Islam and MNC

By

Asep Setiawan

This essay assesses whether Islamic fundamentalism is a threat to multinational

business. Two variables are applied for the assessment : the Islamic way of

thinking and the impact of the manifestation Islamic system on international

business particularly banking dan finance sectors. It seems those fields are more

affected than, for instance, in extracting or manufacturing sectors. Based on those

variables this essay will analyse whether Islamic militant is a hazard to

transnational business. In this paper Islamic fundamentalism refers to a search

for fundamentals of faith, the foundations of Islamic polity and the bases of

legitimate authority.1 While multinational business is defined as a group of

corporation that is operating in different countries but is controlled by its

headquarters in a given country.2 In this essay, the first section deal with Islamic

world-view and then, the second part, to assess the Islamic fundamentalism's

impact to multinational business.

II

To begin with, it is useful to consider the origins of the fundamentalism.

Islamic fundamentalism as the movement back to the basic value is not a new

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phenomenon throughout the Islamic history. Generally speaking the emergence

of fundamentalism has been closely associated to the spiritual, social and

political crises. In other words, when the existence of the Islamic polity and moral

integrity were under threat the forms of a fundamentalism could be appeared.3 A

major crises in Islamic history and in muslim identity was precipitated by the

advent of the combining the Western colonialism and the Christian missionaries.

The Arab-Israel conflict also generates radicalism. Other factors that contribute to

the emergence militants are a class conflict, modernization, an corrupt pro-

Western regime, communism and the military impotence particularly when the

Arab countries were defeated by Israel. To some extent, the presence of Western

firms from the point of view of some fundamentalist is perceived as a tool

American-European power to maintain colonialism in the new forms. Gilpin notes

that the dominating presence of foreign corporations in the host country is

characterized as constituting for of cultural imperialism.4

Since fundamentalism is the effort to establish Islamic system in a society,

it is important to explore briefly what Islam is. The name "Islam" is the key to

understanding the nature of the religion. Islam means "to submit". Therefore, a

muslim is one who accepts and submits to the will of Allah. According to Sardar,

"Islam is perceived not as a religion with set of rituals nor as body of law with

catalogue of dos and don'ts, but as a total, systemic holistic world-view."5

Because Islam is the detailed way of live, it brings about the implications to

various activities such as economics and politics even international relations.6

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Thus, it seems that all muslims activities can not be separated from the religion.

The shari'a which contains Qur'an and Sunnah is the foundation of an Islamic

society.

As mentioned above, Islam covered all muslims activities including the

economics matters. Khan argues that the basic economics concept in Islam is

that the ownership of everything belong to God alone. Man is God's vicegerent on

earth. God has subjected to man's service.7 Legal ownership of the individual,

that is to say, the right of possession, enjoyment and transfer of property, is

recognized and safeguard in Islam. But all ownership, as Khan explains, subject

to the moral obligation that in all wealth all sections of society have right to

share.8 As a consequence, the Islamic economic should be based on shari'a and

merely to implement Allah's will.

Moreover Islam constitutes the special framework in the finance and

banking issues. Above of all Qur'an ordains the prohibition of interest (riba) by

which is meant the receipt and payment of interest.9 This can be considered that

an Islamic business cannot deal in any negotiable instrument that would entail the

receipt or payment of interest. It is because of the Muslim's believe that an

interest is prohibited for all purposes and in all its form. From the Islamic view

point of view, riba is prohibited because it tends to draw wealth into the hands of

small circle. In the case of loans which bear interest, the lender in effect takes

advantages of and makes a profit from the need or distress another.10 However,

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Watt states that the precise meaning of riba is uncertain and there have been

divergent views.11

In practice, it is useful to underline here that within Islam exists two sects,

Sunni and Shi'a. Although Sunni is majority within Islamic community, Shi'a is

often associated with fundamentalism. Revolution in Iran under Ayatollah

Khomeini's leadership has made the fundamentalism become popular in the

world. Both of the Sunni and the Shi'a's fundamentalists have the similar voices :

they call for the emergence of Islam as a social, political and economic

movement which seek to go back to the original message of Islam and to rebuild

the society and its institutions in the light of Islamic milieu.12

III

The explanation above shows that Islam has an unique world-view to

which seems different from the Western conception. As a consequence, the

fundamentalists is or will not accept the Western values. In contrast, the West

particularly the US Government consider fundamentalism as a threat to their

interests. Hadar notes that there are some voices to consult Bill Clinton's

administration that radical Islam would replace communism as a global threat.13

He calls the threat as "Green Peril" to replace "Red Peril" or communism. Miller

also mentions that some of the Western observers see Islam as a potential

replacement for the Soviet Union in East-West confrontation.14 Other analyst

such as Martin Kramer argues that militant Islam groups by nature cannot be

democratic, pluralistic or pro Western. Moreover, Bernard Lewis explains that

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Islam refuse any legal recognition of corporate person which is at the heart of

representative institutions embodied in Roman Law. Thus, the fundamentalists

are often perceived as the threat to the Western politics, economics and strategic

interest.15 The confrontation between multinational business and the host

countries in Vernon's words the so-called "a clash of national cultures".16

However, Hadar argues that the impact of fundamentalists' threat too simplified

because in fact the radical movements are not monolith.

International banking and finance can be considered as the representative

Western interest in a muslim society. Their expansion seem as a part of

multinational corporations operation.17 Indeed their operations have been seen

not only provide financial services for the multinational business or the domestic

customers, but they also carry the Western value. In Alvin Toffler's term, banking

is the central institution of the modern money system. Accept the banks, Sardar

argues, it means to accept the entire exploitative and theoretical framework that

comes with it.18 So, the presence of the foreign banks touches one of the Islamic

fundamental values: the prohibition of riba. More than that financial institutions

deal with money, one of the cores of the modern economy. In this field

fundamentalist strictly follow shari'a or as Watt explains they interpret Qura'n

literally.19 Therefore, those businesses have much more attention than non-bank

multinational enterprises.

The manifestation of fundamentalist movement is not only into a group but

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 20
also a state. A state, a Hassan Turabi argues, is only the political expression of
21
an Islamic society. In implementing shari'a, the militants seem to impose

banking and finance sector both domestic and foreign owner bank with free-

interest system. This change, in term Tschoegl, is political philosophy risk which
22
involving changes in attitude toward private ownership. In a case

fundamentalist articulation is a group the threats could be different. They are

possibly operated in a secular state such as in Indonesia or Egypt or within

orthodox muslim countries such as Kuwait. Indeed the radical groups might be

operated within Western countries as its happened in the case of the World

Trade building's sabotage in New York. The executives of multinational business

could be target of some fundamentalist groups. In this circumstance, kidnapping

or killing may be occurred.

Some cases shows that international banking and finance have been

forced to adopt shari'a, otherwise they withdraw from Islamic areas. Sudan is one

example where the fundamentalism manifests into the state's form and it

becomes the threat to international banking. In 1984, as part of move to Islamize

the country's banking system, the government of Sudan has ordered all banks

operating in the country to stop paying or charging interest. Muslim law forbids

interest of payments; instead, banks are expected to invest their clients's funds

and share profits or losses with them. Sudanese government's action will affect

27 banks, including nine foreign banks operating in that country.23 In Iran's case

many American companies and its allies had been forced to abandon their

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operations after Islamic's revolutionaries seized power in 1979.

The incident in Iran and Sudan have the same root : Islamic

fundamentalism. The two cases also explain that either the militant groups or the

states can be seen as the threat to the finance industries. The threat , however,

seems same as common threat in business risk literature such as expropriation,

transfer risk or nationalization. However, banks are exposed to other risks. They

lend money to foreign governments, government-owned or controlled companies

and private borrowers.24 The international banks have showed a certain respond

to the threat. Chase and Citibank lost assets in Iran during the revolution and

then approached US Government to freeze Iranian assets in American bank.25

More than that it can be argued that a hazard from a fundamentalist

movement arise because it confronts the basic value of financial or banking

business. As Dunn points out that all economic transaction take place in real

social settings.26 The operating interest system can be one of the reason.

However, the prohibition riba it self comes from the Islamic system which seems

the meaning of money, capital, ownership differ with the Western model. Indeed,

such firms are themselves product of culture as evidence by the fact that their

organizational forms, management philosophies and main objectives different

with Islamic concept on business.

In fact, however, not all Islamic community which refuse riba at the same

time reject the presence the un-Islamic banking and finance. Saudi Arabia can be

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seen as an appropriate example of this case. Some say Saudi Arabia is the

fundamentalist state because it implements shari'a. Another view put the country

as an orthodox Islamic state. But in practice, Saudi administration prohibit riba in

the whole economic system. It seems that the need for Western technology

particularly for oil exploitation, may bring the multinational business come to this

country. At the same time, the wealth from oil brings about Saudi to contact with

the Western financial institutions for business reason. To bridge the difference

between free-interest system and Western banking and finance institutions,

Saudi and some countries establish what the so-called "House".27 This kind of a

compromise could be achieved because some countries adopt a policy that is

based on a principle "permission due to necessity". They recognize contact

between Islamic and foreign banks and finance institutions.28 It means that those

companies have an opportunity in those areas although they are advised to

manage this cultural difference. Moreover, in a country with majority muslim like

Indonesia, foreign banks may have broad opportunities to gain profits. In this

case some possible actual threats are transfer risk, expropriation or

nationalization.

IV

To sum up, generally the Islamic fundamentalism posses an hostility

attitude toward multinational business particularly banking and financial services.

This is because Islam has its own concept on those fields which is different from

the Western notion. This attitude from Islamic militant will become an actual threat

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if the fundamentalism takes in the form of a state. The experiences in Iran and

Sudan are appropriate examples for this case. Indeed, there is small scale of

threat posed by the fundamentalist. However, since such a threat usually arises

within a secular state, it can be handled by the host government.

The difficulties facing foreign companies in encountering actual threat

from fundamentalism behaviour lies in their failures to anticipate the emergence

of the radicalism which is neither neat nor sudden. So, if transnational business

has great interests in Islamic areas, they should understand the Islamic

environment and possible risks posed by such environment.

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313. Leon T Hadar, "What Green Peril?" in Foreign Affairs,
Spring 1993, Vol. 72, No. 2. See also Ghasam Salame, "Islam and
the West" in Foreign Policy, No. 90, Spring 1982.

414. Judith Miller, "The Challenge of Radical Islam", in

Foreign Affairs, Spring 1993, Vol. 72, No.2.

515. Miller, op.cit., in Foreign Affairs, Spring 1993, Vol. 72

No.2.

616. Raymond Vernon, Sovereign at Bay. New York, Basic Books

Inc., 1971, p. 204.

717. Multinational banks are growing as a respond to increasing

numbers of multinational corporations. They provide a tool of
techniques and market instrument used to maximize the return on
the firms investment. See Theo Kiriazidis and Stephen Regan
"The Globalization of Financial Services" in International
Business edited by Jill Preston. London, Pitman Publishing,
1992, p. 87.

818. Alvin Toffler's view is quoted by Ziauddin Sardar from The

Third Wave. See Sardar, op.cit., p.204.

919. Watt, op.,cit., p. 2.

020. A state on Islamic's view is different from Western

concept on nation-state. State here is based on shari'a not
nation or community within certain areas. See for example PJ
Vatikiotis, Islam and the State. London, Routledge, 1987, pp.
35-40.

121. Hassan al-Turabi, "The Islamic State", in Esposito,

op.cit., p. 241.

22. Adrian E Tschoegl, "Ideology and Changes in Regulations:

The Case of Foreign Bank Branches Over period 1920-80" in
Political Risks in International Business edited by Thomas L
Brewer, New York, Praeger, 1985, p. 87.

323. See James K Weekly and Raj Aggarwal, International

Business. Chicago, The Dryden Press, 1987, p. 41.

424. See Wendell H McCulloch, Jr., "Country Risk Assessment by

Banks" in Global Risk Assessments edited by Jerry Rogers,
California, Global Risk Assessments, Inc, 1986, p 121.

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525. Anthony Sampson, The Money Lender. London, Hodder and
Stoughton, 1981, pp. 244-246. In 1981, under Algiers agreement,
an accord was signet by Iran and the US which allowed the
release or Iranian assets than had been frozen the Federal Bank
of new York in return for the release of US hostages in Iran.
See Frederict Stapenhurst, Political Risk Analysis Around the
North Atlantic. London, St Martin's Press, 1992, p.141.

626. John Dunn, "Country risk: social and cultural aspects", in

Managing International Risk, edited by Richard J. Herring.
Cambridge, Cambridge University Press, 1983, p. 163.

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27. The establishment of the Islamic Development Bank at Jeddah
(Saudi Arabia) followed by the formation of Islamic banks at
Dubai (The United Arab Emirates), Cairo (Egypt), Khartoum
(Sudan) and Jordan. Muhammad Nejatullah Siddiqi, Issues in
Islamic Banking. Leicester, The Islamic Foundation, 1983, p.
35.

828. Siddiqi, ibid.

Source: http://www.the-worldpolitics.com

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 1Notes and References

1. See R Hrair Dekmejian, Islam in Revolution. New York, Syracuse

University Press, 1985, p. 4. In this essay the term of Islamic
fundamentalism is same as Islamic resurgence, Islamic revival, Islamic
awakening, Islamic militant or Islamic radical.

2. Parviz Asheghian and Bahman Ebrahimi, International Business. New York,

HarperCollins Publishers, Inc., 1990, p. 12. This paper also uses
multinational corporation, transnational business or multinational
enterprises for multinational business.

3. Dekmejian, op.cit. p. 35.

4. Robert Gilpin, The Political Economy of International Relations.

Princeton, Princeton University Press, 1987, p. 248.

5. Ziauddin Sardar, Islamic Future. London, Mansell Publishing Limited,

1985, p. 11.

6. See Verna Terpstra, The Cultural Environment of International Business.

Cincinnati, South Western Publishing Co., 1978, p. 49.

7. Muhammad Zafrulla Khan, Islam. London, Routledge and Kegan Paul, 1980,
p. 150.

8. Khan, Ibid.

9. See Habib Shirazi, Islamic Banking. London, Butterworths, 1990, p. 5.

010. Khan, op.cit., p 153.

11. William Montgomery Watt, Islamic Fundamentalism and Modernity. London,

Routledge, 1988, p. 108.

212. Khurshid Ahmad, "The Nature of the Islamic Resurgence", in Voices of

Resurgence Islam edited by John L Espito, New York: Oxford University
Press, 1983, p 220. Choueiri suggests some common characteristics
fundamentalist are the return to original Islam as the religion of oneness
of God, the advocacy of independent reasoning in matters of legal
judgements (ijtihad), and the necessity of fleeing (hijra) the territories
dominated by unbelievers. See Youssef M Choueiri, Islamic Fundamentalism.
London, Pinter Publishers,1990, pp. 23-24.