MANAGEMENT OF ZAKAT, WAQF AND SADAQAH FUNDS

(MIFB 6063)

TERM PAPER

Prepared by

Mohamed Ibrahim Ismail

[Matric Number: A1111477M04]

Session: 2011/2012

Semester: Second Semester

Date: March 2012

Submitted to:

Associate Professor Haji Zakaria Man, Deputy Rector of Academic Affairs

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Discuss the conceptions of horizontal and vertical equity and critically analyze their relationship to the required standards of distributive equity as propagated by Islam

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INTRODUCTION

Islam as a comprehensive system of life encompasses principles which govern all our worldly

life matters as it also guides us to the Right Path for us to achieve the best reward in the

Hereafter.1 Detailed discussions of tenets of Islam are elaborated by the qualified Muslim

scholars by interpreting the Qur’an and the Sunnah of the Prophet –may the blessings and

peace of Allah be upon him. However, the fundamental guiding principles are well-described in

the Qur’an and the Sunnah and the sub-principles are based on these basic ones. Any new

development has to be related to the principles of Islam so that a viable and lasting solution can

be found for contemporary issues.

This paper is divided into two parts. The first part of the paper attempts to delineate the

conceptions of horizontal and vertical equity and how they are related to the required

standards of distributive justice or equity according to the teachings of Islam. The paper will

first introduce the conception of equity in the context of modern economic discussions,

horizontal equity and vertical equity. It will highlight the striking difference between equity and

justice according to Islam. The paper will finally discuss the concepts of vertical equity and

horizontal equity which are equivalent to the principle of productivity and the principle of

needs as propagated by Islam.

The second part of the paper attempts to highlight the present distributive injustices in Muslim

societies, and will then critically analyze the present market organization and the relationship

between the market failure and the schemes of redistribution such as Zakat, waqf and

sadaqah(charity) provided in Islam. In the market organization, the paper will look into the

negative elements such as riba, gharar, maysir (gambling) hoarding (kanzul mal), monopoly

1 Allah says: “Whoever works righteousness, whether male or female, while he (or she) is a true believer (of Islâmic Monotheism) verily, to him We will give a good life (in this world with respect, contentment and lawful provision), and We shall pay them certainly a reward in proportion to the best of what they used to do (i.e. Paradise in the Hereafter).” (97) ~Al-Nahl

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(ihtikar) and the other negative elements which are hampering the efficiency, effectiveness and

fairness of the market

The conceptions of horizontal and vertical equity

Equity

Equity is a normative concept, one which has a long history in religious, cultural and

philosophical traditions (World Bank, 2005) and is concerned with fairness and social justice,

topics which are also the subject of fierce debate among political philosophers. As such, there

will always be debates about the precise meaning of equity, and it is likely that a number of

conceptions will compete to be the ‘correct’ definition.2

Vertical Equity

One of the ways that vertical equity can be defined is: A method of collecting income

tax in which the taxes paid increase with the amount of earned income. The driving principle

behind vertical equity is the notion that those who are more able to pay taxes should

contribute more than those who are not.

The two main types of vertical equity are proportional and progressive taxation. In proportional

taxation, the amount of taxes paid increases directly with income. For example, a 5% increase

in earnings will cause a 5% increase in taxes. Progressive taxation includes tax brackets, where

people pay taxes based on the tax bracket into which their income places them. Each tax

2 World Bank (2005) World Development Report 2006: Equity and Development. See also Jones. H. (2009) Equity in development Why it is important and how to achieve it, Overseas Development Institute, London

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bracket will have a different tax rate, with higher income brackets paying the highest

percentages.3

Even though, the above definition is among the ways which vertical equity is defined

and the conception stated in the above paragraph is similar to what this paper is attempting to

analyze in such a way that all conceptions lead to different treatment to different people, the

objective of this paper is took into this conception in relation to distributive justice or

distributive equity.

People are created with different faculties, capability, creativity and intelligence. Some are

stronger than the others, others are more intelligent than the rest and some were born to be

hard-working. Logically these differences in their creature should lead to differences in their

achievements and the productivity. A person who contributes a factor of production such as

labour or land should be paid accordingly. If two people, one works hard enough and gets a

university degree and the other one does not study well and finally drops out, it will be fair

according to the vertical equity to reward the person who made the effort and completed his

studies. To do the otherwise and reward the drop-out will be unfair provided that the job

requires such a postsecondary qualification.

The principle of vertical equity is also equivalent to the principle of needs which is recognized in

Islam to help those members of Muslim societies such as the old and the children who cannot

get an income to maintain their basic necessities of life. Furthermore, those members of the

community whom their earned income is not sufficient to maintain their basic necessities of life

should be assisted through the schemes of redistribution. However, this does not necessarily

mean that the fundamental needs of the individuals are shouldered but instead their earned

income is complemented so that their received income (income received through work and

income received through the re-distributive measures) is enough to fulfill his basic necessities

of life.

3 http://www.investopedia.com/terms/v/vertical_equity.asp#axzz1qFYC1zsg retrieved on 28th March 2012

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The principle of needs basically ensures that the rich people with surplus should transfer some

of this surplus to the needy to avoid circulation of wealthy in a few hands –a situation warned

by the Almighty Allah to happen.4

It is worth mentioning that Capitalism does not recognize the principle of needs as can be

understood from the following statement that Adam Smith wrote in his book, the Wealth of

Nations. Adam Smith wrote: “It is not from the benevolence of the butcher, the brewer, or the

baker, that we expect our dinner, but from their regard to their own self-interest. We address

ourselves, not to their humanity but to their self-love, and never talk to them of our own

necessities but of their advantages” .Thus, capitalism recognized only individual being but

denied to recognize the social being. Capitalism only propagated the standard of productivity or

earning through work or through the provision of factors of production such as land and labour.

On the other hand, socialism, an economic system founded on the ideas of Karl Marx, came

against the very basic principles of human nature, which is the right of individual ownership.

Apart from the many economic and social repercussions associated with this system, it

emerged as a state capitalism whereby the elite who were in control of the state enriched

themselves at the expense of the masses. They came up with the slogan “From everyone

according to his ability, to everyone according to his needs”. In the case of socialism (state

capitalism), the people who were in power used to decide what to give to every working

individual which was absolutely unfair as these workers contribute to different amounts of

work and their capabilities and personal creativity differ from person to person. As socialism

denied the right of individual ownership or individual being and recognized only social being, it

did not last long.

The reason why this economic system collapsed within a few decades is because it came

against the human nature by violating the principles of horizontal equity and vertical equity. In

vertical equity which is equivalent to the principle of needs in Islam, socialism violated by

allowing those who are in control to dictate what portion each and every body should get.

Obviously, those elites who are in power could not decide the various needs of millions of 4 Almighty Allah says: “so that it[wealth] may not circulate only between the rich among you” Al-Hashr: 7

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workers across the countries under their control. Socialism also violated the principle of

horizontal equity by the denial of individual ownership, rewards and payments based on the

amount of contribution provided by the workers.

In essence, a system like socialism cannot be expected to contribute to distributive equity or

fairness since it discouraged productivity by the denial of individual ownership. For economy to

grow, the system in place must encourage productivity and rights of individuals by rewarding

everyone fairly according to the factors of production he provided, there must be distributive

justice in income i.e. the market must be free from all negative elements and the redistributive

measures should be used to correct any market irregularities which are not expected to be

significant provided that the market is effective, efficient and fair..

Horizontal Equity

In modern economic discussions the conception of equity is discussed at a great length, but

most of the equity-related economic theories are discussions on tax systems and the amount or

percentage each taxpayer is expected to pay.

According to Investopedia, horizontal equity is an economic theory that states individuals with

similar income and assets should pay the same amount in taxes. Horizontal equity should apply

individuals considered equal regardless of the tax system in place. It further explains that

horizontal equity is hard to achieve in a tax system with loopholes, deductions and incentives,

because the presence of any tax break means that similar individuals do not pay the same rate.

For example, by allowing mortgage payments to be deducted from income tax, governments

create a difference in tax payments between two tax filers who may otherwise be considered

economically similar.5

Horizontal equity refers to identical treatment to identical people. In the discussions of

distributive justice, the market is the main factor that can affect the distributive measures of

5 http://www.investopedia.com/terms/h/horizontalequity.asp#axzz1qFYC1zsg retrieved on 27th March 2012

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income. An effective, efficient, and fair market which is free from all negative elements will help

the economic well-being.

Under the principle of horizontal equity which is equivalent to the principle of work or

productivity in Islam, individuals which contribute to the generating the same amount of output

in an economic activity should be given equal rewards. For example, two professors with the

same qualification and experience who are lecturers in a university should be paid equally. If

one of the professors is underpaid or overpaid because of his race or colour, this will violate the

principle of horizontal equity because the two of them contributed the same amount of work.

The level of absolute poverty in the world is a clear indication that the criterion of horizontal

equity which was based on work and productivity has been violated. According to the World

Bank report of 2008, 21% of world population or about 1.4 billion people were poor based on

the poverty line income of USD 1.25 a day per person. If the poverty line were raised to USD 2.5

a day per person then 3 billion or 50% of the world population would be categorized as

absolutely poor. This is a clear indication of the failure of the existing man-made economic

system. The dismal economic position of the world could be expressed in terms of the income

shared by different classes of the people. The bottom 40% of the world population which

happen to be the poorest share only 5% of the world income whereas the top 20% of the world

population enjoy 75% of the world income according to World Bank 2008 report.6

This very wide gap or disparity indicates that the principle of horizontal equity has been

violated and disregarded. This economic system empowered a small class of the world

population who are enriching themselves at the expense of the suffering of the many. In other

words; the man-made economic system enabled the very few rich people to enslave billions of

poor people. In short, in today’s economic system, principles of equity, whether it is horizontal

or vertical are no longer functioning.

6http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/ 0,,contentMDK:21882162~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html retrieved on 2nd April 2012

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Difference between equity and equality

Many people confuse the conception of equity with equality yet they are two distinct

conceptions. While equality refers to differences in the amounts, quantities, magnitude or

volumes of income earned by individuals, equity refers to the fairness in the income and wealth

distributive and redistributive schemes. In essence, equity refers to the two standards of

fairness in Islam which are the principle of productivity or work and the principle of needs.

In Islam, there should be acceptable disparities in income distribution in order to maintain a

reasonable gap between the rich and the poor provided the gap between the two will not

produce adverse effects to the productivity of all classes of individuals (the rich and the poor)

and to ensure the existence of harmonious relationship between classes of people.

The relationship between horizontal equity, vertical equity and Islamic

standards of distributive justice

In Islam, the equivalents of horizontal equity and vertical equity are the standard of work or

productivity and the principle of needs. Since Islam recognizes both individual being and social

being, Islam encouraged the most important aspect of distributive justice –the principle of

work, or productivity. For someone to earn he should provide factors of production and

contribute to the generation of an output. Allah, the Almighty, says in the Quran narrating

about the story between Prophet Shu’ayb and prophet Musa7:

“And said one of them (the two women): "O my father! Hire him! Verily, the best of men for

you to hire is the strong, the trustworthy." (26) He said: "I intend to wed one of these two

daughters of mine to you, on condition that you serve me for eight years, but if you complete

ten years, it will be (a favour) from you. But I intend not to place you under a difficulty. If

Allâh wills, you will find me one of the righteous." (27) Al-Qasas

7 It should be noted that at the time of this story between Musa and Shu’ayb, prophet Musa was not yet sent as a prophet.

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In another verse Allah says: “Then when the (Jumu'ah) Salât (prayer) is ended, you may

disperse through the land, and seek the Bounty of Allâh (by working, etc.)” Al-Juma’:10

In another verse Allah, the Almighty says: “Then if they give suck to the children for you, give

them their due payment” Al-Dalaq: 6

The examples in the Noble Qur’an which encourage the principle of work are numerous. In the

above, the verses in surah Al-qasas, prophet Musa is providing a factor of production which is

labour and Prophet Shu’ayb promises that he will compensate fairly based on their agreement.

Such a story in the Qur’an is a clear approval and encouragement towards the principle of work.

The verse is surah Al-juma’ encourages us to work after Friday prayers. The verb used in the

verse came as a form of order or command which shows the importance that Islam placed upon

work and productivity. The verse in surah al-dalaq, Allah commands men to pay fairly for

women who suckle the men’s children. In this case, the women mentioned in the verse provide

the service of suckling and in exchange should be paid fairly. All these are in line with the

principle of work or productivity for each of the individuals mentioned in the above verses

contributes a factor of production.

Upon a closer study of these Quranic verses, one can understand how Islam valued production

and work and that income re-distribution measures are supplementary to correct irregularities

of market conditions and to help the community members who cannot fulfill their basic

necessities of life as they are either old, blind, young or disabled. The narrations handed down

from the prophet –May the blessings and peace of Allah be upon him, further explain how

Islam stressed the importance of work or productivity.8

Apart from work, which focuses on income distributive measures resulting from the provision

of factors of production, Islam also legalized other measures of income distribution known as

8 It is related from az-Zubayr ibn al-'Awwam that the Prophet, may Allah bless him and grant him peace, said, "It is better for one of you to take a rope and bring a faggot of firewood on his back and sell it so that Allah gives him what he needs than for him to ask people who then give to him or refuse." Sahih Al-Bukhari, the book of Zakat, Hadith No.1402

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income redistributive measures such as Zakat, waqf, sadaqah and other forms of charity. To

supplement the income of those people whose earnings are not sufficient to maintain basic

necessities or those members of the society who cannot even earn at all due to an acceptable

reason, the principle of needs has to be applied. In modern economic discussions, vertical

equity focuses on different treatment to different people. According to Robin Hood vertical

equity is taking from the rich to give to the poor.9

Even though, the horizontal principle of equity or the standard of productivity is clearly

explained in the teachings of Islam, perfect equality is not established in the teachings of Al-

Qur’an. In fact the inequality is approved in the teachings of Al-Qur’an.

The followings two verses explain beyond any doubt that equality cannot be achieved and is

not sought after in this worldly life. The reason why equality among humans is not possible is

elaborated below.

وجل عز االله :يقول

" ��ا ض ع� ب� ہم ہ� ع� ب� ب� خ �� ب ب� ل� �� ض ـ� ب� ب� ب� �� ض ع� ب� �ب �ع �ب عم ہ ب� ع� ب� ب�ا ع� �ب ب� ب ! ب�ا‌ ع# ہ�$ ٱ� خ& �ـ ب� ب' ع� ٱ خ�ى عم ہ ب� ب( خ�� ب�* ہم ب� ع� ب� ب�ا ع+ ب, ب- ہ. ع' ب# ! ب/‌ ل� ب� ب� ب+ ع0 ب� ب1 �ہ+ خ, ع2 ب3 عم ہ4 ب56 ( " ب1 �ہ� ب+ ع7 ب3 ب�+ا ل* 89 ض ع� ب: ب/ ل� ب� ہ� ب+ ع0 ب� ب �3ا‌! � ض خ8 ع �5ز:8ف( ٣٢ہ> &��<

Allah, the Almighty says:

“Is it they who would portion out the Mercy of your Lord? It is We Who portion out between

them their livelihood in this world, and We raised some of them above others in ranks, so that

some may employ others in their work. But the Mercy (Paradise) of your Lord (O Muhammad

SAW) is better than the (wealth of this world) which they amass.” (32)

وجل عز االله :يقول

! خ?‌ ب+ا ع� ٱ ب. ل* @� ض ب� ب> Aب Bع ہ3 عم ب� ب Cہ ع� خ* خ/ Dع ہ+ ع� خ�ٱ Fہ� ب0 ب56 ہ. ع' ب# ب ب�ا ع� Dب Gب ہ/ Dع ہ+ ع� ٱ Cہ ب� ہ1 �Hہ ب3 ـى #� ب ب56 ا5 �و ہ� ب-ا ! �Hا‌ ض Dخ ب* Aب �ہ� بKا عم Lہ ب� Mب ب� ب� ع$ ب- Cب D� ب ٱ� ب�1 5Nخ عم Oہ ہ�� Pخ ب# عم Oہ ب� ب? ب-ا ب 9م ) ض �Dخ Gب Q9 خ> ب 5 Cہ D� ب ب ٱ� !‌Rہ وا ب( ب3 ب*. ۥ Cہ Lب Dع ہ* خTى Bع ہ3 Cہ D� ب ب ٱ� خم‌! ع, خ7 ع� ب ٱ خم Dع خ� ع� ٱ خ�ى @� ض Vب ع, ب� ۥ Wہ ب� 5Xب ب عم Lہ ع� Dب Gب Cہ Yـ Zب Vب ع] ٱ Cب D� ب ٱ� ب�1 5Nخ ب? 82P�5&( ٢٤٧ب-ا &��<

9 Begg .D. et al (1984) Economics, McGraw Hill Book Company, Berkshire

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And their Prophet (Samuel A.S.) said to them, "Indeed Allâh has appointed Talût (Saul) as a king

over you." They said, "How can he be a king over us when we are fitter than him for the

kingdom, and he has not been given enough wealth." He said: "Verily, Allâh has chosen him

above you and has increased him abundantly in knowledge and stature. And Allâh grants His

Kingdom to whom He wills. And Allâh is All-Sufficient for His creatures' needs, All-Knower."

(247) Al-baqara

Ibn Kathir in his commentary in the book, Tafsir Al-Qur’an Al-Adzim writes: “and then the Most

High said, clarifying that He made His creatures different in what He bestowed upon them such

as wealth, sustenance, brains, understanding and the like of the external and internal powers,

He [the Almighty Allah] said: “It is We Who portion out between them their livelihood in this

world, and We raised some of them above others in ranks” Al-Zukhruf : 32

In the second verse in surah al-baqara, the prophet- peace be upon him, tells his people even

though they claim to be wealthier than him, that Allah bestowed upon the chosen king more

strength and more knowledge and thus they are not equal to him. The wisdom behind the

differences among the humans in terms of wealth, intelligence, capability and other bounties of

Allah is justified. Allah created people and raised some of them above others in ranks so that

they work for each other, help one another, lead one another, teach each other and join hands

to achieve their respective goals in this world and the next world.

A thoughtful study on the above verses clearly reveals that equality (earning equal income and

having equal of everything) cannot be achieved as this will come against the natural way of life

(sunnatullah). Thus while extreme inequality will lead to unwanted consequences, a tolerable

gap is required so that life follows the universal rules as laid down by the Almighty Allah.

Conclusion

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Horizontal and vertical equity are discussed in economics at a great length as two

complementary measures in income distribution. While horizontal equity refers to identical

treatment to identical people, vertical equity calls for different treatment to different people. In

Islam, the standard of work or productivity is equivalent to horizontal equity whereas vertical

equity is similar to the principle of needs. Based on this, distributive justice can be achieved by

fully implementing the two Islamic standards.

To eliminate absolute poverty, the first principle should be enforced by ensuring that the

market is free from all negative elements and all working people have the opportunity to

provide their factors of production to earn a living. Upon implementing the first standard, the

criterion of needs, which is the second principle, should be used to support the small

percentage of people who cannot earn an income sufficient enough to meet their basic

necessities of life.

However, it is quite impossible to follow those standards and implement a market free from all

negative elements while capitalism, a corrupt man-made economic system, is dominating the

world markets including those of Muslim countries.

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The present distributive injustices in Muslim societies are mainly due to the failure of market organization rather than the failure to implement redistribution schemes provided in Islam. Discuss

As discussed in the earlier sections, the income distribution measures in Islam are based

on the two principles or standards, the standard of work and the criterion of needs. However,

from the Quranic verses and narrations it is quite evident that everybody is encouraged to work

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or provide a factor of production. For the standard of work to be effective there should be

effective, efficient and fair market which is free from all negative elements such as riba, maysir,

gharar, ihtikar and other negative elements. An important issue to critically and objectively

analyze is whether it is the redistributive measures of Islam or a market free from all negative

elements that can correct the injustice in the income distribution in the Muslim societies.

In order to understand the importance of market or the standard of work among the Muslims,

the following text should be studied closely.

الرزق أعشار تسعة فيها فإن بالتجارة عليكم "”

“Encouraged upon you is trade, for in it is nine out of 10 parts of your sustenance”10

It is noteworthy, even though the Hadith cannot be attributed to the Prophet –May the

blessings and peace of Allah be upon him, due to its weak position, it is related to the real

economic situation on the ground and is valid to serve as an indication that the role and impact

of the market greatly outweighs the significance of redistributive measures.

The meaning of the Hadith does not necessarily mean that every person gets 90% of his

sustenance from trade while he should look for the rest from other sources such as agriculture.

If the case were so everybody would have been fakir11 and miskin12 who cannot get enough

income to maintain basic necessities of life. Upon further interpretation of the Hadith, it is can

be concluded that 90% of the people can earn an income which is enough to maintain their

basic necessities provided that the market is free and fair and is functioning according to the

rules laid down in Shariah. Once the people in the market are guided by moral and ethical

values and the market is free from all negative elements, the measures of redistribution can be

effective to cover the unavoidable irregularities which will usually arise even though the market

is functioning according to Shariah rulings.

10 Sheikh.Albani declared it[this hadith] to be weak in his book Dza’if Al-jami’ Hadith No.2434

11 Someone who does not have any income to fulfill his basic necessities of life12, miskin has some income but is not sufficient to fulfill his basic necessities of life

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As implied by the Hadith, there will always be some people about 10% that cannot get enough

income to fulfill their basic necessities of life. In this case, the criterion of needs should be

applied. Apart from those who cannot earn enough income through work, there will be others

who will be unable to get any income to fulfill their basic necessities of live. Such people

include, the old, the children, the handicapped or disabled or people who are struck by natural

disasters.

Having said this, the idea that Islamic re-distributive measures can correct today’s economic

failure is not logical. Redistributive measures cannot resolve the fundamental problems of the

economy. These problems are the resultant of total market failure.

The present market, which would have served as the most important source of income

distribution, was hampered by the following negative elements;

Riba

Gharar

Maysir(gambling)

Corruption

Discrimination

Ihtikar and kanz-al-mal(artificial shortage of supply and hoarding)

Negative monopoly

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The following is how one of the negative elements, negative monopoly, adversely affects the

economy in general and the customers in particular. In a competitive market, the customers

can buy more goods at a lower price, (Q0, P0) but in a monopolistic situation, customers pay

higher prices, P1, and the quantity of goods is reduced to Q1.13 This situation negatively affects

the customers and the wealth is unjustly transferred from the customers to the producers.

Other negative elements such as riba, which is strictly prohibited in Islam, corruption, hoarding

and the like have similar or even worse effects as monopoly.

All these elements contribute to unfair and unjustified increase of prices whereby the market

dictates the pricing and controls the supply and demand while it was expected to only provide

an appropriate environment for the parties involved in business. The outcome of these negative

elements comes against the basic goal of Islamic economy which is to promote a higher

economic wellbeing so that the people can fulfill their obligation and responsibility as a created

being.

While all such negative elements are present in our economic system, the realization of

distributive justice within the Muslim society is impossible and the reliance on redistributive

13 http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-31/03.htm

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measures provided in Islam to correct the fundamental economic problem and a total market

organization failure will be pointless.

According to 2008 World Bank report, the number of people who were below the poverty line

of USD1.25 at that time was about 21% of the world population or around 1.4 billion people,

and if the poverty line were raised to USD 2.5, the number of people who lived in absolute

poverty stood at 50% of the world population. The report also tells that 75% of the income of

this world is enjoyed by the top 20% of the world population whereas the lowest 40% share

only 5% of the world income. This is a clear indication of the failure of the current economic

system and the subsequent failure of market organization. There is no way that measures of

distribution can correct such a fundamental failure.14

While a tolerable degree of inequality is acceptable in Islam, the gap of disparity mentioned in

the report is intolerable and indicates extremely appalling conditions of poverty. The fact that a

small percentage of people are getting richer every year and the great majority of the world

population is suffering due to extreme conditions of poverty is a clear manifestation that the

market organization failed due to immorality and materialism.15 A situation where the wealth is

concentrated in a few hands was warned to happen by the Almighty Allah16 but today the

wealth is circulating in a few hands.

The adoption of western capitalist ideas by Muslims severely crippled the economy of the

Muslim societies and the trading parts in the market are heavily indulged in immoral activities

and practices such riba, gharar, maysir, corruption, bribery and discrimination to unjustly make

money out of nothing. In this situation, the market economy will fail as long as the people in the

market are not morally guided and their strife for wealth is not motivated by spirituality and

noble values but by unlimited desire of having more wealth.

14http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/ 0,,contentMDK:21882162~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html15 A belief system or a theory that holds that the only thing which exists is matter or energy and nothing is beyond16 Almighty Allah says: “so that it[wealth] may not circulate only between the rich among you” Al-Hashr: 7

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Upon reading the Noble Qur’an, there are numerous verses which encourage the Muslims to

give away portions of their wealth as a charity17 but the important point to think about is the

possibility of paying Zakat, waqf or other forms of charity without productivity or work. For

Muslims to contribute to the development of the society and give charity they should be given

a chance to earn through the provision of their factors of production (the necessary conditions)

in a free and fair market. In surah, Al-Rum Allah states that it is not by taking usury that the

wealth grows but by giving charity.18

Once the interpretation of verse 39 of surah Al-rum (see the footnote blow) is further analyzed

and deeply studied, it would be obviously understood that while the act of taking riba is a major

contributor of market failure, the act of giving charity would require the existence of a free and

fair market so that the people could earn, save, invest and would subsequently pay obligatory

and voluntarily charities afterwards.

Conclusion

Islam, as a comprehensive way of life, encouraged Muslims to work and strive both for this

world and the next world. Based on this, it is evident that relying on redistributive measures

provided in Islam such as Zakat, waqf and other forms of charity are too small, even if their

collection and distribution are effectively and efficiently managed, to resolve the fundamental

problems of economy. The reality on the ground is that most the Muslims are poor not due to

the failure of Islamic schemes of redistribution but due to the failure of the market. The

presence of all negative elements such as riba, gharar, maysir, hoarding, corruption and other

negative elements is the main cause of market organization failure and unless these are

17Almighty Allah says: “and spend of that whereof He has made you trustees”. Al-Hadid: 7Almighty Allah says :”And spend (in charity) of that with which We have provided you, before death comes to one of you and he says: "My Lord! If only You would give me respite for a little while (i.e. return to the worldly life), then I should give Sadaqah (i.e. Zakât) of my wealth[] , and be among the righteous” Al-Munafiqun :1018 Almighty Allah says And that which you give in gift (to others), in order that it may increase (your wealth by expecting to get a better one in return) from other people's property, has no increase with Allâh, but that which you give in Zakât seeking Allâh's Countenance then those, they shall have manifold increase. (39) Al-Rum

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eliminated or at least drastically reduced through the introduction of an Islamic economic

system guided by morality and values, extreme poverty and intolerable distributive injustices

will prevail over the world.

Regarding the issue of distributive justice in income and wealth, it should be dealt with

earnestly and with great effort. In resolving this problem, the matter should be viewed in

totality and the whole system of economy including the market organization should be

reviewed. Once the fundamental problems of the economic are corrected, the measures of

distribution can serve as a completion to supplement the process and cover approximately 10

to 15% of the income distribution irregularities. Allah knows best.

REFERENCES

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Albani(n.d)Dza’if Al-jami’ Hadith No.2434

Begg .D. et al (1984) Economics, McGraw Hill Book Company, Berkshire

http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:21882162~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html

http://www.investopedia.com/terms/v/vertical_equity.asp#axzz1qFYC1zsg

http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-31/03.htm

Jones. H. (2009) Equity in development Why it is important and how to achieve it, Overseas Development Institute, London

World Bank (2005) World Development Report 2006: Equity and Development. Washington, DC: World Bank.

Translation of the Noble Qur’an by Dr.Mohsin from www.quranexplorer.com/quran/