*THE ENTREPRENEURSHIP DIMENSION IN MUDARABAH
AND ITS BUSINESS MANAGEMENT IN ISLAMIC BUSINESS
ORGANIZATION
Dr. Ahcene Lahsasna
INCEIF, Kuala Lumpur, Malaysia
The global University in Islamic finance
Shariah & Legal Studies Dept.
[email protected]
Abstract
The entrepreneurship is very important aspect is in economic growth; it is vital part of
any business organization, because it has a great participation to the development of
human capital, business skills and creates a creative environment for the benefit of the
economic, finance and society. As it is known the Entrepreneur is a skillful person
who operates a new enterprise or venture and takes the risks involved to undertake a
business venture to generate profit and return, however to do so the entrepreneur must
be well equipped and efficient in his venture, sharp and professional in the
management of the entrepreneurship which is a key part of his business success and
achievement. As far as the entrepreneurship is concern it is not necessary that the
entrepreneur must be the founder of the business venture but he can be part of it,
obviously the concept of entrepreneur applies to someone who creates value by
offering a new product or service in order to obtain certain revenue which is found in
mudarabah framework. From the Islamic perspective mudarabah as venture capital is
the suitable model to introduce the concept of entrepreneurship, this model was in
existence throughout the history of Islamic business organization, the
entrepreneurship is represented in this respect by mudarib who is a skillful
businessman who handles the task of leading the venture to the success and brings
wealth and prosperity to the partnership. In this respect this paper is introducing the
islamic entrepreneurship through mudarabah framework by providing its shariah
framework, in addition the paper elaborates on the issues of the human capital quality
and ethics which is one of the impediments of the growth of the entrepreneurship and
consider one of the major challenges faces by the industry in this field today.
١
Objectives of the research
This research has a few objectives as follows:
•
•
•
•
Introduce a new conceptual model of an Islamic entrepreneurship base on
shariah framework.
Emphasize on the entrepreneurship dimension in mudarabah contract.
Regulate the Islamic entrepreneurship as a business organization through the
mudarabah framework.
Provide the major pillars of the Entrepreneurship with discussion of its shariah
terms and conditions.
Key terms of the research
1. Mudarabah:
It is a partnership in profit between capital and work. It may be conducted
between investment account holders as providers of funds and the Islamic bank as
a mudarib. The Islamic bank announces its willingness to accept the funds of
investment amount holders, the sharing of profits being as agreed between the two
parties, and the losses being borne by the provider of funds except if they were
due to misconduct, negligence or violation of the conditions agreed upon by the
Islamic bank. In the latter cases, such losses would be borne by the Islamic bank.
A Mudaraba contract may also be concluded between the Islamic bank, as a
provider of funds, on behalf of itself or on behalf of investment account holders,
and business owners and other craftsmen, including farmers, traders etc.
Mudaraba differs from what is known as speculation which includes an element of
gambling in buying and selling transactions. (It is to the former that this standard
applies).1
2. Entrepreneurship:
Entrepreneurship is form of a business organization marshals by a skillful person
who undertakes the management of the organization for carrying on any venture,
trade, industry or service with the objective of invest the capital and earns profit
for the benefit of the organization according to the shariah framework of contract
agree upon.
1
AAOIFI, p. 163.
٢
Introduction
The entrepreneurship exist in the Islamic practice and experience through mudarabah
framework, the prophet him self was the one who adapt this approach and introduce
with its Islamic concept and framework and become a part of our business
organization. The entrepreneurship is not a new concept in Islamic literature it was
enhance and develop throughout the history. However the entrepreneurship concept is
revolving around the person who manages the business and run the enterprise, and
takes the full responsibility of achieving the goals of the venture with the equipped
skills that he has. There are some key factors in the entrepreneurship which are very
important to address as far as the entrepreneurship is concern. The moral hazard factor
which is related to the entrepreneur him self in case that the capital provider is from
other party which make him a trustee person, the factor of the human capital quality
which is related to the entrepreneur as well, which the entrepreneurship depends on it,
because the nature of the this business request a very high skillful person who ensure
the successes of the business and the safety of the capital the good retune of the
investment. The other factor the business plan which gives the confident to the
investor to engage into this entrepreneurship, however it is not necessary that the
business plan is produced by the entrepreneur but it is important the entrepreneur
must have a full understanding on the business plan and has a great faith and believe
on it, the following factor is business management which lead the organization to
achieve its goals, and skill of the management of the human capital to ensure the
appropriate function of each individual involve in the organization, the other factor is
the capital of the entrepreneurship which provide us the nature of the entrepreneurship
whether it is general and restricted, due to the value and the wealth in Islamic and the
high appreciation of the preservation of the wealth and the right of the human being,
the Islamic ruling will differentiate depends on the position of the capital, the other
factors are profit and loss, the formal is the reason behind the creation of the
entrepreneurship and the latter should be avoided as must as possible, however the
whole set up of the entrepreneurship is to ensure profit which increase the capital and
avoid loss which may damage the capital. This paper is trying to provide a unique
approach of the entrepreneurship from Islamic approach base on the Islamic principle
in Islamic commercial law.
1: Concept of mudarabah and entrepreneurship
In order to understand the dimension of the entrepreneurship in mudarabah and
comprehend its framework, it is important to understand the two terms its
relationship, and the Islamic approach of their applications.
1.1. Concept of mudarabah
Mudarabah is one of the financial contacts in Islamic commercial law which has a
concept of profit sharing, with combination of few major components consists from
capital provider who is Rabu Al Mal and labour skill from work person who is
Mudarib (entrepreneur). From the literate point of view the term mudarabah is
derived from al-darb fi al-ard, which means traveling through the land. In fact the
concept of Mudarabah is derived from the Quoranic verses, Allah says: “….others
traveling through the land seeking of Allah’s bounty.” (al-Muzammil: 20). With
respect to this verse the word daraba has been used in the Quran, with the wording of
“Wadribouna fi Al Ard” which means traveling to different place and various
locations and different parts of the world, making journey and trade mission to seek
business in order to generate profit. The tree terms of mudarabah in Islamic
٣
commercial law have been used in the same concept, and therefore they have the
same technical meaning, the tree terms namely are: mudarabah, muqaradah, qirad.
The words qirad and muqaradah are derived from the word qarada which means to
cut off, the relationship between this literature meaning and muqaradah or qirad as
technical meaning is that the fact that rab al-mal cut off a portion of his property and
give it as part of Mudarabah capital and cut a part of his profit to the mudarib, so
there is meaning of Muraqah here, which is cutting a part from capital for the benefit
of the trade and part of profit for the benefit of the Mudarib. On the other hand
Mudarabah is more related to the business activities whereby the Mudarib travel from
one place to another and making trade mission seeking the business to generate profit
for the benefit of the partnership. In this context the Mudarabh emphasises more on
the nature of the labour and business activities, whereas the term of muqaradah
emphasises more on the capital and the profit by providing capital to the business and
share part of the profit with his partner. Although the two terms have different
literature meaning, but from the technical point of view the tree terms mudarabah,
muqaradah and qirad have the same concept in Islamic commercial law. The point
view of Muslim jurist practices mudarabah is known in the language of the Iraqis
while qirad or muqadaradah is known in the language of Hijaz. Further more the
Malikis and the Shafi’is adopted the word qirad, on the other hand Hanafis and
Hanbalis adopted the word mudarabah.2 The schools of law provided various
definition of mudarabah, however in overall view they have comment meaning and
generally they indicate the same concept. For instant the Malikis School of law
defines mudarabah as an agency for trading in delivered cash for a part of profits.3
Whereas the Shafi’is defines it as an agreement whereby an owner hands over the
capital to a worker who trades with it and the profit is to be shared between them.4
The Hanbalis defines it as a contract in which a person gives his capital to another for
business in order to share the profit.5 And finally the Hanafi School of Law defines
mudarabah as a partnership for participation in profit in which capital is provided
from one side, whereas labour or skill (‘amal) is from the other side.6 With regards to
the above definitions we can observe that the definition on Hanafi School is more
comprehensive to the real concept of mudarabah. Al Tahnawi provide a definition by
saying: mudarabah is partnership contract in profit, by providing capital from one
person and the labour from another paerson.7 If we look at the contemporary jurists
we find many other definitions on mudarabah which are basically within the general
concept of the definitions provided by Muslim School of law. For instant Sheik Ali alKhafif in his book the Islamic ruling of Shariah transactions: defines mudarabah as a
contract for sharing the profit of a business in which one party contributes with capital
and other with his labour.8 As we can see from the above definitions some jurist
emphasised on the act of contributing capital and labour from the parties, whereas
other jurists focused on the result and the out put of the venture, whether earning
profits or making losses. The AAOIFI definition has more features to the modern
2
Al mawardi, al hawi al kabir, vol. 7, p. 305. Ibn mandor, lisanu al Arab, vol. 2, p. 22. Kuwait
Encyclopedia Fiqhia, vol. 38, p. 35. Abi Bakr bin Mas'ud al- Kasani, Bada'I' al- saha'I fi tartib alshara'I, vol. 5, p. 9.
3
Kuwait Encyclopedia Fiqhia, vol. 38, p. 38.
4
Ibid., vol. 38, p. 38.
5
Ibn qudama al makdisi, al-kafi fi fiqh Ahmed ibn Hanbal, p. 428.
6
Muhammed Amin al- Shahirba bin Abidin, Hashiyat Rad al- Muhtar, vol. 8, p. 340. See: Kuwait
Encyclopedia Fiqhia, vol. 38, p. 38.
7
Muhammed al Tahanawi, Mawsuat kashaf istilahat al-funun wa al-ulum, vol.2, p. 1559.
8
Ali al-Khafif, Ahkam al-muamalat al-shariah, p. 359.
٤
concept of mudarabah in Islamic banking and finance: It is a partnership in profit
between capital and work. It may be conducted between investment account holders
as providers of funds and the Islamic bank as a mudarib. The Islamic bank announces
its willingness to accept the funds of investment amount holders, the sharing of profits
being as agreed between the two parties, and the losses being borne by the provider of
funds except if they were due to misconduct, negligence or violation of the conditions
agreed upon by the Islamic bank. In the latter cases, such losses would be borne by
the Islamic bank. A Mudaraba contract may also be concluded between the Islamic
bank, as a provider of funds, on behalf of itself or on behalf of investment account
holders, and business owners and other craftsmen, including farmers, traders etc.
Mudaraba differs from what is known as speculation which includes an element of
gambling in buying and selling transactions.9
1.1.2. Conclusion and fundamental rules of mudarabah
With regards to the previous debate and jurist discussion on the meaning of
mudarabah we can conclude some basic rules and fundamental understanding on
mudarabah as follows:
• The mudarabah is the act of one party by giving a part of his property as capital to
a trustee person to work with him as a partner.
• If the joint venture (mudarabah concept) makes a profit, it will be shared between
the two partners according to a certain ratio agreed between them upfront.
• In case mudarabah makes losses, it will be entirely borne by the capital provider
rab al-mal and the other partner mudarib receives nothing for his work.
1.2. Concept of entrepreneurship
The entrepreneurship can be viewed from two different perspectives, the western
point of view and the Islamic perspective as explained below.
1.2.1. Concept of entrepreneurship in the western thought
It seems that there is no clear definition on the concept of the entrepreneur; the
western literature is lack of a conceptual clarity of this term.10 therefore the point of
view of the economists the entrepreneur according to Jean Baptist and J. Schumpeter
is the fourth factor of production who is rewarded by profit for his innovation and risk
taking activity.11 Sociologists on the other hand view the entrepreneur as a deviant
individual who is driven by a number of factors such as personality, family and
society, towards a particular pattern of behavior. Psychologists have turned their
attention to the personal characteristics of the entrepreneur. Philologists focus on the
personal characteristic of the entrepreneur.12 Kets devries view it as an individual with
high need for achievements and autonomy. Other prefer to define entrepreneurship as
an individual who see an opportunity that others do not and marshals the resources to
exploit it.13
The entrepreneur process
The studies of entrepreneurship process in the west can be grouped under three
different approaches. The traits approach, the environmental or sociological approach,
9
AAOIFI, p. 163.
A. Bakr Ibrahim, Willard H. Ellis, Entrepreneurship and small business management, p. 15.
11
Ibid., p. 15.
12
Ibid., p. 15.
13
Ibid., p. 15.
10
٥
and the behavioral approach. The central issue in these three approaches is to
distinguish the entrepreneur from the rest of the population.14
1. Traits approach
The issue in this approach is related to who is the entrepreneur; the internal (traits)
model assumes that entrepreneurs possess certain personality traits, motives and
values that drive them to the choice of an entrepreneurship career. The main
characteristics of this approach are as follows:
• High Need for Achievement
• Risk Taking Propensity
• Tolerance for Ambiguity
• Creativity
• Intuitive
• Flexible
• High Need for Independence and Autonomy
• Self Confidence
• Internal Locus of Control
• Adapt Readily to Change
• Dominance
• Low Need for Conformity.15
2. The Behavioral Approach
This approach is related to the issue of what the entrepreneur does. This approach is
shifting the concept of the entrepreneur from who is? To what the entrepreneur does,
the approach is base on the idea of creation a new organization and its different
functions. The entrepreneur is view from the aspect of the management of the
organization and skills and capability of handling and managing the organization, it is
the person who can effectively marshal resources pursues an appropriate system to
exploit a window of opportunity.16
3. The Environmental Approach
The issue in this approach is related to a cultural Phenomenon; according to this
approach the studies showed that large percentage of entrepreneurs come from
families where the father or the mother is self employed, which means that there is an
influence of the family environment on the creation of the entrepreneurs. Also the
situation of the family or the individual plays a big role in the creation of the
entrepreneurship, especially the difficult situation of the family, therefore the lack of
social mobility are viewed to have been responsible for developing the entrepreneurs.
This includes as well the minority groups in the society.17
1.2. Concept of entrepreneurship from Islamic perspective
14
Ibid., p. 18.
See: Ibid., p. 18.
16
See: Ibid., p. 19.
17
See: Ibid., p. 19.
15
٦
According the western literature defining who is an entrepreneur is a difficult process,
and there is no generic definition of the entrepreneur.18 However some references
defined as an individual who sees an opportunity that others do not, and marshals the
resources to exploit it.19 In the Islamic context from mudarabah perspective the
entrepreneur is a skillfull person who undertakes the management for carrying on any
venture, trade, industry or service with the objective of earning profit for the benefit
of the partnership according to the contract agreement. In this context the
entrepreneurship in mudarabah is confined to the rule of engagement, and its scope is
very restricted and regulated, however in the Islamic context without taking into
account mudarabah as model for entrepreneurship, the concept will be more wider
and entrepreneurship therefore accommodate other rules and regulation and roles for
the entrepreneur. In this regards the entrepreneur will not be a skillfull person who
provides his business experience and market knowledge without participation in
capital, but include as well individuals and partners who undertakes a venture by
formulating a sound organization and an appropriate business plan and business
management to venture in the market by providing services or industry to generate a
halal profit within the rules and regulation of shariah and Islamic commercial law. As
definition we can conclude by saying The entrepreneurship is creation of a sound
business organization by a skillfull person with an appropriate structure and strategy
and management base on business plan in order to run a business and generate for
profit in halal way within the shariah rules and regulation.
2. Type of entrepreneurship and its nature in Islamic concept
From the Islamic perspective the entrepreneurship is viewed in three different
structure and format, the first one is the loose entrepreneurship which is not which is
not under any named contract if Islamic commercial law, but it is under the shariah
jurisdiction, the other twos types of entrepreneurship fall under the contract of
mudarabah. The nature of entrepreneurship is confine to business organization which
excludes the partnership under musharkah, further more the entrepreneurship is
confine to the individual who undertake the task of the business and run and marshal
the resources for the benefit of the organization. If a few individual share capital to
create a business and run it under join venture I will not be entrepreneurship from our
perspective. In this context the entrepreneurship is view with regards to the person
who manage the business regardless on the traits, behaviour, and the environment
which are just a factor for the success of the entrepreneurship not for it creation and
process. Base on this approach the entrepreneurship can be divided into a three
categories which are: General entrepreneurship, unrestricted entrepreneurship within
mudarabah framework and restricted entrepreneurship within mudarabah framework,
or briefly in two major categories: General entrepreneurship, restricted
entrepreneurship (under mudarabah framework).
2.1. General entrepreneurship
The General entrepreneurship is not confine to any particular contract in Islamic
commercial law, but it is within the shariah framework, which means the General
entrepreneurship is regulated and governed by the shariah rules, however the only
feature of this General entrepreneurship which distinguishes it from the restricted
entrepreneurship is that in the latter the capital is provided by third party, whereas in
18
19
Ibid., p. 15.
Ibid., p. 15.
٧
the formal the capital is provided by entrepreneur him self regardless from where he
obtained it, whether from inheritance or gift. Therefore the restriction is related to the
source of the capital.
2.2. Unrestricted entrepreneurship within mudarabah framework
The unrestricted entrepreneurship refers to the unrestricted mudarabah whereby the
capital is handed over to the entrepreneur without determination of the type of work
or the nature of the business that is to be done, therefore there is no restriction of the
location, the time, type of investment, method of payment from the client (cash or
credit), the quality of work and the person with whom to trade, etc. So it is up to the
discretion of the entrepreneur to run the business and manage the entrepreneurship
according to his expertise and experience and skills as trustee person. The authority of
entrepreneur in this respect is absolute; he is permitted to undertake all type of
business transactions, which are normally allowed in commercial usage and market.
2.3. Restricted entrepreneurship within mudarabah framework
The restricted entrepreneurship refer actually to the restricted mudarabah which has
been defined by AAOIFI standard as: “a contract in which the capital provider
restricts the actions of the mudarib to a particular location or to a particular type of
investment as the capital provider considers appropriate, but not in a manner that
would unduly constrain the mudarib in his operations.”20 There is an argument among
the jurists regarding this approach of entrepreneurship, whereby the capital provider
impose some restriction and limit the activities of the entrepreneur, The restriction to
purchase goods from a particular place only is valid according to the Hanafis and
Hanbalis but invalid according to the Malikis and Shafi’is.21 On the other hand the
Hanafis argue that this restriction might be valid economically as some goods might
be more expensive, generally, in one place compared to the other. The Malikis and
Shafi’is, argue that this kind of restriction may cause difficulties to the mudarib as
entrepreneur as he may only find the thing which is necessary to the business only in
the place in which he is prohibited from dealing with. The Hanafis and Hanbalis allow
the rab al-mal to stipulate some conditions that the mudarib has to deal with specific
individuals only. They justify this through the possibility of reducing business risks
by restricting the set of individuals with whom the mudarib deals.22 The Malikis and
Shafi’is refuse to recognise this restriction as they view this as unnecessary in
mudarabah contract.23 The Hanafis and Hanbalis allowed the rab al-mal the person
who engages entrepreneur to specify a period after which the contract becomes void.
The Malikis and Shafi’is, on the other hand, consider this kind of restriction to
invalidate the contract of mudarabah. The parties have all the right to withdraw from
the contract of entrepreneurship at all times. It only means that after the elapse of the
time, the entrepreneur is not entitled to continue performing the act of
entrepreneurship to the venture anymore. This rule has been modified in modern
times. Most contemporary jurists allow fixation of time in which early withdrawal is
not allowed at all.
20
AAOIFI. See: Whabah al –zuhayli, Al fiqh al Islamic wa-adilatuh, vol.4, p. 840. Imran Ahsan Khan
Nyazee, Islamic law of business organization partnerships, p. 265.
21
Kuwait Encyclopedia Fiqhia, vol.38, p. 38-39. See: Whabah al –zuhayli, Al fiqh al Islamic waadilatuh, vol.4, p. 840.
22
Ibn Rushd, Bidayat al- mujtahid wa- hikayat al- muqtasid, vol.5, p. 166. Kuwait Encyclopedia
Fiqhia, vol. 38, p. 38.
23
Ibn Rushd, Bidayat al- mujtahid wa- hikayat al- muqtasid, vol.5, p. 166.
٨
The AAOIFI standard also accepts this practice, restrictions that the mudarabah
venture will deal in certain types of merchandise or in certain investments only is
acceptable by contemporary jurists.
Basically the restricted the entrepreneurship will govern and limit the
entrepreneurship scope by the stipulations of conditions imposed by the capital
provider, the two partners will be will governed in the following important matter as
follows:
• Liability of the partners for the debts of the entrepreneurship.
• Liability of the investors and the worker for the debts of the entrepreneurship
before istidanah and before commencement of transactions.
• Liability after purchase, but before wilayat al-istidanah.
• Liability after purchase, but before the realization of any profit.
• Liability after purchase and after realization of the profits.
• Liability of the rab al-mal and the entrepreneur for the debts after lawful
insidanah.24
3. Pillars & structure of entrepreneurship
The fulfillment of the the pillars requirement will lead to the successful of the Islamic
entrepreneurship. Typically the entrepreneurship under mudarabah agreement is
structured as follows: The capital provider, The entrepreneur, The capital, The
business plan and the business management and the profit.
1: First pillar: The capital provider of the entrepreneurship
The capital provider in the entrepreneurship is the key to determine its nature,
therefore id the capital provider is the entrepreneur him self it is general
entrepreneurship, whereas if the capital is provided by other party it will be restricted
entrepreneurship under mudarabah framework.
2: Second pillar: The entrepreneur
The entrepreneur is the skillful manager who runs and manages the business and
realizes the achievement of the venture. The entrepreneurship should start with a
suitable business that helps to growth and expand the business gradually, therefore it
is important for the entrepreneurship to start with small business, no one can argue on
the importance of small business as a fact, "small business plays a crucial role to both
the stability and health of the national economy. Approximately 97 percent of all
business in the United States and Canada are categorized as ‘small’. As a group, small
business employs nearly 60 percent of the work force, produces 45 percent of the
gross national product and creates approximately two thirds of the new jobs". 25
The position of entrepreneur in mudarabah contract is very critical due the substantial
responsibility he holds especially with regards to the capital in his hand as trustee,
however the responsibility became more critical with the statistic we have that 80% of
all start ups fail within the first five years of operation.26 Two major requirements for
the entrepreneur to have in order to succeed in his business: The Entrepreneurial
Traits and Managerial Skills and Competence which are discuss very firefly below:
24
For details see: Imran Ahsan Khan Nyazee, Islamic law of business organization partnerships, p.
265-273.
25
Entrepreneurship, 3.
26
Ibid., p3.
٩
The Entrepreneurial Traits
Psychological Make-up
•
•
•
•
•
•
•
•
•
and
Managerial Skills and Competence in
the following areas:
High Need for Achievement
Moderate Risk Taking
The Creativity
Flexibility
Commitment
Pro-active
Intuition
Confidence
Sense of observation
•
•
•
•
•
•
•
Strategy
Cash Flow Management
Strategic Planning
Accounting & Record Keeping
Marketing
Networking
Delegation of Routine Activities
1. Management skill and competence of the entrepreneur
The management skills and competence include management of cash flow, systematic
accounting and record keeping systems, niche strategy, strategic planning,
networking, delegation and marketing skills.27
•
•
27
Management of Cash Flow: management of cash flow is crucial to the
entrepreneur’s success. Indeed, profits do not guarantee a healthy cash flow
situation especially if the firm is growing rapidly without prior financial
planning.
The successful
Entrepreneur
Financial planning: is critical in all stages of the operation but more
important in the infancy and rapid growth stages.
•
Monitoring the Inventory Level: Monitoring the inventory level is crucial to
the effective management of the new venture. Inventory level affects
operation, scheduling, manufacturing cost and the overall profit picture of the
firm.
•
Networking: The ability to build and maintain a network of contacts is critical
to the entrepreneur’s success. Networking is a process that may take years
before the entrepreneur can reap its benefits. Two types of contacts form the
entrepreneur’s network. The first is the formal type such as those contacts
established with bankers, Provincial and government officials, legal and
financial experts. The second type is the informal type of contacts such as
family members, colleagues and friends. Both types are important in providing
the entrepreneur with a pool of information and advice.
See: Entrepreneurship, p.6-9.
١٠
•
Strategic Planning: strategic planning system is crucial to successful
entrepreneurs. A strategic planning system helps the firm identify its
objectives, mission, assess its internal capacity and its external environment.
Internal assessment of the strengths and weaknesses and external evaluation of
windows of opportunity as well as constraints give an indication of the firm’s
real capacity to carry out the intended mission successfully, and may suggest a
more attractive and less competitive niche.
•
Distinctive Competence: In a highly competitive business environment only
those firms that have established distinctive competence will succeed.
Distinctive competence refers to the unique skills, activities and operation that
the businesses have, compared with rivals. Distinct competence in a specific
area such as product, cost efficiency, marketing and management skills allows
the firm to build a competitive advantage.
•
Accounting Skills: A systematic record keeping system is of little use unless
the entrepreneur has a good knowledge and understanding of accounting and
finance techniques. Studies have shown that accounting skill is critical to
small business success. Accounting techniques such as break-even analysis,
depreciation and inventory methods, ratio analysis, cash flow projection, and
sensitivity analysis are crucial to the small firm.
Marketing Skills: Management competencies include marketing skills. The
flow of goods and offering of services to fulfill the needs and desires of
customers are fundamental to the successful operation of the venture. Indeed,
today’s entrepreneur is expected to have a good understanding of the
marketing functions. In a highly competitive business environment, an
effective marketing strategy is the key to a successful business. Marketing
skills include the ability to position the product or service competitively, to set
an effective pricing and promotional strategy. They also include market
research and marketing planning.28
The above skills are very important for the successful of the entrepreneurship;
however the moral aspect is the core issue of our entrepreneurship model, and
basically the entrepreneurship in modarabh framework can not growth and be
promoted is the moral aspect is missing, obviously the entrepreneur in the modarabah
framework is a trustee person, therefore he should be honest, trustworthy and can
attract the confident of the capital provider. In is important to emphasize on the moral
and conduct dimension in the entrepreneurship to ensure the preservation of the
wealth, and the safety of the capital and the investment and exact return of the
business.
•
2. The role of the entrepreneur if the Islamic finance:
In the western context the entrepreneur has two major roles in the corporate world,
innovation and risk taking, and management and coordination.
1: Innovation and risk taking: The entrepreneur is the creative wellspring for the
enterprise, and he understands its purpose and can best devise methods that are
untried or unconventional.
28
Ibid., p. 8.
١١
2: Management and coordination: Marshalling and controlling the resources needed
in order to the venture to survive, the entrepreneur formulates the organization
strategy, and selects the appropriate structure and management process to exploit the
window of opportunity.29
However in the Islamic context the role of the entrepreneur is very vital especially if
we are talking within the framework of mudarabah because it is base on trust without
take the risk of guarantee the capital of the venture.
3. Responsibility of the entrepreneur from Islamic perspective
The entrepreneur is responsible to do his best efforts by providing his skill.
Knowledge and expertise in order to exploit the window of opportunity, and realize
the objectives of the entrepreneurship. As he is a trustee entrepreneur he is playing a
great role for assuring that the capital invested will be used in the finest manner to
achieve the goals of the entrepreneurship and generate a great profit.
1. Entrepreneur has the right to trade in all types of merchandise:
The entrepreneurship has the right to trade by buying and selling all type of goods and
commodities and engage in all type of business transactions according to the market
custom, since the entrepreneurship within the framework of mudarabha is very unique
compare to other type of entrepreneurship, the jurists have agreed that in buying the
entrepreneur can buy whatever merchandise provided that the price that he paid for it
is less or equal to the market value of the merchandise, whereas in selling some jurists
impose some restriction on the ground that the entrepreneur is bound by the interest of
the capital provider. In this respect Abu Hanifah opines that the entrepreneur who is
in this position the mudarib may sell on cash or credit even with prices that are
excessively lower that the market value.30 On the other hand, Abu Yusuf, Muhammad
al-Shaybani, the Shafi’is and the Malikis view that he is not allowed to sell at credit or
to sell it excessively lower than the normal price, the mudarib can only sell it at a
reasonable price accepted by the practice of the merchants.31 The Hanbalis allow the
mudarib to trade cash or credit, but within reasonable market prices.32
2. Entrepreneur has to use means to facilitate his business: The entrepreneur has
the right to use appropriate facilities for the benefit of his business in order to succeed
in this operation, therefore he may rent or buy animals, vehicle, equipments as far as
those are part from his business requirement. In order to the entrepreneurship achieve
its goals and success the capital provider should not restrict the entrepreneur's action
in such a way to disturb his business management, and prevent him from achieving
the objective of entrepreneurship. The two parties should not violate Islamic shariah
rules, meanwhile the entrepreneur should abide by the conditions set by the provider
of funds, if he is working under restricted entrepreneurship model, provided such
conditions imposed are stipulated in the entrepreneurship agreement and do not
contradict the mudarabah contract.33
AAOIFI stipulate some ruling pertaining to work of mudarib who is the entrepreneur
under the mudarabah approach, this includes some type of activity as follows:
29
Ibid., p. 16.
Kuwait Encyclopedia Fiqhia, vol. 38, p. 61-62.
31
Ibid., vol. 38, p. 61-62.
32
Ibid., vol. 38, p. 56.
33
AAOIFI, p.153.
30
١٢
1: Type of activity. Shafis limit mudaraba only to trade. However, other Fuqaha
permit all types of profit oriented activities, e.g., trading, industrial, agricultural or
services.34 Regarding the actions of the provider of funds in Mudaraba, according
to AAOIFI will be as follows:
• Actions related to decision taking, e.g. selling and purchasing. Such work
may not be stipulated in the contract according to the opinion of the
majority of Fuqaha. However, even if the provider of funds carries out
such work without stipulation, some Fuqaha permit it because be performs
it while being under the mandate of the mudarib.
• Purchasing of services from the provider of the funds, e.g., warehousing
and transportation services. This is considered permissible by some
Fuqaha.
• Dealing by the provider of funds, together with the mudarib, using
mudaraba funds, e.g., selling or purchasing. This is considered permissible
by some Fuqaha.35
3: Limits of the entrepreneur actions as to the venture funds:
This is very important aspect due to the relationship between the limit action of the
entrepreneur. AAOIFI stipulated some standards pertaining to the limits of the
entrepreneur actions as to the entrepreneurship funds, actions which the entrepreneur
has the right to perform by virtue of the contract. These are the main and subsidiary
work of the activity
• Actions which the mudarib (entrepreneur) has the right to perform by virtue of
a general power of attorney. These are the actions that have no relation to the
main activity, but assist in the investment process, e.g., commingling of the
mudaraba funds with the mudarib’s (entrepreneur) own funds
• Actions which the mudarib (entrepreneur) does not have the right to perform
except by an explicit permission from the provider of the funds. For example,
actions which are not conducive to earning a return on the funds; the creation
of new obligations on the provider of funds, such as borrowing on the
mudaraba fund account.36
4. The entrepreneur, and keeping the property as deposit or pledge.
As part of the business the entrepreneur may deposit some of the property as pledge
due to some certain circumstances, the Hanafi allowed this action from the
entrepreneur, however the Malikis disallowed this on the grounded that this action
may jeopardise the contract and expose the venture to risk and danger. According to
Maliki the entrepreneur will be liable for this action and he has to guarantee the
capital in case of damage. In the current business scenario the jurist allowed pledging
as part from the business due necessary of pledging in business.
5. The entrepreneur and traveling with the capital.
Traveling is part of the business in order to seek business apportunity to generate
profit for the best of the venture, base on this ground the scholars permit the
entrepreneur to travel with the capital as he is trustee even without the permission of
the capital provider. This is the point view of Malikis, Hanafis and some of the
34
Ibid., p. 154.
Ibid., p. 154.
36
Ibid., p. 154.
35
١٣
Hanbalis, on the other hand the shafis and most of the Hanbalis opine that a that
specific permission has to be obtained from the capital provided before the
entrepreneur can travel with the capital.37
6. The main activities of the entrepreneur:
The main activities of the entrepreneur as follows:
• If a mudarabah contract is concluded on an unrestricted basis, the mudarib is
permitted, in general, to do what mudaribs do in his field of activity, including
the following:
• Attending to all permissible investment or trading fields that are feasible,
given the amount of the capital at his disposal, and in which he believes that
his expertise and technical and professional qualifications are likely to give
him the ability to compete effectively;
•
•
•
•
Carrying out the work himself or appointing another person to carry out some
work, if necessary, such as buying a commodity or marketing it for him;
Choosing as far as possible appropriate places and markets that is seemingly
free of risks;
Safeguarding the mudarabah funds or depositing them in the custody of a
trustworthy person, whenever appropriate;
Selling and buying on a deferred payment basis.
7. Situation whereby the entrepreneur guarantee the capital of the investment:
As far as the entrepreneur is concern in this business setup under the contract of
mudarabah the entrepreneur is a trustee in respect of the capital that comes to his
hand. Therefore he cannot bear any losses in the business, only upon negligence. Or
in case he contrary to the terms and conditions of the restricted entrepreneurship. This
shariah point of view is held by Malikis and Shafi’is and an opinion from Ahmad,
they opine that entrepreneur is not responsible to guarantee the losses as regard the
capital in the mudarabah partnership, as far as the entrepreneur is acting within the
terms and conditions of the contract. In case that the capital provider impose condition
that the entrepreneur is liable in respect of the fund in his hand, the contract of
entrepreneurship become invalid, only the the Hanafis and the Hanbalis are of the
opinion that the contract is valid, but the condition is deemed to be void. In fact in
entrepreneurship fault, negligence and not following the instruction of the capital
owner in restricted contract are the major reasons to guarantee the capital of
entrepreneurship under Mudarabah contract. Because in case of restricted
entrepreneurship the entrepreneur is bound to follow the restrictions imposed upon
him.
8. Disturbing the management of the entrepreneur:
The nature of restricted entrepreneurship required that the capital provided is not
allowed to intervene in the management of the business venture that he has entered
into. Therefore the provider of the fund cannot stipulate a condition of his
involvement in the entrepreneurship. However if the contract agreement contains a
clause or condition which allow the provider of the fund to take part in the
management, the contract of entrepreneurship will be invalid. Only the Hanbali
37
Kuwait Encyclopedia Fiqhia, vol. 38, p. 56.
١٤
School of accommodate this arrangement.38 This is one of the serious challenge of the
entrepreneurship contract due to the risk of the capital, especially if the capital
provider in this venture is the bank, usually the bank is very concern about the safety
of the capital and fear of misappropriation of capital by the entrepreneur, however the
financial; institution may supervise the venture and monitor the business in overall in
order to mitigate the risk..
9. The nature of the entrepreneurship contract under the mudarabah:
The entrepreneurship is non-biding contract and the engagement of the entrepreneur is
base on his skills and business experience, and the provider of the funds is engaging
the entrepreneur base on his honesty, business skill and trust. Therefore the
entrepreneurship contract is a non-binding contract (’aqd ghayr lazim), and both party
have the right to terminated the agreement at any time. According to Abu Hanifah, alShafi’i and Ahmad ibn Hanbal the agreement is non-binding even after the
commencement of the activities of the entrepreneurship contract. In this case if the
entrepreneur requests selling the capital, the capital provider is forced to sell so that
the entrepreneur may collect his rightful share of profits. On the other hand Imam
Malik ruled that once the work begins, the contract becomes binding on both parties.
Because dissolving the contract in this situation may harm the other party and may
lead to losses. The AAOIFI standard on this matter follows the opinion of the Malikis.
It maintains that one of the situations in which the contract becomes binding upon
parties in mudarabah is: “When the mudarib has already commenced the business, in
which case the mudarabah contract becomes binding up to the date of actual or
constructive liquidation”.39 However this issue is not addressed in the general
entrepreneur because the capital is provided by the entrepreneur him self.
10. Principles and rules of entrepreneur under mudarabah agreement
There are some principles and shariah rules govern the entrepreneurship which are:
• The entrepreneur provides the management for carrying on any venture, trade,
industry or service with the objective of earning profit.
• The entrepreneur in certain business activities for the purpose of generating
profits to be distributed between them.
• The entrepreneur will share his percentage of profit in accordance with their
agreement, one-third, or one-fourth or one-fifth
• The entrepreneur who does not partake in the capital contribution does not
share the losses. His loss is in the form of losing out his time and efforts
• The entrepreneur is allowed free access to the capital, even though no actual
delivery of the capital has taken place
• The entrepreneur is bound to follow the restrictions imposed upon him
• If the capital provider stipulates that the entrepreneur is to extend his labour to
sectors other than trading, the entrepreneurship will become invalid
• The entrepreneur must run the business according to his expertise and
experience.
• The entrepreneur cannot commit the rab al-mal beyond the capital provided in
the venture.
• The entrepreneur manages to get a buyer other that those allowed by rab almal, who offers a better price than what they are willing to offer.
38
39
Kuwait Encyclopedia Fiqhia, vol. 38, p.64.
Ibid, p. 38.
١٥
3: The third pillars: Capital of the entrepreneurship
There are some rules and regulations govern the capital in the entrepreneurship within
mudarabah framework, these rules are provided and regulated by AAOIFI standards
as follows:
1: Recognition of entrepreneurship capital at time of contracting
There are some rules related to recognition of entrepreneurship capital at the time of
contracting which are:
• The capital of entrepreneurship under Mudaraba can be in form of cash or
kind, and shall be recognized when it is paid to the entrepreneurship or placed
under his disposition.
• The capital in the entrepreneurship is to be paid in instalments, then each
instalment shall be recognized at the time of its payment.
• If the conclusion of a entrepreneurship contract is contingent on the
occurrence of an event in the future or is delayed to a future time, and the
payment of the Mudaraba capital is conditional upon the occurrence of that
event or the falling due of that time, then the entrepreneurship capital shall be
recognized only when it is paid to the entrepreneur.40
2: Measurement of entrepreneurship capital at the time of contracting
The measurement of entrepreneurship capital can be articulated as follows:
• The entrepreneurship capital shall provided in cash by the Islamic bank shall
be measured by the amount paid or the amount pieced under the disposition of
the entrepreneurship, this in the case that the provider of the capital is an
islamic bank, but the provider of the capital can be individual or corporate
party..
• entrepreneurship capital provided by the Islamic bank in kind (trading assets
or non-monetary assets for use in the venture) shall be measured at the fair
value of the assets (the value agreed between the Islamic bank and the client),
and if the valuation of the assets results in a difference between fair value and
book value, such difference shall be recognized as profit or loss to the Islamic
bank itself.
• Expenses of the contracting procedures incurred by one or both parties (e.g.,
expenses of feasibility studies and other similar expenses) shall not be
considered as part of the entrepreneurship capital unless otherwise agreed by
both parties. 41
3: Measurement of entrepreneurship capital after contracting at the end of a
financial period.
These measurements are articulated as follows:
• Entrepreneurship capital shall be measured after contracting. However, any
repayment of the entrepreneurship capital, if any, made to the Islamic bank
shall be deducted from the entrepreneurship capital.
• If a portion of the entrepreneurship capital is lost prior to the inception of work
because of damage or other causes without any misconduct or
negligence on the part of the entrepreneur, then such loss shall be deducted
40
41
See: AAOIFI, p. 145.
See: AAOIFI, p. 146.
١٦
•
•
from the entrepreneurship capital and shall be treated as a loss to the Islamic
bank. However, if the loss occurs after inception of work, it shall not affect the
measurement of entrepreneurship capital.
If the whole entrepreneurship capital is lost without any misconduct or
negligence on the part of the entrepreneur, the entrepreneurship shall be
terminated and the account thereof shall be settled and the loss shall be treated
as a loss to the Islamic bank.
If the entrepreneurship is terminated or liquidated and the entrepreneurship
capital (taking account of any profits or losses) is not paid to the Islamic bank
when a settlement of account is made, the entrepreneurship capital (taking
account of any profits or losses) shall be recognized as a receivable due from
the entrepreneurship.42
4: Condition of capital
The capital in entrepreneurship is the amount of money given by the provider of funds
to the entrepreneur with the purpose of investing it in the entrepreneurship activity.
The following conditions should be satisfied:
• Capital should be known as to amount and type (i.e., currency).
• Capital should be in cash. However, it is considered permissible by some
jurists that the capital of a Mudaraba be in trading assets (e.g. inventory), At
the time of contracting, the value of such assets or their historical cost shall be
considered as the Mudaraba capital.
It is considered permissible by Hanbalis to provide non-monetary assets (e.g.,
planes, ships) for Mudaraba capital. The entrepreneur invests these assets and
shares the returns from investing them with the provider of funds. The
entrepreneur should return the assets to the provider of funds at the end of the
contracting period.
• Capital can not be in the form of debt (due from a third party or the
entrepreneur). Rather, capital should be readily available for use in cash or
kind.
• The entrepreneurship capital should be paid to the entrepreneur. Fuqaha differ
on what constitutes payment. Some Fuqaha are of the view that payment
should be made by transferring the funds from the provider of funds to the
entrepreneur, while other Fuqaha are of the view that payment means enabling
the entrepreneurto have disposition of the capital. However, contracting can be
made in respect of the whole capital and the payment thereof to the
entrepreneur may be made in several instalments. 43
4: The fourth pillars: Profit and loss in the entrepreneurship
The entrepreneurship is exposed to profit and loss, therefore there are rules related to
these two aspects articulated as follows:
The profit in entrepreneurship is the amount earned in excess of capital. Profit is the
end objective of entrepreneurship. The following conditions of profit should be
satisfied:
• It should be for both parties, and no one party should have possession thereof
without the other.
42
43
See: Ibid, p. 146.
See: AAOIFI, p. 152.
١٧
•
•
The proportional profit share of each party should be known at the time of
contracting and it must be as a percentage of profit. The share of the
entrepreneur should be explicitly stated at the time of contracting. However, it
should be known that it is permissible to adjust the percentage of profit
allocation between the two parties at a subsequent point in time.
The provider of funds bears all losses incurred from the entrepreneurship, and
the entrepreneur shall not bear any portion thereof unless it arises from his
misconduct or negligence. 44
1. Ruling pertaining to profit
There are some important rulings regarding the profit in entrepreneurship, which is
explained below within the AAOIFI standards.
•
Realization of profit: It is the time at which it can be established that profit is
achieved in a entrepreneurship. According to the Islamic Fiqh Academy,
profits are due when realized, and owned by declaration or revaluation and
become payable only upon distribution.
•
Entitlement to profit: Hanafis, and some Shafis, say that profit should be
recognized on a realization basis, whereas the Malikis, some Hanbalis, believe
that profit should be recognized only when distributed between the two
parties, i.e., on a cash basis.
•
Distribution of profit: Distribution of profit is conditional upon its
realization, on agreement as to the basis of allocation and on returning the
capital to the provider of the funds. Nevertheless, if both parties agreed to
distribute profit without returning the capital, i.e., during the life of the
entrepreneurship then that is permissible according to majority of Fuqaha.
However, Fuqaha have differed on the permanence of the possession of the
distributed profit for both parties i.e., the extent to which future losses can be
made good from the distributed profits. In this case, the entrepreneur would be
asked to meet such losses out of the profit that had been distributed to him,
and the amount distributed to the provider of the funds should be treated as a
deduction from the capital.45
2. Rulings pertaining to losses in entrepreneurship
There are some rules pertaining to losses in entrepreneurship which are explained
below within AAOIFI standards.
•
•
44
45
Losses are borne only by the provider of the funds, and the entrepreneur does
not bear any portion thereof unless the loss was due to his misconduct or
negligence. Fuqaha are in agreement on this.
Net losses at the time of winding up a entrepreneurship are considered as a
decrease in the entrepreneurship capital, and the entrepreneur shall return the
remainder of the capital after deducting the loss All Fuqaha are in agreement
on this.
See: Ibid, p. 153.
See: AAOIFI, p. 155.
١٨
•
•
•
•
In continuous entrepreneurship, Periodic losses incurred in the course of a
continuous entrepreneurship shall be set off against previously earned profits
that have not been distributed between both parties, if any. All Fuqaha are in
agreement on this.
In a continuous entrepreneurship, periodic losses that cannot be set off against
previously earned and undistributed profits shall be held in suspense until
profits are realized thereafter and set off against them. Such profits shall not be
distributed until the losses are made good. If no profits are earned thereafter or
if the earned profits do not cover these losses until the end of the contract, the
losses shall then be treated as stated in All Fuqaha are in agreement on this.
Periodic losses incurred in the due course of a continuous entrepreneurship
and preceded by earned profits that had been distributed shall be compensated
therefrom according to the principle of non- permanence of the distributed
profit.
Loss of the entrepreneurship fund. If all of the entrepreneurship fund is lost
before or after the inception of activity, it shall be treated as an ordinary loss
and borne by the provider of funds unless the loss incurred was due to
misconduct or negligence by the entrepreneur.46
5: The fifth pillars: The Business Plan of the entrepreneurship:
The Business plan is one of the structures of entrepreneurship, and considers one of
the major aspects of any entrepreneurship or business venture. The business plan in
entrepreneurship may give it credibility or damage the business operation, the
business plan become very significant and vital in case of financing, especially in the
entrepreneurship under the mudarabah contract which the capital provider is
providing the capital base on the appropriate presentation of the business plan. The
business plan, provides the confident and convince the capital provider to believe in
the entrepreneurship scheme under mudarabah, therefore if the business plan is not
well structured and well presented obviously the capital provider will not engage the
entrepreneur to handle the project or the venture.
1: The importance of preparing a business plan
The business plan is one of the important stages towards a successful entrepreneurship
this importance is supported by a very strong reason as follows:
1. A well thought-out, carefully prepared business plan is a valuable vehicle to
introduce the entrepreneur and the small business management to different sources
of financing, such as venture capital firms, bankers and investors.
2. It provides the entrepreneur and the small business management with a tool for
assessing the window(s) of opportunity and its own economic viability.
3. It allows the entrepreneur and the small business management to conduct an indepth analysis of the venture’s internal and external capabilities.
4. It allows the entrepreneur and the small business management a means of
assessing the opportunity in light of the venture’s capabilities. .
5. The business plan is an excellent vehicle for self-assessment. It enables
entrepreneurs to assess their strengths and weaknesses.
6. It forces the entrepreneur or the small business management to formulate its
objectives in a more realistic fashion.
46
AAOIFI, p. 155.
١٩
7. It forces the entrepreneur and the small business management to get involved in
strategic thinking at an early stage of operation.
8. It is an essential document for going public and approaching underwriters.
9. It provides direction in the early days of operation.47
2: Recommended steps of business plan in entrepreneurship
The business plan in entrepreneurship should include the important components ad
follows:
1. The idea, or the window of opportunity, as well as the business concept should be
clearly stated in terms that are not ambiguous.
2. The economic viability of the idea or opportunity should be demonstrated.
Accounting techniques such as break-even analysis, sensitivity analysis and ratio
analysis may be utilized to give a more effective indication of the soundness of the
opportunity.
3. The legal form of organization, should be determined. Examines the different
legal forms and key factors to consider before selecting the appropriate form.
4. The personal objectives of going into business must be clearly stated. While the
economic viability of the business concept is crucial, personal satisfaction of the
entrepreneur could be equally important.
5. Self assessment of the entrepreneur’s strengths and weaknesses, including skills,
education, qualifications and prior business experience, is essential. The business
plan is an excellent medium to introduce the entrepreneur and his or her team to
potential investors.
6. Assessment of the market, including the industry, trends, competition, potential
for growth, windows of opportunities or market niches to be exploited later on.
The entrepreneur may utilize market research and techniques such as gap analysis,
to support his or her argument.
7. Determine the marketing strategy, in particular, benefits to customers,
segmentation and pricing strategy. The entrepreneur may conduct a market
survey, analyze trends and/or review trade magazines to give credence to the
selected strategy.
8. Assessment of the external and internal capabilities of the venture to exploit the
opportunity. This includes assessment of the skills and resources (strengths and
weaknesses) as well as opportunities and threats from the external environment.
Indeed, the business plan gives the entrepreneur an excellent opportunity to scan
the external environments for opportunities such as new markets, subsidies or
even tax exemptions. It also allows the entrepreneur to assess the external threats,
such as cut-throat competition and new trends.
9. The deal structure should be clearly stated. Investors may want to know the
amount of financing required.
10. A section on risk assessment should be included in the business plan. Discussing
opportunities and the positive side of the venture may give the sophisticated
investor a negative perception of the plan. The business plan must also include a
section on how the entrepreneur is going to deal with potential risk elements. In
other words contingency plans must be included.
11. The financial plan and assumptions should be documented. This includes a
monthly cash flow projection to demonstrate when the business will be able to
47
A. Bakr Ibrahim, Willard H. Ellis, Entrepreneurship and small business management, p.23.
٢٠
generate a positive cash flow. It also includes pro-forma financial statements for
the next 2 to 4 years, including income statement and balance sheet. 48
3: Key factor in the business plan:
In order to attract the confident of the capital provider (Rabu al mal) or the financial
institution it is highly recommended to carefully prepared and write an appropriate
business plan which can gain the confidence of capital provider or the investors.
Theses important factors are explained below as follows:
1. A business plan should be well documented; the more detailed a business plan
the more comfortable the potential investor will feel. It also gives an
indication that the entrepreneur is serious and has done his homework and is
not going to waste the investors’ money.
2. A business plan should look and read professionally; sloppiness in writing and
calculations of the financial analysis carry a very negative image to potential
investors.
3. Ambiguity should be avoided. It may be an indication that the entrepreneur is
trying to deceive potential investors.
4. A large contribution of the entrepreneur’s own fund, or resigning his job to
work for the venture is an indication of seriousness of intent.49
4: Starting a Business
Based on interviews with a number of entrepreneurs, Joshua Hyatt outlines five
basic issues:
1. Acceptability of the idea: According to Hyatt, it doesn’t matter how many
hours you spend preparing your business plan. What really counts is if
customers are willing to spend money to buy your product or service.
Therefore, market research is critical.
2. Management skills: self assessment is critical. It allows would be
entrepreneurs to know their strengths and weaknesses and thus find the right
people to complement their skills. Mentors, board members and advisers could
provide the needed skills.
3. Money: money is not the only reason for starting business. Other objectives
such as managing the business or going public could be equally satisfactory.
In essence you have to identify clearly your objectives of going into business.
4. Risk: Successful entrepreneurs are risk aversion. Many entrepreneurs feel that
working for employers were more riskier than starting a business.
5. Family: Starting up a business may be stressful to many entrepreneurs as they
have to spend less time with their families, in addition to the possibility of
risking the family income. Therefore entrepreneurs should have a frank
discussion with their families.50
6: The sixth pillars: the business management of the entrepreneurship
The business management is a sequencing activities and events so that things turn out
the way the entrepreneur or manager wants them to be.51 Therefore the business
management is one of the important aspect of the entrepreneurship, the business
48
See: Ibid, p. 24-25.
Ibid, p. 27.
50
Source: Joshua Hyatt, “Should You Start a Business,” INC., February 1992, pp. 48—58.
Entrepreneurship, p. 27.
51
Ibid, p. 39.
49
٢١
management ensure the successful of the business, and shown the capability and the
skills of the entrepreneur to lead the entrepreneurship to the success. Therefore I
briefly discuss the major ingredient of this aspect in the Islamic entrepreneurship
context. The major components of business management in entrepreneurship which
are: strategic planning, financing, human resource, and marketing. With the
observation of all these mentioned the entrepreneurship may reach its goals.
1. Planning: planning can be described as a process by which the entrepreneur
systematically evaluates the internal and external capabilities of his business to carry
out the intended mission successfully.52 Therefore without the planning the
entrepreneurship can not function in proper manner and the successful can not be
ensured. Because the planning will link the past, the present and the future thought a
professional assessment to be a guidance and manual for the business operation of the
entrepreneurship.
2. Strategy: it is another important aspect in the business management, and basically
the planning is the outcome of the strategy, the strategy is base on many factor related
to the external environment of the entrepreneurship and related as well to the internal
environment of entrepreneurship, such as economic trends and condition, industry
structure, the skills of the management, quality of resources in entrepreneurship ect.
Therefore the strategy is a process of thinking and evaluation and assessment and
making decision process base on the goals of the management, the decision will be
influence by the internal and external environment of the entrepreneurship.
3.Financing: the finance is a one of the vital aspect in any business including
entrepreneurship, it is the ground of the business and without financing the
entrepreneurship will no go far away, and realize the growth gradually, in the
entrepreneurship under the concept of modarabah the financing is provided by rabu al
mal who is the capital provider, however to attract the attention of the capital provider
or other potential investor and engage them is the entrepreneurship, the business plan
should be well presented and comprehensive to convince the rabu al mal to engage
into entrepreneurship. There is a strong link between the business plan and financing,
and basically we can say that the financing is one component of the business plan,
because it gives the needed budget and financing for the project under
entrepreneurship and it define the objective and the tools and means. The finance
aspect in the entrepreneurship demonstrate the size of the risk undertaken by the
entrepreneurship, and base on that the capital provider or the potential investor can
evaluate the project and take decision on the investment in the entrepreneurship.
4. Cash flow: it is one major component in the financing aspect, cash flow indicates
the movement of money into and out of the business; it's represent a cycle of cash
which determine the business' solvency. Cash flow is defined as the difference
between the available cash at the beginning of an accounting period and that at the
end of the period. Cash comes in from sales, loan proceeds, investments and the sale
of assets and goes out to pay for operating and direct expenses, principal debt service,
and the purchase of assets. A cash flow budget highlights the following figures:
i. Sales/revenue
ii. Development expenses
52
Ibid, p. 49.
٢٢
iii. Cost of goods
iv. Capital requirements
v. Operating expenses.53
5. financial management : the entrepreneurship and any other form of business is
depending on the appropriate financial management, therefore it is important for the
entrepreneur to understand the fundamental operating procedure and their financial
relationship which lead the entrepreneurship to a failure if not comprehend and
understood. This include all ingredient of the financial management such as
accounting and other financial technique and tools.54
Important of the financial management: it can be observed in the following:
1. Allowed the entrepreneur to manage the business.
2. Allowed to effectively monitor the performance.
3. Correct undesirable deviation from the plan.
6. Human resource: the human resources is very crucial aspect in the
entrepreneurship, the entrepreneurship can not depend on the skill and good
management of the entrepreneur only, because it is a teamwork business base on the
contribution of each one in the organization and the success of the business and its
growth and development is depending on the quality of human aspect in the
entrepreneurship. Beside the importance of the human resource in entrepreneurship,
there is the management of the human resources which is another important aspect, it
is the skills of managing the human resources and distribute the task and administer
them in way that ensure the high performance of the task of each individual in the
organization. Therefore it is the full responsibility of the entrepreneur to manage the
resources and articulate the policy and provide the entrepreneurship code and design
the administration and assign the positions base on the skill of each employee in the
organization
7. Marketing: the marketing is defined as the process whereby needed goods and/ or
services are delivered to target customers at the right place, at the right time, and at
the right price, it demands that all of these activities go towards winning and keeping
customers.55 In that sense the marketing is the way forward towards the growing and
expansion of the entrepreneurship, it is very important tools for gaining profit and
generates revenue for the entrepreneurship. However the appropriate marketing plan
should be considered in order to have a successful marketing, which are as follows:
1. Determine customer needs and wants through market research.
2. Pinpoint the company's specific niche and target market.
3. Develop a marketing strategy utilizing the company's competitive advantage.
4. Assess the components of the marketing mix that will service the needed and
demands of the company's customers as defined by its marketing strategy.56
Conclusion
This research concludes with the following notes:
• The entrepreneurship in Islamic perspective has a unique approach.
53
http://www.entrepreneur.com/encyclopedia/term/82034.html.
A. Bakr Ibrahim, Willard H. Ellis, Entrepreneurship and small business management, p. 81.
55
Ibid, p. 103.
56
Ibid, p. 104.
54
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The entrepreneurship is divided into two major types which are general
entrepreneurship and restricted entrepreneurship. The general entrepreneurship
is regulated by the rules of Islamic commercial law, and the restricted
entrepreneurship is regulated by mudarabah framework, the latter has two
different categories the restricted entrepreneurship and unrestricted, and both
are under mudaraba rules and regulations.
There are important pillars under the redistricted entrepreneurship must be
fulfilled in order to be shariah compliant. The pillars are the capital provider,
the entrepreneur, the capital of the entrepreneurship, the profit and loss of
entrepreneurship, the business plan of entrepreneurship, the business
management of the entrepreneurship.
The general entrepreneurship does not require any terms and condition except
to fulfill the shariah requirement in business and trade. Since it is not governed
by any particular contract.
The restricted entrepreneurship has a specific approach and particular rules
and regulation because it is governed by the modarabah framework.
The general entrepreneurship can be distinguished from the restricted
entrepreneurship depending on the source of the capital and who provide it.
The moral aspect in entrepreneurship is very critical because the
entrepreneurship can be enhanced, growth and promoted if there is no moral
hazard addressed, otherwise the entrepreneurship will have a very limited
scope in the industry.
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