Islamic Economy and

Shariah Law
Basic Needs of Human
 Daruriyyah- Basic needs (Keperluan Asasi)
 -makanan,pakaian, pendidikan, kesihatan, sistem
 Haajiyyah- Moderate needs (Keperluan
Sederhana/Middle class)
 - rumah yg baik, kenderaan yg cukup, makanan yg
sempurna
 Tahsiniyyat- Luxurious needs (Keperluan
kemewahan)
 -rumah besar, kenderaan besar,perubatan yg mahal
dll.
Compliance with Shariah Laws
 These laws or values are not man-made; but ordained by
Allah. These laws are derived from Al-Quran and Al-Sunnah.

 Fard or Wajib – An obligatory duty, the omission of which is

punishable
 Mandub or Mustahab – An action which is rewarded, but the
omission is not punishable
 Jaiz or Mubah – An action which is permitted, and the law is
indifferent
 Makruh – An action which disliked yet not punishable, but the
omission is rewarded
 Haram – An action which is absolutely forbidden and
punishable
Shariah compliance
 Islam prohibits riba (interest) as practiced in
conventional finance and banking operations
 It is an obligation or Fard Kifayah (Wajib) for
the government, financial and banking
intermediaries to establish the Islamic
financial and banking systems which are
Shariah-compliant.
Maxim Al-Ghanam Bil-gharm
 Shariah provides sufficient tools of finance to meet all
the lawful needs of man for commercial and
investment transactions.
 Based on the maxim of al-Ghanam bil-gharm:
 Al-Ghanam in this context means economic gain,
profit and yield, whereas al-gharm refers to loss, risk
and liability.
 The principle:- no person is allowed to invest in a way
that generates profit without exposing himself to the
risk of loss, rather, it exposes both parties to the
outcome of their deal, be it a profit or a loss (Rosly,
2005)
 The Shariah position is simply that if you lend
a man money, then you do not receive any
interest. But if you are prepared to go with
him into business, then you share in the risks
with him.
Business Concept from
Islamic Perspective
 1. Exchange goods with goods or with money
 2. Profit making purposes.
 3. Legal Contract based on shariah law.
 4. Agreement between buyer and seller
Fairness in Islamic Financial
System
 Shefrin and Statman (1992) –
 7 classes of fairness :
 freedom from coercion,
 freedom from misrepresentation,
 right to equal information,
 right to equal processing power,
 freedom from impulse (imperfect self-control),
 right to trade at efficient prices, and
 right to equal bargaining power.
Norm of Islamic Ethics
 Obaidullah (2005):
 1.Freedom to Contract
 Allah has made trade lawful. (Al Quran 2:275).
 2.Freedom from Al Riba
 All forms of contracts and transactions must be free
from riba -no reward for time preference alone.
Reward, returns or benefits must always accompany
liability or risk.
 3.Freedom from Al Gharar (Excessive
Uncertainty)
Islamic ethics
 4.Freedom from Al-Qimar (Gambling) and Al-
Maysir (Unearned Income)
 Contracting under excessive uncertainty and
uninformed speculation (gharar) is akin to gambling
(al-qimar). Also prohibit gains made from games of
chance, which involve unearned income (al-
maysir).
 5. Freedom from Price Control and Manipulation
 Islam envisages a free market where prices are
determined by forces of demand and supply.
Islamic ethics
 6. Entitlement to Transact at Fair Prices
 Prices that are an outcome of free play of demand and
supply without any intervention or manipulation.
 7. Entitlement to Equal, Adequate and Accurate
Information
 Release of inaccurate information is forbidden
 8. Freedom from Darar (Detriment)
 A third party being adversely affected by a contract
between two parties. If a contract between two parties
executed with their mutual consent is detrimental to the
interests of a third party, then it may enjoy certain rights
and options
 Hadis Rasulullah s.a.w.:
 “Peniaga yang jujur dan amanah akan
ditempatkan bersama dengan para Nabi,
orang-orang soleh dan para syuhada.” Hadith
Hassan, Riwayat Tarmizi.
 Contohi Akhlak Rasulullah s.a.w.- sabar,
amanah dan jujur.