According to authors F. Nomani and A. Rahnema, the Qur’an states that God is the sole owner of all matter in the heavens and the earth,[112] but man is God’s viceregent on earth and holds God’s possessions in trust (amanat). Islamic jurists divide properties into public, state, private categories.[113]

Some Muslims believe that the Shariah provides “specific laws and standards regarding the use and allocation of resources including land, water, animals, minerals, and manpower.”[114]

Public property

According to M.A.Khan, “Islam introduced the distinction between private property and public property and made the rulers accountable to the people”.[115] Scholars F. Nomani and A. Rahnema state that public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) to which all humans have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be used by any citizen, as long as that use does not undermine the rights of other citizens, according to Nomani and Rahnema.[113]

Muhammed’s saying that “people are partners in three things: water, fire and pastures”, led some scholars to believe that the privatization of water and energy is not permissible. Muhammad allowed other types of public property, such as gold mines, to be privatized, in return for tax payments to the Islamic state. The owner of the previously public property that was privatized pays zakat and, according to Shi’ite scholars, khums as well. In general, the privatization and nationalization of public property is subject to debate amongst Islamic scholars.

According to an analysis by Walid El-Malik in 1993, only the Maliki school took the position that all kinds of natural resources are state-owned; the Hanafi school took the opposite view and held that mineral ownership followed surface ownership, while the other two schools, Shafi’i and Hanbali, drew a distinction between “hidden” and “unhidden” minerals.[116]

State property

State property includes certain natural resources, as well as other property that can’t immediately be privatized. Islamic state property can be movable, or immovable, and can be acquired through conquest or peaceful means. Unclaimed, unoccupied and heir-less properties, including uncultivated land (mawat), can be considered state property.[113]

During the life of Muhammad, one fifth of military equipment captured from the enemy in the battlefield was considered state property. During his reign, Umar (on the recommendation of Ali) considered conquered land to be state rather than private property (as was usual practice). The purported reason for this was that privatizing this property would concentrate resources in the hands of a few, and prevent it from being used for the general good. The property remained under the occupation of the cultivators, but taxes were collected on it for the state treasury.[113]

Muhammad said “Old and fallow lands are for God and His Messenger (i.e. state property), then they are for you”. Jurists draw from this the conclusion that, ultimately, private ownership takes over state property.[113]

Private property

There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual’s right to private ownership. The Qur’an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. Muhammad said that he who dies defending his property was like a martyr.[117]

Islamic economists classify the acquisition of private property into involuntary, contractual and non-contractual categories. Involuntary means are inheritances, bequests, and gifts. Non-contractual acquisition involves the collection and exploitation of natural resources that have not previously been claimed as private property. Contractual acquisition includes activities such as trading, buying, renting, hiring labor etc.[117]

A tradition attributed to Muhammad, with which both Sunni and Shi’a jurists agree, in cases where the right to private ownership causes harm to others, then Islam favors curtailing the right in those cases. Maliki and Hanbali jurists argue that if private ownership endangers public interest, then the state can limit the amount an individual is allowed to own. This view, however, is debated by others.[117]

When Muhammad migrated to Madinah many of the Muslims owned agricultural land. Muhammad confirmed this ownership and allocated land to individuals. The land allotted would be used for housing, farming or gardening. For example, Bilal b. Harith was given land with mineral deposits at ‘Aqiq Valley[118] Hassan b. Thabit was afforded the garden of Bayruha[119] and Zubayr received oasis land at Khaybar and Banu Nadir.[120] During the reign of Caliph Umar, a vast expanse of Persian royal family terrain had been acquired, this lead his successor Caliph Uthman to accelerate the allotment of land to individuals in return for a portion of the crop yield.[121]


According to M.S.Naz, regulation of markets is among the main functions of hisbah,[122][123] the “semi-judicial institution” operational from the “earliest days of Islam”. It was “charged with responsibility of carrying out the spirit of the system, setting conditions that preserve and enhance the public health and interests, protect the consumers, solve business and labor disputes, promote good market behavior, and ensure their observance.”[124] M.A. Khan states, institution of Hisbah as established to “supervise markets, to provide municipal services, and to settle petty disputes”.[125][126] In the contemporary era, Pakistan has attempted to re-create this institution, although it has jurisdiction only over the administrative excesses of the federal government departments and agencies, not provincial ones or private companies.[126]

According to Nomani and Rahnema, Islam accepts markets as the basic coordinating mechanism of the economic system. Islamic teaching holds that the market, given perfect competition, allows consumers to obtain desired goods and producers to sell their goods at a mutually acceptable price.[127]

Three necessary conditions for an operational market are said (by Nomani and Rahnema) to be upheld in Islamic primary sources:[127]

  • Freedom of exchange: the Qur’an calls on believers to engage in trade, and rejects the contention that trade is forbidden.[128]
  • Private ownership (see above).
  • Security of contract: the Qur’an calls for the fulfillment and observation of contracts.[129] The longest verse of the Qur’an deals with commercial contracts involving immediate and future payments.[130]

Another author (Nima Mersadi Tabari) claims that the general doctrine of fairness in sharia law creates “an ethical economic model” and forbids market manipulation such as “inflating the price of commodities by creating artificial shortages (Ihtekar), overbidding for the sole purpose of driving the prices up (Najash) and concealment of vital information in a transaction from the other party (Ghish)”.[42]

Further, “uninformed speculation” not based on a proper analysis of available information is forbidden because it is a form of Qimar, or gambling, and results in accumulating Maysir (unearned income).[42] Commercial contracting under conditions of “excessive uncertainty” (however that is defined) is a form of Gharar and so also forbidden.[42]


Proponents such as M.A.Khan,[131] Nomani and Rahnema also contend that the “Islamic economy” forbids or at least discourages market manipulation such as price fixing, hoarding and bribery. Government intervention in the economy is tolerated under specific circumstances.[127]

Another author (Nima Mersadi Tabari) states that in Islam “everything is Halal (allowed) unless it has been declared Haram (forbidden)”, consequently “the Islamic economic model is based on the freedom of trade and freedom of contract so far as the limits of Shari’ah allow”.[42]

Nomani and Rahnema say that Islam prohibits price fixing by a dominating handful of buyers or sellers. During the days of Muhammad, a small group of merchants met agricultural producers outside the city and bought the entire crop, thereby gaining a monopoly over the market. The produce was later sold at a higher price within the city. Muhammad condemned this practice since it caused injury both to the producers (who in the absence of numerous customers were forced to sell goods at a lower price) and the inhabitants.[127]

The above-mentioned reports are also used to justify the argument that the Islamic market is characterized by free information. Producers and consumers should not be denied information on demand and supply conditions. Producers are expected to inform consumers of the quality and quantity of goods they claim to sell. Some scholars hold that if an inexperienced buyer is swayed by the seller, the consumer may nullify the transaction upon realizing the seller’s unfair treatment. The Qur’an also forbids discriminatory transactions.[127][132]

Bribery is also forbidden in Islam and can therefore not be used to secure a deal or gain favor in a transaction, it was narrated that Muhammad cursed the one who offers the bribe, the one who receives it, and the one who arranges it.[133]

Nomani and Rahnema say government interference in the market is justified in exceptional circumstances, such as the protection of public interest. Under normal circumstances, governmental non-interference should be upheld. When Muhammad was asked to set the price of goods in a market he responded, “I will not set such a precedent, let the people carry on with their activities and benefit mutually.”[127]

Banking and finance

Islamic banking has been called “the most visible practical achievement” of Islamic economics,[7] and the “most visible mark” of Islamic revivalism.[134] By 2009, there were over 300 “shariah compliant banks and 250 mutual funds around the world,[135] and around $2 trillion were sharia-compliant by 2014.[136][137]

However, the domination of the industry by debt-like instruments such as murabaha rather than risk-sharing products, has driven even some leading advocates and experts in Islamic banking (such as Muhammad Nejatullah Siddiqi) to talk about “a crisis of identity of the Islamic financial movement.”[138]


The most noticeable and/or important objective of Islamic Banking has been a ban on the charging of interest on loans.[7] The Quran (3: 130) condemns riba (which is usually translated as “interest”): “O, you who believe! Devour not riba, doubled and redoubled, and be careful of Allah; but fear Allah that you may be successful.”

Islamic public finance (Bayt-al-Mal)

The only financial institution under Islamic Governance (Prophethood and Caliph Period) was Baitulmaal (public treasury) wherein the wealths were distributed instantly on the basis of need. During Prophethood the last receipt was tribute from Bahrain amounting eight hundred thousands dirham which was distributed in just one sitting. Though the first Caliph earmarked a house for Baitulmaal where all money was kept on receipt. As all money was distributed immediately the treasury generally remained locked up. At the time of his death there was only one dirham in the Baitulmaal. The second caliph besides developing the Central Baitulmaal also opened Baitulmaal at state and headquarters levels. He also carried census during his caliphate; and provisioned salaries to Government employees, stipend to poor and needy people along with social security to unemployed and retirement pensions.

The concept of a public financial institution played a historic role in the Islamic economy. The idea of state collected wealth being made available to the needy general public was relatively new. The resources in the Bayt-al-Mal were considered God’s resources and a trust, money paid into the shared bank was common property of all the Muslims and the ruler was just the trustee.[citation needed]

The shared bank was treated as a financial institution and therefore subjected to the same prohibitions regarding interest.[139] Caliph Umar spoke on the shared bank saying: “I did not find the betterment of this wealth except in three ways: (i) it is received by right, (ii) it is given by right, and (iii) it is stopped from wrong. As regards my own position vis-a-vis this wealth of yours; it is like that of a guardian of an orphan. If I am well-off, I shall leave it, but if I am hard-pressed I shall take from it as is genuinely permissible.”[140][verification needed]


Savings and investment

An alternative Islamic savings-investment model can be built around venture capital; investment banks; restructured corporations; and restructured stock market.[141] This model looks at removing the interest-based banking and in replacing market inefficiencies such as subsidization of loans over profit-sharing investments due to double taxation and restrictions on investment in private equity.


Islamic banks have grown recently in the Muslim world, but are a very small share of the global economy compared to the Western debt banking paradigm. Hybrid approaches, which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern human development theory.[citation needed]

Criticism and dispute

Islamic economics has been disparaged for

  • its alleged “incoherence, incompleteness, impracticality, and irrelevance”, driven by “cultural identity” rather than problem solving (Timur Kuran, John Foster);[142][143][144][145]
  • being “a hodgepodge of populist and socialist ideas” in theory, and “nothing more than inefficient state control of the economy and some almost equally ineffective redistribution policies” in practice (Fred Halliday);[146]

In a political and regional context where Islamist and ulema claim to have an opinion about everything, it is striking how little they have to say about this most central of human activities, beyond repetitious pieties about how their model is neither capitalist nor socialist.[146]

  • being little more than a mimicry of conventional economics embellished with verses of the Quran and sunnah (Muhammad Ahram Khan);[38]
  • claiming to call for a return to Islamic practices that are actually an “invented tradition” (Timur Kuran);[Note 4]
  • failing to achieve its goals of abolishing interest on money, establishing economic equality, and a superior business ethic;[147] but nonetheless “spared critical scrutiny out of ignorance, misguided tolerance”, and because its methods and objectives are considered “too unrealistic to threaten prevailing economic structures” (Timur Kuran).[7]
Islamic banking and finance

One significant result of Islamic economics (and target of criticism) is the creation of Islamic banking and finance industry.[148] According to several scholars it has bred a new “Power Alliance” of “wealth and Shari’ah scholarship”,[149][150][151]—wealthy banks and clients paying Islamic scholars to provide bank products with Islamic “shariah compliance”. Journalist John Foster, quotes an investment banker based in the Islamic Banking hub of Dubai on the practice of “fatwa shopping”,

“We create the same type of products that we do for the conventional markets. We then phone up a Sharia scholar for a Fatwa [seal of approval, confirming the product is Shari’ah compliant]. If he doesn’t give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance. Then we are free to distribute the product as Islamic.”[142]

Foster explains that the fee for services provided by “top” scholars is “often” in six-figures, i.e. over US$100,000.[142]

One critic (Muhammad O. Farooq) argues that this unfortunate situation has arisen because the “preoccupation” among supporters of Islamic Economics that any and all interest on loans is riba and forbidden by Islam, and because risk-sharing alternatives to interest bearing loans originally envisioned for Islamic banking have not proven feasible. With the elimination of interest being both the basis of the industry and impractical, shari’a scholars have become “entrapped in a situation” where they are forced to approve transactions fundamentally similar to conventional loans but using “hiyal” manipulation to “maintain an Islamic veneer”.[152]


Instead of “fixating” on interest, Farooq urges a focus on “the larger picture” of “justice”, and in economics on fighting exploitation from “greed and profit,” and the concentration of wealth. He quotes an ayat in support: “What God has bestowed on his Messenger (and taken away) from the people of the townships, – belongs to God, – to his Messenger and to kindred and orphans, the needy and the wayfarer; in order that it may not (merely) make a circuit between the wealthy among you. …” Quran 59:7[153] As an example of the neglect of this issue, Farooq complains that one “rather comprehensive” bibliography of Islamic economics and finance, contains “not a single citation for exploitation or injustice” among its 700 entries.[154]

A former director of Pakistan Institute of Development Economics and the head of Pakistan’s Economic Affairs Division, Syed Nawab Haider Naqvi,[Note 5] also called for “comprehensive Islamic reform to establish an exploitation-free economic system” and not just “mechanical substitution of profit for interest.”[155]


On the issue of zakat, one of the pillars of Islam, M.A.Khan also criticizes the conservatism of Islamic Economics, complaining that “the insistence of Muslim scholars in implementing it in the same form in which it was in vogue in the days of the Prophet and the first four caliphs … has made it irrelevant to the needs of a contemporary society.”[156]


A supporter of Islamic economics (Asad Zaman) describes a “major difficulty” faced by Islamic reformers of Islamic economics and pointed out by other authors, namely that because a financial system is an “integrated and coherent structure”, to create an Islamic system “based on trust, community and no interest” requires “changes and interventions on several different fronts simultaneously”.[157]

About the author

Khwaja Yahya