ETHICS OF PRICING AMONG MUSLIM ENTERPRENEURS:
AN ISLAMIC OUTLOOK
Syahidawati Haji Shahwan
Faculty of Economics and Muamalat
Universiti Sains Islam Malaysia (USIM)
Nilai, Negeri Sembilan
Abstract
Pricing issue is among sensitive and current issues being discussed and debated all over
the year. Yet, there is no absolute solution and alternative provided in order to solve the
problem as well as providing alternative to the current situation. This paper is a review on
the concept of pricing according to Muslims Scholars in regards to the practices during
the time of Rasulullah saw. The purpose of this paper firstly to share the Islamic
perspective on business ethics-particularly on the pricing ethics. Secondly is to provide
some knowledge of Islamic philosophy in order to help entrepreneurs to conduct business
within Islamic framework. The Malaysian context illustrates some divergence between
Islamic philosophy and practice in entrepreneurship life by including the current policy in
Malaysia pertaining to the price control and its affects on Muslim entrepreneurs in this
country.
Keywords:
Al-Tas’ir
(Pricing),
Al-Ihtikar
(Monopoly),
Al-Iktinaz
(Hoarding)
1
1.0
ETHICS OF PRICING IN ISLAM
Price is the important subject matter in a sale contract. As one of the pillars of sale
contract in Islam, price issues have been among the important topics of discussion. In
Chapter III Section I (237) The Mejelle stated that the price is necessarily to be named,
known with specific amount at the time of sale. Pricing however is one branch in the
discussant of price issues. Pricing issue has been deliberated from the prophetic period
until today. In linguistic approach, the word price control in Arabic is used in the term
(Al-Tas’ir) means to fix an amount of price to certain goods in order to avoid the
existence of injustice towards the owner or seller and to entertain the buyer. The social
and economics discussion on pricing issues has been tremendously putting into important
agenda of the government as well as Islamic jurists in order to maintain a good face of
Islamic society.
Pricing issues in the eyes of entrepreneurs can be divided into two entities; i.e
pricing a product sold by the entrepreneur and price control by governing bodies. Price in
Islam is a non-determined subject unlike faraid distribution; i.e. there is no absolute
ruling suggesting entrepreneurs on the proper and absolute method to determine the price
of a product. In conventional marketing, price setting are affected by both internal and
external factors like costs and competitions. (Kotler & Armstrong, 2001). These factors
then guide the entrepreneurs on the minimum price they can offer their customers. The
maximum is a question herewith. How Islam prescribes the concept of profit? Can a
Muslim entrepreneur gain 100% profit from the business? Basically, Islam has listed 3
levels of profit or non-profit gaining namely as Al-Wadiah, Al-Tawliyyah and AlMurabahah.
DIAGRAM 1: Price Consideration in Islam
AL-WADIAH
COST PRICE
AL-TAWLIYYAH
AL-MURABAHAH
Al-Wadiah represents below cost selling – non-profitable business whereas alMurabahah is the opposite. Al-Tawliyyah then is selling with cost price. However, the
maximum range for Al-Murabahah is not clearly underlined in the sources of Islamic
jurisprudence. Thus, price setting basically is given solely to the decision of the
entrepreneur and his justification as long as it does not contravene with the ruling
principles of Islam like justice prevalence, fraud avoidance and ethical attribution.
In many discussions on pricing, majority focussed on the code of pricing by the
government or related bodies. Pricing is only applicable to be endorsed only by the
2
governing bodies, not individual or entrepreneurs themselves. Thus, only government can
induce any policies and take proper actions to those who disobey the rules.
In the time of the prophet Mohammed (saw), price control or an action to fix the
price was prohibited and mentioned in a Hadith of the Prophet (saw). In Islam the market
is to be free and permitted to respond to the natural laws of supply and demand. Thus,
when the prices became high in the Prophet's time and people asked him to fix prices for
them, he then replied:
‫ دم و‬-. /01203 -456789 :;4< =>‫@ أ‬A6 ‫ و‬B‫ ا‬-D6‫ أن أ‬FG‫ر‬I -J‫ازق و إ‬N6‫ ا‬OP756‫ ا‬Q37D6‫ ا‬،NST06‫ ا‬F‫ ه‬B‫)) إن ا‬
(( ‫ل‬7< V
((Allah is the One Who fixes prices, Who withholds, Who gives lavishly, and Who
provides, and I hope that when I meet Him none of you will have a claim against me for
any injustice with regard to blood or property))
(Reported by Ahmad, Abu Daoud, al-Tirmidhi, Ibn Majah, al-Dari and Abu Y'ala.)
From the above Hadith, the Prophet Muhammad (saw) discouraged unnecessary
interference in the freedom on individual. This situation may lead to injustice and it is
strongly prohibited in Islam. In addition, transaction in Islam must be based on mutual
consent and this is clearly mentioned by Allah in the Holy Quran:
‫ن‬
َ 7َ‫ آ‬yَ 1g6‫ن ٱ‬
g ‫ۡۚ ِإ‬:;ُ T
َ wُ Jَ‫اْ أ‬Fٓ 1ُxُ ۡD`َ 7َ6‫ۡ َو‬:ۚ ;ُ 4l< ٍ۟‫َاض‬N`َ dَp ‫ ًة‬Nَ ٰ‫ـ‬s
َ `ِ ‫ن‬
َ Fُ;`َ ‫ أَن‬7ٓ6g‫ ِإ‬tِ 8
ِ ٰ‫َـ‬5ۡ6‫ِﭑ‬3 :;4ۡA3َ :ُ;6َ‫َٲ‬Fۡ<‫اْ َأ‬Fٓ 1ُ‫ `َ\آ‬7َ6 ْ‫ا‬Fُ4<َ ‫ ءَا‬d
َ 9ِf6g‫ ٱ‬7َZ9[ \َٰ‫ٓـ‬9َ
7۟0ً Aِ>‫ۡ َر‬:;ُ 3ِ
(O ye who believe! eat not up your property among yourselves in vanities: but let there be
amongst you traffic and trade by mutual good-will: nor kill (or destroy) yourselves: for
verily Allah hath been to you Most Merciful!)
(An-Nisa’ : verse 29)
Ibn Taymiyyah respectively in Al-Hisbah fi Al-Islam proclaimed that the causes
of inflation in the market price are due to the small volume of production and imported
products as compared to the demand of the customers. In his opinion, the main cause of
inflation is not the traders and entrepreneurs attitudes themselves like al-zulm (injustice),
but more to external driven factors (or it might be both elements). Thus, according to him
al-zulm in this context will exist when there is human interference to the price injection
like hoarding and monopoly. He then continued that price control which is far away from
human manipulation is allowed with the following situations:
a. Availability of market inconsistency and / or price manipulation.
b. Implementation of price control (ceiling price or under price) with unanimous
agreement between all parties involved.
c. Input device price control – such as an adequate volume of wages for catering
dharuriyyah demands)
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Therefore, if there any price manipulation, interference in true market, black
market or others, price control is allowed in order to fulfil the need of the society and to
protect the welfare of both parties. In addition, price control is allowed in Islam as long
as the government put into important agendas the elements of justice and interest for both
parties; customers and entrepreneurs or traders. This view is supported by Abu Wahid alBaji as stated:
“Some scholars hold to the literal meaning of the Hadith which disallows the price
control. Whatever it may be, it is subjected to the interest of the general public, so that it
will not destroy their trade and their liveli-hood.”
Monzer Khaf is on the opinion that the principle of the Islamic economic system
initially says that pricing is not permitted. People must be left alone to determine what
prices they like to sell or buy for. There are exceptions like when the bargaining powers
in the market are tilted toward one party to the extent that one party exercises
monopolistic powers (i.e. becomes able to impose his/her desired price on the other
party). Such situations call for government intervention which may take different forms;
one of them is fixing the price for a commodity or service.
Juristically, there are several major juristic opinions on price control issue. First
was by Imam Malik who approved the application of price control and this approval was
supported by some of Syafi’i’s followers. They accepted the price control in order to
encounter the high price problems in the market and to ensure that the maslahah or good
life of the society is confirmed and retained. And this opinion also supported by most of
followers of Imam Zaidiyah and they were Said bin Musayyab, Rabiah bin Abdul
Rahman, and Yahya bin Saad Al-Ansari. And according to Al-Mawardi, price control is
approved only by the government and not by the people themselves. And to Ibn Qayyim,
price control is prohibited for unlawful purposes. However, it is approved for lawful and
justice purposes.
Therefore, price control is allowed with some conditions such as an agreement
between the government and the producers on certain goods, within certain period of time
where the general public is in serious and dire need of it.
2.0
PRICING IN DUE TO Al-IHTIKAR AND Al-IKTINAZ
Discussion on pricing issues in Islamic point of view should relate to the
problems of Al-Iktinaz (Hoarding) and Al-Ihtikar (Monopoly). The need for pricing
normally is due to the uncontrolled acts of hoarding and monopoly among traders.
Pertaining to hoarding, the Prophet (saw) once mentioned “He who hoards with the
intention of raising the price for a Muslim is a sinner”. Thus, those traders who hoard
with evil intentions are sinful and the act as well is penalized by Allah. In the industry,
hoarding will lead to passive participation of wealth in the market. The commodity will
remain in one’s possession without any initiative for its circulation, thus will cause to the
inflation. The marketing and benefiting of a commodity in the market enhances its quality
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and thus upgrade its profitability. This is the main intention in Islamic economics
especially in the field of investment that is to ensure the commodity’s price is upgraded
and its value as well is increased. An act of gaining benefits from the commodity by an
individual and society will enhance Muslim economics in general and contribute to the
economic stability of Muslims. Hoarding on the economic point of view involves hording
or keeping any product for more than the need of a household or an individual. It also
relates to hindering or freezing the sale of selective products with an intention for its
price rising when the demand increases. In addition, the sale items involve those
household products such as rice, floor, and sugar and also include other dire necessities
(al-Dharuriyyat) items like clothing and housing.
Monopoly in the similar point of view is also illegitimate in Islam. A single
producer of a commodity or a service will contribute to an act of full control or market
price and quality of the product by one manufacturer only. This act is relatively
contradict to the noble practice in Islamic business by having just competition and offers
between traders. In relating to pricing issues, monopoly subsequently will lead to
uncontrolled increasing in the market value and price of the product. Muslims jurists also
agreed that monopoly leads to the gates of evils like bringing Muslims customers to
hardship and difficulties in life. It also deviates from the intention of involving in
business that is to upgrade Muslims grading of life and to serve for the economic
betterment of the ummah.
Monopoly currently is not only applicable to selected commodities or product like
conventionally stated in the Sunnah of the Prophet (saw), but it also involves equity
participation monopoly, company merging monopoly and policy-type monopoly. Sobri
Salamon (1992) in addition has listed four contemporary monopolies. The system
practised by some holding companies by controlling over the equities hold by small
companies is a type of contemporary monopoly. In this sense, the holding companies
monopolized the small companies within their control. Merging of a number of
companies to be a main body by controlling the production of certain product is also
another type of this modern of monopoly. Likewise, price control by certain major
companies on selective products is another type. Finally, export restriction policy, in
which the producer is obstructed to export certain type of manufacture in order to
maintain its market price. Thus, these new method of monopoly will not only affect the
price sustainability of one country, but also will attack the economic growth of a country.
Therefore, in some circumstances, pricing by the governing bodied are required in
order to counter back those two problems. The acts of Ihtikar and Iktinaz, if not taking
cared by the authorities, will lead to unjust business exercises and the customers at the
end will suffer and in hardship condition.
3.0
PRICING ISSUES IN MALAYSIA
In Malaysia currently, pricing issue has been debated all over the mass Medias in
the process to cater and to handle such related issues like hoarding and monopoly. These
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issues would not come into utmost solution if all parties involved do not give full support
and cooperation to the coordinating party. In February 2008, the Prime Minister has
officiated Majlis Harga Negara (MHN) which is lead by he himself. The Majlis
immediately has appointed around 2000 fresh graduates to monitor and assist the
government to cater the crisis. The establishment of MHN is hoped to initiate and supply
solution and provide actions to any matters pertaining pricing issues in our country. The
advisor of FOMCA, Dr. Hamdan Adnan stated that the demand for a governing body to
seriously working towards the duo-justice application on the side of customers and
retailers is needed to be updated. The acts are available like Akta Kawalan Harga 1946,
Akta Perlindungan Pengguna 1999 and Akta Kawalan Bekalan 1961, but these acts need
to be revisited and enhanced in order to be updated with the current problems and
situations.
In Section 3A of Akta Kawalan Harga 1946 stated that The Minister may establish a
National Advisory Council for Consumers' Protection consisting of such representatives
of business, government and other organisations as he may appoint to advise him on the
following matters:
(a) the fixing or control of prices of any goods;
(b) the displaying of marks or labels relating to any goods as required by any order made
under subsection 13 (1);
(c) the maintenance of stockpile of any goods for the purpose of price stabilisation; and
(d) any other matters which may be referred to it by the Minister for the proper and
effective implementation of this Act.
Pricing issues in Malaysia is more to the issue of ceiling price of a product. Thus,
in matter pertaining to the fixing of price ceiling, jurists agreed that the price control
should be borne to the selected products such as in Malaysia referring to 21 pricecontrolled goods in which majority are household products like cooking oil, flour and
sugar. The need for price ceiling is more towards social and economic sustainable of
Malaysian. In matters pertaining to its control, the government and customers should
hand to hand support actively in the process of maintaining the price accordingly and to
ensure that the rights of the customers are fully abided.
Muslims entrepreneurs on the other side, face (so called) difficulties in
determining the right price for the customers. It should be noted that the ceiling prices of
those selected items are the maximum price entrepreneurs can offer to the customers. It is
just a basic guideline for the entrepreneurs in matter pertaining to pricing. Otherwise, if
the entrepreneurs can offer lower than the ceiling price, it would be better on the side of
the customers and a sweet ingredient of social contribution on the part of the
entrepreneurs.
4.0
CONCLUSION
Pricing, monopoly and hoarding are three related issues but need separate discussion.
Pricing on the positive side will inculcate responsibilities among entrepreneurs and
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customers. Monopoly and hoarding are illegal entities but contribute great effects on the
economic sustainability of a county. Therefore, entrepreneurs are accountable for every
price; products and services offered to the customers and at the same time fulfil his
religious responsibility towards Allah the Al-Mighty as Khalifatullah. Customers on the
other side are responsible to always observe and attentive to every transaction made in
order to ensure the contract is Syariah-based in nature and economically supported.
Whatever business activities made by a Muslim, he must always uphold the Tauhidic
principle in order to maintain a good relationship with the All Knowing.
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