Islamic Finance: Neither Ultra Capitalism Nor Hard Socialism

Between Two Extremes

One of the most common misconceptions among Muslims today is to try to map Islamic economics onto the Western political spectrum.

Some think Islamic finance leans left: focused on egalitarianism, redistribution, and regulation.

Others think it mirrors ultra liberal market capitalism; anchored in ownership, markets, and libertarian values.

Islamic economics is not a derivative of these ideologies.

It is a self-contained system of divine guidance. One that promotes markets, ownership, and entrepreneurship, but also protects the vulnerable, regulates excess, and ensures ethical responsibility.

It is not an ideology. It is a moral system.

A Mosque and a Market: Medina’s First Blueprint

When Prophet Muhammad ﷺ arrived in Medina, he laid down the foundations of a new society.

His first two acts?

• He built a mosque: a place of prayer, learning, and community.

• He established a market: free from monopolies, manipulation, and unfair practices.

This wasn’t coincidental. It was intentional.

The market was free, but not chaotic.

It was regulated by ethics, not by force. There were no taxes imposed. No stalls were allowed to be reserved.

Indeed, in the Prophet’s ﷺ marketplace in Medina, no market fees or entry taxes were imposed on traders or merchants using the space. The marketplace was public, free, and open, in contrast to private monopolies of Meccan elites or Persian/Roman systems where traders paid for access or were taxed at gates.

Merchants were encouraged to compete, but with honesty.

Intervention vs. Justice: The Prophet’s ﷺ Market Ethics

There’s a famous hadith where some people came to the Prophet ﷺ to complain about high market prices, asking him to fix them.

He refused.

The inflation was caused by weather-related supply issues, not injustice.

So the Prophet ﷺ did not intervene.

Islam doesn’t promote command economies or central price controls. It promotes transparency, free entry, and ethical constraints.

A Masterclass in Monetary Policy: Zakat as Wealth Tax

During my master’s degree in public finance, I studied the traditional tools of economic governance:
➡️ Taxation,
➡️ Fiscal stimulus,
➡️ Public spending,
➡️ Monetary policy,
➡️ Behavioural economics…

But one thing stood out, something modern economists still argue about:

Should we tax income or wealth?

Islam gave us the answer 1400 years ago: Zakat is a tax on wealth.

And not just that, it’s 2.5% annually on wealth above a minimum threshold (nisab). This mechanism discourages hoarding, gently redistributes wealth, and stimulates the economy, without punishing productivity or income growth.

Zakat is a moral obligation, not a state-coerced redistribution tool. It shows that Islamic finance isn’t about suppressing wealth creation, but ensuring that wealth circulates, and doesn't become concentrated indefinitely.

This teaches us a profound lesson:

You are free to participate in the marketplace. But if you have enough, you must contribute to society’s well-being.

The Right to Property: A Pillar of the Shariah

One of the five essential objectives of the Shariah (Maqasid al-Shariah) is ḥifẓ al-māl: the preservation of wealth and property.

This is a direct refutation of Marxist thought, which rejects private ownership as inherently unjust.

In Islam:

• You are entitled to your wealth; if earned lawfully.

• You are responsible for your wealth; to use it with purpose.

• You are free to own; but not to hoard or exploit.

It’s a sacred trust, not an idol.

Zakat, inheritance law, prohibition of riba: they all stem from this same principle: wealth is to be earned ethically, spent wisely, and circulated justly.

The Islamic Model: Rooted in Ethics, Not Ideology

To summarize,

Islam offers a third way.

It doesn’t idealize the market. Nor does it idealize the state.

It gives responsibility to the human being, with rights, responsibilities, and an awareness of God in his transactions.

Join us inside the Swiss Islamic Finance Community

Every week, we unpack how this moral system applies to today's world:
📈 Markets. 🏘️ Investing. 📊 Wealth strategy. 📜 Sacred principles.

Stay strategic. Stay grounded. Stay halal.

—
Saâd
from Swiss Islamic Finance

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