Big Picture of Capital Transfer from an Islamic Perspective

Whenever you bring together the words "Islam" and "economy", one of the immediate concepts that come to the mind is "interest". And then, the discussion starts revolving around how to establish an Islamic economic system in a world that subsists on interest. I, too, had such talks and went through similar thoughts. At last, I came to a conclusion I was not expecting. In this article, I would like to share with you this conclusion, which comprises not only the interest issue but also the big picture of economics in Islam as I can see as a Muslim. Summarizing my findings, I am also going to present a simple figure, which I think will be helpful in analyzing further issues. God knows best.

First things first. I am not a professor of economy nor a scholar of Islamic sciences, but a Muslim who enjoys and embraces critical thinking as a way of worship, because critical thinking is exactly what we are told to do by Allah in the Quran. My interactions with people of different years of age and of various backgrounds helped me deepen and broaden my quests into the matters of faith and religion. In turn, I have shared my findings with people to be among those who help each other on the path of God. This adventure eventually brought me to the topic of "interest" in Islam. 

I thought about why interest is forbidden, how Islam ensures timely payment of debts without requiring the push of interest, what mechanisms the Islamic banks use and whether those mechanisms are really justifiable within Islam, how come accepting interest according to the inflation level is ok, etc. And I realized that I am getting lost in an ocean. Then, I felt that I am using the wrong tools in analyzing the problem. When Quran was revealed, though, and when Muhammad (pbuh) lived, such things did not exist. Modern theory of economics and the globally interacting economical systems arose only within the past few centuries. Therefore, a new set of tools was necessary to see what is Islamic and what is not. With that, I changed the way I looked at things, which eventually led to the figure below. This figure is both the map and conclusion of this article, as I will discuss now.

Before anything else, it is also necessary to remember that when something is forbidden by God, Muslims abstain from it, not because of its worldly harms but, because it is the order of God. So, whether you can understand the wisdom behind it or not, you do so because of your submission to God. Even if that thing does not have any harms, you still avoid it, because God says so. However, life is not that simple always. As conditions evolve through the centuries, what is and is not forbidden may not be as distinct as before, and you may feel the need to have a good enough tool to see through the uncertainties. This is where critical thinking becomes handy, and this is also where the above figure comes into the scene.

You see, economy is not just about interest. In fact, interest is only one of the many concepts that comprise economy. So, it is important to form a map of these concepts and their interactions in a rational manner that is also in agreement with the Quran and Sunnah. Then, what are the major concepts that make up economy? 

Economy is all about transfer of different kinds of capitals among people through lawful or unlawful means. In the modern theory of economics, the capitals that people value and transfer are broadly categorized as Financial Capital, Manufactured (Physical) Capital, Natural Capital, Social Capital, Human Capital. Let's see briefly what these are. 

Financial capital is simply the money and similar assets. Manufactured capital consists of the infrastructure and the machinery useful for producing goods and services. Natural capital is what is available under and above ground for producing economic value. Connectivity among people and the activity of those connections comprise the social capital. Last but not the least, human capital is the potential carried by the humans in terms of education, intellect and emotion. These brief definitions I presented here are important to digest the next step, which is about the tranfer of these capitals.

Since the invention of money, economic value of each of these five capitals is expressed in terms of money. This is similar to the common unit of Joule for various kinds of energies in physics. So, money is a tool to determine the relative value of something compared to others. Knowing the relative value of each economical item facilitates the exchange of capitals among people and other economical actors such as companies. 

Exchange of capitals is the essence of trade, which is an allowed transaction in Islam and promoted by the messenger of God. However, interest, which is a kind of trade according to some, is not allowed in Islam. In order to distinguish what makes trade trade and what separates interest from trade, it is necessary to figure out the different dimensions underlying these, and other, economical transactions. What are these transactions? 

The listing and classification can be made initially according to what is licit and acceptable versus what is illicit and unacceptable. The first group includes trade, debt, charity, war booty. The second group includes interest, bribe, theft, gambling. However, studying this list and the explanations in the Quran, we realize two other concepts that fall into the unacceptable group: show and abuse. These ten concepts in total make up the big picture of economics according to Islam, and there are some common factors that can be seen upon analysis of the whole set in the light of the teachings from the Quran and Sunnah.

First Factor: Intention

"Trade, interest, bribe, theft and gambling" are what they are regardless of your intention. Your intention in doing them does not affect the status of the transaction. "Charity versus show", "war booty versus gambling" and "debt and abuse" are transactions that depend on the intention, unlike the first group. For example, whether you made charity or show depends on your intention. Whether a war is jihad or gamble, hence licit or illicit, depends on the motivating reason and intention in the war. Consequently, collecting the goods of the enemy after a war can be war booty and halal, or gamble earn and haraam, again depending on the status of the war. Finally, loaning money to someone, for example, can be a temporary transfer of capital from person to person, which is licit, but it could mean oppression if this loan is accompanied by abuse of the situation of the debtor.

Second Factor: Redistribution of Capitals

"Trade, charity, debt and war booty sharing" are the allowed transactions that lead to accumulation and redistribution of wealth through licit ways, hence economic activity, whereas the rest do the same through illicit and unethical means. 

Third Factor: Risky Effort

"Trade, theft, bribe, gambling and war booty" involve risky efforts, be them licit or illicit, whereas "interest, debt, charity, show and abuse" involve no such efforts. For example interest is a guaranteed increase in wealth. Debt is not an investment, because the loaned amount is replaced at the due time. Charity is a give-away without expectations. Show also is the same as charity from an economic stand point. Abusing the situation of the debtor psychologically or economically again is identical of blackmailing.

Fourth Factor: Exchange

"Trade, charity, show, interest and bribe" involve bilateral transfer of capitals, whereas the others are unilateral transfer of capital. For example, trade involves exchange of money in return of goods and services. Charity means a financial capital increase for the beneficiary, whereas it engenders happiness for the benefactor, hence a human capital increase. Interest is an exchange of money and time, which can be interpreted as exchange of financial and natural capitals. Bribe is an illicit act of exchanging financial capital for social capital, since it allows circumventing the barriers due to social constructs, e.g. laws. 

Fifth Factor: Limit

"Trade, interest, debt and theft" have either an exchange of certain amounts or a focus. Namely, trade involves a price for every good and service. Interest is an amount of money for a certain amount of time allowance. Debt is given and taken at the same amount. Thieves don't take everything; rather they target certain things or things of a certain quality. "Charity, bribe, war booty and gambling" involve no limits.

Given these five factors, the big picture of economy is obtained as I showed before, and am giving once again here to facilitate re-thinking. Note that the term charity includes not only zakaat and sadaqah (alms giving) but also other transactions such as mahr and inheritance. This can be inferred through the classification made about charity; it is an exchange of capital without limits and risky efforts. The transactions written in blue are the ones that are licit, and those in dark green are the illicit ones. You can consider this figure as the analog of Periodic Table in chemistry. Of course, this figure that I came up with is not necessarily the only nor the definitive word on the matter, but can shed light on certain issues and help develop better models. 

Verses from the Quran on the Issue:

Those who take unlawful interest will stand before God (on the Day of Judgment) as those who suffer from a mental imbalance because of Satan's touch; they have said that trade is just like unlawful interest. God has made trade lawful and has forbidden unlawful interest. One who has received advice from his Lord and has stopped committing sins will be rewarded for his previous good deeds. His affairs will be in the hands of God. But one who turns back to committing sins will be of the dwellers of hell wherein he will live forever. (2/275)

Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever. (2/276)

O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. (2/278)

And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged. (2/279)

O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful. (3/130)

O you who have believed, do not consume one another's wealth unjustly but only [in lawful] business by mutual consent. And do not kill yourselves [or one another]. Indeed, Allah is to you ever Merciful. (4/29)

And whoever does that in aggression and injustice - then We will drive him into a Fire. And that, for Allah , is [always] easy. (4/30)

And [for] their taking of usury while they had been forbidden from it, and their consuming of the people's wealth unjustly. And we have prepared for the disbelievers among them a painful punishment. (4/161)

And whatever you give for interest to increase within the wealth of people will not increase with Allah. But what you give in zakah, desiring the countenance of Allah - those are the multipliers. (30/39)

They ask you about wine and gambling. Say, "In them is great sin and [yet, some] benefit for people. But their sin is greater than their benefit." And they ask you what they should spend. Say, "The excess [beyond needs]." Thus Allah makes clear to you the verses [of revelation] that you might give thought. (2/219)

O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful. (5/90)

Satan only wants to cause between you animosity and hatred through intoxicants and gambling and to avert you from the remembrance of Allah and from prayer. So will you not desist? (5/91)

O you who believe! do not go near prayer when you are Intoxicated until you know (well) what you say, nor when you are under an obligation to perform a bath-- unless (you are) travelling on the road-- until you have washed yourselves; and if you are sick, or on a journey, or one of you come from the privy or you have touched the women, and you cannot find water, betake yourselves to pure earth, then wipe your faces and your hands; surely Allah is Pardoning, Forgiving. (4/43)

And know that anything you obtain of war booty - then indeed, for Allah is one fifth of it and for the Messenger and for [his] near relatives and the orphans, the needy, and the [stranded] traveler, if you have believed in Allah and in that which We sent down to Our Servant on the day of criterion - the day when the two armies met. And Allah , over all things, is competent. (8/41)

And what Allah restored to His Messenger from the people of the towns - it is for Allah and for the Messenger and for [his] near relatives and orphans and the [stranded] traveler - so that it will not be a perpetual distribution among the rich from among you. And whatever the Messenger has given you - take; and what he has forbidden you - refrain from. And fear Allah ; indeed, Allah is severe in penalty. (59/7)

For the poor emigrants who were expelled from their homes and their properties, seeking bounty from Allah and [His] approval and supporting Allah and His Messenger, [there is also a share]. Those are the truthful. (59/8)