Factor pricing determines the functional distribution of income, which is an important part of personal or size distribution of income and wealth in an economy. Economic growth can hardly alleviate the curse of poverty and increase human welfare if growth leads to the concentration of its fruits among a few of the population. It is, therefore, important to see how the income generated per period of time is distributed among the factors of production involved in the production process through the mechanism of factor pricing and, among others, by means of transfer payments in the form of zakāh, charities, government dues and so on.

This paper deals with the pricing of factors of production and its implication for functional distribution of income from an Islamic perspective. The research investigates the definitions of factors of production, contrasts Islamic normative principles with traditional economic theories, and analyzes the core problems of distributional equity. While the scope of the paper covers all factors of production, it places a specific emphasis on labour and its pricing, arguing that Islamic ethics provide a more equitable framework for determining wages and protecting human welfare compared to purely market-driven traditional models.

Core Concepts: Functional Distribution, Factor Pricing, Human Welfare, Zakāh, Labour Ethics, Equitable Wealth Distribution, Islamic Development, AUB.