Economic Aspects of Islam

The Sharia contains prescriptions, proscriptions, recommendations, suggestions, general principles, and guidelines that may be considered the basis for an overall economic theory. It is important to remember, however, that such a theory must be part of the holistic vision of Islam and the integration of all aspects of human endeavor and interaction.

In one Hadith, the Prophet said that one should work in life as if one were going to live forever. This saying does not mean that there should be no sense of immediacy or urgency to action. Rather it suggests that there should be continuity in life. It also suggests that one should not be obsessed with attaining immediate results and worldly success. On the other hand, the Hadith goes on to state that one should act with respect to life in the hereafter as if one were to die tomorrow. In this, it conveys a sense of urgency about having one’s conscience in good order. These correlative maxims rest on the ethical-moral prescription in the Qur’an to do good and abjure evil.

In antiquity, especially in Asia, the gates of a city were part of a larger structure that often had several levels, with towers and interior rooms. The connecting walls and arch above this gate have collapsed, and this is all that is left of one of the gates of Tashkurghan, a city that housed a thousand shops and a score of caravanserais when it was an important trading center on the many-branched Silk Roads. (Aramco World Magazine, May-June 1991; photo by Luke Powell).

While there exist numerous economic theories consistent with the Qur’an, the ethical-moral basis of all of them must be the same. Because Islam is a way of life as well as a form of government, a social structure as well as a regulatory norm for interpersonal relationships, business is not something different and apart from all these other aspects of social life. It is a part of human life like any other. Islamic society preserves the notions of free enterprise and social solidarity, social responsibility and humanistic concern for all. It precedes self-interest, though that also is the object of many specific guarantees.

The Prophet, in another Hadith, once said that nine-tenths of all rizk (the bounty of God, which includes income) is derived from commerce. That, to a large extent, explains the drive of Muslims over the centuries to meet their economic needs through commerce, industry, agriculture and various forms of free enterprise. Profits are very much a part of such activities, provided they are lawfully obtained (halal). However, profits cannot overshadow the duties of brotherhood, solidarity, charity and they are, of course, subject to zakat.

It is not righteousness that ye turn your faces towards east or west; but it is righteousness—To believe in God and the Last Day, and the Angels, and the Book, and the Messengers; to spend of your substance, out of love for Him, for your kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the ransom of slaves to be steadfast in prayer, and practice regular charity; to fulfill the contracts which ye have made.
Qur’an 2:177

Legitimacy of Profit

Islam distinguishes between legitimate (halal) and illegitimate (haram) profit, of which usury (riba) is a part. To a large extent, the problem of defining usury has arisen over matters dealing with the practices of financial institutions in the West, namely the payment of interest which in the traditional Islamic view is considered a form of riba. By collecting a predetermined, fixed interest, the Muslim neither earns a profit from his work nor shares in risk of his capital. Speculation is prohibited, as is undue profiting from the need or misery of others. Nothing, however, proscribes income derived from what would be equivalent to mutual fund or special trust earnings or other contemporary forms of financing investments where the investor also bears the burden of potential loss. In fact, there exists in Islamic law a form of contract called muqaradah. Here a person entrusts capital to another person for commercial investment. The risk-taking elements justifies the profits, which are neither fixed nor predetermined.

The ethical-moral foundation of all economic relations is based on the distinction between halal and haram as set forth in the Sharia. The particular context of a given action, considering the interests of the community and the rights of all individuals involved, determines whether it may be deemed halal or haram. Although this may appear to be vague to the non-Muslim, it is nonetheless sufficiently clear to the Muslim because of his belief in the omniscience of God.

Fulfillment of Obligations

In all of his dealings, the Muslim is required to pay his debts as well as due compensation to those who work for him. He is to honor his obligations and stand by his word. Rectitude in business dealings and personal relations is as important to the Muslim as is any other tenet of faith. Religion must be lived. Thus ethics, morality, and religion are inseparable. That is why Muslims frequently do business by means of oral agreements or a handshake as opposed to a written contract. This also explains why there is usually a reluctance to adjudicate claims on an adversarial basis, where artful arguments may be found to rationalize or justify changing positions. Therefore, in cases of disagreement in business practices, Muslims frequently resort to arbitration. The practice is no different from that which has developed in non-Muslim societies: Each side selects an arbitrator who in turn selects a third person. It is common for both sides to agree on the arbitrator, usually a person whose faith, piety, and reputation for fairness is well-established in the community.

Because of the role of the individual in Islam as the recipient and bearer of God’s will on earth, the sense of individual dignity, pride, and honor is very marked in the Muslim. Ideally, position in life and economic status should not be distinguishing factors in Islam, though in modern societies these distinctions have developed. Respect for the individual applies to form as well as substance and extends to all aspects of human interaction. A Muslim’s word is still his bond, and his dignity is his most cherished attribute. An appeal to higher values is more convincing than an appeal to practicality and pragmatism. Human relations are more important than practical considerations Loyalty and fidelity are among the most highly regarded qualities. Rectitude is expected, and undue advantage is considered base. Fairness is both a means and an end, irrespective of the practical realities. Honesty is not a virtue but an expected trait in every Muslim. In today’s world of business these values have eroded.

Role of Work

In Islam, work, intellectual as well as physical, is considered the basis of all richness and property. There is both a right to work and a right to the product of that work, as well as a right to benefit from the rewards of divine providence. Work must always have an ethical-moral component, either in itself or in its outcome (i.e., charity, contributing to the community, etc.). There is in the philosophical sense no intrinsic wealth, although the right of inheritance is protected and specifically prescribed under Sharia, which allows for the preservation of property, its devolution and accumulation. Nonetheless, there is the implied premise that wealth should be legitimized through work. In addition, wealth must also be used for good of others, such as the needy, and for the community as a whole. The greater one’s wealth and power, the greater is the responsibility to use them properly. In many respects work is considered a form of piety.

Economic freedom extends to work, property, and the choice of how to use one’s capabilities and resources. The individual has the freedom to choose the type of work he does, and he has the right to work in an environment that does not impinge upon his personal dignity. Only in freedom can an individual choose how to use the fruits of his labor, that is, to use his wealth for personal aggrandizement or for the benefit of the community. There is a prohibition against jah, the flaunting of one’s achievement in the face of others, particularly the less fortunate. This reflects the values of equality and humility symbolically manifested in the five daily prayers, when people stand side by side, shoulder to shoulder, kneeling in unison and putting their foreheads to the ground.

O ye who believe do not eat up your property among yourselves in wrong. But there be amongst you trade in mutual good will.
Qur’an 4:29

“The buyer and seller have the option (of cancelling the contract) as long as they have not separated, then if they both speak the truth and make manifest, their transaction shall be blessed, and if they conceal and tell lies, the blessing of their transaction shall be obliterated.”
The Prophet’s Hadith

“The truthful, honest merchant is with the prophets and the truthful ones and the martyrs.”
The Prophet’s Hadith

“Whoever cultivates land which is not the property of any one has a better title to it.”
The Prophet’s Hadith


The Sharia recognizes the right to private property and its uses (provided it is halal), save for the right of the community to “eminent domain.” The use of property in accordance with the best interests and dictates of the owner is safeguarded, provided the rights of others are protected. There is throughout the notion that the utilization of wealth must balance the rights of the owner against the rights and interests of the community, which extends to the preservation of the property itself. Use is permissible; abuse and destruction are forbidden.

Property of whatever sort is not considered merely the personal privilege of the one who owns it. Ownership brings with it a certain responsibility towards the property itself, its use and benefits. The relationship between man and his Creator and the social responsibilities of a Muslim require that property be used not only for one’s personal advantage and benefit but also for the advantage and benefit of the community. This does not mean that every commercial, industrial, or agricultural enterprise must ultimately turn into a charitable activity, hut there must be human, ethical, and moral factors that relate to the use of property. Thus, if the choice is between an ethical-moral consideration and profit, the former prevails over the latter, other things being equal.


Because every Muslim is accountable before both Allah and his community, a great deal of faith is placed in a Muslim’s word. Contractual freedom is required and implies the ability to make free choices without undue influence. The attempt to control certain segments of the market or certain phases of a given mechanism that may either control prices or affect the natural laws of a free economy is considered haram. Thus Islamic economic liberty is inherently similar to the notion of free enterprise and socially responsible capitalism. The principles of Islamic economic theory would invalidate transactions in which deceit or undue influence is used by one person against another.

Contracts of various types are regulated by the Sharia and are subject to the concepts of halal and haram. Contracts are essentially predicated on the free will of the parties and must manifest the true expression of their intent. Economic activities based on implied contracts are also balanced by a variety of what would now be called equitable principles to insure against undue influence and lack of fairness, which affect questions of competence, validity, rescission, and damages. Thus the theory of market observation (hisba) postulates that there is a notion of accountability for the market and responsibility for its supervision. The theory originally applied to the traditional agricultural markets and their related commercial markets in the period from the seventh to the twelfth century. It can be compared to market and control mechanisms such as the Federal Reserve Board’s control of currency or the Securities and Exchange Commission’s control of stock transactions.

Individual contracts, implied contracts, and contracts of adhesion are to be regulated in such a way as to enhance fairness, produce equity, protect the weak and the unwary, and promote social interests. The logical extension of these principles is that no one can enrich himself to the detriment of others. In such a case the injured party has a right to compensation for his loss, not to exceed the extent of profit of the one causing the unjust loss. All of these notions of equity, including protection of the public (consumers, users, etc.), have now emerged in the legal systems of the modern world.

Modern Legal Systems

All Muslim states have legal systems with courts, laws and judges, like elsewhere in the world. There are, however, differences among Muslim states. In some countries, such as Egypt, Jordan, Lebanon, Morocco, Syria ad Tunisia, there is a tradition of legal codification and jurisprudence. Structures for the administration of justice are also well-developed. There is a three-level judiciary comprising trial courts, appellate courts, and a supreme court. The practice of adjudication of claims with representation by counsel is well-established. In some countries, such as Saudi Arabia, Kuwait, the United Arab Emirates and other Gulf states, there is less of a tradition of codification and a greater reliance on the Sharia. But there are also in these countries a number of laws applying to contracts, commercial relations, agency and the like, in addition to a judicial system and a jurisprudence specific to commercial matters. In the last decade, moreover, many countries have enacted civil and commercial codes—Algeria, Kuwait, and the United Arab Emirates, for example—which are mostly mostly modeled after the Egyptian Civil Code of 1948. The Egyptian code was taken in turn from the French Civil Code and adapted to the Sharia. In the 1980’s, Pakistan and the Sudan, which have codified legal systems, have been in the process of changing their laws to conform to the Sharia.

And O my people! give just measure and weight, nor withhold from the people the things that are their due: Commit not evil in the land with intent to do mischief.
Qur’an 11:85

It is We who have place you with authority on earth, and provided you therein with means for the fulfillment of your life: Small are the thanks that ye give!
Qur’an 7:10

Author: M. Cherif Bassiouni (Middle East Institute)

Show More


Madina365 is online magazine which mission is promotion of Islamic history and forgotten Islamic tradition such as liberty, freedom of thought and free market society.

Related Articles

Back to top button