Islamic economics () refers to the knowledge of economics or economic activities and processes in terms of Islamic principles and teachings. Islam has a set of specific moral norms and values about individual and social economic behavior. Therefore, it has its own economic system, which is based on its philosophical views and is compatible with the Islamic organization of other aspects of human behavior: social and political systems.

Over the years, the term Islamic economics has been applied to various theories, but several recurring principles often emerge. They are based in primary sources such as Qur'an and hadith, but also historical practices in the Medinan First Islamic State and the Rashidun Caliphate. Contemporary Islamic Economics synthesizes these principles into proposals such as 100% backed gold bullion standard, full reserve banking, implementing a land tax, using profit-and-loss-sharing (PLS) financing, promoting a welfare state economy, nationalizing natural resources—including water, energy, and grazing lands, and placing central banks and money issuance under full public control.

Islamic economics is a broad field, related to the more specific subset of Islamic commercial jurisprudence (, fiqh al-mu'āmalāt). It is also an ideology of economics with some similarities to the labour theory of value, which is "labour-based exchange and exchange-based labour".

Islamic commercial jurisprudence entails the rules of transacting finance or other economic activity in a Shari'a compliant manner, i.e., a manner conforming to Islamic scripture (Quran and sunnah).

Islamic jurisprudence (fiqh) has traditionally dealt with determining what is required, prohibited, encouraged, discouraged, or just permissible. on the other hand, works to describe, analyse and understand production, distribution, and consumption of goods and services, and, studied how to best achieve policy goals, such as full employment, price stability, economic equity and productivity growth.

Early forms of capitalism are thought to have been developed in the Islamic Golden Age, starting from the 9th century, and later became dominant in European Muslim territories like Al-Andalus and the Emirate of Sicily. The Islamic economic concepts taken and applied by the gunpowder empires and various Islamic kingdoms and sultanates led to systemic changes in their economy, particularly in the Mughal Empire. Its wealthiest region of Bengal, a major trading nation of the medieval world, signaled the period of proto-industrialization, making direct contribution to the world's first Industrial Revolution after the British conquests.

In the mid-20th century, campaigns began promoting the idea of specifically Islamic patterns of economic thought and behavior. By the 1970s, "Islamic economics" was introduced as an academic discipline in a number of institutions of higher learning throughout the Muslim world and in the West.

Advocates of Islamic economics generally describe it as neither socialist nor capitalist but as a "third way", an ideal mean with none of the drawbacks of the other two systems. Among the assertions made for an Islamic economic system by Islamic activists and revivalists are that the gap between the rich and the poor will be reduced and prosperity enhanced, by such means as the discouraging of the hoarding of wealth, taxing wealth (through zakat) but not trade, exposing lenders to risk through profit sharing and venture capital, discouraging of hoarding of food for speculation, and other activities that Islam regards as sinful such as unlawful confiscation of land. Complementing Islamic economics, Islamic entrepreneurship has gained traction, focusing on Muslim entrepreneurs, ventures, and contextual factors at the intersection of Islamic faith and entrepreneurship.

Definitions and descriptions

According to Hasan Raza, after more than six decades of its formal/ informal existence, a consensus on the definition of Islamic economics has not yet emerged. Some definitions that have been offered include:

  • "that branch of knowledge which helps to realize human well-being through an allocation and distribution of scarce resources that is in conformity with Islamic teachings without unduly curbing individual freedom or creating continued macroeconomic and ecological imbalances." (Umar Chapra) (similarly, the "study of human behavior with regard to acquiring and using resources for the satisfaction of necessities, needs, and other desires", but "based on the assumptions" of the Islamic "outlook on life and humanity". (Monzer Kahf))
  • "the study of an ... economy which abides by the rules of the Shariah", i.e. an Islamic economy (a definition used by some, according to M. Anas Zarqa).
  • a discipline that goes beyond the practice of Western economics—which seeks to make "positive analysis" and give an objective description of what is—to provide normative policy prescriptions of what ought to be and can be. And which seeks to achieve a "transformation of human beings from followers of base desires to people concerned with achieving higher goals". M.U. Chapra, and M.N. Khan & M.I. Bhatti.)
  • "a discipline that is guided by the Shariah and studies all human societies" (A definition used by others, according to M. Anas Zarqa)
  • an "ideological construct" developed by 20th century Islamists (by Abul A'la Maududi, Ayatollah Muhammad Baqir al-Sadr, Abolhassan Banisadr, etc.) taking basic prescriptions from sharia (Islamic law), and systematizing and conceptualizing them "to construct a coherent and functional ensemble offering a middle ground between the two systems of the twentieth century, Marxism and capitalism." (Social scientist Olivier Roy) argues that confusion regarding appropriate definition of Islamic economics has arisen because of attempts to mix Western economics concepts with Islamic ideals, when the two are diametrically opposed to each other in many dimensions. He proposes a definition based on purely Islamic sources: "Islamic Economics is the EFFORT/STRUGGLE to implement the orders of Allah pertaining to economic affairs in our individual lives (Micro), in our communities (Meso), and at the level of Ummah (Macro)."

Fiqh and Islamic economics

Fiqh (religious law) has developed several traditional concepts having to do with economics. These included:

  • Zakat – the "charitable taxing of certain assets, such as currency, gold, or harvest, with an eye to allocating these taxes to eight expenditures that are also explicitly defined in the Quran, such as aid to those in need."
  • Gharar—"uncertainty". The presence of any element of excessive uncertainty, in a contract is prohibited.
  • Riba—"referred to as usury (modern Islamic economists reached consensus that Riba is any kind of interest, rather than just usury)"

Another source lists "general rules" include prohibition of Riba, Gharar, and also

  • Qimar / Maisir : (gambling)|group=Note Others do not gather questions on economic issues in one heading, the case in Tawzih al-masa'il, a work of fatawa by Ayatollah Ruhollah Khomeini, who although a pioneer of political Islam approached the subject of economy