GE20703

PRODUCER & CONSUMER

IN ISLAM
LECTURE 5
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PRODUCER AND CONSUMER
IN ISLAM

 In economic theory, there are 2 main roles

played by people in the market.
 The role of a consumer

 The role of a producer.

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THEORY OF CONSUMER BEHAVIOR

From secular point of view, the economist

applies the theory of consumer behavior
specifically the law of diminishing marginal
utility to explain how consumers allocate
their income.

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THEORY OF CONSUMER BEHAVIOR
 Consumer choice and the budget constraint.

 Consumers are assumed to be rational, i.e. they

are trying to maximize their utility with the
budget they have.

 Consumers (i) have clear-cut preferences for

various goods and services, and (ii) can judge the
utility they receive from successive units of
various purchases.
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DETERMINATION OF CONSUMERS
PURCHASING OF GOODS

 His tastes, or pattern of preferences

 His income, what he is able to buy
 His choice which alternatively spend his income
on

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THEORY OF PRODUCER BEHAVIOR
Profit Maximization

 For producers, the economic problem is to

maximize profits.
 The key decisions are (i) which outputs to produce,
(ii) how much of each output to produce, and
(iii) which inputs to use to produce the outputs.

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CONSUMER AND PRODUCER
BEHAVIOR IN ISLAM

Islam demands a certain type of

behavior from both the consumers and
the producers

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 MUSLIM CONSUMER BEHAVIOR
 In
Islam consumer is aware of Islamic norms
and his behavior is governed by them.

 His
choice is (i) how much of the income is to be
spend on worldly needs and (ii) how much to
spend in the way of Allah (infaq fi sabil Allah)

 Muslims are motivated to spend in the way of

Allah through many Quranic verses and Al hadith
which highlight the rewards in the hereafter.
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 PLANNING FOR CONSUMPTION
IN ISLAM
1. How much to consume now? and
2. How much to save for future consumption?

 It is recommended in Islam to save for

future consumption as recommended in the
hadith of the Prophet’s (pbuh) that it is
better to leave after death some resources
for one’s family than to leave them destitute.

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 BALANCING PRINCIPLE FOR
CONSUMPTION
The Quran highlighted:

Those who, when they spend, are not

extravagant and not niggardly, but hold a just
(balance) between those (extremes) (25:67)

َ ‫س ِرفُوا َولَ ْم يَ ْقت ُ ُروا َوك‬

‫َان بَ ْي َن‬ ْ ُ‫ين ِإذَا أ َ ْنفَقُوا لَ ْم ي‬
َ ‫َوالَّ ِذ‬
‫ذَ ِل َك قَ َوا ًما‬
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 ISLAM ENCOURAGES SAVINGS

 In the presence of zakah, savings is a must in

order not to depleted ones capital.
 Hence savings will make sense only if they
generate income so that zakah may be paid
out of the income from savings.

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 CONSUMER & PRODUCER
BEHAVIOR IN ISLAM
Muslims are bound by Islamic ethics and morals
in the market place:
 Producers to seek profit sharing.
 Consumers and producers must not
consume or produce unlawful products or
activities.
 Consumers and producers must spent part
of their wealth to the less fortunate
members in the Islamic society.
 Consumers are required to show moderation 13

in their consumption
Examples from the
Quran & Sunnah

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 1. UNLAWFUL PRODUCT

 Carrion (dead meat), blood,

 Pigs and idols,

 Intoxicant and gambling etc.

 Purchase or sell stolen items

 Indecent items

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USAGE OF UNLAWFUL PRODUCTS

The people asked O Allah “what about fat of

dead animals, for it was used for greasing the
boats and the hides and people use it for light?”
He said, “ “No, it is illegal” Allah’s Messenger
further said “ “May Allah curse the Jews, for
Allah made the fat (of animals) illegal for them,
yet they melted the fat and mold it and took its
price”. (Sahih Bukhari)
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 2. MODERATION IN
CONSUMPTION

An eat and drink and be not immoderate, for He

does not love the immoderate (Al- A’raf 7:31)

َ ِ‫ب ْال ُم ْس ِرف‬

‫ين‬ ُّ ‫َو ُكلُوا َوا ْش َربُوا َو ََل ت ُ ْس ِرفُوا ِإنهُ ََل يُ ِح‬

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MODERATION IN CONSUMPTION
O ye who believe! make not unlawful the good
things which God hath made lawful for you, but
commit no excess: for God loveth not those given
to excess.
(Al-Maida 5:87)

َّ ‫ت َما أ َ َح َّل‬
‫َّللاُ لَ ُك ْم َو ََل‬ ِ ‫ط ِيبَا‬َ ‫ين آ َ َمنُوا ََل ت ُ َح ِر ُموا‬ َ ‫ي ََا أَيُّ َها الَّ ِذ‬
‫ين‬َ ‫ب ا ْل ُم ْعت َ ِد‬ُّ ‫َّللاَ ََل يُ ِح‬
َّ ‫ت َ ْعتَدُوا ِإ َّن‬

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 3. SPENDING IN THE WAY OF
ALLAH
And those in whose wealth is a recognised
right. For the (needy) who asks and him who
is prevented (for some reason from asking);
(al- Marij 70:24-25)

َ‫ين ِفي أ َ ْم َوا ِل ِه َْم َحقَ َم ْعلُوم‬ ِ ‫سا ِئ َِل َوا ْل َم ْح ُر‬
ََ ‫( َوالَّ ِذ‬24) َ‫وم‬ َّ ‫ِلل‬

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 4. CONSUMPTION LOAN IN
ISLAM
 Since Islam disapproves of hoarding of
wealth or holding idle cash, this encourages
the have to lend the have not.

 Nevertheless, morality in taking or lending

consumption loan have to be based on four
principles

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 TAKING OR LENDING
CONSUMPTION LOAN
Four principles have to be followed :
1. principle of genuineness

2. principle to contract

3. principle of payment

4. principle of help

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 1. PRINCIPLE OF GENUINENESS

 Taking consumption loan in order to meet the

crucial minimum wants.

 Takingloan without any valid reason is

discouraged by the Prophet (pbuh)

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 2. PRINCIPLE TO CONTRACT
 The Holy Quran mentioned in Surah al-
Baqarah verse 282, that every act of lending
and borrowing should be written down clearly.

 The creditor should see that no injustice is

being done to the debtor.

 To keep out of doubts and avoid future

disputes.

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 3. PRINCIPLE OF PAYMENT
 Debtor has been directed to make every
sincere effort to pay back his loan.

 The Prophet (pbuh) said: whoever contracts

a debt intending to repay it , Allah will pay it
on his behalf, and whoever contracts a debt
intending to waste it , Allah will bring him
ruin.

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 4. PRINCIPLE OF HELP
 All types of loan in Islam are free of interest
 Allah has allowed trading and forbidden
usury (ii. 275)
 Taking voluntary payment in excess of the
principals sum of loan is recommended

Jabir ibn. Abd Allah said, “ I came to the

Prophet (pbuh) while he was in the mosque,
so he said: “Say two rek’ahs of prayer’, and as
he owned me a debt, so he paid it to me and
gave me more (than was due).

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ISLAMIC VS. CONVENTIONAL BEHAVIOR
IN THE MARKET PLACE
 Conventional concept of consumer behaviour rest on the
persons utility function, but Islamic consumer behaviour
rest on Allah’s pleasure in term of spending to help
others (alms)

 Conventional Consumer behaviour focuses on

consumption for worldly needs only, but in Islam
consumer behaviour looks on both the worldly and the
hereafter.

 Consumer behaviour in the conventional system is free to

consume any product according to his desire or whim,
but in Islamic it is bound by Islamic moral and ethics.
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 Conventional Producer seek profit maximization while
Islamic Producer seek profit sharing.
 FACTOR MARKET EQUILIBRIUM
IN A COMPETITIVE MARKET THE PRICE WILL BE FIXED AT P1
AND THE QUANTITY D&S WILL BE AT Q1

Price
D S2
S1
P2 S3
P1
P3

Q 2 Q1 Q3 Quantity

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FACTOR MARKET EQUILIBRIUM
FROM ISLAMIC PERSPECTIVE

 From Islamic perspective factors pricing input

depend on the type of responsibility which had
been accomplished by the khalifah.
 Hence, it can be classified into three categories as
follows:

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 PRODUCTION WITH A COST
In this case the khalifah will be paid for all his
responsibilities in the process of production.
 If the khalifah is the owner of the land then he will receive
rent or Ujrah for the usage of his land.
 If he is a labor, then payment in term of wages will be
given to him for his time and effort.
 In the case of business where both the owner of the
capital and the entrepreneur will be involved, then both
khalifahs will be exposed to the risk of profit sharing or
loss.

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 PRODUCTION WITH A
MINIMUM COST
In the case, SOME of the factors of production are
used voluntarily i.e. without any cost
 Land has been given free for certain duration, or;
 Labor has been involved voluntarily, or;
 Entrepreneur advice given free, or;
 Capital is given free for certain duration.

Cost of production will be minimum.

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 VOLUNTARY PRODUCTION
In this case all the khalifah can take the responsibility
voluntarily, without any payment;

 Land has been given free for certain duration, and;

 Labor has been involved voluntarily, and;

 Entrepreneur advice given free, and;

 Capital is given free for certain duration.

Cost of production will be minimum. 31

 INCLUDING THE ROLE OF THE KHALIFAH TOWARDS
HIS/HER RESPONSIBILITY TO THE SOCIETY
IN A COMPETITIVE MARKET THE PRICE WILL BE FIXED AT
P1 AND THE QUANTITY D&S WILL BE AT Q1
Price
D S1
S2
P1 S3
P2
P3

Q1 Q2 Q3 Quantity

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