UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

The Rationale for a Distinct Economic System Based on Islamic Values Originating from the Moral Teachings of Islam

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Durham, UK


Camille Paldi



Islam can be seen as a system of ethics comprised of philosophical and conceptual foundations.   This system of ethics consists of Al’-adl wa’l-ihsan (Equilibrium and beneficence or socio-economic justice), Fard (responsibility), Rububiyyah (Divine arrangements for nourishment, sustenance, and directing things towards their perfection), Tazkiyah (purification plus growth), Tawhid (God’ unity and sovereignty), and Ikhtiyar (free-will).  Combined with Shari’ah and fiqh, this comprehensive moral code provides a reason and framework for a distinct moral economy based on risalah or the teachings of Jesus (p.b.u.h.), Moses (p.b.u.h.) and Muhammad (s.a.w.), the Bible, Torah, Qu’ran, and Sunnah.


The rationale for a distinct economic system based on the moral teachings of Islam actually reflects the morality of all religions and humane philosophies.  The key ideas behind Islamic finance including the belief in divine guidance; the no-interest rule; socially responsible investing; the sharing of risk; and the using of real assets to finance deals find resonance with all people desiring a moral economy, which works for the benefit rather than the detriment of the majority of humanity.

For instance, Riba (interest) was prohibited in both Judaism and Christianity long before Islam and the Qu’ran is just re-stating what the two previous Holy Books have already mentioned.  In fact, many of the economic principles in Islam can be traced back through the Holy Books to the messages expounded by Jesus (p.b.u.h.) and Moses (p.b.u.h.). “Indeed, to protect society’s integrity and means of self-support for its members, every religion in history perceived that the system of usury… was opposed to the proper workings of society” (Choudhury, 2007:59).  Islamic banking is therefore a form of Holy Book Banking, encompassing principles found in Judaism, Christianity, and Islam.

The Moral Teachings of Islam

Asutay says that “Islamic economics aims at a world order where the ontological and epistemological sources, the Qu’ran and the Hadith, determine the framework of the economic value system” (2012:22).  Choudhury elaborates that “The unifying worldview is derived from the epistemology and ontology of Divine Unity… We thus have the epistemology of Divine Unity and the unification process of knowledge emanating from Divine Unity” (2001:3). Therefore, by using a system of knowledge based on a tawhid One-God epistemology we can deduce a set of moral teachings, which should guide us in the creation of a distinct economy.  It is this Divine Unity epistemology and ontology derived from Qu’ran and Sunnah, according to Asutay and Choudhury, which should form the basis of the framework of the Islamic economy and should mold the values and behavior of the institutions and actors found in the superstructure of society.  Asutay states that “Islamic banking and finance institutions should thus be located within this framework, and possess a systemic understanding in order to serve the aims and objectives of Islamic economics and hence contribute to the falah process for individuals by expanding the ihsani social capital in the society” (2012:22). Through serving Allah in our financial activities, one works simultaneously towards the betterment of oneself, one’s family, humanity, and salvation.  “An Islamic economic system is based on a two-dimensional utility function, operating in a positive correlation with each other” (Asutay, 2007:8).  As life in the hereafter is linked to our activities on earth, the economic system has a two-dimensional utility function, with man seeking to earn a living and at the same time striving to enter heaven.  “The darkness in the Hereafter is nothing but a reflection of darkness created by us in this world through injustice (zulm). (Chapra, 2008, 11).

In Islam, “the individual is perceived to be the vice-regent of God on earth, a khalifah, to fulfill the expected duties in their social, economic, financial and other behaviors in order to make their decision through a moral filter” (Asutay, 2012: 21,22).  The moral filter is supported by the Qu’ran and Sunnah, the Shari’ah, and fiqh.  We have been left guidance for how to structure our financial dealings and transactions to promote optimal human productivity and well-being in all of the Holy Books, the most recently being the Qu’ran.  Choudhury states “The Qu’ran constructs historical processes by ancient narrations that leave a lasting and permanent moral import for the guidance of mankind and the applicability of the underlying laws, guidance and lessons for human experience” (2007: 5,6).  Choudhury also mentions that “the Shari’ah is a part of the phenomenological construction and explanation of the world-systems that are patterned on the basis of the Moral Law as derived from the Qu’ran and the Sunnah” (2007: 57).  The guidance of the Qu’ran and Sunnah can be found in itself and derived through the Shari’ah and combined with fiqh, provides a useful source of knowledge, which can be used as the base of all human activity.

Dusuki says that Abu Hamid al-Ghazali (d. 1111 CE) defined Maqasid or the Objectives of the Shari’ah through five objectives “The very objective of the Shari’ah is to promote the well-being of the people, which lies in safeguarding their faith (din), their lives (nafs), their intellect (aql), their posterity (nasl) and their wealth (mal)” (2011:3).  Whatever ensures the safeguarding of these five serves public interest and is desirable and whatever hurts them is against public interest and its removal is desirable.  Professor Mehmet Asutay says that “The entire objective of Islamic Economics and the operational aspect of Shari’ah is to serve ‘human well-being,’ which is the main and essentialized aim of all efforts within the tawhidi (One-God framework)” (2012:22).  When constructing the Islamic economy, therefore the Shari’ah must mold the base and the Objectives or Maqasid al Shari’ah must frame the One-God tawhidi framework, which incorporates risalah or the teachings of Moses (p.b.u.h.), Jesus (p.b.u.h) and Muhammad  (s.a.w.).  “He has sent His guidance to all people at different times in history through a chain of His Messengers including Abraham, Moses, Jesus, and Muhammad…  Thus, there is a continuity and similarity in the basic worldview and value system of all Revealed religions” (Chapra, 2008, 21).  The goal is to create a distinct economy based on the moral teachings of Islam, which includes risalah, the teachings of all of the prophets and messengers of God, including Moses (p.b.u.h.), Jesus (p.b.u.h.), and Muhammad (s.a.w.), the Bible, Torah, Qu’ran, and Sunnah.  Therefore, Tawhid (God’ Unity and Sovereignty) is the Islamic worldview, which is based on tawhid (the Oneness of God), risalah (God’s prophets as the source of Divine Guidance), akirah (life-after death) and a system of accountability based on Divine Law” (Asutay, 2007:8).  It is through the tawhidi framework, which the Islamic moral economy based on risalah should emerge.

Islam can be seen as a System of Ethics with Conceptual Foundations Reflected Through the Shari’ah

Islam can be seen as a system of ethics comprised of philosophical and conceptual foundations.   This system of ethics consists of Al’-adl wa’l-ihsan (Equilibrium and beneficence or socio-economic justice), Fard (responsibility), Rububiyyah (Divine arrangements for nourishment, sustenance, and directing things towards their perfection), Tazkiyah (purification plus growth), Tawhid (God’ unity and sovereignty), and Ikhtiyar (free-will).

According to Al’-adl wa’l-ihsan (Equilibrium and beneficence or socio-economic justice), individuals are expected to establish justice (‘adl) and promote beneficence (ihsan) on a micro and macro level as well as establish an economic framework through which to expound socio-economic justice.   Asutay says that this would in turn produce social equilibrium (Naqvi, 1994 as cited in 2007:8).   “The absence of justice cannot but ultimately lead to misery and destruction (Qu’ran, 20:111).”

In terms of Fard (Responsibility), people are responsible to each other and to Allah to serve Allah and fulfill their mutual obligations for the benefit of society.  “Accordingly, it is the personal obligation (Fard ‘ayn) of every Muslim to earn a living to support himself and his family…and it is the collective obligation (fard kifayah) of a Muslim society to manage the economy in such a way that everyone has a suitable opportunity to earn an honest living in keeping with his/her ability and effort (Chapra, 2008, 16).”   Asutay explains “Hence, in economic terms, there is a social aspect and responsibility of every asset owned or managed by private or public entities (2007:8).”

In Islam, one lives for Allah rather than the market and production should be for humanity rather than a particular market or trading bloc.  “Rububiyyah or the Divine arrangements for nourishment, sustenance, and directing things towards their perfection is the fundamental law of the universe, which throws light on the divine model for the useful development of resources and their mutual support and sharing” (Asutay, 2007:8).  Divine resource management should be the central principle guiding production and development, which is based on a Divine mode of production.  Asutay says that “It is in the context of these divine arrangements that human efforts take place” (2007:8).  Thus, production should be focused around human need rather than maximizing shareholder’s wealth in order to serve Allah rather than the market.

The mission of all of the Prophets including Moses (p.b.u.h.), Jesus (p.b.u.h), and Muhammad (s.a.w.) was to perform tazkiyah (purification plus growth) of an individual in her relationship with God, with other people, and with the environment, society, and the state.  This purification process would lead to the purification of the capitalist system into a moral economy.  Tawhid, is the worldview, which is based on risalah, akirah (life-after death) and a system of accountability based on Divine Law.  “It provides for freedom of action whereby each individual is viewed as an integral part of the whole” (Asutay, 2007:8).  This freedom is not without bounds and is seen in the context of the larger society.     “While freedom is indispensable for every individual, the well-being of all is also indispensable and cannot be compromised.  Therefore, some socially agreed restrictions are necessary on individuals to ensure that they do not trespass the rights of others and jeopardize their well-being” (Chapra, 2008, 10).  Freedom is allowed to the extent it causes harm to another.  “As khalifas of God…the freedom of human beings is bounded by moral values to ensure not just their own well-being but also the well-being of all God’s creatures.  When the angels realized at the time of man’s creation that he was going to be God’s khalifah on earth with freedom to act on his own initiative, they had an apprehension that this freedom might lead him to corrupt the earth and to shed blood (Qu’ran, 2:30)…To help them avoid such a fall, God has Himself provided them with the second precious asset which is the guidance sent by Him to all human beings and nations at different times in history through a chain of His Messengers.  The purpose of this guidance is to assist them in managing their affairs in this world in a way that would help ensure the well-being of all in harmony with their mission as khalifas of God.  Their freedom is, therefore, within the bounds of the guidance provided by Him.” (Chapra, 2008, 13).   Therefore, Shari’ah provides injunctions to mankind to ensure the well-being of humanity, justice, and peace on earth as well to promote the man’s role as khalifah on earth.  The moral teachings of Islam, derived through the Shari’ah from the Qu’ran and Sunnah, the Fiqh, and the messages of all of the Messengers of God provide mankind guidance on how to structure financial transactions to preserve harmony and humanity as a whole.

Through remaining accountable to Allah, we act through a moral filter cleansing our psyche of the desire to inflict harm.  We seek to please Allah by abiding by His Divine injunctions and rules and attain a better life in the Hereafter.  This is the rationale behind purifying the capitalist system into a distinct economic system, which serves God’s will rather than that of man.  In Islam, humans are ultimately accountable before Allah and are sent to earth only to carry out their assigned tasks and use their God-given abilities for the advancement of God’s will.


These compassionate goals are universal and found within the hearts of all of the brothers and sisters of the Holy Books including the Bible, Torah, and Qu’ran.   In reality, Islamic finance strikes the cords of justice, equality, and peace, which already exist in the moral mind-set of many people around the world, regardless of their ethnicity, gender, or religious affiliation and hence the popularity of and curiosity about such modes of financing amongst the people of the Book.


Abdullah, Daud Vicary and Chee, Keon (2010). Why Islamic Finance Makes Sense, Understanding Its Practices and Principles.  Singapore: Cavendish International Press.

Asutay, Mehmet (2007). “Conceptualization of the Second Best Solution in Overcoming the Social Failure of Islamic Banking and Finance, Examining the Overpowering of Homoislamicus by Homoeconomicus.” IIUM Journal of Economics and Management 15, no. 2, 167-195.

Asutay, Mehmet (2007). “A Political Economy Approach to Islamic Economics: Systemic Understanding for an Alternative Economic System.” Kyoto Bulletin of Islamic Area Studies, 1-2, 3-18.

Asutay, Mehmet (2012). “Islamic Economics: Between Aspirations and Reality.” Papers of Dialogue, Agenzia Italia, 20-23. 

Chapra, Muhammad Umer (2008).  The Islamic Vision of Development in the Light of Maqasid al-Shari’ah.  London: International Institute of Islamic Thought.

Choudhury, Masudul Alam (2007). The Islamic World System, A Study in Polity-Market Interaction.  Singapore: World Scientific Publishing Co. Ptd. Ltd.

Choudhury, Dr. Masudul Alam (2001).  “Survey Article Islamic Political Economy.”  Analysis 8 (1&2).

Ghosh, B.N. (1995). “The Ontology of Islamic Political Economy: A Meta theoretic Analysis.” Volume 11, Number 3.

Kamali, Mohammad Hashim (2011).  Shari’ah Law: An Introduction.  Oxford, England: One-World Publications.

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