Islamic Economic Principles

Abstract

Justice in commercial transactions is central to Islamic economic teaching, in particular the notion that remuneration should be fair, with distribution viewed as a moral issue. Risks are inherent in any economic system, but in Islam rather than risks being borne by debtors alone, they should be shared by creditors. This has implications for the organization of banking and finance. The charging of interest is forbidden, partly due to concerns about exploitative usury, as well as unease about how interest rates are determined. Islamic economic teaching stresses the merits of charitable giving and the importance of tackling poverty. At the same time there is an awareness of the dangers of creating a dependency culture and the desirability of sustainability in charitable giving. There is concern not only with how money is earned but with how it is spent, with Islamic economic teaching providing guidance on what spending is legitimate and desirable and what should be avoided. Markets are viewed as the normal method of conducting business in Islamic economics, and private property rights are respected. Islamic teaching in the economic sphere is often regarded as more compatible with a capitalist economic system than a socialist economy, although there is no consensus among Islamic economists about where the dividing line between the state and the private sector lies. Arguably Islamic teaching has developed more at the microeconomic level of the firm while macroeconomic fiscal and monetary policy options remain contested.