Islamic Values and Goals of Islamic Economics

Muslim economic sciences have its ain values, which includes the the construct of tawhid or integrity of God, khalifah or the vicegerency of adult male, and adl or justness ( Zaim, n.d ) . Its end is the equity and efficiency of resource distribution and allotment, but with the function of authorities force to modulate the market in order to protect the hapless and the weak ( Ayub 2007, p.32 ) . Furthermore, Chapra argues that Islamic economic sciences should put up micro foundations of the macroeconomic aims ( 1996, p.50 ) . Therefore, it is indispensable that the province recognize and emphasises these model in finding their financial policy.

Maqasid or Goals of Sharia

Islam allows the province to carry on assorted economic maps which become indispensable under the current state of affairs every bit long as it is in conformity and does non go against the maqasid or aim of Sharia ( Iqbal and Khan 2004, p.14 ) . What are those aims? Iman Al-Ghazali, Shatbi, and Tahir Ibne Ashoor have listed the maqasid or the ends of Sharia, which can be divided into primary and secondary aims ( Ayub 2007, p. 23 ) . The primary aims include the precaution and saving of faith, life, offspring, belongings, mind, and honors, while the secondary aim includes the constitution of justness and equity in society, the publicity of societal security, common aid and solidarity, peculiarly to assist the hapless and the needy in run intoing their basic demands, the care of peace and security, the publicity of cooperation in affairs of goodness and prohibition of evil workss and actions, and the publicity of supreme cosmopolitan moral values and all actions necessary for the saving and authorization of nature ( Ayub 2007, p. 23-24 ) .

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Classical Beginnings Used to Finance Public Expenditure

In the period of the Prophet Muhammad ( pbuh ) and the undermentioned calif, the beginning of income for the Islamic province came from zakah, khums, fairy, jiyzah, kharaj, and ushur ( Chaudhry, n.d ) . Iqbal and Khan added two more beginnings, which includes sadaqah and adoption ( 2004, p.33-34 ) .

Zakah

Harmonizing to the holy book of Al-Quran, the donee of zakah includes the hapless, the needy, those employed to administrate, those whose bosom has been reconciled, those in bondage, those in debt, those in the cause of Allah, and for the wayfarer. In add-on, the Prorhet Muhammad ( pbuh ) besides added destitute, orphans, and captives of wars ( Ahmed 2004: 27 ) . Therefore, it is indispensable that the financess collected to be distributed among these donees. Kahf states that during the clip of the Prophet Muhammad ( pbuh ) , the authorities took charge of the operation of zakah, and besides noted that the financess were recorded individually from other authorities beginning of finance ( 2000, p.16 ) . The ulterior point is important, so that the zakah financess are decently distributed consequently and does non acquire assorted up in the procedure.

Khums

Chaudhry states that khums relates to the part of the Islamic province which was obtained through the spoils of war, wealth from mineral or mines, hoarded wealth, and from valuable stuff extracted from the ocean ( n.d ) .

Fairy

It is a beginning of income collected by the province from the enemy in a jutting war which has non really took topographic point ( Chaudhry, n.d. ) . The whole net incomes from this will belong to the society ( Iqbal and Khan 2004, p.30 ) .

Jiyzah

It is a signifier of revenue enhancement imposed to non-Muslim grownups for the protection that the Islamic province has given to them ( Iqbal and Khan 2004, p.31 ) . However, Chaudhry states that the province can non enforce such revenue enhancement if they are non capable to protect them ( n.d ) .

Kharaj

Harmonizing to Amer, Kharaj is a signifier of land revenue enhancement ( n.d ) . It is a leasing fee charge by the Islamic province as effect of its release by the Muslim military, and would still be charge even though the land has been sold to Muslim ( Iqbal and Khan 2004, p.31 ) .

Ushur

Harmonizing to Chaudhry, Ushur is a signifier of revenue enhancement on agricultural merchandise, and argues that the minimal measure or nisab in which it is apt for Ushur is 948 kilogram.

Sadaqah

In the context of public funding, sadaqah or voluntary contribution by persons can be used to finance certain ventures and undertaking ( ( Iqbal and Khan 2004, p.33 ) .

Borrowing

Siddiqi ( 1995 ) found six happenings where the Prophet ( pbuh ) borrow to run into the demands of the populace, therefore creates a justification for the permissibility of Islamic province to adoption ( cited in Iqbal and Khan 2004, p.34 ) . However, there are several issue related to this signifier of funding which will be discussed more briefly in the undermentioned subdivision.

Modern Method to Finance Public Expenditure

All the classical methods mentioned above can be used in the modern context every bit good. However, khums and fay non a feasible and effectual manner of funding due to two grounds. First is that although some Muslim provinces is still fighting in confronting foreign tenancies, we are now populating in a comparatively peaceable period. The 2nd ground is that both methods are undependable due to the deficiency of continuity as a beginning of finance to run into the of all time turning demands of the Muslim provinces.

Iqbal and Khan province six beginning of funding that is relevant in the context of modern times, which includes zakah, sadaqah, income from minerals, seigniorage, revenue enhancements, and user charges and fees ( 2004, p.36-42 ) . However, due to the development of fiscal sector, there are assorted modern beginnings of finance available. Due to the bound of this paper, I will concentrate on two beginning. First is sukuk, due to its rapid development over the past few old ages as an alternate Sharia compliant beginning of funding. Second is the BOT ( Build-Operate-Transfer ) mechanism, due its ability to finance dearly-won public outgo without over trust of the province ain budget.

Sukuk

Sukuk is a sharia compliant bonds that can be used by the goverment to finance public outgos and undertakings. Sukuk has to be backed by touchable assets ( Al-Amine 2008, p.47 ) . Since it must follow with the regulations of Sharia, no signifier of involvement payment is allowed, and therefore the return of the securities must be based from the implicit in plus public presentation ( Lahsasna 2008, p.2 ) .

There has been a rapid development of the sukuk industry over the old ages. Harmonizing to the Global Islamic Financial Report, the issue of planetary Islamic sukuk rose from about US $ 5 billion in 2001 to about US $ 30 billion in 2007 ( 2010, p.103 ) . Furthermore, Standard and hapless & A ; acirc ; ˆ™s study shows that the state which issues the most sukuk is Malaysia, as can be seen by the chart below ( 2010, p.4 ) .

BOT ( Build-Operate-Transfer ) Mechanism

BOT is a grant contract between private entity and an entity stand foring public authorization in which the private entity design, finance, construct, and run an substructure installation intended for a fixed period of clip, and subsequent to that period, the ownership is transferred to the public authorization ( Iqbal and Khan 2004, p.77 ) . It is one of the method in which the private sector can lend in the development of public substructure ( Llanto n.d, p.324 ) .

Decision and Deduction

The sad world confronting many Muslim states is the job of budget shortage. Furthermore, the exaggerate usage of debt to get the better of this shortage and to finance its public outgo is a serious affair that should be tackled. Even this is non the lone job, as many of them uses involvement rate base debt, which could impede the chase of the aims of Islamic law and belie the Islamic value within the Islamic economic model. History has shown assorted Islamic options to finance public demands, and modern Islamic technique could be applied as a beginning of finance beside the conventional involvement base system, but yet many Muslim states still over rely on the later.

Beginning: Iqbal and Khan 2004, p.26

The involvement base debt system violates the Torahs of Islam because it is considered to be riba. It besides contradicts with the Islamic value which put a big accent on justness. Justice will non be functioning this system as hazards are non every bit shared among the borrower and the loaner. Furthermore, it creates a sense of unfairness for the hereafter coevals, as it will put a large load to them to pay all the involvement and rule. Kahf argues that the degree of load on future coevals depends on the usage of those resource being finance by debt, whether it is for authorities ain outgo or for the development of the public sector. The later will decidedly bring forth fewer loads than the former. Finally, it will halter the chase of the end of Islamic law of societal justness and common aid.

The usage of BOT is seen as a great alternate to finance public outgo due to its advantage and multiple positive effects following the undertaking. BOT require less resource from the province budget, as original finance is burdened by the private sector. Furthermore, if the undertaking run successfully, more and more substructure are developed and emerge, excite the growing of the economic system. This in makes the economic system more productive, and increase the income revenue enhancement of the authorities. The concluding consequence is a more stable and uninterrupted beginning of income for the province.

In the context of whether the province can enforce revenue enhancements other than zakah, Kahf argues that it is allowed merely if the usual gross is dwindling, the defense mechanism cost surpass present resources, the levy of revenue enhancement is fleeting, the revenue enhancement being imposed are non exceling demands, and that it is merely levied to the rich ( cited in Iqbal and Khan 2004, p.39-40 ) . However, these conditions are confronting several issues in the modern context. First is the issue of jurisprudence. For some Muslim provinces, altering revenue enhancement ordinance is non a speedy and easy procedure. Furthermore, the populace will respond negatively to the addition of revenue enhancements. Second is the definition of rich. To what degree of wealth can we see rich. Is holding extra wealth after carry throughing the basic demands could be consider rich. This issue must be address more exactly to avoid ambiguity. Finally, in order to vie, Muslim provinces could non merely carry through the basic demands of its citizen. It should be able to supply higher criterion of life by constructing assorted public sectors, such as instruction, wellness, communicating, and transit. Equally long as the financess collected are used for the good of the populace and non merely for benefit of authorities functionary, the author believe that revenue enhancements plays an of import function in the procedure of development.

Finally, more and more Muslim states use Muslim bonds or sukuk to finance assorted public undertakings. This is a manner of debt instrument permitted by Islam. However, Usmani reports that most sukuk are non compliant with Sharia. This implies a serious issue for the fulfillment of the aims of Sharia. Therefore, extra attempts must be made by the populace sector and assorted Sharia bookmans to guarantee that this alternate doesn & A ; acirc ; ˆ™t violate Sharia jurisprudence.

To reason, debt must be seen as a last resort to finance public outgo due to its

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