Between the 9th and 14th centuries, the Muslim world developed many advanced economic concepts, techniques and usages. These ranged from areas of production, investment, finance, economic development, taxation, property use such as Hawala: an early informal value transfer system, Islamic trusts, known as waqf, systems of contract relied upon by merchants, a widely circulated common currency, cheques, promissory notes, early contracts, bills of exchange, and forms of commercial partnership such as mufawada.
Over time, Islamic economics has come to refer to a variety of approaches, yet several core principles consistently recur. These principles are rooted in foundational sources such as the Qur’an and hadith, as well as early historical practice, during the Medinan First Islamic State, and the Rashidun Caliphate era. In contemporary formulations, they are often expressed through proposals that include a 100% backed gold bullion standard, full reserve banking, implementing a land-based taxation system, emphasizing profit-and-loss sharing as the primary mode of finance, advancing a welfare-centered economic framework, placing essential natural resources—such as water, energy, and grazing lands—under public ownership, and fully nationalizing central banking and the issuance of money.
Specific Islamic concepts involving money, property, taxation, charity and the Five Pillars include: zakat (the "taxing of certain goods, such as harvest, to allocate these taxes to expand that, are also explicitly defined, such as aid to the needy"); Gharar ("the interdiction of chance ... that is, of the presence of any element of uncertainty, in a contract (which excludes not only insurance but also the lending of money without participation in the risks); and riba ("every kind of excess or unjustified disparity between the exchanged objects or counter values"El‐Sheikh, S., 2008. The moral economy of classical Islam: a hiqhiconomic model. The Muslim World, 98(1), p.120.). These concepts, like others in Islamic law and jurisprudence, came from the "prescriptions, anecdotes, examples, and words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method." Sometimes other sources such as al-urf, (the custom), al-'aql (reason) or al-ijma (consensus of the jurists) were employed.Schirazi, Asghar, Constitution of Iran, (1997), p.170 In addition, Islamic law has developed areas of law that correspond to secular laws of contracts and torts.
Contemporary Islamic scholars draw heavily on classical opinions.Siegfried, N.A., 2001. Concepts of paper money in Islamic legal thought. Arab LQ, 16, p.319. Modern Islamic economics emerged in the 1945s. As of 2004, Islamic Banks have been established in over eight countries, and interest has been banned in three: Pakistan, Iran and the Sudan.
Legal institutions
Hawala agency
The Hawala, an early informal value transfer system, has its origins in classical Islamic law, and is mentioned in texts of Islamic jurisprudence as early as the 8th century. Hawala itself later influenced the development of the agency in common law and in civil laws such as the aval in French law and the Cavallo in Italian law. The words aval and Cavallo were themselves derived from Hawala. The transfer of debt, which was "not permissible under Roman law but became widely practiced in medieval Europe, especially in commercial transactions", was due to the large extent of the "trade conducted by the Italian cities with the Muslim world in the Middle Ages." The agency was also "an institution unknown to Roman law" as no "individual could conclude a binding contract on behalf of another as his agent." In Roman law, the "contractor himself was considered the party to the contract and it took a second contract between the person who acted on behalf of a principal and the latter to transfer the rights and the obligations deriving from the contract to him." On the other hand, Islamic law and the later common law "had no difficulty in accepting agency as one of its institutions in the field of contracts and obligations in general."
Waqf trust
The waqf in Islamic law, which developed in the medieval Islamic world from the 7th to 9th centuries, bears a notable resemblance to the English trust law. Every waqf was required to have a waqif (founder), mutawillis (trustee), qadi (judge) and beneficiaries. Under both a waqf and a trust, "property is reserved, and its usufruct appropriated, for the benefit of specific individuals, or for a general charitable purpose; the corpus becomes inalienable; estates for life in favor of successive beneficiaries can be created" and "without regard to the law of inheritance or the rights of the heirs; and continuity is secured by the successive appointment of trustees or mutawillis."
The only significant distinction between the Islamic waqf and English trust was "the express or implied reversion of the waqf to charitable purposes when its specific object has ceased to exist", though this difference only applied to the waqf ahli (Islamic family trust) rather than the waqf khairi (devoted to a charitable purpose from its inception). Another difference was the English vesting of "legal estate" over the trust property in the trustee, though the "trustee was still bound to administer that property for the benefit of the beneficiaries." In this sense, the "role of the English trustee, therefore, does not differ significantly from that of the mutually."
The trust law developed in England at the time of the Crusades (during the 12th and 13th centuries) was introduced by Crusaders who may have been influenced by the waqf institutions they came across in the Middle East.
After the Islamic waqf law and madrasa foundations were firmly established by the 10th century, the number of Bimaristan hospitals multiplied throughout Islamic lands. In the 11th century, every Islamic city had at least several hospitals. The waqf trust institutions funded the hospitals for various expenses, including the wages of doctors, ophthalmologists, surgeons, chemists, pharmacists, domestics and all other staff, the purchase of foods and drugs; hospital equipment such as beds, mattresses, bowls and perfumes; and repairs to buildings. The waqf trusts also funded medical schools, and their revenues covered various expenses such as their maintenance and the payment of teachers and students.
Classical Muslim commerce The systems of contract relied upon by merchants was very effective. Merchants would buy and sell on commission, with money loaned to them by wealthy investors, or a joint investment of several merchants, who were often Muslim, Christian and Jewish. Recently, a collection of documents was found in an Egyptian synagogue shedding a very detailed and human light on the life of medieval Middle Eastern merchants. Business partnerships would be made for many commercial ventures, and bonds of kinship enabled trade networks to form over huge distances. During the ninth century banks enabled the drawing of check-in by a bank in Baghdad that could be cashed in Morocco.Peters, Edward. Europe and the Middle Ages, 1983. p. 125
The concepts of welfare and pension were introduced in early Islamic law as forms of Zakat (charity), one of the Five Pillars of Islam, since the time of the Abbasid caliph Al-Mansur in the 8th century. The taxes (including Zakat and Jizya) collected in the treasury of an Islamic government was used to provide income for the needy, including the poor, elderly, orphans, widows, and the disabled. According to the Islamic jurist Al-Ghazali (Algazel, 1058–1111), the government was also expected to store up food supplies in every region in case of a disaster or famine occurs. The Caliphate was thus one of the earliest welfare states, particularly the Abbasid Caliphate.
Economy in the Caliphate and Islamic empires In the medieval Arab Agricultural Revolution, a social transformation took place as a result of changing land ownership giving individuals of any gender, the right to buy, sell, mortgage and inherit land.
Early forms of proto-capitalism and free markets were present in the Caliphate.The Cambridge economic history of Europe, p. 437. Cambridge University Press, . An early market economy and early form of merchant capitalism developed between the 8th and 12th centuries.Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", American Journal of Comparative Law 53, pp. 785–834 [798–99]. A vigorous monetary economy developed based on the wide circulation of a common currency (the dinar) and the integration of previously independent monetary areas. Business techniques and forms of business organization employed during this time included early contracts, bills of exchange, long-distance international trade, early forms of partnership (mufawada) such as limited partnerships (mudaraba), and early forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal), circulating capital, capital expenditure, revenue, cheques, promissory notes,Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), Medieval Trade in the Mediterranean World: Illustrative Documents, Columbia University Press, . trusts (waqf), savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system, and lawsuits.Ray Spier (2002), "The history of the peer-review process", Trends in Biotechnology 20 (8), pp. 357–58 . Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world.Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press.Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13]. Many of these concepts were adopted and further advanced in medieval Europe from the 13th century onwards.Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers.
Islamic India
During the Muslim rule in India, realms such as the Delhi Sultanate, Bengal Sultanate, Mughal Empire, Nizam of Hyderabad and the Kingdom of Mysore made significant contributions to the South Asian economy. In the 17th century Mughal India became the world's largest economy, becoming the leading textile manufacturing power in the world, valued over 25% of world GDP.
The concepts of welfare and pension were present in early Islamic law as forms of zakat one of the Five Pillars of Islam, since the time of the Rashidun caliph Umar in the 7th century. The taxes (including zakat and jizya) collected in the treasury (bayt al-mal) of an Islamic government were used to provide income for the needy, including the poor, the elderly, orphans, widows, and the disabled. According to the Islamic jurist Al-Ghazali (Algazel, 1058–1111), the government was also expected to stockpile food supplies in every region in case of disaster or famine. The Caliphate was thus one of the earliest welfare states.
Trade