Please enable JavaScript.
Coggle requires JavaScript to display documents.
CH6: DISTRIBUTION OF WEALTH IN ISLAM (Distribution Islamic Schemes…
CH6: DISTRIBUTION OF WEALTH IN ISLAM
Distribution
Income allocation through mutually agreed transactions among individuals in the market
Example :Islamic banking, Islamic finance, Takaful (Islamic insurance)
Redistribution
Other process i.e. extra market and non-market processes to modify the distribution
Example – Zakat, waqf, faraid
Concept of distribution
Functional distribution of income
A distribution of income according to the productive agent who receives the income.For instance, rent, wages, profit etc.
Personal distribution of income
The distribution of income among the society.E.g. zakat, waqaf, and faraid
Islamic goals of distribution
Guarantee of fulfillment of basic needs for all.
Concept,Basic needs in the Shari’ah,What needs are to be fulfilled,To what extent should the need be fulfilled,Means to fulfill (descending order)
Equitable of distribution of income & wealth
Stage 1: Pre-distributionTakes into account condition of economy before it engages itself in production process
Considers who owns the resources Two types: public utilities (streams, streets, bridges) and natural resources (water etc)
Anything that do not involve much human effort/cost to make it useful to the society
Should be publicly owned, shared equally or equitably
Ownership of the ummah in general
All people participate in the utilization of these benefits-one way to reduce disparity of income
Stage 2: Post-Production distribution
Functional distribution: allocating the product among factors of production
Production is result of cooperation among factors of production - each factor has a share in the product
Mechanisms (market and state intervention) in product and factor markets to determine share of factor and to whom should this be paid Al-Hisbah can play a role in manipulation of free markets
Has a role to play to ensure fair compensation
Payment to three main factors of production
Land
Can take a number of forms, including receiving rent or someprofit sharing arrangement such as Mudarabah and Musharakah
A pre fixed return ratio to avoid gharar, which is prohibited in Islam
Process of production is marked with uncertainty: whoever takes risk of being involved in the process should get a return
Labor
wages paid to workers
To each, his due; according to what he contributes to total output He may be paying according to worker’s contribution to output
Therefore, as reflected by market-determined wages he has fulfilled his responsibility.
-Market forces should determine all factor returns including wages. If this compensation is not enough, Islamhas other institutions such as Zakah etc. that can be used
Capital:
Money Islam does not prohibit a return on capital but a fixed amount of return on money capital is not allowed
This is because actual outcome is not known but if a return is still received, it will result in exploitation of one party by the other
3.Elimination of extreme inequalities
Reinforcement of positive practices
Elimination of all exploitative practices
Approaches – positive practices and exploitative practices
Distribution Islamic Schemes
Prohibition of monopoly
Monopoly is prohibited as it entails negative impact such as creating disparities in income and wealth and enlarging the gap between the rich and the poor.
Nonetheless, the monopoly in some industry is inevitable.
For instance, in utility industry i.e. electricity, and water.As it is not economical for country like Malaysia to have more than one company for its utilities industry.
Measuring for distributing natural wealth/resources
The concept of ownership in Islam.
The owner only have the first right to use it and the extra must be given free to the public
Inheritance
The inheritance system lead to the redistribution of the total wealth of the deceased – split of ownership.
The system of marriage have a direct interaction with the system of inheritance.
The system of inheritance in Islam gives rise to a number of heirs – it does not concede a bequest (wasiyah) in excess of one-third.
Zakat
Literal meaning: purity, growth and increase (religious merit,property grows by giving, purifying soul and cleanse property)Surah Al- Taubah 9:103, “take from your property alms (sadaqah) in order to purify/cleanse them (from their sins)”
Technical meaning: giving of the legally stated portion of one’s property to a poor Muslim
It is given by certain qualified categories according to certain rules and rates to qualifying categories
These rates are fixed and they cover a very wide range of mal
Zakah can only be received by 8 asnaf mentioned in Quran
al-fuqara – poor among muslims
al-masakin – poor among non-muslims
al muallaf – those whose hearts are to be reconciled or revertee
al gharimin – those who are heavily indebted; due to calamities such as floods, earthquake; option for qardul hasan for consumption
al amil – salaries functionaries: collectors, accountantsibn
al sabil – travelers because of Allah
fi sabil Allah – charitable work; aids, construction of mosque
al-riqab – liberation of slaves
Islamic Banking
Islamisation of economics is easily equate to banking without interest as the former is prohibited in Islam
Islamic banking is based on the moral applications of finance principle the Islamic bank is a triple level mudharabah
The money is not loaned to the entrepreneur – it is invested in them which open to the risk in business In comparison, conventional bank takes deposits from savers and pays them a rate of interest fixed in advance.
The money is then loaned to businesses in return for an interest that is fixed in advance. The whole cycle is based on lending the money on interest fixed in advance
Criticism against Islamic banking practice
Over dependant on debt financing rather than equity financing
Adopted fraction reserve banking which resemble the features of conventional commercial banks
Vulnerable to the movement in interest rate
Has low impact to the real economic activities
Relatively insignificant towards Malaysia economic development Islamic financial institution using interest income as capital base Imposing penalties on defaulters
Takaful (Islamic Insurance)
Takaful, in Arabic, means joint guarantee.It can be visualised as a pact among a group of members or participants who agree to jointly guarantee each among themselves against loss or unexpected risk
Should any member or suffer a disaster, he would receive a certain sum of money or financial benefit from a fund to help him meet the loss or damage.
Takaful products are available to meet the needs of all sectors of the economy, both at individual and corporate levels
There are over 60 companies offering takaful services (including windows-5%) in 24 countries around theworld.
Takaful must possess certain fundamental characteristics before it can be held valid
It can be further classified into three main categories:-Sincerity, Absolute shari’ah principles Moral attributes
Importance of redistributive
Help to achieve the objectives of Islamic economic
fair and equitable distribution of income
Work as a complimentary way of achieving the objectives reward also channeled to the other group which not directly involved with the production.
Closed the gap between the society / groups rich and poor, upper class income and middle class income
It is built-in instrument that exist within the framework of Islam to provide:-social security,eradicating poverty,curbing excessive economic disparities stimulating economic activity by transferring,substantial purchasing power to have-nots
Redistributive scheme
Al-Rahn (Pledge or pawn)
Placing a property under detention and suspension in consideration of a right against its owner to be satisfied out of that property.
Also known as al-rahn al-maqbudah.
Al-Rahnu or pawn-broking services is an activity whereby a valuable item is collateralized to a debt which may be utilized as payment should the debt is not repaid within the agreed period.In the event the debtor is not able to repay the debt,
the pawned asset will be sold off to settle the outstanding debt and any surplus will be given back to the owner of the asset. However, if the owner of the asset could not be traced, it is the responsibility of the Islamic pawn-broker to place the fund in the Baitulmal account for future savings should any claims be made for the surplus by the owner or his heir.
Waqf
means putting aside the original property and donating its benefits for the sake of Allah.
Original property is something from which benefit may be derived whilst its essence remains, such as: houses, shops, gardens,
Benefits is beneficial produce that comes from the original property, such as crops, rents, provision of shelter, etc.
The ruling concerning waqfs is that the waqf is an act of worship which is recommended in Islam (mustahabb).
There is the condition that the one who established the waqf should be one who has the authority to dispose of this wealth, i.e., he should be an adult, free and mature, because a waqf made by a minor, a fool or a slave is not valid.