How Worldview and Ethics Shape Islamic Economics and Finance

July 29, 2022
Islamic Finance

Islamic economics and finance shape our worldviews in both this world and the hereafter. Find out more about what it really means in this article.

A worldview is the overall perspective of how we interpret the world around us. It is a set of assumptions about reality and a lens through which we view the world. We are often not aware of the lens but only of the things we see. In other words, it is the glass/spectacle/filter through which we see life.

The whole universe, life, and human beings are understood through that lens.

On the basis of our worldview, we make judgments on life. Our worldview is based on a complete system of beliefs, thoughts, opinions, ideas, and attitudes, and our world views are influenced by various factors including our beliefs regarding the reason for our existence, our duty on earth, and the consequences of our actions.

What differences do secular and Islamic world views have between mainstream and Islamic economics?

The worldview of Islamic economics is a dual view of both this world and the hereafter and as a result, this world is viewed as a test to determine whether we will be rewarded or punished in the hereafter. Man is accountable for all of his actions and he is required to inculcate transparency and trustworthiness as part of routine behavior.

There is no separation between religion and other activities as religion is inculcated into every sphere of life. Under the Islamic viewpoint, man is motivated to work because Allah (ﷻ) entrusted us as vicegerents on earth to submit to His will. Therefore, man is motivated by rewards in the world and ultimate happiness in the hereafter.

Islam does not promote materialism and is therefore not necessarily concerned with precise monetary statistics (e.g. income and expenditure, exports and imports) although it is important. Rather, Islam is mainly concerned with the spirit of the economic system in the attainment of social justice.

On the other hand, mainstream economics has a single worldview where there is no concept of accountability or concern for the afterlife. They are therefore not obligated to inculcate values of trustworthiness and transparency into daily activities. Motivation is mainly to achieve happiness based on self-interest where sellers maximize profits and buyers seek satisfaction with their unlimited wants. Mainstream capitalist economies are therefore generally viewed as materialistic in nature.

In Islamic economics, decision-making is based on the Quran, Sunnah, and Shariah laws and in essence guided by revelation. Riba (interest) is prohibited, wealth is to be acquired through lawful means and there is a responsibility to the society at large through compulsory zakaah (obligatory charity) for those who possess a certain amount of wealth (nisaab value). All these factors contribute to enhancing the economic well-being of all, and therefore towards social justice.

Contrastingly, mainstream economics is guided by logic and reason. Riba (Interest) is encouraged and it is the standard means by which financial institutions operate. Since acquired wealth does not stem from lawful means and there is no responsibility to society in the form of charity, only the elite are afforded economic well-being, resulting in social injustice.

Scarcity, from the viewpoint of the Islamic economic system

In the secular economic system, households, businesses as well as the state all have unlimited wants. Since the secular system believes there are “limited resources”, they will satisfy their desires at any cost, even at the cost of unethical behavior, causing harm and destruction to people or the environment.

Allah (ﷻ) mentions in the Quran:

”And there is not a thing but its (sources and) treasures (inexhaustible) are with Us, but We only send down thereof in due and ascertainable measures” [al Hijir 15:21]

Therefore, Allah (ﷻ) created abundant resources for all of his living creations (humans, plant life, and animals) as he is the provider, Ar Razzaq.

As a result, the limit is not on the quantity of the resource itself, but on the quantity of knowledge given to man by Allah (ﷻ) as to the whereabouts of the created resources as well as the methods used to extract these resources. Allah (ﷻ) has chosen to reveal knowledge to man in stages and only up to a certain level. Allah (ﷻ) says, “I know what you know not” [Surah al-Baqarah:30]. This verse clarifies that man is unable to possess all the knowledge of the creation and its resources because naturally, Allah (ﷻ) is the All-Knowing (Al-‘Aleem).

In the Democratic Republic of Congo, the continuous desire by consumers for new brands and phones (more specifically Nokia phones) has been assisting to fund a civil war. Children as young as 12 work in mines as deep as 100 meters underground in terrible conditions in order to mine scarce resources. The scarce minerals from these mines are used to manufacture our mobile phones. For producers, the choice of profit maximization is the main intention and is often at the cost of human life.

Islam recognises that humans are greedy and have unlimited wants:

“If man is given a valley of gold, certainly, he wants the second and third one …..” [Hadiths]

In Islam, producers are allowed to maximize profit through the concept of brotherhood and profit-sharing in a lawful manner. Consumers will still have the need for new brands and designs of mobile phones but the difference is that there is an element of ethics i.e consumers would only purchase products after knowing that it is lawful and not harmful to humans.

In Islam, consumers must choose based on their hierarchy of needs and therefore the purchase of a new mobile phone (if bought as a luxury item) should not be carried out unless the poor and needy have first been given their due.

With regards to choices on how to attain these minerals, it is lawful to mine these minerals, however, the manner in which the business is carried out as well as the profit share between the two parties involved should be shared by mutual agreement to prevent exploitation.

Crude oil is another example of a “scarce” resource in the world, where unethical behavior is used to achieve unlimited wants. The increasing demand for oil far outweighs its rate of production, especially in countries such as the USA, China, and India.

Due to unlimited wants and profit maximisation, oil powers have formed cartels, like OPEC (Organization of the Petroleum Exporting Countries), to control the supply of the resource in order to irrationally fix prices and control demand.

Once the demand drops, the supply would satisfy the residents while market mechanisms try to come up with alternate supplies. The setting of high export prices is unfair and an act completely against the teachings of Islam.

The Holy Prophet (ﷺ) said: “Allah is the One Who fixes prices, withholds, gives lavishly, and provides…”

The quotas system has also been applied in order to manage scarcity. One weakness of the quotas system is that it could easily trigger a black-market (illegal trade of scarce commodities), and this could rapidly increase the crime rate.

Islam teaches against wealth concentration, hoarding, and exploitation of others. Allah (s.w.t) says: “No one hoards but the traitors (i.e. the sinners).” It has become common practice for countries to secure large nationwide reservoirs of oil (wealth) whereas others are affected by shortages.

Islam inspires mankind, as Allah’s vicegerent, to act conscientiously and avoid being wasteful or excessive.

Allah (ﷻ) says in the Holy Quran: “…And be not excessive. Indeed, He does not like those who commit excess.”

Energy-saving tools are a sure and Islamic approach to handling (oil) scarcity. Governments could consider high taxes on high fuel consumption machines. This tax can then be invested in other useful public developments for the improvement of the nation.

In conclusion, Islam does not recognize scarcity from the viewpoint of the secular economic system. In Islam, the unethical behavior in our societies is therefore not essentially as a result of “limited resources” but rather a result of society’s greed, unlimited wants, and lack of brotherhood and sharing for purposes of social justice.