Business Ethics: An Islamic Perspective

Mushtaq Ahmad Lone* Fayaz Ahmad Lone**

ABSTRACT
The ethical standards to which Islamic businesses operate reflect the same standards and principles of the Quran, which every Muslim is expected to follow in every aspect of their lives. Therefore, Islamic businesses must operate on a basis of fairness and integrity, while also treating everyone equally. As Muslims, we have to adhere to ethical standards, not only in business but in all aspects of life. Both business and ethics are interrelated. Islam has strongly forbidden certain transactions for its follower and it is therefore responsibility of every Muslim to implement them. Factors which are influencing ethical behavior in Islam have been categorized into Legal Interpretations, Organizational and individual. The article has clearly throne light on major principles of fair dealing, fraud and dishonesty in business. It also explains what is right and what is wrong in Islamic Business transaction. Key words: Islam, Business ethics, Quran, Forbidden, Prophet (PBUH) Introduction Many faiths have extensive literature and legal code on the accumulation and use of wealth; and many businesses rely on these ethical guidelines, both as a result of the religious beliefs of owners and managers, and as a way of ensuring that their actions meet the otherwise unwritten ethical standards of local communities. Islam strongly recommends to its believers the way of performing business transactions in a neat and clean way. Although in Islam business is considered worship, but only when it is performed as per the orders of Allah and his last messenger. With some particular dos and donts, a complete way of doing business has been showed to the followers by Mohammad (PBUH) when he was himself a businessman and it is strongly recommended to the followers. *Mushtaq Ahmad Lone, Assistant Professor (Commerce), Directorate of Distance Education, University of
Kashmir, Srinagar-190006. J and K, India drmushtaqlone@gmail.com **Research Scholar, Department of Commerce, Aligarh Muslim University, India. Fayaz_pulwamy@yahoo.com, website: www.wdibf.com

In simple words, Islamic business is governed by divine principles covering values such as fairness, equality, and morality dating back over a thousand years. More specifically, Islamic finance adopts a long-term partnership approach between businesses, often based on investors essentially taking an equity stake in businesses. Shariah law outlaws the charging of interest of any kind, while in the wider context the use of money to generate interest is not permitted. Speculation of any kind is also forbidden, while investments are required to deliver social benefits to the community. Islam also forbids activities in prohibited areas such as gambling or alcohol, instead specifying that shariah-compliant businesses should focus on legitimate tradebased activities. The ethical standards to which Islamic businesses operate reflect the same standards and principles of the Quran, which every Muslim is expected to follow in every aspect of their lives. Therefore, Islamic businesses must operate on a basis of fairness and integrity, while also treating everyone equally. The need for honesty, truthfulness, and fair dealing is also inherent in Islamic business, requirements which have wide-ranging implications across the full spectrum of business activities, from advertising to after-sales customer service. Islamic companies must also respect the principle of trusting others to be as good as their word. However, this puts the responsibility on businesses to cover their liabilities promptly, honoring their word with timely payment, given the exclusion of credit facilities. The emphasis on the partnership approach to business is further underlined by the need for companies to look after their investors interests, thus protecting them whenever possible from dharar (any kind of harm). The stakeholder element of Islamic financing is reflected in the onus on working in tandem with other businesses whenever possible, while markets should generally be free and prices competitive. For example, attempting to squeeze suppliers on price would be unacceptable behavior, as would any attempt to capitalize on others misfortune by raising selling price, excessively should, for example, the supply of goods be temporarily interrupted. Concept of Ethics in Islam Ethics is the set of moral principles that distinguish right from wrong. It is a normative field because it prescribes what one should do or abstain from doing. Business ethics, sometimes referred to as management ethics or organizational ethics, simply limits its frame of reference to organizations.

Within Islamic context, the term most closely related to ethics in the Quran is khuluq 1. The Quran also uses a whole array of terms to describe the concept of goodness: khayr (goodness), birr (righteousness), qist (equity), adl (equilibrium and justice), haqq (truth and right), maruf (known and approved), and taqwa (piety). Pious actions are described as salihat and impious actions are described as sayyiat (Majid, 1991). Every Muslim has to adhere to ethical standards, not only in business but in all aspects of life. The two terms business and ethics are interrelated. There is a reference to this point in the Qur'an, "For you in the Messenger of Allah is a fine example to follow." Allah Almighty says, "To the Madyan people (we sent) Shu'aib, one of their own brethren: he said: 'O my people! Worship Allah. You have no other God but Him. And give not short measure or weight. I see you in prosperity, but I fear for you the penalty of a day that will compass (you) all rounds. And O my people! Give just measure and weight, nor withhold from the people the things that are their due: commit not evil in the land with intent to do mischief. That which is left you by Allah is best for you, if you (but) believed! But I am not set over you to keep watch!" Prophet Muhammad was chosen by God to be His last prophet and messenger at the age of 40. Before that he was very much involved in business. He and his wife Khadija were both merchants. It is reported that he traveled to Syria, Yemen, Bahrain, and many other places in Arabia for trade. Some historians have also suggested that he probably traveled to Iraq and Ethiopia. From his early age, he was engaged in business as a hardworking, honest, truthful, and a very successful businessman. Factors Influencing Ethical Behavior in Islam Ethical behavior in Islamic context is influenced by a number of factors. Such factors can be categorized into the following three categories: 1. Legal Interpretations 2. Organizational
3. Individual

Legal Interpretations In secular societies, legal interpretations are based upon contemporary and often transient values and standards; in an Islamic society, these values and standards are guided by the Shariah and
1

Quran 68:4. I thank Dr. Gamal Badawi for this suggestion.

the collection of previous fiqh judgments. The result of these divergent approaches is amazing: at one time, it was legal and ethical in the United States to discriminate against women and minorities in hiring; now, affirmative action laws make it illegal to discriminate against these groups. By contrast, Islam has given women permanent and unalienable rights, and has never discriminated against minorities on any basis. For example, Abu Dharr reported that the Prophet (PBUH) said to him: You are not better than people with red or black skins unless you excel them in piety (Dharr). Similarly, the Islamic ethical system does not endorse the caveat emptor concept that many western courts have considered valid in several shadowy cases. Thus, Anas Ibn Malik reports the following hadith: Allahs Messenger (peace be upon him) forbade the sale of fruits till they are almost ripe. Anas was asked what is meant by are almost ripe. He replied, Till they become red. Allahs Messenger (peace be upon him) further said, If Allah spoiled the fruits, what right would one have to take the money of ones brother (i.e., other people)? (Anas). The Hanafis interpretation of Islamic law reinforces this emphasis on equity and fairness: If the vendor sells property as possessing a certain desirable quality and such property proves to be devoid of such quality, the purchaser has the option of either canceling the sale, or of accepting the thing sold for the whole of the fixed price. This is called option for misdescription
(Al-Majalla)

1. Organizational Factors The organization too can affect and influence participants behavior. One of the key sources of organizational influence is the degree of commitment of the organizations leader to ethical conduct. This commitment can be communicated through a code of ethics, policy statements, speeches, publications, etc. For example, Xerox Corporation has a 15 page ethical code, one section of which states: Were honest with our customers. No deals, no bribes, no secrets, no fooling around with prices. A kickback in any form kicks anybody out. Anybody. The above statement is clear and relates specific unethical behavior to negative consequences. Codes of ethics are gaining in popularity in many organizations, and often vary from one industry to another. Although such codes may enhance ethical behavior among organizational participants, their use is sometimes inappropriate.
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Some organizations may be trading in or selling in khamr or other haram products or services; hence, the conduct of the whole organization is unethical. Developing and enforcing a code of ethics in this type of organization is clearly erroneous since Allah Subhanahu wa taala has said in the Quran: They ask you concerning wine and gambling. Say, In them is great sin, and some profit for men; but the sin is greater than the profit2. In general, however, organizations engaged in halal businesses can foster ethical behavior through the development of an Islamic code of ethics. 2. Individual Factors Individuals come to work with different values. Factors affecting ones ethical behavior include: stages of moral development, personal values and morals, family influences, peer influences, and life experiences. Fair dealings in business The Holy Qur'an and Prophet Mohammad (PBUH) have made it clear that a Muslim must be honest and upright in his business and monetary dealing. Also the true Muslim should keep his word and fulfill his promises, shun fraud and avoid deceit and perfidy, encroach not upon the rights of others, nor take part in wrongful litigation. Also a good Muslim does not give false testimony, and abstains from making unlawful money as from usury and graft. According to Islam whoever is not free from these vices, is not a true believer but a renegade and a worthless transgressor. And the Qur'an is rich with verses that confirm all this. Allah says in the Quran, "Eat not up each other's property by unfair and dishonest means." Allah forbids all unclean and corrupt means of making money, such as, dishonest trading, gambling, and bribery. And the Holy Quran has explained and described such practices in many of its verses. He says, "Woe to those that deal in fraud, - those who, when they have to receive by measure from men, exact full measure, but when they have to give by measure or weight to men, give less than due. Do they not think that they will be asked on a Mighty Day when (all) mankind will stand before the Lord of the lords."
2

Quran 2:219.

Another example is given in the coming verse, where Allah urges Muslims to be very particular about their trusts and about other people's rights. "Allah does command you to render back your trust, to those to whom they are due." Major principles of fair business dealings According to Islam, the following things must be avoided to commence fair business. 1. No fraud or deceit, the Prophet (PBUH) is reported to have said, "When a sale is held, say, There's no cheating" 2. Sellers must avoid making too many oaths when selling merchandise. The Prophet (PBUH) is reported to have said, "Be careful of excessive oaths in a sale. Though it finds markets, it reduces abundance." 3. Mutual consent is necessary. The Prophet (PBUH) is reported to have said, "The sale is complete when the two involved depart with mutual consent." 4. Be strict in regard to weights and measures. The Prophet (PBUH) said, "When people cheat in weight and measures, their provision is cut off from them." He told the owners of measures and weights, "You have been entrusted with affairs over which some nations before you were destroyed." 5. The Prophet (PBUH) forbade monopolies. "Whoever monopolizes is a sinner." 6. Free enterprise, the price of the commodities should not be fixed unless there is a situation of crisis or extreme necessity. 7. Hoarding merchandise in order to increase the prices is forbidden. 8. Transaction of forbidden (Haram) items, such as intoxicants, is forbidden. Fraud and dishonesty in business Prophet Muhammad (P.B.U.H) has stressed the importance of honesty in most of his sermons, saying, "Remember, there is no faith in him who is not trustworthy; there is no place for him in religion who cares not for his pledged word or promise. He (PBUH) also said, "The signs of a hypocrite are three, when he speaks, he is false, when he promises, he fails; and when he is trusted, he plays false." Condemning those who cheat in business Prophet Mohammad (PBUH) has said, "He who cheats is not of us. Deceitfulness and fraud are things that lead one to Hell." Once Prophet Muhammad (PBUH) came upon a heap of corn in the market of Madinah and thrust his hand onto it. His fingers felt damp. On being asked, the trader replied that rain had
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fallen upon it. The Prophet (PBUH) observed, "Why did you not then keep (the wet portion of) it above the dry corn, so that men may see it? He, who deceives, is not one of us." Thus traders who deceive by showing to customers a false sample or by concealing from them the defects of the product they're selling are not true Muslims in the judgment of Allah Prophet (PBUH) and, they are going to end up in hell. Prophet Muhammad (PBUH) said, "The seller must explain to the buyer the defects, if any, in the quality of the article offered for sale. Should this not be done, the seller will permanently be caught in the Wrath of Allah." In short, all manner of deceit and dishonesty in business is prohibited in Islam. The Holy Prophet has expressed his strong dislike for those who do so. Bribery and usury, although might be practiced by mutual consent and agreement, are totally prohibited and forbidden. Those who are guilty of them have been condemned by Allah and His Prophet (P.B.U.H). Prophet Muhammad (P.B.U.H) said, "The curse of Allah rests on him who offers loan on usurious terms, and on him who receives, and on those who are witnesses to the transaction, and on the writer who writes the deed thereof." Prophet Muhammad (P.B.U.H) said, "If a person made a recommendation for anyone in a just manner and gratified party gave him something as a gift (in return for it) and he accepted it, then he committed a grave error (meaning that it, too, is a form of bribery)." Usurpation of another's property by force or fraud or dishonest litigation is even worse. Prophet Muhammad (P.B.U.H) made this clear, as he says, "Whoever occupies land belonging to another unjustly will be sunk into the ground along with the plot of land on the Doomsday till he reaches the lowest layer of the earth." And "He who acquires the property of a Muslim unjustly by taking a false oath (before an Officer) is debarred by Allah from entering Paradise and the Fire of Hell is made inevitable for him." Prophet Muhammad (P.B.U.H) again, is reported to have warned a person who was very fond of entering into litigation with others in these strong words, "Remember, he who will obtain the property of another by swearing a false oath will appear as a leper before Allah (on the Day of Judgment)."And, again he (P.B.U.H) said, "Whoever laid a claim on a thing that was not his is not of us." Conclusion

The Prophet's general advice to all people was that, "What is lawful is clear and what is unlawful is clear, but between them are certain doubtful things which many people do not recognize. He who guards against the doubtful things keep his religion and his honor blameless, but he who falls into doubtful things falls into what is unlawful, just as a shepherd who pastures his flocks round a sanctuary will soon pasture them in it. Every king has a sanctuary, and God's sanctuary is the things he had declared unlawful." Before the Prophet invited his people towards Islam, it was his truthfulness and trustworthiness which had earned for Muhammad (S.A.W.) the glorious titles of "Sadiq" (truthful) and "Amin". Therefore, one must follow the teachings of the Holy Prophet (P.B.U.H) in regard to business and all other aspects of life; to become a good Businessman and hence, a better Muslim. Ethical transactions are considered to Ibadat (worship) in Islam and are among the important principles of religion. Every Muslim trader is expected to follow these ethical standards with dealing with customers.

References:
Anas ibn Malik, Sahih Al-Bukhari, 3.403. Abu Dharr, Mishkat Al-Masabih, 5198 and transmitted by Ahmad. Fakhry, Majid. Ethical Theories in Islam. Leiden: E. J. Brill, 1991, pp. 12-13 Sajoo, Amyn. Muslim Ethics: Emerging Vistas. London, UK: Institute for Small Studies, 2004.

Al-Majalla (The Ottoman Courts Manual [Hanafi]), Section II. Option for Misdescription, 310. Wellman, David J. Sustainable Diplomacy, Ecology, Religion, and Ethics in Muslim-Christian Relations. New York, NY: Palgrave, 2004. Zaidi, Iqtidar H. On the Ethics of Mans Interaction with the Environment: An Islamic Approach. Environmental Ethics 3, no. 1 (spring 1981): 3547.

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