Islamic Banking Page 25th December 2020

Economic System under Hazat Umar (R.A)

Hazrat Umar (RU) the second caliph after Hazrat Muhammad (PBU) was born 13 years after the events of the elephant. He was converted to Islam in the sixth year of prophet hood at the age of 27 years. Umar bin Khattab(RU) was an intelligent man from among his people in case of war between the Quraysh and other tribes they sent Umar (RU) as their envoy.

During the reign of HazratUmar (RU), the Islamic power grew very rapidly. Islam took over most of Mesopotamia and the Persian Sassanid dynasty of the hands of the Persian (Sassanid Empire that ended the time) and took over Egypt, Palestine, Syria, North Africa and Armenia from the Roman Empire (Byzantium).

Hazrat Umar bin Khattab (RU) was killed by Abu Lukluk (Fairuz), a slave when he was leading the morning prayers. Fairuz was a resident of Persia who converted to Islam after Umar (RU) conquered Persia.

Hazrat Umar bin Khattab(RU) conceived the problem of a State in its economy and made it a goal of an independent state. Hazrat Umar bin Khattab (RU) economic policy was focused on three policies, namely the establishment of a board of treasury, founding board of ombudsmen, and reform land ownership.

The government of Omar (RU) was a unitary government, where the sovereign political authority was the caliph. The empire of Omar RU was divided into provinces and some autonomous territories, e.g., Azerbaijan and Armenia that had accepted the suzerainty of the caliphate. The provinces were administered by the provincial governors or Wali, personally and fastidiously selected by Omar (RU). Provinces were further divided into about 100 districts. Each district or main city was under the charge of a junior governor or Amir, usually appointed by Omar RU himself, but occasionally also appointed by the provincial governor. Other officers at the provincial level were:

1. Katib, the Chief Secretary.
2. Katib-ud-Diwan, the Military Secretary.
3. Sahib-ul-Kharaj, the Revenue Collector.
4. Sahib-ul-Ahdath, the Police chief.
5. Sahib-Bait-ul-Mal, the Treasury
6. Qadi, the Chief Judge.

To be close to the poor, Omar RU lived in a simple mud hut without doors and walked the streets every evening. After consulting with the poor, Omar established the first welfare state, Bayt al-mal. The Bayt al-mal aided the Muslim and non-Muslim poor, needy, elderly, orphans, widows, and the disabled. The Bayt al-mal ran for hundreds of years, from the Rashidun Caliphate in the 7th century through the Umayyad period (661–750) and well into the Abbasid era. Omar RU also introduced a child benefit and pensions for the children and the elderly people.

Local populations of Jews and Christians, persecuted as religious minorities and taxed heavily to finance the Byzantine–Sassanid Wars, often aided Muslims to take over their lands from the Byzantines and Persians, resulting in exceptionally speedy conquests. As new areas were attached to the Caliphate, they also benefited from free trade, while trading with other areas in the Caliphate (to encourage commerce, in Islam trade is not taxed, but wealth is subject to the zakat). Since the Constitution of Medina, drafted by Muhammad (PBU), the Jews and the Christians continued to use their own laws in the Caliphate and had their own judges.

Umar (RU)in his policy for a large country in terms of its income includes:

1. Foreign Exchange – to manage all aspects of country he led, among other things Alms, Fai, Ghanimah, jizya, kharaj, Usyury.
2. Zakat as per sharia rules.
3. It is the property confiscated from the Muslims of the army of infidels during the war path. Ghanimah the things seized by the Muslims from infidel army; land, prisoners of war (men, women, children), and property that can be moved (horse, silver coins, swords, and so on). The booty gained from the infidels by Muslims got after fighting between the Islamicarmy and the army of Islam infidels. The division of booty is divided into three types, namely:Shafi booty is selected by the head of State i.e. One-fifth of shafi shared, assigned to Allah, His Messenger, and Prophet PBURelatives, the orphans, the needy. Four-fifths of the booty was distributed to those who joined the battle.
4. It is a tax that was required by the Head of State for the people who entered into an agreement with the state protection.

 Tax on land was levied considering the following three conditions:

1) The earth that their owners had converted to Islam, which is a kind of soil or earth is valid belong to their owners, and there should be no tax liability against them.

2) Earth peace, that every earth’s covenant of peace with Muslim countries, so that they remain his property. Earth like this tax must be issued, and the earth was still theirs. Once there is an agreement between the two parties then anyone can not reduce or add tax even a head of state.

Umar (RU) did not reduce the tax and added that he also believes tax was likened a tribute, so when the owners converted to Islam then they are not subject to tax or tribute again.

Definition of’ usyurwas taken from the countries of the merchants who pass through his country. ‘Usyur can also be called customs. ‘Usyur the taxes imposed on merchandise that goes into an Islamic state, or come from Muslim countries themselves.

Baitul Mal is the forerunner of the bank financial institutions. The practice is to collect and distribute wealth to those who qualify. Umar ibnKhattab (RU) was the second Caliph after the Caliphs Abu Bakr RU. Umar RU was still carrying out the Baitul Mal, a system already established at the time of the Prophet (PBU) to Abu Bakr RU. The Board plays an important role in the country’s finances in the collection of the funds collected from the charity and donation. and then distributed to the persons entitled to obtain them at once to the national interest Furthermore, in the field to maximize the agency Umar (RU) made a tremendous breakthrough, i.e. for example in the employment of civil servants, salaries to the Islamic government soldiers, pensioners and in other roles. A description of the remuneration was as follows:

Salaries of Head of State – During the reign of Umar (RU) salary of treasury was unspecified with any amount. Umar RU was a merchant who managed his commercial profession to meet the daily needs himself and to feed their children out of the trade.

 Salaries of Civil Servants and soldiers – before the leadership of Umar (RU) civil servants and soldiers did not have the salary specified amount. In the days of Omar IbnKhatab (RU) began to determine the number of civil servants’ and soldiers salaries.

During Umar (RU) Islamic State led at the time, he was involved in various economic activities always to put anachievabletargetwith efforts to maximize it and not just for satisfaction. So this can head to the purpose ofworship, namelyFallah.On the other hand, Islamic economy was required to lead to prosperity of the Muslim community in particular and Muslim countries in general.

Umar (RU) always thought one step ahead in terms of the economy of that era. Development economics is one of them, for example, it is the problems of state to play its role in education, health, employment, Salaries of head of state and civil servants and army werenew at that time.

This is a sign indicating that the economy in the time of Umar RU,moved further. While the environment was very different from the situation now. But during the days of HazratUmar RU the country’s economy can be called ahead of his time. Surely one thing is common with the present time that State structure should be such that should be meant to provide welfare to its people with no poverty in its territory. Hencegovernment with Islamic banking and Finance need to play their due role with new products and innovations to achieve this objective .