Islamic Business Administration

Concepts and Strategies

Minwir Al-Shammari, Mohammad Omar Farooq, Hatem Masri, Minwir Al-Shammari, Mohammad Omar Farooq, Hatem Masri

• Publisher: Bloomsbury Academic
• Year: 2020
• Print ISBN:
  9781352009477
• Edition: 1
• eBook ISBN:
  9781350305182
• Topic: Business
• Subtopic: Management
• Index: Business

This essential textbook provides a comprehensive introduction to the Islamic business environment, exploring core concepts and practices in business administration from an Islamic perspective. Thorough and accessible, it covers the full range of Islamic business, including entrepreneurship, ethics, organizational culture, marketing, finance and decision making. Taking an integrated approach that aligns contemporary business practice with traditional Islamic literature, the book offers an engaging exploration of the key ways in which business activities can be organised to align with Islamic norms, rules and regulation. Developed from the teaching practice of an international range of leading scholars in the field, Islamic Business Administration includes topical case studies, practical business scenarios and comparative features, encouraging students to place their understanding of Islamic business within the wider global business context and to understand its practical implementation.

This is an invaluable companion for students studying a module in Islamic business or management at undergraduate, postgraduate and MBA level. It is also suitable for students of Islamic finance or banking looking to place their learning in the wider context of Islamic business.

PART
1

ISLAMIC BUSINESS ENVIRONMENT

ISLAM AND BUSINESS: BELIEFS, VALUES, AND NORMS

1

Mohammad Omar Farooq and Fareed Hadi

University of Bahrain, Bahrain

Learning Outcomes

LO1: Explain the role of business and resources used for it.

LO2: Describe the business environment, key stakeholders, and major types of decision making.

LO3: Understand the core beliefs and values of Islam pertaining to business and commerce

LO4: Recognize the emphasis of the Qur’an, as exemplified in the life of the Prophet (p), on trade and prosperity in human-centered, sustainable development

LO5: Explain the role trade has played in the history of Islamic civilization and the contemporary aspirations and initiatives to bring Islamic values to business and the economy

Contents

1.1 Introduction

1.2 Beyond Islamic banking and finance

1.3 Essential Islamic beliefs pertaining to business

1.4 Essential aspects of Islamic law

1.5 Essential values of Islam

1.6 Functional norms

1.7 Islamic business environment

Discussion Questions

Selected Bibliography

Notes

INSIGHT: Shared Prosperity

Chobani is a Greek yogurt maker, a privately owned multibillion-dollar company in the USA. Its CEO and founder is Hamdi Ulukaya, a Turkish immigrant to the USA.

On April 27, 2016, he declared that his company will offer shares to its 2000 full-time employees that are 10 percent of the company’s future value in the event of a sale or an IPO. This will make many of its employees millionaires.

This is commonly known as an employee stock ownership plan (ESOP), and the underlying value is called shared prosperity – a highly relevant approach to profit sharing.

From an Islamic viewpoint, what the owner of Chobani did is not a matter of law or legalistic exercise. Rather, this is Islam beyond the realm of law or mere legal considerations. In it there is vision, values, ethics, and, most importantly, care reflecting Islam. We may wonder what the world would look like if those who have the power, wealth, and privilege to embrace, promote, and practice the value of “shared prosperity.”

The Qur’an teaches that wealth should not circulate among the wealthy few [59/al-Hashr/7]! Beyond legality, this is a value-oriented approach.

Source: Chobani’s vision in the owner’s words: https://www.chobani.com/about/.

1.1 Introduction

An economy is a system that seeks to balance the resources of a country against the wants and needs of its people. The main activities in an economy consist of:

• Production (supply)

• Consumption (demand)

• Distribution (linking demand and supply).

Businesses participate in the economy to produce and supply what consumers demand. Businesses in a market economy serve as the growth drivers in a number of interrelated ways:

• Creating employment and income-earning opportunities for the working population

• Purchasing resources

• Supplying goods and services

• Fostering innovation

• Generating savings and capital

• Fulfilling the needs and wants of society.

In the Muslim world, businesses play roles similar to those played by businesses in the rest of the world where Muslims live and have businesses. Though businesses share certain features, Islam as a way of life brings certain beliefs, values, and norms in shaping and conducting business. A synopsis of these beliefs, values, and norms are explored in this chapter, which also presents the basics of business. Further, these beliefs, values, and norms underlie all aspects of business covered in this book.

Muslim societies throughout history have led, fostered, and facilitated trade and business around the world. That changed as the Western world embarked upon its colonizing enterprise throughout the world, including the Muslim world as the Ottoman Empire disintegrated. After the breakup of the Ottoman (Turkish) Empire (1299–1924 AD), the Muslim world emerged from the postcolonial period as nation-states. The Organization of Islamic Cooperation (OIC), an international organization established in 1969, consists of 57 member states and represents more than 1.6 billion people, with a combined GDP (at purchasing power parity, or PPP) $18.6 trillion (Euro zone: $12.39 trillion, NAFTA $20.1 trillion). These countries vary in area, demographics, stage of development, resources, and so forth. However, during the postcolonial era, only a few countries, among which are Malaysia and Turkey, have made significant progress in their industrial development.

1.2 Beyond Islamic banking and finance

During the postcolonial period, one of the key developments and contributions of the Muslim world that has gone mainstream and attracted significant attention from around the world is Islamic banking and finance (IBF). This niche industry is based on the avoidance of certain religious prohibitions, the most important of which is riba (traditionally equated with interest).

While there is no national economy that can be identified as an Islamic economy where business activities are conducted based on Islamic values and parameters, according to Islamic Finance Outlook 2018 by S&P Global Rating, the Islamic banking and finance industry has been growing at a robust pace and reached $2 trillion in assets. The development of this field has led to the establishment of:

• financial institutions (e.g. Al Baraka and Kuwait Finance House banks)

• standard-setting and other support institutions (e.g. Islamic Financial Services Board [IFSB], Accounting and Auditing Organization for Islamic Financial Institutions [AAOIFI])

• academic and professional research institutions (e.g. International Centre for Education in Islamic Finance [INCEIF], Islamic Shariah Research Academy [ISRA])¹

• regulatory bodies as part of central banks.

However, there is little focus or emphasis on business in general or nonfinancial businesses in particular for which financial institutions and markets exist.

With the growth and expansion of the IBF industry, and for its sustainability and relevance, the focus needs to shift to the real world of business and help develop relevant knowledge, infrastructure, and competencies.

Whether it pertains to banking, finance, or economics, considering any of these from Islamic perspectives requires making explicit the underlying foundation of beliefs, values, and principles. The same is true of business from Islamic perspectives.

1.3 Essential Islamic beliefs pertaining to business

Islam as a practical, balanced, wholesome and comprehensive way of life (deen) is based on three core beliefs: tawhid (monotheism), risalah (prophethood, messengership), and aakhirah (afterlife). These beliefs constitute the foundation of every aspect of Muslim life, including business.

1.3.1 Tawhid (Monotheism)

Tawhid entails that there is a God, the one and only God, who created human beings as part of the universe. Even though humans share this universe with their fellow creations, God made human beings distinct as thinking and discerning creatures that are able to reason and make choices. Muslims are expected to acknowledge God in their lives by searching for and affirming his guidance and upholding it to the best of their ability.

1.3.2 Risalah (Prophethood, Messengership)

As part of our natural disposition, we human beings search for explanations of our life and existence, and if there is a Creator or God, it makes sense that mankind should receive communication from the Creator. God has sent divine revelations throughout history, and the last and final revelation is the Qur’an, received verbatim via the Prophet Muhammad (p).² The Qur’an is the fountain of the beliefs, principles, and values of Islam. The life of the Prophet (p) e...

Table of contents

• Cover
• Titlepage
• Copyright
• Dedication
• Contents
• List of Figures
• List of Tables
• Preface
• Part 1 Islamic Business Environment
• Part 2 Management and Marketing
• Part 3 Human Resource Management and Decision Making
• Part 4 Finance and Accounting
• Glossary
• Index