Economics and Islam; Interest Rate and Zekat

Economics is the study of human behavior. Why? Because we can use and see economics in the every aspect of our life. From small grocery store to big shopping mall, from one house-wife to CEO we can see that. But Is it only for concrete things? I don't think so. Economics are in the religions, beliefs, traditions. In this short article, I'm going to explain the two basics of Islamic economy which are prohibition of Interest Rate and Zekat (alms giving).


If you think that `oh, what the hell? Terrorists and Economy?` please stop reading, go away and live with your stupid stereotype.

Islamic Economy is the economic system based on the Islamic rules from Quran and Traditions. Moreover, Islamic Banking assets grow rapidly and at the end of  2018, it will grow more than 20%.

In my point of view, Islamic Economy mostly fill Muslim's spiritual needs in today's word. Therefore, Islamic Economy or Finance find new instruments which are fill both material and spiritual needs. For example; Islamic Banking System has sukuk instead of bonds, profit-sharing instead of interest rate etc. etc.

As you know, the most popular Islamic Economy Concept is prohibition of interest rate. So, why should people save their money in the bank? Because they make agreement with the bank about `profit-sharing`. Therefore, actually who put money to the bank become share-holder. So, while `profit-sharing`, lender shares `risk` also. Technically, this is not `interest rate` and Islamic Banks call it mudabarah. However, Why interest is forbidden? Basically, this means earning money from lending money and this means earning money without productivity or risk taking. Mainly, because of that interest is forbidden in Islam.  (Actually Interest was forbidden in the early Jewish and Christian traditions;Jesus said; `If you have money, do not lend it at interest but give to one from whom you will not get it back` Gospel St Thomas, V95)

Another concept is Zekat. You can see it as a `tax`. Every Muslim who is rich enough and can meet his needs `must` pay certain amount of money (Approximately 1/40 but of course there is no limitation) to the poor. What is the purpose of this? Decrease the gap between rich and poor plus make sure that everyone meet his/her basic needs.

Mudabarah is the Islamic Finance Instruments which means `profit-sharing` and this model uses in Islamic Banks in Iran, Saudi Arabia or Malaysia. On the other hand, Zekat is not the instrument of Islamic Finance yet the instruement of Islamic Economy.