Islamic economics

Islamic economics (Arabic: الاقتصاد الإسلامي) refers to the knowledge of economics or economic activities and processes in terms of Islamic principles and teachings.^[1] Islam has a set of special moral norms and values about individual and social economic behavior. Therefore, it has its own economic system, which is based on its philosophical views and is compatible with the Islamic organization of other aspects of human behavior: social and political systems.^[2]

Islamic economics is a broad field, related to the more specific subset of Islamic commercial jurisprudence (Arabic: فقه المعاملات, fiqh al-mu'āmalāt). It is also an ideology of economics similar to the labour theory of value, which is "labour-based exchange and exchange-based labour".^[3][4] While there are differences between the two, Islamic economics still tends to be closer to labor theory, than subjective theory.

Islamic commercial jurisprudence entails the rules of transacting finance or other economic activity in a Shari'a compliant manner,^[5] i.e., a manner conforming to Islamic scripture (Quran and sunnah). Islamic jurisprudence (fiqh) has traditionally dealt with determining what is required, prohibited, encouraged, discouraged, or just permissible,^[6] according to the revealed word of God (Quran) and the religious practices established by Muhammad (sunnah). This applied to issues like property, money, employment, taxes, loans, along with everything else. The social science of economics,^[6] on the other hand, works to describe, analyse and understand production, distribution, and consumption of goods and services,^[7] and studied how to best achieve policy goals, such as full employment, price stability, economic equity and productivity growth.^[8]

Early forms of capitalism are thought to have been developed in the Islamic Golden Age^[9][10][11] from the 9th century and later became dominant in European Muslim territories like Al-Andalus and the Emirate of Sicily.^[12][13] The Islamic economic concepts taken and applied by the gunpowder empires and various Islamic kingdoms and sultanates led to systemic changes in their economy. Particularly in the Mughal India,^[14] its wealthiest region of Bengal, a major trading nation of the medieval world, signaled the period of proto-industrialization,^[15][16][17] making direct contribution to the world's first Industrial Revolution after the British conquests.^[18][19][20]

In the mid-twentieth century, campaigns began promoting the idea of specifically Islamic patterns of economic thought and behavior.^[21] By the 1970s, "Islamic economics" was introduced as an academic discipline in a number of institutions of higher learning throughout the Muslim world and in the West.^[5] The central features of an Islamic economy are often summarized as: (1) the "behavioral norms and moral foundations" derived from the Quran and Sunnah; (2) collection of zakat and other Islamic taxes, (3) prohibition of interest (riba) charged on loans.^{[22][23][24][25]}

Advocates of Islamic economics generally describe it as neither socialist nor capitalist, but as a "third way", an ideal mean with none of the drawbacks of the other two systems.^[26][27][28] Among the assertions made for an Islamic economic system by Islamic activists and revivalists are that the gap between the rich and the poor will be reduced and prosperity enhanced^[29][30] by such means as the discouraging of the hoarding of wealth,^[31][32] taxing wealth (through zakat) but not trade, exposing lenders to risk through profit sharing and venture capital,^[33][34][35] discouraging of hoarding of food for speculation,^[36][37][38] and other activities that Islam regards as sinful such as unlawful confiscation of land.^[39][40] Complementing Islamic economics, Islamic entrepreneurship has gained traction, focusing on Muslim entrepreneurs, ventures, and contextual factors at the intersection of Islamic faith and entrepreneurship.^[41][42]