The Concept of The Ancient Religion Islam - Essay Example

18 April How Islamic practices apply in business, economics and banking (commercialism, profiteering, loans& interest, partnerships, etc)? Introduction: The ancient religion Islam offers general direction on day-to-day life for true Muslim, including their financial and economic affairs. For Muslim, the holy book Quran which is the recollection of the word of Allah and the Hadith, the practice and sayings of the Prophet Muhammad and colleagues are mentioned as the Sunnah is like the bible, and these teachings have to be followed compulsorily. Fiqh muamalt is the study of financial and economic transactions from an Islamic outlook which is a branch of Islamic jurisprudence that is related with commerce and residual economic activities. For Islamic economic concepts, Arabic phrases are employed and shariah compliant financial products are very popular in the Islamic business circle. Shariah offers guiding norms for day-to-day living for a Muslim but following the same is a matter of belief and conscience and not of enforcement by governments. In the majority of the Islamic nations, Islamic banking is only a matter of preference and the only Muslim country in the World, i.e. Iran has made rules that all banks must adhere with fiqh muamalt under Usury Free Banking Law that was introduced in 1983. Fatwa refers to the rulings given by Shariah scholars and these are given through reasoning by scholars and endeavoring to apply fiqh to present financial and economic transactions and this process is known as ijtihad and in real practice, this needs interpretation of contractual deeds concerning financial transactions and economic activities and making sure that it is unfailing with shariah. (Wilson 177). This research essay dwells into how Islamic practices apply in business, economics and banking (commercialism, profiteering, loans & interest, partnerships, etc) and how Islam dictates one conducts oneself in business in a detailed manner. Islam and Business Muslims are permitted to engross in trade and business as long as it is lawful and not detrimental to either society or the economy. Islam also permits to acquire wealth through business and however, a Muslim should not have any pride in his wealth. Further, in Islam, greed and miserliness are regarded as sins. A Muslim is considered to be only a temporary guardian of any wealth that he acquires as all wealth is the belongings of Allah. Islam expects that business is run on the moral principle, and it shuns fraud, dishonesty, misrepresentation and deceit in business. Dealing in illegal goods (haram) is prohibited in Islam. Islam also prohibits lotteries. Gambling and business linked with distribution and sale of alcohol. The following are some of the prohibited business activities under Islam. Price manipulation Price gouging and Hoarding by artificially reducing supply of products, especially food products. Government price control initiatives except in some unavoidable scenarios. Interference in the free markets Buying stolen property Cultivating plants like hashish and poppy and raising pigs. Business profits that are generated through halal (legal) business activities are permitted and not any haram (illegal) business activities. A Muslim is needed to respect his business debts. (Khan 1999). The fundamental principle is that Muslims are permitted to purchase whatever he needs like products that Allah has allowed from both Muslims and kaafirs. It is to be noted that Allah himself purchased products from the Jews. However, if a Muslim avoids purchasing goods from another Muslim for no good reason like bad products, high prices or deceit goods , then that will be considered as harram. Doing business with Kaffirs mean reducing business with the Muslim and thereby obstructing Muslims to sell their products or to make the success in their business efforts. (Abdul -Rahman 7). The one who proscribes the goods of the Kuffaar mean that they are waging an endless war with the Islam, intending thereby to manifest the truth that he does support or like them and to destabilize the Muslim economy, will be rewarded in sha Allah for his good doings. (Abdul -Rahman 6). A Muslim cannot split both religion and ethics from his day to day either in business or in personal life. Further, Islam recommends that contracts and agreements, wherever possible, should be documented in writing. (Khan 199). Islamic Business Process is different from the normal business process and the main goal of the all the processes in an Islamic management system are to have the highest productivity, lowest wastage , least confronts amongst organizational practitioners and between its stakeholders and the organization and the profound accountability on the part of the practitioners.( Bahaldin , Syed Azaddin Syed 163). In Islam, all forms of economic exploitation are prohibited. Riba, in Islam, means interest and either giving or taking riba is prohibited. Hoarding goods is also prohibited in Islam and falls under sadaqa. Waiting to buy a perishable product until the price has fallen is also deemed an exploitation or sadaqa under Islam. (Hewer 108). Business Partnerships and Islam The creation of business partnership between a Kaafir and a Muslim is not barred by the differences of religion. However, kaffir (non-Muslim) should not run such business and initiate business decisions since he may involve in riba (interest. usury) or may not be careful to shun away from business transactions that a Muslim normally does. “As per Hanbalis, whatever the kitaabi (Jew or Chrisitian) sells or buys of inebriants with funds from the business or silent partnership (mudaarabah), it is an unacceptable business transaction if a Muslim stands to be the guarantor to such transaction.” (Abdul-Rehman 6). “According to the Maalikis, a business association with a dhimmi (a Jew or Christian residing under Islamic rule) with a Muslim is legitimate, unless the Muslim is also present in the management of a business when Kaafir initiates business transactions. Moreover, if the Muslim believes that the non-Muslim is involved in payment of riba, it is mustahabb for him to donate such earnings to charity. (Abdul-Rehman). “There are a number of business partnerships forms like commenda or muadaraba, transfer of debts, credit arrangements, most of which were approved by Muslim religious conjecture. Long-distance business is thus not only financed by simple business loan associations involving payment of riba but by an array of Islamic business associations the details of which footed on the nature of the resources and the risk offered by the diverse business partners. Ottoman traders employed credit instruments in their long-distance business and some other kinds of commercial forms was the muadaraba association of traditional Islam in which an investor safe keeps his merchandise or capital to an agent who was making use of it in trade and then refund the principal and the revenues from business, which were exchanged between them as per mutually agreed rate. The specialty of Islamic business partnership is that when there is a loss in partnership trade, then such loss will be borne by the principal itself and the burden of such an agent was restricted to his efforts and time. The Ottomans also employed mufawada business partnership of the Hanefi and in Hanefi sect of Islam in which the business partners were regarded in equal status in terms of efforts, capital, liabilities and returns “. (Pamuk 85). Islam and Economics The origins of Islamic economics can be found from the works of a Pakistani social thinker namely Savyid Abdul-Ala Mawdudi (1903-1979) who tried to turn Islam into a “complete way of life.” Other influential contributions to Islamic economies were contributed by Muhammad Baquir al-Sadr (1931-80), an Iraqi and by Sayyid Qutb (1906-66), an Egyptian. Mawdudi is of the view that markets demeanor must be restrained by behavioral standards seen in the traditional sources of Islam. (Kuran 6). The basic sources of Islam allow trade but prohibit interest and an Islamic economy would have the qualities of these two systems without their shortcomings. Zakat and Islamic banking offer sources of funding for Islamic fundamentalist and for the Islamist causes. Islamic banks route a portion of their profits into religious publishing, religious education, religious networking and other economic activities that promote the dissemination of Islamism. For instance, in Turkey, Islamic banks offer career opportunities to youths with Islamic cultural backgrounds though otherwise they are not eligible for such positions, In Muslim nations ,with obligatory Zakat , a poignant share of the proceeds is given to religious schools devoted to the spread of Islamists views. (Kuran 6). Zakat is one of the main pillars of Islam, which is part and parcel of the entire welfare, social and economic system of Islam. Zakat can be said to be the strong foundation of Islam as it requires all Muslims to bear one another’s burdens. Wealth must be used for the advantage of all humanity. The Islamic economic system vehemently supports infaq or the cannons of circulation of wealth. Zakat can be said to be the act of purification of one’s wealth. Zakat demands that at least 2.5% of one’s surplus wealth should be given to needy people in addition to any charity that is given in addition to Zakat. (Hewer 12). As per (Q2.43), Zakat is the portion to be donated from wealthier persons’ assets annually to those in need. Sadaqa stems from the fact that all human beings are one family and thus if someone is in distress, that is concerning for all. Islam is not against personal wealth given that it is earned in right ways (halal), invested without abuse of others and employed as per the principle of sadaqa. (Q 2.195) states that generosity should be there in Muslim as it softens the heart to permit a greater spirit of taqwa both in the receiver and the giver. (Hewer 107). Infaq is one another important economic principle or the distribution of wealth. Money must not be kept idle but must be put to work for the betterment of the entire society. As per Hadith of Muhammad which urges that excess money being put to work on the cannons of infaq and sadaqa. The word Zakat means purification, and it is as though the remainder of one’s wealth sanctified for one’s own use no sooner the Zakat has been paid. (Hewer 109). Islam and Loan Payment of interest on loan is prohibited by Koran. Hence, under Islamic lending, in case of consumption loan, there is no interest payment to lender at all and on maturity of loan, the lender will get the money what he lent. However, in the case of business loan, both the borrower and the lender have to share, as per a prearranged formula, the losses or profits from the investment financed by the loan. (Kuran 107). In M.Aslam Khaki v.Syed Mohammad Hashim , which decided by the Supreme Court of Pakistan in 2000 , the Federal Shariah Court of Pakistan held that the payment of interest (riba) to be in contravention against the Islamic law. This case illustrates a classic case of the tussle between modern business and the Islamic law. It is to be noted that during the 1990s, Pakistan banks had perused many banking tactics to shun the payment of interest like profit sharing, investment and service charges. In an appeal of this case, it was held that interest payment on the use of money is unpardonable and a financial system footed on the lending of money for interest in not only contrary to the Islamic law and also unjust. In 2002, this verdict was reconsidered by the Pakistan’s Supreme Court in United Bank Limited v.Farooq Brothers and Others 1 , it was decided that the verdict was footed on errors and it was impossible to implement and that the verdicts against payment interest could not be made to be applicable to non-Muslims.( Schaffer et al. 80). Islamic Banking As per General Council for Islamic Banks and Financial Institutions, there exist around 275 financial institutions around the globe presently that adhere Islamic financing and banking principles and is having an investment of collectively $ 822 billion in 2009. These financial institutions spread across fifty-three nations, including the U.S.A and Europe. In US alone, more than 20 financial institutions now follow a series of Islamic financial services as of date. (Samad, Norman and Cook 70). The first Islamic bank origin was the Mit Ghamr savings' project which was established in 1963. Nasser Social Bank was established in 1971. Financial services footed on sharia were formed in Malaysia, and it offered saving plans for the pilgrimage (hajj) to Mecca. In Jeddah, in 1975, Development Bank ( IDB) was formed as a multilateral development bank helping in mobilizing funds for investment for projects in the Muslim member nations. As the first privately owned Islamic bank, Dubai Islamic Bank was established in the United Arab Emirates in 1975. These Islamic banks are growing in large numbers now and these banks are offering Islamic finance through their “Islamic Windows,” Conventional banks and fully sharia’ complaint banks are functioning to offer Islamic finance, employing some of the distribution and the structuring capabilities of the larger banks. Following is the important financial products in the Islamic banking as these are regarded as viable alternatives to interest-based traditional banking: Musharakah ( equity financing) Mudarabah (trust financing) Murabahah (trade financing) Ijarah (lease financing) Istisna (progressive payments) Bay’ bi al-thaman al –ajil ( deferred payment financing) Qard al-hassan (welfare loan) Thus, the above mentioned unique features make Islamic financing and Islamic banks viable substitutes to the conventional interest-oriented financial system. (Samad, Norman and Cook 70). Past empirical studies like Kazarian contrasts Islamic banking with conventional banking in Egypt , Akkas (1996) differentiates the Islamic banking with traditional banking in Bangladesh , De-Belder and Hasan (1993) and Hamwai, and Aylward (1999)offers some insight on some features of Islamic financing and its triumph , Smad (1999) and Samad and Hassan (2000) contrast interest oriented traditional banks with that of interest –free Islamic banks with regard to credit risk , profitability and liquidity risk. (Samad, Norman and Cook 71). In U.K alone, as of 2008 ,there are more than 25 organizations which are offering Islamic financial services and UK’s FSA ( Financial Services Authority ) is regulating seven fully sharia’ complaint financial institutions. Further, outside the Muslim world, UK is well on its path to accomplish its target of becoming the largest Islamic Financial Center. (Schoon 9). During the recent global economic crisis in 2008, many famous banks suffered setbacks, and Islamic banks were never impacted by the global credit crunch because of their asset-footed nature of operations. However, they are still witnessing many confronts; as regards to conventional banking; Islamic banking is still in the infancy stage but has confirmed to have strong foundations. The Banker’s third annual survey in 2009 pointed out that out of the top Islamic financial institutions globally which witnessed an increase in assets at a robust growth rate of 28.6 percent with an asset value of $ 822 billion in 2009 as contrasted to $639 billion in 2008 as in the case of traditional banking , the rate of growth of assets of the top one thousand global banks has decreased to 6.8% in 2009 from that of 21.6% in 2008. Conventional banks and Islamic banks differ in their nature of assets as the former assets are based on debts, whereas latter’s assets are based on equity partnership and trade finance. Hence ,some of the Islamic bank’s financial instruments carry further risks as compared to traditional banks and hence the calculation of risk weights for Islamic banks is differing from that of conventional banks. The corporate governance norms for Islamic banking and Shari’ah Governance System were released by the IFSB in December 2009. This was carried out to fortify further the present standards and widen the knowledge of Islamic corporate governance.( Ahmed & EI Tiby xxii). Conclusion As regards to Islamic finance, economics and banking, there are many sceptics prevailing in the Muslim nations. Of late ,Islamic sharia compliance oriented financial products are being given more reliance by world countries and for example , in UK , FSA has issued a regulatory framework and the UK treasury has published a consultative document on a proposed sovereign sukuk which will be sterling denominated. There exists already over $1 trillion worth of assets, which are known as shariah complaint demonstrating the global success of Islamic finance and its market appeal. Islamic finance, economy and business, no doubt , offer a valuable contribution of the Islamic finance industry which concerns more about morality in financial transactions. Islamic values tries to reconcile the spirituality with reality and functions as a filter to the abuses of capitalism, which is often driven by individual material greed with no social accountability. How to apply finance, business, economics and banking with religious value has to be learnt by other religions of the world through Islamic concepts. (Wilson 192). Works Cited Abdul-Rahman, Muhammad Saeed. Islam: Questions and Answers. Jurisprudence and Islamic. Volume 27, Part 6.New Delhi: MISA Publications Ltd, 2007. Ahmed Amir Mohamed EI Tiby & EI Tiby Amir Mohammed. Islamic Banking: How to Manage Risks and Improve Profitability .New York: John Wiley & Sons, 2011. Bahaldin, Syed Azaddin Syed. Alternative Quality Management Standards Islamic Prospective. New York: Utusan Publications,2005. Hewer CTR . Understanding the Islam. : The First Ten Steps. New York: Hymns Ancient & Modern Ltd, 2006. Khan, Arshad. Islam , Muslims and America: Understanding the Basis of Their Conflict. New York : Algora Publishing,2008. Kuran, Timur. Islam and Mammon: The Economic Predicaments of Islamism. Princeton: Princeton University Press, 2010. Pamuk Sevket . A Monetary History of the Ottoman Empire. Cambridge: Cambridge University Press, 2000. Samad Abdus, Gardner Norman D, Cook, Bradley J. “Islamic Banking and Finance in Theory and Practice : The Experience of Malaysia and Baharain.” The American Journal of Islamic Social Sciences, 22:2 (2007) : 70-72 Schaffer Richard, Agusti Filiberto & Earle Beverley. International Business Law and Its Environment. New York: Cengage Learning,2008. Schoon, Natalie. Islamic Banking and Finance. New York: Spiramus Press Ltd, 2009. Wilson Rodney .”Islamic Economics and Finance .World Economics ,“ Vol 9(1) ,( Jan- Mar 2008):114-193. Read More