1- Worldview determines reality, truth and values of existence.

Discuss how Islamic economic principles and policies are formulated in the context of the Islamic Worldview. Solution. Define world view The secular world view The Islamic world view o Tawhid, khliafah and adoah What are the Islamic economic principles and policies o Zakat, Waqf, Takaful, Link them to the Islamic world view Sources o Islamic and the economic challenge - pg 200 to 240 o Chapter 2 of hand book

Every being, society or system is dominated by its own worldview which is based on a set of implicit or explicit assumptions about the origin of the universe and the nature of human life. This worldview controls, in the words of Arthur Lovejoy, "the nature of man's reflections on almost any subject". This phenomenon determines the reality, truth and value of existence, the prevailing economic system is built on the worldview that is secular, materialist and individualistic wherein there is a separation between religion and other aspect of life and less concern with the hereafter. On the other hand the Islamic worldview has its root in the Shariah from which it derives its worldview and its predicated on the concept of human well-being and good life which is the utmost importance of brotherhood and socioeconomic justice and requires a balanced satisfaction of both the material and the spiritual needs of all human beings. Furthermore, the Islamic world view belief that all human beings are equal in being God's vicegerents on earth and His dependents, and cannot feel inner happiness and tranquility until the real well-being of all has been attained through the satisfaction of both spiritual and material needs.

The Islamic economic system is base on 4 principles which are 1. All wealth belongs to ALLAH: 2. The community is the trustee of the wealth 3. Hoarding of wealth is prohibited 4. Circulation of wealth is a duty. These principles are formulated base on the understanding of tawhid (unity of ALLAH), khilafah (vicegerency), and 'adalah (justice) which are the core principles of the Islamic worldview

Tawhid: This is the foundation of the Islamic faith upon which the every other principle derives it bearing same for all the economic principles and polices which recognize the existence of ALLAH as the Supreme Being, Who is One and Unique, and did not come into existence by chance or accident. Thus everything originates from Him and all economic principles must be in line with His dictates. Khilafah: Human beings are the representatives of ALLAH on earth and have been endowed with all the spiritual and mental capabilities as well as material resources to formulate policies that will benefits the entire mankind. Adalah: The establishment of justice and eradication of all forms of injustice have been stressed by the Islamic faith and all human being must be just.

To drive the principles mentioned above, Islamic economics policies such as listed below are all aimed at enforcing the principles in line with the Islamic world view. These policies/concepts includes but not limited to: 1. Zakat: This discourages hoarding of wealth and ensure circulation of wealth. 2. Wafq: This ensures that the community is the trustee of the wealth 3. Takaful: This encourages this principle that all wealth belongs to ALLAH and communal co-operation within the society. In the light of the above the Islamic economics through its policies and principles ensures that all human being are equal and must be treated equally, its not a case of survival of the fittest but rather mutual sacrifice and cooperation to fulfill the basic needs of all, to develop the entire human potential.

The earths resources are seen as a trust, and must be distributed equitably. This ensures that people live a humble life style devoid of arrogance, pomp and grandeur, or moral laxity. Such life-styles lead to extravagance and waste and result in unnecessary pressure on resources, reducing a society's ability to satisfy the needs of all. Human freedom is guaranteed through these policies and principles. This does not imply that human beings are free to do anything they want. They are subject to the Shariah, which aims at the well-being of all by subjecting everyone to a discipline. This ultimately ensures that the needs of the people are met, they have a respectable source of income, and there is equitable distribution of income and wealth which ultimately lead to growth and stability on the economy and the human race.

2- Critically discuss the economizing problem from secular perspective and show how Islam solves such problem. Provide some examples. Solution. The problem of scarcity Unlimited wants Choice Sources o Chapter 1 of hand book o Presentation slides

From the secular perspective, economics is defined as the social science that studies the allocation of scarce resources to satisfy unlimited wants. Thus from the secular point of view the economizing problems are: 1. The problem of scarcity: This implies that as of any moment in time, all resources used in the production of goods and services are finite and limited in amount. For example the raw materials required to produce bread is limited. 2. Unlimited wants: This implies that from the supplies end there is need to maximize their profit, while from the demand end people needs new designs. For example in the telecommunications world the supplier of phones wants to make maximum profit at all cost and the consumers (demand) are increasingly looking for new and improved phones to communicate. Thus the supplier will go to any length to produce the phone and make maximum profit exploit the wants of the consumer. 3. Choice: This implies that scarcity of resources requires choices to be made, at any cost, in order to satisfy human desires for maximum profit and maximum satisfaction of wants. Islamic economics can be defined as the study of social science which enables people to perform their obligation to Allah and to their society. The study of Islamic economics studies Man not only as an isolated individual but of a social individual having faith, ethics (believing in the six articles, his deeds is accountable to Allah as it is guided by Shariah), he is also required to propagate good doing and prohibit bad doing al-Amr bil Maruf wa al-Nahy anil Munkar in the society (watch his business ethics). Below are the ways Islam responds to the economizing problem.

1. The problem of scarcity: ALLAH Has created resources in abundant; however resources in the eyes of man are scarce and limited due to lack of means to reach these resources which is the result of mans choice such as lack of knowledge, skill, greed, etc. The fact that the resources are abundant and not scarce is explained in Quran 15:21 wherein ALLAH says And there is not a thing but its (sources and) treasures (inexhaustible) are with Us; but We only send down therefore in due and ascertainable measure. However due to greed, monopolization, injustice and mal-distribution these resources a seen to be scarce. In an Islamic driven economy which is devoid of these anomalies, the problem of scarcity would not arise because the resources would be distributed with fairness, justice and there will be no room for monopoly. Examples are bounds where producer of goods will create artificial scarcity by destroying surplus goods to artificially inflate price by creating scarcity. In an Islamic economy this will not be the case and it will never happen. 2.Unlimited Wants: Islam recognizes that human desires/wants are unlimited. However, in an Islamic driven economy the basic desires/wants of mans is cleared stated in a Hadith of the Prophet (SAW) that: The human have right to three things water, green pastures and fir-base fuels (An-Naar). This basic desires/wants will be provide to all and sundry in an Islamic economy. 3.Choice: The acceptance of Islam by the Muslims means a complete submission to the will of ALLAH; this includes their choice to life. Thus from economic point of view choice must be accompanied by the concept of ethics and must be ranked according to the need fulfillment and not to greediness and selfishness. This fulfillment is of the basic needs for food, clothing, shelter, medical care and education. Once this basic are met choice is not a problem within the Islamic economic space because these are the basic things the government must provide.

3- Self interest maximization is not a relevant source of motivation in an Islamic economic system. Discuss the validity of this statement. Solution Source o Chapter 5 handbook o Chapter 7 Islamic and the economic challenge

In Islam, contrary to popular opinion, self-interest is not negated. Islam, in fact, considers it as a primary factor in its incentive/motivation system; a necessity in any organized society if the individual is to find it utility maximizing to follow behavioural rules prescribed by the system. Provided that self-interest is defined to cover spiritual and temporal, or temporary and eternal, all rules in the shari'ah carry with them their own justification in terms of individual self-interest. It is for his own benefit, material and spiritual, in this world and for his ultimate salvation in the next that the individual is invited to follow the rules of the shari'ah. This is made amply clear by the Qur'gn in which all injunctions are generally coupled by the assertion that compliance with them by the individual is for his own benefit. Often the incentive and the rewards, both here and in the hereafter, for compliance and the retributions for non-compliance are enumerated. It is in pursuit of self-interest that individual obligations and rights as well as the limits to these rights are specified by the shari'ah. Unless individuals are properly motivated, no system can realize either efficiency in resource use or equity in distribution. To motivate individuals to render their best and to utilize the scarce resources with maximum efficiency, it is necessary that their self-interest be served by doing so. Socialism was nave and unrealistic when it expected individuals to work efficiently even though it deprived them of the opportunity to serve their self-interest. It therefore failed. Capitalism was also unrealistic when it assumed that self-interest and social interest would always be in harmony. Its secularism and this-worldly perspective did not provide any mechanism to motivate individuals to serve the social interest when this was in conflict with their self-interest.

It is not possible to motivate individuals to be both efficient and equitable unless a moral dimension is injected into their pursuit of self-interest so that social interest is not jeopardized

even when it is in conflict with self-interest. However depending primarily on sermons to motivate all human beings to conform to moral values would again be unrealistic. It is necessary to reinforce moral values by socioeconomic restructuring such that the individual does not find it possible to serve his self-interest except within the constraints of socio-economic justice.

4- Discus how the Islamic economic approaches to poverty eradication can be more effective than the conventional approaches. Solution Sources o Chapter 8 (pg 280) Islamic and the economic challenge o Chapter 12 and 13 o Poverty alleviation by duki

In Islam there are essential five groups of activities and things which make up human needs; these are Religion, Physical self, Intellect or Knowledge, Offspring, and Wealth. The fulfillment of these needs is considered as one of the basic goal of Islamic religion and the Islamic economy. Hence, poverty in Islam is related to these basic needs. One is considered to be poor if he does not possess sufficient necessities to fulfill his basic needs in each of the five foundations for good individual and social life. Furthermore Islam defines two categories of poor, namely the poor and needy or destitute. The former are those who do not possess the necessities, whilst the latter implies those whose level of necessities do not reach half of that of the poor. It is the destitute or the so-called hard-core poor who should receive more attention. The distinction between the poor and the destitute has been very clearly defined for the development of a proper approach to poverty eradication in Islam.

In the conventional economy poverty is seen from the view point of basic human need which are considered to be food, cloth and shelter, and there is no distinction between the poor and needy and or destitute it is in the Islamic economy, thus the approach to solving these problems of poverty are different. In the conventional approach generally speaking, there seems to be three distinct approaches to reduce or eradicate poverty. The first can be described as the sectoral approach where the depressed sectors were identified to receive massive development programmes mostly in the form of infrastructure construction. The second approach may be described as group oriented. The poverty groups began to be clearly identified and their profiles in terms of household income, household size, occupation, education level become well documented and they try to make provision towards alleviating their poverty. The third approach is probably more aptly

called the individual approach, where the economic unit is reduced to household. This approach requires the identification of each and every poor household in every location.

Islam has a holistic and developmental view to poverty eradication as oppose to transfer of resources to the poor which is the conventional approach, thus the reason why the Islamic approach is more effective. Islam advocates a developmental approach which enables the poor to use his skills in order to earn a living, and be independent of society. Of course this is true only with the able-bodied. However, for the invalid, the old and the underage, Islam provides sufficient stipend for the year, so that one can meet all his needs. The stipend comes from Bait al-Mal or Public Treasury which draws its resources from zakah, and other taxes.

In the development and implementation of this poverty alleviation programs, Islam makes a clear distinction between the poor and the destitute, this distinction is necessary to set the priorities as to which group among the poor should be given attention first, and in reality the destitute are given prior attention. To ensure that the poverty alleviation programs are well funded and executed, Islam has provided different sources of funds for the poor which are zakat, Charitable Trusts or Endowments (Al Awqaf), Gifts (Al Maniha), Spoils of War (Al Ghanimah), Treasure (Rikaz), Obligatory Maintenance By Relatives. All of these put together ensure that there are funds to drive and implement the poverty alleviation program in Islam. On the contrary, in the conventional approach there is no statutory sources of funds to drive the implementation its funds made available by NGO and some corporate bodies which are not constant and forth coming as at when required.