Islamic Studies

Understanding the role of Islam in Business Ethics & its Challenges

Introduction

Business ethical policies are the most important and valuable for any organization. Studies
have suggested that if these policies are managed effectively it will lead to positive outcome in
the business, economy and behaviors of the employees at work place. Making good business
ethical policy is critical and important for productive workplace where employees are more
energized and efficient. To achieve overall goals and objectives of the organization, ethics
needs to be monitored only then stakeholders will be satisfied with the owner and overall
performance of the organization will be increased. Business ethics are linked with all the
managerial functions i-e planning, controlling, monitoring, research & development firm can
only gain competitive advantage if they have strong code of conduct which also include the
human force that have. Business ethical conduct is the crucial factor that is directly related to
the growth and performance of the company. In today’s world companies are facing an intense
competition that’s why they want to enhance their employee ethical values so that profitability
and market share can be increased.

“Religion plays a very crucial role in shaping human behavior and attitude including his social
communications and associations” (abuznaid, 2006). In most of the countries business ethical
conduct is highly influenced by religion which identifies core values and principles one adopts
in every aspect of life which are Just, Right and lawful, in Islam we have a complete
knowledge and guidance in the form of Holy Quran. Which tell us about all the concepts of
business, employees and their rights (abbas). There are different researches present on other
Muslim countries like Saudi Arabia, Kuwait Egypt but very little work has been done on Asian
countries where there is a significant population of Muslims. There is wide literature present
for western management system but not much knowledge is available for Islamic management
system. In this study my focus will be Islamic business ethics practices and its challenges being
faced by the muslims and how it plays significant role in improving business performance. This
study will also observe the influence of religion that is teaching of Holy Quran and Hadith of
Prophet Muhammad (SAW) on ethics guideline at workplace and human resource policies.
This study will be valuable as it will increase knowledge of Islamic principles and it will also

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be beneficial to view that how Muslim managers can adopt these practices and apply them to
their system.

Many studies in the past have been conducted for understanding Islamic principles of business
management and also how it affects ecomony. Islam guides you at every step of your life we
have guidance in the form of Holy Quran in which we can find all the solutions of our daily
life problem it can be personal as well as related to business. “Islamic values are valuable for
human being’s need for prosperity and wellbeing (abbasi, 2010)”. Holy Quran and hadiths is
the basis of sharia principles and laws. Form Islamic point of view each and every organization
need to follow rules and regulations based of sharia principles and Islamic knowledge to
understand how to fairly work in the environment (seidu, 2006) . Islamic business ethics
conduct is important to create the Islamic way of managing business its resources, its
stakeholders and to effectively and efficiently manage its employees. “Islam teaches us that
employees are not our servants, but they are should be considered as valuable assets of your
organization and they should be treated with fair means and justice” (beekun, 1997).

Shariah laws are unbiased, fair and there is no discrimination for any one regardless of the
status they have or power they possess. There for it is essential for managers to have full and
complete knowledge of Islamic laws and according to that they must build their ethical code
of code of conduct system as well as other business setups. Islamic management system
emphasizes on wellbeing of human, fair compensations, respect of each individual and equally
distribution of resources available. In Islam there is huge emphasis on having a good leader for
most of the situation in life. Prophet Muhammad (SAW) said, “When there are three people on
a journey then they must employ one amongst them as a leader” (yousaf, 2001).

Regarding business ethical practices Islam sets many norm and ideas which management of
the company need to follow some of them are honesty, fairness, justice, equality,
accountability, reliability, generosity, authenticity, responsibility, trust, work dedication,
discipline, team work, appreciation and self-control.

Different studies in the past suggested that there is positive relation between business
management and ethical code of conduct which significantly improves overall organizational
performance but in this study we will see it with religion point of view that how Islamic
practices influence business practices and ethical challenges and how organization can apply
them for maximum satisfaction of stakeholders which will increase their productivity.

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Nations devise rules & code of practices relating to commerce or why corporate administrations
frequently plan business moral values, so that stakeholders obey them. In the present realm the
corporate amphitheatre remains frequently widespread by moral dilemmas as well as starved
of rules and procedures circumstances might devise extensively opposing
consequences. Individuals accompanying companies partake towards dealing through
numerous conditions which require ethical values as instructions. “These conditions
comprise, nonetheless are not limited to, sexual harassment, bullying in the workplace,
gender or racial discrimination, conflicts of interest, misuse of assets, and environmental
pollution” (Stacey, 2019).

Islamic Importance on Business Ethical Behaviour

Ethical and moral conduct is a kind of thread consecutively running by Islam. This is
deliberated designed for every person, at every place at all times it continuously contends on
virtuous conduct at every time. Therefore, by way of rules and guidelines varies from nation
to nation, governments to business, Islamic ethics endure as immovable. Justice,
righteousness, esteem, and trustworthiness are fragments of Islamic conducts and are not
limited to commerce transactions, partaking supposed that, conversely, commerce concerns,
receiving a means of support and substitution are significant designs of Islam. Every Muslim
should yield trustworthiness and justice into description in every commerce not unbiased in
corporate, and that individual do as it is so since he identifies that Allah is inspecting,
monitoring and magistrate individuals conferring to their activities.

The holy Prophet PBUH are the best civilization and true blessing of Allah SWT, is our
supreme character ideal. Apart from this the holy Prophet PBUH is a, legislator, statesperson,
martial leader, and household person and he existed as an actual trader and business person.
And his teachings for are that Muslim ummah should practice the teachings of islam and these
teachings will not displease Allah that he taught us. Allah will not let us unaided and empty to
stagger around by trying to recognise in what way to live a happy and blessed life; Allah
provided us The holy book Quran and the Holy Prophet PBUH to escort us for a virtuous result
in the present world and hereafter. We should follow the teachings of islam and we practice
these code of conduct in all our activities including business transactions also and be
honest. There is a general concept in Islam that there are things which are permitted excluding
some that are prohibited. In this regard all things in this world that relates to humanity, their
survival, the livelihood and while it is joint through Islam’s moral and ethical guidelines and it

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contributes towards creating the sagacity of accountability and answerability in entirely every
phases of lifetime.

the Holy Prophet (PBUH) has emphasized a lot on honesty and kindness in all business
dealings. He said, "The truthful and honest merchant is associated with the Prophets, the
decent, and the martyrs." And, "God shows mercy to a person who is kind when he sells, when
he buys, and when he recovers a debt." (Stacey, 2019)

Islamic Business Ethics Challenges

The stability of Muslim vintage and faith is interrupted. The organisations that are constructed
to manage through the new encounters and develop nearly different harmony stayed someway
ruined and were overlaid establishments rented and debated from Europe, particularly through
expatriate era. Nowadays, Muslim philosopher ship remains re-inspecting Muslims antiquity
besides rituals, observing in deepness that in what way for its springiness resolve and permits
a modification in Islamic practices. Philosophers are also investigating in what way faraway
western practices or western prototypes could help and can be lodged at the modern Muslim
ethical dissertation. Muslims remain thoughtful almost by the concepts of "different divinity",
"different morals" and "different viewpoint". They recognize these practices as "trivial" and
impractical, and consider that they can be disastrous. The current state is that influence of
colonization system has practically shaped two levels of literate Muslims. Persons who studies
in Madrassahs or academies take great extent, feasibly remained outside of trace through
improvements in section of discipline, expertise, business as well as in the other areas of the
society (Siddiqui, 2006).

Islamic Ethics in Implications of Business Resources & Current Challenges with Possible
Solutions are as follows:

Challenges

1. Sexual harassment

This problem can occur at every economic and social classes, indigenous clusters, professions
and dwellings in the public. An individual might be very susceptible to sexual harassment if
they recognise it more than one Code ground. For instance, if, in addition to being female, a
woman is from a racialized community (e.g. Black, Aboriginal, etc.), has a disability, and/or

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low-income, etc. she may be especially susceptible to sexual harassment and the harassment
may be intensified (Ontario, n.d).

2. Bullying and gender discrimination at workplace

Mobbing is the ongoing, systematic bullying of an individual by his or her colleagues. Mobbing
in the workplace arises from peer pressure and typically involves many co-workers, similar to
bullying among children in schools. It has been said to be more prevalent than other destructive
behaviours, such as sexual harassment and racial discrimination (Ontario, n.d).

3. Managing diversity with local in mind

Globalization. It’s affecting every business, in every part of the world. As the customer are
expanding beyond the head offices as our world has become a global therefore Human resource
can also be across borders which means that higher sales and diversification of employee
experiences and perspectives. Nowadays it has become human resource challenges,
resembling handling diverse values in indigenous team. Though following to indigenous rules
and processes, Human Resource should focus and make a workplace comfortable, welcoming,
and free of clashes from everyone.

Cultural attentiveness curriculums could help workers identify the remunerations of diversity,
like improved concepts and revolutions, and a broader client spread. Team edifice doings are
also an effective and efficient approach for incorporating workers of diverse philosophies and
hitching them to a mutual professional objective (Andriotis, 2018).

Islamic Human Rights towards employees at workplace with possible

solutions

Many studies in the past have been conducted for understanding Islamic principles of human
resource management and also how it affects employee behavior. Islam guides you at every
step of your life we have guidance in the form of Holy Quran in which we can find all the
solutions of our daily life problem it can be personal as well as related to business. “Islamic
values are valuable for human being’s need for prosperity and wellbeing (abbasi, 2010)”. Holy
Quran and hadiths is the basis of sharia principles and laws. Form Islamic point of view each
and every organization need to follow rules and regulations based of sharia principles and
Islamic knowledge to understand how to fairly work in the environment (seidu, 2006) . Islamic
HRM is important to create the Islamic way of managing employees and to effectively and

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efficiently use their employees. “Islam teaches us that employees are not our servants, but they
are should be considered as valuable assets of your organization and they should be treated
with fair means and justice” (beekun, 1997).

Shariah laws are unbiased, fair and there is no discrimination for any one regardless of the
status they have or power they possess. There for it is essential for managers to have full and
complete knowledge of Islamic laws and according to that they must build their HR system as
well as other business setups. Islamic management system emphasizes on wellbeing of human,
fair compensations, respect of each individual and equally distribution of resources available.
In Islam there is huge emphasis on having a good leader for most of the situation in life. Prophet
Muhammad (SAW) said, “When there are three people on a journey then they must employ
one amongst them as a leader” (yousaf, 2001).

Regarding HRM practices Islam sets many norm and ideas which management of the company
need to follow some of them are honesty, responsibility, trust, work dedication, discipline, team
work, appreciation and self-control. Equal opportunity and non-discriminatory behavior in
hiring.

Different studies in the past suggested that there is positive relation between human resource
management and performance of employee which significantly improves overall
organizational performance but in this study we will see it with religion point of view that how
Islamic practices influence employee performance and how organizations in Pakistan can apply
them for maximum satisfaction of employees which will increase their productivity.

"No Arab has superiority over any non-Arab and no non- Arab has any superiority over an
Arab; no dark person has superiority over a white person and no white person has any
superiority over a dark person. The criterion of honor in the sight of God is righteousness and
honest living." Saying of Muhammad (Sallam and Hanafy, 1988).

Recruitment and selection

Recruitment is the process of finding and attracting the potential candidates for position in your
organization, candidates should possess the ability, skills and knowledge which are required
for company goal and objective achievement. Organizations need to plan their whole
recruitment process and need to do job analysis these practices are always performed by HR
managers. So managers always have bigger responsibility on their shoulder that’s why they
need to be efficient in whole process.

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According to Islamic principle the person who is responsible for hiring the people should have
certain qualities they need to be fair, pious and should obey Allah’s orders. Holy Quran have
already set the standard for a job that is merit and competence, because without competency
and honesty one is not eligible for the job.

Holy Quran states: Said one of the (damsels): “O my (dear) father! Engage him on wages: truly
the best of men for thee to employ is the (man) who is strong and trust worthy”.

It is compulsory for employer to state true facts and figures about job criteria, compensation
and requirements. They should be provided all the information in advance so that they can
match their capabilities with job and they should decide whether they will be able to do it.
Candidate should not be overburdened with the work they cannot done. Quran says; “On no
soul doth God place a burden greater than he can bear” (2:286). Applicants are also required to
give accurate information about themselves there should not be any lies. Both parties should
provide true information to each other as it will be in a good interest for both of them.

Selection is a process of choosing a right candidate for the right job; selection is the process of
interviewing, evaluating and finalizing a candidate for the right job. With the help of efficient
selection process organization will get valuable human resource asset which will be helpful for
continues growth and achievement. The issue of injustice and equality is prevailing in our
society, and selecting a right person for your job is the most complex task for any organization
(Ali, Islamic Perspectives on Management and Organization, 2005) because if you hire a wrong
person than it will not only be a financial loss but also a waste of time. Employee selection is
bind by certain principles in Islam first of all justice is important no one should be nominated
on the bases of favoritism, blood relations and discrimination, employee should be selected
based on purely hi/her competencies and the last one is honesty both the candidate and
employer should be honest and deal with clarity.

Ali Ibn Abi Talib wrote; “Do not nominate them (officers) on account of favoritism or egos
these two attributes reflect injustice and treachery.”

Fiduciary responsibilities & Fraud

Fraud is the dishonest in whatsoever systems it influences with. It is labelled as the major
distinguishing of the deceptions for which the Quran has kept the worst castigation in Hell.
Islam requires its adherents to be honest and trustworthy. According to the Prophet “He who
defrauds does not belong to us”. It means that a person who is intent on resorting to fraud and

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cheating does not deserve to be counted a genuine member of the Muslim community (Bashir,
2016). Trust and friendship must be developed, often slowly, before business is possible.
trusteeship "God does command you to render back your trusts to those to whom they are due
" (Qur'an 4:58) wear your beautiful apparel at every time and place of prayer: eat and drink:
but waste not by excess " (Qur'an 7:31). To Allah belongs all that is in the heavens and on
earth" (Qur'an 3:129).

One should fulfil all the obligations and trust in business relationships and the workplace. Islam
says it is acceptable to have wealth and to consume but not to waste resources but there is no
unlimited right to private property. Encouragement of spending, investment in business
enterprise and circulation of wealth justice and prohibition of hoarding and spend of your
substance in the cause of God, and make not your own hands contribute to your destruction;
but do good" (Qur'an 2:195). Condemnation of ostentatious consumption.

Corporate governance, Insider trading & Bribery

The concept of corporate governance is all about accountability, transparency and security and
by controlling and balancing the interests of the stakeholders of the organization and making
rules against bribery and illegal insider trading. Although there are a lot of regulations by which
it operates instead there is constant and rapid increase in corruption which is a biggest challenge
of present world and it is disturbing the economy directly and indirectly in every possible way.

Corruption is one of the world’s greatest challenges due to its occurrence, everywhere in the
world and its detrimental effects on the progress of countries which hampers the economic
growth in various ways like; deterring investment, raising transaction costs and uncertainty
(Ali, n.d)

 Bribery is pervasive, particularly in unindustrialized and conversion nations

 Bribery increases transaction costs and creates insecurity in the economy.
 Bribery usually leads to ineffective economic results, in the long term impedes foreign
and domestic investments, reallocates talents due to income and distorts sectorial
priorities and technology choices (Šumah, 2017)
 Bribery is unfair, as it imposes a regressive tax, which heavily burdens in particular
commercial and service activities performed by small businesses.
 Corruption destroys the legitimacy of the state (Šumah, 2017).

Islamic Guidance

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Muslim countries score worse than non-Muslim countries in the Transparency International
Corruption Perception Index despite high percentage of believers in God might be partly due
to relatively higher poverty than is the case in the industrialized world. The prophet Muhammed
(PBUH) made the point by saying, “Faqar (extreme poverty) is likely to lead to Kufr(denial)”.
However, moral renovation in Muslim societies appears to be easier to realize than in western
societies once its underlying cause, notably poverty, is tackled. Savings and investment can
only be increased if informed savers are guaranteed that the enterprise they entrust their savings
to is trustworthy and that the enterprise is viable. Particularly in developing countries both the
state and private organisations have a great role to play to facilitate this. Economic problems,
Islamic activism and higher levels of education in the Muslim world appear to pose pressures
to present governments and leaders for change. Islamic moral education an integral part of the
curriculum, the Muslim world can benefit from the ongoing developments in the west to
improve governance. Apart from making management liable for neglecting supervisory
functions, encouraging employees to expose any wrongdoing, establishing free online fraud
hotlines, implementation of corporate ethics programs as control systems, obliging all business
to have audits, adopting measures to raise public awareness on corruption in. During the
Prophet’s time nobody was above the law including the Prophet himself and the Caliphs after
him. He called for people to bring their grievances against him had he committed injustices
against them (Er, 2008)

Conclusion and Recommendations

This is a literature based report so the data collected in this report is mostly from the previous
studies conducted by the researchers, by viewing all the material we can say the Islamic
principles have solution to every problem whether it is a business related or everyday issue if
Islamic values and practices are adopted in the work place it can increase stakeholder morale
they will be spiritually satisfied with their work. Employee or employer will always be
accountable for their work because justice is one of the core pillar of Islam, if we follow the
path and guidance of Allah which is in the form of Holy Quran stakeholder’s motivation and
satisfaction will be high, Islamic business management is also related with outcome of
organizational commitment and business ethics guidelines.

Islamic ethics is directly related to human rights, corporate governance because these are the
core factors of business morals fair performance and honest dealings, meaningful and adequate
code of conduct and elimination of fraud can increase business performance which will be great

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for economy performance. Islamic principles towards business ethics have significant effect on
corporate governance and human rights responsibilities but there is not much relation among
them, but managers should hire competent and honest candidates for selection as they will be
the future of organization so they should avoid favouritism and any kind of discrimination.
Organizations should always revise their policies according to the changing circumstances so
that a transparency in the corporate governance can be achieved.

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References
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Abbasi. (2010). welfare and protection model for organizational management: islamic
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Abuznaid. (2006). islam and managment what can be learned? thunderbird international
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Ali. (2005). Islamic Perspectives on Management and Organization.
Ali. (n.d). Alleviation of corporate corruption.
Ali, A. (2005). Islamic Perspectives on Management and Organization. Northampton:
Edward Elgar.
Altalib, h. (1991). Training guide for Islamic workers. International Islamic Federation of
student organization.
Andriotis. (2018). The Top 7 HR Challenges and How To Face Them.
Bashir. (2016). Islamic Ethics in Business and Trade.
Beekun. (1997). islamic business ethics. international institute of islamic thoughts.
Er, M. (2008). Corruption from the Islamic perspective. International Journal of Islamic and
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journal of educational managment.
Seidu. (2006). islamic concept of employee employer relationship. jeddah.
Siddiqui. (2006). Ethics in Islam: key concepts and. Journal of Moral Education, 5-6.
Stacey. (2019). Business ethics from an Islamic perspective and Prophet Muhammad’s
advice about buying and selling.
Šumah. (2017). Corruption, Causes and Consequences.
Susan, m. h. (2018, december 05). why human resource managment is so important.
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Yousaf. (2001). Islamic work ethics: A moderator. 152-169.

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