Islam and Poverty

Introduction:

Poverty is one of the most active subjects in international affairs; the percentage of poverty around the globe is increasing annually due to different reasons starting by wealth distribution to corruption and injustice governance, but we have to ask ourselves what is poverty which institution decides this person is poor or not based on what benchmarks and who determined these benchmarks? Then we can explain poverty in Islam and how Islam deals with poverty problems?

Poverty as terminology means the individual is unable to provide and cover his basic financial needs but does this definition is the same as the Islamic definition? Does poverty only means the material difficulties and can’t do certain things and needs others? What is the different between Fakir (??????) and Masken ???????))?

Poverty Definition from Islamic Perspective VS Globalization Perspective

A)   Islamic Definition:

According to Islam, Poverty is “fakr, fakir and fukara (plural form)” is mentioned in the Qur’an twelve times. When these verses are examined, it is seen that two speak of “spiritual poverty.” These verses compare the inability of human beings to sustain themselves and their absolute need for Allah (al-fukara ilallah) while Allah himself who does not need anybody (wallahu’l-gani).

The remaining verses are related to “material poverty” and mean helping, protecting, and sheltering poor people. In these verses, those who are not rich have material needs and require other peoples’ help. Thus, it is seen that the majority of verses deal with material poverty.

The words for poverty, in the hadiths of the Prophet Muhammad, are generally used in the same way. There are many hadiths related to poverty and the poor in the Zuhd (the ignorance of the world life). In these hadiths the poor mainly refer to “material poverty” as it is in the Qur’an. However, it is interesting to note that these hadiths speak of poverty in terms of both compliment and loathing. When we talk about Zuhd we automatically remember the Sufism which practicing Islam in Zuhdm they view the fakr or poverty has a special meaning and place. However, the Sufis paying attention to the material meaning of poverty in the earliest years also accepted the act of giving up property and goods as a basic principle. Since ninth century, it is seen that Sufis’ concept of poverty has acquired a philosophical and spiritual meaning. Fakr means to have no need of anything or anyone except Allah. With this meaning, the poor is not a person who is can’t provide the material things and daily food, but one who lives keeping constantly aware only needing Allah.

So, we can understand that the poor person in Islam is the one who is away from Allah and the person who can’t provide his materialistic needs is called “Maskeen”.

Ali Bin Abi Taleb (radia Allah anho) said “if poverty is a man I would kill him”, poverty leads to incapacity, helplessness, and dependence on others. According to the Prophet Mohamed salah Allah Allah wa salam, “poverty can drive a person close to disbelief” the absence of this need could create conflict with dignity need as mentioned above.

B)   Globalization Definition:

According to the UN Millennium Development Goals (2005), “the poor are defined as individuals living in households with command over no more than $1 per day per person valued at international prices.” This is the example of an absolute poverty line, while most countries define their own absolute poverty lines as well. Globally, the number of people meeting this definition of extreme poverty was 980 million people in 2004. It requires no elaboration that the Muslim world has a large part of that pool of people in poverty.

From economic logic, most of the poor people are located in Africa and South East Asia, and generally, all developing countries have their own local currency which depends on the government revenue of dollars which based on the national production and the purchasing power of their local currency. However, I believe UN have put more burdens on developing governments by this definition and we can realize the poverty gap has increased from 2005 to 2016 dramatically due to inflation and new world bank regulations which put more ties in developing countries which reflects on the local production.

Islam being a Universalist religion meant for the entire humanity its agenda or solution regarding poverty is not limited to Muslims only, but it meant the rest of the world. However, in the contemporary context, that might be too ambitious. We must evaluate the potential of Islamic economics to solve the challenge of poverty in the Muslim world rather than aim to embrace the bigger, global Islamic directive.

Islam takes the issue of poverty quite seriously, The Prophet Mohamed sala Allah Allah wa salam said “poverty leads to kufr”, poor Muslims around the world are subject to Christian missionaries for aggressive preaching and sometimes desperate Muslims’ submitting and converting is well documented. It is well known from Islamic history that during the earliest period of the mission of the Prophet, poverty was considerable during the early Makkan period and that it was mostly those from the poor, weak and disadvantaged segments of the Makkan society who responded to the call of Islam.

Dealing with Tools against Poverty

We need to understand the reasons behind poverty in order to understand how Islam is eliminating this economical sickness which named poverty. From an Islamic perspective anyone who gets richer, there are an absolutely couple of individuals who get poorer, but how and why?

From early ages of Islam poverty was one of the most important economic issues faces the empires and been ignored by some Khalifas why unacceptable behaviors, for example, inflation which raises the prices of goods and services that causes a decline in local purchase power. From Islamic history, the Muslims were using Dirham and Dinar that made by silver and gold, these were stabilizing the market but due to the rulers who were aiming to increase the government revenue through enforcing higher taxation rate, the activity of the market reduced, adding the new cheap currency that was minting started to push out the silver and gold out of transactions, this behavior was a reason at that time to increase the prices and reduced the purchasing power. 

Abu Yusuf (113-182H) had explained that loss in the real value of “Fulus" (coins made of cheap metals). Fulus came into circulation side by side with Gold Dinar and Silver Dirham which were considered by Muslim Fuqaha to be “the Money”.

Inflation would cause the Real Value (Purchasing Power) of any currency (Dinar, Dirham or Fulus) to depreciate. Yet, loss in purchasing power in case of Dinar and Dirham can be compensated by their intrinsic value (value of gold or silver) which may remain constant or even rise. Fulus is different. It has insignificant intrinsic value because it is made of cheap metal. Thus the loss of the purchasing power of Fulus cannot be compensated at times of inflation.

Imam- Al Ghazali (451-505 A.H), explained that the problems involved in barter exchange before explaining the benefits resulting from the use of money and describing its main functions.

Money in itself is of neutral nature. It is useful when used in buying our needs or invest in a trade or other activities. It is useful when measuring the value of things which we need to buy or sell or in estimating future values of our rights or obligations. Thus he recognized that the most important functions of money in being a medium of exchange and a standard of value.

Upon such an understanding of functions of money, he proceeds to explain the economic rationale of prohibiting hoarding and usury (Riba) in Islam. He says that Money in the economy is similar to blood in the human body, thus it is against society’s interest to keep it idle by hoarding or misuse it through Riba.

He was very keen to explain in details sources of earning income and emphasize the importance of earning Halal (Sharia permissible) income from any source or economic activity. He explained that cooperation in society involves people working in a different profession to produce our needs at the end. The concept of “division of labor” was amid his explanation. Giving an example by a “loaf of bread”, saying just think how many people worked, one after another in a long production process to give you at the end the loaf of bread that you find on your table in the morning.

Ibn Taymiyyah called the ruler to intervene in the market and set fair price to people in order to relieve them from monopolistic exploitation. Ibn Taymiyyah showed keenness to protect the interests of people in markets, particularly the poor ones.

 Ibn Qayyim Al-Jawziyya, a disciple of Ibn Taymiyyah, further improved market pricing idea by distinguishing between “made price” and “natural price”. “Made Price” is set by merchants who control supply in the market while “Natural Price” being a competitive price determined by the natural powers of market demand and supply.

By differentiating between the two prices he distinguishes the cases in which prices should be controlled by the ruler and those when the market is competitive and should be left free.

We have to bear in mind that the Prophet refused to intervene in the market when some companions asked him to set the Market price. The market by his time was clean of any monopolies or monopolistic practices. It was purely competitive. One of the important contributions of Ibn Taymiyyah concerns the monetary policy. He criticized policies of some rulers who extensively depended on minting Fulus to cover their expenditure.

Ibn Taymiyyah observed that extensive use of cheap money like Fulus derived out coins made of gold and silver (Dinar and Dirham) out of in transactions. That observation preceded a similar one made more than two centuries later, by Thomas Gresham (1519–1579).

Taqi- Eldin Al Maqareezi (765-844 A.H), the grand scholar submitted his interpretation of the hyperinflation which he witnessed in Egypt. Al-Maqreezi claimed upon historical evidence that prices, in the long run, followed a cyclical pattern in rising up and falling down.

He attributed that phenomenon mainly to natural causes; climate changes, availability of water in the Nile River, which affected agricultural produce at the macro level. Yet, he emphasized the effect of many institutional factors, such as monopolistic practices, corruption (mainly through bribery) and mismanagement of the economy by rulers.

With respect to hyperinflation, he focused on the monetary aspect to the extent that he can be classified as the first monetarist in the history of Economics. He firmly believed in the Gold System’s efficacy and that ruler's heavy reliance on minting cheap metal money (Fulus) was the main reason behind the continuous increase in money supply and the explosion of prices everywhere.

Inflation in his analysis yielded redistribution of real income among different classes in the economy because of ability or inability of each class to increase its money income by the same rate of inflation.

Ibn Khaldun and the theory of Umran is mainly looking for the prosperity of the nations through the concept of division of labor which will not happen without the growth of population in society is a necessary condition for economic growth but not sufficient condition, because without growth of population; the division of labor will not take place, and not sufficient because the growth of population needs to be in a favorable political climate, because people will not produce if the rulers are not just. When rulers are tolerant and just in tax have to be fair. In such condition, Population growth will lead to the division of labor which means extra output = extra income= extra expenditure which leads to continuous growth.

Ibn Khaldun discovered that such tax policy would potentially reduce public revenue! In his analysis, if tax rates keep on rising they would discourage economic growth, and thereby reducing government revenues. In modern economics, this relation has been expressed by “Laffer curve”. Economist Arthur Laffer does not claim to have invented the curve and admitted that he got the idea of the curve from Ibn Khaldun.

The declining of the State started by increasing the taxation rate, according to Ibn Khaldun, when the ruler tries to increase the tax in order to increase the government revenue that will lead people to reduce their production, and whenever increase happens the production decrease automatically.

Islamic market, the government should work as a guardian for the market through al Hesba system which working on protecting the traders and consumers Islamic market is totally rejecting any monopolistic behaviors and monopoly, every person in the market has the right to participate in the market with his capital.

There are non-monetary policies should be implemented in the market otherwise that’s won’t be defined as Islamic market, for example, the prohibitions of dues in entering or exit the market. Prohibition of Ihtejar which is a person come and reserves his location in the market by stone or any other tool. The prohibition of monopoly, the prohibition of monopoly behavior such as meeting trade caravans out of the city before reaching the main market area, the prohibition of fraud like giving inaccurate information of the productn service, the prohibition of Ghaben which is unfair price that result unfair benefit, the prohibition of Gharar which selling product or services with lack of information about the product and sometimes giving wrong information without any grantee, and the prohibition of Najash which is unacceptable behavior in trying to raise the price of a product without any intention to buy it.

Islamic market purely depends on competition but the government should make the market located in one area, free entry or exit for every person, open the door for everyone market needs a very large number of sellers and buyers, homogeneity of commodities, and perfect knowledge about the market.

Currently, the Islamic markets in Muslims society are not Islamic due to the integration of capitalist principles and lack of Islamic market information among Muslim. However, there are conditions for establishing the Islamic market in the current time

?   Reformation of the “Hesba System” and making it capable of Enforcing its Sharia Rules directly or through courts:

One of the most important pillars of the Islamic market is the Hesba system. The conceptual base of this system is quite profound, that is to protect the market from any practices against Sharia and its tenets. With the desire to revive the institutional frame of the Islamic market fresh efforts have to be done to reform the Hesba System.

The Hesba system has to be reconstructed on modern bases to include organization and supervision of all types of markets; commodity, factor, and financial markets. All these markets were treated as one market in old days

The Muhtaseb, though would be appointed by the government, should be granted legal supreme authority that enables him to take final decisions towards practices that are directly or indirectly against Sharia. The Muhtaseb should be trustable, having sufficient knowledge and experience in Market and trade affairs and organizational matters, and supported by the team of Sharia scholars, market experts and supervisors, economists, and other necessary staff to fulfill the responsibilities of the system.

These remarks are the most important ones to say, but not everything. A successful contemporary Hesba system should gain experience and expertise through practice.

?   The revival of Market Sharia Rules through qualification of existing civil and commercial Laws and enacting new Legislations.

First Step is to have “Fresh understanding “of socio/economic circumstances in the Muslim society before having Sharia rules gradually re-activated in present day markets. Some of the existing commercial and civil laws may only have to be qualified or enriched to become compliant with Sharia.

Second Step is to enact “New laws” and set “New market regulations” have to express Sharia Maqasid. All this depends on Scholarly Ijtihad because Sharia rules in the economic activities, as well as in markets and trade transactions are not always dogmas

In our fresh trial for New Laws and Market regulations that are Sharia-compliant, we should not exclude possible benefits that can be driven from modern secular trade and market laws and regulations. In Islamic tradition, believers should search for wisdom wherever this can be found. Most of the advanced free economies now have governmental and non-governmental institutions, coherent laws and efficient judicial systems which fight against monopolies and all forms of monopolistic and trade practices, protects consumers, take care of measurements, scales, quality standards, protects small and new producers from big and old established business entities.

?   The revival of Islamic Business Ethics through Education, Cultural Programs, and declaration of Islamic Code of Business Ethics.

Islamic market legislation, whatever sophisticated, are inseparable from ethical values.

It is not possible, therefore, for the revival of the Islamic market institution to think only of new laws or regulations, which are restricted by Sharia or by its tenets. Without a revival of Islamic ethical values many of the suggestions given in previous slides of this presentation would either be impossible or highly expensive to implement.

The revival of Islamic business or market ethics is not an easy task, similar to that of enacting new laws and regulations within the Sharia boundary. It needs education and spread of Islamic teaching and knowledge of ethical values at various levels and in various institutes; schools, mosques, and media within a national campaign. All this would naturally involve costs, besides rational leadership and sincerity on the part of teachers.

One important requirement for all above changes is the development of democratic governments with strong perception towards the revival of the Islamic market which is surely part and parcel of the holistic scheme of an Islamic economic system.

A revival of an Islamic market institution in our time needs serious considerations to be given to the international dimension. Markets of Muslim countries and prices prevailing within, cannot really be isolated today from the World market.

Considerations of the international dimension obviously need fresh research which has to recognize in one pot; the complicated international pattern of specialization and interdependence, current waves of globalization, and willingness within the Muslim World to enter into schemes of economic integration.

Islamic Fiscal System:

Islamic fiscal system is a solution to eliminate poverty, unlike secular fiscal system which has to experience in the current days and resulting increase in poverty percentage in developing a world where Islamic states located.

Islamic fiscal system decisions based on the public interests and social economic justice of the society (??????? ???????) these public interests guided by ijtihad within boundaries of Islamic and its maqasid including Zakat collecting, revenue and distribution in accordance to Quran.

Islam has provided a package of economic reformation which creates justice, equality and the right for everyone to enter the market regardless of the capital amount and reputation, for example:

Zakat, Only Zakat (the Islamic Fiscal Duty ) was collected from Muslims and no Taxes were imposed on them in the early centuries of the Islamic State. Taxes were only imposed on non-Muslims because they were not committed to Zakat.

Historical experience reveals that Zakat revenue was in some periods more than sufficient in covering public expenditure, and in other periods insufficient. Jizyah ?????? was a poll tax imposed on non-Muslim people living in the Islamic state because these were neither paying Zakat nor serving in the army like Muslim citizens. Kharaj ?????? was a tax levied on arable land owned by non-Muslims in provinces conquered and ruled by the Islamic State. Kharaj was firstly introduced by the Caliph Umar ibn Al-Khattab after conquering rich agricultural countries such as Iraq, and Egypt.

Umar Bin Al Khattab had initiated Ushr system which is levied on merchandise brought from outside, once its value reaches Nisab, and for Muslims, the rate of this Tax was equal to Zakat on trade, 2.5% on value. Muslims paid Ushr to the Asher (Collector of Ushr) did not pay trade Zakat on the same merchandise. Ushr was paid on the instant of coming with merchandise from outside, in a manner similar to tariff on imports, for Christians and the Jews (People of the Holy Book) Ushr was 5% and for Merchants coming from countries that were hostile to the Islamic State ??? ?????, Ushr was 10% or equal to rate (s) imposed by these countries on merchandise brought by Muslim merchants in their land (Notice principle of reciprocity).

In the Islamic system as mentioned above there are different taxes which are dedicated for the public interests and there are specific ways for distribution of public taxes revenue which must be in line with Zakat principles, the reason behind imposing new taxes must be for temporary objective then the tax rate must increase or decrease or even canceled according with the objectives achievements in regards with public interest. Islamic taxes can help the government to reduce the poverty rate within the government at the same time balancing the justice of income and growth. 

The Zakah has an income effect in the sense Private spending of Zakat by recipients whose marginal propensity of consumption is normally high has a direct effect on aggregate demand and National income in the short run.

?   Besides, regular public spending of Zakat on some major items, e.g. National defense, Also, it has its direct effect on aggregate demand and National income in the short run.

?   Financial Assistance given to the heavily indebted producers has a direct relieving effect on national income, particularly at recessionary periods.

Example:

Poor people have has a marginal propensity of consuming than rich people. If you have a poor person 1000 QR he will spend all or most of it because he needs the money. But if you gave a rich man 1000 he may spend only 100. That to say extra income will only raise his consumption by little. Zakah will take only a small amount from the rich to give it to the poor people.

It will raise the level of demand, once the demand increases the income will increase and raise.

Secular taxes have negative income and growth effect because when you impose tax it discourages people to spend more or make an investment which will have a negative impact on growth. Tax is a burden but zakat is not. Because when you impose a tax on producers that will discourage producers to make an investment which will have a negative income effect. But Zakat is not meant to stop people or producer to spend more. Zakat is meant to purify the soul and paid on this basis. When we take Zakat and assign this zakat to the investment it will encourage and motivate growth. Tax collection is not necessarily going to the investment it may be taken regularly by the government to make service for the people or to spend on a diplomatic mission abroad or make other government expenditure. Zakat in itself we can assign some part of it directly to investment activity which will have a positive effect in respect on growth.

Unlike taxation, The Islamic system of Zakat enjoys a permanent and stable character. This is unlike secular Taxation where a Tax may be removed or added and its rate is subject to adjustment by Legislators.- Whereas Tax rates may be excessively progressive to the extent that they discourage individuals or firms to produce more and earn more income, or maybe regressive to the disadvantages of low-income groups, Zakat rates are proportional and can be generally described as low or relatively quiet moderate when compared with tax rates.

In a contemporary Islamic economy, Taxation can be used within the boundaries of Shariah and its intents, to affect or modify macroeconomic variables.

For example, at times of inflation taxation can be used to reduce Aggregate Expenditure by imposing taxes on luxurious consumption (notice that this is not contradictory with Islamic culture).

Taxation is also needed to modify the structure of production if resources are allocated in a pattern which is unfavorable to goods and services needed by poor and low middle-income groups, or in a pattern that is unfavorable to the long-run Islamic economic development strategy. These are, in fact, important issues for all developing Muslim countries.

The need for imposing Taxes besides Zakat could arise for several reasons. Public Interest within the boundaries of Shariah and its intents ??????? ??????? may render Taxation necessary for fiscal, economic or non- economic purposes. Laying Rules for Islamic Taxation is, therefore, an essential and important task. The Role of Taxes in an Islamic Economy would naturally be linked and influenced by ethical and Shariah constraints imposed on taxation. Taxes can be levied to discourage any kind of consumption or activity that may be potentially harmful to human health or to Islamic ethical values. (????? ??? ????) The consensus of Muslim Fuqaha is always needed before issuing a fatwa (Shariah pronouncement) that a new kind of consumption X or Z is definitely harmful and therefore should be prohibited (i.e. Haram). Whereas Consensus is often difficult to reach and Fatwa is delayed, the harm of X or Z has manifested practically in some cases and potentially is expected to spread and becomes serious. Examples: heavy taxes that can be imposed on tobacco smoking, or on some types of undesirable entertainment.

Any proposed Taxation should not contradict the basic principles of the Zakat System. For example, no tax should be imposed on low-income people or an orphan’s wealth or no tax should be levied at a rate that involves injustice (high rates and rates which are regressive or progressive). no tax should be imposed on personal belongings or assets that are needed for living.

?   The philosophy of taxation should be consistent with that of the Zakat system

?   Taxes should therefore complement and not contradict the Zakat System.

Taxes may be imposed for another purpose because zakat does not cover all purposes like education.

A Tax, should never carry or assume the same obligatory and permanent nature of Zakat. A Tax which would be originated for purpose of achieving a given fiscal or economic target (that could not be done by Zakat) has to be removed once this target is done.

Islamic Financial System:

Islamic financial system provides alternative to interest system in allocating available resources which is profit/loss sharing system, The capital owner will select the best project regardless of the financial status of the person seeking fund. In this way, the available fund will be allocated to useful projects which create jobs and not wasted in funding luxurious goods which are only for consumption and will not create any output.

In an Islamic financial system, available funds will be distributed efficiently among investors since financiers share with them expected a profit, high or low. Assuming that financiers would raise their risk margin proportionally with expected future returns at the boom and that they would be reluctant to extend their finance at depression because they would share in the loss, which would be quite expected, profit and loss sharing mechanism would also help in bringing about stability at the macro level.

Unlike Keynesian theory, every businessman would estimate the marginal efficiency of investment (r) while the interest rate (i) is determined by money demand and supply. If (r) is equal or greater than (i) it will be rewarding to borrow and finance the investment project. Otherwise, the project will not be undertaken. Accordingly, available money for lending will be allocated efficiently among firms and economic activities, which can result injustice among markets activates and only Large corporations are given priority and better borrowing terms, irrespective of how funds will be used by them. In fact, banks (lenders) are concerned, above anything else, with borrower’s solvency. In fact, banks set preferential treatments and financing priorities on the credit-worthiness basis.

Consequently, small enterprises are either neglected or given least attention by bankers, even if their investment projects are expecting the highest returns.

In Islamic financial services will results Justice, Leniency, Benevolence, Due Respect and full Regard for Others’ Private Property, Submission to the right of everyone in making Transactions according to own Free will. Prohibiting practices like Riba, Bai Eina, and sale of debt, gharar, ghabun, and fraud.

In order to avoid all these injustice practices in secular financial services and provide justice and equality which can result miner poverty percentage, Islamic financial system provides different modes like:

·        Mudaraba: the owner of capital allows another party to invest his funds on bases of profit/ loss sharing principle

·        Murabaha; Cost Plus Profit Purchasing formula for the customer

·        Ijarah; Leasing and lease ending with ownership

·        Musharaka, particularly Diminishing Partnership for a given time period

·        Istisna’a; Manufacturing Contract

·        Salam; Finance against Future Delivery Sale

Government policies:

Poverty is an obvious failure result of a secular economic system which is increasing dramatically in annual basses; the government must seriously consider reforming the economic system on public interest and social economic justice basses through issuing effective researches and fiscal policies in line with Islamic instructions which aiming to implement justices in all aspect of Muslims lives.

Conclusion

Poverty is a result of injustice behaviors within the market and in order to solve the poverty issue we need to reform all economic regulations and policies, any economic problem like inflation, hyperinflation, injustice practices in the market, high taxation rate, political instability and etc will result in an increase in poverty rate.

In Islamic financial services will results Justice, Leniency, Benevolence, Due Respect and full Regard for Others’ Private Property, Submission to the right of everyone in making Transactions according to own Free will. Prohibiting practices like Riba, Bai Eina, and sale of debt, gharar, ghabun, and fraud.

Justice which is the basic and the main goal for Islam to explore justice and equality, the goals of human dignity, self-respect, brotherhood, social equality, and well-being can’t be reached without justice, and Islam has described that the absence of justice will emerge darkness. Al Mawardi said, “There is nothing that destroys the world and the conscience of the people faster than injustice”. Ibn Khaldun said, “Unequivocally stated that it is not possible for a country to develop without justice