Cooperative Micro-finance (CMF): A Debt-free Mechanism to Create an Enterprising Nation

The world of today had been suffering un-repairable damages due to debt-based economy with risk transferring techniques, which give one an opportunity to gain at the expense of others by diminishing the spirit of eco-democracy thus, fails to guarantee an eco-peace in today’s world of humanity. Such a debt-based mechanism enriches the riches with opportunities while closing the door of poor by depriving them from enjoying with true eco-democracy.

 

To rescue the world humanity from an unjust treatment through debt-based economy CMF a debt-free asset based mechanism with risk sharing technique is timely, which may be among the right alternative moves to day to facilitate a sustainable “Debt-free 3rd World Development with true democracy to peace for all” with result oriented achievement by creating an enterprising and entrepreneur based Nation aiming to have the chance to be self-reliant, matured, esteemed and proud leading to eco-Peace, Progressive and Prosperous in the Contemporary World of advanced socio-economic reality.

 

The mechanism of operation of CMF shall be adapted based on the micro-democratic arrangement with holistic spirit of mutual cooperation, brotherhood and solidarity in view of targeting socio-economic prosperity and peace among all humanity with no issue of one’s religion, race, status, gender or nationality.

 

Harmonizing Modern Financial System With Shari'ah Standard: Possible Mechanisms

The modern financial system had been serving both Muslim and non-Muslim with common benefits. Though some aspects of the Modern financial system are contrary to the principles and spirit of Shari’ah, but several technicalities of it are indeed in harmony with the Shari’ah standard. Because of some issues of modern system contradict the spirit of Shari’ah it may be unfair to generalise the Modern financial system as un-Islamic.

Shari’ah standard of financial system is purely based on the Divine rulings, which do not in reality reject the practicality of some issues or procedures of Modern financial system, so long one is in harmony with the spirit and principles of Divine standard.

Islamic financial system in the contemporary practicality is an able alternative parallel solution provider for global industrial needs acceptable to both Muslim and non-Muslim environments whilst modern financial system stands on its own platform with its standard and services.

Despite this dual system is greatly appreciated and acceptable in the global environment respectively, but leaves some questions and confusions haunting in the mind of generals on the issues justifiably are proven to be non-contradicted. To reduce such queries while creating friendlier movement in the financial industry a 3rd position may additionally be suggested and that is, “Harmonized System”.

The harmonizing of modern financial system to Shari’ah standard can only be recognized on those issues or aspects, which are justifiably proven not contrary to the Divine spirit and the Shari’ah principles per se. Thus, the burden of proof shall be on the modern financial system to ensure its subject matter is in total compliance with the Shari’ah standard. While the Shari’ah justification of such harmonization is on the basis of the principles of Masaleh al-Mursalah (public interest) so long the fact in issue is not contrary to the Divine spirit and standard.

3rd World Development Strategy? 'Cooperative Micro-bond (Sukuk)' may be a discovered-solution

History witnesses that, the World had been dominated by debt-based economy with risk transferring mechanisms. Factually, today the debt-based economy failed to rescue the world with material self-reliant and prosperity. Alternatively, an asset-based economy with risk sharing techniques may be a guaranteed platform to direct the world with economic prosperity ahead.

It is had been a common culture of any nation particularly among the 3rd world countries, relying on borrowing habits towards any form of development be one either private or government’s project, resulting the nation carry the life-long debt curse, which eventually compels the nation and its citizens tying their necks in to paying the price of liability and thus, darkens the future of the nation as an ultimate destine.

To rescue the nation and its people of 3rd world countries, Cooperative Micro-bond is among the right rescuer platforms to discover a way ahead towards creating a debt-free developed nation in the wake of globalization.

A Cooperative Micro-bond scheme is also justified under the broad principle of Shari’ah as a holistic mechanism based on mutual cooperation, brotherhood and solidarity in view of noble achievement and common good for all humanity and creatures as enshrined in the holy Qur’an: “… cooperate amongst you in righteousness and piety….” (5:2).

Cooperative Micro-bond is a discovered strategic mechanism, which enables any nation develops its major sectors by having a debt-free financial power through a holistic cooperative micro-spirit with sharing and caring culture in view of creating a nation self-reliant, progressive, prosperous and proud in this advanced tech-era.

The rational outlook of Cooperative Micro-bond is to make a nation enjoy with a debt-free fund solution required for any project development within the spirit of mutual cooperation, maturity and common sensitivity towards creating a self-reliant nation visioning prosperity. This is among the sustainable promising mechanisms, which may ease the nation from undesirable dependency and debt while moving forward to create an enterprising and entrepreneur based nation as the way ahead in today’s socio-economic and political reality.

In the model and structure of a Cooperative Micro-bond where the government or the private sector shall first identify a sound project requires financing in its development. The project then shall be listed in the project index with accrual value (justifiable required project financing). The total project-financing shall be packaged with shares at a minimum per value affordable to all levels of citizen so to enable them to participate full-heartedly in the national development plan within the holistic spirit of mutual cooperation, solidarity and brotherhood towards common goal of national prosperity. Such move eventually makes them proud through having the profit oriented micro-stake in the national projects. The shares shall be ultimately opened for public for subscription as per one’s ability with affordable equity financing in view of profit making. The shareholders shall hold the opportunity to participate in the secondary market.

In the total management with successful outcome in a Cooperative Micro-bond shall be facilitated by a team force where the government undertake the appropriate policies, securities and effective enforcement. A Project central body shall be positioned in project related decision making. The Project management office, which shall be responsible for the total management and duly operation of the project. The central bank shall be assigned in issuance of ordinary bond (profit-sharing in equity financing) with limited liability as per the central guidelines while a credible bank shall be authorized to manage the total project funds besides managing the share certificates issued in the name of the central bank as per project directives.

An audit and compliance unit shall be established at both central as well as management levels to ensure the total compliance in all aspects of the policies, project, funds and the management. A special unit shall also be established comprising of several experts to advise the project board so to facilitate them in making appropriate policies and decision. There shall other vital units be established under the management office, among them are intelligence unit, which shall undertake the total risk management and attractive income oriented business plan of the project. The project management office (PMO) shall be designed under the management office, which shall be responsible for the total development of the project with successful result. For the continuing maintenance of the entire components of the completed project a project maintenance unit shall be established under the management office. 

In other word, the total discipline, management and operation in a Cooperative Micro-bond arrangement shall be centralized with regulatory action, but with separation of power, assignment and due accountability.

The issuer of Cooperative Micro-bond shall be the Central bank in terms of capital guarantee (in its capacity as the fund guarantor) to the subscribers while the fund management bank shall hold the total accountability (in its capacity as the fund manager) to the Central bank for the fund release as per the Central bank’s guidelines and subsequently the Project board shall be the end accountable (as the Principal liability) for the right management of the fund.

The total investment in the Cooperative Micro-bond scheme shall be treated as conservative Public fund by empowering neither capacity for the government nor any party to influence over or misuse the fund, which shall be strictly regulated by the standard policy and be closely audited by the Audit and Compliance Unit at both Central as well as Micro-levels.
To protect the subscribers against any unexpected risk on their fund shall be ensured by a compulsory project Insurance policy to be purchased in the name of the Project board.

Among the sectors may potential be included for development with the funding facilities under the Cooperative Micro-bond scheme are public, private or semi-government projects namely: highways, bridges, power plants, water supplies, gas supply, mono-rail, industrialization, digitalization, refineries, tourism spots and other commercial oriented mega projects.

Subscribers in the Cooperative Micro-bond scheme may be any one regardless of one’s status, background, gender, nationality or religion so long one participates with the share price at per value. The per value of shares shall be nominal affordable to all categories of people so to give an opportunity to participate in the national development mission besides having the chance to participate in the share market in view of possible legitimate money making. The shares shall be allowed to be traded in both the primary as well as in the secondary markets so to enable the Project to be rated highly with gradual effect.

 The total net income of the project under Cooperative Micro-bond scheme may be suggested to be distributed as: 60% for the shareholders as dividends; 20% shall be allocated for the continuing maintenance of the project; 10% shall be reserved in a special security fund (SSF) in view of contributing to the settlement of the national debts and; 10% shall be reserved in to a project foundation account (PFA) for the possible humanitarian services.

 Among the general benefits for the government in the Cooperative Micro-bond scheme are: the sustainable support to the national development scheme, all categories of standard taxes to be imposed over the project income at its all components, creating a nation with utmost cooperation and maturity, political gain through a smart government’s policy and; internally popular for moving towards a debt-free self-reliant developing nation with smart planning.

 It is indeed submitted that, a Cooperative Micro-bond scheme is a new dimension designed in view of rescuing the 3rd world in particular from being hanged with debt, while discovering a way ahead to develop the nation with debt-free cooperative micro-bond based on holistic principles of cooperation, utmost care and concern leading to make the nation self-reliant, peace, harmony, progress, prosperity and proud in the modern reality.

3rd WORLD DEVELOPMENT STRATEGIES? a "Debt-Free Mechanism".

"Cooperative Micro-finance" & "Cooperative Micro-Bond" may be among the right alternative Moves to facilitate a Sustainable “Debt-free 3^rd World National Development” with result oriented achievement by creating the Nation and it’s People Self-reliant, Matured, Esteemed, Peace, Proud, Progressive and Prosperous in the Contemporary World of advanced Socio-economic Reality.

Disapproved Conducts in Cooperative Micro-Finance

Shari'ah Directions to Business Conduct......

What is disapproved business conduct? It is the absence of any or all f the aforementioned constituents in one’s business conduct. Generally speaking, Islam prohibits all such transactions which results in litigations; which depend just on chance and speculation; those in which the rights of the contracting parties are not clearly defined; and which enables some to amass wealth at the expense of others.

No matter what the form, the essence of disapproved business conduct comprises unjustified consumption or appropriation of other’s wealth and right. This is exactly what Al Qur’an has strictly forbidden by calling it either akl bi al-batil (unjustified consumption) or zulm (injustice). Since injustice lies at the root of all undesirable business conduct, therefore all the Qur’anic injunctions focus on the elimination of this basic evil. In some cases the injustice may not be apparent, yet it is always there. In order to nip the evil in the bud, Islam seeks to block all those channels that eventually lead to injustice. For the purpose of elaboration, it is proposed to divide the subject into three main categories; namely , (a) riba, (b) fraud, and (c) other disapproved practices.

RIBA

 Riba literally means increase or addition. Technically, it refers to the addition in the amount of a loan in consideration of the time for which it is advanced or of the time for which the payment of loan is deferred. Juristically, however, riba signifies the additional money that is given or taken in a dollar-for-dollar exchange and uncompensated increase on one side when a commodity of the same kind is bartered.

The jurists have divided riba into two categories, which are riba al nasi’ah and riba al fadl. Riba al nasi’ah also known as riba al-jahiliyyah is the one expressly prohibited in the Qur’an while riba al fadl was prohibited by the Prophet (p.b.u.h) in order to block all channels of riba’.

It is the additional amount sought on loan, usually on the basis of time. This addition, irrespective of its rate or percentage, is the riba prohibited by Al Qur’an. It makes no difference whether such a loan was sought for the purpose of consumption or that of investment. Riba al fadl occurs in bartering commodities of the same kind without equality in their quantities.

Basically, the process of riba enters when someone adds or demands an addition from the same quantity. In order to get clear understanding of the meaning of riba, let us consider the following ahadith and the opinion of the great authorities of Islam.

Any loan that brings profit is riba. (Hadith) Anyone who recommends a person and then accepts a gift from him has committed riba. (Hadith) Acceptance of a gift from one’s debtor is riba (Ibn Mas’ud) 1.Eating in the house of one’s debtor is haram ( Hasan Al Basri)

Danger in Riba

 Riba is definitely involves unlawful consumption of other’s wealth. It is, therefore, abhorrent and evil. According to Sayyid Qutb, riba is evil because the lender receives an additional amount over and above his capital, “extorted from the labor or flesh of the debtor”. Riba is directly opposed to the cooperative spirit of Islam. A wealthy person is required to pay off the right of the poor attaching to his wealth by paying the zakat due thereon and the supererogatory sadaqat in addition. Mawdudi has enumerated the following vices of riba:

(i) It gives rise to greed, excessive parsimony, selfishness, hard-heartedness, tyranny and money worship.

(ii)  It promotes hatred and enmity instead of sympathy and cooperation.

(iii)  It encourages hoarding and accumulation of wealth and discourages its direct investment in productive enterprise. Investment, if ever made, is invariably focused on personal gains and in total disregard for the needs of the society.

(iv)  It prevents the circulation of wealth by concentrating it into the coffers of the capitalists. Riba is danger because it contradicts the vital principle of al-ghurm bi al-ghunm (i.e liability must go hand in hand with advantage). Even from a purely economic standpoint, riba is plagued by several disadvantages.

According to Anwar Iqbal Qureshi, interest is the fountainhead of all economic evils and is responsible, by and large, for the concentration of wealth.

FRAUD

al-Qur’an disapproves of fraud and cheating in whatever form they might be. Cheating is described as the predominant characteristics of the hypocrites for whom the Islam requires its adherents to be honest and trustworthy. One who is intent on resorting to frau and cheating does not deserve to be counted a genuine member of the Muslims ummah despite one’s verbal assertion of being a Muslim. Some specific forms of fraud expressly prohibited by Al Qur’an and the Hadith are discussed below.

Tatfif  (Engaging In Fraud)

Tatfif literally means stinting, scrimping and niggardliness. A mutaffif is he who diminishes from the due share of others for whom he measures while paying to them or receiving from them.

The term is used in Al Qur’an with special reference to the practice of diminution in weights and measures, thereby depriving others of their due rights. Al Qur’an warns and condemned those who give short weight and measure to others and receive from them in full and promised a severe punishment.

Some scholars, like Yusuf Musa maintains that a worker who does not do his work sincerely and efficiently is a defrauder, cheater and dishonest person. In other words, the worker who receives his wages in full but does not perform his duties honestly and efficiently is also denoted as mutaffif.

Dishonesty

Dishonesty is one of the worst forms of fraud. A dishonest person is always prone to defraud others whenever and wherever possible. Islam forbids any misuse or misappropriation of an employer’s property by his employee, who is entitled to the mutually agreed wages only.

 Appropriation of anything beyond the stipulated wages is either dishonesty or stealing, both of which are expressly prohibited.

Falsehood and Breach of Pacts or Promises

al-Qur’an is strongly opposed to falsehood. False assertion, unfounded accusations, concoctions and false testimonies are severely condemned and strictly prohibited.

al-Qur’an curses the liars and the Prophet (p.b.u.h) describes lying as one of the three signs of a munafiq. Falsehood is harmful in everywhere and in every case. In the realm of business, its damaging effects are enormous and can never be overemphasized.

Misstatement about merchandise not only harms the customers but the producers and traders as well. Dependability of the product and reliability of its trader play a key role in the establishment and enhancement of any business concern.  Prophet (p.b.u.h) also prohibits al-najsh, the practice of offering a higher price with intention of persuading others to raise their price offers.

Clearly, falsehood and deception are condemned in all their various forms. Breach of one’s pacts and promises is another evil practice strongly opposed by Islam.

Poverty Eradication through Micro-Public Fund (Zakat)

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Poverty Eradication Scheme? the Micro-Public Fund (Zakat) is the Leading Solution...

Oxford Dictionary defines ‘Poverty’ as being poor, great lack of money or resources, scarcity or inferiority. Others define it as disadvantaged, low income, poor or less developed. These conventional definitions do not seem to differ or vary from that defined by al- Ghazali who gave meaning to poverty as a state of not being able to satisfy one’s needs which are basic in nature.

Poverty to day, is no longer viewed only as a mere economic issue, but also is a complex social and political concern that is yet to be successfully solved universally. The concept of poverty is viewed in the context of society as a whole where it persisted in every community around the world but the extent or degree in which it affected human race varies from one society to another.

Even though it is prevailing throughout the world, poverty has always been ignored and is closely associated with disbelieve (kufr). As said by Prophet Muhammad SAW: “Poverty might lead a person to disbelief”, further clarifies the intensity of this situation. Thus, the Holy Quran cannot emphasis more on the poor and needy as commanded by Allah in Surah An-Nisaa, Ayah 8:

 واذا حضر القسمة أولوا القربى واليتامى والمساكين فارزقوهم منه وقولوا لهم قولا معروفا

“But if at the time of the division, other relatives, or orphans, or poor are present, feed them out of the (property), And speak to them words of kindness and justice”.

 A report states:  "Poverty is a multidimensional phenomenon, encompassing inability to satisfy basic needs, lack of control over resources, lack of education and skills, poor health, malnutrition, lack of shelter, poor access to water and sanitation, vulnerability to shocks, violence and crime, lack of political freedom and voice.

The numbers show little progress in reducing income poverty over the last decade--impressive gains were made in East Asia before the crisis hit, but have been partly reversed, and little if any progress took place elsewhere--and a large majority of poor people said they were worse off now, have fewer economic opportunities, and live with greater insecurity than in the past."

CLASSIFICATION OF POOR AND INSUFFICEINCY OF INCOME

Poverty in Islam is concerned with insufficiency of income and the inability in fulfilling basic human needs. One is considered poor if he does not possess sufficient necessities to fulfill his basic needs.

Therefore, poverty can be interrelated to two basic classifications of poor, which are faqir who are the needy, and miskin who are the poor, as identified and understood in Islam. Faqir is defined as someone who can only satisfy less than half of his basic necessities while miskin is a poor man who can satisfy half or more of his basic necessities, but is still below the minimum requirement of basic necessities required.

Prophet SAW said (about those defined as miskin): “He who does not get enough to satisfy himself, and he is not considered so, so that charity may be given to him, and he does not beg anything from people”.

There are no distinct techniques to measure poverty, as it is always associated with some level of income required to provide for the basic human needs. This human needs refer to the right of food, clothes and shelter as pronounced by the Prophet SAW that are to be identified and met in order to sustain a minimum standard of living.

The poverty line or income level, which serves as an indicator to identify whether a person is poor, is useful where a person is considered poor if his income is below poverty line income.

FACTORS CAUSING POVERTY FROM ISLAMIC PERSPECTIVE

THE NATURE OF MAN

Man is the essential element in any society thus; any problem related to the society must have something to do with individual because it is his actions on the ethical aspects that affect others as a whole.

One of the many reasons poverty persists in any one community is because of the widespread existence of income inequality and unjust wealth distribution. It is due to man’s narrow-mindedness and selfishness as well as ignorance for a collective life has made man a slave to things, which are material in essence.

In fact, poverty is caused by man’s deviation form divine teachings in which he practices unlawful things and the man-made problems such as injustice, laziness, selfishness, dictatorship, fraud, cheating, monopoly practices, speculative hoarding and oppression that with each passing day, making the poor getting poorer and the rich getting richer.

ان الله يأمر بالعدل والإحسان وايتاىء ذى القربى وينهى عن الفحشاء والمنكر والبغى يعظكم لعلكم تذكرون

“God commands justice, the doing of good, and liberation to kith and kin, and He forbids all shameful deeds, and injustice and rebellion: He instructs you, that ye may receive admonition”. (16:90).

Mismanagement and  misallocation of funds happening today as a result of so much power in the hands of the elite, who maintain the status quo at national levels is the rationale for the existence of an income gap between the poor and the non-poor.

There are also corruptions and bribery, or the misuse of public power and resource for private benefit and profit by officials such as politicians and policy makers in which they enrich themselves through the misuse of power entrusted to them. Negative attitude, easy access to money as well as deficiency in democratic government initiates corruption and provides an ideal condition for corruption to prevail. Accumulation of wealth by the rich people will therefore hurt the common people as they are left out and the public interest is further disturbed.

Islam promotes just distribution and ethics in everything we do. Those practicing corruption should be penalized for their inefficiency and those who are efficient should be reward for their creditability.

FUNCTION OF GOVERNMENT AND MARKET FAILURE

The government is established as a protector for the public interest. It means that, government will only see to it if there exist to be a market failure in the economic activity. However, there seem to be an interruption in the economic balance when the government is no longer protecting the public and is applying free trade thus causing massive competition to develop.

Government especially in the third world countries tends to borrow from international donor organization such as the IMF, which in turn requires the debtor country to export their production instead of for local circulation. This will have a severe impact when the prices go up, food subsidies are eliminated, basic services cost such as electricity increased and health and educational funds vanish.

In addition to the said government’s failure, inadequate access to employment, lack of physical assets such as land and capital to be owned by the poor, lack of means of supporting rural development in poor region, inadequate access to markets where the poor can make trade, low endowment of human capital and the destruction of natural resources leading to environmental deprivation as well as reduced productivity are merely some of the causes of poverty in light of the function of the government.

Consequently, poor governance and market failure are two aspects, which should be properly addressed to attain justice in the economic activities, which will help in poverty eradication.

POVERTY ERADICATION IN ISLAM

As Muslims, we are to approach poverty like any other problems faced by our society, in accordance with the Islamic teachings and way of life. It is the concern for the poor, which leads us to address their needs through many approaches, instruments and government policies.

 Elements of Poverty Alleviation

It is identified earlier that poverty is a result of diverse factors and therefore has different dimensions in which it would be implemented. These elements are the individual and society’s role in eradicating poverty as well as the government’s role.

Individual and Society’s Role.

As vicegerent of Allah on this Earth, we to live a moderate lifestyle in such a way that we fulfill our material and spiritual needs simultaneously. Islam recognizes differences in individual human potentials because each is endowed with different types and levels of abilities.

Therefore, man is to earn his living according to his capacity and ability as that said by Allah (swt) in the Holy Qur'an (Al- Jumu’a: 10).

It is therefore, the public duty of individuals and society to focus on integrating the Islamic principles, moral and ethical aspect in our daily life, as well as the response from the society about poverty, regardless of involvement of the Government. In other words, the strategy to combat poverty is through harmonious equilibrium in development and Islamic ethical values. There should also be fundamental changes at both the management and policy level, and change in individual character to be more inspired, efficient and selfless individuals in any society.

The Prophet also mentioned the importance of earning an honest living in his many hadith. One of them is reported by Al- Miqdam, who quoted the Prophet saying:

 “Nobody has ever eaten a better meal than that which one has earned by working with one’s own hands”.

ISLAMIC STATE’S ROLE

The Islamic EconomIC approach and Significance.

Creed and Islamic Economy

The basic creed that promotes Islamic economic behaviour evolves from the Islamic concept of God, Allah, with attributes ascribed to Him – Al-Malik (the absolute Owner of All), Al-Rahim (who gives blessings and prosperity, particularly to whom use these gifts as he has permitted), Al-Muhaymin (watches over and protects all things), Al-Wahhab (donates all things to His creatures, even to non-believers), Al-Fattah (opens the solutions to all problems and eliminates obstacles), Al-Razzaq (the Provider of all things that are beneficial to His creatures) and so on.

The Divine attributes do not only have metaphysical significance; a firm belief in them acts as a powerful source of inspiration and guidance in economic pursuits and planning.

These attributes have been described through the Quranic verses and Hadith to construct a mind and guides individual behaviour in a direction, which truly reflects firm belief in Allah’s Unity, Tawhid. Without this firm belief the Islamic economic system and the whole life, falls prey to inconsistency and discord.

How do beliefs in this attribute influence economic attitude? A firm belief in the divine attribute of the Provider eliminates insatiable lust for amassing wealth through unlawful means and cools down impatience. It dissuades from unhealthy competition and egotism.

It relieves tension and anxiety and unhealthy reaction in the event of poor for one’s effort. A firm belief in the divine assurance:

‘Whosoever fears Allah, Allah will appoint a way out for him and will provide for him from (a quarter) whence he has no expectation’ (65:2, 3).

It is not only discourages one from becoming avaricious and resorting to unlawful earning but also plays an important role in guiding policy-makers and planner to cast off the capricious fears of loss due to abolition of unlawful institutions and undesirable policies and programmed.

A firm belief in his attribute, Al-Razzaq, as expressed in the verse: ‘Slay not your children, fearing a fall to poverty, We shall provide for them and for you. Lo! The slaying of them is a great sin’ (17:31), would inspire the policy-makers to be restrained, barring exceptional cases, in launching on economic grounds a country-wide campaign for birth-control, which often provides a refuge for the morally corrupt. Similarly, belief in the Divine Wisdom of unequal distribution of wealth (4:32) shuns class antagonism and persuades the well-to-do to share their fortune to the poor, thus reducing the distance between the haves and haves-nots.

As a conclusion, firm belief in divine attributes not only has a far-reaching influence on the general attitude of the individual, it also touches economic enterprises, policy-making and planning. Without such firm belief practicing the Islamic injunctions poses formidable difficulties and leads one to impracticable compromises, which result in dualism and hypocrisy.

The Government’s Role towards Poverty Alleviation

 Poverty, Employment and Growth

The economic resources of this world belong to Allah who gave them to mankind to benefit from them. So, the duty of man is to properly utilize them for the welfare of society. This world entail:

1. the full and efficient employment of all human and natural resources,
 2. the alleviation of poverty and fulfillment of basic needs, and
 3. the optimum rate of economic growth.

The objective of the alleviation of poverty, the full employment of resources and optimum rate of growth can only be achieved by the active participation of government.

The Islamic government should not leave the allocation of resources only to the blind market forces because; being an impersonal entity, the market may not take care of the total welfare, especially of the poor, of the society. Government should play a positive role in the economy through pragmatic planning and by providing necessary physical and social infrastructure.

The government must invest in this sector since private entrepreneurs may not find enough incentive to invest because of the heavy investment requirement and small monetary return realized over a long period time.

In this case, government investment should be channeled into the improvement of highways, dams, bridges, the construction of irrigation networks, airports, telecommunication services and the provision of other facilities, which would bring about external economies to the different sectors of the economy.

So, Islamic government has a great responsibility to eradicate poverty, fulfill basic needs and improve the living standard of the people. If it fails to do so, the Prophet’s (s.a.w) warning should remind them:

“Whom Allah has made administrator over the affairs of Muslims but remain indifferent to their needs and poverty, Allah will also be indifferent to his needs and poverty.”

Establishment of Equitable Distribution of Income and Wealth

The establishment of an equitable distribution system calls for certain governmental functions, such as:

 i)               the provision of training and rendering assistance for gainful employment to the public. A variety of technical training programs may be launched to assist the unskilled labor force of the less developed countries,

ii)             the government should enforce a just remuneration system so as to fairly distribute the generated income among the factors of production,

iii)           the arrangement of a social security system based on zakat and other charitable revenues. They would serve as insurance to the unemployed, handicapped, divorcees and other needy members of society.

As basic necessities are provided, the national wealth circulates among the members of the community. This is why Islam makes it obligatory for the government to guarantee the provision of basic needs to all. If the existing fund is not sufficient, government has the right to pull resources from the rich in addition to the obligatory dues to guarantee basic needs to each and every one in the society. Ibn Hazm calls for the extra levies on the rich to fulfill the basic needs of the destitute of a society. He says:

“The rich of every locality are obliged to manage the basic needs of the destitute living in it. If the wealth, stored in Baitul-Mal, is not adequate to meets the wants of the indigents, the head of the state may compel the rich to contribute by imposing extra levies on them.”

Government should play a great role through monetary and fiscal policies in reducing the disparity between the haves and have-nots. These policies should be geared towards the benefit of the poor.

It is also one of the responsibilities of an Islamic government to differentiate between the deserving and undeserving of the national help. In this case, government should invest in the social overhead capital such as education, healthy and other infrastructural development so that the poor may benefit more than the rich.

Islam strongly encourages the rich to spend for people in the lower income group over and above compulsory payments so that wealth trickle-down among the various classes of society. In this context, the principle is that the more one has, the more responsible towards providing the poor one is. Allah (saw) says:

....ويسألونك ماذا ينفقون قل العفو...

“And they ask you how much they are to spend; say: what is beyond your needs.”

There are compulsory measures of distribution which also heavily contribute to the reduction of inequality among the people.

The institutions of Zakat, tithe, sadaqatul fitr, inheritance, bequest etc. come under this category. In these cases, one has to dispose one’s wealth to one’s fellow-beings whereby have-nots become better off. Mutual gifts, endowments and other optional charities, on which Islam places a heavy emphasis, also reduce the disparity between the haves and the have-nots of society.

Taxation in an Islamic Economy

The classical Islamic scholars also gave justifications for taxation as a major of sources of government revenue in an Islamic state. This has been supported by Imam Malik:

“If there were no funds in the treasury or the need of the army increased above the capacity of the treasury, the state has the right to levy taxes on the rich up to the level that satisfies the need immediately and until the revenues of the treasury appear.”

Islamic government should make sure that the imposition of taxes does not the kill work incentives of the tax payers. It must carry out some research to find out which particular rates and types of taxation are the most suitable to maximize government revenue in the economy. There should not be any injustice involved with taxation policy in an Islamic state.

Although Islamic state has the right to impose taxes on the poor it should try to minimize their tax burden in general. The bulk of tax revenue should come from the rich of the society because, they are economically more capable to contribute towards revenue collection than the poor.

This is why suggestion has been made that the Islamic state should minimize indirect taxes, which are normally borne by the poor and concentrate on the direct taxes, which are usually collected from the rich.

Islamic Bullion Bank with Cooperative Model? a brain child idea.....

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Islamic Bullion Bank (IBB) is designed (at brain child idea) to offer money market by Gold Diner, global Asset (gold, silver & diamond) management, global Sukuk issuance, global capital market, Cooperative micro-finance, islamic micro-credit @ al-Rahnu & global equity (gold, silver & diamond) management in accordance with the standard Shari'ah principles. The Risk management of all these services shall be by Takaful providers.

The prime objective of IBB is to provide an effective Gold, Silver & Diamond management for the global Ummatic benefits in the spirit of Shari'ah by having not only commercial gains, but also added opportunities with socio-cultural, political-global and spiritual significance.

Furthermore, through the successful establishment and operation of IBB, the depositor / owner of asset (gold, silver or diamond) may not only hold the certificate of safe keeping, but also grand opportunities in legitimate profit making besides cooperating others towards required financial supports for the project developments, establishment of businesses & needed facilities.

For example: IBB may offer any guarantee with standard financial instrument backed by the ready asset in custody (gold, silver or diamond) to the party who requires financial support for the project, business or facility. A financing bank will offer the facility based on the IBB's issued instrument to effectively support the party towards one's end result. Through such a holistic cooperation, all four parties (including the owner of asset) will have the chance to share income in the project as per mutual understanding. Moreover, IBB may also be able to issue Sukuk guaranteed by the ready asset, participation in the equity market and other global opportunities, to generate income over the deposited asset, which will ultimately befifit not only IBB, but also the owner of the asset coplying the Shari'ah principles of profit sharing technique. In all circumstances the risk shall be minimized by the relevant Takaful coverage.
Though the brain child architecture of IBB of my humble effort had began its structure since 2002 and now may be the right time to be established as the first of kind in today's world of reality.


The establishment of IBB may open up long waited opportunities for all through the centralized management of gold, silver & diamond aiming a discovered effective benefit for the global Ummah, EnSha ALLAH (swt).


It is further clarified here that, though IBB has not been established yet in its capacity as an Islamic bullion bank with operation, but ready with its architecture by conceptual frame works, management structure, Shari'ah regulatory structure, products structure, strategies, Shari'ah instruments, business prospects, lead partners including investors, market zone & operational mechanisms, which may lead to formalization & operation effectively (all are depending on the fulfillment of legal requirements, approval by the relevant authorities & endorsement by the government concern) EnSha Allah (swt).