Islamic Economic System


Tawhid and Fiqh Overview

The Islamic economic system is deeply rooted in the concept of Tawhid, which emphasizes the oneness of Allah and the belief in His sovereignty over all aspects of life, including economics. Tawhid is not only a theological principle but also a guiding force in shaping the economic practices of Muslims. It underscores the idea that all economic activities should be conducted in accordance with the principles laid down by Allah in the Quran and exemplified by the Prophet Muhammad (SAW).

One of the fundamental principles of the Islamic economic system is the prohibition of Riba, which refers to interest or usury. Islam categorically prohibits any form of exploitative gains or unjust enrichment through interest-based transactions. This prohibition is in line with the broader concept of justice and fairness that underpins Islamic teachings.

At-Tatfif, as mentioned in the Quran, condemns the practice of cheating or short-changing in business transactions. It enjoins Muslims to uphold honesty and integrity in their dealings, ensuring that they give full measure and weight when transacting with others. The consequences of violating this principle are severe, leading to societal discord and economic imbalance.

Ihtikar, the hoarding of goods to create artificial scarcity and manipulate prices, is another practice prohibited in Islam. It goes against the principles of fair competition and equitable distribution of resources, leading to economic instability and social injustice. Muslims are encouraged to engage in trade and commerce with a spirit of cooperation and mutual benefit, rather than selfish gain at the expense of others.

In Islam, the main sources of revenue include Zakah, Jizyah, Kharaj, and Ghanimah. Zakah, a form of obligatory charity, is levied on eligible assets to help the needy and promote social welfare. Jizyah is a tax paid by non-Muslims living in an Islamic state in exchange for protection and services. Kharaj is a land tax levied on agricultural produce, while Ghanimah refers to spoils of war acquired through legitimate means.

Baitul-Mal serves as an institution of socio-economic welfare in the Muslim community, pooling and managing resources for the benefit of the less fortunate. It plays a crucial role in providing financial assistance, supporting public infrastructure projects, and addressing the needs of vulnerable groups. The disbursement of revenue from Baitul-Mal is governed by Islamic principles of equity and social justice, ensuring that funds are allocated efficiently and transparently.

The Islamic economic system differs significantly from the Western economic system in its underlying principles and objectives. While Western economics is often driven by profit-maximization and individual wealth accumulation, Islamic economics prioritizes social responsibility, wealth distribution, and ethical business practices. The emphasis on justice, moderation, and compassion distinguishes the Islamic economic model as a holistic system that integrates spiritual values with material well-being.


  1. Relate At-Tatfif And Its Negative Consequences
  2. Identify The Sources Of Revenue In Islam
  3. Examine Ihtikar And Its Implications On Society
  4. Determine The Uses Of Baitul-Mal In The Ummah
  5. Analyse Islamic Attitude To Riba
  6. Differentiate Between The Islamic And Western Economic Systems
  7. Evaluate The Disbursement Of The Revenue

Lesson Note

The Islamic Economic System is an integral part of the Islamic way of life and is based on the principles of fairness, justice, and equity as outlined in the Qur'an and Sunnah. It aims to create a balanced socio-economic environment where wealth is distributed fairly, opportunities are available to all, and economic activities align with moral and ethical standards.

Lesson Evaluation

Congratulations on completing the lesson on Islamic Economic System. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

  1. Describe the meaning of Islamic Economic System. A. A system that follows capitalist principles B. A system based on socialist ideologies C. A system guided by Islamic teachings and principles D. A system focused solely on maximizing profit Answer: C. A system guided by Islamic teachings and principles
  2. What is the primary source of revenue in Islam? A. Riba B. Kharaj C. Jizyah D. Zakah Answer: D. Zakah
  3. What does the Islamic attitude towards Riba entail? A. Prohibition B. Encouragement C. Permissibility D. Recommendation Answer: A. Prohibition
  4. Which economic concept is condemned in Islam as seen in the verse Q.83:1-6? A. At-Tatfif B. Sadaqah C. Zakah D. Hajj Answer: A. At-Tatfif
  5. What negative consequences are associated with the practice of At-Tatfif? A. Social justice B. Inflation C. Prosperity D. Disruption of balance Answer: D. Disruption of balance
  6. Which Quranic verse condemns hoarding in Islam? A. Q.2:275 B. Q.3:130 C. Q.4:161 D. Q.9:34 Answer: D. Q.9:34
  7. Which of the following is not considered a source of revenue in Islam? A. Sadaqah B. Jizyah C. Kharaj D. Ghanimah Answer: A. Sadaqah
  8. What institution in Islam is responsible for the disbursement of revenue for the welfare of society? A. Baitul-Mal B. Madrasah C. Masjid D. Darul Uloom Answer: A. Baitul-Mal
  9. Differentiate between the Islamic and Western economic systems. A. Islamic system focuses on individualism, while the Western system emphasizes community welfare B. Islamic system prohibits interest-based transactions, while the Western system allows it C. Islamic system encourages materialism, while the Western system promotes spiritual growth D. Islamic system disregards social equality, while the Western system prioritizes it Answer: B. Islamic system prohibits interest-based transactions, while the Western system allows it

Recommended Books

Past Questions

Wondering what past questions for this topic looks like? Here are a number of questions about Islamic Economic System from previous years

Question 1 Report

Outline the contribution of Ibn Khaldin to Islam.

Question 1 Report

What is the position of Islam on liberty?

Practice a number of Islamic Economic System past questions