INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

Assignment on Islamic Worldview

UNGS 2030

The Study about Basic Islamic Economic

System and Capitalism

Prepared by:
Ahmad Hafizuddin (1323539)
Ahdyat Zain Athoillah (1315171)
Abdurahman Mohamed Ali (1228455)
Lecturer:
DR. MOHAMMAD SHUHAIMI ISHAK
1

Table of Content

Cover front page

Table of Content

Preface

Introduction

Capitalism

Islamic Economic System

- Principal of Islamic Economic System

Bayt Al-Mal

10
10

- Source of Income

10

- Person Allowed to Accept Income

11

Conclusion

12

References

13

PREFACE

All praises are given to Allah SWT the Almighty for the completion of this writing
entitled Islamic Economy System Vs Capitalism. The Study about the Difference of Islamic
Economic System and Capitalism.
This writing is composed for being as one of the requirements to fulfil the assignment
in UNGS 2030, The Islamic Worldview with DR. Mohammad Shuhaimi Ishak. Additionally,
this report is as our medium to deepen our knowledge of three major economic systems in
this world, Islamic Economic System, Capitalism and Socialism. For the Muslim youths, it
becomes a pivotal aspect to know and differentiate between our religion economic system
and human made economic systems. Based on several books as our main references, we are
discussing the way these systems work and we would like to figure out what are the major
differences of these three systems.
In composing this writing, the writers got many assistance, inspiration, and help at any
point along the way from some people to make it better. Therefore, we would like to express
our deep and humble gratitude to Allah the Almighty, who has been giving us blessings, our
Prophet Mohammad peace be upon him as the carrier of the light to the universe, our parents
who always support us all the way mentally, physically and spiritually, DR. Mohammad
Shuhaimi Ishak as our lecturer who is patiently help and guide us in composing this report
and all group members who have struggled together to complete this simple report.
We distributed and divided our study into several parts that is Islamic Economic
System and Capitalism. We chose these systems because they are among economic system
used worldwide and still used up until today.
Capitalism is an economic system which private owners play the main role in
production of industry and trading by having the aim to maximize profits in a market. After
the industrial revolution in the 18th century, capitalism emerged as the power of economy
among many pros and cons toward it. Thus although this system established 3 century ago,
lot of country still use this system and strengthen their economy.
Islamic Economic System, system taught by Allah and revealed upon Prophet
Muhammad, and best system in economic world, but human less tendency to use this system
although this system profit societies, but it not profit oneself or certain people. This is the best
system in writer though because it may help any nation and country from having critical
problem due economic problem, for example social problem, stupidity among society and
help people feel ease from feel any harm.
Finally, the writers realized that this writing does still need some improvements.
Somehow, critiques and suggestions from all sides will be always so much appreciated for
making this writing perfect. Even so, the writers hope may this writing be able to be useful
for the writers and the readers.
3

INTRODUCTION
We chose to study about some economic systems, which are Capitalism, Socialism
and Islamic Economic System. We study about the basic of these systems, the history, and
how they affect our world today, we done our best to collect information and understand
these system, but we still have long way to go before reach the real understanding about these
economic systems.
Nowadays, Islamic economy system emerged as a new economy system in some
countries, combating with the Capitalism and Socialism that has been implemented much
earlier. Islamic economy with the Islamic Syariah evolved in it makes a big difference
compared to the other two. Among many pros and cons, Capitalism is still facing many
problem unresolved yet and has proved that it can prosper and ruin the society altogether at
the same time. Simply, Capitalism is only done by a process money is invested as capital to
get more money. With the basis of capitalistic points, capitalism manages to control the world
economy and is superior to its opponent, socialism. While Socialism with the Communism
has failed to control the social chaos in Eastern Europe and the USSR.
In our study on Islamic Economic System, we choose some books to help us
understand further about this topic, but we assume that we only learn the basic of this system
which is we need more references and time. Thus in our report here, we include only some
basic knowledge about Islamic Economic System and we are very determine to study further
on this topic, more research will help us to really understand more about this system. Islamic
Economic System is basically establish since the revelation of our beloved prophet,
Muhammad Rasulullah, and then Sahabah, Umar Bin Khattab manage to arrange and develop
Islamic Economic System, he upgrade Islamic Economic System because Islam spread at fast
rate, and now he is known as the Islamic Reformist.
Today, Muslim tend to use Capitalism as their Economic System especially Malaysia,
but we still have Baitul Mal who help manage Islamic Income, we include in our report,
source of income, person who allowed to claim the income and some principle of Islamic
Economic System. We try to extract as much as possible from our resources and simplify it to
a simpler version to help readers understand easily, therefore we still need more study to
completely understand what and how Islamic Economics System are. We hope our study will
help Islam, Muslim and all Allahs Creature whos living in this world, and bring a spark
which will give our next generation a bright future.

CAPITALISM
4

The debate about whether capitalism is a good economic system to be implemented is

relative, not absolute. After the industrial revolution in the 18 th century, capitalism emerged as
the power of economy among many pros and cons toward it. Capitalism is an economic
system which private owners play the main role in production of industry and trading by
having the aim to maximize profits in a market. The parties in capitalism may demand any
transaction determined by goods, services, capital and wage labour. What is meant is an
activity which rest on the expectation of profit by the utilization of opportunities for
exchange, which is on peaceful chances of profit.1
By combining capital, technical knowledge and power of organization, it brought into
existence a new order which is known by the name of Modern Capitalism. 2 Capitalism
affected all aspects in the society. In politics they demanded the utmost curtailment of
authority of the state and the greatest freedom for the individual. The state should be nothing
more than an agent to prevent encroachment of individuals on each others right and to safeguard the individuals security.3
In the economic field they stressed the principle that if economic laws were allowed
to operate freely without external interference and obstruction, the individuals unaided
efforts would accomplish the greatest deeds of collective welfare. 4 Simply, the state has
nothing to interfere the stakeholders in this economic system.
The question arises in regard to comprising means of production and it has become a
controversial issue whether these can be justly allowed to remain in individuals ownership. 5
Whereas, in Islam it is undeniable that private ownership is allowed as the human beings
natural tendency with some regulations.

1 Maxime Rodinson, 1974. Islam and Capitalism, Pantheon Books, New York, p. 8
2Maulana Abul Ala Maudoodi, 1987, Capitalism, Socialism and Islam, Islamic
Book Publishers, Kuwait,p. 8
3 Ibid, p. 10
4 Ibid
5 Ibid, p. 12
5

And do not eat up your property among yourselves. For vanities, nor use it as bait for the
judges. With intent that ye may eat up wrongfully and knowingly a little of other peoples
property. (QS. Al-Baqarah 188)6
It is quite clear, in the first place, the Koran has nothing against private property as it
lays down rules for inheritance for example. It even advises that inequalities be not
challenged, contenting itself with denouncing the habitual impiety of rich men, stressing the
uselessness of wealth in face of Gods judgement and the temptation to neglect religion that
wealth brings. Does it make an exception of property in the means of production? Quite
clearly, the notion never even occurred to the author of Koran. Wage-labour is a natural
institution to which there can be no objection. Very many times the Koran speaks of the
wages of man in relation to God. In one place it shows us Jethro the Midianite about to hire
Moses as a wage-earning shepherd.7
They are not bound to limit their production to any ceiling fixed for them, and may
demand any price for the finished products they like, offer any terms of accept any liabilities
they consider proper in connection with their business and frame any rules the like. 8 Goods
and services must be produced before they are distributed. The primary economic task is to
maximize production, not to optimize distribution to satisfy a notion of justice or fairness.
The poor are better served by maximizing production than by equalizing distribution.
Capitalism maximizes production. The equal distribution claimed (but not achieved) by
socialism reduces production.9 After the implementation of capitalism, the inequality in
distribution of wealth and income is the reality. This is what is happening to US nowadays.
In case of the proportion of distribution always depends on the capital, in capitalist
economic system, the income distribution will never be balanced. Eventhough the state
government has right to regulate the pivotal aspect in the society like the maximum price
sold, it does not have any permission to regulate the capital owned by the private owners.
This reality will cause unbalanced distribution continuously.
Economic performance under capitalist government is more exposed to criticism than
economic performance under socialist government because the exponent of capitalist values

6 Al-Quran 2:188, (Translated by Abdullah Yusuf Ali), Beirut, Dar Al Arabia, 1968,
page 76
7 Maxime Rodinson, 1974. Islam and Capitalism, Pantheon Books, New York, p.
14
8 Maulana Abul Aala Maudoodi, 1987, Capitalism, Socialism and Islam, Islamic
Book Publishers, Singapore, p. 13
9 Arthur Seldon, 1990. Capitalism, Basil Blackwell, Massachusetts, p. 288
6

are less committed by philosophical belief to capitalist government than are the exponent of
socialist values to socialist government.10
What capitalism seems to have proved is that greater economic satisfaction, for a
large number of citizens, can be achieved through a combination of scientific and
technological progress and a capitalist system of property rights and market economy.11
Unlike the socialism that depends on the government to balance the distribution,
capitalism puts the society to be the first actor in spreading the prosperity and wealth. First,
the capitalist institution of personal ownership of property creates the wealth required to
apply the values of compassion, sharing and giving. Second, the capitalist institution of
minimal and decentralized government makes the personal ambience of the citizen more
influential than the impersonal administrative ambience of the politician and the bureaucrat in
disposing of it. Third, compassionate sharing in communities requires the voluntary
association of individuals. 12
However, many countries nowadays claim themselves to use the combination of
capitalism and socialism altogether. Capitalist government which operates a market economy
is likely to betray and diverge from capitalist values than socialist government is likely to
betray and diverge from socialist values.13

10 Ibid, p. 286
11William Keegan, 1992. The Spectre of Capitalism, Radius, London, p. 22
12 Arthur Seldon, 1990. Capitalism, Basil Blackwell, Massachusetts, p. 287
13 Ibid, p. 285
7

ISLAMIC ECONOMIC SYSTEM

According to Ustaz Muhadir Bin Haji Jol in his book Understanding Islam, Economic
System is a study of human behavior in using resources to satisfy wants 14. Islamic Economic
is a social science which studies the economic problems of people imbued with the values of
Islam15. By learning how people or human spend their wealth and resources, we could plan
and manage the production to achieve as high as possible in the profit. Islamic Economics
System help Muslim realize how important this area and how it affect our movement, our
flow of life, in order to achieve our goal, to gain Al-Falah or in other word, to gain the profit
in this world and also in the hereafter. Economics is also important because it is one or
another way to achieve our mean of creation, Khalifatullah, to manage and utilizes this world
so this world will always follow the path of Sunnatullah, but human as mention in Al-Quran,
they are also the one who cause corruption and sheds blood on their conquest of life, but
Allah knows what we dont know.

14 Ustaz Muhadir Bin Haji Jol, A Guide Book of Understanding Islam, System in
Islam, Islamic Economic System, Nilai, Negeri Sembilan, 2012.
15 Ibid
8

Behold, thy Lord said to the angels; I will create a vicegerent in earth. They
said:wilt Thou place therein one who will make mischief therein and shed blood? Whilst we
do celebrate Thy praises and glorify Thy holy (name)? He said: I know what ye know not".
(Al-Baqarah 2:30)16
In the other event, Allah recorded in Quran, on how Allah offered the Trust (Amanah)
to the heaven, earth and the mountains, but all of them decline to bear it, and they fear it, but
man, they took it, indeed, he was unjust and ignorant, this show how human big hearted, they
believe they could handle Allah Trust, but on the same time, lot of them are just destroyer,
they destroy everything in order to satisfy their greed and lust. They sell their knowledge,
their religion to achieve high place in this life, they made up hokum and they leave hukum
alone in order to support wrong leader and keep their position secure.

We did indeed offer The Trust to the Heaven and Earth and Mountains; but they refused to
undertake it, being afraid thereof: but man undertook it: he was indeed unjust and foolish.
(Al-Ahzab 33:72)17
This is why Islam guide us, help us, teach us how to handle everything, Quran is not
the book of science, nor the book of religion, but it is a Book, of everything. Allah will
protect it and no one will succeed to change it. Therefore in al-Quran Allah provided us
Muslim with some knowledge about Economic System, and this knowledge is really helpful
16 Mushaf Al-Madinah An-Nabawiyah, The Holy Quran, English Translation of
meaning and commentary, King Fahd Holy Quran Printing Complex, Al-Madinah
Al-Munawarah, Kingdom of Saudi Arabia, 1410, page 15.
17 Quran, 33:77, Mushaf Al-Madinah An-Nabawiyah, The Holy Quran, English
Translation of meaning and commentary, King Fahd Holy Quran Printing Complex,
Al-Madinah Al-Munawarah, Kingdom of Saudi Arabia, 1410, page 1268.
9

during Islamic glory. We as the vicegerent of Allah need to manage our economic system so
that we could manage our earth and protect our generation, and achieve our highest aim, to be
the Servant of Allah.

I have only created Jinns and men, that they may serve Me. (Adh-Dhariyat 51:56)18
Allah create human and Jinn not for play, but Allah do have serious purpose behind it,
in our imperfect state, we can only say that each creature is given the chance of development
and progress toward our real goal, which is Allah. It is not for any benefit to Allah, but to
serve the purpose as Allahs vicegerent in this life. Thus we should believe that Allah see us,
and Allah will reward each of our good deeds, and Allah could punish us because of our sins
but Allah is the who Forgiven us and give us benefit and let us enter Jannah.
We as a Muslim, must realize how important this field to our religion and ourselves,
because our aim not only to gain success in this worldly life, but to achieve success in
hereafter too. To learn Islamic Economic System is categorize as Fardh Al-Kifayah. Someone
must learn it to occupy community need, thus we need to take this seriously because today,
only few really know well about this field and we Muslim cannot take this for granted or else,
Islam will never rise once again. Islamic country today is in a very serious state, and we,
young man, still asleep and drunk with this worldly life, our eyes closed from seeing Allah
path, thus Islam state still being thrown from the eyes of the world. They see us as a weak
country, and yes, we are, so we must realize, we do not have time, we must strive and
survive. This Paperwork is one of our efforts to bring back Islamic Empire which once
dominate more than half of this world.
Some Principles of the Islamic Economic System19
Individual Liberty: individual enjoy complete liberty, which they may use their wealth in
any kind manner they want as long as they use it in the right way and did not commit sin.
Right to own property: Individual have right to own, to inherit and to sell or buy properties,
but this right is subjected to some limitations (not to by alcoholic water, pork and anything
that has been forbid by Allah), and not to take others properties. Individual has right to fulfill
certain obligations to the society and to pay taxes and zakat.
Economic Inequality within natural limit: This principle recognized economic inequalities.
This is to purify man from any evil of the world. The objective is to develop human
personalities to be a better person.
18 Ibid, page 1620.
19 Ustaz Muhadir Bin Haji Jol, A Guide Book of Understanding Islam, System in
Islam, Islamic Economic System, Nilai, Negeri Sembilan, 2012.
10

Social Security: This principle protects the security of individual properties and guarantees
the basic needs of society for example the food, accommodation, and clothes.
Social Justice: This principle tries to promote justice in economics, which is to bring justice
in production, consumption and distribution.

Bayt Al-Mal20

Source of Income of Bayt Al-Mal

Zakat: also known as Muslim Tax is tax imposed to Muslim. Zakat is divided into some
classes and categories.
Jizyah: also known as non-Muslim Tax, is a tax imposed to the non-Muslim (Zhimmi) due to
the guarantees on the protection of lives, properties, religious rites offer by Islamic state.
Kharaj: also known as Land Tax, imposed on lands conquered by arms.
Ghanimah: also known as Spoil of War, is property taken by force from inficels during war,
4/5 properties divided among the armies while another 1/5 is meant for the benefit of the
community.
Fay: also known as Booty is the property abandoned by the enemy or taken from them
without a formal war.

Person who are Allowed to Accept Income (Asnaf)21

Fuqara: fuqara is needy, they have effort to earn money but it is not enough for their daily
expenses.
Masakin: masakin is poor who have work or job, but it is not enough for their daily
expenses.
Amil: also known as collector is a person pointed by leader of society to collect zakat, keep it
safe and then distribute it to people who are allowed to accept zakat.
20 S.M.Hasanuz Zaman, Economic Functions of an Islamic State (First Edition),
The Islamic Foundation, Part II: The Bayt Al-Mal, Markfield, United Kingdom,
1991.
21 M. Ali Hasan, Zakat dan Infak (Salah Satu Solusi Mengatasi Problema Sosial di
Indonesia), Kencana Pranada Media Group, Rawamangun, Jakarta, 2006.
11

Mualaf: Mualaf can be categorized into some group:

1. A person who is just embraces Islam, hopefully their believe will always strong after
embrace Islam.
2. Person who is about, or would like to embrace Islam.
Slave: Slave is allowed to collect zakat for releasing themselves from slavery.
Debt: this type of person categorize into 2 groups, whether they are in debt because of
themselves or for the society. When someone in debt because of bankruptcy cause by natural
phenomena or scam, they could claim zakat according to their debt.
Fisabilillah: when we talk about fisabilillah, we will have a picture about jihad or war, but
the real meaning is wider than what some of us understand, its cover some sector in Islamic
world, as when something to benefit Islam, or to benefit oneself for example, to build bridge,
hospital, school and mosque, as long as it is for society and out of bad deed or sin. All this
action which will bring mardhatillah, are categorized as fisabilillah.
Ibnu Sabil: ibnu sabil widely known as musafir, but musafir or traveler who could claim
zakat is a travel without maksiat or sin.When they are out of sources while travelling because
some problem. This zakat is given to cover their expense for their way back to their
hometown. We dont need to investigate whether their background, and the zakat gave
according to their condition.

CONCLUSION
Each economic system has its own principles. These principles can be the major
differences among them and effect how they function in the organized system. Capitalism
principles are the private ownership superiority, the inequality distribution and no
interference from the government or the private ownerships are given liberty to gain the
interest. After knowing their principles, it can lead to how this economic system manages to
be fitted in a country. As the Capitalism is given liberty to anyone to gain money or interest, it
lets the private owners to maximize the production. They can get the greatest collective
welfare consequently. The government has nothing to have the interference to this capitalism;
many private owners compete freely to gain the maximum income and interest.

12

Islam is a comprehensive way of life, its not just a religion that shape people
perception about this life, but it is a religion which leads and teaches us everything including,
economic system. Islam give is a simple guideline which helps us and releases us from the
darkness of this worldly life. Allah guides us and teaches us to avoid social problem among
human, and this is proven in some of our reference on how zakat is one of the solution to
avoid social problem in Indonesia. Zakat is a way to help balance the rich and the poor, help
needy so they would not need to steal for daily meal. Thieves sometimes did not want to
steal, but they need to, to survive this corrupted world.
Our world today continuously push weak to their limit, if Islamic Economic System is
not implemented, then for sure, problem anywhere. We avoid Allah law, and now we could
see how things turn out to be so bad, but people keep their eyes blind and only protect their
stomach. Their heart full of lust, their mind full of greed, and they will keep this world
corrupted without bat an eye toward poor, as long as their pocket is flowing with money. Do
we care? Yes we are, care about ourselves. We will let this gone as it is today or we could
actually help them and show them that Allah is always by their sides. Wake up people, we
always want to create solution for our problem, but we forgot that Allah has provide us with
Allah the solution, the system, but human tend to create their own system because Allah
system did not gave them enough profit to fit their lust and greed.
After learning about this system, we determine to learn deeper about this system with
hope to bring this idea toward young people as they are the one who is going to carry our
ancestor legacy and leadership. They must realize that our aim is not only to achieve falah in
this worldly life but to gain mardhatillah to survive afterlife.
It is recommended for the Muslim youths to ensure that they understand well about
Islamic Economic System as some part of capitalistic system may not suitable to Islamic
system. For the government of Muslim countries, it is better to implement the Islamic
economy to support the existence of our economy based on Islam and control the spread of
Capitalism that is often related to liberalism.

BIBLIOGRAPHY
Al-Quran, (Translated by Abdullah Yusuf Ali). Beirut: Dar Al Arabia, 1968.
Hasan, M. Ali. Zakat dan Infak (Salah Satu Solusi Mengatasi Problema Sosial di
Indonesia). Jakarta: Kencana Pranada Media Group, 2006.
Keegan, William. The Spectre of Capitalism. London: Radius, 1992.
Maudoodi, Maulana Abul Ala, Capitalism, Socialism and Islam. Kuwait: Islamic Book
Publishers, 1987.
13

Ustaz Muhadir Bin Haji Jol A Guide Book of Understanding Islam, System in Islam,
Islamic Economic System, NIlai. 2012.
Mushaf Al-Madinah An-Nabawiyah (Translated by Abdullah Yusuf Ali), The Holy Quran,
English Translation of Meaning and Commentary. Al-Madinah Al-Munawarah: King Fahd
Holy Quran Printing Complex, 1991.
Rodinson , Maxime. Islam and Capitalism. New York: Pantheon Books, 1974.
Seldon, Arthur. Capitalism. Massachusetts: Basil Blackwell,1990.
Zaman, S.M.Hasanuz. Economic Functions of an Islamic State (First Edition), The Islamic
Foundation, Part II: The Bayt Al-Mal. United Kingdom: Markfield, 1991.

14