Content uploaded by Ata Rahmani
Author content
All content in this area was uploaded by Ata Rahmani on Jul 13, 2022
Content may be subject to copyright.
Content uploaded by Ata Rahmani
Author content
All content in this area was uploaded by Ata Rahmani on Jul 13, 2022
Content may be subject to copyright.
INTERNATIONAL JOURNAL OF ISLAMIC BANKING AND FINANCE RESEARCH 9(1) (2022), 32-44
32
ISLAMIC BANKING AND FINANCE
IJIBFR VOL 9 NO 1 (2022) P-ISSN 2576-4136 E-ISSN 2576-4144
Available online at https://www.cribfb.com
Journal homepage: https://www.cribfb.com/journal/index.php/ijibfr
Published by CRIBFB, USA
THE INFAQ THEORY OF ISLAMIC PENSION
Ataollah Rahmani (a)
1
Alija Avdukic (b) Faizal A. Manjoo (c)
(a) Lecturer in Commercial Law, Al-Maktoum College of Higher Education & School of Business, University of Dundee, UK; Email:
a.rahmani@almcollege.ac.uk / arahmani001@dundee.ac.uk
(b) Senior Lecturer in Islamic Economics & Finance, Al-Maktoum College of Higher Education & School of Business, University of Dundee, UK; E-mail:
A.Avdukic@almcollege.ac.uk / aavdukic001@dundee.ac.uk
(c) Senior Lecturer in Islamic Studies and Finance at Markfield Institute of Higher Education, UK; E-mail: faizal.manjoo@mihe.ac.uk
A R T I C L E I N F O
Article History:
Received: 17 May 2022
Accepted: 24 June 2022
Online Publication: 5 July 2022
Keywords:
Islamic Pension, Islamic Welfare, Muslim
Elderly, Muslim Employees’ Pensions, Infaq
and Islamic Moral Economy
JEL Classification Codes:
G32, F65, L66, L25, M41
A B S T R A C T
This paper applies an Islamic economic perspective to a major conundrum besetting the Islamic world,
namely, how to provide financial support to expanding ageing Muslim populations. The paper employs
a qualitative method involving descriptive and analytical methods whereby primary and secondary
data are analyzed to inductively form a formula for an Islamic pension scheme. The results of this study
suggest that despite the benefits and worldwide application of pension schemes, proponents of Islamic
finance remain ill-prepared and slow to devise prototypes of workable Islamic pension models designed
to address the needs of ageing Muslim populations. The vast majority of existing pension schemes fail
to comply with the principles and values of Islamic law and ethics. As a generality, Muslim populations
would prefer to remain without pension provision rather than endorse a religiously unlawful policy.
The paper proposes that infaq as a key institution of Islamic moral economy, provides an ideal
foundation for the development of an Islamic pension model that satisfies both legal and ethical Islamic
stipulations. Keywords: Islamic pension, Islamic welfare, Muslim elderly, Muslim employees’
pensions, infaq and Islamic moral economy.
© 2022 by the authors. Licensee CRIBFB, USA. This article is an open access article distributed
under the terms and conditions of the Creative Commons Attribution (CC BY) license
(http://creativecommons.org/licenses/by/4.0/).
INTRODUCTION
In western economies, pensions plans are generally considered to be efficient financial schemes designed to enable ageing
employee populations to maintain acceptable standards of living upon retirement. A pension plan is a tax-free investment
for the employees’ benefit that commits the employer to make regular contributions to a pool of money that is set aside in
order to fund payments made to eligible employees after they retire, thereby, helping workers support and plan their future
expenditure. Comprising contributions from employers, employees, or both, the pension payments are pooled over a long
period of time and form a collective fund. The pension fund, which is controlled by professional fund managers during the
life of the pension scheme, is normally invested on the stock market for profit. On retirement, the employee resumes control
of the pension and may spend it accordingly. Pensions partially compensate the employees’ loss of income at retirement and
provide protection in the form of lump sums or pensions to dependents in the event of a pensioner’s death.
The western pension model relies on a neo-classical approach to economics and is expressed as being incrementally
developed through the rational response from human actors within the framework of the market economy which does not
necessarily inculcate moral and religious values. Since the 1960s, however, the general trust in the rational actor agenda has
increasingly been contested, leading to claims that neo-classical economics fails to provide a comprehensive and integrated
understanding of economic complexity.
During the 1970s various approaches offered more nuanced understanding of economics. The economy and
economic policy emerged and became prominent within the neo-classical economic approach. This paved the way for
alternative economic models that endogenize religious faith and values as factors influencing human agents when making
choice in relation to economic and financial matters. Whilst various movements have concurrently emerged amidst the mid-
twentieth century attempting to source solutions for various economic and financial problems besetting underdeveloped
1Corresponding author: ORCID ID: 0000-0003-1215-5950
© 2022 by the authors. Hosting by CRIBFB. Peer review under responsibility of CRIBFB, USA.
https://doi.org/10.46281/ijibfr.v9i1.1769
To cite this article: Rahmani, A., Avdukic, A., & Manjoo, F. A. (2022). THE INFAQ THEORY OF ISLAMIC PENSION. International Journal of Islamic
Banking and Finance Research, 9(1), 32-44. https://doi.org/10.46281/ijibfr.v9i1.1769
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
33
countries and communities, Islamic economics has institutionalized financial transactions, instruments and products that are
ethically responsive and attractive to Muslim populations worldwide. Islamic economics presents a morally loaded model
that deviates from mainstream approaches to economics by constructing an authentic understanding of economic life infused
with the norms, values and principles derived from Islamic sources. The Islamic moral/political economy agenda now claims
to present a more reliable tool to examine and explain economic frameworks and social reality.
Since its inception in the late twentieth century, Islamic economic models have expanded in terms of product
diversity in response to diverse Muslim financial needs (Bahlous & Yusof, 2014). However, there has been less effort to
innovate or engineer a morally responsive pension instrument to meet the needs of elderly Muslims. Despite economic
benefits to aging populations and its worldwide popularity, pensions have largely been ignored in Islamic jurisprudence and
attendant economic models. Elderly Muslims often receive only quasi-pension support from their own family and relatives
or reluctantly join existing conventional pension schemes in their countries. Yet both factors are problematic. Muslim
populations no longer reside within supportive communities characterized by strong family and tribal ties. Such
communities have transited into societies with more modern individualistic lifestyles. The advancement of knowledge in
human health and the improvement of health services have extended life expectancy which contributes to a greater longevity
risk which eventually is borne by family members and relatives who may no longer be able to afford to provide pension
support (Reinhart & Rogoff, 2011).
Western style pensions are often impermissible, as they violate the fundamental prohibition of shari’ah against
riba. Pension funds frequently use interest-bearing investments prohibited in Islam and the income from such investment is
deemed impermissible. Where there is no risk of riba
i
or unlawful investment in an Islamic pension, Muslim employees
would still generally opt out of such Islamic pensions due to their perceived unethical nature (Khan & Ahmad, 2014). It is
well known that the services of conventional pensions are not shari’ah compliant (Haron et al., 2022), falling short of infaq
expectations. Most employees are not positively affected by the activities of such pension models (Yunusa, 1998). Muslim
communities, therefore, tend to disengage with pensions either conventional or Islamic (Reinhart & Rogoff, 2011). Many
Islamic scholars, jurists and Muslims regard the concept of pensions as a potential threat to Islamic ethics. Central to their
view is that hoarding personal wealth (Kenz) beyond what one spends to satisfy their needs and the needs of those they
support is reprehensible in Islam, as money and wealth should circulate to the benefit of society and the economy in its
entirety. As a matter of faith, a Muslim should not hoard money via a pension plan. Personal wealth is respected as long as
it is spent on legitimate needs or invested in assets or permissible trade. Where unspent, money should be used in a
productive way in order to comply with the ethics of shari’ah.
This paper applies an Islamic economic perspective to a major Islamic world conundrum, namely, how to provide
financial support to expanding ageing Muslim populations. The vast majority of investment funds within the existing
pension schemes do not comply with shari’ah rulings, because the pension fund is routinely invested in assets that generate
interest or involve industries such as alcohol, pork, gambling, weapons, tobacco, among others, which are considered
unlawful and, therefore, forbidden. Interestingly, however, Islamic jurisprudence through the institution of infaq offers an
ideal foundation for the development of an Islamically ethical pension scheme. Infaq is one of the main pillars of the Islamic
economic system that relies on Islamic faith. Literally, infaq is the Arabic word for spending. Conceptually infaq in the
Islamic system means spending money for the betterment of society and its members including the giver and their family.
It covers both present and future spending. Presently, one may spend money to purchase goods and services or make monthly
contributions to a collective fund which will be spent in the future in order to promote sustainable living. Seen in the light
of infaq Islamic pensions can comfortably be differentiated from the unethical concept of Kenz
ii
. The infaq analysis of the
Islamic pension satisfies Islamic ethical standards and provides a pragmatic solution to sustainable living for aging Muslim
populations.
At first glance a pension arrangement may seem alien to religious teachings. In accordance to other economic
activity, it is considered an economic instrument with parties seeking non-spiritual material objectives. Yet a considerable
amount of recent research suggests that a meaningful link may exist between religion, economic planning and performance.
As this research proposes a pension model based on Islamic ethics and law, a review of existing literature in this field aids
an understanding of why ethical and religious considerations are important when producing a pension prototype (section
II). We suggest that our proposed pension model will be responsive and compliant to an Islamic economic system. This
system encompasses both legal and ethical constraints of Islam. These constraints are based on the religious edicts of Islam
and, therefore, must be complied with when innovating new pension models. The nature of these constraints, how they link
with a pension model and under what circumstances ignorance of these factors may trigger conflict with Islamic teaching
are important factors still to be examined (Section III). Infaq theory constitutes the main thesis of this paper. We suggest
that an Islamic pension model can be safely innovated if a combination of two or more infaq-based arrangements are
employed. Infaq-based arrangements are mandatory and voluntary in nature satisfying both the legal and ethical constraints
of Islam. A discussion of the theory and nature of infaq, its division into different types and its mechanisms will be
considered afterwards (Section IV). The suggested infaq theory must be capable of further application to the economic
context and for the purpose of this research this forms our proposed model of an Islamic pension. We propose that certain
contractual arrangements within the Islamic law of muamilat (contracts) have the capacity to implement the theory of infaq
within the pension context and to form a carefully considered Islamic pension. These are waqf (Islamic trust), hiba (gift),
sadaqah (Islamic almsgiving) and wa’ad (unilateral promise) as shari’ah compliant transactions and pertinent to an Islamic
pension. These contractual arrangements will be considered further on (section V). The paper concludes by summarizing
the proposed framework of an Islamic pension under the theory of infaq. In the framework construction, two or more
contractual arrangements of infaq are combined to surmount simple conformity with the requirements of Islamic law and
which offer an ethical mechanism for the salvation of the elderly, and satisfy employers, and wider Muslim communities
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
34
(Section VI). RELIGION AND WELFARE PENSIONS
Devout followers of most faiths hold the belief that their religion is divinely authorised. For the communities of believers,
religious teachings matter for socio-economic law and policy making. This manifests today in countries with a secular
system of governance. Religiously-based laws enacted in the US are most noticeable in legislation that affects the lesbian,
gay, bisexual, and transgender communities or prohibits same-sex marriage and abortion (Clark & Scharffs, 2016). In
Germany, the Christian Democratic Union which is a political alliance of Catholics and Protestants and a party that claims
to represent Christian-social, liberal and conservative values has been in power for decades.
iii
UK law is historically based
on Judeo-Christian values and ethics. The English jurist Matthew Hale (1609–1676) declared Christianity to be a part of
common law. William Blackstone (1723–1780), author of the influential commentaries on the laws of England, identified
divine law and natural law among the sources of common law.
iv
As Lord Denning (Master of the Rolls 1962-1981) pointed
out English law has been beneficially affected by Christianity in a number of ways. These included a belief in the importance
of truth, requirements of good faith in statutory interpretation and contractual obligations, the development of the law of
negligence, and the basic presuppositions of criminal law.
v
Lord Atkin whose judgment in the landmark case Donoghue v
Stevenson
vi
established the principle of duty of care and laid a foundation for the tort of negligence referred to the Good
Samaritan which is clearly derived from the teachings of Jesus.
The role of religion in economic planning and political decision-making has already attracted scholarly attention
(Iannaccone, 1998; Glaeser, et al., 2005). Modern scholars from different disciplines have established a link between
religion, religious practice and welfare (Kawachi & Kennedy, 1997). In his seminal work, Weber assessed the impact of
Protestant Christian tradition in motivating capitalism (Weber, 1904). More recently, studies focused on Hinduism, Islam
and Christianity have shown a relationship between these religions and economic planning for the elderly (Guiso, et al.,
2003; North, 2004; Barro & McCleary, 2003; Glahe & Vorhies, 1989). In their effort to elucidate economic reality,
postmodernist scholars reintroduced value and morality into economic considerations (Asutay, 2012). They responded to
insufficiency within the conventional system and provided insight into socio-economic matters by incorporating religious
values and ethics as a cornerstone of life (Sadeq, 2006). Here, religion is perceived as a global source of morality that
provides a moral compass, to offer rules that govern economic practice and guide and improve human behaviour.
Religion is important for creating harmony amongst different generations (Iyer, 2008). Incorporating religious
values across generations contributes towards improved social security and reinforces the primary objectives of modern
welfare programmes (Wilson, 1997). For example, all major religions, including Islam, emphasise the responsibility of the
rich to help the poor and needy to alleviate poverty, enhance social stability and social good. The gap between rich and poor
potentially disturbs sustainability for the elderly (Sharp, 2018). Therefore, closing this gap may rectify the imbalance (WHO,
2015). Abrahamic religions offer individualised approaches to address an observable gap between the rich and the poor
(Carvalho, Iyer, & Rubin, 2019). From a religious perspective sustaining the elderly is a prerequisite for fair and effective
harmonization and dignity of community members (Migdad, 2018). The reinstatement of ethical practices and religious
values in economic systems appears both desirable and inevitable. While Muslim employees and the elderly appeal for
religious ethics to influence the pension models and practices, the existing models exhibit significant challenges. A dire
need exists for alternatives to the existing pension models that can remedy both longevity and disengagement risks on the
part of Muslim communities. Alternative proposals should rely on the foundations of Islamic economics, which are
discussed next.
PENSION WITHIN ISLAMIC ECONOMICS
As Naqvi observed ‘Muslim societies are much more regulated by religious values (ʿaqīdah) than any other society’ (Naqvi,
1997). Islam contains its own set of values, laws, and ethics that strongly regulate economic activities. Islamic economics
determines the permissibility of all economic activity. An Islamic pension can be innovated and operate only where it
conforms to the principles and values of Islamic economics (Komilov, (2022). Economics as a science is generally defined
as the study of human economic behaviour, as individual economic agents, and as communities and collective entities (Kahf,
2007). At first glance, the addition of the adjective ‘Islamic’ to ‘economics’ looks redundant, as it may seem to serve no
purpose. Yet, Islamic economics displays a distinct exponent based on the ontology and epistemology of Islam (El-Ghazali,
1994). Asutay (2012) describes Islamic economics as “an approach to, and process of, interpreting and solving the
economic problems of human beings based on the value, norms, laws and institutions found in, and derived from, the sources
of Islam”.
vii
Many commentators referred to it as ‘Islamic moral economy’ which is loaded with Islamic ethical values and
moral considerations (Asutay, 2012). In this model, the Qur’an and Sunnah (Prophetic traditions) constitute the foundational
sources of economic practice (Chapra, 2000; Jan & Asutay, 2019). These foundations suggest a careful distinction between
two categories of intertwined relationships. One concerns faith (‘aqīdah), worship (ibadat) and ethics (akhlaq), whereas the
other relates to socio-economic conduct (muʿamalat). The first involves a human relationship with God whilst the second
concerns the human relationship inter se. As regards the former, believers do not have much freedom to define the terms of
the relationship. There is, however, reasonable space for development and innovation in respect of the latter. For instance,
Muslims are required to do daily prayer exactly as prescribed, but they are free to choose to engage in business on their own
terms. Yet, Muslims’ freedom in socio-economic activity is by no means absolute. It is subject to two sets of constraints,
legal and ethical, both stem from the theological belief of Muslims (Bhala, 2016).
Legal constraints over Islamic economics are referred to as shari’ah
viii
within the terminology of Islamic law. This
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
35
prohibits Muslim engagement in forms of economic activity recognised as haram.
ix
This includes any transaction that
involve gharar (excessive uncertainty), maysir (gambling) and riba (interest). Gharar refers to any transactional risk,
uncertainty and hazard incurred by a Muslim because of their lack of knowledge of material information in respect of a
particular business or financial transaction.
x
The Qur’an has not referred to gharar expressly but condemned it indirectly in
verses regarding gambling.
xi
Maysir, also referred to as qimar, is thought to be the worst form of speculation encompassing
the pure form of gharar. Islamic jurisprudence defines it as ‘taking a risk in the hope of gaining an advantage or a benefit
whose materialisation is fully or substantially reliant on a game of chance’.
xii
Riba is a Qur’anic Arabic term denoting a
prohibited act usually equated to “usury”. It concerns an unlawful gain derived from the quantitative inequality of the
counter-values of the same genus in any transaction.
xiii
Ethical constraints within Islamic economics, referred to as Akhlaq, provide Muslims with recommendations for
either engagement or disengagement from certain practices, though they have no legal force. Ethical recommendations aim
to benefit the Muslim community, not simply individual Muslims. Azid and Asutay (2007) indicate that Islam requires
economic activity to be practised in ways that are beneficial to Muslim communities. In an economic context, Islam
commences with the minimum compliancy rules of fiqh
xiv
that are mandatory but further require observant Muslims to
display ethical practice and to effectuate the objectives of shari’ah
xv
(Mergaliyev et al., 2019). A practising Muslim should
therefore conform to both.
Islamic economics is founded on ethical axioms that stem from the theological beliefs of Muslims. These axioms
are foundational to the Islamic moral economy, which enable individuals to achieve falah (salvation) in this world and the
hereafter (Silva, 2007). While shaping Islamic moral economy, they contribute to drawing a clear route to social well-being.
Here, a formulation is synthesized through which Muslims view themselves as vicegerents (khalifa) of Allah on earth who
voluntarily incorporate ikhtiyar (right to make free choice) and tazkiyyah (sanctification) to secure the ‘hifz al-‘ird (to guard
Muslims’ praiseworthy character) of maqasid al-Shari’ah in conformity to tawhid, rububiyyah (to believe in Allah’s
omnipotence), ʿadl (Justice) and ihsan (beautification). Holistic implications result for the totality of life and play a major
role in socio-economic planning, including preparation for retirement (Khaleel & Avdukic, 2019). The foundational ethical
axioms underpinning the construction of Islamic pensions are listed below and examined next.
Tawhid
Tawhid signifies belief in the oneness of God, the indivisibility of the self, and the names and attributes of God (Naqvi,
1994). It decrees the nature of the relationship between God and human beings. God provides material resources on earth
for the benefit of all social groups to allow equal access of humankind to such resources. While God has created humans
and bestowed humanity with diverse resources to facilitate economic activity, responsibility is incumbent on spending these
resources righteously. In Islamic economics expenditure is made for charitable or transactional purposes. Both of which
constitute the infaq sector, which under the economic model is considered a right for Muslims (Qur'an, 57:20).
Tawhid depicts human bodily rights as an amanah (trust) to be cared for, especially through old age, when weakness
occurs (Qur'an, 36:68). Commanding that the elderly are catered for is intrinsic to the oneness characterising the tawhidic
paradigm (Qur'an, 17:23). Infaq falls within the ambit of an equitable distribution of wealth in an Islamic moral economy.
God has created a lifecycle which enfolds man in time-bound phases which usually culminates in old age (Qur'an, 22:5).
According to tawhid the infaq sector develops a successful path for ageing and not merely age-related deterioration. Duties
are incumbent on various economic agents to provide for the elderly and to establish systems to care for them.
Rububiyyah
Rububiyyah
xvi
which is innate to Islamic moral economy implies “divine arrangements for nourishment, sustenance and
direction towards perfection” (Ahmad, 1979). It constitutes an act of worship of God as long as the activity is not harmful
to society. In this sense, every constructive human activity can be an act of worship of God (El-Ghazali, 1994). Human
economic activity can help believers attain perfection. It therefore signifies the existence of a careful harmony between the
economic, the social and the environmental objectives and actions. Rububiyyah is entrenched in the underpinning philosophy
that God not only creates but also guides creation to perfection (Azad, 1981). This is exemplified when Muslims collectively
contribute to the Baitul-mal
xvii
to develop the infaq sector in a holistic way. The growth of the ummah must be organic and
systematic. Ibn Salam meticulously elaborates on the various branches of the infaq sector in his book Kitab al-Amwal. He
sets a precedent to reconsider avenues for exploration under a modern financial economy to redistribute wealth and to
develop a contemporary approach to pensions from an infaq perspective. Ibn al-Salam’s typology ensures a sustainable
system for cash inflow to support society, emphasising provision for the elderly as a communitarian and individual
responsibility. Care of the old and needy falls within the ambit of infaq as a sustainable development arm of Islam, with
pensions as an important prong for such development.
Alʿadl Wa-al-Ihsan
Alʿadl wa al-iḥsan is an important axiom of Islamic moral economy. It literally means justice and beneficence. In a technical
sense, it encourages believers to promote good deeds and establish justice (ʿadl) through equal and fair distribution of wealth
among individuals (Asutay, 2007). It presumes that individuals are of equal value. Muslims are expected to obey God’s
commands in the Qur’an by engaging in meritorious acts and demonstrating care for one another (Qur’an, 16: 90). Justice
and good deeds strengthen the fabric of brotherhood and create social balance. Ethical obligations to promote good deeds
and establish justice closely link to tawḥidic maxims. It requires Muslims to share resources by paying zakah
xviii
and
sadaqhah.
xix
This obligation is designed to support the needy and less fortunate in society, such as orphans and the disabled,
with the aim to alleviate poverty and social misery and to exert a positive impact on economic growth and social stability
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
36
(Naqvi, 1981).
Al Ikhtiyar
Ikhtiyar literally equates to free will. In Islamic philosophy, it refers to the recognition of humans as agents possessing free
will. God has created human beings with cognitive faculties to distinguish between good and bad deeds, thereby enabling
humans to evaluate what is right and wrong (Adlina, 2011). According to Islamic belief, the destiny of individuals is decided
by their freedom of choice to decipher right and wrong. This implies that individuals are free to choose from a variety of
economic and financial options. Yet, this free agent rationality is ethically bound within norms of social justice and
beneficence. Accordingly, individuals bear full responsibility for their choices as a matter of accountability before God on
the Day of Judgement. Accordingly, they are responsible to make choices that promote socio-economic development
(Naqvi, 1994).
The Islamic approach to Ikhtiyar is clearly demonstrated in modern day Islamic micro finance whereby the poor
are assisted, among others, via the waqf institution. The global estimated value for awqaf exceeds one trillion US dollars. In
modern Islamic finance waqf is gaining prominence allowing Muslims to make n responsible choices through it. Waqf
institution often underlies other micro economic schemes, including pensions, interest-free loans, and business financing to
boost Islamic moral economy.
Farḍ
Farḍ refers to mandatory obligations imposed by Islam on Muslims either individually or collectively. For example, Islam
affirms that Muslims bear a responsibility (farḍ) to their society and especially to the needy, including orphans and other
less privileged social groups. Islam places special emphasis on avoiding social negligence, and many verses in the holy
Qur’an urge Muslims to care for one another (Karim, 2010), particularly, those in need (Qur’an, 70: 24-25). Islamic
teachings submit that all wealth and power on earth belongs to God. The Qur’an indicates that wealthy individuals are
trustees of the wealth bestowed on them, so they are obliged to spend the wealth in accordance with God’s guidance. As
their wealth contains a social claim, the rich should satisfy this by caring for the needy and the dispossessed - this is often
achieved by paying zakah (mandatory charity) and sadaqhah (voluntary charity). Wealth in Islam encompasses a social
dimension, regardless of whether it is retained by the state or by individuals. For this reason, Asutay (2007) describes Islamic
moral economy as constituting a ‘utopian economic model’, which aims to distribute income and wealth equitably.
Tazkiyyah
Tazkiyyah refers to the purification of one’s soul via improving personal relationships with God, society, the environment
and the state (Ahmad, 1979). Implicit in self-development is the promotion of justice (ʿadl), good deeds (iḥsan) and
preventing injustice (ẓulm) among all life’s stakeholders, including other individuals, the state, society, and the environment.
This maxim suggests that growth in the economy, society and at the individual level is desirable, if it embraces social and
moral obligations while avoiding harm to stakeholders in a Pareto optimal manner. Through tazkiyyah Muslims secure social
and economic development and promotion of happiness in this life and the Hereafter (Asutay, 2007). Zakah purifies one’s
wealth. It cleanses the heart from excessive love of wealth because it forces Muslims to relinquish a proportion of their
wealth to the poor.
The infaq sector reflects tazkiyyah. It encourages a person to offer charity to the poor in order to recompense for
spiritual shortcomings. For instance, sadaqhah al-fitr compensates for omissions during fasting; or kaffarah when failing to
uphold an oath. These infaq-based instruments reflect the philosophy of tazkiyyah. Infaq-based spending attempts to mitigate
zulm (injustice), encourage ihsan (beautification) and facilitate establishment of an equilibrium via ‘adl (justice).
Khalifah
Khalifah literally means vicegerent but in a technical sense, it refers to a twofold Islamic moral economy concept that firstly
recognises God’s ownership of all wealth and natural resources on earth, and, secondly, human trusteeship over such wealth.
Trustee status requires humans not to waste economic resources; to establish justice on earth, and not to undermine social
harmony and ecological balance. This implies that individuals are God’s vicegerents (khulafa) on earth entrusted with the
duty to live their lives responsibly and as a trustee act with care and loyalty. The khulafa are tasked to apply resources for
the benefit of humanity without discrimination (Choudhury, 2016). Through piety and righteousness, the world’s resources
should be harnessed to serve all the living beings that God has created on earth (Al-Sheha et al., 2001).
Maqasid al-Shari’ah
Maqasid al-Shari’ah refers to the higher objectives of shari’ah. Imam al-Ghazali (d.505/ 1111) initially defined it as “to
promote the well-being of the people, which lies in safeguarding their faith (din), their self (nafs), their intellect (ʿaql), their
posterity (naṣl) and their wealth (mal)” (Chapra, 2008). In addition to these five objectives of maqasid al-Shari’ah, shari’ah
scholars added an additional one of hifz al-‘ird, meaning to improve the quality of life and motivate people to achieve
optimal well-being. Collectively, they provide a framework for social and economic activity, and act as guidelines consistent
with Islamic teachings. Such objectives of shari’ah, constitute the basis for social reform and socio-economic development
towards a better future for individuals and for society at large (Mergaliyev et al., 2019). By eliminating harmful and sinful
practice from all aspects of life, it becomes possible to ensure welfare and justice for all. The five objectives of shari’ah can
be described as the essence of the Islamic faith and together constitute the basis for social stability. Failure to observe these
objectives would mean that one would sustain suffering in life and face an uncertain destiny in the Hereafter (Chapra, 2008).
This, maqasid approach provides the methodological base through which the objectives of economic and social activities
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
37
are achieved (Zailani et al., 2022).
THE INFAQ THEORY
The institution of infaq is a fundamental mechanism devised within Islamic moral economy to effectuate the delivery of the
ethical maxims that underlie an Islamic pension. Literally, infaq is the Arabic word for spending. In the technical sense, it
refers to any giving meant for the betterment of society and its members, including the giver and their family. Infaq-based
transactions are often described as spending/giving ‘for the sake of God (‘fī Sabi lil Allah’) which implies giving for
charitable purposes. Spending may be either for the purpose of exchange against goods and services or for any charitable
contribution with no expectation of a material exchange.
xx
The infaq sector can be described as a powerful tool to realise a financial-economic balance in Islamic communities
(Haq, 1996). While everyone is not expected to be rich, social imbalance will exist because not all economic agents are
successful. However, those who are successful have a duty of care vis-à-vis the underprivileged. When this responsibility
is not discharged then economic injustice prevails. The infaq is an important lubricant for a just economic engine. In the UK
alone, the Muslim community officially contributed more than one billion pounds during 2018 to sustain the poor. Muslims
spend the most in the UK on charitable giving donating an average of £361 per head, followed by Jews contributing £270
per head (Mustafa, 2017). Islamic teachings divide the infaq into four categories (Mohammed, 2011):
(1) Infaq as a religious absolute personal obligation
(2) Infaq as a religious circumstantial personal obligation
(3) Infaq as a religious community obligation
(4) Infaq as a religious voluntary contribution
Infaq as a Religious Absolute Personal Obligation
Infaq as an absolute personal religious obligation indicates the kind of spending required from each Muslim, regardless of
social or community requirements for the money. Two immediate examples of this type of spending are zakah levied on
property (zakah al-mal) and zakah levied on people (zakah al-fitr) (Akhsan & Ryandono, 2022). The former is a religious
tax obligation on all Muslims who own property, cash or other sources of wealth.
xxi
The latter is a religious tax obligation
on every Muslim, male and female, adult and minor to be paid at the end of the month of fasting, Ramadan. Payment for
breaching one’s oath also known as Nuthur (singular: Nathr) is another form of spending as a personal religious tax
obligation.
Infaq as a Religious Circumstantial Personal Obligation
Infaq can be a circumstantial obligation on a person as a result of certain circumstances and/or relations. For example, the
rich may be required to spend on the livelihood of their deprived relatives. Islamic law makes it obligatory for a man to
spend on his wife and young children (Qur’an, 2:233). This is a marital obligation applying also to blood relationships; it
includes dependents’ living expenses, along with their Islamic and worldly education. Additionally, spending on needy
relatives, especially parents is obligatory in Islamic law on their nearest kin, provided s/he is financially able. Infaq on one’s
guests in the form of hospitality and on needy neighbours is obligatory too. Other forms of circumstantially obligatory
spending include compensation for religious mistakes or shortfalls known in Arabic as kaffarah (plural: kaffarat) and
spending on libel, tort and civil liability. It is incumbent according to shari’ah for the protection of ‘irḍ (Qur’an, 17:70),
thereby, securing the dignity of the neglectful and their family.
Infaq as a Religious Community Obligation
Infaq can also be a community obligation, i.e., a personal obligation placed on every Muslim individual until someone fulfils
it. Once fulfilled, other Muslims are relieved of a personal responsibility to respond. This type of obligation covers all
community need, such as, spending to build civil and religious infrastructure, including roads, public utilities, mosques,
cemeteries, and so forth. It also covers all social welfare requirements, such as, supporting the poor and needy, and where
the proceeds from zakah are inadequate, to sustain economic development of underdeveloped areas, scientific research and
exploration. This community obligation also covers infaq on the safety and security of a Muslim society, people and land.
However, the obligation to maintain infaq is subject to financial ability. As some academics pointed out, within an Islamic
fiscal system, a community obligation to spend is the foundation of taxation, as well as tax progression (Abu, 2005).
Infaq as a Religious Voluntary Contribution
Religiously-based voluntary spending is repeatedly encouraged in the Qur’an and sunnah. Islamic scholarship distinguishes
between two kinds of voluntary spending: running-stream spending and one-shot spending. Regular or one-shot spending
is allotted to beneficial causes (Cizakca, 20007). Assisting the poor and needy, feeding the hungry, and clothing the naked
are virtuous practices held in high regard within Islam. The best expression of obedience to God is to help His creatures,
especially the children of Adam. Helping God’s creation covers animals, plants and the environment. Running stream infaq
involves spending on establishing awqaf (trusts/endowments) whose revenues and/or services benefit the targets of infaq.
Via awqaf Islamic civilization has traditionally financed education, health care, social services, public utilities, scientific
research, and to a large extent, external defence, ‘tabarru.’
The infaq institution has capacity to justify an Islamic pension. Pensions often involve pensioners who plan the
spending of their pension money. Future spending on oneself is a key element of the infaq institution in Islamic economics.
As a religious circumstantial personal infaq obligation, a Muslim employee takes a future consideration for self-sustenance
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
38
and signs up to a pension scheme for retirement spending. The pension pot under such a pension scheme is invested till the
point of retirement when pension repayments are made.
As it promotes the dignity of Muslim communities, infaq has gradually institutionalised in Islamic economics (Haq,
1996). The infaq sector now provides the operational field for the implementation of the ethical maxims of the Islamic moral
economy. In other words, in Islamic economics, any economic activity is linked either directly or indirectly with infaq. For
example, rububiyyah and tazkiyyah motivate believers to act for the good and to prevent evil with regard to their social and
economic activity. Considering rububiyyah and tazkiyyah, Muslims spend in order to have a spiritual rapprochement to God.
In an Islamic pension and takaful, for instance, members contribute monthly payments to a common risk pool for ‘tabarru’.
They do so for mutual help and cooperation, not for securing profit in a competitive fashion. Such collective endeavour for
reciprocal help is endorsed in the primary sources of Islam (Qur'an, 5:2). Thus, Infaq in Islam purifies men spiritually and
enhances the development and growth of socially responsible societies.
The infaq analysis of pensions saves the existing pension practice from the lengthy and expensive process of
Islamic pension innovation by adaptation of the current conventional pensions and to develop shari’ah compliant pensions.
As the Qur’an emphasises, old age is an inevitable process of the human life cycle. One should protect human dignity at all
times including old age under the hifz al-‘ird of maqasid al-shari’ah.
CONTRACTUAL FRAMEWORK OF AN ISLAMIC PENSION
Islam does not recognise a general principle of freedom of contract. Instead, it endorses an adapted contractual freedom
xxii
in which commercial contracts must comply with requirements of Islamic law of contracts as demonstrated in the fiqh al-
muʿamalat. Throughout the centuries, Islamic jurists and scholars have produced a list of contracts that are sharia’h
compliant. Referred to as nominate contracts
xxiii
, they meet many Muslim business needs. The list is not exclusive/exhaustive
due to the ever-changing nature of the world that calls for innovation within new contracts to meet emerging Muslim need.
Innovative contracts can be accommodated through ijtihad using the principle of permissibility
xxiv
only where they do not
violate Islamic prohibitions. Pensions neither existed at the time of the introduction of Islam nor indigenously innovated
thereafter in Islamic business and finance practice. It is therefore not odd to see it omitted in the nominate contracts’ list.
The existing pension schemes in Islamic countries are often impermissible. They are simply modern imports from western
economies that violate the prohibitions of Islamic law. Inevitably, an Islamic pension will be engineered or innovated taking
into consideration the parameters of Islamic moral economy and the requirements of the Islamic law of contracts (Asutay,
2010). Islamic finance has long been working to replace or adapt many existing non-Islamic financial and business
transactions/products to ensure conformity with the parameters of Islamic law and ethics (Walker, 2009: 6; Usmani, 2002).
This focused on Islamic banking and insurance. Yet, there is a vast untapped extent where Muslim societies can benefit
from Islamic models beyond banking and insurance (El-Gamal, 2006; Warde, 2000). Development of an Islamic pension
that is capable of adhering to the Islamic parameters of law and ethics and can promote full social involvement would
become an essential task (Pollack & Olson, 2012). Hence, to engineer an Islamic pension, the following standards are to be
observed:
Prohibition of Riba
Any Islamic pension scheme must be interest-free. In conventional pension models, pension funds are often put in interest-
bearing investments. Such pensions are haram and prohibited in Islam and the income from such investment will be
impermissible accordingly. Interest-based transactions (riba) are clearly disallowed by shari’ah law. According to Islamic
doctrine any transaction of riba is disallowed because it produces injustice and unfairness with greater harm than benefit. It
compromises social welfare to secure individual welfare (Chapra, 2000). As money does not produce by itself, any income
derived from keeping, saving or lending money would be illegitimate. A legitimate income is a product of human labour
not financial transactions via credit systems. Gains should therefore be related to effort and risk.
xxv
This links to the
alternative income generation method promoted in Islamic business law that emphasises business partnerships with the
sharing of potential profit and loss between business partners. The principle of profit-and-loss-sharing (PLS) is essential for
any real economic activity (Ayub, 2007) and all such activities should focus on tangible assets (Iqbal & Molyneux, 2005).
It also follows that the contract parties and the stakeholders (i.e. financial institution, capital provider, labour contributor,
and the wider society) should work in harmony to secure the common economic welfare of everyone concerned paving the
way for a more democratic governance of economic resources (Cizakca, 2007). An Islamic pension scheme therefore shifts
from any risk transfer arrangement to a risk sharing arrangement which conforms to the Islamic law of contracts. Any
attempt to set fixed profits without taking a share of the potential loss of an investment in a pension scheme is considered
riba. In an Islamic pension, application of the no riba ruling and the PLS principles serves economic justice as the risk of
loss will be shared by the contributor and pension provider (Siddiqi, 1987).
Sharia’h Compliant Transactions
An Islamic pension arrangement consists of a pension fund which is only invested in shari’ah compliant transactions. These
contractual moods can range from long established nominate contracts to any innovative investment contract that meet the
permissibility requirements of the Islamic law of contracts. In fact, these modes of financial transactions historically were
practised in the Muslim world (Iqbal & Molyneux, 2005). They meet Islamic constraints over economic activities by
disallowing Muslim engagement in haram transactions.
xxvi
The law of shari’ah prohibits any transaction that involve
forbidden goods
xxvii
, gharar, maysir and riba (Iqbal & Llewellyn, 2002). In addition, any such investment project should
ensure the sustainability of Muslim societies in terms of the social and environmental impact. In other words, Muslims
should not invest their savings in projects that provide goods and services that are religiously taboo or undesirable, such as
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
39
tobacco, alcohol, gambling, and so forth. As vicegerents, Muslims should not misuse economic resources in a wasteful
manner, undermining social harmony and ecological balance. They should apply resources for the benefit of humanity
(Choudhury, 2016).
Infaq Based Arrangements
It is the central thesis of the authors that Infaq-based arrangements have the capacity to comply with both the ethical and
legal constraints of Islamic law. As such, they can be utilised to innovate an Islamic pension. The most suitable infaq-based
arrangements pertinent to developing an Islamic pension are waqf, hiba, sadaqhah and wa’ad. These arrangements serve a
twofold purpose. First, as they are arrangements of ‘tabarru’, they can accommodate gharar which is a major Islamic
concern for any contractual arrangement that involves future promises. Second, they contribute to drawing a clear route to
social well-being and enable individuals to achieve falaḥ (salvation) in this world and the Hereafter. Falaḥ directly relates
to consequences of actions or good deeds. Unfortunately, this is often ignored by the existing practice of Islamic finance
and contemporary Islamic scholarship - with a focus solely on intentions.
Waqf (plural: awqaf) also referred to as Habs literally means to hold still and to freeze but in a technical sense it
refers to a voluntary act of charity and ongoing sadaqhah
xxviii
that involves permanent retention of a specific property and
allocation of its benefits (manfa’ah) by the owner.
xxix
The first waqf created by the Prophet was a Masjid (Mosque) in
Madinah. Early awqaf were created for the benefit of the public.
xxx
Waqf scope gradually extended to other fields, such as
public utilities, education, research and health care. It can be created to serve any purpose that falls within the concept of
birr (Hassanah). Waqf benefits are assigned to the named beneficiaries. Waqf allocations can serve and benefit a specified
group of people connected to the donor (e.g. members of donor’s family), a charitable / humanitarian objective in relation
to the public (e.g. Covid-19 research), or a specified group of the public (e.g pensioners). It is similar to the common law
institution of trust except the testator in waqf will surrender their ownership over waqf property forever. The waqf
constitution (waqf deed) determines the objectives of the waqf, the way(s) in which manfa’ah (revenues) is to be spent, the
beneficiaries - individuals, a particular group or the general public, and the manager (mutawally) who will be in charge of
the management process and procedures. The corpus of the waqf endowment must be kept intact whilst it can be invested
in some safe fixed-income asset and the return from such investment is used to make philanthropic payments to the
beneficiaries (Nor et al., 2022).
Sadaqhah as an act of charity refers to “voluntary giving ‘fi sabillilah’ (for the cause of Allah) in Islam
xxxi
.
Described in the Holy Qur’an as ‘a beautiful loan’, giving sadaqhah is considered a sign of sincere faith. Both sadaqhah
and zakat are forms of charity in Islam, but they are not interchangeable. While zakat is an obligatory charity and is given
from one’s surplus wealth, sadaqhah is a voluntary charity. It involves any charitable act given out of compassion, love,
friendship, and generosity. Sadaqhah can be given to anyone because it has no limits or guidelines. One can provide
sadaqhah at any time as there are no set days or restrictions. Muslims often give sadaqhah to mark or bring blessings to
special occasions such as weddings, births, and other important milestones.
Hibah (gift) is a non-commutative nominate contract of a benevolent nature involving one party to the contract
transferring ownership of an asset to a counterparty without any consideration.
xxxii
It is often given with charitable purpose
or intention. Islamic scholars from the Shafi, Hanbali, Maliki and Shi’i schools hold the view that hibah may be revoked at
any time if the subject of the gift has not been handed over to the donee. Once the donee has taken possession of the subject
of the gift, the hibah may not be revoked by the donor.
Wa’ad
xxxiii
is commonly used in the Islamic law of obligations to mean a unilateral promise made by one party to
extend a future benefit to another party who receives it without an obligation to return a consideration.
xxxiv
It remains a
controversial concept in Islamic jurisprudence. While many Islamic jurists have opined that any promise would fall within
the general ambit of the permissibility of promises recognised in the Qur’an
xxxv
, others support arguments for the
impermissibility of any short of contract promise. Following this line of argument, to maintain consistency general respect
in the Qur’an for such a promise to be retained, is construed in the light of other Qur’anic verses, especially the prohibition
of gharar, denoting a contractual promise. Accordingly, a promise is valid/permissible only where it does not involve
gharar
xxxvi
although a unilateral promise always involves gharar. Despite such intellectual controversy, wa’ad is widely
applied in many Muslim countries.
Returning to the discussion surrounding Islamic pensions, to engineer an Islamic pension, one would need either
to substantially modify a conventional pension model or to innovate to produce an indigenous Islamic pension. Two modes
exist to engineer a new financial instrument, adaptation, and innovation (Iqbal, 1999). The first method also known as
reverse or replicating engineering tends to Islamise products taken from the conventional system by adapting such products.
This is generally considered easier to exercise and integrate into the targeted economic system or financial market, though
it can be associated with shari’ah non-compliancy risk, contamination with haram elements, or legal stratagem (heyal)
(Ahmed, 2006). The latter looks at the existing Islamic nominate contracts in the hope of identifying unexplored aspects to
re-design or combine such contracts to produce a new instrument. It will open new horizons for expansion of Islamic
financial products and instruments with lower risk of shari’ah non-compliancy (Alamad, 2017).
To engineer an Islamic pension, it is worth noting that a single arrangement cannot solely underlie and create this
product. It is essential to combine more than one arrangement. By combining two or more infaq-based contractual
arrangements, an Islamic pension conforming to both the ethical and legal constraints of Islamic rulings can be innovated.
For instance, regular contributions to a pool of money in a pension may take the form of initial voluntary charity payments
of hibah or sadaqhah, whereas future payments made to eligible retiring employees may enter the wa’ad category. Waqf,
sadaqhah, hibah and wa’ad are arrangements of ‘tabarru’
xxxvii
, which tolerate gharar.
xxxviii
They are non-commutative,
therefore, the donor/promissor transfers ownership of an asset to a counterparty without any consideration. This follows that
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
40
they can associate with future uncertainties while meeting the Islamic legal and ethical requirements for a permissible
pension. This can function as a source of funding for Islamic pensions that arranges and authorises retirement payments to
elderly Muslims. Recipients of such payments would not be required to return the finance. Such arrangements uplift adverse
financial outcomes for the elderly by authorising infaq-based halal payments to low-income employees who are often the
dispossessed, disadvantaged, and vulnerable.
CONCLUSION
Pensions have been used in western economies over a long period of time to ensure the welfare of aging populations. Pension
provision helps employees plan for a sustainable retirement during their old age, thereby, saving public financial expenditure
that may otherwise be allocated to benefit payments to the elderly. However, from an Islamic perspective, pension
arrangements are a new phenomenon that previously did not exist or evolve within Islamic finance theory and practice.
Conventional pension is regarded impermissible and ethically undesirable. As a matter of faith, a Muslim should not hoard
money via a pension plan, as money should be kept in circulation for the benefit of society and the economy. Personal
wealth is respected where it is spent for legitimate needs or invested in assets or lawful trade. This paper suggested that the
institution of infaq can provide an ideal foundation for the development of an Islamically ethical pension scheme. Infaq is
one of the main pillars of the Islamic economic system that relies on Islamic faith. The infaq analysis of the Islamic pension
satisfies both the Islamic legal and ethical standards and provides a pragmatic solution for sustainable living to aging Muslim
populations. The paper argued that infaq as the key implementation device of the Islamic moral economy is loaded with the
task of effectuating the higher objective of falah in Muslim societies. Infaq-based transactions are conducted ‘for the sake
of God (‘fī Sabi lil Allah’), not for individual egoistic satisfaction. In this proposed Islamic pension model, members
contribute monthly payments to a common risk pool for ‘tabarru’. They do so for mutual help and cooperation, not for
securing profit in a competitive fashion. Waqf, hibah, sadaqhah and wa’ad are the most suitable infaq-based arrangements
that are pertinent when devising an Islamic pension. They function as a source of funding for Islamic pensions that then
authorise future retirement payments to the Muslim elderly. As arrangements of ‘tabarru’ which tolerate gharar they avoid
the impermissibility of future promises. Also satisfied are the Islamic legal prohibitions forbidding riba, as the pooled money
may only be invested in shari’ah compliant investment opportunities, including, sukuk, shares of Islamic corporations, and
profit and loss sharing (PLS) investment accounts of Islamic banks. These aside, the infaq-based arrangements enable the
elderly, the employers and wider Muslim communities to achieve falaḥ (salvation), as they constitute good deeds in this
world and the Hereafter. The underlying infaq analysis of this model follows that Muslims no longer hoard money within
pension funds, instead all the investment activities and future payments take the format of charitable spending commended
as good deeds via Islamic teachings. Accordingly, Muslims are afforded the opportunity to invest their pension funds in line
with the teachings of their faith without compromising religious values. The investments in this fund will be subject to
screening by Islamic scholars to ensure they continue to comply with shari’ah principles of law and ethics.
Author Contributions: Conceptualization, A.R., A.A. and F.A.M.; Data Curation, A.R., A.A. and F.A.M.; Methodology, A.R. and A.A.; Validation,
A.R., A.A. and F.A.M.; Visualization, A.R., A.A. and F.A.M.; Formal Analysis, A.R. and A.A.; Investigation, A.R., A.A. and F.A.M.; Resources, A.R.,
A.A. and F.A.M.; Writing – Original Draft, A.R., A.A. and F.A.M.; Writing – Review & Editing, A.R.; Supervision, A.R.; Project Administration, A.R.
Authors have read and agreed to the published version of the manuscript.
Institutional Review Board Statement: Ethical review and approval were waived for this study, as the research does not deal with vulnerable groups or
sensitive issues.
Funding: The authors received no funding for this research.
Informed Consent Statement: Informed consent was obtained from all subjects involved in the study.
Data Availability Statement: The data presented in this study are available on request from the corresponding author. The data are not publicly available
due to restrictions.
Conflicts of Interest: The authors declare no conflict of interest.
REFERENCES
Ab, U.Q. S. (2005). The Book of Revenue: Kitb al-amwl. Reading, U.K: Garnet Pub.
Adlina, H. A. (2011). A comparative analysis of Ibn Sina and Al-Ghazali: Their philosophical underpinnings and
contributions toward Muslim education. Kuala Lumpur: Department of Islamic history and civilization, University
of Malaya.
Adebayo, R. I., & Kabir, H. M. (2013). Ethical principles of Islamic financial institutions, Journal of Economic
Cooperation and Development, 34(1), 63.
Ahmad, K. (1979). Economic Development in an Islamic Framework. Leicester. U.K.: Islamic Foundation.
Al-Dareer, S. (1997). Al Gharar in Contracts and Its Effect on Contemporary Transactions. Jeddah: Islamic Research and
Training Institute, Islamic Development Bank. Saudi Arabia.
Al-Saati, A. R. (2003). The Permissible Gharar (Risk) in Classical Islamic Jurisprudence, Journal of King Abdul Aziz
University: Islamic Economics, 16(2), 3. Saudi Arabia.
Al-Sheha, A. R., & Ud-Deen, E. A. S. D., & Jerome, B. A. A., & Murad, A. (2001). Human rights in Islam and common
misconceptions. Riyadh. Saudi Arabia.
Al-Suwailem, S. (2012). Towards an objective measure of gharar in exchange. Islamic Economic Studies, 7, 61-102.
Al-Zuhayly, W., & Eissa, M. S. (2003). Financial transactions in Islamic jurisprudence. Damascus: Dar Al-Fikr.
Asutay, M. (2007a). A Political Economy Approach to Islamic Economics: Systemic Understanding for an Alternative
Economic System. Kyoto Journal of Islamic Area Studies, 1(2), 3-18.
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
41
Asutay, M. (2007b). Conceptualisation of the Second-Best Solution in Overcoming the Social Failure of Islamic Finance:
Examining the Overpowering of Homoislamicus by Homoeconomicus. IIUM Journal of Economics and
Management, 15(2), 167-195.
Asutay, M. (2010). New developments in Islamic banking and finance: Bridging ideas and realities. Cheltenham U.K.:
Elgar.
Alamad, S. (2017). Financial Innovation and Engineering in Islamic Finance. Springer. UK.
Ahmed, H. (2006). Islamic Law, Adaptability and Financial Development. Islamic Economic Studies, 13(2), 79-101.
Ayub, M. (2007). Understanding Islamic Finance. Hoboken, NJ. USA: John Wiley & Sons.
Azid, T., & Asutay, M. (2007). Does ethico-moral coalition complement to economic coalition? A response in the periphery
of Islamic economics. Humanomics, 23(3), 153-173.
Akhsan, A. M., & Ryandono, M. N. (2022). The Role of Zakat Institutions in Supporting the Economy during the Covid-
19 Pandemic. AFEBI Islamic Finance and Economic Review, 6(2), 94 -105.
Bahlous, M., & Yusof, R.M. (2014). International diversification among Islamic investments: is there any benefit.
Managerial Finance, 40(6), 613-633.
Barro, R., & R. McCleary. (2003). Religion and Economic Growth Across Countries. American Sociological Review, 68(5),
760-781.
Benedikter, R. (2011). Social Banking and Social Finance: Answers to the Economic Crisis. New York. USA: Springer.
Chapra, M. U. (2000). What is Islamic Economics? Jeddah, Saudi Arabia: Islamic Development Bank, Islamic Research
and Training Institute.
Chapra, M. U. (2008). The Islamic Vision of Development in the Light of Maqasid Al-Shari’ah. London. U.K: International
Institute of Islamic Thought.
Choudhury, M. A. (2016). The Principles of Islamic Political Economy: A Methodological Enquiry. London. U.K: Palgrave
Macmillan Limited.
Cizakca, M. (2007). Cross-cultural borrowing and comparative evolution of institutions between Islamic world and the
West. Relazioni Economiche Tra Europa E Mondo Islamico, Secc. 13-18.
Clark, E. A., & Scharffs, B. G. (2016). Religion and Law in the USA. Kluwer Law International. Netherlands.
Çizakça, M. (2000). A history of philanthropic foundations: The Islamic world from the seventh century to the present (pp.
2-10). Istanbul: Boğaziçi University Press.
Denning, A. T., & Kilgour, D. (1989). The influence of religion on law. Edmonton. Albertta. Canada: Canadian Institute
for Law, Theology, and Public Policy, Inc.
Dau-Schmidt, N. C. (2012). Forward contracts-prohibitions on risk and speculation under Islamic law. Indiana Journal of
Global Legal Studies, 19(2), 533-554.
Dawabah, A. M. (2007). Studies in Islamic Finance. Cairo. Egipt: Darussalam.
Obaidullah, M. (2002). Islamic Risk Management: Towards Greater Ethics and Efficiency. International Journal of Islamic
Financial Services, 3(4), 291-311.
El-Gamal, M. A. (2006). Islamic Finance: Law, Economics, and Practice. New York. USA: Cambridge University Press.
El-Ghazali, A. H. (1994). Profit versus bank interest in economic analysis and Islamic law. Jeddah, Saudi Arabia: Islamic
Research and Training Institute. (IDB).
Glaeser, E., Ponzetto, G. A. M., & Shapiro, J. M. (2005). Strategic Extremism: Why Republicans and Democrats Divide
on Religious Values. The Quarterly Journal of Economics, 120(4), 1283-1330.
Glahe, F., & Vorhies, F. (1989). Religion, Liberty and Economic Development: An Empirical Investigation. Public Choice,
62(3), 201-215.
Guiso, L., Sapienza, P., & Zingales, L. (2003). People's Opium? Religion and Economic Attitudes. Journal of Monetary
Economics, 50(1), 225-282.
Gottfried, P. (2007). The rise and fall of Christian democracy in Europe. Orbis, 51(4), 711-723.
Haq, I. U. (1996). Economic Doctrines of Islam: A Study in the Doctrines of Islam and Their Implications for Poverty,
Employment, and Economic Growth. Herndon. USA: International Institute of Islamic Thought.
Hourani, H. (2004). The three principles of Islamic finance explained. Int'l Fin. L. Rev., 23, 46-47.
Haron, H., Ramli, N. M., Jamil, N. N., & Rahman, A. R. A. (2022). Values in an Islamic University in Malaysia: Analysis
from Western and Islamic Perspectives. The Journal of Muamalat and Islamic Finance Research, 19(1), 86-105.
https://doi.org/10.33102/jmifr.v19i1.415.
Iannaccone, L. (1998). Introduction to the Economics of Religion. Journal of Economic Literature, 36(3), 1465-1495.
Iqbal, M., & Llewellyn, D. (2002). Islamic Banking and Finance: New Perspectives on Profit Sharing and Risk.
Cheltenham. U.K: Edward Elgar.
Iqbal, M., & Molyneux, P. (2005). Thirty Years of Islamic Banking: History, Performance, and Prospects. New York.
USA: Palgrave Macmillan.
Iyer, S. (2008). Religion and Economic Development. Policy Review, 148. 45-57.
Iqbal, Z. (1999). Financial Engineering in Islamic Finance. Thunderbird International Business Review. 41(4/5). 541-560.
Jan, S., & Asutay, M. (2019). A model for Islamic development: An approach in Islamic moral economy. Cheltenham.
U.K: Edward Elgar Publishing.
Kahf, M. (2003). Islamic Economics: Notes on Definition and Methodology. Review of Islamic Economics, 13, 23-48.
Komilov, A. (2022). EVOLUTION AND MAIN PRINCIPLES OF ISLAMIC FINANCE. European Journal of
Interdisciplinary Research and Development, 3, 96-104. Retrieved from
http://ejird.journalspark.org/index.php/ejird/article/view/36.
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
42
Kamali, M. H. (2002). Islamic Commercial Law: An Analysis of Futures and Options. Cambridge. U.K: The Islamic Texts
Society.
Karim, S. A. (2010). The Islamic Moral Economy: A Study of Islamic Money and Financial Instruments. Florida. USA:
Brown Walker Press Boca Raton.
Kawachi, I., & Kennedy, B. P. (1997). Socioeconomic Determinants of Health: Health and Social Cohesion: Why Care
about Income Inequality? British Medical Journal, 314(7086), 1037.
Kesselman, M., Krieger, J., Allen, C. S., & Hellman, S. (2008). European Politics in Transition. Houghton Mifflin
Company, New York. USA.
Khan, S., & Ahmad, M. (2014). The case for Muslim aged care in the west. Journal of Religion, Spirituality & Aging,
26(4), 281-299.
Kaiser, M. S., Dyk, S. V., & Roggenkamp, M. (2008). Party Politics and Social Welfare: Comparing Christian and Social
Democracy in Austria, Germany and the Netherlands. Edward Elgar. U.K.
Law and Religion: An Overview. Encyclopedia of Religion. Retrieved January 24. 2022. from Encyclopedia.com:
https://www.encyclopedia.com/environment/encyclopedias-almanacs-transcripts-and-maps/law-and-religion-
overview.
Mergaliyev, A., Asutay, M., Avdukic, A., & Karbhari, Y. (2019). Higher Ethical Objective (Maqasid al-Shari’ah)
Augmented Framework for Islamic Banks: Assessing Ethical Performance and Exploring Its Determinants.
Journal of Business Ethics, 170(4), 797-834. https://doi.org/10.1007/s10551-019-04331-4.
Mohammed, M. O. (2011). Economic Consumption Model Revisited: Infaq Based on Al- Shaybani’s Levels of Al-Kasb,
International Journal of Economics, Management & Accounting, Supplementary Issue 19, 115-132.
Mustafa, F. (2017). This Is How Much Money British Muslims Donate to Charity During Ramadan. Retrieved from
https://www.huffingtonpost.co.uk/mustafa-field-mbe/muslims-ramadan-
charity_b_16815380.html?guccounter=1.
Noor, M. (1988). Principles of Islamic Contract Law. Journal of Law and Religion, 6(1), 115-130.
Nor, F. M., Shahwan, S., Johari, F., Misbah, H., Haron, H., Shafii, Z., ... & Ahmad, A. (2022). Conceptualisation and
Validating Benefidonors Model in Waqf. The Journal of Muamalat and Islamic Finance Research, 19(1), 106-
119. https://doi.org/10.33102/jmifr.v19i1.418.
Naqvi, S. N. H. (1981). Ethics and Economics: an Islamic Synthesis. Leicester. UK: Islamic Foundation.
Naqvi, S. N. H. (1994). Islam, Economics, and Society. London. New York. USA: Kegan Paul International.
North, C. G. (2004). Religious Freedom and the Unintended Consequences of State Religion. Southern Economic Journal,
71(1), 103-118.
Obaidullah, M. (1998). Financial engineering with Islamic options. Islamic Economic Studies, 6(1), 73-103.
Pollack, D., & Olson, D. V. A. (2012). The Role of Religion in Modern Societies. Hoboken. USA: Taylor and Francis.
Pervez, I. A. (1990). Islamic banking. Arab Law Quarterly, 5(4), 259-281.
Reinhart, C. M., & Rogoff, K. S. (2011). A decade of debt. Washington. DC. USA: Peterson Institute for International
Economics.
Sencal, H., & Asutay, M. (2019). The emergence of new Islamic economic and business moralities. Thunderbird
International Business Review, 61(5), 765-775.
Saleh, N. A. (1986). Unlawful Gain and Legitimate Profit in Islamic Law: Riba, Gharar and Islamic Banking. UK:
Cambridge University Press.
Saleem, M. Y. (2013). Islamic Commercial Law. Singapore: John Wiley and Sons Ltd. UK.
Sadeq, A. M. (2006). Development Issues in Islam. Kuala Lumpur, Malaysia: International Islamic University Malaysia.
Sairally, S. (2007). Community Development Financial Institutions: Lessons in Social Banking for the Islamic Financial
Industry. Kyoto Bulletin of Islamic Area Studies, 1-2.
Seibel, H. D. (2001). Mainstreaming Informal Financial Institutions. Journal of Developmental Entrepreneurship 6(1), 83-
95.
Siddiqi, M. N. (1987). Partnership and profit-sharing in Islamic law. Leicester. UK: Islamic Foundation.
Silva, A. F. C. D. (2007). Social Banking: Perspectives and Experiences. India: ICFAI University Press.
The World Bank. (2015). Islamic Finance. World Bank. Washington, DC 20433 USA. Retrieved from
https://www.worldbank.org/en/topic/financialsector/brief/islamic-finance.
Usmani, M. T. (2002). An Introduction to Islamic Finance. The Hague, New York. USA: Kluwer Law International.
Vogel, F. E., & Hayes, S. L. (1998). Islamic Law and Finance: Religion, Risk, and Return. New York. USA: Kluwer Law
International. 90-93.
Walker, V. (2009). The 2009 Grossman Senior Research Prize: Investing the Islamic Way. Retrieved from
http://www.scribd.com/doc/27437500/Finance-Investing-the-Islamic-Way-Verdell-Walker
Wiliarty, S.E. (2010). The CDU and the Politics of Gender in Germany: Bringing Women to the Party. UK: Cambridge
University Press.
Warde, I. (2000). Islamic Finance in the Global Economy. Edinburgh. U.K.: Edinburgh University Press.
Weber, M. (1904). The Protestant Ethic and the Spirit of Capitalism. 1st ed. 2001. USA: Routledge.
Wilson, R. (1997). Economics, Ethics and Religion: Jewish, Christian and Muslim Economic Thought. Basingstoke New
York City, USA: Macmillan.
Yunusa, M. L. (1998). The Community Banking System in Nigeria. A Study Conducted for UNDP Regional office for
Africa, Dakar-Senegal.
Zailani, M. N., Satar, N. H. M., & Zakaria, R. H. (2022). Maqasid Al-Shariah Based Index of Socio-Economic
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
43
Development: A Literature Review. The Journal of Muamalat and Islamic Finance Research, 19(1), 47-62.
https://doi.org/10.33102/jmifr.v19i1.409.
i
For example, where the pension money is invested in shari’ah compliant transactions such as Mudarabah, Musharakah, Ijarah, etc.
ii
Kenz is an Arabic word for an act of hoarding wealth strongly reprehended in Quran. “O believers! Indeed, many rabbis and monks consume people’s
wealth wrongfully and hinder others from the Way of Allah. Give good news of a painful torment to those who hoard gold and silver and do not spend it
in Allah’s cause.” (Quran, 9:34). “The day will come when their treasure will be heated up in the Fire of Hell, and their foreheads, sides, and backs branded
with it. It will be said to them, this is the treasure you hoarded for yourselves. Now taste what you hoarded.” (Quran, 9:34).
iii
Paul Gottfried. The Rise and Fall of Christian Democracy in Europe. Orbis, fall 2007; Mark Kesselman, Joel Krieger, Christopher S. Allen, Stephen
Hellman (2008). European Politics in Transition. Houghton Mifflin Company, New York; Sarah Elise Wiliarty (2010). The CDU and the Politics of
Gender in Germany: Bringing Women to the Party. Cambridge University Press; Martin Seeleib-Kaiser; Silke Van Dyk; Martin Roggenkamp (2008).
Party Politics and Social Welfare: Comparing Christian and Social Democracy in Austria, Germany and the Netherlands. Edward Elgar.
iv
Law and Religion: An Overview. Encyclopedia of Religion. Retrieved January 24, 2022, from Encyclopedia.com:
https://www.encyclopedia.com/environment/encyclopedias-almanacs-transcripts-and-maps/law-and-religion-overview.
v
The Rt. Hon. Lord Denning, The Influence of Religion on Law (Lawyers’ Christian Fellowship, 1989).
vi
Donoghue v Stevenson [1932] A.C. 562.
vii
The sources of law or shari’ah in Islam are divided into two hierarchical categories: revealed (primary) and derived (secondary). The former concerns
the Qur’an (the holy book) and the hadith or sunnah (sayings and doings of the prophet). They rank the highest and are to be followed without questioning.
Any question of shari’ah is initially resolved by primary sources. The latter comprises of consensus of Muslim scholars on a point of law (Ijma) and
analogical reasoning (Qiyas) which were developed by Muslim jurists after the revelation of the Qur’an and the sunnah. They rely on Ijtihad (intellectual
exertion) which is a process of deducing new rulings (ahkam) from primary sources. Questions of shari’ah are resolved by secondary sources only if the
primary source is mute. There is also a category of disputed sources which relies on ijtihad and is used where the two primary and secondary sources are
silent or vague. These include Istihsan (Juristic Preference), Maslahah-ul-Mursalah (Consideration of public interest), Istishab (Presumption of continuity),
Urf (Custom), Qawl al-Sahabi (Opinions of companions), Shar’u qablana (revealed laws of the previous prophets). Altogether, Islamic rulings from the
secondary and disputed sources constitute Islamic jurisprudence, also referred to as fiqh.
viii
Islam comprises faith (Aqidah), ethics (Akhlaq) and the rules of conduct, whereas shari’ah constitutes one element of Islam concerning worship (Ibadaat)
and socio-economic conduct (Muamalat). These are certain immutable codes of divine law for human behaviour ranging from worship to any socio-
economic activity.
ix
Haram describes any action which has been declared by Islamic sources/rulings as forbidden and imposes a legal duty on Muslims to omit such prohibited
actions; for example, consuming pork, intoxicating beverages and riba.
x
See Al-Dareer, Siddiq (1997), Al Gharar in Contracts and Its Effect on Contemporary Transactions, Islamic Research and Training Institute, Islamic
Development Bank, Jeddah [http://www.irtipms.org/PubDetE.asp?pub=56; Al-Saati, Abdul-Rahim (2003), The Permissible Gharar (Risk) in Classical
Islamic Jurisprudence, Journal of King Abdul Aziz University: Islamic Economics, 16 (2), 3-19. http://islamiccenter.kaau.edu.sa/english/index.htm; Al-
Suwailem, S. (2012). Towards an objective measure of gharar in exchange. Journal of Islamic Business and Management Vol, 2(1); Al-Zuhayly, W., &
Eissa, M. S. (2003). Financial transactions in Islamic jurisprudence. Dar Al-Fikr; Usmani, M. T. (2002). An Introduction to Islamic Finance. The Hague,
New York: Kluwer Law International; Kamali, M. H. (2002). Islamic Commercial Law: An Analysis of Futures and Options. Cambridge: The Islamic
Texts Society. p. 84.
xi
Ibid.
xii
See Husam Hourani Al Tamimi, “The Three Principles of Islamic Finance Explained”, (2004) 23 Int'l Fin. L. Rev. 46; Pervez (1990), “Islamic Finance”,
(1990) 5 Arab L.Q. 259; Noor Mohammed, “Principles of Islamic Contract Law”, (1988), 6 J. L. & Religion 115; Muhamad Ayub, “Understanding Islamic
Finance”, (2007 – John Wiley and Sons Ltd., UK); Muhammad Yusuf Saleem, “Islamic Commercial Law”, (2013 – John Wiley and Sons Ltd., Singapoor);
Dau-Schmidt, ‘Forward Contracts-Prohibitions on Risk and Speculation Under Islamic Law’, 19 Ind. J. Global Legal Stud. 533 2012; Dawabah, A.M.
(2007). Studies in Islamic Finance. Cairo: Darussalam; Obaidullah, M. (2002). Islamic Risk Management: Towards Greater Ethics and Efficiency.
International Journal of Islamic Financial Services, 3 (4); Al-Saati, note 10; Obaidullah, M. (1998). Financial engineering with Islamic options. Islamic
Economic Studies, 6, no. 1: 73-103; Vogel, F. E., & Hayes, S. L. (1998). Islamic Law and Finance: Religion, Risk, and Return. Kluwer Law International.
pp 90-93.
xiii
Pervez, note 10; Noor Mohammed, note 10.
xiv
The term Fiqh refers to Islamic jurisprudence. It consists of a body of laws and rulings inferred from Islamic primary sources and developed as a result
of interpretation by Shari’ah scholars and Jurists (fugaha). This body of law varies according to interpretation by different schools of thought in Islamic
law and jurisprudence.
xv
Also referred to as maqasid al-Shari’ah. See section III.8.
xvi
Also referred to as Uluhiyyah.
xvii
Bait-ul-mal: It is a royal treasury for the caliphs and sultans, managing personal finances and government expenditures. It also administers distributions
of zakat revenues for public works.
xviii
Compulsory obligation of Muslims to pay 2.5% of their annual savings (net income) to those in need subject to Nisab criterion. Nisab refers to the
minimum amount of wealth and possessions that a Muslim must own throughout a lunar year before being obligated to pay zakat. The Nisab is either 87.48
grams of gold or 612.36 grams of silver. The proceeds of zakah must be distributed within the eight categories of people outlined in the Qur’an (Quran,
2:43; 2:219, 9: 60, 22:40-41).
xix
An act of charity also referred to as giving ‘fi sabillilah’ (for the cause of Allah) and described in the Holy Qur’an as ‘a beautiful loan’. Giving Sadaqhah
is considered a sign of sincere faith (Quran, 2:276, 2:177, 3:92, 9:71, 107:1-7, 2:43, 22:40-41 and 2:219).
xx
For example, spending for the purpose of the nourishment of elderly people bereft of family support or lacking independent financial means.
xxi
See note 19.
xxii
“Oh you who believe, fulfil contracts”, (Quran, 5:1); “Oh you who believe, do not consume one another's wealth unjustly but only in lawful business
by mutual consent” (Quran, 4:29).
xxiii
For example, Bay’a, Ijarah, Wagf, Amanah, Ariah, Qard, Damanh, Kafalah, Wasigah, Juallah, Wakalah, Musharakah, Mudarabah, etc.
xxiv
Aṣalatu Ibaḥah.
xxv
Al-ghurum-bil-ghunm.
xxvi
Haram describes any action which has been declared by Islamic sources as forbidden and imposes a legal duty on Muslims to omit such prohibited
actions; e. g. consuming pork, intoxicating beverages and riba.
xxvii
The following are forbidden: (1) dead meat (meat of a permissible animal prepared not by slaughter or hunting), (2) blood, (3) swine, (4) food over
which a name other than that of Allah (God) has been invoked, and (5) intoxicating beverages. See QR 2:168, QR 2:172-173, QR 5:3, QR 5:90-91, QR
6:145, QR 16:114-115. However, these may be transacted / consumed out of necessity. For example, they can be transacted for medical purposes, scientific
experiments or situations of starvation. See Quran 2:173; 5:3; 6:119; 6:145.
xxviii
Also referred to as sadaqhah-ul-jariyyah (running charity). Ibn Majah reported from the narration of Abu Murairah that the Messenger of God (pbuh)
said: “When a child of Adam dies, his/her deed comes to an end except for three things: a running sadaqhah, knowledge that benefits (others) and a
righteous child who prays for him/her.” [Ibn al Athir (circa 606 H) Jami al Ùsul, Halwani, Mallah and Bayan Publishers, Damascus 1976, v11, p 180 and
Sunan Ibn Majah V1, pp 88-89].
xxix
“Tahbis-ul-a’ayn and Tasbil-ul-manfa’ah”.
xxx
For example, waqf of the land of Khaybar by Umar bin Khattab and waqf of a well in Madinah by Uthman bin Affwan.
Rahmani et al., International Journal of Islamic Banking and Finance Research 9(1) (2022), 32-44
44
xxxi
“Allah destroys interest (riba) and maximizes wealth for deeds of charities...” [Quran, 2:276]. “…Whatever you give to charity, God is fully aware of”
[Quran, 3:92]. “Righteous are those who … give money, cheerfully, to the relatives, the orphans, the needy, the travelers, the beggars, and to free the
slaves; and they…give the obligatory charity; and they keep their word whenever they make a promise” [Quran, 2:177]. See also Quran, 9:71, 107:1-7,
2:43, 22:40-41 and 2:219.
xxxii
“But if they, of their own good pleasure remit any part of the dower to you, take it and enjoy it with right good cheer” (Surah Al-Nisa’: 4). “to spend
of your substance, out of love for Him, for your kin, for orphans, for the needy, for wayfarers, for those who ask, and for the ransom of slaves” (Surah Al-
Baqarah: 177).
xxxiii
Also referred to as ahd.
xxxiv
Hussein Hassan, The Promissory Theory of Contracts in Islamic Law, Yearbook of Islamic and Middle Eastern Law Online, Volume 8 (1): 28 – Jan
1, 2001.
xxxv
‘men should fulfil their promise’ (Quran, 17:34, 61:2, 23:8).
xxxvi
See Quran, 5:91; 2:219 and 5:93-4.
xxxvii
Any act of charitable nature or non-commutative contractual arrangements.
xxxviii
Murat Çizakça, A history of philanthropic foundations: The Islamic world from the seventh century to the present, 2000, Boğaziçi University Press;
Adebayo, R.I. and Kabir, H.M. (2013), Ethical principles of Islamic financial institutions, Journal of Economic Cooperation and Development, Vol. 34
No. 1, pp. 63-90; Seibel, H.D., Mainstreaming Informal Financial Institutions, Journal of Developmental Entrepreneurship 6/1, 4/2001.
Publisher’s Note: CRIBFB stays neutral with regard to jurisdictional claims in published maps and institutional affiliations.
© 2022 by the authors. Licensee CRIBFB, USA. This article is an open access article distributed under the terms and conditions of the Creative Commons
Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).
International Journal of Islamic Banking and Finance Research (P-ISSN 2576-4136 E-ISSN 2576-4144) by CRIBFB is licensed under a Creative
Commons Attribution 4.0 International License.
