mihe
The Markfield Institute
of Higher Education
‘Good Business’ in Islamic
perspective
Aston University – Business School
Tuesday, 2 June 2009.
Presentation by
Copyright 2009 The Markfield Institute of Higher Education
Prof. Seif Tag El Din
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
Contents
• I - ‘Business’ in Islamic legacy.
• II - What makes up for ‘Good
Business’?
• III - The Financing dimension
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
I. ‘Business’ in the Islamic legacy.
• General Definition: ‘Good Business’ is any
organised form of productive work satisfying
ethical values within a given socio-economic
framework.
• The Question: what is the value of productive
work in a Muslim’s life?
• ‘Life’ is envisaged in the Quran as the total time
resource that God has endowed upon every one
of us to test how well we act.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
I/ I ‘ Doing better’ is the key challenge.
•
•
•
•
Presentation by
“ [It is He] Who created life and death in order to
test who among you is doing better” Holy
Quran (67:2).
Therefore, doing better is the key term that give
value to a Muslim’s life, as it should be the case
for every human – no waste of time !
However, what makes up for Good Deed?
Simply, any act that yields a good result; this is
called kheir in the language of the Quran.
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
1 / 2 Kheir is economic prosperity
• “Surely, human loves kheir passionately”
((100:9); this how humankind is described in the
Quran.
• Kheir is therefore the desired fruit of productive
activity from an Islamic perspective.
• Productive Deeds fall into two categories:
1. Worshipping activities (prayers; fasting; pilgrimage
etc) – rewarded mostly in the Hereafter
2. Worldly activities (economic, social and political) –
rewarded mostly in this World.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
I/ 3 Good ‘business’ as economic kheir
• Let there be a party amongst you who call for
kheir, enjoin right practice [ma'qul] and prevent
wrong practice ..” Holy Quran (3: 104)
• See how the term ‘party’ underscores the
importance of specialisation.
• In particular, calling for good standards of
business belongs to the category of economic
kheir.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
II. What makes up for good business?
• Two Main Criteria:
• First : Nature of Economic Activity: ‘good
business’ is any organised form of productive
work that contributes to socio-economic
wellbeing.
• All the ‘oughts’ and ‘ought nots’ of Shariah
(Islamic Law) are pointedly designed to project
the Islamic perspective of socio-economic
wellbeing.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
2/1 Relevance of Islamic finance?
• Second: Business management
• This relates to how productive factors (labour,
capital and natural resources) are organised,
utilized and rewarded in a business activity.
• Islamic finance is particularly concerned with
how to reward ‘capital’, given the strict
prohibition of usury in the Quran.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
III. The financing dimension
• “God permits sale [trade] and prohibits usury’
Holy Quran (2: 275)– usury is interpreted as
interest on capital.
• This is the focal verse that underlies the current
movement of Islamic banking and finance.
– On one hand, it admits profitability in trade
– One the other hand, it prohibits interest on money
capital.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
3/1 Islamic Financing Alternatives
• Profit-rate rather then interest rate is the common
denominator of all Islamic financing modes
• The latter fall into two broad categories:
• (1) Profit Sharing modes: Mudaraba and Musharakah are
risk-sharing modes where return depends on the actual
profitability of the enterprise.
• (2) Fixed return modes: structured transactions where
fixity of return follows from deferred sale of goods or sale
of intangible services in leasing.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
3/2 Generic Fixed Return Modes
• Murabaha: mark-up credit sale – the most
commonly adopted mode.
• Ijarah: Islamic alternative lease financing
• Salam: the alternative for future delivery
financing
• Istisnaa: the alternative for Industrial production
financing.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk
mihe
The Markfield Institute
of Higher Education
Conclusions
• Good business’ in the Islamic perspective
depends on two factors:
– Nature of economic activity: how it contributes to
socio-economic wellbeing
– Quality of business management : how productive
factors are organised, employed and rewarded.
• We focused in this presentation on how capital
should be rewarded, which the major focus of
Islamic finance.
Presentation by
Prof. Seif Tag El Din
Copyright 2009 The Markfield Institute of Higher Education
www.mihe.org.uk