October 17, 2020

Business and the Principle of Justice

The essence of justice in business transactions is contained in the following verse: ‘Oh 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” [An-Nisaa (4):29]. This is one of the many examples in which Allah first forbids a “fasad” or mischief and then provides us with the alternative. This verse implies that it is quite natural or instinctive for man to devour one another’s property in the wrong way. Thus the first part of the verse exhorts us not to perform it. It is the second part of the verse which gives the alternative and just manner of dealing with one another. In this case, there should be free interplay of demand and supply forces so that a just and fair agreement can be mutually arrive at. The basic objective is the verse is of course to guide man to the way of justice which consists of two parts. First, which is incumbent on us, is to ward off evil of devouring one another’s property. One this is completely eliminated, it should be automatically pave the way for the free flow of goods and services in the market, which allows for more amicable dealings to take place. This is still a general principle which obviously needs further refinements. These refinements, mainly in the form of prohibitions, are meant to ensure that the conduct of business in Islam will be free from any unjust practices. The prohibition of riba, particularly that of riba an nasi’ah, would remove the exploitative nature of riba to society. Since capital is allowed to earn interest under the riba-based system, business risks are usually borne by the hard-working entrepreneurs. The capital owner who gives loans on interest does not bear any risks, but is ‘guaranteed’ a predetermined, positive rate of return in the form of interest. Islam severely condemns the practice of interest and provides a general alternative, in the form of “al-bai’” or business. It is the Muslims, who have come up with alternative modes of financing which are non-interest bearing. Among them are mudharabah, mushakarah, murabahah, leasing, etc.
The second inference one can make analysing the implications of Shari’ah injunctions is the creation of a conducive environment necessary for the establishment of justice. If justice here refers to “equilibrium”, then we are actually referring to an equilibrium which is optimum.
Let us consider the exact sequence of events. Transactions involving interest were widely practiced even among Muslims, until the first revelation on the prohibition of riba before Hijrah. At the same time, some of the non-interest base financing such as mudharabah and musharakah were also practiced. The first revelation1 was directed at prohibiting riba and enjoying charity (zakat) but not business. It was only the last (fourth) revelation on riba which enjoins business. This chronology of events exemplifies that what is prohibited is really an obstruction to justice. One this obstruction is eliminated, then only can justice prevail. The argument can be similarly carried through in the case of hoarding. Hoarding of wealth, as alluded in section 4.3 above, prevents economic growth and hence other benefits associated with it. In order to correct the situation, hoarding should not be allowed. Once we remove hoarding, we are in fact making the path of justice clearer and wider. We can continue the discussion through all prohibitions in the same manner. Essentially therefore, Allah has removed for us those impediments or obstructions to justice by prohibiting them. One can infer then that the Shari’ah objective of establishing justice is to be achieved, among other ways, by prohibiting malpractices. Such malpractices include cheating, deceit, concealing facts, short weights and measures, breaking promises or pledges. The second inference one can make analysing the implications of Shari’ah injunctions is the creation of a conducive environment necessary for the establishment of justice. If justice here refers to “equilibrium”, then we are actually referring to an equilibrium which is optimum.
(The author is pursuing Masters in Financial Economics from Madras School of Economics, Chennai, Tamil Nadu. Views are his own) [email protected]

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