The World Financial Crisis and the Islamic Economic System
Respected scholars, as-salamu `alaykum. Please tell me briefly what are the causes of the world financial crisis. My second question is about the most important features of the Islamic economic system. Thanks.
Wa `alaykum as-salamu wa rahmatullahi wa barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
Dear brother in Islam, thanks a lot for your question which reflects your care to have a clear view of the teachings of Islam. Allah commands Muslims to refer to people of knowledge to get themselves well-acquainted with the teachings of Islam as well as all aspects of life.
The world is now witnessing a financial crisis that threatens the reduction of the economic growth rate in most countries especially the most developed ones. It also threatens increasing depression and inflation as well as the collapse of Capitalism. Many analysts and economists are now looking to the Islamic financial system as an alternative.
Islamic economics according to Wikipedia Encyclopedia is economics in accordance with Islamic law. Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; meaning, it can refer to the creation of an Islamic economic system, or to simply following Islamic law in regards to spending, saving, investing, giving, and so no, where the state does not follow Islamic law.
In his response to your question, Dr.Monzer Kahf, a prominent economist and counselor states:
Dear brother, the basic causes of the world financial crisis are:
1. Excessive and unwarranted extension of lending
2. Sale of debts from one bank to another that caused a domino effect
3. Trading fake contracts that are meant only for speculation
4. Too many financial transactions/trading with a small basis of touch to the real side of the economy
5. Too much unnecessary trading of currencies
Regarding your second question, we would like to state that the essential rules of economic activities in the Islamic system are:
1. Private property as distinct from public property, both coexist and private property is highly respected.
2. Economic freedom, the individual can do as he/she pleases with his property.
3. Requirement of zakah to make continuous adjustment to help the poor.
4. The prohibition of riba because it entails taking other people's property without creating any growth.
5. The prohibition of any enrichment without creating value added in the economy (this covers all other prohibited contracts including Gharar (undue uncertainty), sale of what one does not own, and so on.
6. The application of moral standards in what is produced (goods and services) and how to produce them.
For more information on this system I suggest that you read my part of the book Islamic Economics: Science of Illusion (in Arabic) and there are many other writings that you will find on the internet.