Islamic Economy System:

Is a term used to refer to Islamic commercial jurisprudence or fiqh al-mu'malt

and also to an ideology that takes a middle ground between the systems of
Marxism and capitalism, based on the teachings of Islam.
Islamic commercial jurisprudence entails the rules of transacting finance or other
economic activity in a Shari'a compliant manner, i.e., a manner conforming
to Islamic scripture (Quran and sunnah). Islamic jurisprudence (fiqh) has
traditionally dealt with determining what is required, prohibited, encouraged,
discouraged, or just permissible, according to the revealed word of God (Quran)
and the religious practices established by the (Islamic) Prophet (sunnah). This
applied to issues like property, money, employment, taxes, along with everything
else. The social science of economics, on the other hand, studied how to best
achieve certain policy goals, such as full employment, price stability, economic
equity and productivity growth.
In the mid-twentieth century, campaigns began promoting the idea of specifically
Islamic patterns of economic thought and behavior. By the 1970s, "Islamic
economics" was introduced as an academic discipline in a number of institutions of
higher learning throughout the Muslim world and in the West. The central features
of an Islamic economy are often summarized as: (1) the "behavioral norms and
moral foundations" derived from the Quran and Sunnah; (2) collection
of Zakat and other Islamic taxes, (3)prohibition of interest (riba) charged on loans.
In the 1960s and 1970s, Shi'a thinkers worked to describe Islamic economics' "own
answers to contemporary economic problems." Several works were particularly
influential:
Advantages
Basically, one of the main advantages of the Islamic economy is that Banks are not
charging interest on loans. In fact, loans are regarded as an exchange of assets,
rather than the lending of money. When a loan is taken out to purchase an asset, the
bank will make the purchase, then sell the asset to the individual at a marked up
price.
Although this is usually taking the time value of money into consideration, and is,

in reality, similar to charging interest, it leaves the borrower free from changes in
interest rates. If money has been used to invest in a business, the bank will not
charge interest, but receive a percentage of the profits. If the business fails,
the bank
shares the
risk.
This should be of assistance to individuals who could not borrow otherwise. In
addition, the Quran forbids the earning of profits through unfair trading or
practices
which
are
damaging
or
harmful
to
society.
Disadvantages
Although borrowers are not affected by rising interest rates, they also do not get
the benefit of falling rates. According to some critics of the system, it is riddled
with incoherence introduced by different interpretations of the Quran. Banking
relies on an honor system, which often encourages fraud and non-payment.
This, in turn, can hinder the growth and stability of the economy.