1. Quran Sunnah Ijma’ & Ijtihad
Islamic Economics
Islamic Financial System
Islamic Banking System
Islamic Banks
CHART 1 – Form of Islamic Bank and Islamic Banking and Financial System as
determined by Islamic Economics
1

2. Islamic Economics
1st Pillar
World literally owned by
God
Man holds wealth on Trust
for
Allah swt and accountable
for it in the Hereafter
Islamic Bank
Deposits are wealth they
hold on Trust for Allah swt.
2nd Pillar
God is One and all else are
created
All humans are equal and
the best in the eyes of God
is one with the highest
Taqwa
Islamic Bank
The best Islamic Bank is not
the most profitable one but
one which exemplify highest
Taqwa
3rd Pillar
Belief in the Day of
Judgement
Time horizon of Man
extends to the Hereafter.
What he does in the world
determines by
consequences in Hereafter
Islamic Bank
Long term planning extends
to the Hereafter
CHART 2 – Implication of Pillars of Economics on Islamic Banks
2

3. Islamic Economics
Principle of Ownership
Ownership by Man
confined to life, on death
wealth distributed as
specified by Allah swt.
Principle of Balance
Moderation in all aspects
including Consumption.
Consumption is not an
end in itself
Principle of Justice
Justice in all aspects of
economic activity.
Justice expected to be
observed in all aspects of
Islamic Banking
CHART 4 – Implication of Principles of Islamic Economics on Islamic Banks
3

4. Ownership by Man confined to life, on death wealth
distributed as specified by Allah swt
4
Objective of Far’aid is to deconcentrate wealth
Islamic Banking cannot have activities that leads to
concentration of wealth
Example, debt financing with bias towards
people/companies with high collateral and equity

5. Moderation precludes profit maximisation as the primary objective.
Moderation in all aspects including Consumption.
Consumption is not an end in itself
5

6. Including: 1) Justice in relationship between Bank and Customer.
2) Justice in the allocation of risks between Bank and Customer.
3) Justice in the clauses of legal agreements between Banks and Customer
Justice expected to be observed in all aspects of
Islamic banking
6

7. Islamic Economics
Prohibition by Law of Riba
No dual system. Islamic
Banking operates as a Sole
Single System in a Sole
Single Islamic Financial
System.
Qirad Driven Economy
No lending in the economy.
All will operate on Profit
Sharing.
Islamic Banks take
deposits on Mudharabah
and extends financing on
Mudharabah
Guarantee of Debt by the
State
Guarantee of consumption
loans taken by Ummah
Is there debt financing in
an Islamic Economy?
Will government guarantee
all of debts owned by
Ummah to banks?
CHART 5 – Implications of Three Principal Parameters of Islamic Economics on
Islamic Banking
7

8. Guarantee of
minimum standard of
living by the State
Islamic
Economics
Implemented
via Zakah
CHART 6 – Implications of another Parameter of Islamic Economics – Guarantee
of Minimum Standard of Living by the State.
8

9. Responsibility of Islamic Banks in guaranteeing minimum standard of living
9
Pay Zakah
Assist in
guaranteeing
minimum standard
of living
Islamic Bank

10. 10
Therefore, Profit maximization
must be replaced
How? Not compatible with profit
maximisation
With what?
Human Welfare

11. Al Ghazali & Al Shatibi
Islam sets Goal for
Human Life
Maqasid Syariah
Establishment of Justice
Education of Mankind
Prevention of Evil and
Corruption.
Maintenance of Balance
in Human Nature. Islah
Achievement of Maslahah.
Human Welfare
CHART 7 – What is Human Welfare Formula?
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12. Achievement of Maslahah. Human
Welfare
Exigencies Essentials
Religion Life Property Intellect Lineage
Embellishments
12

13. Property
Protection of
Wealth and
Prohibition of
destruction of
Wealth
Prohibition of
Transgression
against
property of
others
Equitable
Distribution of
Wealth
Wealth should
benefit owner
and society
Good
circulation of
wealth
Spending on
needy
13

14. Protection of wealth and Prohibition
of destruction of wealth
Required to take extra good care of
customer’s property
Prohibition of transgression against
property of others
Cannot operate in fiat money system
Equitable distribution of wealth Financing allocated equitably to all
big and small enterprises
Good circulation of wealth Abandon debt financing focus on
equity financing
Wealth should benefit owner and
society
Financing to activities that maximizes
benefits to society
Encourage spending on needy Extend microfinance
Implication of Syariah objectives on Property to Islamic Bank
14