Islamic Entrepreneurship in Practice

By:
Prof. Dr. Mohd. Ma’sum Billah
masum@applied-islamicfinance.com
masum2001@yahoo.com
+6019-3699542

INTRODUCTION

The formation of business in modern Islam relies on the juridical principles discussed by early Muslims with reference to the Qur’an and Sunnah. Early Muslim jurists devoted a lot of attention to studying organizing a business enterprise among individuals. The following study will deal with business Enterprise according to Shari”ah rules and application. Firstly, we will identify prime models of business enterprise in Islam and their fundamentals characteristics. After we identified that forms, we are examining the fir’s behavior under Islamic spirit and its main distinctions with conventional one. After that, motivation and its features will be discussing as well as its meaning to both Muslim as well as capitalistic entrepreneur. And at very and, we are stating some general guidelines for Muslim entrepreneur in order to meet its goal of the maximization profit and social welfare

2.0. THE FORMS OF THE BUSINESS ENTERPRISE IN ISLAM

2.1The state’s business enterprise

This form of enterprise appeared in Islamic history when some landlords deserted their land following their conquered leaders after the Islamic conquests. The new (Islamic) state assumed the ownership of this land and rent it on the economics basis. However, it has been reported about the relatively small revenues achieved by the state from this source it seemed likely that the sector was minor and did not represent a major sector in the economy.

Muslim scholars agree that the state is entitled to have its own economically-run business enterprises. The state may be involved in business activities in order to guarantee the supply of certain goods and services, to enhance economic development or to use it as a tool for implementing its economic policies. But Muslim scholars have widely stressed that the expansion of the state’s business enterprise should not be at the expense of the interest of the private ownership, which is well established in the Islamic philosophy.

The ownership of the state enterprise could be a pure state ownership and a mixed type of ownership between individuals and the state. In the mixed type of ownership a dominant state ownership is not necessarily envisaged. In the modern Islamic world examples of non-dominant state portions of mixed ownership are portrayed. The state is regarded as fully responsible for their running, and as accountable for their results to the community at large (represented by the constitutional body).

2.2 Sole trader

Private ownership is well established and accepted in the Islamic economics whereby individuals may be involved in owning own private enterprise and running them on commercial basis. Within the philosophy of Islamic ownership (ownership by God’s trusteeship) the sole trader owns the enterprise capital , has full control over his business , hires whoever he wants to hire (on the hire contract basis), and runs his business the way he sees fit. He has personal reward for his energy and initiative, profit, as well as being fully liable for the enterprise’s financial liability. All economic activities are widely open to the sole trader and he is treated, or should be treated, on equal footing with other forms of business enterprises either privately or government owned. With the exception of trading in prohibited goods and services ( pork, spirits, gambling and Islamic immoral services ) and the prohibition of interest , the sole trader in the Shari’ a is very similar to his counterpart in the capitalist system.

2.3.Musharakah / partnership

Medieval jurists divide partnership into two main types” proprietary and contractual or commercial partnership. Due to application in daily transactions, we will focus on commercial one. It is divided into two main categories: mufawada’ which could be translated as unlimited-authority partnership and inan partnership which could be translated too as limited partnership. In the mufawada partnership the similarities of religion among partners has been as main condition of its establishment. However, Muslim may be involved with non-Muslims in ‘inan’ partnership provided prohibition of dealing at interest and with prohibited goods is stipulated in the contract. The specified ‘inan’ partnership imposes limitations on the business of partners, which might be related to the place of the market, the credit policy, the types of articles traded ad so forth.

2.4. Mudaraba / Commenda

Mudarabah is an arrangement in which an investor or group of investors capital or merchadandise to an agent-manager, who is to trade with it and then return to the investor the principal and previously agreed-upon share of the profit. There are three mainly conditions of validity of mudarabah:

1) There should be at least two partners who of their own will enter into an agreement, whereby on of them suppy capital to the another partner in order to trade with it

2) Every party to the act must know for sure and without ambiguity his share in the expected return profit

3) The active partner (agent-manager) must have absolute freedom to trade in the money given to him in order to realize the maximum gain.

3.0 BEHAVIOUR OF THE BUSINESS ENTERPRISE IN ISLAM

In this section we shall deal with the behavior of the producer, the firm. First of all we shall trace the consequences of the changed pattern of demand upon production, assuming capitalistic firms, under conditions of perfect competition. Then we shall introduce the Islamic influences and study the behavior of the firm, and the resulting picture of production and allocation of resources. This would give us an idea of the functioning of price system when both consumers and producers behave in the Islamic manner, under the conditions of prefect competition. Under the conditions of perfect competition the price system results in an organization of production faithfully reflecting the pattern of demand. It is necessary condition if the firms are to maximize their profits, as they try to do, in a capitalist economy. Every major decision regarding the organization of production has to be made as dictated by the market demand. The individual firm cannot take any initiative in these respects. Its role is entirely passive. Given profit maximization as the only objective of the firms, production of goods and allocation of resources directly follows the pattern of demand.

In view of this principle we can translate the pattern of demand previously arrived.A pattern can be summarized as follows

Let us now see our entrepreneurs’ behavior influenced of the Islamic spirit. The first result of this impact is a change in motivation which we shall now deal with. All the still maintained, expect where this motivational change calls for a modification. These exceptions shall be clearly stated, and their consequences carefully traced out, in the following analysis.

A Muslim entrepreneur cannot be always motivated by urge to maximize his pecuniary profit, due to the simple reason that he is possessed of a stronger urge for always acting up to the Islamic ideals of justice and benevolence. His case, with respect to ‘economic rationality’, is similar to that of the consumer. Should a conflict occur between the dictates of ‘economic rationality’ and Islamic injunctions he is by, assumption, expected to decide in favor of the latter. His ‘economic rationality’ becomes so to say, confined within the limits set by the Islamic spirit. Within this limit, he may seek to maximize his profit as far as possible. The realistic assumption would be that he shall. It may be urged that while the demands of justice are to a large extent determinate, those of benevolence know no bounds. So far as the principle that the entrepreneur must take the welfare of others into consideration is concerned it must be regarded as a well defined obligation. This least demand of benevolence is a duty of the Muslim entrepreneur, norm for the business policy, as we have seen above. When we speak of the confines within which profit maximization is allowed we have this obligation in our mind. Beyond that lies the unbounded field of social service, and altruistic help. An entrepreneur may sacrifice under normal conditions. Let us suppose, for the time being that entrepreneur’s own sense of justice and his own estimation of the requirements of the social good are not at variance with the pattern of market demand. That is to say, he has no inclination to violate the commands of the consumers expressed in the demand. Under this circumstance the entrepreneur would make the major decision of his business in the light of the profit motive, remaining within the confines of justice.

4.0. ENTERPRENEURSHIP IN THE LIGHT OF MAQASIDUL AL- SHARAIAH

4.1. The Islamic idea of Justice (‘adl)

Justice is the first and foremost principles in this connection. The Qur’an commands us to observe this principle throughout our lives. Whenever we enter into some relationship with others, the question of unavoidably comes in. There always a just path and an unjust path. Or to employ the economic phraseology, there are only various means to the ends we seek to achieve, but also just means and unjust. Each economic choice between alternatives means but also the choice between just means and unjust means. Each economic choice is accompanied by an ethical choice as well. All this may be strange language to those who habituated to different ethics from economics and prone to discus all economic questions as problems of choice between alternative use of the scarce and means without consideration to the ethical issues involved. It will become more clear when we understand the comprehensiveness of the Islamic idea of Justice .The Qur’an has emphatically ordained just behavior and it also explains to us the nature of justice.

“Lo Allah enjoineth justice and benevolence, and giving to kinsfolk, and forbidden lewdness and abomination and offence” (15:90).

“O ye who believe, be staunch in justice witnesses for Allah, even though it be against your parents or your kindred...So follow not passion lest you lapse (from truth)..(14:135).

“Give full measure and full weight in justice” (6:153).

It’s worth noticing that justice is very comprehensive concept and is concerned with almost all aspects of our life, social, economic, political, even spiritual. Secondly, justice implies, balance, proportionality and harmony as much as it implies legal justice and “rendering to each what is his/her due”. Positive implications of the various uses of these verses in this discussion as also elsewhere in Qur’an convince us of the fact that the just approach is concerned. It is not always the case that what is “due” to one is clearly determined.Futher revealing is that the fact oppression is agreedly regarded as the opposite of justice. This view is upheld by such Quranic statements as:

“It will be judged between them fairly and they will not be wronged” (10:48)

Oppression means putting a thing in other than its proper place. This significant definition further substantiates the board and positive nature of the Islamic idea of justice and equity. It is this perspective that we should place the relation of the concept of justice to that of equality. Justice is closely related to equality, but not always synonymous with it. The justice is related to equality and sometimes synonymous with it is evident from such lines of the Qur’an as:

“Say: I believe in whatever scripture by Allah hath sent down, and I am commanded to be just among them” (42:15)

Social equality, as value complementary to social justice has been distinctly upheld by Qur’an and Sunnah, and as Hazart Umar has stated it:

“The low and the respectable, all are equal in the religion of Allah”

Regarding economic issues like distribution and exchange, it will be going too far to interpret justice in terms of arithmetical equality. The Islamic idea of justice in this respect has been elaborated by a famous scholar as follows. This concept is composed of two elements. First that a sort of balance and proportion should be maintained between the people with respect to their rights. Secondly that every one’s due should be conscientiously rendered to him…What justice really demand is balance and proportion and not equality. So what Allah has ordained is not equality of rights but proportion and balance in them, and this order requires that to every person should be rendered all his moral, social, economic, legal, political, and civic rights honestly. However, from this discussion we derived to two conclusion , first justice may involve positive obligation even where there is no ‘right’ corresponding to it and demanding it in the strict sense of them, second that individual reckoning is not enough to meet the requirements of justice as it implies balance and harmony.

4.2.Cosideration for public interest (maslah)

Islam attaches extra ordinary importance to the fulfillment of contracts and promises. The basic principle of truth, honesty and trust are involved here. Therefore, business in impossible without mutual trust and confidence. There is no scope for opportunism and unilateral violation of contracts and promises in Islam. It is desirable to put in black and white all business contracts and dealings. Following verses of the Holy Qur’an and Hadith throw light on this fact:

“O ye believers! Fulfill your contracts”(5:1 (true belivers are those) “Who faitfully observe trust and covenants”. (23:8)

Whosoever is making such contracts, let it be in a well defined measure ad well defined price and well defined time table.” (Muslim : Kitab al baya)

On of the oldest ways of cheating in business is selling commodities with less than the standard weight or measurement. The basic motive behind this malpractice is to maximize profits and accumulate material possession, without any regard for the ethical validity of the means to be adopted for the same. Islam declares that justice and balance is the essence of this universe, the hence man, as a part thereof, is expected to maintain justice and balance in all spheres of life.

“Give full measure when ye measure, and weight with a balance that is straight…”(17:35)

Muslims are required to behave Islamically in their business dealings because Allah Himself is witness to their transactions:

In what business you may be, and whatever portion you may be reciting from the Qur’an – and whatever deed you (mankind) may be doing – We are Witnesses thereof when you are deeply engrossed therein [ Qur’an 10:61]

Here are some key business principles that Muslims should follow:

Honesty and truthfulness are qualities which a Muslim businessman should develop and practice in himself. Truth, for example, has a self-reinforcing effect. In a hadith reported in Sahih al Bukhari,

The Prophet (peace be upon him) said, “Truthfulness leads to righteousness, and righteousness leads to Paradise. A man continued to tell truth until he becomes a truthful person. Falsehood leads to fujur (i.e. ,wickedness, evil-doing), and al fujur (wickedness) leads to the (Hell) Fire, and a man may continue to tell lies till he is written before Allah, a liar”. [Hadith no. 8. 116.]

Honesty and truth is especially important for Muslim business person because of the need to make a profit and the temptations to enhance to attributes of their product or service during a sales pitch. This is way the Prophet (saaw) said:

The merchants will be raised on the Day of Resurrection as evil-doers, except those who fear Allah, are honest and speak the truth. [Mishkat al Masabih, 2799.]

In a hadith narrated by Abu Hurayrah, the Prophet (saaw) is reported to have said:

The Prophet (peace be upon him) said, “If you guarantee me six things on your part I shall guarantee you Paradise. Speak the truth when you talk, keep a promise when you make it, when you are trusted with something fulfill your trust, avoid sexual immorality, lower your eyes, and restrain your hands from injustice”. [ Mishkat al Masabih,4870.]

We mast love Allah even if we have to sacrifice everything else. Allah warns in the Qur’an,

Say, “If it be that your fathers, your sons, your brothers, your mattes, or your kindred; the wealth that you have gained; the commerce in which you fear a decline; or the dwellings in which you delight – are dearer to you than Allah, or His Messenger, or the striving in His cause – then wait until Allah brings about His Decision: and Allah guides not the rebellious”. [ Qur’an 9:24]

In a sound hadith, the Prophet (saaw) hired a polytheist as a guide at the time of his migration from Makkah to Madinah, thus entrusting him with his life and money. The people of tribe of Khuza’ah, who included both Muslims and non – Muslims, acted as a scouts for the Prophet (saaw). In hadith reported by Sa’d, the Prophet (saaw) asked Muslims to seek medical treatment from al Harith ibn Kaldah, who was disbeliever. However, As Sayyid Sabiq pointed out, if a Muslim physician is present, one should seek his or her treatment and not turn to anyone else. The same applies when one has to entrust a person with funds or deal with him in business. [Fiqh- us – Sunnah, paragraph 4.]

Muslims must not lead a life of extravagance, and must exhibit good – will in any transaction among themselves.

Oh you who believe! Eat not up your property among yourselves in vanities: but let there be amongst you traffic and trade by mutual good – will: nor kill (or destroy) yourselves : for verily Allah has been to you Most Merciful . [Qur’an 4:29]

In describing the characteristic of those who will receive higher and more permanent gifts from Him, Allah stress the importance of consultation .

Those who hearken to their Lord; and establish regular prayer; who (conduct) their affairs by mutual consultation, who spent out of what we bestow of them for sustenance. [ Qur’an 42:38]

Businessman should avoid duplicity They should treat others in the same righteous and fair manner that they themselves would like to be treated.

Woe to those that deal in fraud those who when they have to receive by measure for man exact full measure. But when they have to give by measure or weight to men give less than due. Do they not think that they will be called to account? [ Qur’an 83:1-4]

Businessman may sometimes be tempted to offer bribes or baqshish in order to persuade another party to give them special favors or to allow them to get away with dishonest practices. The practice of bribery is forbidden in Islam.

The Apostle of Allah (peace be upon him) cursed the one who bribes and the one who takes bribes. [Abu Dawud, hadith no. 3573.]

Trough previous short study of Business Enterprise In Islam, it has been argued and augmented that Business Enterprise has it’s special features and it is based on islam word view. As a prime distinction between two business enterprise, Islamic and its counterpart capitalistic is the motivation which lies behind profit maximization. A Conventional Business enterprise is concern only abut profit maximization while it simultaneously overcoming promotion of social welfare and justice as well as. In order to fulfill this great gap and failure, Business enterprise enlighten by Islamic wisdom is a key of satisfactions both side individual as entrepreneur and society in general. So that Muslim entrepreneur is not led only by concern of profit maximization, but he also possess a tremendous interest in promoting social welfare. Moreover Muslim entrepreneur plays role as trustee of Allah SWT. By the verse of the Holy Qur’an which revealed the main purpose of the role of human beings we are pleased to come to the end of this study.

Behold, thy Lord said to the angels: "I will create a vicegerent on earth." They said: "Wilt Thou place therein one who will make mischief therein and shed blood? Whilst we do celebrate Thy praise and glorify Thy holy (name)?" He said: "I know what ye know not ." ( Al Baqarah 30.)