Run a Business Islamically: Key Principles 1

Running a business in accordance with Islamic principles is a fundamental concern for Muslims in the modern world. This is the fifth in a series of articles from Running a Business Islamically.

The first principle is that the general ruling of trade and transaction is conditional permission. The disbelievers said: 

 إِنَّمَا ٱلۡبَیۡعُ مِثۡلُ ٱلرِّبَوٰا۟ۗ 

“Trade is but like usury” [Quran, 2:275; tr. Keller, Quran Beheld]

Allah says:

 وَأَحَلَّ ٱللَّهُ ٱلۡبَیۡعَ وَحَرَّمَ ٱلرِّبَوٰا۟ۚ 

“While Allah has made trade lawful and usury unlawful.” [Quran, 2:275; tr. Keller, Quran Beheld]

Allah has permitted trading as trade and all that relates to it such as investment, et cetera, and prohibited interest. From this, the scholars explain that there is a conditional permission in trade and transaction. While Allah has made this permissible and if pursued with good intentions towards good outcomes, it is rewarded. However, Allah, out of his wisdom, has placed certain limits. 

Ultimately the limits are the prerogative of Allah. Why do we not eat pork?

What’s the reason for us not eating pork? If you answer, “They eat filth” then so do chickens and cows. If you leave most cattle close to filth, they will eat it. That is why there is a lot of Fiqh related to avoiding animals that eat too much filth but it remains permissible. The chicken, sheep, goat, cow, whatever, if they eat filth, their meat remains permissible, however, It is better to give them time for that to go through the system, et cetera. 

There are two types of rulings in general. One is a ruling whose meaning is discernible (Ma’qulat al-Ma’na). Such as compensation is to the extent of harm, it is very rationally discernible. If you break a small cup, you owe the value of the small cup. 

The other type is devotional rulings. The reason we do not eat pork is that it is a devotional ruling. Allah has placed some limits, some of which are discernible limits and others that ultimately, it is a devotional matter. If you study the reasons for the prohibition of usury, for example, there are discernible meanings in that as well.

Learn the Limits

Given the conditional permission, one has a duty to learn about those limits. One has a duty to learn about those limits. In general, Allah has given permission, but there are things that He has not permitted. The only way of knowing it is by seeking knowledge.  

It is mentioned in the Muwatta of Imam Malik that during the time of our master Umar ibn Al-Khattab, he issued an edict declaring that no man may enter our marketplace until they have learned our religion because otherwise, they will fall into usury and the unlawful whether they want to or not.

If you came from outside Madina and you wanted to trade in the marketplace, you would have to take a crash course in the rules of the religion related to financial and contractual matters or you would have to appoint an agent to act on your behalf so that they would know how to trade correctly.

It is our duty to learn the limits beforehand. 

Clarity and Definition

The second principle is from one of the key verses in the Quran from Surah al-Nisa related to contracts and transactions that highlights the importance of clarity and definition. Allah tells us:

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ لَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَـٰطِلِ إِلَّآ أَن تَكُونَ تِجَـٰرَةً عَن تَرَاضٍۢ مِّنكُمْ ۚ وَلَا تَقْتُلُوٓا۟ أَنفُسَكُمْ ۚ

“O you who believe, devour not your wealth between you through falsehood; But only through trade by your complete mutual consent. And do not take each other’s lives” [Quran, 4:29; tr. Keller, Quran Beheld]

There is a very interesting relationship between them because they say economic injustice is the bridge towards social and political injustice. 

This verse highlights one of the important principles related to contracts. The basis of our financial dealings and all our economic activity is that there is a contract. There is an agreement between two parties, or possibly more. Allah has prohibited there being any agreement between two parties except through clear mutual agreement. 

The scholars explain that this entails that there has to be clarity and definition in our contracts and agreements. Very often, people make a mistake in this. For example, if you go to get your tires repaired and they tell you, “Come back tomorrow, do not worry about how much it will be, I’ll give you a good deal.” Would you accept it? No, they will tell you beforehand how much it will cost, there will be formality and definition in the agreement.

De-facto Contracts

However, with friends and family, we may not define things. Very often, if people start a business, they may decide to split the profits 50-50 but they may not clarify who puts up the costs, how much each person exactly providing, and if the computer equipment came from one party is it part of the partnership or not? The status of extra spending. The terms have not been defined and then this leads to dispute and drama. 

Every non-definition that could reasonably lead to dispute renders the contract sinfully corrupt (Fasid) such that it is a moral duty to correct it. We may unwittingly fall into moral sin in many simple day-to-day things. For example, Zubair and Zubaida were married but their basement was empty so they had some university students who were staying in their basement. Exams are over and by the end of May, they vacated. Now they have two cousins coming from back home who Zubair agrees they will stay but then it turns out many others came along with all their belongings and stayed in your basement, is there an agreement? No, because there is no definition. There is neither clarity nor definition. 

Anything in which there is anything of material consideration is an actual or de facto contract. In all our monetary dealings or anything that has monetary implications and material implications, we are morally obligated to have clarity and definition. If we do not, it leads, it can lead to dispute and so we are in sin, Islamically, even before the dispute takes place and it frequently does take place.

Brethren and Strangers

The early Muslims would say, “Be like brethren, but transact as though strangers.” If you start businesses with family or friends, define things very clearly. All material dealings are contracts. So have them clearly defined and have them written. The longest verse in the Quran is about writing transactions. 

One defines the essence of the contract, the key terms, the key conditions. Put in writing what each party is putting up etc. It is absolutely required to learn the rulings related to contracts because all agreements are contracts.

Most of our contracts are very clearly defined. Of course, they are to your disadvantage as the customer, typically. But frequently, if people are starting a business, they begin by dealing in rather informal ways.