In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance. The concept of insurance where resources are pooled to help the needy does not contradict Shariah.
The concept is in line with the principles of compensation and shared responsibilities among the community. It is not a new concept, in fact it had been practised by the Muhajrin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1400 years ago. It is generally accepted by Muslim Jurists
that the operation of conventional insurance does not conform to the rules and requirements of Shariah.
Conventional insurance involves the elements of uncertainity (Al-gharar) in the contract of insurance, gambling (Al-maisir) as the consequences of the presence of uncertainty and interest (Al-riba) in the investment activities of the conventional insurance companies which contravene the rules of Shariah. Takaful is an alternative form of cover which a Muslim can avail himself against the risk of loss due to misfortunes.
The Institute receives numerous requests for information about the permissibility, concept and practice of Takaful (Islamic Insurance) and about organisations engaged in Takaful business.
These requests underline important two facts. Firstly, that there is a rapidly increasing interest in it and secondly, there is an acute shortage of information on various aspects of Takaful. Moved by these factors, the Institute decided to include a section on Takaful to fill this important information gap.
The Institute has already published an International Directory of Islamic Insurance (Takaful) Organisations, listing not only the companies in this field and their particulars, but also a number of articles on various aspects of this system.
"I think that you are doing a great service to Islamic banking and insurance and I second your judgment about the importance of Takaful in modern economic life and hope that your Institute will make many contributions to this open area."
Dr. Omar Zubair Hafiz
Deputy Director, Islamic Development Bank, Jeddah.
Tuesday, December 2, 2008
Monday, December 1, 2008
Investment Need For Purify Return
Introduction
Purification process usually involves the application of Shariah principles in determining the permissibility of share trading. It deals with the valuation of stocks along Shariah guidelines. In this way, it does not concern determining the market values of stocks. However it does not mean that the Shariah is negligence of performance parameters. The purification process is only the beginning of Shariah compliance. Equally important is the wealth creation aspects of stock investment.
In the earlier days, the names like filtration, cleansing and screening process were used to achieve similar objectives. The Securities Commission has played a noble role in setting up the Shariah criteria for listed stocks. In June 1997 the Commission published a list of stocks consistent with the Shariah criteria. Later, by 26th October 2001, 79% of the stocks (i.e. 642) listed in the KLSE were found to comply with Shariah values. Over time, the Commission oversees the purification process by actively pursuing a system of addition and deletion of stocks to ensure full compliance.
The question now is the purification factor market driven? Who needs purification? Assuming that the purification process is market-driven, the issue can be examined from two sides, namely:
1. Demand side : Retail and institutional investors
2. Supply side : Issuing companies (IPOs) and investors (secondary trading).
It is quite obvious that the people wanting to purchase and sell Shariah stocks constitutes the Muslim individuals as well as companies running business under an Islamic label, such as Islamic banks, takaful, Islamic unit trusts and asset management companies. They wanted to make sure that stocks bought and sold are permissible (halal) for fear when God's Law is violated; punishment in the Hereafter is inevitable.
This paper looks at the need for purification from two perspectives. First it deals with the legal factor, namely the Shariah value (hukm shari') attached to the act of buying and selling stocks. Secondly, it examines the ethical factor that ventures into the metaphysical dimension of the self and the factors affecting it. The self is the centerpiece of human motivation. Thus, what compels an investor to purchase Shariah stocks has a lot to do with the self and its objectives.
THE LEGAL FACTOR: The role of 'Aqd (contract)
The need for purification can be made more revealing when decisions of issuers and investors are further investigated. The issue can be more sensitive on the demand side, since investors are particular on what they buy. They are concern whether the profits earned from the investments are halal. The supply side factor however, is relatively silent unless issuers are keen to capture Islamic investors such as the recent PLUS initial public offers.
What is at stake here is a fundamental question, namely the nature of the contract ('Aqd) applied in trading Shariah stocks. Human actions in the Shariah can be categorized into five, namely:
1. Wajib (obligatory)
2. Sunnat (commendable)
3. Makruh (reprehensible)
4. Mubah (permissible)
5. Haram (prohibited)
In defining human actions, the contractual relationship between man and God (hablumninallah) as well as among man (hablumminnanas) is a crucial element to observe. As an example, the consumption of interest as riba, is prohibited (haram) as it both violated the rights of God and the rights of man. In a legal perspective, the contract of an interest-bearing loan is invalid (bathil).The act of lending and borrowing in this respect is not recognized by both God and society. When this happens the act of lending and borrowing with riba will not be rewarded but punishable in the hereafter.
The same applies in Shariah stock trading. If an investor desires to observe the Shariah, he or she must first ask whether the act of sale and purchase of stocks is valid (sah) in the eyes of God. It is here, the 'Aqd factor is most critical. If the 'Aqd is void (bathil), then the act of stock trading is punishable. Like wise if the 'Aqd is valid (sahih), then people who purchase or sell stocks will receive rewards (thawab) from God.
The 'Aqd (contract) for stock trading apparently has not received commendable attention compared with the Shariah criteria of the Securities Commission. In the latter, it seems that the subject matter is the stock (i.e. the financial asset) rather than the contract applied in the sale and purchase of that financial asset. It is thus important to explore what exactly is the nature of contract ('Aqd) applied in Shariah stock trading. The 'Aqd helps determine the Hukm Shari' of shariah stock trading. That is whether the actions of stock trading is accepted or rejected by God is defined by the validity of the 'Aqd. Therefore pinning on the Islamicity of the stocks alone may not suffice in determining the Shariah value (hukm) on the sale and purchase of stocks.
Contract of Al-Bay' (sale and purchase of asset/property)
There are four main principles of 'Aqd (contract),namely:
1. Agents of contract (tharafail aqdi)
2. Objective of contract (mauduul adqi)
3. Object of contract (mahalul aqdi)
4. Offer and acceptance (ijab & qabul)
To secure legitimacy, the contract must be free from the following elements
1.
Interest (riba): contractual increase over capital loan
2.
Gambling (maisir): speculative or aleatory contracts in which obligations and benefits accruing to participating parties are not fully defined at the time when the contract became effective leading to either wining or losing arising from mere chance instead of work and effort.
3.
Ambiguities (Gharar): uncertainties that exists in contracts involving contracting parties and the subject matter, which leads to disputes and unjustified gain
4.
Intoxicants (qamar): consumption of alcoholic beverages, which can impair the intellect ('aql) leading to irrational behavior.
5.
Consumption of pork
6.
Illicit sex (zina) : sexual relation outside marriage which annihilate the sanctity of the family system (nasl).
The two principles of risk-taking (al-bay') and profit-loss sharing (Shirkat) are a given in all contractual obligation. For that reason, the Shariah prohibits interest and gambling. In Islamic law, two popular the legal maxims (Qawaid Fiqiah) highlight the constructiive role of risk-taking in wealth creation :
1. No rewards without risks - "Al-Ghormi bil Ghonm"
2. Profits must be accompanied with liability "Al-Kharaj bil Daman"
A systematic understanding of stocks in Islam can best be acquired by looking at the nature of contract and transaction each party, namely the seller and buyer of stocks have both participated in. If focus is given on stock purification, the trading of stocks in Islam essentially involves the contract of sale (al-bay') since what is taking place is the exchange of financial assets (i.e. Shariah stocks) for money. A share certificate is an evidence of one's ownership of a company, namely ownership of assets. Although the ownership is only fractional but it gives the owners the right to participate in profit making, such as determining company policy by way of appointing company directors. The contract of al-bay' seems fitting since a share certificate is seen to represent assets or property (al-mal mutaqawim) inputed into the production process. In the contract of al-bay' this is called the subject matter or mahallul 'aqdi.
But the ability to participate, say in the election of the board of directors seems to indicate that a person who purchases and owns common stocks, is not comparable to an ordinary consumer or merchant who respectively purchase tangible goods for consumption or trading purposes. So, using the contract of al-bay' may not be an accurate one, to say the least.
Contract of Partnership (Shirkatul 'Inan)
Investment in stocks can also be understood by way of applying profit-loss sharing principle. When a company issues a common share it does so to obtain risk or equity capital from the public. Investors who took up these shares are willing to assume the risk of losing his capital in a hope to obtain higher returns. Investment in stocks is therefore a profit-loss sharing activity, which Islam rightly enjoins. The contracts of profit-loss sharing ('Uqud al-Ishtirak) in Islam shall consists of two, namely:
1. Al-Qirad or Al-Mudarabah (Trustee Partership)
2. Al-Shirkah or Al-Musyarakah (General Partnership)
In Shariah stocks trading, the contract of Musyarakah seems more suitable since it (i.e. musyarakah) deals with a partnership of capital. This is because both issuer and investors injected capital input into the business. The contract of Shirkatul 'inan) unequal partnership of capital is thus relevant here. In short, the contract of Shariah stock trading can be summarized as follows:
Contract of Shirkatul 'Inan
1. Agents of contract : Issuer and investors (IPO)
2. Objective of contact: Profit and loss sharing
3. Object of contract:
1. Capital : Provision of cash or physical assets by both parties
2. Labor : Provision of work and effort by both parties
4. Offer and acceptance : as mutually agreed based on the above terms and conditions.
However, the nature of stock trading assumes that the investors are practically sleeping partners as they do not directly participate in the running of business. The contract cannot assume a Mudarabah relationship given that it (i.e. Mudarabah) only allows one party to contribute capital while the other providing the management role. All Muslim jurists require that partners put both work and effort into the business. Otherwise the contract becomes null and void (AAOIFI 1999).
Further research on the nature of Islamic stock trading and the applicable contracts is crucial. It looks like the contract (if any) assimilates both Musyarakah and Mudarabah features. A hybrid contract is a likely possibility but this needs a playing field at the fuqaha level. Meanwhile Muslim investors are rest assure by the Securities Commission that their act of buying and selling of shares are valid (sah) and thus, acceptable by God Almighty as good deeds ('amal saleh)
THE MORAL FACTOR
Muslim investors desire to know whether the act of buying and selling of Shariah stocks is valid or not valid. The purification process played an important role in putting Shariah legitimacy of Shariah stock trading. The question again, is why Muslims are concern with the haram and halal? If the contract of stock trading is invalid, the act of buying and selling of stocks is therefore a sin and brings along with it a sense of regret, helplessness and loss. In wealth creation, Muslims certainly do not desire these unwarranted stress and grief as opposed to happiness and tranquility.
It seems that an ethical explanation is in order to ascertain the desire for Shariah legitimacy (i.e. the legal factor) via the purification process. The above methods of Shariah screening constitute Islam's way of purifying the soul (tazkiyah an-nafs). These methods are means by which an individual can attain purification of the self. In Islam purification began from within. This is among the central theme of the Quran. That is, the individual strives to purify himself in a way ordained by the Creator. Purifying oneself is the final objective in life achievable by way of submitting one's desires to the Will of God, as embodied in the Shariah. In the end, man shall achieve happiness when the self returns to its true nature.
Submitting one's desire to Shariah values requires a driving catalyst that both motivates and excites the individual to do it with conviction. This is because submitting one's desire to a particular value system needs convincing. Temptations to realize gains through falsehood such as fraud and corruption are overwhelming when less effort is required to obtain them. Income derived from riba and gambling is immoral as both constitute unlawful gains since no equivalent countervalue ('iwad) is evident from the surplus made. Likewise, allowing ambiguities (gharar) in contractual obligations is against to mutual and cooperative values.
Islam as Al-Din means submission. In fact one of the meanings of Din or the Arabic root word DYN, is indebtedness. It is this notion of indebtedness that gives deeper meaning to the reason for human economic existence in Islam. Why is man indebted to God, and what is he supposed to do under such a situation of indebtedness? Logically, when a person is in debt he is supposed to settle it. In Islam man is indebted to God, his Creator and Provider, for bringing him into existence and maintaining him in his existence as man once did not exist, and now he does.
On this point, the Quran states, "Man, We did create from a quintessence of clay. Then We placed him as a drop of sperm in a place of rest, firmly fixed. Then We made the sperm into a clot of congealed blood; then out of that clot We made a lump; then We made out of that lump bones and clothed the bones with fresh; then We developed out of it another creature. So blessed be God, the Best to create". (Al-Mu'minun {23}:12-14).
How is man supposed to repay the debt? God is in no dire need of anything as He is the Creator and Sustainer, but the debt than man owes God must be paid. In Islam, paying or returning the debts means to give himself up in service, or khidmah, to his Lord and Master, to abase himself before Him - and so the rightly guided man sincerely and consciously enslaves himself for the sake of God in order to fulfill His Commands and Prohibitions and Ordinances, and thus to live out the dictates of His Law.
Now it is becomes clear that the meaning of man's existence is related to his indebtedness to God and his subsequent enslavement to His law. Man himself is the object of the debt. In fact the Covenant that man sealed with God in the Primordial stage of life i.e. when He says, 'Am I not your Lord", and man's true self testifying, answered: Yea!", requires man to manifest the Covenant (Al-Mithaq) through his submission in absolute true willingness.
The question now is, how can these meanings of indebtedness via the theory of Al-Mithaq be of significance in explaining the need for purification? The answer lies in the Islamic conception of the self. The Self in the Quran has been mentioned in different levels of man inner experience such as:
1. Human spirit (Ruh)
2. Soul (Nafs)
3. Intellect ('Aql)
4. Heart (Qalb).
Naquib Al-Attas provides a coherent exposition how these different modes of the self is seen as a unity:
"Thus when it (i.e. the human soul) is involved in intellection and apprehension it is called 'intelect'; when it governs the body it is called 'soul'; when it is engaged in receiving intuitive illumination it is called 'heart' and it reverts to its own world of abstract entities it is called 'spirit'. Indeed, it is a reality always engaged in manifesting itself in all these states".
The self was once pure and clean. Muslims believe in this fact (see Al-A'raf :175). The covenant that man i.e. the self sealed with God in the primordial life, implied that the self is indebted to the Creator. Man i.e. the self pays the debt by way of submitting his desires to God's Will as embodied in the Shariah when man is born into the physical world.
Man in Islam is the highest creation of God because he is bestowed by the Creator the power of intellect ('aql) with which he is able to differentiate right from wrong. At the same time,man is composed of forgetfulness (nisyan) and despite having testified to the truth of the covenant he sealed with God, he forgets (nasiya) to fulfill his duty and his purpose. Forgetfulness is the cause of man's disobedience and this blameworthy nature inclines him towards injustice (zulm) and ignorance (jahl).
Thus, in life (al-dunya) the self is inflicted with disturbances that do not allow it to fully submit to the law of Allah as promised. In this manner, the self is surrounded with impurities that further clouded his/her remembrance of the Al-Mithaq. This impurities caused the self to lose touch with God and lost the sense of the purpose of existence . Here the self will fall in grief (shawqawa). The Quran mentioned this very clearly:
"Verily by the declining day, man is in loss (khusrin), except those who believe and do good works, and exhort one another to truth, exhort one another to endurance" (Al-Asr 1-3)
However, when the self strives hard to free it self from the impurities (i.e. abstaining from God'prohibitions), by way of submitting itself to God's commandment, it will again experience the happiness (saada) it used to enjoy in the primordial stage of life. In this way, it cleansing of the self is achievable when the self struggle through life, enjoining the good and avoiding the bad ('amal ma'afuh nahi mungkar)
Likewise, investments in Shariah stocks is one aspect of man's submission to the Will of God. In wealth creation, a believer is expected to avoid the prohibitions and pursue the alternative means recommended by God. When man is able to pursue wealth creation in this way, he or she will see that justice is put in place. From the moral and ethical angle, man will be at ease with himself/herself. This is the level of nafs muthmainnah (the contented soul) (see figure below).
Conclusion
In explaining the need for purification of stocks listed in the KLSE bourse, this paper looks two factors affecting the investors, namely the legal and ethical factors. The legal factor explains why there is a need to spell out the real nature of 'aqd (contract) of stock trading. If the 'aqad is valid (sah), then the actions of buying and selling stocks will receive God's blessing and therefore rewarded both in this world and the hereafter. If the 'aqd is void (bathil), investors have committed a sin and therefore punishable. This desire to secure Shariah legitimacy (i.e. the legal factor) is driven by the ethical factor, namely the desire to purify one's self by way of obeying the law of God (Shariah). It is an act of submission or enslavement to God as He has given man life and sustenance. The concept of indebtness is fundamental to further understand why Muslims desire to purchase stocks that fully complied with Shariah principles.
Dr. Saiful Azhar Rosly
Purification process usually involves the application of Shariah principles in determining the permissibility of share trading. It deals with the valuation of stocks along Shariah guidelines. In this way, it does not concern determining the market values of stocks. However it does not mean that the Shariah is negligence of performance parameters. The purification process is only the beginning of Shariah compliance. Equally important is the wealth creation aspects of stock investment.
In the earlier days, the names like filtration, cleansing and screening process were used to achieve similar objectives. The Securities Commission has played a noble role in setting up the Shariah criteria for listed stocks. In June 1997 the Commission published a list of stocks consistent with the Shariah criteria. Later, by 26th October 2001, 79% of the stocks (i.e. 642) listed in the KLSE were found to comply with Shariah values. Over time, the Commission oversees the purification process by actively pursuing a system of addition and deletion of stocks to ensure full compliance.
The question now is the purification factor market driven? Who needs purification? Assuming that the purification process is market-driven, the issue can be examined from two sides, namely:
1. Demand side : Retail and institutional investors
2. Supply side : Issuing companies (IPOs) and investors (secondary trading).
It is quite obvious that the people wanting to purchase and sell Shariah stocks constitutes the Muslim individuals as well as companies running business under an Islamic label, such as Islamic banks, takaful, Islamic unit trusts and asset management companies. They wanted to make sure that stocks bought and sold are permissible (halal) for fear when God's Law is violated; punishment in the Hereafter is inevitable.
This paper looks at the need for purification from two perspectives. First it deals with the legal factor, namely the Shariah value (hukm shari') attached to the act of buying and selling stocks. Secondly, it examines the ethical factor that ventures into the metaphysical dimension of the self and the factors affecting it. The self is the centerpiece of human motivation. Thus, what compels an investor to purchase Shariah stocks has a lot to do with the self and its objectives.
THE LEGAL FACTOR: The role of 'Aqd (contract)
The need for purification can be made more revealing when decisions of issuers and investors are further investigated. The issue can be more sensitive on the demand side, since investors are particular on what they buy. They are concern whether the profits earned from the investments are halal. The supply side factor however, is relatively silent unless issuers are keen to capture Islamic investors such as the recent PLUS initial public offers.
What is at stake here is a fundamental question, namely the nature of the contract ('Aqd) applied in trading Shariah stocks. Human actions in the Shariah can be categorized into five, namely:
1. Wajib (obligatory)
2. Sunnat (commendable)
3. Makruh (reprehensible)
4. Mubah (permissible)
5. Haram (prohibited)
In defining human actions, the contractual relationship between man and God (hablumninallah) as well as among man (hablumminnanas) is a crucial element to observe. As an example, the consumption of interest as riba, is prohibited (haram) as it both violated the rights of God and the rights of man. In a legal perspective, the contract of an interest-bearing loan is invalid (bathil).The act of lending and borrowing in this respect is not recognized by both God and society. When this happens the act of lending and borrowing with riba will not be rewarded but punishable in the hereafter.
The same applies in Shariah stock trading. If an investor desires to observe the Shariah, he or she must first ask whether the act of sale and purchase of stocks is valid (sah) in the eyes of God. It is here, the 'Aqd factor is most critical. If the 'Aqd is void (bathil), then the act of stock trading is punishable. Like wise if the 'Aqd is valid (sahih), then people who purchase or sell stocks will receive rewards (thawab) from God.
The 'Aqd (contract) for stock trading apparently has not received commendable attention compared with the Shariah criteria of the Securities Commission. In the latter, it seems that the subject matter is the stock (i.e. the financial asset) rather than the contract applied in the sale and purchase of that financial asset. It is thus important to explore what exactly is the nature of contract ('Aqd) applied in Shariah stock trading. The 'Aqd helps determine the Hukm Shari' of shariah stock trading. That is whether the actions of stock trading is accepted or rejected by God is defined by the validity of the 'Aqd. Therefore pinning on the Islamicity of the stocks alone may not suffice in determining the Shariah value (hukm) on the sale and purchase of stocks.
Contract of Al-Bay' (sale and purchase of asset/property)
There are four main principles of 'Aqd (contract),namely:
1. Agents of contract (tharafail aqdi)
2. Objective of contract (mauduul adqi)
3. Object of contract (mahalul aqdi)
4. Offer and acceptance (ijab & qabul)
To secure legitimacy, the contract must be free from the following elements
1.
Interest (riba): contractual increase over capital loan
2.
Gambling (maisir): speculative or aleatory contracts in which obligations and benefits accruing to participating parties are not fully defined at the time when the contract became effective leading to either wining or losing arising from mere chance instead of work and effort.
3.
Ambiguities (Gharar): uncertainties that exists in contracts involving contracting parties and the subject matter, which leads to disputes and unjustified gain
4.
Intoxicants (qamar): consumption of alcoholic beverages, which can impair the intellect ('aql) leading to irrational behavior.
5.
Consumption of pork
6.
Illicit sex (zina) : sexual relation outside marriage which annihilate the sanctity of the family system (nasl).
The two principles of risk-taking (al-bay') and profit-loss sharing (Shirkat) are a given in all contractual obligation. For that reason, the Shariah prohibits interest and gambling. In Islamic law, two popular the legal maxims (Qawaid Fiqiah) highlight the constructiive role of risk-taking in wealth creation :
1. No rewards without risks - "Al-Ghormi bil Ghonm"
2. Profits must be accompanied with liability "Al-Kharaj bil Daman"
A systematic understanding of stocks in Islam can best be acquired by looking at the nature of contract and transaction each party, namely the seller and buyer of stocks have both participated in. If focus is given on stock purification, the trading of stocks in Islam essentially involves the contract of sale (al-bay') since what is taking place is the exchange of financial assets (i.e. Shariah stocks) for money. A share certificate is an evidence of one's ownership of a company, namely ownership of assets. Although the ownership is only fractional but it gives the owners the right to participate in profit making, such as determining company policy by way of appointing company directors. The contract of al-bay' seems fitting since a share certificate is seen to represent assets or property (al-mal mutaqawim) inputed into the production process. In the contract of al-bay' this is called the subject matter or mahallul 'aqdi.
But the ability to participate, say in the election of the board of directors seems to indicate that a person who purchases and owns common stocks, is not comparable to an ordinary consumer or merchant who respectively purchase tangible goods for consumption or trading purposes. So, using the contract of al-bay' may not be an accurate one, to say the least.
Contract of Partnership (Shirkatul 'Inan)
Investment in stocks can also be understood by way of applying profit-loss sharing principle. When a company issues a common share it does so to obtain risk or equity capital from the public. Investors who took up these shares are willing to assume the risk of losing his capital in a hope to obtain higher returns. Investment in stocks is therefore a profit-loss sharing activity, which Islam rightly enjoins. The contracts of profit-loss sharing ('Uqud al-Ishtirak) in Islam shall consists of two, namely:
1. Al-Qirad or Al-Mudarabah (Trustee Partership)
2. Al-Shirkah or Al-Musyarakah (General Partnership)
In Shariah stocks trading, the contract of Musyarakah seems more suitable since it (i.e. musyarakah) deals with a partnership of capital. This is because both issuer and investors injected capital input into the business. The contract of Shirkatul 'inan) unequal partnership of capital is thus relevant here. In short, the contract of Shariah stock trading can be summarized as follows:
Contract of Shirkatul 'Inan
1. Agents of contract : Issuer and investors (IPO)
2. Objective of contact: Profit and loss sharing
3. Object of contract:
1. Capital : Provision of cash or physical assets by both parties
2. Labor : Provision of work and effort by both parties
4. Offer and acceptance : as mutually agreed based on the above terms and conditions.
However, the nature of stock trading assumes that the investors are practically sleeping partners as they do not directly participate in the running of business. The contract cannot assume a Mudarabah relationship given that it (i.e. Mudarabah) only allows one party to contribute capital while the other providing the management role. All Muslim jurists require that partners put both work and effort into the business. Otherwise the contract becomes null and void (AAOIFI 1999).
Further research on the nature of Islamic stock trading and the applicable contracts is crucial. It looks like the contract (if any) assimilates both Musyarakah and Mudarabah features. A hybrid contract is a likely possibility but this needs a playing field at the fuqaha level. Meanwhile Muslim investors are rest assure by the Securities Commission that their act of buying and selling of shares are valid (sah) and thus, acceptable by God Almighty as good deeds ('amal saleh)
THE MORAL FACTOR
Muslim investors desire to know whether the act of buying and selling of Shariah stocks is valid or not valid. The purification process played an important role in putting Shariah legitimacy of Shariah stock trading. The question again, is why Muslims are concern with the haram and halal? If the contract of stock trading is invalid, the act of buying and selling of stocks is therefore a sin and brings along with it a sense of regret, helplessness and loss. In wealth creation, Muslims certainly do not desire these unwarranted stress and grief as opposed to happiness and tranquility.
It seems that an ethical explanation is in order to ascertain the desire for Shariah legitimacy (i.e. the legal factor) via the purification process. The above methods of Shariah screening constitute Islam's way of purifying the soul (tazkiyah an-nafs). These methods are means by which an individual can attain purification of the self. In Islam purification began from within. This is among the central theme of the Quran. That is, the individual strives to purify himself in a way ordained by the Creator. Purifying oneself is the final objective in life achievable by way of submitting one's desires to the Will of God, as embodied in the Shariah. In the end, man shall achieve happiness when the self returns to its true nature.
Submitting one's desire to Shariah values requires a driving catalyst that both motivates and excites the individual to do it with conviction. This is because submitting one's desire to a particular value system needs convincing. Temptations to realize gains through falsehood such as fraud and corruption are overwhelming when less effort is required to obtain them. Income derived from riba and gambling is immoral as both constitute unlawful gains since no equivalent countervalue ('iwad) is evident from the surplus made. Likewise, allowing ambiguities (gharar) in contractual obligations is against to mutual and cooperative values.
Islam as Al-Din means submission. In fact one of the meanings of Din or the Arabic root word DYN, is indebtedness. It is this notion of indebtedness that gives deeper meaning to the reason for human economic existence in Islam. Why is man indebted to God, and what is he supposed to do under such a situation of indebtedness? Logically, when a person is in debt he is supposed to settle it. In Islam man is indebted to God, his Creator and Provider, for bringing him into existence and maintaining him in his existence as man once did not exist, and now he does.
On this point, the Quran states, "Man, We did create from a quintessence of clay. Then We placed him as a drop of sperm in a place of rest, firmly fixed. Then We made the sperm into a clot of congealed blood; then out of that clot We made a lump; then We made out of that lump bones and clothed the bones with fresh; then We developed out of it another creature. So blessed be God, the Best to create". (Al-Mu'minun {23}:12-14).
How is man supposed to repay the debt? God is in no dire need of anything as He is the Creator and Sustainer, but the debt than man owes God must be paid. In Islam, paying or returning the debts means to give himself up in service, or khidmah, to his Lord and Master, to abase himself before Him - and so the rightly guided man sincerely and consciously enslaves himself for the sake of God in order to fulfill His Commands and Prohibitions and Ordinances, and thus to live out the dictates of His Law.
Now it is becomes clear that the meaning of man's existence is related to his indebtedness to God and his subsequent enslavement to His law. Man himself is the object of the debt. In fact the Covenant that man sealed with God in the Primordial stage of life i.e. when He says, 'Am I not your Lord", and man's true self testifying, answered: Yea!", requires man to manifest the Covenant (Al-Mithaq) through his submission in absolute true willingness.
The question now is, how can these meanings of indebtedness via the theory of Al-Mithaq be of significance in explaining the need for purification? The answer lies in the Islamic conception of the self. The Self in the Quran has been mentioned in different levels of man inner experience such as:
1. Human spirit (Ruh)
2. Soul (Nafs)
3. Intellect ('Aql)
4. Heart (Qalb).
Naquib Al-Attas provides a coherent exposition how these different modes of the self is seen as a unity:
"Thus when it (i.e. the human soul) is involved in intellection and apprehension it is called 'intelect'; when it governs the body it is called 'soul'; when it is engaged in receiving intuitive illumination it is called 'heart' and it reverts to its own world of abstract entities it is called 'spirit'. Indeed, it is a reality always engaged in manifesting itself in all these states".
The self was once pure and clean. Muslims believe in this fact (see Al-A'raf :175). The covenant that man i.e. the self sealed with God in the primordial life, implied that the self is indebted to the Creator. Man i.e. the self pays the debt by way of submitting his desires to God's Will as embodied in the Shariah when man is born into the physical world.
Man in Islam is the highest creation of God because he is bestowed by the Creator the power of intellect ('aql) with which he is able to differentiate right from wrong. At the same time,man is composed of forgetfulness (nisyan) and despite having testified to the truth of the covenant he sealed with God, he forgets (nasiya) to fulfill his duty and his purpose. Forgetfulness is the cause of man's disobedience and this blameworthy nature inclines him towards injustice (zulm) and ignorance (jahl).
Thus, in life (al-dunya) the self is inflicted with disturbances that do not allow it to fully submit to the law of Allah as promised. In this manner, the self is surrounded with impurities that further clouded his/her remembrance of the Al-Mithaq. This impurities caused the self to lose touch with God and lost the sense of the purpose of existence . Here the self will fall in grief (shawqawa). The Quran mentioned this very clearly:
"Verily by the declining day, man is in loss (khusrin), except those who believe and do good works, and exhort one another to truth, exhort one another to endurance" (Al-Asr 1-3)
However, when the self strives hard to free it self from the impurities (i.e. abstaining from God'prohibitions), by way of submitting itself to God's commandment, it will again experience the happiness (saada) it used to enjoy in the primordial stage of life. In this way, it cleansing of the self is achievable when the self struggle through life, enjoining the good and avoiding the bad ('amal ma'afuh nahi mungkar)
Likewise, investments in Shariah stocks is one aspect of man's submission to the Will of God. In wealth creation, a believer is expected to avoid the prohibitions and pursue the alternative means recommended by God. When man is able to pursue wealth creation in this way, he or she will see that justice is put in place. From the moral and ethical angle, man will be at ease with himself/herself. This is the level of nafs muthmainnah (the contented soul) (see figure below).
Conclusion
In explaining the need for purification of stocks listed in the KLSE bourse, this paper looks two factors affecting the investors, namely the legal and ethical factors. The legal factor explains why there is a need to spell out the real nature of 'aqd (contract) of stock trading. If the 'aqad is valid (sah), then the actions of buying and selling stocks will receive God's blessing and therefore rewarded both in this world and the hereafter. If the 'aqd is void (bathil), investors have committed a sin and therefore punishable. This desire to secure Shariah legitimacy (i.e. the legal factor) is driven by the ethical factor, namely the desire to purify one's self by way of obeying the law of God (Shariah). It is an act of submission or enslavement to God as He has given man life and sustenance. The concept of indebtness is fundamental to further understand why Muslims desire to purchase stocks that fully complied with Shariah principles.
Dr. Saiful Azhar Rosly
Trade and Business
When people do any business together, they are likely to have disputes and differences of opinion over money matters. It is, therefore, important that such matters, involving money, property or other articles of, value, should be written down in the form of a contract and signed by both the parties in the presence of witnesses. These contracts eliminate many unnecessary disputes as well as safeguard and protect the rights of all concerned.
The Holy Quran has referred to such contracts in the following words:
"0 you who believe, when you contract a debt for a fixed time, write it down- And call to witness from among your men two witnesses. And be not averse to writing it whether it is small or large along with the time of its falling due. This is more equitable in the sight of God and makes testimony surer and the best way to keep away from doubts., But when it is ready merchandise which- you give and take among yourselves from hand to hand, there is no blame onr you in not writing it down. And have witnesses when you sell otle to' another". (II: 282)
In these words the Holy Quran has indicated the importance of contract in Islam. The Muslims are here told to put down all their transactions, great or small, in writing except when they are doing hand to hand dealings. Whether' the amount involved is small or large, and' the contract is for a' short' period or longer period, the Muslims are required to write it down in the presence of witnesses. All these precautions are taken to avoid disputes and- to protect and safeguard the right of 'property of the individuals.
Forms of Business Organizations
Many forms of business organizations were current among the Muslims at the-time of the Holy Prophet. Most popular forms of business organizations were partnership, joint-stock- companies muzaraba and business on commission- which would, be discussed in the following pages.
(i) Muzaraba
In-muzaraba one man (or party) provides capital and the other labor, and: both share profit. The-profit is divided according to the terms of the agreement made between the parties.
The difference between a laborer (working for as employer) and partner in muzaraba is that, in the former the capitalist (or employer) is responsible for the payment of wages to the laborer whether he gains or loses in his business while in the latter, the laborer (who is also a partner in business) receives his share only if there is profit from the business. Thus wages are guaranteed to the laborer, no matter what happens to the business; profit or loss, in the former but, in the latter, his share of the profit is guaranteed only if there is any profit. He gets nothing if the business is-running on loss.
1.
Pre-Islamic Period-: This form of business was-prevalent in Arabia even before the advent of the Holy Prophet. Khadija-bint-Khawalid, who was a rich woman, used to give her money to other people to trade with and then to share the profits with them. Then Khadija, being impressed by honesty and righteousness of the Holy Prophet, requested him to take her commercial goods to Syria. There was huge profit from this bargain, out of which-the Holy Prophet received ample share.
2.
Advent of Islam: When the Muslims conquered Khaiber, the Holy Prophet granted the lands to the Jews (on their request) on the condition that they would cultivate the lands and share the produce equally with the Muslims".
The companions of the Holy Prophet used to trade and do other business on the same principle. Zaid bin Aslam reports from his father that "Abdullah and Ubaidullah, two sons of the Caliph Umar, went to Iraq for Jehad with Muslim army. On their return, they went to Abu-Musa, who was the administrator of Basra. He welcomed them and said, "I wish I could do you a favor. I have some money of Bait-al-mal (treasury) which I want to send to Umar. Now I give this money to you as a loan, you purchase some goods with it from Iraq and sell them in Madina, pay the capital to Umar and keep the profit for yourselves". They agreed to this proposal and got the money from Abu Musa who wrote to Umar to receive it from them. When they came to Madina, they sold ' the goods and made some profit. Then they took the capital to Umar, who asked them, "did he give such a loan to every man in the army?" They replied in the negative. Then Umar said, 'This money has been given to you -for being sons of the Caliph; give me the capital as well as the profit". Abdullah kept quiet but Ubaidullah said, "0 Amir-ul-Muminin, You should not do this (to us). Had the money been lost or had we suffered a loss, we would have paid the capital." Umar said, "No ! You must pay it". Ubaidullah again requested. Then Abdur Rehman bin Auf suggested that it would be better if it was counted as muzaraba. Umar agreed and took the capital with half the profit and the other half was given to them".
All the Muslim jurists agree that muzaraba is a very useful form of business organization. They regard it as a contract between two parties, one of which provides the capital and the other labor. Both share in the profit ; one in return for his capital, the other in return for his labor. Thus in muzaraba, the capitalist benefits from his capital and laborer from his labor.
This form of business organization is of great importance in the economic system of Islam. Every community has different grades of people ; rich as well as poor, intelligent 'A well as dull. With cooperation of all these people, every member of the community could earn his living. The rich can invest their money and the poor can put in their labour. Thus by cooperation both can earn profit.
According to the Muslim jurists, Islam has made muzaraba lawful because the people need it ; since it often happens that men, who have money and property, lack the ability to use it for productive purposes while others, who have the necessary ability to utilize such financial resources, are poor and penniless. A contract of muzaraba between such parties enables them to utilize the wealth of the rich and the labor of the poor for the benefit of both.
Moreover, this form of business organization has a very healthy effect on the position of the labourers. They feel happy and satisfied for they share in the profit. They even work harder because every increase in the gross profits increases their share of it. It is, therefore, a very successful and popular form of business organization.
Under the capitalist system, the laborers work for wages throughout their whole life and, very often, lose their sense of freedom. They never feel freedom and independence like that of a man working in a muzaraba contract. Then they do not work hard for they have no personal interest or any incentive in the work. It is not, therefore, very uncommon under capitalist system that thousands of working hours are wasted every year by slow-down, or work-to-rule or strikes. Muzaraba gives laborers a share. of the profits which provides them with 'a strong incentive to work harder. They begin to take a greater personal interest in their work which helps to increase the productivity of their work.
Rights of Labourers in Muzaraba:
The laborers enjoy the following rights in Muzarabal:
1.
The laborer has a right to receive a share of the profit for his labor and effort,
2.
The nature of the capital with which he works is that of trust therefore it is lost in business, no damages would be recovered from him.
3.
His position is like that of an agent, who can use the capital only with the permission of the capitalist but who has power to purchase and sell goods, to appoint someone else as an agent and to keep the goods in the custody of another person.
4.
When there is a profit from the business, he shares the profit in payment for his labour. If the contract is nullified, he has a right to receive remuneration for his labour.; but, if he breaks the contract, he will be considered usurper (v.otA) for he has taken over someone else's money (or property).
5.
If he is working in his own town, the labourer will share only in the profit, but if he has to travel business connections, he will be entitled to expenses such as, boarding, lodging, fare etc.
In short, he has the right to hire labourers to carry out the work of the Arm, to ,b}re .4uildings for keeping the, goods and to hire .animals -qr other ,means of transport for carrying the goods of the firm.
Rights of the Capitalist:
An Muzaraba, tbe capitalist also enjoys certain rights as enumerated below:
1.
Profits will be divided in the presence of the capitalist, who must be present when the laborer takes his share of the profit.
2.
The laborer cannot take his share in the absence of the capitalist.
Termination of the Contract:
1.
Either of the party can end the contract at Will ,but"has to inform the ether party.
2.
The contract also ends with the death of any of the partners and does not pass on to the descendants of the deceased. The contract can, of course, be renewed by the descendants.
3.
This is applicable to ,a contract inyolv.iug two men only but, if labour has acquired capital from more than .one persons, or if there are mote than two persons, .invelyed :in the contract of niuzaraba, the .contract will come to an end as far as one man (the deceased) is concerned but ,will remain valid in the case of the others still living.
(ii) Partnership
In partnership two or more persons jointly contribute capital and share the profit as well as the loss. When one person finds it difficult to initiate a big industrial or commercial undertaking without financial help from ,other sources, partnership proves very helpful and useful. Two or more rich persons can form partnership and start a big enterprise.
This form of business, which was very popular at the time, was kept and maintained by 'the Holy Prophet and his companions in the economic system of Islam. Partnership was popular not only in trade and commerce but also common in agriculture and gardening.
The Holy Prophet helped in forming partnership between the Muhajrin and the Ansar in Madina. Ansar had gardens and the Muhajrin provided labour and the produce was shared between them. In the language of the law, partnership in agriculture iscalled Muzara'ah and in gardening Musakat All the Muslim jurists consider this type of partnership valid and lawful, in which every partner invests his goods or money in the same way as the other partners and their goods become so mixed up that it is impossible to distinguish whose goods have been sold and with whose money goods have been -purchased. If they make a profit, they all share it and if they lose, they all suffer the loss.
1.
Conditions : The following conditions must be observed in a contract of partnership:
1.
Partnership is a contract which must be accepted by both the parties.
2.
According to some jurists partnership contract is legal only if it is carried on in legal tender money.
3.
Imam Sarkhasi makes writing a necessary condition of the partnership contract. He argues that' "partnership is a contract which continues for a period of time, therefore writing of the contract is necessary that if a dispute arises at any time it may be referred to the deed, as stated in"the Holy Quran
"0 ye who believe ! when ye contract a debt for a fixed term, put it down in writing". (II: 282)
Moreover, the purpose of the deed is to provide a .proof of the contract. It must, therefore, be written down to avoid any disputes. In support of his arguments, 'he-quoted the practice of the Holy Prophet. Whenever the Holy Prophet bought any slave, he asked that the deal should be - written down. Once it was written in this way:
" This is the deed in which is mentioned --the purchase of a slave by Mohammad, the Messenger of God, form Udad bin Khalid bin Hausa, the Jew".
4.
Againt, the amount of the capital of each partner should be clearly stated, for, at the time of division of profit, the amount of the capital of each partner must be known, in order that the amount of the profit of each could be calculated. It is, therefore, necessary that the amount of the capital of each partner should be separately shown in the partnership deed so that the partners could refer to that at the time of a dispute between them.
5.
The amount of the profit each partner is to receive in proportion to the amount of his capital must also be stated in the deed.
6.
The date, month, year, when the partnership came into force must also be stated in the deed. This will avoid many unnecessary disputes.
7.
It should also be stated in the deed that the capital is in cash in their hands at the beginning of the contract. This will show that the capital is neither absent nor in the form of debt but is in the form of money which is in their possession.
2.
Types of Partnership:
The Muslim jurists, considering the nature of the contract and the amount of the capital involved therein, have classified partnership into four categories:
1. Shirkat-al-Mufavadba
2. Shirkat-al-`Anan
3. Shirkat-al-Sanai
4. Shirkat-al-Wajooh
1. Shirkat-al-Mufawadha:
In this form of partnership, the working capital of each of the partners, who trade jointly (or do any other business), is equal and they also share equally the profit as well as the loss of the business. Thus they share equally in the assets and the liabilities of the partnership. And each partner is an agent as well a helper of the other partners.
1.
Conditions of Business:
This type of partnership is based on the following conditions:
1.
Whenever Shirkat-al-Mufavadha is formed, the word Al-Mufavadha (equality in everything, profit or loss) must be written in the deed, or verbally spoken, if partnership deed is not written down, because most of the people are ignorant of its conditions.
2.
Both the partners must be equal in status. This partnership is valid between two believers (or parties of believers) who are of age and are free. The partnership is not valid between a free person and a slave.
2.
Rights and Duties of the Partners:
Each partner enjoys certain rights and owes certain duties to the other partners in this form of business as enumerated below.
Every partner is an agent for the other partner (or partners) and has therefore the right to buy or sell goods on his (or their) behalf and lend or borrow when necessary. In short, every partner represents other partner (or partners) when negotiating any business deal and goods bought or any contract sighed by one partner would be binding on all other partners as well.
2. Shirkat-al-`Anan:
The second type of partnership is called Shirkat-al-`Anan. In this form of partnership, the partners do neither contribute equal capital nor share equal profits. One of the partners contributes more capital than the other (or others) and receives the lion's share of the profits. This form of business was also very common in Arabia and was accepted by the Holy Prophet and his companions as a useful and valid form of business.
Conditions:
The following conditions must be observed in this form of business contract:
1.
It is not necessary that all the partners should have equal share in the capital or the profit. One might have contributed fifty thousand pounds and received an equivalent sum in profits while the other only five thousand.
2.
The working capital of each of the partners might be equal but the share should be greater than the other. The right of each partner to claim greater share of the profit might be due to extra labor or better organization ability or managerial skill in handling business or any other reason. It might have been due to the fact that one of the partners would not agree to join the business as equal partner in the profit. Therefore as a matter of necessity, such a partnership, given more share of the profit to one of the partners, was regarded legal and valid.
3.
As there is no compulsion for equality either in capital or in profit, this type of partnership is valid between men, women and children; and between masters and servants whom their masters have given permission; and also between a Muslim and a non-Muslim.
4.
Each .partner is an agent but not a patron of the other partner (or partners). In other words, none of the partners is liable to pay the debts of the other partner (or partners).
5.
None of the partners has any right to lend anything out of the joint property. It would not be considered valid if any of the partners were to mortgage joint property so that the debt should fall on both (or all).
3. Shirkat-al-Sanai (or AI-Abdan):
When artisans, technicians and other manual laborers join together in a partnership in the production of a commodity or commodities, it is called Shirkat-al-Sanai. It is also known as Shirkat-al-Taqqabal which means to accept. For instance, two artisans, a carpenter and blacksmith join together in a partnership on the condition that they would accept orders from customers concerning their trade and jointly share the income from business. Such a, partnership is very useful for artisans, technicians and laborers who, can form big companies and start business in their respective trades and, share the profits amongst themselves. If any person has no capital: but is a technician or a specialist in a certain branch of industry or a mere manual laborer, then he may join with others, in a. partnership on the basis of his labor. He will share in the profit on the basis of his labor alone while others for their capital as well. According to Imam Sirkhasi technicians and artisans' skill and industry, is their capital and in Shirkat-al-Sanai laborers' industry is their capital.
Conditions:
This partnership is based on the following conditions':
1.
The share of the partners in this business need not be: equal any of the partners may take a greater share of the profits than- the others because of: his superior_ skill or special, job or any other reason.
2.
The Muslim-jurists have justified share of the profit according to the amount (or nature) of their work.
4. Shirkat-al-Wajooh
If the partners have neither capital nor skill, they may start a business on credit and share the profits amongst themselves. This form of partnership is called Shirkat-al-Wajooh. Two or more persons without any capital may enter into a, contract that, they would- do business on credit and share in-the profits and losses. This type of business can only be done by persons- of great reputation and integrity (Wajooh); who are well known for their honesty and, high credit.
The Muslim jurists have, in fact, regarded credit as a form. of wealth, like that of industry and. skill in Shirkat-al-Sanai, which is used for the production of more wealth.
1.
Conditions:
This type of partnership is valid if the, following conditions are satisfied:
1.
Every partner must receive the same (or equal) share of the profit.
2.
Inequality inn the.-respective. share -(in the- profit) of different partners is not allowed in this form of business organization.
2.
Termination of Partnership:
All types of business organizations are considered void in the following circumstances:
1.
Whenever any partner utilizes his right to terminate the contract ; but it would not be considered operative unless the other partner (or partners) is informed. It may be remembered that every partner has equal right to terminate the contract.
2.
Partnership ends with the death of one of the partners, for each partner is an agent (or representative) of the other partner (or partners) and as the agency is terminated, partnership is also terminated. But, if the descendants of the deceased desire, they may renew the contract.
Concluding Remarks on Partnership in General:
It may here be pointed out that there is immense scope of expansion in the forms of business organizations based on partnership in the modern industrial world. These forms of business organizations are particularly suited to under-developed countries where capital is scarce and greater effort is needed on the part of the inhabitants themselves. This will enable these countries not only to mobilize their internal resources but also to stand on their own feet in matters of finance and not depend upon charity from other nations (and squeeze the country under the weight of annual payment of interest on debt).
Numerous forms of business organization in the field of trade, commerce, industry, gardening, medicine, education, mining, transport (road as well as sea), agriculture including the purchase of animals, seeds, tools etc. were formed by the Muslims to help the economy of the time. These and thousands more can be formed on the same principle to develop our economy and to meet the demands of the modern age.
3.
Joint-stock Companies : Modern industrial enterprises require huge capital and are, therefore, beyond the capacity any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies' sitice those times but basically the modern-stock companies are of the same genus as the old ones.
4.
Business on Commission:
Islam also allows business on commission. According to Abdullah-bin Abbas,' there is no harm in asking a commission agent to sell your cloth (or other goods) at any price and keep the excess profit (over and above the profit you ask) for himself (as commission) any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish ~f Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies since those times but basically the modern-stock companies are of the same genus as the old ones.
5.
Government Undertakings:
Islam has not ignored any of the possible corporate forms of -business organizations; which can benefit the people. In' fact, it has been one of the basic objectives of Islam to utilize all the resources and powers of the country in the production of wealth and to coordinate the available supply of labor and capital in the best interest of the community.
The Holy Quran has referred to such contracts in the following words:
"0 you who believe, when you contract a debt for a fixed time, write it down- And call to witness from among your men two witnesses. And be not averse to writing it whether it is small or large along with the time of its falling due. This is more equitable in the sight of God and makes testimony surer and the best way to keep away from doubts., But when it is ready merchandise which- you give and take among yourselves from hand to hand, there is no blame onr you in not writing it down. And have witnesses when you sell otle to' another". (II: 282)
In these words the Holy Quran has indicated the importance of contract in Islam. The Muslims are here told to put down all their transactions, great or small, in writing except when they are doing hand to hand dealings. Whether' the amount involved is small or large, and' the contract is for a' short' period or longer period, the Muslims are required to write it down in the presence of witnesses. All these precautions are taken to avoid disputes and- to protect and safeguard the right of 'property of the individuals.
Forms of Business Organizations
Many forms of business organizations were current among the Muslims at the-time of the Holy Prophet. Most popular forms of business organizations were partnership, joint-stock- companies muzaraba and business on commission- which would, be discussed in the following pages.
(i) Muzaraba
In-muzaraba one man (or party) provides capital and the other labor, and: both share profit. The-profit is divided according to the terms of the agreement made between the parties.
The difference between a laborer (working for as employer) and partner in muzaraba is that, in the former the capitalist (or employer) is responsible for the payment of wages to the laborer whether he gains or loses in his business while in the latter, the laborer (who is also a partner in business) receives his share only if there is profit from the business. Thus wages are guaranteed to the laborer, no matter what happens to the business; profit or loss, in the former but, in the latter, his share of the profit is guaranteed only if there is any profit. He gets nothing if the business is-running on loss.
1.
Pre-Islamic Period-: This form of business was-prevalent in Arabia even before the advent of the Holy Prophet. Khadija-bint-Khawalid, who was a rich woman, used to give her money to other people to trade with and then to share the profits with them. Then Khadija, being impressed by honesty and righteousness of the Holy Prophet, requested him to take her commercial goods to Syria. There was huge profit from this bargain, out of which-the Holy Prophet received ample share.
2.
Advent of Islam: When the Muslims conquered Khaiber, the Holy Prophet granted the lands to the Jews (on their request) on the condition that they would cultivate the lands and share the produce equally with the Muslims".
The companions of the Holy Prophet used to trade and do other business on the same principle. Zaid bin Aslam reports from his father that "Abdullah and Ubaidullah, two sons of the Caliph Umar, went to Iraq for Jehad with Muslim army. On their return, they went to Abu-Musa, who was the administrator of Basra. He welcomed them and said, "I wish I could do you a favor. I have some money of Bait-al-mal (treasury) which I want to send to Umar. Now I give this money to you as a loan, you purchase some goods with it from Iraq and sell them in Madina, pay the capital to Umar and keep the profit for yourselves". They agreed to this proposal and got the money from Abu Musa who wrote to Umar to receive it from them. When they came to Madina, they sold ' the goods and made some profit. Then they took the capital to Umar, who asked them, "did he give such a loan to every man in the army?" They replied in the negative. Then Umar said, 'This money has been given to you -for being sons of the Caliph; give me the capital as well as the profit". Abdullah kept quiet but Ubaidullah said, "0 Amir-ul-Muminin, You should not do this (to us). Had the money been lost or had we suffered a loss, we would have paid the capital." Umar said, "No ! You must pay it". Ubaidullah again requested. Then Abdur Rehman bin Auf suggested that it would be better if it was counted as muzaraba. Umar agreed and took the capital with half the profit and the other half was given to them".
All the Muslim jurists agree that muzaraba is a very useful form of business organization. They regard it as a contract between two parties, one of which provides the capital and the other labor. Both share in the profit ; one in return for his capital, the other in return for his labor. Thus in muzaraba, the capitalist benefits from his capital and laborer from his labor.
This form of business organization is of great importance in the economic system of Islam. Every community has different grades of people ; rich as well as poor, intelligent 'A well as dull. With cooperation of all these people, every member of the community could earn his living. The rich can invest their money and the poor can put in their labour. Thus by cooperation both can earn profit.
According to the Muslim jurists, Islam has made muzaraba lawful because the people need it ; since it often happens that men, who have money and property, lack the ability to use it for productive purposes while others, who have the necessary ability to utilize such financial resources, are poor and penniless. A contract of muzaraba between such parties enables them to utilize the wealth of the rich and the labor of the poor for the benefit of both.
Moreover, this form of business organization has a very healthy effect on the position of the labourers. They feel happy and satisfied for they share in the profit. They even work harder because every increase in the gross profits increases their share of it. It is, therefore, a very successful and popular form of business organization.
Under the capitalist system, the laborers work for wages throughout their whole life and, very often, lose their sense of freedom. They never feel freedom and independence like that of a man working in a muzaraba contract. Then they do not work hard for they have no personal interest or any incentive in the work. It is not, therefore, very uncommon under capitalist system that thousands of working hours are wasted every year by slow-down, or work-to-rule or strikes. Muzaraba gives laborers a share. of the profits which provides them with 'a strong incentive to work harder. They begin to take a greater personal interest in their work which helps to increase the productivity of their work.
Rights of Labourers in Muzaraba:
The laborers enjoy the following rights in Muzarabal:
1.
The laborer has a right to receive a share of the profit for his labor and effort,
2.
The nature of the capital with which he works is that of trust therefore it is lost in business, no damages would be recovered from him.
3.
His position is like that of an agent, who can use the capital only with the permission of the capitalist but who has power to purchase and sell goods, to appoint someone else as an agent and to keep the goods in the custody of another person.
4.
When there is a profit from the business, he shares the profit in payment for his labour. If the contract is nullified, he has a right to receive remuneration for his labour.; but, if he breaks the contract, he will be considered usurper (v.otA) for he has taken over someone else's money (or property).
5.
If he is working in his own town, the labourer will share only in the profit, but if he has to travel business connections, he will be entitled to expenses such as, boarding, lodging, fare etc.
In short, he has the right to hire labourers to carry out the work of the Arm, to ,b}re .4uildings for keeping the, goods and to hire .animals -qr other ,means of transport for carrying the goods of the firm.
Rights of the Capitalist:
An Muzaraba, tbe capitalist also enjoys certain rights as enumerated below:
1.
Profits will be divided in the presence of the capitalist, who must be present when the laborer takes his share of the profit.
2.
The laborer cannot take his share in the absence of the capitalist.
Termination of the Contract:
1.
Either of the party can end the contract at Will ,but"has to inform the ether party.
2.
The contract also ends with the death of any of the partners and does not pass on to the descendants of the deceased. The contract can, of course, be renewed by the descendants.
3.
This is applicable to ,a contract inyolv.iug two men only but, if labour has acquired capital from more than .one persons, or if there are mote than two persons, .invelyed :in the contract of niuzaraba, the .contract will come to an end as far as one man (the deceased) is concerned but ,will remain valid in the case of the others still living.
(ii) Partnership
In partnership two or more persons jointly contribute capital and share the profit as well as the loss. When one person finds it difficult to initiate a big industrial or commercial undertaking without financial help from ,other sources, partnership proves very helpful and useful. Two or more rich persons can form partnership and start a big enterprise.
This form of business, which was very popular at the time, was kept and maintained by 'the Holy Prophet and his companions in the economic system of Islam. Partnership was popular not only in trade and commerce but also common in agriculture and gardening.
The Holy Prophet helped in forming partnership between the Muhajrin and the Ansar in Madina. Ansar had gardens and the Muhajrin provided labour and the produce was shared between them. In the language of the law, partnership in agriculture iscalled Muzara'ah and in gardening Musakat All the Muslim jurists consider this type of partnership valid and lawful, in which every partner invests his goods or money in the same way as the other partners and their goods become so mixed up that it is impossible to distinguish whose goods have been sold and with whose money goods have been -purchased. If they make a profit, they all share it and if they lose, they all suffer the loss.
1.
Conditions : The following conditions must be observed in a contract of partnership:
1.
Partnership is a contract which must be accepted by both the parties.
2.
According to some jurists partnership contract is legal only if it is carried on in legal tender money.
3.
Imam Sarkhasi makes writing a necessary condition of the partnership contract. He argues that' "partnership is a contract which continues for a period of time, therefore writing of the contract is necessary that if a dispute arises at any time it may be referred to the deed, as stated in"the Holy Quran
"0 ye who believe ! when ye contract a debt for a fixed term, put it down in writing". (II: 282)
Moreover, the purpose of the deed is to provide a .proof of the contract. It must, therefore, be written down to avoid any disputes. In support of his arguments, 'he-quoted the practice of the Holy Prophet. Whenever the Holy Prophet bought any slave, he asked that the deal should be - written down. Once it was written in this way:
" This is the deed in which is mentioned --the purchase of a slave by Mohammad, the Messenger of God, form Udad bin Khalid bin Hausa, the Jew".
4.
Againt, the amount of the capital of each partner should be clearly stated, for, at the time of division of profit, the amount of the capital of each partner must be known, in order that the amount of the profit of each could be calculated. It is, therefore, necessary that the amount of the capital of each partner should be separately shown in the partnership deed so that the partners could refer to that at the time of a dispute between them.
5.
The amount of the profit each partner is to receive in proportion to the amount of his capital must also be stated in the deed.
6.
The date, month, year, when the partnership came into force must also be stated in the deed. This will avoid many unnecessary disputes.
7.
It should also be stated in the deed that the capital is in cash in their hands at the beginning of the contract. This will show that the capital is neither absent nor in the form of debt but is in the form of money which is in their possession.
2.
Types of Partnership:
The Muslim jurists, considering the nature of the contract and the amount of the capital involved therein, have classified partnership into four categories:
1. Shirkat-al-Mufavadba
2. Shirkat-al-`Anan
3. Shirkat-al-Sanai
4. Shirkat-al-Wajooh
1. Shirkat-al-Mufawadha:
In this form of partnership, the working capital of each of the partners, who trade jointly (or do any other business), is equal and they also share equally the profit as well as the loss of the business. Thus they share equally in the assets and the liabilities of the partnership. And each partner is an agent as well a helper of the other partners.
1.
Conditions of Business:
This type of partnership is based on the following conditions:
1.
Whenever Shirkat-al-Mufavadha is formed, the word Al-Mufavadha (equality in everything, profit or loss) must be written in the deed, or verbally spoken, if partnership deed is not written down, because most of the people are ignorant of its conditions.
2.
Both the partners must be equal in status. This partnership is valid between two believers (or parties of believers) who are of age and are free. The partnership is not valid between a free person and a slave.
2.
Rights and Duties of the Partners:
Each partner enjoys certain rights and owes certain duties to the other partners in this form of business as enumerated below.
Every partner is an agent for the other partner (or partners) and has therefore the right to buy or sell goods on his (or their) behalf and lend or borrow when necessary. In short, every partner represents other partner (or partners) when negotiating any business deal and goods bought or any contract sighed by one partner would be binding on all other partners as well.
2. Shirkat-al-`Anan:
The second type of partnership is called Shirkat-al-`Anan. In this form of partnership, the partners do neither contribute equal capital nor share equal profits. One of the partners contributes more capital than the other (or others) and receives the lion's share of the profits. This form of business was also very common in Arabia and was accepted by the Holy Prophet and his companions as a useful and valid form of business.
Conditions:
The following conditions must be observed in this form of business contract:
1.
It is not necessary that all the partners should have equal share in the capital or the profit. One might have contributed fifty thousand pounds and received an equivalent sum in profits while the other only five thousand.
2.
The working capital of each of the partners might be equal but the share should be greater than the other. The right of each partner to claim greater share of the profit might be due to extra labor or better organization ability or managerial skill in handling business or any other reason. It might have been due to the fact that one of the partners would not agree to join the business as equal partner in the profit. Therefore as a matter of necessity, such a partnership, given more share of the profit to one of the partners, was regarded legal and valid.
3.
As there is no compulsion for equality either in capital or in profit, this type of partnership is valid between men, women and children; and between masters and servants whom their masters have given permission; and also between a Muslim and a non-Muslim.
4.
Each .partner is an agent but not a patron of the other partner (or partners). In other words, none of the partners is liable to pay the debts of the other partner (or partners).
5.
None of the partners has any right to lend anything out of the joint property. It would not be considered valid if any of the partners were to mortgage joint property so that the debt should fall on both (or all).
3. Shirkat-al-Sanai (or AI-Abdan):
When artisans, technicians and other manual laborers join together in a partnership in the production of a commodity or commodities, it is called Shirkat-al-Sanai. It is also known as Shirkat-al-Taqqabal which means to accept. For instance, two artisans, a carpenter and blacksmith join together in a partnership on the condition that they would accept orders from customers concerning their trade and jointly share the income from business. Such a, partnership is very useful for artisans, technicians and laborers who, can form big companies and start business in their respective trades and, share the profits amongst themselves. If any person has no capital: but is a technician or a specialist in a certain branch of industry or a mere manual laborer, then he may join with others, in a. partnership on the basis of his labor. He will share in the profit on the basis of his labor alone while others for their capital as well. According to Imam Sirkhasi technicians and artisans' skill and industry, is their capital and in Shirkat-al-Sanai laborers' industry is their capital.
Conditions:
This partnership is based on the following conditions':
1.
The share of the partners in this business need not be: equal any of the partners may take a greater share of the profits than- the others because of: his superior_ skill or special, job or any other reason.
2.
The Muslim-jurists have justified share of the profit according to the amount (or nature) of their work.
4. Shirkat-al-Wajooh
If the partners have neither capital nor skill, they may start a business on credit and share the profits amongst themselves. This form of partnership is called Shirkat-al-Wajooh. Two or more persons without any capital may enter into a, contract that, they would- do business on credit and share in-the profits and losses. This type of business can only be done by persons- of great reputation and integrity (Wajooh); who are well known for their honesty and, high credit.
The Muslim jurists have, in fact, regarded credit as a form. of wealth, like that of industry and. skill in Shirkat-al-Sanai, which is used for the production of more wealth.
1.
Conditions:
This type of partnership is valid if the, following conditions are satisfied:
1.
Every partner must receive the same (or equal) share of the profit.
2.
Inequality inn the.-respective. share -(in the- profit) of different partners is not allowed in this form of business organization.
2.
Termination of Partnership:
All types of business organizations are considered void in the following circumstances:
1.
Whenever any partner utilizes his right to terminate the contract ; but it would not be considered operative unless the other partner (or partners) is informed. It may be remembered that every partner has equal right to terminate the contract.
2.
Partnership ends with the death of one of the partners, for each partner is an agent (or representative) of the other partner (or partners) and as the agency is terminated, partnership is also terminated. But, if the descendants of the deceased desire, they may renew the contract.
Concluding Remarks on Partnership in General:
It may here be pointed out that there is immense scope of expansion in the forms of business organizations based on partnership in the modern industrial world. These forms of business organizations are particularly suited to under-developed countries where capital is scarce and greater effort is needed on the part of the inhabitants themselves. This will enable these countries not only to mobilize their internal resources but also to stand on their own feet in matters of finance and not depend upon charity from other nations (and squeeze the country under the weight of annual payment of interest on debt).
Numerous forms of business organization in the field of trade, commerce, industry, gardening, medicine, education, mining, transport (road as well as sea), agriculture including the purchase of animals, seeds, tools etc. were formed by the Muslims to help the economy of the time. These and thousands more can be formed on the same principle to develop our economy and to meet the demands of the modern age.
3.
Joint-stock Companies : Modern industrial enterprises require huge capital and are, therefore, beyond the capacity any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies' sitice those times but basically the modern-stock companies are of the same genus as the old ones.
4.
Business on Commission:
Islam also allows business on commission. According to Abdullah-bin Abbas,' there is no harm in asking a commission agent to sell your cloth (or other goods) at any price and keep the excess profit (over and above the profit you ask) for himself (as commission) any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish ~f Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies since those times but basically the modern-stock companies are of the same genus as the old ones.
5.
Government Undertakings:
Islam has not ignored any of the possible corporate forms of -business organizations; which can benefit the people. In' fact, it has been one of the basic objectives of Islam to utilize all the resources and powers of the country in the production of wealth and to coordinate the available supply of labor and capital in the best interest of the community.
Contracts and The Form of Business Organizations
Contracts and The Form of Business Organizations
When people do any business together, they are likely to have disputes and differences of opinion over money matters. It is, therefore, important that such matters, involving money, property or other articles of, value, should be written down in the form of a contract and signed by both the parties in the presence of witnesses. These contracts eliminate many unnecessary disputes as well as safeguard and protect the rights of all concerned.
The Holy Quran has referred to such contracts in the following words:
"0 you who believe, when you contract a debt for a fixed time, write it down- And call to witness from among your men two witnesses. And be not averse to writing it whether it is small or large along with the time of its falling due. This is more equitable in the sight of God and makes testimony surer and the best way to keep away from doubts., But when it is ready merchandise which- you give and take among yourselves from hand to hand, there is no blame onr you in not writing it down. And have witnesses when you sell otle to' another". (II: 282)
In these words the Holy Quran has indicated the importance of contract in Islam. The Muslims are here told to put down all their transactions, great or small, in writing except when they are doing hand to hand dealings. Whether' the amount involved is small or large, and' the contract is for a' short' period or longer period, the Muslims are required to write it down in the presence of witnesses. All these precautions are taken to avoid disputes and- to protect and safeguard the right of 'property of the individuals.
Forms of Business Organizations
Many forms of business organizations were current among the Muslims at the-time of the Holy Prophet. Most popular forms of business organizations were partnership, joint-stock- companies muzaraba and business on commission- which would, be discussed in the following pages.
(i) Muzaraba
In-muzaraba one man (or party) provides capital and the other labor, and: both share profit. The-profit is divided according to the terms of the agreement made between the parties.
The difference between a laborer (working for as employer) and partner in muzaraba is that, in the former the capitalist (or employer) is responsible for the payment of wages to the laborer whether he gains or loses in his business while in the latter, the laborer (who is also a partner in business) receives his share only if there is profit from the business. Thus wages are guaranteed to the laborer, no matter what happens to the business; profit or loss, in the former but, in the latter, his share of the profit is guaranteed only if there is any profit. He gets nothing if the business is-running on loss.
1.
Pre-Islamic Period-: This form of business was-prevalent in Arabia even before the advent of the Holy Prophet. Khadija-bint-Khawalid, who was a rich woman, used to give her money to other people to trade with and then to share the profits with them. Then Khadija, being impressed by honesty and righteousness of the Holy Prophet, requested him to take her commercial goods to Syria. There was huge profit from this bargain, out of which-the Holy Prophet received ample share.
2.
Advent of Islam: When the Muslims conquered Khaiber, the Holy Prophet granted the lands to the Jews (on their request) on the condition that they would cultivate the lands and share the produce equally with the Muslims".
The companions of the Holy Prophet used to trade and do other business on the same principle. Zaid bin Aslam reports from his father that "Abdullah and Ubaidullah, two sons of the Caliph Umar, went to Iraq for Jehad with Muslim army. On their return, they went to Abu-Musa, who was the administrator of Basra. He welcomed them and said, "I wish I could do you a favor. I have some money of Bait-al-mal (treasury) which I want to send to Umar. Now I give this money to you as a loan, you purchase some goods with it from Iraq and sell them in Madina, pay the capital to Umar and keep the profit for yourselves". They agreed to this proposal and got the money from Abu Musa who wrote to Umar to receive it from them. When they came to Madina, they sold ' the goods and made some profit. Then they took the capital to Umar, who asked them, "did he give such a loan to every man in the army?" They replied in the negative. Then Umar said, 'This money has been given to you -for being sons of the Caliph; give me the capital as well as the profit". Abdullah kept quiet but Ubaidullah said, "0 Amir-ul-Muminin, You should not do this (to us). Had the money been lost or had we suffered a loss, we would have paid the capital." Umar said, "No ! You must pay it". Ubaidullah again requested. Then Abdur Rehman bin Auf suggested that it would be better if it was counted as muzaraba. Umar agreed and took the capital with half the profit and the other half was given to them".
All the Muslim jurists agree that muzaraba is a very useful form of business organization. They regard it as a contract between two parties, one of which provides the capital and the other labor. Both share in the profit ; one in return for his capital, the other in return for his labor. Thus in muzaraba, the capitalist benefits from his capital and laborer from his labor.
This form of business organization is of great importance in the economic system of Islam. Every community has different grades of people ; rich as well as poor, intelligent 'A well as dull. With cooperation of all these people, every member of the community could earn his living. The rich can invest their money and the poor can put in their labour. Thus by cooperation both can earn profit.
According to the Muslim jurists, Islam has made muzaraba lawful because the people need it ; since it often happens that men, who have money and property, lack the ability to use it for productive purposes while others, who have the necessary ability to utilize such financial resources, are poor and penniless. A contract of muzaraba between such parties enables them to utilize the wealth of the rich and the labor of the poor for the benefit of both.
Moreover, this form of business organization has a very healthy effect on the position of the labourers. They feel happy and satisfied for they share in the profit. They even work harder because every increase in the gross profits increases their share of it. It is, therefore, a very successful and popular form of business organization.
Under the capitalist system, the laborers work for wages throughout their whole life and, very often, lose their sense of freedom. They never feel freedom and independence like that of a man working in a muzaraba contract. Then they do not work hard for they have no personal interest or any incentive in the work. It is not, therefore, very uncommon under capitalist system that thousands of working hours are wasted every year by slow-down, or work-to-rule or strikes. Muzaraba gives laborers a share. of the profits which provides them with 'a strong incentive to work harder. They begin to take a greater personal interest in their work which helps to increase the productivity of their work.
Rights of Labourers in Muzaraba:
The laborers enjoy the following rights in Muzarabal:
1.
The laborer has a right to receive a share of the profit for his labor and effort,
2.
The nature of the capital with which he works is that of trust therefore it is lost in business, no damages would be recovered from him.
3.
His position is like that of an agent, who can use the capital only with the permission of the capitalist but who has power to purchase and sell goods, to appoint someone else as an agent and to keep the goods in the custody of another person.
4.
When there is a profit from the business, he shares the profit in payment for his labour. If the contract is nullified, he has a right to receive remuneration for his labour.; but, if he breaks the contract, he will be considered usurper (v.otA) for he has taken over someone else's money (or property).
5.
If he is working in his own town, the labourer will share only in the profit, but if he has to travel business connections, he will be entitled to expenses such as, boarding, lodging, fare etc.
In short, he has the right to hire labourers to carry out the work of the Arm, to ,b}re .4uildings for keeping the, goods and to hire .animals -qr other ,means of transport for carrying the goods of the firm.
Rights of the Capitalist:
An Muzaraba, tbe capitalist also enjoys certain rights as enumerated below:
1.
Profits will be divided in the presence of the capitalist, who must be present when the laborer takes his share of the profit.
2.
The laborer cannot take his share in the absence of the capitalist.
Termination of the Contract:
1.
Either of the party can end the contract at Will ,but"has to inform the ether party.
2.
The contract also ends with the death of any of the partners and does not pass on to the descendants of the deceased. The contract can, of course, be renewed by the descendants.
3.
This is applicable to ,a contract inyolv.iug two men only but, if labour has acquired capital from more than .one persons, or if there are mote than two persons, .invelyed :in the contract of niuzaraba, the .contract will come to an end as far as one man (the deceased) is concerned but ,will remain valid in the case of the others still living.
(ii) Partnership
In partnership two or more persons jointly contribute capital and share the profit as well as the loss. When one person finds it difficult to initiate a big industrial or commercial undertaking without financial help from ,other sources, partnership proves very helpful and useful. Two or more rich persons can form partnership and start a big enterprise.
This form of business, which was very popular at the time, was kept and maintained by 'the Holy Prophet and his companions in the economic system of Islam. Partnership was popular not only in trade and commerce but also common in agriculture and gardening.
The Holy Prophet helped in forming partnership between the Muhajrin and the Ansar in Madina. Ansar had gardens and the Muhajrin provided labour and the produce was shared between them. In the language of the law, partnership in agriculture iscalled Muzara'ah and in gardening Musakat All the Muslim jurists consider this type of partnership valid and lawful, in which every partner invests his goods or money in the same way as the other partners and their goods become so mixed up that it is impossible to distinguish whose goods have been sold and with whose money goods have been -purchased. If they make a profit, they all share it and if they lose, they all suffer the loss.
1.
Conditions : The following conditions must be observed in a contract of partnership:
1.
Partnership is a contract which must be accepted by both the parties.
2.
According to some jurists partnership contract is legal only if it is carried on in legal tender money.
3.
Imam Sarkhasi makes writing a necessary condition of the partnership contract. He argues that' "partnership is a contract which continues for a period of time, therefore writing of the contract is necessary that if a dispute arises at any time it may be referred to the deed, as stated in"the Holy Quran
"0 ye who believe ! when ye contract a debt for a fixed term, put it down in writing". (II: 282)
Moreover, the purpose of the deed is to provide a .proof of the contract. It must, therefore, be written down to avoid any disputes. In support of his arguments, 'he-quoted the practice of the Holy Prophet. Whenever the Holy Prophet bought any slave, he asked that the deal should be - written down. Once it was written in this way:
" This is the deed in which is mentioned --the purchase of a slave by Mohammad, the Messenger of God, form Udad bin Khalid bin Hausa, the Jew".
4.
Againt, the amount of the capital of each partner should be clearly stated, for, at the time of division of profit, the amount of the capital of each partner must be known, in order that the amount of the profit of each could be calculated. It is, therefore, necessary that the amount of the capital of each partner should be separately shown in the partnership deed so that the partners could refer to that at the time of a dispute between them.
5.
The amount of the profit each partner is to receive in proportion to the amount of his capital must also be stated in the deed.
6.
The date, month, year, when the partnership came into force must also be stated in the deed. This will avoid many unnecessary disputes.
7.
It should also be stated in the deed that the capital is in cash in their hands at the beginning of the contract. This will show that the capital is neither absent nor in the form of debt but is in the form of money which is in their possession.
2.
Types of Partnership:
The Muslim jurists, considering the nature of the contract and the amount of the capital involved therein, have classified partnership into four categories:
1. Shirkat-al-Mufavadba
2. Shirkat-al-`Anan
3. Shirkat-al-Sanai
4. Shirkat-al-Wajooh
1. Shirkat-al-Mufawadha:
In this form of partnership, the working capital of each of the partners, who trade jointly (or do any other business), is equal and they also share equally the profit as well as the loss of the business. Thus they share equally in the assets and the liabilities of the partnership. And each partner is an agent as well a helper of the other partners.
1.
Conditions of Business:
This type of partnership is based on the following conditions:
1.
Whenever Shirkat-al-Mufavadha is formed, the word Al-Mufavadha (equality in everything, profit or loss) must be written in the deed, or verbally spoken, if partnership deed is not written down, because most of the people are ignorant of its conditions.
2.
Both the partners must be equal in status. This partnership is valid between two believers (or parties of believers) who are of age and are free. The partnership is not valid between a free person and a slave.
2.
Rights and Duties of the Partners:
Each partner enjoys certain rights and owes certain duties to the other partners in this form of business as enumerated below.
Every partner is an agent for the other partner (or partners) and has therefore the right to buy or sell goods on his (or their) behalf and lend or borrow when necessary. In short, every partner represents other partner (or partners) when negotiating any business deal and goods bought or any contract sighed by one partner would be binding on all other partners as well.
2. Shirkat-al-`Anan:
The second type of partnership is called Shirkat-al-`Anan. In this form of partnership, the partners do neither contribute equal capital nor share equal profits. One of the partners contributes more capital than the other (or others) and receives the lion's share of the profits. This form of business was also very common in Arabia and was accepted by the Holy Prophet and his companions as a useful and valid form of business.
Conditions:
The following conditions must be observed in this form of business contract:
1.
It is not necessary that all the partners should have equal share in the capital or the profit. One might have contributed fifty thousand pounds and received an equivalent sum in profits while the other only five thousand.
2.
The working capital of each of the partners might be equal but the share should be greater than the other. The right of each partner to claim greater share of the profit might be due to extra labor or better organization ability or managerial skill in handling business or any other reason. It might have been due to the fact that one of the partners would not agree to join the business as equal partner in the profit. Therefore as a matter of necessity, such a partnership, given more share of the profit to one of the partners, was regarded legal and valid.
3.
As there is no compulsion for equality either in capital or in profit, this type of partnership is valid between men, women and children; and between masters and servants whom their masters have given permission; and also between a Muslim and a non-Muslim.
4.
Each .partner is an agent but not a patron of the other partner (or partners). In other words, none of the partners is liable to pay the debts of the other partner (or partners).
5.
None of the partners has any right to lend anything out of the joint property. It would not be considered valid if any of the partners were to mortgage joint property so that the debt should fall on both (or all).
3. Shirkat-al-Sanai (or AI-Abdan):
When artisans, technicians and other manual laborers join together in a partnership in the production of a commodity or commodities, it is called Shirkat-al-Sanai. It is also known as Shirkat-al-Taqqabal which means to accept. For instance, two artisans, a carpenter and blacksmith join together in a partnership on the condition that they would accept orders from customers concerning their trade and jointly share the income from business. Such a, partnership is very useful for artisans, technicians and laborers who, can form big companies and start business in their respective trades and, share the profits amongst themselves. If any person has no capital: but is a technician or a specialist in a certain branch of industry or a mere manual laborer, then he may join with others, in a. partnership on the basis of his labor. He will share in the profit on the basis of his labor alone while others for their capital as well. According to Imam Sirkhasi technicians and artisans' skill and industry, is their capital and in Shirkat-al-Sanai laborers' industry is their capital.
Conditions:
This partnership is based on the following conditions':
1.
The share of the partners in this business need not be: equal any of the partners may take a greater share of the profits than- the others because of: his superior_ skill or special, job or any other reason.
2.
The Muslim-jurists have justified share of the profit according to the amount (or nature) of their work.
4. Shirkat-al-Wajooh
If the partners have neither capital nor skill, they may start a business on credit and share the profits amongst themselves. This form of partnership is called Shirkat-al-Wajooh. Two or more persons without any capital may enter into a, contract that, they would- do business on credit and share in-the profits and losses. This type of business can only be done by persons- of great reputation and integrity (Wajooh); who are well known for their honesty and, high credit.
The Muslim jurists have, in fact, regarded credit as a form. of wealth, like that of industry and. skill in Shirkat-al-Sanai, which is used for the production of more wealth.
1.
Conditions:
This type of partnership is valid if the, following conditions are satisfied:
1.
Every partner must receive the same (or equal) share of the profit.
2.
Inequality inn the.-respective. share -(in the- profit) of different partners is not allowed in this form of business organization.
2.
Termination of Partnership:
All types of business organizations are considered void in the following circumstances:
1.
Whenever any partner utilizes his right to terminate the contract ; but it would not be considered operative unless the other partner (or partners) is informed. It may be remembered that every partner has equal right to terminate the contract.
2.
Partnership ends with the death of one of the partners, for each partner is an agent (or representative) of the other partner (or partners) and as the agency is terminated, partnership is also terminated. But, if the descendants of the deceased desire, they may renew the contract.
Concluding Remarks on Partnership in General:
It may here be pointed out that there is immense scope of expansion in the forms of business organizations based on partnership in the modern industrial world. These forms of business organizations are particularly suited to under-developed countries where capital is scarce and greater effort is needed on the part of the inhabitants themselves. This will enable these countries not only to mobilize their internal resources but also to stand on their own feet in matters of finance and not depend upon charity from other nations (and squeeze the country under the weight of annual payment of interest on debt).
Numerous forms of business organization in the field of trade, commerce, industry, gardening, medicine, education, mining, transport (road as well as sea), agriculture including the purchase of animals, seeds, tools etc. were formed by the Muslims to help the economy of the time. These and thousands more can be formed on the same principle to develop our economy and to meet the demands of the modern age.
3.
Joint-stock Companies : Modern industrial enterprises require huge capital and are, therefore, beyond the capacity any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies' sitice those times but basically the modern-stock companies are of the same genus as the old ones.
4.
Business on Commission:
Islam also allows business on commission. According to Abdullah-bin Abbas,' there is no harm in asking a commission agent to sell your cloth (or other goods) at any price and keep the excess profit (over and above the profit you ask) for himself (as commission) any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish ~f Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies since those times but basically the modern-stock companies are of the same genus as the old ones.
5.
Government Undertakings:
Islam has not ignored any of the possible corporate forms of -business organizations; which can benefit the people. In' fact, it has been one of the basic objectives of Islam to utilize all the resources and powers of the country in the production of wealth and to coordinate the available supply of labor and capital in the best interest of the community.
When people do any business together, they are likely to have disputes and differences of opinion over money matters. It is, therefore, important that such matters, involving money, property or other articles of, value, should be written down in the form of a contract and signed by both the parties in the presence of witnesses. These contracts eliminate many unnecessary disputes as well as safeguard and protect the rights of all concerned.
The Holy Quran has referred to such contracts in the following words:
"0 you who believe, when you contract a debt for a fixed time, write it down- And call to witness from among your men two witnesses. And be not averse to writing it whether it is small or large along with the time of its falling due. This is more equitable in the sight of God and makes testimony surer and the best way to keep away from doubts., But when it is ready merchandise which- you give and take among yourselves from hand to hand, there is no blame onr you in not writing it down. And have witnesses when you sell otle to' another". (II: 282)
In these words the Holy Quran has indicated the importance of contract in Islam. The Muslims are here told to put down all their transactions, great or small, in writing except when they are doing hand to hand dealings. Whether' the amount involved is small or large, and' the contract is for a' short' period or longer period, the Muslims are required to write it down in the presence of witnesses. All these precautions are taken to avoid disputes and- to protect and safeguard the right of 'property of the individuals.
Forms of Business Organizations
Many forms of business organizations were current among the Muslims at the-time of the Holy Prophet. Most popular forms of business organizations were partnership, joint-stock- companies muzaraba and business on commission- which would, be discussed in the following pages.
(i) Muzaraba
In-muzaraba one man (or party) provides capital and the other labor, and: both share profit. The-profit is divided according to the terms of the agreement made between the parties.
The difference between a laborer (working for as employer) and partner in muzaraba is that, in the former the capitalist (or employer) is responsible for the payment of wages to the laborer whether he gains or loses in his business while in the latter, the laborer (who is also a partner in business) receives his share only if there is profit from the business. Thus wages are guaranteed to the laborer, no matter what happens to the business; profit or loss, in the former but, in the latter, his share of the profit is guaranteed only if there is any profit. He gets nothing if the business is-running on loss.
1.
Pre-Islamic Period-: This form of business was-prevalent in Arabia even before the advent of the Holy Prophet. Khadija-bint-Khawalid, who was a rich woman, used to give her money to other people to trade with and then to share the profits with them. Then Khadija, being impressed by honesty and righteousness of the Holy Prophet, requested him to take her commercial goods to Syria. There was huge profit from this bargain, out of which-the Holy Prophet received ample share.
2.
Advent of Islam: When the Muslims conquered Khaiber, the Holy Prophet granted the lands to the Jews (on their request) on the condition that they would cultivate the lands and share the produce equally with the Muslims".
The companions of the Holy Prophet used to trade and do other business on the same principle. Zaid bin Aslam reports from his father that "Abdullah and Ubaidullah, two sons of the Caliph Umar, went to Iraq for Jehad with Muslim army. On their return, they went to Abu-Musa, who was the administrator of Basra. He welcomed them and said, "I wish I could do you a favor. I have some money of Bait-al-mal (treasury) which I want to send to Umar. Now I give this money to you as a loan, you purchase some goods with it from Iraq and sell them in Madina, pay the capital to Umar and keep the profit for yourselves". They agreed to this proposal and got the money from Abu Musa who wrote to Umar to receive it from them. When they came to Madina, they sold ' the goods and made some profit. Then they took the capital to Umar, who asked them, "did he give such a loan to every man in the army?" They replied in the negative. Then Umar said, 'This money has been given to you -for being sons of the Caliph; give me the capital as well as the profit". Abdullah kept quiet but Ubaidullah said, "0 Amir-ul-Muminin, You should not do this (to us). Had the money been lost or had we suffered a loss, we would have paid the capital." Umar said, "No ! You must pay it". Ubaidullah again requested. Then Abdur Rehman bin Auf suggested that it would be better if it was counted as muzaraba. Umar agreed and took the capital with half the profit and the other half was given to them".
All the Muslim jurists agree that muzaraba is a very useful form of business organization. They regard it as a contract between two parties, one of which provides the capital and the other labor. Both share in the profit ; one in return for his capital, the other in return for his labor. Thus in muzaraba, the capitalist benefits from his capital and laborer from his labor.
This form of business organization is of great importance in the economic system of Islam. Every community has different grades of people ; rich as well as poor, intelligent 'A well as dull. With cooperation of all these people, every member of the community could earn his living. The rich can invest their money and the poor can put in their labour. Thus by cooperation both can earn profit.
According to the Muslim jurists, Islam has made muzaraba lawful because the people need it ; since it often happens that men, who have money and property, lack the ability to use it for productive purposes while others, who have the necessary ability to utilize such financial resources, are poor and penniless. A contract of muzaraba between such parties enables them to utilize the wealth of the rich and the labor of the poor for the benefit of both.
Moreover, this form of business organization has a very healthy effect on the position of the labourers. They feel happy and satisfied for they share in the profit. They even work harder because every increase in the gross profits increases their share of it. It is, therefore, a very successful and popular form of business organization.
Under the capitalist system, the laborers work for wages throughout their whole life and, very often, lose their sense of freedom. They never feel freedom and independence like that of a man working in a muzaraba contract. Then they do not work hard for they have no personal interest or any incentive in the work. It is not, therefore, very uncommon under capitalist system that thousands of working hours are wasted every year by slow-down, or work-to-rule or strikes. Muzaraba gives laborers a share. of the profits which provides them with 'a strong incentive to work harder. They begin to take a greater personal interest in their work which helps to increase the productivity of their work.
Rights of Labourers in Muzaraba:
The laborers enjoy the following rights in Muzarabal:
1.
The laborer has a right to receive a share of the profit for his labor and effort,
2.
The nature of the capital with which he works is that of trust therefore it is lost in business, no damages would be recovered from him.
3.
His position is like that of an agent, who can use the capital only with the permission of the capitalist but who has power to purchase and sell goods, to appoint someone else as an agent and to keep the goods in the custody of another person.
4.
When there is a profit from the business, he shares the profit in payment for his labour. If the contract is nullified, he has a right to receive remuneration for his labour.; but, if he breaks the contract, he will be considered usurper (v.otA) for he has taken over someone else's money (or property).
5.
If he is working in his own town, the labourer will share only in the profit, but if he has to travel business connections, he will be entitled to expenses such as, boarding, lodging, fare etc.
In short, he has the right to hire labourers to carry out the work of the Arm, to ,b}re .4uildings for keeping the, goods and to hire .animals -qr other ,means of transport for carrying the goods of the firm.
Rights of the Capitalist:
An Muzaraba, tbe capitalist also enjoys certain rights as enumerated below:
1.
Profits will be divided in the presence of the capitalist, who must be present when the laborer takes his share of the profit.
2.
The laborer cannot take his share in the absence of the capitalist.
Termination of the Contract:
1.
Either of the party can end the contract at Will ,but"has to inform the ether party.
2.
The contract also ends with the death of any of the partners and does not pass on to the descendants of the deceased. The contract can, of course, be renewed by the descendants.
3.
This is applicable to ,a contract inyolv.iug two men only but, if labour has acquired capital from more than .one persons, or if there are mote than two persons, .invelyed :in the contract of niuzaraba, the .contract will come to an end as far as one man (the deceased) is concerned but ,will remain valid in the case of the others still living.
(ii) Partnership
In partnership two or more persons jointly contribute capital and share the profit as well as the loss. When one person finds it difficult to initiate a big industrial or commercial undertaking without financial help from ,other sources, partnership proves very helpful and useful. Two or more rich persons can form partnership and start a big enterprise.
This form of business, which was very popular at the time, was kept and maintained by 'the Holy Prophet and his companions in the economic system of Islam. Partnership was popular not only in trade and commerce but also common in agriculture and gardening.
The Holy Prophet helped in forming partnership between the Muhajrin and the Ansar in Madina. Ansar had gardens and the Muhajrin provided labour and the produce was shared between them. In the language of the law, partnership in agriculture iscalled Muzara'ah and in gardening Musakat All the Muslim jurists consider this type of partnership valid and lawful, in which every partner invests his goods or money in the same way as the other partners and their goods become so mixed up that it is impossible to distinguish whose goods have been sold and with whose money goods have been -purchased. If they make a profit, they all share it and if they lose, they all suffer the loss.
1.
Conditions : The following conditions must be observed in a contract of partnership:
1.
Partnership is a contract which must be accepted by both the parties.
2.
According to some jurists partnership contract is legal only if it is carried on in legal tender money.
3.
Imam Sarkhasi makes writing a necessary condition of the partnership contract. He argues that' "partnership is a contract which continues for a period of time, therefore writing of the contract is necessary that if a dispute arises at any time it may be referred to the deed, as stated in"the Holy Quran
"0 ye who believe ! when ye contract a debt for a fixed term, put it down in writing". (II: 282)
Moreover, the purpose of the deed is to provide a .proof of the contract. It must, therefore, be written down to avoid any disputes. In support of his arguments, 'he-quoted the practice of the Holy Prophet. Whenever the Holy Prophet bought any slave, he asked that the deal should be - written down. Once it was written in this way:
" This is the deed in which is mentioned --the purchase of a slave by Mohammad, the Messenger of God, form Udad bin Khalid bin Hausa, the Jew".
4.
Againt, the amount of the capital of each partner should be clearly stated, for, at the time of division of profit, the amount of the capital of each partner must be known, in order that the amount of the profit of each could be calculated. It is, therefore, necessary that the amount of the capital of each partner should be separately shown in the partnership deed so that the partners could refer to that at the time of a dispute between them.
5.
The amount of the profit each partner is to receive in proportion to the amount of his capital must also be stated in the deed.
6.
The date, month, year, when the partnership came into force must also be stated in the deed. This will avoid many unnecessary disputes.
7.
It should also be stated in the deed that the capital is in cash in their hands at the beginning of the contract. This will show that the capital is neither absent nor in the form of debt but is in the form of money which is in their possession.
2.
Types of Partnership:
The Muslim jurists, considering the nature of the contract and the amount of the capital involved therein, have classified partnership into four categories:
1. Shirkat-al-Mufavadba
2. Shirkat-al-`Anan
3. Shirkat-al-Sanai
4. Shirkat-al-Wajooh
1. Shirkat-al-Mufawadha:
In this form of partnership, the working capital of each of the partners, who trade jointly (or do any other business), is equal and they also share equally the profit as well as the loss of the business. Thus they share equally in the assets and the liabilities of the partnership. And each partner is an agent as well a helper of the other partners.
1.
Conditions of Business:
This type of partnership is based on the following conditions:
1.
Whenever Shirkat-al-Mufavadha is formed, the word Al-Mufavadha (equality in everything, profit or loss) must be written in the deed, or verbally spoken, if partnership deed is not written down, because most of the people are ignorant of its conditions.
2.
Both the partners must be equal in status. This partnership is valid between two believers (or parties of believers) who are of age and are free. The partnership is not valid between a free person and a slave.
2.
Rights and Duties of the Partners:
Each partner enjoys certain rights and owes certain duties to the other partners in this form of business as enumerated below.
Every partner is an agent for the other partner (or partners) and has therefore the right to buy or sell goods on his (or their) behalf and lend or borrow when necessary. In short, every partner represents other partner (or partners) when negotiating any business deal and goods bought or any contract sighed by one partner would be binding on all other partners as well.
2. Shirkat-al-`Anan:
The second type of partnership is called Shirkat-al-`Anan. In this form of partnership, the partners do neither contribute equal capital nor share equal profits. One of the partners contributes more capital than the other (or others) and receives the lion's share of the profits. This form of business was also very common in Arabia and was accepted by the Holy Prophet and his companions as a useful and valid form of business.
Conditions:
The following conditions must be observed in this form of business contract:
1.
It is not necessary that all the partners should have equal share in the capital or the profit. One might have contributed fifty thousand pounds and received an equivalent sum in profits while the other only five thousand.
2.
The working capital of each of the partners might be equal but the share should be greater than the other. The right of each partner to claim greater share of the profit might be due to extra labor or better organization ability or managerial skill in handling business or any other reason. It might have been due to the fact that one of the partners would not agree to join the business as equal partner in the profit. Therefore as a matter of necessity, such a partnership, given more share of the profit to one of the partners, was regarded legal and valid.
3.
As there is no compulsion for equality either in capital or in profit, this type of partnership is valid between men, women and children; and between masters and servants whom their masters have given permission; and also between a Muslim and a non-Muslim.
4.
Each .partner is an agent but not a patron of the other partner (or partners). In other words, none of the partners is liable to pay the debts of the other partner (or partners).
5.
None of the partners has any right to lend anything out of the joint property. It would not be considered valid if any of the partners were to mortgage joint property so that the debt should fall on both (or all).
3. Shirkat-al-Sanai (or AI-Abdan):
When artisans, technicians and other manual laborers join together in a partnership in the production of a commodity or commodities, it is called Shirkat-al-Sanai. It is also known as Shirkat-al-Taqqabal which means to accept. For instance, two artisans, a carpenter and blacksmith join together in a partnership on the condition that they would accept orders from customers concerning their trade and jointly share the income from business. Such a, partnership is very useful for artisans, technicians and laborers who, can form big companies and start business in their respective trades and, share the profits amongst themselves. If any person has no capital: but is a technician or a specialist in a certain branch of industry or a mere manual laborer, then he may join with others, in a. partnership on the basis of his labor. He will share in the profit on the basis of his labor alone while others for their capital as well. According to Imam Sirkhasi technicians and artisans' skill and industry, is their capital and in Shirkat-al-Sanai laborers' industry is their capital.
Conditions:
This partnership is based on the following conditions':
1.
The share of the partners in this business need not be: equal any of the partners may take a greater share of the profits than- the others because of: his superior_ skill or special, job or any other reason.
2.
The Muslim-jurists have justified share of the profit according to the amount (or nature) of their work.
4. Shirkat-al-Wajooh
If the partners have neither capital nor skill, they may start a business on credit and share the profits amongst themselves. This form of partnership is called Shirkat-al-Wajooh. Two or more persons without any capital may enter into a, contract that, they would- do business on credit and share in-the profits and losses. This type of business can only be done by persons- of great reputation and integrity (Wajooh); who are well known for their honesty and, high credit.
The Muslim jurists have, in fact, regarded credit as a form. of wealth, like that of industry and. skill in Shirkat-al-Sanai, which is used for the production of more wealth.
1.
Conditions:
This type of partnership is valid if the, following conditions are satisfied:
1.
Every partner must receive the same (or equal) share of the profit.
2.
Inequality inn the.-respective. share -(in the- profit) of different partners is not allowed in this form of business organization.
2.
Termination of Partnership:
All types of business organizations are considered void in the following circumstances:
1.
Whenever any partner utilizes his right to terminate the contract ; but it would not be considered operative unless the other partner (or partners) is informed. It may be remembered that every partner has equal right to terminate the contract.
2.
Partnership ends with the death of one of the partners, for each partner is an agent (or representative) of the other partner (or partners) and as the agency is terminated, partnership is also terminated. But, if the descendants of the deceased desire, they may renew the contract.
Concluding Remarks on Partnership in General:
It may here be pointed out that there is immense scope of expansion in the forms of business organizations based on partnership in the modern industrial world. These forms of business organizations are particularly suited to under-developed countries where capital is scarce and greater effort is needed on the part of the inhabitants themselves. This will enable these countries not only to mobilize their internal resources but also to stand on their own feet in matters of finance and not depend upon charity from other nations (and squeeze the country under the weight of annual payment of interest on debt).
Numerous forms of business organization in the field of trade, commerce, industry, gardening, medicine, education, mining, transport (road as well as sea), agriculture including the purchase of animals, seeds, tools etc. were formed by the Muslims to help the economy of the time. These and thousands more can be formed on the same principle to develop our economy and to meet the demands of the modern age.
3.
Joint-stock Companies : Modern industrial enterprises require huge capital and are, therefore, beyond the capacity any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies' sitice those times but basically the modern-stock companies are of the same genus as the old ones.
4.
Business on Commission:
Islam also allows business on commission. According to Abdullah-bin Abbas,' there is no harm in asking a commission agent to sell your cloth (or other goods) at any price and keep the excess profit (over and above the profit you ask) for himself (as commission) any single person. It is through joint-stock companies that these big enterprises in the field of trade, industry and agriculture can be undertaken. Modern industrial and technological progress is mainly due to the assistance of joint-stock companies.
In this form of business organization, total required (working) capital is divided into many shares of small value which are offered for sale to the public. Every one can buy as many shares as he likes. The people who buy shares are called shareholders and are the real owners of the company.
In this type of organization, the capitalist (i.e., the shareholder) for his capital (i.e., share) and the entrepreneur for his enterprising ability and skill get a share of the profit while the laborers are rewarded for their labor in the form of wages. In one way these companies resemble Shirkat-al-`Anan. The liability of the members is limited and the board of directors as representative of the shareholders supervise the work on their behalf. The shareholders, whenever they wish, may sell their shares in the market like transferable property.
It would not be true to say that the joint-stock companies are the creation of the modern age. They were found in the old days and were very popular in Arabia. In fact the commercial dealings of the Quraish ~f Mecca were carried out by jointstock companies. Even in the commercial caravan of Badr, capital invested belonged to many people who were doing business on the same principle as the modern joint-stock companies. Undoubtedly, there has been marked improvement and development of the rules, scope and forms of the companies since those times but basically the modern-stock companies are of the same genus as the old ones.
5.
Government Undertakings:
Islam has not ignored any of the possible corporate forms of -business organizations; which can benefit the people. In' fact, it has been one of the basic objectives of Islam to utilize all the resources and powers of the country in the production of wealth and to coordinate the available supply of labor and capital in the best interest of the community.
SELLING IN QUR'AN
:.:. Exhortations Concerning Earning .:.:
O ye who believe! When ye deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to writing let a scribe write down faithfully as between the parties; let not the scribe refuse to write: as Allah has taught him, so let him write. Let him who incurs the liability dictate, but let him fear his Lord Allah, and not diminish aught of what he owes. If the party liable is mentally deficient, or weak or unable himself to dictate, let his guardian dictate faithfully. And get two witnesses, out of your own men, and if there are not two men, then a man and two women, such as ye choose, for witnesses, so that if one of them errs, the other can remind her. The witnesses should not refuse when they are called on (for evidence). Disdain not to reduce to writing (your contract) for a future period, whether it be small or big: it is juster in the sight of Allah, more suitable as evidence, and more convenient to prevent doubts among yourselves but if it be a transaction which ye carry out on the spot among yourselves there is no blame on you if ye reduce it not to writing. But neither take witnesses whenever ye make a commercial contract; and let neither scribe nor witness suffer harm. If ye do (such harm), it would be wickedness in you. So fear Allah; for it is Allah that teaches you. And Allah is well acquainted with all things. (Al-Baqarah: 282)
We have made the Night and the Day as two (of Our) Signs; the Sign of the Night have We obscured, while the Sign of the Day We have made to enlighten you; that ye may seek bounty from your Lord, and that ye may know the number and count of the years: all things have We explained in detail. (Al Israa': 12)
SELLING IN QUR'AN
The Legality of Selling and Its Merit .:.:
Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are Companions of the Fire; they will abide therein (forever). (Al-Baqarah: 275)
Business Transaction In Hadith
Business Transaction In Hadith
Money occupies quite a central position in Islamic Jurisprudence (fiqh) as man's life depends on it. Apparently money is indispensable for him to obtain all his necessities, satisfy his needs and fulfill his obligations. This is why money has impinged on almost every aspect of the socio-economic history of man. As a result, dealing in money, according to the Islamic concept, has many outcomes ranging from the prohibited (Haram) to the permissible (Halal) which are accompanied by certain rules and conditions.
Many changes have occurred to money throughout the ages, beginning with gold and silver coinage to the birth of the system of paper money, which has been marked by a series of financial crises such as, inflation, depression, devaluation, unstable exchange rates and other `diseases of paper money.' The rights and duties resulting from monetary dealings have also changed. The uncertainty about the value of paper money is the root cause of the diseased modern economy which engenders so many religiously unlawful acts and is one of the causes of interest.
Productive activities are unduly hurt by fluctuations in production costs and commodity prices because they are estimated in terms of money. Economies that look healthy one moment are seriously ill the next. Not, apparently, because of any sudden new development within their borders, but due to a monetary system that encourages currency trade and financial speculation via institutions such as hedge funds, which have been recognized as a major source of destabilization.
It has become a matter of vital importance for every nation to have stability in the value of money. Inflation implies that money is unable to serve as a just and honest unit of account and makes money an inequitable standard of value. The impact of the declining value of money on society and the people by eroding the real value of their wealth undoubtedly does injustice to them as a result of this unjust monetary system.
Money occupies quite a central position in Islamic Jurisprudence (fiqh) as man's life depends on it. Apparently money is indispensable for him to obtain all his necessities, satisfy his needs and fulfill his obligations. This is why money has impinged on almost every aspect of the socio-economic history of man. As a result, dealing in money, according to the Islamic concept, has many outcomes ranging from the prohibited (Haram) to the permissible (Halal) which are accompanied by certain rules and conditions.
Many changes have occurred to money throughout the ages, beginning with gold and silver coinage to the birth of the system of paper money, which has been marked by a series of financial crises such as, inflation, depression, devaluation, unstable exchange rates and other `diseases of paper money.' The rights and duties resulting from monetary dealings have also changed. The uncertainty about the value of paper money is the root cause of the diseased modern economy which engenders so many religiously unlawful acts and is one of the causes of interest.
Productive activities are unduly hurt by fluctuations in production costs and commodity prices because they are estimated in terms of money. Economies that look healthy one moment are seriously ill the next. Not, apparently, because of any sudden new development within their borders, but due to a monetary system that encourages currency trade and financial speculation via institutions such as hedge funds, which have been recognized as a major source of destabilization.
It has become a matter of vital importance for every nation to have stability in the value of money. Inflation implies that money is unable to serve as a just and honest unit of account and makes money an inequitable standard of value. The impact of the declining value of money on society and the people by eroding the real value of their wealth undoubtedly does injustice to them as a result of this unjust monetary system.
CAPITAL
CAPITAL
Capital is that wealth which assists in the production of further wealth. It includes all those things, which instead of giving personal satisfaction, assist in the production of more wealth. According to Professor Thomas, wealth of individuals and nations, other than land, which is used in the production of further wealth, is called capital. It is the wealth which man acquires by his own labor and then uses it for producing more wealth.
Capital is the third factor of production which assists man in the production of wealth. Without the assistance of capital, large scale production in the modern industrial world becomes impossible because fruit of human labor alone is very meager. And we would not be wrong in saying that large-scale production and industrial progress that we have achieved in our age is all due to the use of capital. In fact capital is like blood in human body which runs into the veins of industry and keeps it going.
In view of the great importance of capital in human life, the Holy Quran refers to it as "mataa'ul haya addunnya" in Sura Al-'Imran:
"Fair-seeming to men is made the love of desires, of women and sons and hoarded treasures of gold and silver and well bred horses, cattle and tithe. This is the provision of the life of this world". (III: 14)
The Holy Quran calls wealth and capital as "provision for the use of man in this world" so that he may be able to produce more and more wealth for the gratification of his wants. The word "mataa'" refers to means of sustenance (i.e., production) but may here be taken for capital for it is mentioned after treasures of gold and silver and well-bred horses and cattle which are all different forms of capital. The use of the word "zuyyina" an indication of the great importance of capital in human life. A man with foresight and vision could easily see through these words of the Holy Quran the multifarious uses of capital in future.
The Holy Prophet emphasized the importance of capital in these words: "There shall be no envy but in two cases: The person whom God has given wealth (or capital) and power to spend It in the service of truth (for his own benefit and the benefit of people): and the person whom God has granted knowledge off things and he judges by it, and teaches-(to others)". The desire to have knowledge is here made akin-to the desire: to possess wealth which .is a natural desire in every human heart, and thus it is made clear that acquisition of knowledge is as important as that of wealth. The Holy Prophet being fully aware of the importance of wealth (capital) advised his companions to compete with one another in acquiring both knowledge and wealth.
Umar, the second, Caliph, persistently stressed upon the Muslims to acquire more and more wealth (capital). Mohammad .bin Said states' that there was not a single Muslim who fought in the battle of Qadsia, and received less than fifteen hundred to two thousand dirhams. And there was not a single child who was not receiving one hundred dirhams per month. Umar said, "I know that the allowance is more than their needs. It would be much better if -they buy a goat with the allowance and then buy one or two "ra'Is" (capital) when they receive second allowance. This would increase their capital and after them, their children would have something left and would not be empty handed (poor)".
Accumulation of Capital
Capital is the result of: saving which is possible only if income is greater than expenditure or; expenditure is less than income. Some people have -so much income -that even after meeting all their expenses, they are able to save but most of -the people have less income and more expenditure and are, therefore, unable to -save-under ordinary circumstances. The people can only save if they are encouraged either to increase their incomes by more productive use of their capital or to decrease their expenditure by cutting unnecessary expenses.
The amount of capital which can be used for production of further wealth depends entirely on the amount of saving. Therefore to increase the amount of capital in any country, it is absolutely necessary that, firstly the people should constantly endeavor to increase their income, secondly they should spend their income very carefully and cautiously and should abstain from extravagance and wasteful expenditure, and thirdly there should be prefect peace and security in the country to enable people to earn wealth freely and easily. Islam has recommended all the possible methods to increase the amount of saving in the community.
1.
Growth of Income: The first important factor liable to assist in the accumulation of capital is a rise in income. If income rises, there is a possibility of saving and hence of capital. Islam has suggested many useful methods to increase the growth of incomes in the community. They fall under two main headings:
1. Compulsory Measures and
2. Optional Measures.
1. Compulsory Measures
(i) Payment of Zakat: It comes under compulsory measures. Zakat or poor rate is a compulsory levy on cattle, crops, merchandise and gold, silver, or cash. It is a levy not on income but on total wealth which has been in the possession of the owner for full year, whether the owner has utilized his wealth in production or not, he is liable to pay Zakat every year. It is, therefore, a very effective weapon to force the capitals to invest their wealth in the production of more wealth or otherwise the capital would all be exhausted (finished) after some time by regular payment of Zakat every year. With every increase in investment, profits and incomes are likely to rise.
(ii) Prohibition of Interest: Interest is totally forbidden in a Muslim state and people are not allowed to make money by lending their capital on interest.. It is therefore most probable that people would invest their capital in productive channels, and thereby increase their profits and incomes (for details see chapter on Interest and Zakat in the 2nd volume).
2. Optional Measures
Besides Zakat there is some other morally binding, but very useful and effective, measures which assist in raising the incomes of people in an Islamic State.
(i) Utilization of Orphans' Wealth: To encourage growth of capital in the community, the guardians of orphans are asked to invest orphans' capital in trade and other profitable enterprises and not to keep it hoarded or idle. They are also asked not to waste their property but utilize it in a proper way for their benefit. This is mentioned in the Holy Quran in these words "And make not over your property, which God has made a (means of) support for you, to the weak of understanding then if you find in them maturity of intellect, make over to them their property". (IV : 5-6)
The Holy Quran is here emphasizing the fact that wealth (of the orphans) is not a thing to be despised or wasted for it is a means of support for them. It is your duty to utilize their capital in profitable enterprises so as to defray their expenses from the profits and not from the capital and thus make it a suitable means of sustenance for them.
The Holy Prophet in very strong words told the guardians to utilize orphans' wealth in production and not to leave it idle:
"Beware! Whosoever among you is the guardian of an orphan, who has wealth, should trade with it (i.e., invest it in profit able business) and should not leave it (hoarded), so that (the regular annual levy of) Zakat should consume it".
According to Imam Malik, Aishah, wife of the Holy Prophet, used to give the orphans' wealth to the traders in order that they might trade with it and make profit for the orphans. Similarly Umar, Othman and Ali, during their respective periods of Caliphate, invested orphans' wealth in trade (and other business). And Umar used to say: "trade with orphans' wealth lest it be exhausted by (regular payment of) Zakat".
(ii) Re-Investment of Cash: Growth of capital is regarded 'very important and every Muslim is expected to re-invest his cash in business. In this connection, the following Hadith is very significant "God may not bless the price of that land and that hose which is not again re-invested in land or a house".
Another Hadith emphasizes the importance of capital in these words "Whosoever sells a house or land yielding revenue, and then not re-Invest the price on a thing akin to it, he is not likely to be blessed therein (and his wealth is not likely to grow)".
This shows very clearly that the Holy Prophet was very keen on maintaining the rate of growth of capital in the community. He insisted upon Muslims to preserve their capital and not to sell it for it could be utilized in producing more wealth. If anyone was forced by circumstances to sell any of these things, he was persuaded to buy similar (productive) property with that money.
(iii) Leaving Successors Wealthy: To further help the growth of capital in the community, Islam has encouraged people to leave -their heirs rich and prosperous and not to give away all their .wealth in charity. The Holy Prophet emphasised this in these words "It is better to leave heirs rich than to leave them poor in order that they be begging at other people's doors".
Said Ibn Waqas is reported to have said that: "the Holy Prophet used to visit him at Mecca, in the year of his farewell Pilgrimage, on account of (his) illness which had become very acute. So he said (to the Prophet); it; shall -he then bequeath two-thirds of his property in charity ? He said, no. He asked -him ` for half. He again said, no. Then he asked (him) to bequeath one-third and (said even) one-third is too much, for if he- leaves his heirs free from want, it' is better than that he leaves them in poverty, begging of (other) people".
These sayings of the Holy Prophet clearly show that excessive charity, that renders one's successors poorer, is not an act of piety or virtue. It is better that one should leave more wealth to one's successors so that they could live a better and prosperous life. This attitude towards life and property helps in the growth of capital in the community in general.
2.
Avoidance of Extravagance: Even if income grows; there cannot be sufficient saving if expenditure of the people grows faster. Therefore it is necessary to curtail unnecessary and superfluous expenses and check the growth of extravagance in the community. In order to achieve this objective, the Holy Quran has in very strong words condemned and prohibited extravagance and prodigality in a Muslim community. In Sura Al-`Araf, it is stated
"Eat and drink, but waste not by excess, for God loveth not the prodigals". (VII : 31) .
In Sura Bani-Isra'il: "Squander not wastefully, surely the squanderers are the devil's brethren. And the devil is ever ungrateful to his Lord;" (XVII:26-27)
Thus the Holy Quran, while enjoining charity, draws attention to economy and thereby to the Golden Mean between the two extremes of extravagance and miserliness. Those who waste wealth are called the devil's brethren because they are ungrateful to God for wasting away what He has given them out of His Grace for their maintenance and-support in this world.
In order to discourage extravagance, the Holy Quran has even prohibited such things which encourage or spread habit of extravagance among the people. This' is stated in these words:
"0 ye who believe 1 intoxicants and gambling' and idols and (dividing by) arrows, are an abomination,-of Satan's handiwork; leave it aside in order that ye may, prosper". (V : 93)
The Holy Quran, by calling upon all Muslims to leave such things which lead extravagance, if they want to prosper, has indicated a negative relationship between extravagance and prosperity. It is undoubtedly true that nations who indulge in extravagance and prodigality soon exhaust their savings which adversely affect their investment and production and thereby turn their prosperity into poverty and hunger.
3.
Hoarding: Another factor which checks the growth of capital is hoarding. If wealth, instead of being used for the production of more wealth, is left idle or buried under the ground, as is the habit in most Asian, African and South American countries, it is bound to reduce the amount of working capital available for investment in trade, agriculture and industry. This is likely to slow down the rate of economic development and gradually impoverish the country.
Islam condemns this habit of hoarding like that of miserliness and describes it as one of the qualities of the sinners in these words "And hoards then withholds". (LXX: 18)
These words describe the state of mind of those people who go on hoarding all the time and are never satisfied. They bury their treasures and seal them so that they are never spent. In Sura Al-Tauba a warning is given to those who hoard their wealth and spend it not "And those who hoard up gold and silver and spend it not in God's way-announce to them a painful chastisement". (IX: 34)
Acquisition of wealth is permissible but hoarding of it in such quantities, as is harmful to the community, is strictly prohibited. If every one starts hoarding up his wealth, then the whole working capital of the community will be locked up and nothing (or very little) will be left for maintaining the channels of trade and industry in working order for the benefit of all. In other words, welfare of the community as well as of the individual, demands that capital should be constantly available in sufficient quantities to maintain and develop commercial and industrial resources of the country. Any diminution in the essential supplies of capital through hoarding or otherwise, is likely to damage the economic growth of thee country and, consequently, the general and individual welfare of the people.
Again in Sura Al-Humazah hoarding is described as a quality of the people who are condemned to the fire of Hell in the following words "Woe to every slanderer defamer! Who amasses wealth and counts it-. He thinks that his wealth will make him abide". (CIV: 1-3)
Just as goodness and patience are combined in the previous Sura Al-Asr as the two qualities which are the foundations on which human character should be built and which lead to success in this life and the Hereafter ; "the amassing of wealth and defaming are combined here as the two evils which suck the blood of social (and economic) progress and lead ultimately to poverty and disaster".
In view of the harmful effects of hoarding, as described in the Holy Quran, the companions of the Holy Prophet condemned this habit as unproductive and wasteful. According to Kais Ibn Ali Asim, "we went to Khabbab while he was erecting wait. He said, a Muslim gets a reward for spending his wealth on everything except for burying it in the ground (i.e., hoarding)".
4.
Peace and Security: For accumulation of capital, it is necessary that there should be peace and order in the country. In fact, production and, in particular, accumulation of capital is very, much dependant on peace and security. If there is peace and security in the country, people are likely to work harder and save more than if there-is disorder and insecurity of life and poverty when they are likely to get less opportunities for working and saving.
The Holy Quran enjoins the Muslims to maintain peace and stability in the country so that people may prosper and live a happier life. If there is any evil element in society which is likely to grow and disturb the' peace and tranquility of the system. The Holy Quran commands Muslims to check growth in these words:
"And fight them until there is no more tumult or oppression, and the economic and social-life of the people become subject to the principle of justice and equity in the name of God". (II: 193)
Muslims are here asked to fight for peace and justice for every one in the country. But "when persecution ceases, and men are not forced to accept or renounce creed, being at liberty to profess any belief of the truth- of which they are convinced, then there should be no fighting. The-words that follow make the sense quite clear. If they desist from persecution, the Muslims are at once to stop fighting against them, and hostilities are not to be continued against any except the aggressors".
A comparison with verse 40 of Sura Al-Hajj will show that this is the correct explanation. There the object of the Muslim fights is plainly set forth in the following words (XXII: 40): "And if God did not repel. some people by others, cloisters and churches and synagogues and mosques- in which God's` name is' much remembered would have been pulled down". This shows clearly that the Muslims fought not only in defense of mosques and of their own social and economic system; but also in that of churches, of synagogues, and of the economic and social, system they represented. The same object is stated here in the above verse that there is no persecution on the score of belief, and every one is at liberty to hold any belief which he likes: The verse, in fact, lays down the- broad' principles of religious, social and economic freedom. The words "except against the, oppressors" signify that hostilities can only be carried on against the oppressors, so that when they desist from oppressing, hostilities against them must be stopped".
The same principle was stated by the Holy Prophet at the time of his last Pilgrimage in these Words:
The same principle was stated by the Holy Prophet at the time of his last Pilgrimage in these Words:
"Surely God' has' made sacred' to- you (prohibited you from unlawfully acquiring) your Blood' and your property and your honor as this day of yours (day of Pilgrimage) is sacred in this month of yours in this (Holy) city of yours".
In these words the Holy Prophet clearly made it a- duty of every Muslim, individually as well as collectively, to maintain peace and security in the country so that no one could- violate individual rights and usurp other` people's property or endanger their life or harm their honor (II:188, IV:5, V:32, VI:152, XXV:68).
Capital is that wealth which assists in the production of further wealth. It includes all those things, which instead of giving personal satisfaction, assist in the production of more wealth. According to Professor Thomas, wealth of individuals and nations, other than land, which is used in the production of further wealth, is called capital. It is the wealth which man acquires by his own labor and then uses it for producing more wealth.
Capital is the third factor of production which assists man in the production of wealth. Without the assistance of capital, large scale production in the modern industrial world becomes impossible because fruit of human labor alone is very meager. And we would not be wrong in saying that large-scale production and industrial progress that we have achieved in our age is all due to the use of capital. In fact capital is like blood in human body which runs into the veins of industry and keeps it going.
In view of the great importance of capital in human life, the Holy Quran refers to it as "mataa'ul haya addunnya" in Sura Al-'Imran:
"Fair-seeming to men is made the love of desires, of women and sons and hoarded treasures of gold and silver and well bred horses, cattle and tithe. This is the provision of the life of this world". (III: 14)
The Holy Quran calls wealth and capital as "provision for the use of man in this world" so that he may be able to produce more and more wealth for the gratification of his wants. The word "mataa'" refers to means of sustenance (i.e., production) but may here be taken for capital for it is mentioned after treasures of gold and silver and well-bred horses and cattle which are all different forms of capital. The use of the word "zuyyina" an indication of the great importance of capital in human life. A man with foresight and vision could easily see through these words of the Holy Quran the multifarious uses of capital in future.
The Holy Prophet emphasized the importance of capital in these words: "There shall be no envy but in two cases: The person whom God has given wealth (or capital) and power to spend It in the service of truth (for his own benefit and the benefit of people): and the person whom God has granted knowledge off things and he judges by it, and teaches-(to others)". The desire to have knowledge is here made akin-to the desire: to possess wealth which .is a natural desire in every human heart, and thus it is made clear that acquisition of knowledge is as important as that of wealth. The Holy Prophet being fully aware of the importance of wealth (capital) advised his companions to compete with one another in acquiring both knowledge and wealth.
Umar, the second, Caliph, persistently stressed upon the Muslims to acquire more and more wealth (capital). Mohammad .bin Said states' that there was not a single Muslim who fought in the battle of Qadsia, and received less than fifteen hundred to two thousand dirhams. And there was not a single child who was not receiving one hundred dirhams per month. Umar said, "I know that the allowance is more than their needs. It would be much better if -they buy a goat with the allowance and then buy one or two "ra'Is" (capital) when they receive second allowance. This would increase their capital and after them, their children would have something left and would not be empty handed (poor)".
Accumulation of Capital
Capital is the result of: saving which is possible only if income is greater than expenditure or; expenditure is less than income. Some people have -so much income -that even after meeting all their expenses, they are able to save but most of -the people have less income and more expenditure and are, therefore, unable to -save-under ordinary circumstances. The people can only save if they are encouraged either to increase their incomes by more productive use of their capital or to decrease their expenditure by cutting unnecessary expenses.
The amount of capital which can be used for production of further wealth depends entirely on the amount of saving. Therefore to increase the amount of capital in any country, it is absolutely necessary that, firstly the people should constantly endeavor to increase their income, secondly they should spend their income very carefully and cautiously and should abstain from extravagance and wasteful expenditure, and thirdly there should be prefect peace and security in the country to enable people to earn wealth freely and easily. Islam has recommended all the possible methods to increase the amount of saving in the community.
1.
Growth of Income: The first important factor liable to assist in the accumulation of capital is a rise in income. If income rises, there is a possibility of saving and hence of capital. Islam has suggested many useful methods to increase the growth of incomes in the community. They fall under two main headings:
1. Compulsory Measures and
2. Optional Measures.
1. Compulsory Measures
(i) Payment of Zakat: It comes under compulsory measures. Zakat or poor rate is a compulsory levy on cattle, crops, merchandise and gold, silver, or cash. It is a levy not on income but on total wealth which has been in the possession of the owner for full year, whether the owner has utilized his wealth in production or not, he is liable to pay Zakat every year. It is, therefore, a very effective weapon to force the capitals to invest their wealth in the production of more wealth or otherwise the capital would all be exhausted (finished) after some time by regular payment of Zakat every year. With every increase in investment, profits and incomes are likely to rise.
(ii) Prohibition of Interest: Interest is totally forbidden in a Muslim state and people are not allowed to make money by lending their capital on interest.. It is therefore most probable that people would invest their capital in productive channels, and thereby increase their profits and incomes (for details see chapter on Interest and Zakat in the 2nd volume).
2. Optional Measures
Besides Zakat there is some other morally binding, but very useful and effective, measures which assist in raising the incomes of people in an Islamic State.
(i) Utilization of Orphans' Wealth: To encourage growth of capital in the community, the guardians of orphans are asked to invest orphans' capital in trade and other profitable enterprises and not to keep it hoarded or idle. They are also asked not to waste their property but utilize it in a proper way for their benefit. This is mentioned in the Holy Quran in these words "And make not over your property, which God has made a (means of) support for you, to the weak of understanding then if you find in them maturity of intellect, make over to them their property". (IV : 5-6)
The Holy Quran is here emphasizing the fact that wealth (of the orphans) is not a thing to be despised or wasted for it is a means of support for them. It is your duty to utilize their capital in profitable enterprises so as to defray their expenses from the profits and not from the capital and thus make it a suitable means of sustenance for them.
The Holy Prophet in very strong words told the guardians to utilize orphans' wealth in production and not to leave it idle:
"Beware! Whosoever among you is the guardian of an orphan, who has wealth, should trade with it (i.e., invest it in profit able business) and should not leave it (hoarded), so that (the regular annual levy of) Zakat should consume it".
According to Imam Malik, Aishah, wife of the Holy Prophet, used to give the orphans' wealth to the traders in order that they might trade with it and make profit for the orphans. Similarly Umar, Othman and Ali, during their respective periods of Caliphate, invested orphans' wealth in trade (and other business). And Umar used to say: "trade with orphans' wealth lest it be exhausted by (regular payment of) Zakat".
(ii) Re-Investment of Cash: Growth of capital is regarded 'very important and every Muslim is expected to re-invest his cash in business. In this connection, the following Hadith is very significant "God may not bless the price of that land and that hose which is not again re-invested in land or a house".
Another Hadith emphasizes the importance of capital in these words "Whosoever sells a house or land yielding revenue, and then not re-Invest the price on a thing akin to it, he is not likely to be blessed therein (and his wealth is not likely to grow)".
This shows very clearly that the Holy Prophet was very keen on maintaining the rate of growth of capital in the community. He insisted upon Muslims to preserve their capital and not to sell it for it could be utilized in producing more wealth. If anyone was forced by circumstances to sell any of these things, he was persuaded to buy similar (productive) property with that money.
(iii) Leaving Successors Wealthy: To further help the growth of capital in the community, Islam has encouraged people to leave -their heirs rich and prosperous and not to give away all their .wealth in charity. The Holy Prophet emphasised this in these words "It is better to leave heirs rich than to leave them poor in order that they be begging at other people's doors".
Said Ibn Waqas is reported to have said that: "the Holy Prophet used to visit him at Mecca, in the year of his farewell Pilgrimage, on account of (his) illness which had become very acute. So he said (to the Prophet); it; shall -he then bequeath two-thirds of his property in charity ? He said, no. He asked -him ` for half. He again said, no. Then he asked (him) to bequeath one-third and (said even) one-third is too much, for if he- leaves his heirs free from want, it' is better than that he leaves them in poverty, begging of (other) people".
These sayings of the Holy Prophet clearly show that excessive charity, that renders one's successors poorer, is not an act of piety or virtue. It is better that one should leave more wealth to one's successors so that they could live a better and prosperous life. This attitude towards life and property helps in the growth of capital in the community in general.
2.
Avoidance of Extravagance: Even if income grows; there cannot be sufficient saving if expenditure of the people grows faster. Therefore it is necessary to curtail unnecessary and superfluous expenses and check the growth of extravagance in the community. In order to achieve this objective, the Holy Quran has in very strong words condemned and prohibited extravagance and prodigality in a Muslim community. In Sura Al-`Araf, it is stated
"Eat and drink, but waste not by excess, for God loveth not the prodigals". (VII : 31) .
In Sura Bani-Isra'il: "Squander not wastefully, surely the squanderers are the devil's brethren. And the devil is ever ungrateful to his Lord;" (XVII:26-27)
Thus the Holy Quran, while enjoining charity, draws attention to economy and thereby to the Golden Mean between the two extremes of extravagance and miserliness. Those who waste wealth are called the devil's brethren because they are ungrateful to God for wasting away what He has given them out of His Grace for their maintenance and-support in this world.
In order to discourage extravagance, the Holy Quran has even prohibited such things which encourage or spread habit of extravagance among the people. This' is stated in these words:
"0 ye who believe 1 intoxicants and gambling' and idols and (dividing by) arrows, are an abomination,-of Satan's handiwork; leave it aside in order that ye may, prosper". (V : 93)
The Holy Quran, by calling upon all Muslims to leave such things which lead extravagance, if they want to prosper, has indicated a negative relationship between extravagance and prosperity. It is undoubtedly true that nations who indulge in extravagance and prodigality soon exhaust their savings which adversely affect their investment and production and thereby turn their prosperity into poverty and hunger.
3.
Hoarding: Another factor which checks the growth of capital is hoarding. If wealth, instead of being used for the production of more wealth, is left idle or buried under the ground, as is the habit in most Asian, African and South American countries, it is bound to reduce the amount of working capital available for investment in trade, agriculture and industry. This is likely to slow down the rate of economic development and gradually impoverish the country.
Islam condemns this habit of hoarding like that of miserliness and describes it as one of the qualities of the sinners in these words "And hoards then withholds". (LXX: 18)
These words describe the state of mind of those people who go on hoarding all the time and are never satisfied. They bury their treasures and seal them so that they are never spent. In Sura Al-Tauba a warning is given to those who hoard their wealth and spend it not "And those who hoard up gold and silver and spend it not in God's way-announce to them a painful chastisement". (IX: 34)
Acquisition of wealth is permissible but hoarding of it in such quantities, as is harmful to the community, is strictly prohibited. If every one starts hoarding up his wealth, then the whole working capital of the community will be locked up and nothing (or very little) will be left for maintaining the channels of trade and industry in working order for the benefit of all. In other words, welfare of the community as well as of the individual, demands that capital should be constantly available in sufficient quantities to maintain and develop commercial and industrial resources of the country. Any diminution in the essential supplies of capital through hoarding or otherwise, is likely to damage the economic growth of thee country and, consequently, the general and individual welfare of the people.
Again in Sura Al-Humazah hoarding is described as a quality of the people who are condemned to the fire of Hell in the following words "Woe to every slanderer defamer! Who amasses wealth and counts it-. He thinks that his wealth will make him abide". (CIV: 1-3)
Just as goodness and patience are combined in the previous Sura Al-Asr as the two qualities which are the foundations on which human character should be built and which lead to success in this life and the Hereafter ; "the amassing of wealth and defaming are combined here as the two evils which suck the blood of social (and economic) progress and lead ultimately to poverty and disaster".
In view of the harmful effects of hoarding, as described in the Holy Quran, the companions of the Holy Prophet condemned this habit as unproductive and wasteful. According to Kais Ibn Ali Asim, "we went to Khabbab while he was erecting wait. He said, a Muslim gets a reward for spending his wealth on everything except for burying it in the ground (i.e., hoarding)".
4.
Peace and Security: For accumulation of capital, it is necessary that there should be peace and order in the country. In fact, production and, in particular, accumulation of capital is very, much dependant on peace and security. If there is peace and security in the country, people are likely to work harder and save more than if there-is disorder and insecurity of life and poverty when they are likely to get less opportunities for working and saving.
The Holy Quran enjoins the Muslims to maintain peace and stability in the country so that people may prosper and live a happier life. If there is any evil element in society which is likely to grow and disturb the' peace and tranquility of the system. The Holy Quran commands Muslims to check growth in these words:
"And fight them until there is no more tumult or oppression, and the economic and social-life of the people become subject to the principle of justice and equity in the name of God". (II: 193)
Muslims are here asked to fight for peace and justice for every one in the country. But "when persecution ceases, and men are not forced to accept or renounce creed, being at liberty to profess any belief of the truth- of which they are convinced, then there should be no fighting. The-words that follow make the sense quite clear. If they desist from persecution, the Muslims are at once to stop fighting against them, and hostilities are not to be continued against any except the aggressors".
A comparison with verse 40 of Sura Al-Hajj will show that this is the correct explanation. There the object of the Muslim fights is plainly set forth in the following words (XXII: 40): "And if God did not repel. some people by others, cloisters and churches and synagogues and mosques- in which God's` name is' much remembered would have been pulled down". This shows clearly that the Muslims fought not only in defense of mosques and of their own social and economic system; but also in that of churches, of synagogues, and of the economic and social, system they represented. The same object is stated here in the above verse that there is no persecution on the score of belief, and every one is at liberty to hold any belief which he likes: The verse, in fact, lays down the- broad' principles of religious, social and economic freedom. The words "except against the, oppressors" signify that hostilities can only be carried on against the oppressors, so that when they desist from oppressing, hostilities against them must be stopped".
The same principle was stated by the Holy Prophet at the time of his last Pilgrimage in these Words:
The same principle was stated by the Holy Prophet at the time of his last Pilgrimage in these Words:
"Surely God' has' made sacred' to- you (prohibited you from unlawfully acquiring) your Blood' and your property and your honor as this day of yours (day of Pilgrimage) is sacred in this month of yours in this (Holy) city of yours".
In these words the Holy Prophet clearly made it a- duty of every Muslim, individually as well as collectively, to maintain peace and security in the country so that no one could- violate individual rights and usurp other` people's property or endanger their life or harm their honor (II:188, IV:5, V:32, VI:152, XXV:68).
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