Financial System

The Economic System of Islam

We continue with the serialisation of the epic lecture delivered by the Second Worldwide Head of the Ahmadiyya Muslim Community, later published as a book titled, The Economic System of Islam.  To read the first three parts, visit our website,



Upholding Individual Enterprise

It should be kept in mind that of all religions, Islam places greatest emphasis on the life after death. As such, Islam insists that the economic order should allow the greatest scope to individual enterprise. For an individual, by pursuing his will, has the possibility of improving his place in the life to come. The Islamic view is that if human life were reduced to a succession of compulsory acts, it would preclude free choice and a person could not be held accountable for his actions after death. For example, if a Muslim were compelled by the government to do a good deed, then in the hereafter he could not claim credit for it. He would be told that it was his government, rather than him, that was responsible for his good deed. It therefore follows that a true Muslim, who understands the fundamentals of his faith, would never accept, as a matter of principle, the suppression of individual freedom.

It follows naturally from the above that Islam, in seeking to establish a fair and just economic order, would proceed to do so on the basis of two fundamental principles.

Voluntary Efforts to Rectify Inequities

The first principle is that inequities in the distribution of resources and means of production should be rectified through voluntary sacrifices on the part of members of society. On the one hand, this would contribute to the economic well-being of society; and on the other hand, it would provide an opportunity to make a provision for the life to come. This is why the Holy Prophetsa has said that a man who puts a morsel of food into his wife’s mouth with a desire to earn merit in the sight of God, does a deed equal in virtue to giving alms.

The above example is an act in which the husband’s own desire plays a part. He is fond of his wife and derives pleasure from caring for her. However, if his motive includes the desire to please God and to gain His nearness, he can turn his domestic obligations into a virtuous deed. He would enjoy the food as before, and his wife would appreciate the clothes he gives her as before. But once he does all this because God loves those who take care of their wives, then not only will he get satisfaction from his own act, but he can also expect a reward from God for doing something for His pleasure.

Wealth Created by God for the Benefit of All

The second basic principle is that all wealth belongs to God, which He has created for the benefit of entire humanity. Therefore, if certain economic problems cannot be corrected through voluntary actions mentioned above, then legal means should be adopted to rectify such situations and bring them in line with the divine will.

Balance Between Individual Freedom and State Intervention

The essence of the economic system of Islam lies in an appropriate combination of individual freedom with state intervention. It allows state intervention to a certain extent, but it also provides for individual freedom. A proper balance between these two defines the Islamic economic system. Individual freedom is granted to enable persons to build up assets and spend them voluntarily in order to gain the spiritual benefits in the life to come. State intervention, on the other hand, is provided in order to protect the poor from economic exploitation by the wealthy.

State intervention is deemed essential for putting in place certain safeguards against harming the weaker sections of society, while individual freedom is deemed essential for a healthy competition among individuals and for enabling them to make provisions for the life hereafter. Individuals are given full opportunity to voluntarily serve humanity and earn merit in the life hereafter. Individual freedom thus opens up endless possibilities of progress through the force of healthy competition. At the same time, judicious state intervention is provided so that the economic system is not based on brutality and injustice, and hindrances to economic progress of any section of society are avoided.

It should now be easier to understand that religions that believe in the hereafter in general, and Islam in particular, do not view the issue in simple economic terms, but from a religious, moral and economic perspective. Religion does not seek a purely economic solution because such a solution might interfere with the moral and religious aspects of life, which would be unacceptable. A nonbeliever is of course free to view economic problems in isolation. But a religious person would not judge an economic system from purely an economic perspective. He would demand an economic system that also respects his moral and religious requirements.

After this introduction, let me state that keeping in view the two principles stated above, Islam leaves the individual free to follow any trade or profession. However, Islam also specifies certain limits on individual freedom, which while not interfering with his legitimate aspirations to excel, deter him from taking undue advantage of his freedom or pushing it to dangerous lengths.

It should be remembered that some of the defects that are associated with economic competition are rooted in certain selfish streaks in human nature. For example, a person may set his heart upon accumulation of wealth and this passion may shut his eyes to the suffering caused by hunger, want and penury. His sole wish may be to accumulate maximum amount of wealth. Selfishness and indifference to tyranny and oppression are the result of certain incentives, which are mentioned in the Holy Qur’an and are discussed below.

Control Over the Incentives for Accumulation of Wealth

The Holy Qur’an states,


Know that the life of this world is only a sport and a pastime, and an adornment, and a source of boasting among yourselves, and of rivalry in multiplying riches and children. This life is like the rain the vegetation produced whereby rejoices the tillers. Then it dries up and thou seest it turn yellow; then it becomes broken pieces of straw. And in the hereafter there is severe punishment, and also forgiveness from Allah, and His pleasure. And the life of this world is nothing but temporary enjoyment of deceitful things.

This verse outlines the core motivations that lie behind the human urge to amass wealth.

  1. The first motivation is the desire for entertainment, play, amusement and recreations like gambling, betting, horse racing, etc. Man seeks wealth so he can satisfy his desire for entertainment.
  2. The second motivation is the desire for leisure, i.e. to have so much that there is no longer a need to work. People with this motivation want to be completely free all day to laze around and spend time playing cards, drinking wine etc.
  3. The third motivation is the desire for elegance, i.e. to have the most luxurious clothes, dresses, cars and food.
  4. The fourth motivation is the desire to be able to boast. Some people desire to be famous and be acknowledged in society as wealthy. I have observed that this obsession has so advanced in our country that people even take pride in acknowledging their subservience to those in power. For example, they would boast that, “I pay such a huge amount in tax to the British government.” Thus, instead of feeling ashamed of being the subjects of a foreign power, they boast about the amount of tax they pay. Some happily boast, “I am an orderly of such and such Bara Sahib [important person].”
  5. The fifth motive is the mere addiction to accumulating wealth, i.e., when individuals start to compete with one other in accumulating greater wealth. If their neighbour has one million, they want 10 million, and if he has 10 million, they want 20 million.

As far as I have studied, these are the motivations for acquiring wealth that the Holy Qur’an has mentioned.

After describing these motivations, the Holy Qur’an says,


The Holy Qur’an likens the pursuit of wealth to a cloud in the sky that gives a farmer the hope that there would be rainfall, which would turn his fields green with new crops. But when it actually rains, it is either too much or too little. In both cases instead of making a lot of money, the farmer witnesses the ruin of his crops because of too much or too little water.

The Qur’an then reminds us that not only is such wealth of little use in this world, it also leads to severe chastisement in the hereafter for those who indulge in harmful occupations or pastimes. But those who restrain their base impulses are forgiven by God and are given the pleasure of His nearness.

The verses quoted above also contain a warning that a life given to worldly pursuits is no more than a mirage. We are thus cautioned against wasting our life in chasing fleeting and unreal shadows. We should not allow ourselves to be blinded by base passions; we must never lose sight of God’s pleasure, which should always remain our supreme goal.

In these verses Allah the Almighty declares that all motivations that lead a man to the accumulation of wealth are unworthy and harmful, and likens them to a crop that withers away. In other words, just as a withered crop yields no benefit, so is the case with wealth accumulation. Therefore, a Muslim must avoid accumulating wealth under such compulsions, as they displease God. Since Allah is the source of all grace, the better course is to seek His grace and to overcome base desires.

It is clear that a person who follows the Islamic teachings would shun above motivations. Any wealth that he might accumulate would be devoted to noble causes that help to bridge the gulf between the rich and the poor, instead of widening it. Such a person has little reason to covet wealth for selfish ends. A man’s desire to earn money arises out of basically three impulses.

  1. To meet his own legitimate needs;
  2. Beyond meeting the personal needs, he might desire money with a view to helping mankind and earning God’s pleasure; or
  3. He might seek money to fulfil vain desires described above i.e., personal pleasure, self-indulgence, pride or plain greed.

It goes without saying that only persons driven by the third impulse would stoop to unfair and foul means, and would exploit others. This situation would be avoided if the first two reasons for earning money were dominant. Anyone who earns just enough to satisfy his own needs or who spends the excess wealth for helping others and other good deeds would not hurt other individuals or his nation in general.


Improper Use of Wealth Forbidden

I proceed now to elaborate on how Islam forbids the improper use of wealth. In regard to the true Muslims, the Holy Qur’an says:


That is: Muslims are those who stay away from frivolous acts.

They stay away from pursuits or activities that are of little benefit, such as, playing chess, cards or other games wasteful of time. Islam directs all believers to desist from all such useless (laghw) pursuits. Accordingly, idleness, gossiping among friends or other useless activities are not approved in Islam. An indolent life style is also regarded as laghw.

Consider the case of a son who inherits considerable wealth from his father, but then spends his entire day with friends in idle gossip. His friends drop in for friendly chats. They come and go, flattering him with all manner of titles, and this continues all day. Such ‘friends’ are always there to entice him into other evil ways, involving women, gambling, alcohol and other extravagances. And the heir, of course, entertains them, offering tea with things to eat or sumptuous dinners, depending on the size of his wealth. However, these people are fed not because they are poor or need help, but because this is just a way of whiling away the time. Islam strictly prohibits such forms of recreation, and Muslims are admonished to stay away from pursuits that yield nothing worthwhile.

A man who lives off the income or inheritance of his parents and does not engage himself in useful work must weigh what benefit he or his country is deriving from his idleness. Certainly, his idle existence does no good to anyone—himself, his nation, or the world at large.

Islam enjoins such a person to not waste his time, but rather put his resources in the service of humanity and not allow his personal capabilities to go to waste. If he has no need to work for a living, he might volunteer himself to help humanity, his country or his religion. He can thereby avoid wasting his time and, by spending time beneficially, he can turn into a useful member of society.

In short, Islam forbids activities that waste time and do not contribute to the betterment of one’s life. It is for this reason that the Holy Prophetsa asked men not to wear jewellery or silk. Similarly, he forbade the use of utensils made of gold or silver. Jewellery is not totally forbidden for women, but the Holy Prophetsa disliked its use in everyday life. While jewellery may help to embellish women’s beauty, Islam disapproves of excessive expenditures on it, as it might hinder economic progress of society, make them arrogant, or give rise to rivalries that feed on greed and avarice. Thus, women may use jewellery within certain limits; but men are totally barred.

The above comments also apply to articles that the rich keep for show and display, but which serve no purpose. Some people spend large sums of money on antique china and think that they have made a good investment. Old carpets and old china command exorbitant prices and many Europeans buy them not because they are of some use but because they are rare and a source of pride for the owner. Their prices are high only because of the antique value; otherwise, similar carpets or china can be purchased for a fraction of the price. Islam declares all such expenditures to be laghw—which provide no real benefit and are meant only for ostentation. The Holy Prophetsa by his own practice disapproved of such indulgences and admonished the believers not to waste time and money in pursuit of vain desires.

Cinema and theatre are another area of waste in this day and age. I once made a rough calculation and was astonished to discover the enormous amount the public spends on this pastime. In Lahore, I hear, there are some 25 cinema houses, each of which nets in about three thousand rupees (Rs.) a week. If one assumes the average weekly profit to be Rs. 25 hundred per cinema, or Rs. 10 thousand monthly, the annual revenue of an average cinema would come to Rs. 120 thousand. If we assume there are only 20 cinemas in Lahore, their total profit just in Lahore would come to some Rs. 2,400,000. If the whole of India was assumed to have 50 times the number of cinemas in Lahore (although it is likely to be more), there would be over a thousand cinemas in India, yielding a staggering sum of Rs.120 million annually. This expenditure does not include the substantial sums spent by cinemagoers on refreshments and related entertainment, which, in itself, could amount to a similar figure. In other words, cinema and related expenditures could account for some 250 million rupees every year, which equals one-fourth of the entire revenue of the Government of India. Thus a sum equal to one-fourth of what the entire government spends in India is spent on cinema—an activity that does not materially lead to any benefit either for the country or for cinema-goers.

The Holy Qur’an shuts the doors of all such avenues of wastage, and holds true believers to be those who stay away from such frivolous activities and do not spend a penny of their income on them. The European countries with democratic governments are eager to promote their economic progress but spend a fortune building cinema houses and theatres. In fact, it is quite likely that England would find the existing number of cinemas inadequate and would greatly increase their numbers after the war (World War II). They would want everyone who is deprived of this luxury to partake of it and spend their time and money in cinemas. However, Islam categorically rejects all such activities that are not in the interest of mankind at large. If these teachings of Islam were adopted, the society would become largely egalitarian, as a big incentive to earn illicit wealth is the urge to satisfy vain desires.

Extravagance Forbidden

Secondly, Islam forbids extravagance, i.e., excessive spending on things or activities that are acceptable within their due limits. An example of extravagance is the construction of tall structures or expensive decorative gardens for just ostentation. There are, of course, orchards with fruit trees, which are not forbidden in Islam. However, some large private gardens are made only for display and personal enjoyment and pleasure. This was so when kings built huge gardens just to entertain themselves with song and dance. Spending large amounts of money for personal leisure is considered extravagance.

However, large gardens for public use, as are found in many cities, where people can go for enjoyment, relaxation and exercise is not banned in Islam at all. If a city spends a large sum of money on a garden for its inhabitants to enjoy, that is a legitimate expense.

To illustrate, Lahore currently has a population of about 900 thousand. If Lahore Corporation were to lay out public gardens and parks at the cost of a few hundred thousand rupees, Islam would not call it extravagance, as the whole town would derive benefit from these gardens. The per capita expenditure on such a garden would be quite reasonable relative to the benefits that the entire population would receive. On the other hand, if a king or a rich person were to lay out similar gardens for the sole use of his family, Islam would disapprove of it. Such expenditure would mean that millions have been spent for the benefit of a few individuals only, while the same expenditure could have benefited hundreds of thousands of people, which might have also been beneficial for their health.

Thus Islam does not stop us from spending money on people’s genuine needs. It only restricts individuals from wasteful expenditures that come about by neglecting the rights of public at-large. If a multi-story building is built with hundreds of offices for the use of thousands of people, it is a legitimate expense. However, if an individual builds a house with large number of rooms to show off his wealth, then that expenditure would be considered extravagant and not legitimate in Islam. Such a person would be answerable before God on the day of judgement to explain why he did not spend money for the benefit of mankind?

The example of the Taj Mahal is close to home. This fine mausoleum is renowned all over the world, attracting admirers from far and wide. I myself have visited it a number of times, and it is undoubtedly a marvellous structure, exquisite in form, grace and beauty. But it is in fact no more than a personal monument built by an emperor to immortalise his love for his queen. From the Islamic point of view, the enormous amount of money spent on it was not well spent. If the same money had been spent for the betterment of the poor, the downtrodden and the orphans, hundreds of thousands of people could have benefitted for a long time to come. It would have been a better use of wealth if such people could have been provided resources for food, clothing and shelter.

There is no doubt that from a technical and engineering perspective, the Taj Mahal is a work of art. We all appreciate it and like to visit it. However, the reality is that we must also recognise that such magnificent buildings, which are built for the benefit of a few individuals alone, are not permitted in Islam. On the other hand, the buildings built for the benefit of public at large, no matter how tall and big, are not against Islamic teachings. It is the expenditure on things beyond one’s reasonable needs that is forbidden. Example of expenditures forbidden in the Holy Qur’an and Hadith (sayings of the Prophet of Islamsa) are: big buildings, large expenses on gardens to display wealth, overindulgence in food and extravagance in the purchase of clothes, cars, horses, furniture, etc. By limiting the scope of what one might spend on, Islam limits the need for accumulating wealth.

Spending Money to Gain Political Power Forbidden

Islam similarly forbids passing on political power to individuals solely because of their wealth. I have already spoken about the Qur’anic injunction: “to make over the trusts to those entitled to them,” meaning that we should only accord authority to those who are best able to hold office regardless of their economic status. Thus, Islam reproves accumulation of wealth in order to gain political power or high office. It instructs Muslims to elect people solely on the basis of merit and not to be swayed by wealth and high social or economic status.

Greed for Wealth Accumulation Curbed

Then there are people who accumulate wealth for its own sake. Islam disapproves of this tendency too. As stated in the Qur’an:


That is: Those who hoard up gold and silver and do not spend it in the way of Allah, are given the tidings of a painful punishment. On the day when that gold and silver shall be heated in the fire of Hell, and their foreheads and their sides and their backs shall be branded therewith and it shall be said to them, this is what you treasured up for yourselves and for the benefit of your families, and had deprived the general public of their benefit…

The last part of the verse, 2015-October-Arabic_Inserts_pdf__1_page_

so now taste what you used to treasure up” refers to the gold and silver that did not give any benefit to the general public. God says that on the day of judgement this gold and silver is returned to you. But since gold and silver are of no use in the afterlife, it only “brands their foreheads and their sides and their backs.” In this way, they find out how sinful it was to withhold wealth from the benefit of mankind.

Although this example does not literally relate to the misuse of wealth, withholding of wealth is akin to misusing it since it prevents wealth from benefitting mankind at large. In effect, therefore, hoarding or misusing wealth amount to the same thing, i.e., denying its use for productive purposes.

Islam categorically rejects all motives that lead to excessive hoarding of wealth. Since the foundation of every action is its motive, no Muslim can accumulate so much wealth that it becomes a hindrance for human development. For example, some people spend millions on the upkeep of race horses and gambling. However, according to Islamic teachings, a Muslim may keep a horse for riding, but not for racing.

Because Islam rejects all such motives, it also eliminates the need to accumulate excessive wealth. The urge to make more and more money comes about when one tries to emulate others who have enriched themselves or who spend huge amounts on extravagances such as horse racing, or when one seeks to accumulate wealth for their own sake. Since Islam demands of us that we curb all such temptations, the urge to earn beyond a reasonable amount dies away.

Further Steps to Control Those of Weaker Nature

The teachings that I have expounded above are by way of exhortations. However, mere sermon or admonition may not stop people with weaker dispositions from accumulating wealth beyond prescribed limits. Thus, the Islamic Shariah—whose implementation is the government’s responsibility—contains specific provisions against wealth accumulation beyond its proper limits.



  1. Holy Qur’an, Surah Al-Hadid, Verse 21.
  2. Ibid.
  3. Holy Qur’an, Surah Al-Mu’minun, Verse 4.
  4. Holy Qur’an, Surah Al-Taubah, Verses 34–35.


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