Basics of Islamic Economy System

The economic philosophy of Islam has no concept of Riba (Interest) because according to Islam, Riba (Interest) is that curse in society, which accumulates money around handful of people, and it results inevitably in creating monopolies, opening doors for selfishness, greed, injustice and oppression. Due to this reason, Islam renders Riba (Interest) as absolutely Un-allowed and strictly prohibits all types of interest-based transactions.

The prohibition of Riba in the light of economic philosophy of Islam can be explained with the cost of distribution of wealth in a society.

Distribution of wealth

From the Islamic point of view, there are two kinds of people who have a right to wealth:

1. Those who have a primary right that is to say, those who have a right to wealth directly in consequence of participation in the process of production. In other words, it is those very "factors of production" which have taken a part in the process of producing some kind of wealth.

2. Those who have a secondary right, that is to say, those who have not taken a direct part in the process of production, but it has been enjoined upon the producers to make them co-sharers in their wealth.

Islamic Theory

As indicated above, the primary right to wealth is enjoyed by "the factors of production." But "the factors of production'' are not specified or technically defined, nor is their share in wealth determined in exactly the same way as is done under the Capitalist system of economy. In fact, the two ways are quite distinct. From the Islamic point of view, the actual factors of production are three instead of being four in capitalism.

1. Capital:
That is, those means of production which cannot be used in the process of production until and unless during this process they are either wholly consumed or completely altered in form, and which, therefore, cannot be let or leased (for example, liquid money or food stuff etc.)

2. Land:
That is, those means of production, which are so, used in the process of production that their original and external form remains unaltered, and which can hence be let or leased (for example, lands, houses, machines etc.).

3. Labor:
That is, human exertion, whether of the bodily organs or of the mind or of the heart. This exertion thus includes organization and planning too.

Whatever "wealth" is produced by the combined action of these three factors would be primarily distributed over these three in this manner: one share of it would go to Capital in the form of profit (and not in the form of interest); the second share would go to Land in the form of rent, and the third share would be given to Labor in the form of wages.