This paper presents statistics to illustrate the economic effects of COVID-19 in the global economy. Poverty and unemployment in the informal sector of developing economies is on the rise. On the other hand, developed economies have also seen economic contraction. Capital markets have seen sharp decline in the early part of 2020. However, the author notes that Islamic equity portfolios were less affected. This finding is discovered in other empirical studies as well where Islamic portfolios are found to perform relatively better in economic and market downturns.
Islamic economics principles discourage excessive spending and encourage sharing resources with wider community through Sadqa, Waqf and Riba-free Qard. This can provide more resources at the disposal of poor and needy and for the social causes which are working for the educational and health related needs of poor and needy. Therefore, this can help in tackling poverty, hunger, low levels of schooling and under-provision of health services.
Socialists claim that economic problems arise from the extraction of surplus value by the Capitalists in the production process. On the other hand, Capitalists urge that scarcity of resources is the basic economic problem which restricts output growth because wants are innumerable, but the resources for satisfying those wants are limited. Nonetheless, the empirical evidence does not support that resources are scarce for legitimate and compulsory economic needs.
This article looks at some of the descriptive and prescriptive teachings of Al-Quran and Sunnah (Ways of Prophet Muhammad [pbuh]) on consumption and spending behaviour.
The difference in an Islamic framework would come with the normative distinction between investments which are declared as prohibited in the ethical injunctions of Islamic faith and other investments which are deemed as permissible.
With a predominantly Muslim population which engages in significant private giving, social intermediaries who can transparently and efficiently mobilize charitable giving can enhance the socio-economic impact of private giving. Given the high prevalence of cash based giving and higher trust deficit between people and the public Zakat agency, the Islamic institution of cash Waqf can be suitable for effectively channelizing the charitable giving in the form of cash.