Poverty Alleviation: An Aim Of Islamic Economics

By | February 10, 2017

Poverty is treated as WMD (weapon of mass destruction) of modern world. Eradication of it bears very importance. The economic systems like capitalism and communism have presented number of instruments for the alleviation of the poverty from the world. But, these extreme ideologies failed to satisfy the need of the people. Private ownership of property, laissez-faire policy of capitalism and class war, dialectical materialism, state ownership of property of communism didn’t touch the real cause of poverty. This situation necessitates seeking the possibilities of Islamic economics in alleviating poverty. The aim of poverty alleviation can be attained, in an Islamic Economic system through reducing the inequality. It never means attaining equality but equity and justice in the income and wealth distribution. Islam eliminates the absolute inequality which arises from unequal distribution of income, but relative inequality emerges from equitable distribution of income and wealth.

First part of this article has given a small introduction to both conventional economics and Islamic economics. Then it provides a picture of poverty of current world and Islamic perspective of poverty. Then Islamic economics instruments to alleviate poverty such as zakat, sadaqa, qard hasan, ganima, khums, fay, jizya, mudaraba, musharaka, prohibition of interest, abolition of extravaganza, prohibition of speculation and hoarding have been mentioned in briefly. Influence of Islamic economic instruments on marginal propensity to consume, multiplier, price investment and production have been dealt with.

The books and articles I referred for this article are Dr. Dr.Sabahuddin Azmi’s Islamic Economics, S. M. Hasanuzzaman’s Economic function of an Islamic state (The early experience), Towards understanding the economic system of Islam written by Dr.P Ibrahim and Introduction to the economic system by Moulavi.M.V.Saleem.

Introduction

Nobody can undermine the importance of economics which is a social science that studies the production, distribution, trade and consumption of goods and services. This very importance of economics resulted in emergence of different economic systems in the world and all of those economic systems claim that they will fetch economic welfare. Those dominating and prominent economic system’s failure to accomplish economic justice, prosperity, the eradiation of the inequality and poverty make necessary an alternative economic system which can successfully make a starvation free and poverty free world.

Definition of Economics

Social scientists have developed various definitions of economics. Lionel Robinson’s scarcity definition of economics is most accepted amongst them. According to Robinson “economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses” This definition is based on two points which are scarcity of resources and the never ending needs. But in reality former is a myth. The survey conducted by UNO shows that are enough resources for 20000 million people on earth we have only 6000 million people on earth residing now. Latter point ‘never ending needs’ is also incorrect as the desire and greed of the man is unlimited but the need is countable and controllable.

Definition of Islamic Economics

As a system of life Islam has not left any area of human life without guidance. Whether it is spiritual, individual, social, economical or political Islam gives clear cut guidelines. By considering the economic guidelines of Islamic sources, Islamic economists have developed plethora of definitions. Derivation of each definition of Islamic economics is based on guidance given in the basic sources of Islamic shariah which are Quran and hadith.

According to Yusuf Ibrahim, professor of Islamic economics, Qatar University “Islamic economics is a science studying the guidance of the human behavior towards the use of resources to satisfy the needs”. This definition is based upon the following facts.

1. The resources are enough for satisfying the needs.

2. But the resources should be protected from the waste, and improper use.

3. The human behavior towards the resources should be controlled by divine injunctions.

4. Only legal needs, needs that build life on the earth, should be satisfied.

5. Illegal needs (desires), which destroy life on earth, should not be satisfied; they are never ending and never satisfied.

Islamic economic system, a normative economic system, has been built upon certain fundamental Islamic philosophies. According to Quranic teachings real and absolute ownership of the wealth belongs to the creator of the same, Almighty God. Quran says “To Allah belongs to everything in the sky and on the earth” (2:284).Role of the man is considered as trustee who is to manage the trust, i.e. wealth according to the directives of the real owner; God. Quran clearly states “And spend of that where of hath made you trustees” (57:7). So man has been granted

conditioned and limited ownership.

Another Islamic philosophy is universal brotherhood and equality of men as their creator is one and parents are same. Hence distinction based on color, caste, creed, races do not suffer at any cost. This concept induces the people for cooperation and participation in their all efforts instead of cheating, exploiting and making fraud each other. Another aspect of Islamic philosophy is the faith in the Day of Judgment after death. In the life after death man is accountable for his deeds on earth. The implication of this faith is that economic choices one makes in world are to be judged according to the norms Allah has laid down.

These are the revolutionary points which differentiate Islamic economics from the liberal, capitalistic, imperialistic, mainstream, usurious economic system and communist, class war, state dictatorship economic system. Islam constructs a just world on the spirit of everlasting divine concepts.

Poverty

Evil of any economy is poverty. The presence of begging hands in an economy pulls that economy into decades back. Poverty midst plenty is the challenge faced in the modern world. Impact of the poverty cannot confine into starvation only, but poor people, apart from starvation, suffering limited income which leads to inaccessibility of good education it disables them for challenging careers which requires number of years long education. Absence of nutritious food results in more child morality among deprived sections. Since limited access for information and knowledge those are prevented from market and opportunities.

Every country and international organizations like World Trade Organization, World Bank and Asian Development Bank hard work to construct the countries and world on the foots of self sufficiency respectively. Mission of the World Bank is described as global poverty reduction and improvement of living standards. General Council of UN has declared October 17 as International day for the eradication of poverty. It shows how seriously they took poverty as a problem

But, it is wondering that out of 6.1 billion world population more than 1 billion are finding their livelihood in less than $1 per day and almost 3 billion on less than $2 per day. You might be provoked that 74% of total income of world is shared by the 20% of the elite class of the world. It is heartening you that there are countries whose national income is less $800 and morality of below five years age children is about 26%.It is worrying that 110 million primary school age children are out of school and 60 percent of them are girls.

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Poverty and Islamic Economics

Below Poverty Line (BPL) fixes in Islamic economics system on the basis of ownership of nisab, which limit makes one eligible for the payment of zakat Whosoever wealth on or over the nisab is responsible for the payment of zakat. Those wealth is below nisab are zakat recipients and they are treated as poor. Hence, in Islamic economics, the size of deprived come under BPL will be large. Starvation and inaccessibility of food, shelter, cloths and education could not suffer in an Islamic economy which aims human falah, i.e. human welfare. It does not support any economic instrument that leads to the deprivation of the man. Since poverty emerges in an economy as a result of various causes so wiping out of these causes is primarily important.

Limited income, unequal distribution of income and wealth, misdistribution of resources, regional disparities, unemployment, social injustice, and decreased investments …etc are some of the obstacles in the way of attainment of self-sufficiency and welfare. Islam considers the fulfillment of basic needs of every member of society is economic, moral as well as religious obligation of the ruler. List of the basic goods extends from traditional food, clothing and shelter to seasonal clothing, personal attendant to disabled person, and expenditure on marriage of poor and expenditure on entire family of poor, which are intensified by scholars from time to time and likely to extend the list time to time for the welfare of the citizen. Islamic economic system introduces a bunch of divinely guided instruments which bring to an end of poverty and build

poverty less world.

Islamic Economic Instruments to eliminate poverty

It is advised to Muslim citizens in an Islamic county, as the part of believe, to practice certain things in their life, some of them are compulsory nature and the rest are voluntary nature. The practice of these will have vast economic implications apart from the reward of God. Non Muslim citizens also have to make certain compulsory payments, which have economic impacts, as the part of their citizenship in the Islamic country. Compulsory duties and agreements of citizens are governed by the Islamic country and violation of any part would not suffer Islamic state. In addition to these functions there are other things the Islamic state has to carry out similar to any nation does for the welfare of citizens. Both positive and negative measures have recommended by Islam for wiping out the reason of poverty.

Positive Measures

There are numerous Islamic orders and injunction to perform certain things which have immense influence on economies justice, prosperity and growth. Important divine injunctions amongst them and their influence upon the economy are briefed below.

Zakat

Zakat is the yearly obligation of wealthy Muslims to poor and it is the share of have-nots in the property and wealth of the rich. Quran commends “establish worship and pay the poor his due (zakat) and obey the messenger”. Technically we can call it as spiritual tax. It is imposed on those forms of wealth which have the capacity to grow in value or otherwise produce further, is having the custody of whole year and have exceed a certain minimum value called ‘nisab’. Quran has stated the eight specific heads for the distribution of zakat.

Due to the divine spirit for the performance of zakat, chances for evasion are less. The imposition of zakat on idle wealth urges the owners for the productive and profitable employment of idle wealth which increases the wealth of economy and again the share of zakat.

Donations

Sadaqa is the one of the voluntary economic instrument. No limit and eligibility criteria for performing contributions to needy. It can be divert, apart from the eight heads mentioned for the distribution of zakat, to any needy. and it will strengthen what economic implications emerged by zakat.

Qard hasan

It is an arrangement of interest free loans for unproductive purposes or for the needy to meet the expenses like hospital expenses, home expenses and education expenses etc which are do not make any earnings. So it is not able to charge any material benefit, like profit share, from qurd hasan. These are provided as the part of kindness to human beings. In an Islamic economy individuals and institutions like Islamic banks will offer this type of loans expecting the reward of Allah. Availability of qard hasan reduces the financial burdens like interest, of deprived.

Profit and loss sharing

Islam formulates profit and loss sharing as the tool of trade contracts instesd of interest. The motivation behind it is the cooperation amongst the people. In profit sharing there are different types of financing such as mudaraba (profit and loss sharing) and musharaka (participation) …etc

Mudaraba is the agreement between both capital owner and entrepreneur to share the profit arises from the business and in case of loss capital owner’s capital reduces and entrepreneur’s time and effort loose. Musharaka is the agreement to share profit and loss where all contributors participate in management of business. Both mudaraba and musharaka help the people, who have inadequacy of capital, to engage in business, production and contribute their share into the welfare nation and earn for their own.

Ganima (war booty), Khums (one fifth) and Fay

Ganima is the property Muslims seize from the enemy. Four fifth of the ganima is divided among the fighting army and one fifth (khums) of the entire ganima move to state fund, which is earmarked for the special beneficiaries mentioned in Quran. Fay is the property receives from the enemy without actual fighting. This source of state revenue is generalized for the common good of the entire population and public welfare.

Kharaj (Land- Tax)

Land-Tax, a source of revenue of state, is the levy imposed on land produce. This is actually the rent for the use of value of agricultural land. The rate of kharaj and method of collection can be declared by state from time to time as there is no direction of Quran and tradition of prophet in this regard.

Jizya (Poll tax)

Jizya (poll-tax) imposed on the non-Muslim citizens of Islamic country for securing their wealth, property and lives from damage. It helps them to contribute their skill, talent, health, wealth and property for the prosperity of the country

Waqf (Endowment)

Waqf (endowment) is regular source of revenue which is earmarked and dedicated fund of Muslim for supporting charitable and welfare activities

State ownership on uncultivated land:

Any economic instrument that hinders productivity is harmful to economies prosperous. According to Islamic shariah, if a land is remained uncultivated three consecutive years lead to moving of ownership of that land from current owner to other who is ready for cultivate the land and produce. Prophet (pbuh) said “The original rights of ownership in land are God’s and the prophets and then yours afterwards. But he who revives any dead land acquires the right of ownership to it”. There is an another institution, iqta, boost the circulation and tax revenue of the state by transferring the uncultivated/dead land to someone in return for ushr or khraj.

Combined ownership of natural resources:

Individual ownership of natural resources like fire, water, pasture and salt are restricted by the Islamic shariah. People have combined ownership in these natural resources which should be accessible to anyone. This rule allow anyone to use the benefit derives from the natural goods and ensure that nobody is away from the natural goods which are easy to get to without any hard work.. List of natural goods, in addition to mentioned goods, can be extended into more goods in time to time. Prophet (pbuh) said “people are joint owners in water, pasture and fire”.

There are other sources of revenues like property of deceased with no legal heir, lost and found with no claimants and additional taxations.

Negative Measures

There are some prohibitions of God which has influence on the economies prosperity and welfare of every men of country.

Prohibition of interest

Interest, whatever form, has been contemned by Allah and His messenger. Quran says “Allah has permitted trade and hath prohibited riba” (interest). Islam doesn’t support interest but profit and loss sharing. Every financial transactions of Islamic economy should be free of Interest. But absence of interest in an Islamic economy doesn’t create any hindrance to prosperity but flourish the prosperity.

Prohibition of speculative instruments

Instruments which don’t have any advantage to real economy such as futures and option are not permitted in Islamic economy. Stock market instruments like day trading, marginal trading are prohibited, either. Absence of these instruments in the economy reduces speculation which is harm to the entire economy.

Implications

The implementation of shariah guidelines we discussed above in an economy lead to number of positive fruits which make the state free from every form of poverty.

Increased redistribution of income and wealth will result in, when the people perform the religious obligations like zakat, donation, waqf, inheritances, fithr zakat and kaffarath etc… It leads to flow of wealth and money from rich to poor. Thus the concentration and accumulation of wealth in a few hands come down. Poor and needy spend approximately eighty percent of their earnings to fulfill their basic needs. Economically Marginal Propensity to Consume (MPC) of the poor is larger than middle and high class. A large portion of whatever comes into handy of poor will flow to economy for consumption of basic goods; it lead to more demand for primary goods and then it result in the increased production of basic goods. It is difficult to restrict luxurious consumption and production completely by law and force. But the increased rate of redistribution of wealth and income increase the demand for basic goods and decrease the demand for luxurious goods. Automatically it reduces the utilization of resources for the production of luxuries. Consequently, natural resources use for the production of basic goods and for the benefit of public welfare

This increased redistribution of wealth to poor enables them to get the accessibility of good education and nutritious food. Increased knowledge and skills help the poor to get good jobs and earn. This raises the entire poor family and dependence to heights. In turn, increase of income more than a certain limit make them capable for performing zakat and other voluntary donations for the sake of the benefit of have-nots. Rise in the redistribution help to reduce the gap between haves and have-nots and bring economic justice to all citizens.

Increased MPC of poor as the redistribution of income results in more multiplier effect in economy that fuels more income to the overall income of economy that help the poor section of people to raise their per capita income and living standards.

According to Professor Keynes, investment depends on two variables which are current rare of interest and the marginal efficiency of capital or expected profit rate. Investment would take place only if the expected rate of profit exceeds of interest. Due to the absence of interest, in an Islamic economy, only the size of expected rate of profit of profit will be the determinant of investment.

Speculative motive of money and liquidity theory of money will have no place in an interest free economy which reduces investment. But the presence of only expected rate of profit will result in investments, even in low rate of expected rate of profit to increase their principle amount and to avoid the deterioration of principal through zakat. The increased investment raises the production, employment, wages and overall national income of economy. It flows wealth to poor and raises their economic status.

Fisher’s quantity theory which states that quantity of money affects the price and value of money. It means that increase in the supply of money will proportionately increase the price in economy but the output will not increase. But in the case of Islamic economy money should not be supplied without making increase in the output. The central bank and commercial banks of Islamic state increase the money supply through making investment contracts on the basis of profit and loss sharing. So every flow of money into economy results in output growth without making proportionate hike in price. It is helpful to the poor to get need things at reasonable price

Conclusion

Way of eliminating poverty in Islamic economy is simple. Faith in the oneness of God (tawheed) motivates to the performance of zakat and profit and loss sharing and avoiding interest and extravaganza. Increased redistribution and productivity are the outcome of these instruments which helps finally to attain alleviation of poverty.

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Writer’s Address& Phone Number:

Nabeel.K.N

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Ph.022-2347 2118

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Source by Nabeel Kattakath

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