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Fundamentals of Islamic Economic System

By Dr. Muhammad Sharif Chaudhry



  1. General Meaning

  2. Islamic Concept of Social Security

  3. Social Security in Practice

I- General Meaning

The term social security has recently come into common usage. However, this term has not been exactly defined. So every individual and community assigns to it meanings of his or her own liking.

Social security laws, according to a jurists, are “those legal mechanisms primarily concerned to ensure the provision for the individual of a cash income adequate, when taken along with the benefits in kind provided by other social services, to ensure for him a culturally acceptable minimum standard of living when the normal means of doing so fail.”

Broadly speaking, social security embraces in its fold social assistance, provision of basic necessities of life, social insurance against risks of hazards (such as sickness, old age, unemployment), public maintenance, etc.

The idea of social security originated in realisation by the state of its responsibility to provide its citizens adequately against certain contingencies like want, poverty, disease, illiteracy, unemployment and old age. Formerly social security benefits were confined merely to workers, but lately the same have been extended to all citizens. Thus in the modern world, almost, all the countries are maintaining some sort of social security schemes for providing monetary benefit to persons suffering economic hardship. Such schemes embrace in their fold insurance against sickness and unemployment; pensions to old people, windows and disabled; compensation to workers who have met with some accident; maternity benefits; family allowances etc.

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II- Islamic Concept of Social Security

The Islamic concept of social security originates from the following verses of the Qur’an and the Ahadith which enjoin upon the believers of Islam to help their poor and needy brothers-in-faith who are unable to fulfil their basic human needs:

1.      They ask thee, (O Muhammad), What they shall spend. Say: That which ye spend for good (must go) to parents and near kindred and orphans and the needy and the wayfarer. And whatsoever good ye do; Lo! Allah is Aware of it.

-(2 : 215)

2.       And serve Allah. Ascribe nothing as partner unto Him. (Show) kindness unto parents, and unto near kindred, and orphans, and the needy, and unto the neighbour who is of kin (unto you) and the neighbour who is not of kin, and the fellow-traveller and the wayfarer and (the slaves) whom your right hands possess. Lo! Allah loveth not such as are proud and boastful.

-(4 : 36)

3.       The alms are only for the poor and the needy, and those who collect them, and those whose hearts are to be reconciled and to free the captives and the debtors, and for the cause of Allah, and (for) the wayfarers; a duty imposed by Allah. Allah is Knower, Wise.

-(9 : 60)

4.       And in their wealth the beggar and the outcast had due share.

-(51 : 19)

5.       That which Allah giveth as spoil unto His messenger from the people of the townships, it is for Allah and His messenger and for the near of kin and the orphans and the needy and the wayfarer, that it become not a commodity between the rich among you….

-(59 : 7)

6.       And in whose wealth there is a right acknowledged. For the beggar and the destitute.

-(70 : 24-25)

7.       The Holy Prophet is reported to have said: The government is the guardian of anyone who has no other guardian.

-(Abu Daud, Tirmizi)

8.       Miqdam reported that the Messenger of Allah said: “I am nearer to every believer than his own self; so whoever leaves behind a debt or children to support, it shall be our charge; and whoever leaves property, it is for his heirs, and I am the heir of the person who has no heir. – I inherit his property and pay his debt.”


9.       It is reported from Abu Hurairah that the Messenger of Allah said: “I am, according to the Book of Allah, nearest to the believers of all human beings. So whoever amongst you dies in debt or leaves behind destitute children, you should call me for help, for I am his guardian. And who amongst you leaves property, that is for his inheritor, whoever he is.”


10.   Abu Hurairah reported that the Messenger of Allah said: One who strives for the widows and the poor is like one who fights in the way of Allah. He said: I shall regard him as one who stands up (for prayer) without rest and as one who fasts without break.

-(Bukhari and Muslim)

11.   Ibn Umar reported that the Messenger of Allah said: There is a key for everything and the key of Paradise is love for the poor.


12.   Anas reported that the Messenger of Allah said: The best charity is to satisfy a hungry belly.


13.   If anyone spent a night in a town and he remained hungry till morning, the promise of God’s protection for that town came to an end.

-(Musnad Ahmad)

14.   Abu Saeed Khudri reports that the Apostle of Allah said: Anyone who possesses goods more than his needs, should give the surplus wealth to the weak (poor) and whosoever possesses food more than his needs should give the surplus food to the needy and the destitute…….

-(Quoted by Ibn Hazm)

15.   Ali is reported to have said: God has made it obligatory on the rich to meet the economic needs of the poor upto the extent of their absolute necessities. If they are hungry or naked or in financial hardship, it is because the rich are not doing their duty. God will question them about it on the Day of Judgement.

-(Quoted by Ibn Hazm)

From the above mentioned verses of the Qur’an and Ahadith of the Holy Prophet, it is clear that Islamic state being guardian of the poor and helpless is responsible for providing the barest necessities of life to its poor and needy citizens. In the income of the state from Zakat, spoils of war and fai, the Qur’an has especially mentioned the share of the poor and the needy. Besides making the Islamic state responsible to provide for the poor, Islam also enjoins upon its rich followers to help their poor relatives, friends and neighbours.

Basic human needs or the barest necessities of life have been defined by the following verse of the Qur’an and Hadith of the Holy Prophet:

1.       There is therein (enough provision) for thee not to go hungry nor to go naked; nor to suffer from thirst, nor from the sun’s heat.

-(Al-Quran 20 : 118-119)

2.       The son of Adam has no better right than that he would have a house wherein he may live, and a piece of cloth whereby he may hide his nakedness, and a piece of bread and some water.


Thus the basic human needs, according to the Qur’an and the Sunnah, include food, clothes and a house.

Every person living in the Islamic state is entitled to these basic needs. But if he is unable to procure them for himself and for his family due to unemployment, sickness, disability, old age or due to any other reason, then the Islamic state is duty-bound to provide him with the same. In case of lack of resources, the state must find out means to make arrangements to help its needy citizens. For this purpose, the state has been allowed to levy taxes in addition to Zakat on the authority of the following Hadith of the Prophet : “In one’s wealth there are rights other than Zakat also”.

Many Muslim jurists of classical age have taken the notion of state responsibility for meeting the basic human needs of every eligible citizen so seriously that they have ruled that the allegiance of the Islamic state depends upon this condition. If the state fails to provide these needs to its citizens, it forfeits its right to their obedience.

An eminent economist of Islam, Mr. Afzal-ur-Rahman calls Zakat (which is collected by the Islamic state) an insurance fund of the Islam state. He says :

“It is an insurance fund to which only the wealthy make contributions. If you are rich today, you contribute to this fund. The needy and the poor benefit from this fund today, but if you (or your children) are rendered poor tomorrow by the vicissitudes of this world, you (or your children) will also benefit from it. Thus no member of the Muslim community need ever feel financially insecure for himself, his wife or his children after him because the social insurance fund (Zakat) will always look after the interests of the needy and the poor. A Muslim should, therefore, never worry himself even about unforeseeable catastrophes, such as diseases, fire, accidents, floods, bank-ruptcies, death etc., which might wreck his career, destroy his property or business and render his descendants penniless, for the Zakat fund is his permanent insurance against all types of risks. Even when one is on a journey and becomes penniless through theft, sickness or other reasons, this fund will meet all one’s needs”.

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III- Social Security in Practice

From its very inception at Al-Madinah in the early seventh century, the Islamic state accepted its responsibility towards the poor and the destitutes. The Prophet of Islam as the first head of this state initiated the policy of providing economic assistance to the needy and the poor from the state treasury although this tiny state during his time had meagre resources which were always under pressure due to constant wars. He utilized the limited revenues of the state collected from Zakat, Khums and Fai to meet the needs of the poor, orphans, widows, the disabled, debtors, slaves, prisoners of war and those who were unemployed.

Prophet’s policy was followed by Abu Bakr, his successor, who continued helping the poor and the needy. It was, however, during the time of Umar, Abu Bakr’s successor and second caliph of Islamic state, that the scheme of social security for all was established on permanent footing as the state had expanded to include in its fold many rich countries like Iraq, Syria and Egypt and its revenues had substantially increased.

In the year 20 A.H., Umar established a government department called Divan for the purpose of holding census of population at regular intervals. On the basis of this census annual pensions were fixed for (I) widows and orphans, (ii) all disabled, sick and old people, (iii) widows of the prophet, (iv) survivors of the battle of Badr and all others who had been in the forefront of the struggle for Islam and (v) early muhajirs and Ansars. Encyclopedia of Seerah gives the following account of rates of grants fixed for each category by Umar. “He fixed an allowance of 5,000 dirhams per annum for anyone who had fought in the Battle of Badr, and for all others whose Islam was of the same degree as those who had fought at Badr, e.g., who had migrated to Abbyssinia, or fought at the battle of Uhud, were given 4,000 dirhams per annum; the children of those who had fought at Badr received 1,000 dirhams, but Hassan and Hussain, for their relation with the Holy Prophet, received the same amount of allowance as their father, i.e., 5,000 dirhams each. Everyone who had migrated before the conquest of Makkah was given an annual allowance of 3,000 dirhams : and those who embraced Islam at the conquest of Makkah were given 2,000 dirham each, and young children of the Muhajirin and Ansar also received some amount. Wives of the Holy Prophet were paid 12000 dirhams each.

The caliph also established a special department for maintenance of record of pension. Pensions and allowances were paid to all deserving persons, and even the destitute and needy among the Zimmis received financial assistance. With a view to find out the minimum amount of food an average person needed to maintain proper health, Umar is reported to have made experiment with a group of thirty people of good appetite. He kept them for two meals and on the basis of this experiment he ordered that every citizen should receive a monthly amount of wheat sufficient for two square meals a day in addition to monetary pension which he was already receiving.

The department maintained separate registers for each category of grant. The purpose of this department was that nobody in the Islamic state should remain hungry or naked. All those who were poor, needy, disabled, orphans or widows and were unable to earn their livelihood for one reason or the other were enrolled by this department and were paid regular grants by the Bait-ul-Mal (public treasury).

The disabled, old and destitute among the non-Muslims were also provided financial assistance from public treasury and their taxes like Jizyah were remitted. Caliph Umar once saw an old man begging and he asked him why he was doing so. The old man replied that he was a non-Muslim and he had to beg in order to pay his Jizyah tax to the state. Umar took him home, gave him some money and sent him to the incharge of Bait-ul-Mal with the order that such people should be helped financially and should be exempted from Jizyah. He also issued a general order, based on his own ijtihad (interpretation) of verse 60 of chapter 9 of the Holy Qur’an, that destitute among the non-Muslims should also be provided financial assistance from the Sadaqat Fund of the public treasury.

Guest houses were built in most of the cities to provide free meals and accommodation to the travellers. Arrangements were made for the care and nursing of children who were left on roadside by their mothers. Allowances were paid to children, family allowances were provided, allowances to the old and widows were paid, debtors and prisoners were helped and slaves were assisted in their manumission. During a famine in Madinah, the cash and food stores of public treasury were all spent on the sufferers. Even the provinces were directed to dispatch foodgrains to Madinah.

The caliph was so conscious of his responsibilities towards have-nots that he is reported to have once remarked that he would be held responsible on the Day of Judgement if a camel dies of thirst near a bank of river Tegris (Dajala).

After Umar, the system of social security continued to be maintained with almost same zeal by his successors Usman and Ali, the third and fourth right-guided caliphs. However, with the dismemberment of pious caliphate, this noble system of helping the poor also deteriorated. Umar-bin-Abdul Aziz, another pious caliph, revived it for a shorter period during his brief reign. But unfortunately, during the later period, the system gradually disappeared due to lack of personal interest of the Muslim rulers.

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