Kinds of Business

(Assignment of Islamic Studies)

Supervisor Fatima Shahid

Sir Sajid Yousaf Roll #
BB15139

Session 2015 to 2019

Department of IBA Punjab University Gujranwala Campus

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 Definition of Business:
A business is an organization or enterprising entity engaged in commercial,
industrial or professional activities. A business can be a for-profit entity, such as
a publicly-traded corporation, or a non-profit organization engaged in business
activities, such as an NGO like Edhi.

Business in Islam:
Every source of income in which benefits are enjoyed by all the concerning
parties on the just basis. Allah in Holy Quran says:

“Do not devour one another’s property wrongfully, nor throw it before the
judges in order to devour a portion of other’s property sinfully and knowingly.
(Al-Baqarah: 188)”

“Do not devour another’s property wrongfully – unless it be by trade based on

mutual consent. (Al-Nisa: 29)”

"And, O my people, give full measure and weight justly, and defraud
not men of their things, and act not corruptly in the land making
mischief. What remains with Allah is better for you, if you are
believers."

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 Principles of Commerce
in Islam:
The Holy Qur'an enunciates the fundamental principles of commerce
as follows

 To give just measure and weight.

 Not to withhold from the people the things that are their due.
 Not to commit evil on the earth with the intent of doing mischief.
 To be contented with the profit that is left with us by God after we have
paid other people their due.

Sources of Business
prohibited in Islam:
Following sources have been condemned in the Quran at various accounts;

 Bribery (Al-Baqarah: 188).

 Usurping others’ property (Al-Baqarah: 188).
 Fraud (Al-Imran: 161).
 Stealing and Robbery (Al-Maida: 38).
 Income from sources of vulgarity (Al-Noor: 19).
 Gambling (Al-Maida: 90).
 Wine and its business (Al-Maida: 90).
 Interest (Al-Baqarah: 275).

Hadith relating to Business:

Prophet Muhammad (pbuh) said:

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 “May Allah’s mercy be on him who is lenient in his buying, selling, and in
demanding back his money [or debts].” (Bukhari, No: 1934)

Abu Huraira narrated that the Prophet said:

“A time will come upon the people when one will not care how one gains one’s
money, legally or illegally.” [Bukhari].

It is reported by Jabir that the Prophet said:

“The flesh and body that is raised on unlawful sustenance shall not enter
Paradise. Hell is more deserving to the flesh that grows on one’s body out of
unlawful sustenance.” [Ahmad].

Abu Said related that the Prophet said:

“The truthful and trustworthy businessman will be in the company of Prophets,

saints and martyrs on the Day of Judgment.” [Darimi, Tirmidhi].

Abu Huraira reported that the Prophet of Allah(P.B.U.H) said,

“And what is most likely to send people to Paradise? Being conscious of Allah
and good manners.” [Bukhari, Tirmidhi & Ahmed].

Kinds of Businesses in Islam:

There are 5 types of companies defined in Islamic Economic System:

 The Company of Equals (Al-‘Inan):

This is a type where all partners put their money into a business and all work
with it. Both partners would have the right to buy and sell and make progress
with the company, hence all partners are all equal in their deposal. Slaves can be
involved in this business arrangement. Profit is divided with reference to the
invested capital.

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  The Company of Bodies (Al-Abdan):
This is where two or more people come together with their skills, such as
doctors or builders. They may invest some of their money but their skill is the
basis for the company. The person whose skills will prove to be more fruitful
for the growth of business will have more share in profit.

 The Company of Body & Capital

(Mudharaba):
This is where one funds the capital of the business and the other partner works
with it. The partner who provides the capital element is a silent partner and
takes no part in the running of the business. The other partner buys & sells on
behalf of the company. A necessary condition for setting up a mudarabah is that
the capital offered by the financier must be expressed in monetary units and the
share of profit going to either party must not be a fixed amount. Profits must be
distributed between the two parties on the basis of an agreed-upon ratio.
Mudarabah may be organized in many forms, meeting the needs of today's
business environment. For example, two parties may make an arrangement such
that the financier bears the business risk, receives the entire profits, and pays
commission to the other party as the compensation for labor and managerial
services.A mudarabah may also assume the form of a business corporation if its
shares are sold to the general public and the financiers form a Board of
Directors that formulates a broad-based policy for the operation of the business
and makes decisions regarding distribution of profits among share-holders. The
other party, called management, is responsible for the business operations,
procurement of raw materials, hiring and firing of labor, marketing of goods,
etc. Depending upon the type of contract, the management would be entitled to
compensation such as wages, salaries, or commissions. This type of mudarabah
appears to be closer to a modern incorporated business, which is the most
dominant form of business organization in America today. However, despite
this apparent similarity, a corporation-type mudarabah would be very much
different from an American business corporation. It would neither be allowed to
borrow nor to lend funds on the basis of interest. American corporations, and in
fact all American businesses, are heavily involved in interest-based lending and
borrowing activities, which is forbidden in islam.

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  The Company of Reputation (Wujooh):
This is a company similar to madharabah but the capital is provided by a
silent partner who has respect & standing and based upon this the company
trades. For instance the partner could be a famous, known & rich merchant
whose name ensures business for the company. The earned profit is divided
equally.

 Musharakah
A musharakah is a business arrangement based on the concept of Profit and
Loss Sharing (PLS). In this arrangement, two or more parties sign a contract
to combine their efforts, in the way of physical and financial resources, to
operate a business. In a musharakah, profits are shared among the partners
according to their level of participation but losses, if any, are borne by the
suppliers of capital. Thus, musharakah is another important business
organization that ensures allocative efficiency and distributive justice. The
capitalist system, which favors capital by relieving it from business risk, does
not provide conditions favorable for the growth of musharakah type of
businesses.

 Ijarah
Leasing of land, houses, and commercial facilities has been a well-known
business phenomenon for a long time. A lease is a contract between two parties
such that the owner, called the "lessor", rents his assets to the other party called
the "lessee" for use for an agreed-upon period, on specified rental terms. The
lessee is entitled to use of the assets so long as he abides by the terms and
conditions of the lease agreement.

 Murabahah
Murabahah is a sale/purchase agreement based on differed payments. Through
the mechanism of mark-up and mark-down, the system can be designed as a
device for commercial financing, following Islamic principles. However, it must
be recognized that murabahah is prone to interest-based business arrangements
and must be avoided as much as possible. During the time of the Caliphate of
Hazrat Umar ( ), when Muslim traders started long-distance trading, the
shrewd money-lenders who used to be present at the trading centers in foreign
countries would incorporate interest charges into the exchange rates. When
these matters were brought to the notice of Umar ( ), he told the Muslims

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to avoid anything which is doubtful. Some näive Muslim scholars use this
example to try to make a distinction between interest and usury, justifying
interest which is charged at reasonable rates and prohibiting usury because of
exorbitant rates.

Conclusion:
The concept of work in Islam is far broader and has different characteristics
and objectives than that understood in the Western economic tradition.  In
Islam, work ethic is defined by the Quran itself, which mentions the word
‘amal in 360 verses.  A closely related concept of fi’l (also translated as
work) is mentioned in an additional 109 verses.  All these verses stress the
need for work and action by human beings.  It is based on this emphasis on
work that Islam is considered as the ideology of practice and the practice of
ideology, a religion of action, and "the par axis of the believers”. The Quran
considers idleness - or squandering of time in pursuit of unproductive and
non-beneficial work - as the manifestation of lack of faith and of
unbelief. Man is called upon to utilize "time" in pursuit of work by
declaring that God has made the day as means of seeking sustenance.  A
person who through hard work seeks God’s "bounty" - which includes all
appropriate means of earning one’s livelihood - is most highly praised.  All
able-bodied persons are exhorted to work in order to earn their living.  No
one who is physically and mentally able is allowed to become a liability on
one’s family or the state through idleness.  The work which everyone is
required to perform must be "good" or "beneficial" (al-’amal al-salih), but
no work is considered as inconsequential in terms of its rewards or
punishments in this world and in the next.  One will have to reap whatever
rewards or retributions are done as a result of his work. (Quran 99:6-8)

– “There is nothing for man but what he strives for” [53:39].

Both physical and intellectual labor are recognized in Islam. So work hard
Allah has ordained it for you! 

”As to those who believe and work righteousness, Allah will pay them (in
full) their reward; but Allah loveth not those who do wrong.”[3:57].

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“Know the true value of time; snatch, seize, and enjoy every moment of it. No
idleness, no laziness, no procrastination: never put off till tomorrow what you
can do today” – Lord Chesterfield.

The end