The Effective Institutional Framework in Promoting Islamic Economy

The government has a significant responsibility to create an environment that supports economic practices based on Islam in this sense, the government is involved in directing, strengthening, or regulating actions in the private sector. Three main categories can be used to categorize the government's role in the modern economy.

1) Allocation Role

The government plays a crucial role, especially in providing goods such as public goods that are not supplied by the private sector. Not all goods in a country's economic system are provided by the private sector and can be obtained through the market system. Therefore, in this case, the government's cannot ability to supply these public goods is necessary market failure occurs when the government cannot supply these public goods through free market mechanisms. These things do not have the exclusivity that comes with personal belongings because their benefits are not shared by society and are not even your own. In other words, something does not have the exceptionality that individuals possess. For example, allocating factors of production or commodities or services to meet societal demands such as clean air, public roads, bridges and so on. The action of allocating factors of production, goods, or services to meet the needs of society. Therefore, the purpose of this action is to efficiently meet the needs of society related to justice, defense, and security, education, and personal or individual needs.

2) The role of distribution

The government's function in distributing income is known as the role of distribution. The government faces difficulties in carrying out this function because distribution is closely related to considerations of fairness. Justice is a relative and dynamic subject, therefore statements about justice also depend on the perspective of the society's own justice. This makes justice a very complex topic because it can be seen from various angles. The current income distribution in society is improved through initiatives aimed at achieving income redistribution or income transfers. Income distribution in society can be altered by the government, both directly and indirectly. An example of direct action is progressive taxation, which places higher taxes on the wealthy and lower taxes on the poor. Meanwhile, indirect examples involve government spending programs, such as building very basic and simple houses, adding luxury amenities to homes for specific income groups, providing subsidies to farmers who use fertilizers, and so on.

3) Role of stabilization

In the event of disruptions in stabilizing the economy, such as stagflation and unemployment, deflation, inflation, and decreases in demand or supply of goods, is for the government to play a stabilizing role. Stability involves integrating monetary policy with other policies, including trade and fiscal policies, to increase or decrease aggregate demand.

Meanwhile, the important tasks of the government in the economy are as follows:

1) Monitoring the key drivers of the economy

The main economic drivers, such as purchasing behavior, manufacturing, consumption, and unethical circulation, must be carefully monitored by the government. Non-partisan groups, such as Ahl Al Hisbah, should oversee this supervision to ensure that companies, producers, and other businesses do not take advantage of the easily deceived or innocent public for unethical purposes. It is estimated that with strict regulations, it can reduce the greed that can harm society.

2) Stop the forbidden Muamalah

Because they contradict Islamic principles that safeguard morality and public good, practices such as usury, hoarding, and monopoly fall under the category of transactions that are forbidden in Islam. Islam protects the economy of the Ummah and safeguards everyone's property from being squandered or used unjustly, it also forbids strict practices in the property economy. The state must act decisively against those who hoard goods. They can even take those items by force to sell to people who need them at a reasonable price and fair profit.

3) Fair Pricing

The discussion of the importance of distribution in Islamic economics and the issue of pricing has given rise to significant debate. Although some jurists forbid the fixing of prices based on Nash forbidding it, the changing social conditions raise questions about its fairness and enforceability today. According to Sharia law, fair pricing with the aim of creating justice and benefit for society is acceptable, but pricing that results in tyranny and injustice should be avoided. In reality, governments can be very helpful in controlling market activities to ensure that fixed pricing does not negatively impact the general public.

An effective framework must be implemented by the government to create an environment that supports Islamic business practices. By doing this, governments can contribute significantly to improving social welfare, reducing economic inequality, and promoting sustainable economic growth in accordance with Islamic principles.