Horizon of zakat fauzia hamid by 9N9T3x


									                                                                     Thoughts on Economics
                                                                            Vol. 20, No. 03

Horizon of Zakat ─ Beyond the Realm of Religious Tax
                                       Fauzia hamid

Abstract: Economic security plays a vital role in human life. An individual
becomes economically secure when his basic needs are met. This again,
necessitates high levels of production and employment in an economy.
Accordingly, the government of a country, while playing a pivotal economic
role, uses different kinds of fiscal tools. Tax is one of such tools. A counterpart
tool in Islamic public finance is zakat which is generally considered merely a
religious tax. The proposition of the present paper is that, nowhere in the
world, in any religion, in any social system or in any economy, an instrument
like that of zakat in Islam so vastly significant will be found. In its economics
zakat is highly pervading and circumscribing as it has the potential to play a
multi-dimensional role and objectives to achieve through its strong
macroeconomic implications. As a social principle, it is unique in its nature of
organization, as it is destined to carry out the gigantic task of establishment of
social justice through creating a built-in social security system. And ethically,
it is a scheme for purifying human souls and thus help establishment of an
economy free from the vices generally associated with wealth. This paper is a
humble attempt to unveil the reasons behind theologically high ranking in
importance of the institution of zakat through an analysis of its significance in
the socio-economic and moral-ethical life in Islam and consequently shows
how it crosses the boundary of being only an ordinary tool of fiscal policy.

I. Introduction
1.1 Economic Security ─ the Most Significant Ingredient of Human Life
Since his creation, man is confronted with economic insecurity and is ever
active to find out ways and means to attain satisfaction of his wants. Economic
security is assured for an individual by some form of income, which is
sufficient to meet his basic needs as defined on the basis of some standard.
This may come from any remunerative work, from the ownership of assets or
from publicly financed safety net programmes. At present, only a small
fraction of the world’s population seems to be economically secure in this
sense. Many urban people in the rich countries today feel insecure because

    Associate Professor, Economics Discipline, Khulna University, Khulna.
52                                                     Horizon of Zakat……………..

jobs are increasingly difficult to find and keep, as in recent times, in most of
these industrialized countries, the rate of growth of new jobs is failing to keep
pace with the rate of growth of the labour force. Moreover, nominal wages
though have risen but their value has been sharply eroded by inflation, leading
to decline in real wages in many parts of the world. For many people, the only
option is self employment; which again is constrained by the low financial
capability of the common people. As a result, those at the bottom of the ladder
find it difficult to make both ends meet. In the rural areas, the poorest farmers
have little access to land; and even those who have some land or option of
productive investment, often find it difficult to do it effectively because they
have little access to credit. Homelessness is another problem. In many parts of
the globe a major portion of the population constitutes what is sometimes
called a ‘floating population’. Many of them, however, can rely on family
support; yet that system is rapidly breaking down. Hence, without the
assurance of a social safety net, the poorest cannot survive even a short period
without an income; but in most of the developing countries social security
systems are constrained by budgetary limitations.
1.2 The Most Sought for Targets of an Economy
Economic security, as defined above, is influenced by the performance of an
economy or more specifically by the level of national income of a country.
Commonly, saving and spending form two broad income channels for the
spontaneous flow of all-round economic activity in a country. Spending makes
up what is called effective demand, representing in its turn the potential
markets for goods and services. A stimulus to spending, therefore, implies a
stimulus to new employments, incomes, products, services, industries, trades
and so on. Among other things, the health of an economic system depends
directly upon the continuous investment process, which is made possible
through saving an appreciable slice of current income. In brief, an appropriate
balance between saving, investment and spending help a country make big
strides on the road to development1.
No doubt, it is very easy to draw a rosy picture of prosperity with the brush of
imagination; but truth is always bitter than fiction. Modern capitalistic world,
with its mass production and unequal distribution of income, has developed a
high savings economy. This unplanned hoarding or in other words savings-
spending mismatch is leading to frequent economic collapses that were never
encouraged before.
Again, in reality, output, employment and price do not move smoothly over
time; rather they fluctuate around the trend line. Mild rate of these ups and
downs have never been the concern of economists as in most cases they
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automatically correct without any outside policy intervention. The problem is
with prolonged depression and boom; as in these cases, it is a dilemma for the
economists to choose the right policy in right time and apply it in the correct
place in correct time. Moreover, development is not purely an economic
phenomenon; instead it should be perceived as a multi-dimensional process
involving reorganization and reorientation of entire economic and social
systems. While economic progress is an essential component of it, it is not the
only one. Experience of the 1950s and 1960s, when a large number of third
world nations did achieve the overall UN growth targets but the levels of
living of the masses remained unchanged, signaled that something was very
wrong with this narrow definition of development. Hence economic
development was redefined in terms of reduction of poverty, inequality and
unemployment, and improvement in the spheres of health and nutrition2.
Hence, the overall equation, in this context is not that simple. If dearth of
production has been the unique reason behind poverty and consequent
miseries; then an increase in the same would have been the straight forward
solution. In that case, in the transition period, there would have been ‘poverty
amidst poverty’ but not ‘poverty amidst plenty’. The reality is pointed out as,
‘Poverty amidst plenty is a striking feature of the American scene. Our nation
is the richest in the world, yet millions of people are poor, and millions more
that do not live in poverty are poor relative to others. Poverty amidst poverty
is easier to understand and even condoned. But in a land of abundance, it is
difficult to comprehend why some people are inadequately fed, clothed, and
sheltered3.’ It is, therefore, clear that, production growth approach alone
cannot do; instead, a comprehensive approach is needed to attain economic
efficiency and distributive equity. Accordingly, economic growth,
development, economic stabilization, equitable distribution of income, and
poverty eradication has become the most sought for targets of mankind; and,
an increase in output, employment, investment, and a decreasing trend in
income inequality, incidence of poverty and price fluctuation is considered the
symbol of a healthy economy.

II. Objectives of the Study
Tax revenue being the larger part of government receipts and payments has
significant influence over the economy; and, therefore, an appropriate tax
structure is a pre-requisite for a healthy economy. Islam being a complete code
of life has very distinctive policy prescriptions for the economic sphere also.
In the field of Islamic public finance, institution of zakat is such a policy. This
54                                                     Horizon of Zakat……………..

study is an attempt to show that, zakat, though generally considered a religious
tax, is an institution whose circumference is the widest in the socioeconomic
and moral-ethical spectrum of the whole community. The paper, therefore,
attempts to establish that zakat is not a single tool but an institution
comprising of comprehensive policy package which encompasses not only
economic aspect but simultaneously covers sociopolitical and moral-ethical
dimensions. Accordingly, the broad objective of the study is two-fold. In the
one hand it attempts to analyze how the institution of zakat through its strong
macroeconomic implications fulfills the objective of establishing a balanced
economy, and through its social implication establishes a just society. On the
other hand, it intends to show, how the moral and ethical value embodied in it
persuades human being to attain welfare in its true sense.

III. Assessment of Zakat as a Tax
3.1 General Principles Underlying Taxation and Social Spending 
    Islamic View
Islam does not elaborate a theory of taxation per se, but gives certain core
principles to be used in each space and time context to help and guide the state
and society meet their objectives and goals. It is in the area of distribution of
income and wealth that Islam lays emphasis by providing a list of target
beneficiaries and by outlining the fiscal responsibility of the state towards
them. Five principles together constitute the basis of taxation and social
spending in Islam; which are: bear ability of financial burden, avoidance of
concentration of wealth, under-privileged as beneficiaries of government
expenditures, spending for social causes and social burden/collective
responsibilities to be shared by everyone according to ability4.
3.2 Conception of a Good Tax System  Conventional View
A tax system, in order to achieve some distinct objectives of an economy
needs to be designed
on the basis of an appropriate set of principles, called canons of taxation. Four
fundamental canons of taxation are: canon of equality, canon of certainty,
canon of convenience, and canon of economy. Besides these, there are canon
of productivity, canon of buoyancy, canon of flexibility, canon of simplicity,
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and canon of diversity. In general, the tax structure being a part of the
economic organization of a society should fit in its overall economic
philosophy; and above all, it should be dynamic in nature.
3.3 Assessment of Zakat from Conventional and Islamic Viewpoints
The literal meaning of zakat has been spelled out as to thrive, to grow, to
increase, to be pure in heart, to be fit, to purify, to sanctify, to chasten,
integrity, guiltless, blameless, sinless, honesty, justify, righteousness etc5.
Lisanul Arab explains it as, cleanliness, gradual increase, excess, praise. In the
technical Shari’ah meaning, zakat means that part of wealth payment of which
has been made obligatory by Allah (SWT) and His Prophet (SAW). Similarly,
giving of specified part of the wealth to those who are entitled to get it is also
called zakat. That is, it refers to the transfer of ownership of particular assets
of reference people (ahle-nisabs) to another particular reference people for the
noble cause of divine satisfaction.
Zakat possesses all the characteristics of a good tax system as mentioned
above. It also conforms to the principles of bearing ability of financial burden,
avoidance of concentration of wealth, under-privileged as beneficiaries of
government expenditures, generous spending for social causes and social
burden/collective responsibilities to be shared by everyone according to
ability. In general, Islamic laws are characterized by some distinctive features.
They are time consistent, positive, perpetual, eternal, comprehensive, and are
free from the influence of human desires and passion or any kind of bias
towards any segment of mankind. Zakat, being a divine system, possesses all
these qualities, which is sufficient to establish its excellence over any kind of
man-made system.
Regarding collection of any kind of tax, the most obvious problem, which
arises, is that of tax evasion in the form of concealing of income by the
taxpayers and rich persons not at all registering them as taxpayers. Contrarily,
paying of zakat is treated as a form of ibadah by a faithful Muslim, and
therefore, it will be paid up by the payer even in the absence of any external
compulsion. Moreover, zakat enhances production, as it is imposed only on
those types of wealth, which have the inherent characteristics of growing. As a
result, paying of zakat does not seem to be a burden for the payer. The process
of collection of zakat is also very much easy, as there is no need to establish
tax departments and employ huge number of officials. Moreover, in case of
zakat, the burden is not borne by the low income-people, and again, those who
bear this burden are not liable to bear it indefinitely (as zakat is payable only
by the ahle-nisabs). Conversely, there are many indirect taxes which fall upon
56                                                     Horizon of Zakat……………..

the poorer sections of the society. While dimension of zakat expenditure is
comprehensive, as it covers heads like medicare, employment opportunity,
housing facility, educational privilege, food and clothing provision, etc. while
tax receipts may be spent in any sector as the state wishes. Furthermore, this
divine system has deeper economic, social and cultural significance in the
entire body politic of the Islamic society and state; as it is intended to
simultaneously attain welfare and economic objectives; in comparison, tax has
only economic significance and that also is very limited in its dimension.
Moreover, while taxes are payment for services received or as beneficiary
charges, zakat payment is representative of man’s altruistic character and
ethical-moral worth, as by paying of it man doesn’t expect any earthly return
from any one.
Income tax being imposed on current income, in one sense encourages
hoarding. But zakat acts as a deterrent factor against hoarding through
channeling such money in the income-expenditure flow of the economy. It
thus encourages investment by its payer as otherwise he will be losing his
wealth on an annual basis in the form of payment of zakat. It is also different
from wealth tax; while in the case of former, nisab is fixed; in the latter case
the exemption limit is flexible. Moreover, in general, zakat-nisab being far
below the above limit set for wealth tax; it is often observed that when the
conventional tax system fails to collect any tax from the people of a certain
income group, an Islamic economy is able to collect zakat from the same
income group.

IV. Economic Significance of Zakat
4.1 Zakat  Vehicle for Journey to Growth, Development
    and Stabilization
The institution of zakat, through its strong macroeconomic implications, has
the potential to attain multidimensional economic objectives, which is not
possible in case of any single tool of conventional fiscal policy. This is
because, zakat simultaneously acts as income tax (in case of hoarded cash
income), wealth tax (in case of hoarded gold, silver, etc.), production tax
(when imposed on mineral products, cattle, and on produced crop in the form
of ushr), sales tax (when applied on traded articles), and profit tax (if hoarded
in cash form). In its trail, therefore, zakat can successfully carry out the
multifarious functions of encouragement to production, investment and
employment, revenue collection, economic stabilization, control of inflation,
elimination of income inequality and poverty alleviation. Initially,
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disbursement of zakat increases aggregate demand, which in turn boosts up
investment, production and employment through multiplier effect. This, again,
brings about higher value added, higher profits, and lowering of prices.
Simultaneously, demand for labour also increases, leading to decrease in
general unemployment level and increase in real wages. All these
improvements help stabilize the economy along with equitable distribution of
income and more importantly eradication of poverty.
4.1.1 Saving-Spending Balance
The richest sector of the globe is said to have been suffering from the
symptoms of such an economic sickness, which has its root cause in savings-
spending mismatch. From time to time, different programmes have been
recommended for achieving the lost balance between saving and spending.
These include government spending as adequate as to counter-balance the
excess savings, which expenditure is financed either by public borrowing, or
on the basis of taxation to reduce the excess savings and increase investment
by reducing the willingness to save and increasing the willingness to spend;
measures to increase individual security and reduce the pressure to save, such
as, adequate social security against old age, unemployment, dependency and
all forms of inability; modification of distribution of income to ensure that
profits do not increase disproportionately at the expense of wages in
particular; measures to increase the spending power of low income groups;
In this context, zakat can serve to act as a double-edged weapon to keep the
disturbing forces underlying both saving and spending in healthy check; and
thus, such an elaborate bundle of measures and policies, as suggested above
will simply be needless in an Islamic economic order, which is free from the
practice of imposition of any form of interest. As a consequence of absence of
interest-earning and taxation of hoards, no room for excess saving is left, and,
hence, requirement for large-scale public spending also ceases. The principle
of zakat, inter alia, stands for aversion to excess savings and all kinds of
hoards and as such promotes the inclination to invest, while reducing the
inclination to save. Individual security is also provided in the scheme of
distribution of zakat proceeds, as this fund is, so to say, a social security fund
to insure against all kinds of accidents and disabilities that generally prompt a
man to save or hoard. No doubt, the immediate effect of zakat is, however, to
reduce aggregate demand in some degree, but, since it transfers money from a
class of people whose marginal propensity to consume (MPC) is less to a
58                                                     Horizon of Zakat……………..

group of beneficiaries whose MPC is high; it means that incremental income
spent is higher for the receivers of zakat than its payers.
4.1.2 Hoarding-Investment Balance
While investment is the mover of an economy, uninvested illegal earnings and
hoarding is a serious obstacle towards economic advancement. The institution
of zakat has the potentiality of simultaneously tackling these two apparently
opposing economic functions. Being a tax on wealth, it automatically puts a
check on the accumulation of hoarded capital or idle wealth in cash form,
permitting only such funds as liquidity that is necessary for transaction
purposes. Since it is imposed on net wealth, regardless of whether the capital
is utilized or not, it implies that certain quantity of wealth is being drained
thereby reducing the existing level of wealth both cash and kind to the extent
paid out in the form of zakat. If there remains no alternative for investing this
wealth, through paying zakat every year a wealthy fellow is very likely to
gradually get poorer till he comes below minimum wealth line (the level for
being ahle-nisab). To avoid this situation, every potential zakat payer is likely
to be motivated to investing their wealth so that it continuously grows so as to
compensate for the payment of zakat. Moreover, exclusion of means of
production and housing from zakat taxation provides an incentive for
investment in plant and equipment, and its consequent utilization. It also
encourages economically productive activities vis-à-vis speculative activities,
and investment in construction of houses for own use.
4.1.3 Production Enhancement and Employment Creation
As the foregoing discussion suggests, through initiating investment of idle
wealth and encouraging a high level of capital utilization; zakat can help
boosting up production. This, in the final analysis, by promoting employment
and income in the economy, significantly contributes to economic growth. On
the other hand, as a result of zakat transfer, effective demand of the
beneficiaries is raised. Hence, zakat not only forces to invest but also creates
effective demand for the consumption of the enhanced production. This is so,
because in general, zakat finances consumption expenditure of the poorest
groups in a society. Given that the propensity to consume at low levels of
income is high, the multiplier effect of the increased consumption is
substantial. In other words, in the trail of zakat expenditure, effective
aggregate demand goes up significantly, which leads to increased
employment, output, income and consequently, economic growth. Moreover,
zakat expenditure for provision of essential public goods and services to those
who would not otherwise have access to them, increases beneficiaries’ overall
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health, education and productivity levels. The same holds true, when zakat
fund is used to provide training facilities or to create employment opportunity
for the unemployed and underemployed. In such a case, zakat contributes to
economic development and growth in an indirect way. Zakat also reduces
structural unemployment, which mainly arises in the deprived sector of the
economy characterized by low human capital, poverty, age and debility; as in
an Islamic economy zakat expenditure is put aside and ear-marked for
alleviating precisely the structural problems of the society, of which structural
unemployment is a major issue.
4.1.4 Achievement of Economic Development
The most prominent expenditure verse of the Holy Qur’an, ‘Alms are for the
poor And the needy, and those Employed to administer the (funds); For those
whose hearts Have been (recently) reconciled (To Truth); for those in
bondage And in debt; in the cause Of Allah; and for the wayfarer: (Thus is it)
ordained by Allah, And Allah is full of knowledge And wisdom.’ (9:60),
includes the category, fi sabil Allah, literally meaning ‘in the way’ or ‘for the
cause’ or ‘sake of Allah (SWT)’. It is the most comprehensive category of
zakat; which encompasses all efforts directed towards facilitating collective
life through promoting collective welfare. It thus includes efforts aimed at
protecting life, religion, liberty, property and the fundamental human rights; or
efforts which remove ignorance, promote knowledge and social good and
reduce hardships arising out of emergencies of any nature. While other
categories are clearly defined, it seems that flexibility has been divinely
provided through using this terminology to meet the needs of ever-changing
circumstances. However, in the absence of emergencies, zakat under the fi
sabil Allah category should be used to provide infrastructural facilities and
creating work opportunities for the poor and needy6.
4.1.5 Attainment of Economic Stabilization
 In a growing economy, demand must grow in order to maintain full
employment of labor and full utilization of capacity at stable prices. The
economy is not performing satisfactorily unless it is almost continuously
setting new records of production, income, and employment. Indeed,
insufficient demand leads to unemployment, idle capacity, and lost
production; and, excessive demand induces inflation, bringing forth little or no
gains in output and real income. Stabilization neither means leveling off of
peaks and troughs in production and employment nor does it means holding
overall demand for goods and services stable. The objective of stabilization
policies is to minimize these deviations from a rising trend, not from an
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unchanging average, i.e., to keep overall demand in step with the basic
production potential of the economy.
Zakat has significant economic stabilizing influence. It can be used as a
counter-cyclical tool in the sense that during a downturn, zakat disbursements
can be increased, while they can be decreased during an upturn. Similarly,
when the economy is operating much below its full-employment potential,
zakat expenditures may help increase aggregate demand, thereby reducing the
output gap; and when the economy approaches or reaches full-employment,
zakat expenditures may be reduced proportionately. In a dynamic analytical
context, this process goes on until the whole economy turns out to be saturated
through raising both production and distribution level, increasing national
income and finally reducing the chances of depression by bringing about
stability in the process of consumption and production. This stability indirectly
furthers more and more investment. Thus the dynamics of zakat is that it can
simultaneously develop a consumption and production pattern conducive to a
balanced economy free from not only the curses of inflation and depression
but also can successfully combat the recent phenomenon of stagflation.
Moreover, zakat surpluses, when they occur, can be saved for harder times, to
be used for infrastructural and development purposes and to be transferred to
the needier regions of the economy, or can be used in a combination thereof.
4.2 Control of Inflation
With varying rates, inflation in these days is a worldwide phenomenon. As a
result, cautious fiscal measures are called for in order to curb it. Capital being
the vital part of the production process and interest being paid in return of
capital; interest payment constitutes a major part of total cost of production.
Obviously then, to recover this, entrepreneurs incline to charging high prices
for the goods and services produced by them. In Islam trade is encouraged and
usury is forbidden as is cautioned in the Holy Qur’an by saying, ‘….Fear
Allah and give up what remains of your demand for usury, if ye are Indeed
believers.’ (2:278). Islam thus modifies the process of pricing aimed at
covering of interest cost and motivated by profit maximization. Instead, it
emphasizes the concept of total human welfare and encourages working
through principles of co-operation and limited competition at both individual
and state levels. It is, therefore, not a rational behaviour for an Islamic
entrepreneur, if he treats making money or earning profits not as a means to an
end but an end in itself. This de-emphasis on profit motive, instead of de-
emphasizing production, stresses on efficiency in production through
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avoidance of wastage, minimization of cost and selection of optimal technique
of production. In this context, zakat plays its role through curbing excess
demand on one hand and increasing supply of goods and services on the other.
4.3 Reduction in Income Inequality
In an economy where private business initiative and enterprise is allowed there
will definitely arise differences among persons regarding earning and
amassing of wealth. Islam though recognizes the presence of this inequality;
but in no way supports its existence. The verse ‘What Allah has bestowed On
His Messenger…. belongs To Allah s − to His Messenger And to kindred and
orphans, The needy and the wayfarer; in order that it may not (Merely) make
a circuit Between the wealthy among you….’ (59:7) not only condemns
concentration of wealth in the hands of a few but side by side introduces the
institution of zakat to act as a balancing factor in this respect. If this system
works then the unprivileged class are benefited through receiving different
types of government allowances, transfer payments, subsidies etc. Hence, the
prime importance of zakat lies in effectively transferring surplus income of the
wealthy people to those lying below the poverty line and to prevent further
accumulation of wealth in the hands of a few and thus make wealth cycling in
the nook and corner of the social segments. As a result difference between the
rich and the poor is narrowed down as far, as is natural and practical.
4.4 Revenue Collection
Rate of zakat though small, but the purview of zakat is extensive; as it covers
assets and income of all sectors. In this case, the problem of evasion, generally
encountered in all types of tax is also supposed to be absent. Hence, if
implemented effectively, it is expected to collect a large sum as government
revenue. Moreover, as it is imposed on hoarded income and wealth, it is likely
to be able to raise a fund higher than the case of any other single tax (either
income tax or wealth tax). Furthermore, revenue will be invariably high due to
inclusion of the agriculture sector (including crop production, poultry, fishery,
livestock, forestry, mining etc.).
4.5 Poverty Alleviation
Islam makes all out efforts to eradicate the curse of poverty from the society.
Accordingly, Islamic policy for poverty alleviation involves aspects like (1)
positive measures including income growth, functional distribution of income
and equal opportunity in all spheres of human life, (2) preventive measures
including control of ownership of property and prevention of those
malpractices that may lead to concentration of wealth, and (3) corrective
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measures involving transfer of wealth from the rich to the poor, including
compulsory transfers (zakat), recommended transfers (sadaqah and infaq),
encouragement to give wealth in the way of Allah (awqaf), beneficial loan
(qard-e-hasana) etc7.
The fundamental significance of zakat is reduction in the incidence of poverty.
Islam presents a unique and obligatory scheme for eradication of poverty
through the institution of zakat. The prescribed eight heads of zakat
expenditure are the poor, the needy, persons engaged in zakat administration,
the new Muslims, the bonded slaves or captives, those who are in debt, the
destitute wayfarer and in the way of Allah (SWT) (verse 9:60). Five out of
these, viz., the poor, the needy, the debtors, the slaves (to be freed from
captivity) and the travelers in need, clearly exemplifies the fact that in the
ultimate analysis zakat acts as a tool for poverty alleviation. While zakat
contributes directly to poverty alleviation through paying to the first two
categories, by paying to other heads it alleviates the same in an indirect and
comprehensive way as it tries to remove the causes of poverty.
Islam addresses the issue of poverty in a holistic manner, bound by the
paradigm of tauheed (unity of Allah SWT); which holds that He is not only
the unique owner, but also the sole distributor of wealth and distributes it
unevenly with a purpose; a purpose to test mankind’s obedience. As said,
‘Allah has bestowed His gifts Of sustenance more freely on some Of you than
on others: those More favoured are not going To throw back their gifts To
those whom their right hands Possess, so as to be equal In that respect. Will
they then Deny the favours of Allah?’(16:71). It is mandatory for those who
get or receive more, to help the ones who get less. In turn, those who get less
have the right to receive help from those who get more and at the same time
they have to struggle for better lives. The Prophet (SAW) is reported to have
said, ‘The hand that is above is better than the hand that is below.’ (Al-

V. Zakat and Social Justice
5.1 Modern View of Social Justice
In the conceptual framework and in a broad sense, establishment of social
justice is a matter of distributional equity, of sharing development
opportunities between present and future generations. Each individual is
entitled to a just opportunity to make the best use of his or her potential
capabilities. In this context, the basic thought comes from many pioneers, as
‘It is justice, not charity that is wanting in the world8. ‘Men and women, both
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should be given power over their lives and opportunities to live according to
their own values and aspirations9.’
Interest in the concept of social justice is not new. Today’s belated return to it
means reclaiming an old and established heritage rather than importing or
implanting a new diversion. The roots of the concept can often be traced to
early periods in human history. As Aristotle wrote, ‘Wealth is evidently not
the good we are seeking, for it is merely useful and for the sake of anything
else.’ A similar strain is reflected in the writings of Quesnay, Lagrange, Adam
Smith, Malthus, Karl Marx and John Stuart Mill. The point to ponder over
here is that, by mentioning Aristotle, though the theoreticians take history as
back as twenty-five centuries, but just after his reference, through a high jump,
they cover the so called ‘dark age’ of modern history and refers to eighteenth
century political economists. In doing so, they either knowingly or
unknowingly fail to mention the contribution of Islamic teaching in the field of
much discussed concept of social justice, along with many other fields of
knowledge; which flourished during the above mentioned period. Islam, some
fourteen centuries ago sew the seed of justice as, ‘O David! ….judge you
Between men in truth (and justice)………’(38:26). And, ‘Say (O Muhammad):
“My Lord has commanded Justice;……’(7:29).
5.2 Social Justice in Islam
Social justice in Islam is a comprehensive concept. It embraces all sides of life
and all aspects of activity; and is concerned alike with perception and conduct,
with the heart and conscience. The values with which this justice deals are not
only economic values, nor are they merely material values in general; rather
they are a mixture of moral and spiritual values together. Thus in the Islamic
view, life consists of mercy, love, help, and a mutual responsibility among
Muslims in particular, and among all human beings in general. Islam does not
demand a compulsory economic equality in the narrow literal sense of the
term, because, such equality will arrest the development of outstanding ability
and make it equal to lesser ability. It will also prevent those who have special
gifts, from using that to their own advantage and to that of the community, and
thus depriving the community and the individual from the fruits of those gifts.
Islam does, of course, acknowledge a fundamental equality of all men and a
fundamental justice among all, but over and above that, it leaves the door open
for achievement of preeminence through hard work, personal potentiality,
perseverance, and diligence and so forth. ‘…Allah will Raise up, to (suitable)
ranks (And degrees), those of you Who believe and who have Been granted
64                                                      Horizon of Zakat……………..

Knowledge.’ (58:11). Islam, then, does not demand a literal equality of wealth,
because the distribution of wealth depends on men’s endowments, which are
not uniform. Hence absolute justice demands that men’s rewards be similarly
different and that some have more than others, so long as human justice is
upheld by the provision of equal opportunity for all. Islam demands a
competence for every individual, in order to remove the fear of destitution. It
prescribes the claims of the poor upon the wealth of the rich, according to their
needs, and according to the best interests of society so that social life may be
balanced, just and productive. Thus through inclusion of various aspects of
life, material, spiritual, intellectual, religious, and worldly, the concept of
justice is so organized, that all its ingredients are related together and thus
furnish a coherent unity in which it is difficult to neglect any one of its various
integral parts10.
5.3 Vision of Islam
The ultimate goal of Islamic way of life is to promote welfare of all human
beings on the earth. This is the goal towards which the Muslims are called five
times a day along with call for five daily prayers, which exemplifies the
importance of the concept of welfare in the Islamic worldview. Undoubtedly,
there seems to be any difference of opinion among all societies, that the
primary purpose of development is to promote human well being; there is,
however, considerable difference of opinion in the vision of what constitutes
real well being. While in societies, guided by secular and materialist
worldview, the primary measure of development is a rise in income and
wealth, Islam emphasizes both spiritual as well as the material contents of well
being. In fact, there are some needs, which are spiritual and non-material in
character and need not necessarily become satisfied as a result of increase in
income. Instead, single-minded preoccupation with wealth may in fact hurt the
satisfaction of these needs, which are nevertheless, important and cannot be
ignored. Moreover, the goals of human brotherhood and the well being of all
would remain a hollow concept having absolutely no substance if
socioeconomic justice does not accompany them. As Al-Qur’an says, ‘O you
who believe! Stand out firmly For Allah, as witnesses To fair dealing, and let
not The hatred of others To you make you swerve To wrong and depart from
Justice. Be just: that is Next to Piety: and fear Allah…’(5:8). In Islamic
terminology injustice refers to all forms of inequity, exploitation, oppression
Thoughts on Economics                                                       65

and wrong-doing. One of the essential requirements for ensuring justice is the
protection of life, property and honour of every individual in this world. For
this, it is necessary to have certain values or rules of behavior and to enforce
them effectively11.
5.4 Social Security in Western Society
Most people derive security from their membership in a group, a family, a
community, an organization, a racial or ethnic group. The extended family
system, for example, offers protection to its weaker members, but rapid pace
of modernization in both economies and societies are leading to breaking
down of extended families and also causing erosion to long held moral norms
and values. Social security in the western scheme means economic security
provided by the government in the form of unemployment insurance, post-
retirement pension scheme, subsidized or free medical and housing facilities
for the disabled etc.; and is generally financed by tax revenue. In the socialist
countries, conceptually everything is owned by the state, therefore, the state
has to arrange for all the social sector requirements. In this system, social
security is established through legislation of the harshest type manifesting the
most oppressive and deprivation measures against those who have12.
5.5 Islamic Conception of Society
An Islamic society by definition is circumscribed by some social, political,
religious, moral and legal principles in accordance with the commandments of
the Holy Qur’an. Islam is dedicated to universal brotherhood, social and
economic justice, equitable distribution of income, and to individual freedom
within the context of social welfare. Moreover, since the society is the primary
institution in Islam (and not the state), the emphasis is on the human being
rather than on state power. Mankind being the ends as well as the means;
unless they are motivated to pursue their self-interest within the constraints of
economic well-being, neither the ‘invisible hand’ of the market nor the ‘visible
hand’ of central planning can succeed in achieving socioeconomic goals13.Al-
Qur’an says, ‘O mankind! We created You from a single (pair) Of a male and
a female, And made you into Nations and tribes,…. Surely The most honoured
of you In the sight of Allah Is(he who is) the most Righteous of you…’(49:13).
According to Islam, human body is a vehicle for the soul, which is left behind
66                                                      Horizon of Zakat……………..

while the soul journeys on to another dimension. It is this sense of a larger
future that binds human being with the rest of humanity.
5.6 Zakat − the Islamic Social Security System
Zakat, created the first universal welfare system in human history, which is the
core of the social security in Islam and is not a matter of state legislation but a
duty of the fortunate brothers of the community to share in the misfortune of
their fellow brothers. Along with zakat, Islam encourages, and in some cases
emphasizes other spending (both personal and social); which, though not
compulsory, but due to their mentioning in the Holy Qur’an along with
obligatory zakat, they also often become an ingredient of social security
system in an Islamic state. In Islam, charity starts from the family, and
accordingly, Islam has made a man responsible for the fulfillment of basic
needs of his family, his neighbours and relatives and at large of the whole
community. This responsibility is reminded as, ‘…do good-To parents,
kinsfolk, Orphans, those in need, Neighbours who are near, Neighbours who
are strangers, the Companion by your side, The wayfarer (you meet), And
what your right hands possess:…..’ (4:36). Accordingly, instead of leaving the
issue of spending for the poor as governed by individual desire, Islam has
fixed a right of the poor in the wealth of the rich through the commandments
of the Holy Qur’an. The Prophet (SAW) has declared, ‘He is not a true
Muslim who eats his full stomach when neighbor is hungry.’ (Bukhari). And:
If a single person were to sleep hungry in a town, then Allah’s protection is
lifted from that town – (Masnad Imam Ahmad). Thus, zakat, constituting the
major part of the comprehensive social security guaranteed by Islam, is much
broader than the Western welfare measures. While the latter provides only
material assistance to the needy, the former provides material, spiritual, ethical
and moral assistance for all, irrespective of colour and status; thus positively
affecting every aspect required to fully bloom the human life. Moreover, in
this case, no premium for the insurance is required to be paid by the
5.7 State Responsibility
An analysis of the verse (9:60) reveals that the whole affair of collection and
disbursement of zakat is bound to be a collective one. In Islam, one of the
most important tools for establishing social justice is zakat; and, therefore,
Allah (SWT) ordains the state to ensure provision of basic needs of every
citizen for his reasonably comfortable living, based on current standard.
Moreover, it has made it a collective obligation of the society to satisfy the
Thoughts on Economics                                                        67

needs of all those who are not capable of helping themselves because of some
inability over which they have no control. The government is to carry out this
responsibility basically through zakat fund; which, if fails to cover the total
need, the state has to arrange fund from general tax-revenues or from other
sources. Islam also stresses on state responsibility to take care of the matter by
creating fund either through mobilizing resources available in a state or
adopting any other policy in conformity with the Shari’ah. To alleviate
poverty Islam put special emphasis on ‘infaq fi sabilillah’ meaning to spend in
the way of Allah (SWT). It is very significant to note that Almighty Allah
(SWT) has taken on Him the special responsibility of helping His poor
servants by describing this action as spending for His cause and way. As the
verse reads, ‘Who believe in the Unseen, Are steadfast in prayer, And spend
out of what We Have provided for them;’ (2:3).
Injustice and Islam are, at variance with each other and cannot coexist without
either of the two being uprooted or weakened. It is faith which creates an
enabling environment, both at personal and social levels, that is conducive to
the strengthening of family and social solidarity. But faith alone cannot,
however, help realize human well being. It is unrealistic to assume that, as a
result of belief in Almighty Allah and accountability before Him in the
Hereafter, all individuals will become morally conscious. This makes it
incumbent upon the state to play a complementary role. The Prophet (SAW),
therefore, clearly stated that, ‘Allah (SWT) restrains through the sovereign
more than what he restrains through the Qur’an.( Bukhari) The Qur’an can
only give values; it cannot by itself enforce them. It is the moral and legal
responsibility of the state to do so and ensure justice and the well being of the
people14. The Qur’an being a constitution requires its own independent and
free state where its unique socioeconomic and political system can be
implemented. The Qur’an says: ‘(They are) those who, If We establish them In
the land, establish Regular prayer and Give Zakat, enjoin The right and forbid
wrong:…,’(22:41). Here, ‘establish them in the land’ means, establishment of
an Islamic state by the believers, who, bestowed with the authority to rule will
68                                                     Horizon of Zakat……………..

establish salat and materialize zakat, will themselves abide by justice and
forbid people from doing anything, contrary to the divine code.

VI. Ethical Implication of Zakat
6.1 Islamic Ethical System
Islamic ethical system takes root in the Islamic worldview of human being;
according to which man is essentially a spiritual and moral being and is
characterized by the distinguishing feature of sense of moral judgement. On
the other hand, Islamic conception of nature, which contains His bounty, is
that, it is meant for human use within the limits set by the Divine law. Man,
being created as servant of and made vicegerent and trustee of Allah (SWT)
on earth, is bound to worship Him and also has the objective of managing and
developing the world in accordance with His plan. Men can serve Allah
(SWT) through ibadah, which implies observance of religious rituals like
salat, zakat, siyam and hajj.
According to Naqvi, Islam provides a complete code of life, which is unique
for its predominant emphasis on ethical norms. In this system, man occupies
the central place in the universe, which has been created for a purpose, and not
created aimless. A man is both an individual man and a collective man. As
Allah’s (SWT) vicegerent on earth, he is bound by the Divine rules, but he is
free to accept them or reject them, and therefore, is responsible for his deeds.
Accordingly, he identifies four axioms: unity, equilibrium, free will and
responsibility as the basis of scientific analysis of Islam. The concept of unity
relates only to Allah (SWT) and differentiates the Creator from the created,
requiring unconditional surrender by all to His will. Equilibrium is necessary
at both the individual and collective levels. Within us, there is a world of
errant desires and erupting ideas, which must be contained and held together
in correct proportions to produce a just human being. Moreover, man has
freedom of choice. But he will have to take responsibility for what he does in
his free will. This human freedom applies both to the ‘individual man’ and to
the ‘collective man’. Despite freedom, Islam does not allow absolute and
unqualified right to private property, but sanctions the right of society to a
portion of this15.
6.2 Islamic Concept Regarding Human being and Success in Life
Man, by nature, is selfish and greedy. He is never satisfied with the things he
has. This is true not only for those who are poor and needy but also for those
who are rich or at least are not needy in the true sense. Hence, if man were
Thoughts on Economics                                                          69

allowed unhindered and unchecked greed, he is sure to become not only for
his own self but also for others a perpetual danger. So, it is incumbent to divert
his trends to sublime ordeals and eternal truth, which can be achieved only
through implanting religious faith in human mind and practising religious
activities. Religion is to create moderation and guide him to earn his living
lawfully, and enable him to save himself from extremes, which weaken his
soul and body too. Islam aims at turning man to value this ‘truth’, to know of
his own self and not to plague his life with sorrows and sadness or troubles
and tortures after jumping into the whirls of whims.
The concept of success in life in an Islamic society is not one of economic
success in this material world. Instead, Islam emphasizes achievement of
welfare both in this life and in the life Hereafter. This success, therefore, is not
confined to the opportunities of acquiring all the best to be found in the
material world for own self or for even one’s own family. This success lies in
the development of oneself to such an esteem that correctly represents him as
the vicegerent of the Supreme Creator. According to Islam, only the
harmonious development of the spiritual and material aspects of human being
can help attain this position, that is, promotion of economic welfare is only a
necessary part, and not the predominantly important part of human life.
6.3 Islamic View on Wealth and Poverty
In Islamic view, Allah (SWT) is the absolute owner of all the wealth. As said,
‘To Allah belongs The dominion Of the heavens And the earth; And Allah has
power Over all things.’ (3:189). Man, as the vicegerent of the Almighty is the
trustee of that wealth. Said that, ‘Believe in Allah And His Messenger, And
spend (in charity) Out of the (substance) Whereof He has made you Heirs. For
those of you Who believe and spend (In charity)  for them Is a great Reward.’
(57:7). According to Islam, there appears no wrong in the ownership of
personal property for ensuring self-betterment. But, side by side, it
circumscribes the ownership of wealth by ethical norms and values in order to
ensure societal safeguard and economic prosperity. Islam considers poverty as
one of the greatest vices. In Traditions, poverty and hunger has been depicted
as grave dangers, which can cause a great setback from which an individual, a
society, faith and belief, manners and morals, words and deeds, thoughts and
culture cannot remain safe and protected. In the Holy Qur’an poverty and
immoral activities have been equated as, ‘The Satan threatens You with
poverty And bids you to conduct Unseemly. Allah promises You His
forgiveness And bounties. And Allah cares for all And He knows all
things’(2:268). It means that poverty is a kind of punishment from Almighty
Allah (SWT). Contrarily, affluence has been reckoned as reward of good
70                                                     Horizon of Zakat……………..

deeds as, ‘If the people of the towns Had but believed and feared Allah, We
should indeed Have opened out to them (All kinds of) blessings From heaven
and earth; …..’(7:96). Islam, therefore, announces a regular effort against
poverty and hunger, and, accordingly, it declares due share of the poor in the
wealth of the rich.
6.4 Importance of Need-Fulfillment in Islam and Stand Regarding Work
    Effort and Begging
Mankind, being both the end as well as the means of development, it is
imperative to satisfy some of the essential needs of the human personality.
One of the most important needs of human beings is their dignity and self-
respect. Another is security of their life, property and honour. The foremost
need is obviously, justice. Commitment of Islam to human dignity and justice
and brotherhood leads to another requisite, which is removal of poverty and
need fulfillment of all. Since begging degrades a person’s dignity, Islam
severely condemns seeking charity from other people without any reasonable
demand. Prophet (SAW) disapproved of begging as, ‘Do not beg anything
from people.’ (Abu Dawud). Islam, therefore, on one hand, urges on need
fulfillment through an individual’s own effort, as, ‘And when the Prayer Is
finished, then may you Disperse through the land, And seek of the Bounty Of
Allah:….That you may prosper’ (62:10); on the other hand, it makes collective
obligation of a Muslim society to manage opportunity for everyone to earn an
honest living in keeping with his ability and effort.
6.5 Ethical Implication of Zakat
Islamic economics places equal emphasis on subjective and objectives issues.
Besides socioeconomic implications, it has ethical, moral, and religious
dimensions. According to Imam Abu Hamid al-Ghazali, ‘The very objective
of the Shari’ah is to promote the well being of the people, which lies in
safeguarding their faith, their self, their intellect, their posterity and their
wealth’16. Though some scholars are in favour of adding a few more
requisites; but most of them agree that all others are corollary of these five.
6.5.1 Safeguarding of Faith
Faith is the most important element, as it helps provide the right direction to
all human efforts by injecting a meaning and purpose into life. In Islam zakat
has been accorded high priority by making it an inseparable part of the Islamic
way of life, non-observance of which tantamount to rejection of faith itself. Al-
Qur’an associates salat and zakat with faith and ethics as, ‘It is not
righteousness That you turn your faces Towards East or West; But it is
Thoughts on Economics                                                        71

righteousnessTo believe in Allah …To spend of your substance,…To be
steadfast in prayer, And give zakat,...’ (2:177).
6.5.2 Safeguarding of Self
Zakat means purifying, enriching or enhancing. What does it purify, enhance
and enrich? It purifies the mind and soul of both the payer and the receiver. As
declared, ‘Those who spend their wealth For increase in self-purification,
(92:18). How does it purify? As there is Allah (SWT)-given right of the needy
in the wealth of the rich, so unless it is handed over to the actual owner, the
whole of the wealth remains illegal for its owner and as soon as this claim is
realized, the rest of the wealth becomes pure and legal for the actual owner.
Through developing a sense of sanctity and by creating a state of mind free
from lust and greed, zakat purifies the mind of the payer and enriches the soul
of the Muslims. It also purifies the society from the curse of poverty and vices
attached with the possession of extra wealth.
6.5.3 Safeguarding of Intellect and Posterity
No civilization can survive if its future generations are unable to respond
successfully to the challenges of time. Family is the first school for the moral
upbringing of a child and, therefore, its atmosphere must reflect the luster of
Islamic teachings. This necessitates financial solvency of the families,
because, neither faith, nor morality, nor spiritual excellence can remain intact
by the severe bight of poverty17. Schooling also plays a vital role in moral
upbringing of and providing requisite skills to, such that they can contribute
effectively to the moral-intellectual and technological development of their
societies. Fulfillment of basic need like medicare, is also indispensable. In this
context, verse (9:60) is a clear manifestation of the fact that, zakat
predominantly aims at fulfilling of all these needs.
6.5.4 Safeguarding of Wealth
Without wealth, the goal of ensuring human wellbeing cannot be realized. It is
ultimately Allah (SWT) who grants income and wealth (i.e., the ability, means
and suitable conditions for earning) and therefore, sharing of the benefit of the
resources at one’s disposal and contributing toward alleviating public wants is
justified and only reasonable. Al- Qur’an strongly argues to convince that
social wants are next to personal wants and their satisfaction should have a
high ranking in one’s consumption/expenditure function. If this understanding
72                                                       Horizon of Zakat……………..

is internalized, it can make available a vast reservoir of resources for the
benefit of an economy.
VII. Concluding Remarks
Critics of Islam have time and again attacked the institution of zakat to show
its invalidity as an instrument of fiscal policy in a present day modern state. In
this connection the point to ponder is that, zakat in itself is not the end but a
means to achieve an end. Moreover, it is not supposed to replace the existing
tax system; instead it is assumed to be incorporated in it. It is the responsibility
of the philosophers, scholars and economists alike to make the system of zakat
meet the challenge of the time. The institution of zakat is designed to be a core
element of an Islamic socioeconomic policy framework, through its linkage
with wealth on the taxation side, and target beneficiaries’ and target
expenditures on the disbursement side. Hence, if properly understood and
applied, it can become a major redistributive and stabilizing factor in an
Islamic economy. Zakat thus, provides a starting point as well as a point of
reference, a criterion by which the performance of an economy and its policies
can be judged and evaluated. Hence, as a religious ritual, a moral obligation, a
legal right and duty, and as an economic policy instrument, zakat has been
given so high an importance in the Islamic value system.
Islam operates on the inner, spiritual side of human nature, rather than on the
external. It is from the depths of the conscience rather than on the surface that
it seeks to reform man. The centre of Islam and the field of its action is human
life in its entirety, spiritual and material, religious and worldly. It is at once
worship and work, religious law and exhortation. Islam has one universal and
integrated theory, which covers the universe and life and humanity. Likewise,
social justice in Islam is a comprehensive phenomenon. The foundations on
which Islam establishes justice are absolute freedom of conscience, complete
equality of all men and firm mutual responsibility of society. Significance of
the institution of zakat becomes clear when considered from this viewpoint.
The system of zakat; in its trail, serves two purposes: an inner refinement of
the conscience, to foster the belief in the inherent solidarity of mankind; and
help materialize, attainment of social justice in its true sense.
Thoughts on Economics                                                     73

1.    Sharif, M, Raihan, Islamic Social Framework, Bangladesh, Islamic
      Foundation, Bangladesh, 1980, p. 120.
2.    Michael, P. Todaro, Economics for a Developing World, An
      Introduction to Principles, Problems and Policies for Development,
      Longman Group Limited, London, 1977, p-87,95.
3.    Sharp, Al, M., et al, Economics of Social Issues, BPI-IRWIN,
      Homewood, Boston, USA. 1990. p. 269.
4.    Irfan Ul Haq, Economic Doctrines of Islam : A Study in the Doctrines of
      Islam and Their Implications for Poverty, Employment and Economic
      Growth, International Institute of Islamic Thought, Herndon, Virginia,
      U.S.A., 1996, p. 184.
5.    Cowan, Milton, ‘Mu’jamul Lugatul Arabiyyatul Muasia’ (Arabic-
      English dictionary).
6.    Mohammad Zafor, Islamic Alternative to Poverty Alleviation : Zakah,
      Awqaf and Microfinance: Bangladesh Perspective, paper presented in an
      International seminar titled ‘Islamic Alternative to Poverty Alleviation:
      Zakat, Awqaf and Microfinance, Islamic Economic Research Bureau,
      April 2007, Dhaka, Bangladesh.
7.    Huq, Begum Ismat Ara, Poverty Alleviation Through Islamic Micro
      Financing - A Case Study of Bangladesh, paper presented in an
      international seminar titled ‘Islamic Alternative to Poverty Alleviation:
      Zakat, Awqaf and Microfinance, Islamic Economic Research Bureau,
      April 2007, Dhaka, Bangladesh.
8.    Mary Wollsstonecraft, A Vindication of the Rights of Woman, 1972,
      quoted in, Human Development Report 1994, (UNDP), Delhi, Oxford
      University Press, Bombay, Calcutta, Madras, p.14.
9.    Thomas Paine, Human Rights, Second part, 1972, ibid, p.14.
10.   Qutb, Sayyid, Social Justice in Islam, (translated: John B. Hardie;
      revised:Hamid Algar), Islamic Book Trust, KualaLumpur, Malaysia,
      2000, p.45.
11.   M. Umer Chapra, The Islamic Vision of Development, Thoughts on
      Economics, Vol. 18, No. 03, July-Sept 2008, Islamic Economics
      Research Bureau, Dhaka, Bangladesh. p.7.
74                                                       Horizon of Zakat……………..

12.   Woes of the Welfare State  A Special Report, The Time, Dec, 1980,
      p.14-15, quoted in Mohd. Zohurul Islam, Islamic Economics, Islamic
      Foundation, Bangladesh, May 1987, p.173.
13.   Chapra, M. Umer, Islam and Economic Challenge, Leicester, The
      Islamic foundation, 1992.
14.   Chapra, 2008, p. 15-16.
15.   Naqvi, Syed Nawab Haider, The Islamic Ethical System, in Ethics in
      Business and Management, (edited by Abul Hasan, M., Sadeq and
      Khaliq Ahmad, Islamic Foundation, Bangladesh, 2004, p.25.
16.   Al- Ghazali, al-Mustasfa, 1937, Vol.1, pp. 139-40.
17.   Chapra, 2008, p. 26.

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(edited), Islamic Foundation, Bangladesh, 2004.
* Abdul Hannan, Shah., et al., (edited), Zakat and Poverty Alleviation, Islamic
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Al-Bukhari (compiled from Sahih Al-Bukhari by M. Muhsin Khan), Maktaba Dar-
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Institute of Islamic Thought, Herndon, Virginia, U.S.A., 1996.
*Islam, M. Zohurul, Islamic Economics, Islamic Foundation, Bangladesh, May 1987.
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Algar), Islamic Book Trust, Kuala Lumpur, Malaysia, 2000.
*Sharif, M.Raihan, Guidelines to Islamic Economics: Nature, Concepts and
Principles, Bangladesh Institute of Islamic Thought (BIIT), 1996, Dhaka.

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