealth creation
  are ruled out that are declared illegal by the
  Supreme Law Giver. Examples of these are riba,
  gharar, qimar, ghish.
•  

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• The scope of the verse also includes all those
  activities, which are declared illegal by the
  state and its various echelons. Examples of these
  are bribery, smuggling, money laundering.
• Ways of creating wealth that violate the rights
  of third parties are also prohibited. Examples of
  these are creating pollution, obstructing common
  passage ways and other negative externalities.
  Zoning regulations by municipalities are covered
  here.

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What is Allowed in Wealth Creation

• Kinds of Legislation in Islam.
• Islamic Rulings (Ahkam) relate to two broad
  fields
• Relationship between God and Mankind. This is
  called Ibadat (Worshipping).
• Relationships among Mankind. This is termed as
  Muamalat ( Mutual Dealings).

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• The general principal in case of rulings in the
  field of worshipping is that an act is worship
  only when permitted by Shariah.
• On the other hand in case of mutual dealings, the
  general principal is that of permissibility, i.e.
  everything is permitted unless clearly prohibited
  by Shariah.

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The Golden Principle of Ibaha (Permissibility)

• In Islamic theory of contracts, parties are free
  to agree on any terms as long as known Islamic
  rules and principles are not violated. There is
  an authentic hadith stating
• ???????? ??? ?????? ??? ???? ??? ????? ?? ???
  ?????
• Muslims are free to determine the conditions of
  their contracts unless they make something
  forbidden as permissible or something permissible
  as forbidden

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Wealth Creation General Governing Principles

• A. Freedom of Contract within Shariah
• B. Conscious and Voluntary Agreement
• C. Honoring the Rights of Third Parties
  (Externalities)
• D. Honoring Both the Letter and the Spirit of
  Contract

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Kinds of Contracts

• Compensatory.
• Gracious (Charity).
• Compensatory contracts are those whereby goods,
  services, and rights are exchanged on the basis
  of some compensation. Broadly defined, it
  includes all contracts, which add value, i.e.
  create wealth by someone and hence his claim for
  compensation.
• The second type, i.e. charity, involves transfer
  of value owned by someone without compensation.
  The rules governing the two types are naturally
  different. We are concerned here with the first
  type.

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Basic Rules in Compensatory Contracts

• A. Freedom in determining the conditions of a
  contract
• B. Prohibition of taking others property without
  compensation
• C. Value Equivalence
• D. Prohibition of Unequal Exchange
• (Iztarar, monopoly etc.)
• E.  Provision of Maximum Possible Information

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Application of Rules Some Examples

• Prohibition of Riba
• Prohibition of Gharar
• Prohibition of Gambling

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Prohibition of Riba

• Riba literally means increase, addition,
  expansion or growth.
• In the Shariah , however, the term riba refers
  to anything (big or small), pecuniary or
  non-pecuniary, in excess of the principal in a
  loan that must be paid by the borrower to the
  lender along with the principal as a condition of
  the loan or for an extension in its maturity.
• In this sense, Riba has the same meaning and
  import as the contemporary concept of interest in
  accordance with the consensus of all the fuqaha
  (jurists).

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Prohibition of Gharar

• Gharar refers to act and conditions in contracts,
  the full implications of which are not clearly
  known to the parties.
•  In economic parlance it is very close to
  Asymmetric Information.
• It has two kinds gharar yaseer (trivial) and
  gharar fahish (substantial).
• The first kind is tolerated since this may be
  unavoidable without causing considerable damage
  to one of the parties.

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Prohibition of Gambling (Maysar)

• ?? ???? ????? ????? ???? ????? ??????? ????????
  ???????? ??? ?? ??? ??????? ???????? ????? ??????
  (???? ???????? ?????90(.
• O Ye who believe, Intoxicants and Gambling,
  (Dedication of ) stones, And (Dedication of)
  arrows, are an abomination, of Satans handiwork
  Eschew such (abomination) , That ye may prosper.
• Gambling amounts to transfer of wealth without
  any value added.