Welfare Economic Framework

Islamic economics is governed by the principles of Sahri’ah and Sharia’h is mainly concerned with human welfare. Islam is complete way of life and accounts for both material and spiritual well being of the society. The participants of economic activity, that is, the capitalist, the laborer, and the operator, all earn the fruits of the activity. Yet, non participants who are unable to perform due to physical or economic handicaps are also cared for. Islam is not only concerned with production of wealth but also with its distribution so the society as a whole can benefit from the economic activity.

Islam promotes charity to increase welfare in the society. There are repeated reminders in the Quran about spending in the way of Allah. For example, in Chapter 2, Verse 261, Allah SWT compares charity to a kernel of grain which sprouts into seven hundred kernels. So the individual participant in the economy is encouraged to spread his wealth in the society for the benefit of all.

Islam provides for welfare through obligatory and voluntary means. Zakah, which is an obligation on those who posses certain amount of wealth, mandates charity for the poor. This helps eliminate or markedly reduce poverty in the society. It discourages hoarding of wealth since Zakah is only due on idle wealth. It stimulates the economy as Zakah circulates through the system. Besides Zakah, there is much emphasis in the Shari’ah on voluntary charity to any one in need according to the prescribed principles. There is also the institution of Waqf, which establishes a means of continuous voluntary charity for the welfare of the society. Another aspect of welfare in Islamic terms is responsibility of the individual to take care of material needs of the immediate family. That includes wife, minor children, and parents. Other needy relatives can also receive monetary assistance through Zakah or voluntary charity.

One fundamental mechanism of welfare is prohibition of riba, which assures that a needy person will not get buried under mountains of debt through excessive compounding of interest. By forbidding the giving or taking of interest, risk taking by all players is encouraged. This assures that no one gets super rich by accumulating or dealing only with money. Owner of capital has to partner in the risk with those involved in physical aspects of business. Rising above the individual level, Islamic jurisprudence contains solid laws and regulations about just business dealings. Integrity, honesty and fairness in all business transactions are heavily emphasized. This is an indirect way of welfare in the society to minimize business disputes and promote free flow of trade without fear of transgression from any of parties involved in a transaction.