Characteristics of the Islamic Economy

1. Alliance with Shariah- At the core of the Islamic economics system lies on the rule specified

by the shariha namely of the codification of injuction given by the Holy Quran and traditions of Prophet Muhammad. The blue prints of economic policy the rule, which are compatible the shariha

2. Based on equality- The role of state in Islamic economic ensure; first, every individual has

equal access to natural resources and means of livehood. Second, everyone has equal opportunity to use the resources included education, skills and technology. Third, the market is based on the rule of justices that is authority ensures equal proportion in exchange.

3. Property Rights- The property rights are base on three principles. Firstly, Allah is the

owner of the whole land individual has been given the rights of the possession as a trust. Secondly, property is only a mean of achieving highest objectives and all members of society share the natural resources at man’s disposal

4. Prossession of Wealth- Wealth can be acquired legitimately through work and inheritance. It

should not be used for lavish or luxury consumption and the use for social purpose is encouraged (and rewarded in the hereafter).

5. System of Zakat- The poor and needy have a claim to be sustained by the society. The

claim is institutionalized in the system of zakat (sometimes translated as poor due or alms tax), a compulsory levy of 2.5% on assets and 5% or 10% on agricultural produce and earmarked for a list of purposes initially outlined by the Prophet Muhammad and further specified by the early caliphs

6. Interest free Economy- Islam promulgates on interest free economy. The Quran prohibits

strongly the payment and receipt of interest (riba) refers to the addition to the amounts of principle of a loan on the basis of time for which it loaned or of the time for which the payment is deferred. It must be noted that riba is prohibited for loan transactions only.

7. Taxation System- Islam has a unique system of taxation where there is no taxation of

the post. There are only three types of regular taxes levied from those people who are able to pay :

a) Jizyah : is a tax on mature male non Muslim citizens who are able to pay it. This is much less than tax on Muslim citizens.

b) Ushr : is a tax levied on unconquered land under the jurisdiction of the state, at the rate of one tenth of the produce if the land is irrigated by rain, or one twentieth if it artificially irrigated

c) Kharaj : is a tax levied on conquered land, whose rate is fixed by the Khalifah

8. Currency - Currency in the pure Islamic state can only be based on gold and

silver. Thus, it will be of real value itself, providing stability in the economy. It cannot be reproduced or destroyed, which would cause devaluation and inflation

9. Guidance to monetary and Fiscal Policy- In islamic Economic system prices should be just which means that

they should be formed on competitive markets. Therefore, monetary policy must ensure the stability of the price level. Moreover, the fiscal policy should balance tax income and public expenditures in such a way that the overall budget will be balanced (no deficit spending)

10. Provision of insfrastucture

- The state shall provide a basic infrastructure (including a legal system) and specific public good but must not intervene into competitive markets