NUR FARAH ATIQAH BINTI NOR AZMAN (2021155805)

INDIVIDUAL ASSIGNMENT ISB542

QUESTION 1

In order to avoid excessive profits, Islamic schools of thought (mazhab) set a proportional profit limit.
Provide these proportion discussed by these scholars.

Interest is forbidden in Islam, however profit is permitted. It encourages trade as a business and
believes profit as a divine gift. Profit is a huge aspect in mainstream economics as well. Without the
concept of profit maximization, price theory, which is at the basis of economics, cannot remain stable.
Profit is the most important principle in the practical world of trade, industry, and commerce. Except for
what is in conflict with Islamic values, such as exploitation of human beings, gross inequalities in
the distribution of wealth resulting in concentration in fewer hands, monopoly dominance, persistent
poverty, corruption, and other social evils of the sort, there is an affinity between the economic scheme
of Islam and capitalism. Capitalism has always prioritized the powerful's supremacy and material gain at
the expense of spiritual beliefs. Individualism has been encouraged at the expense of society. The
market has become sanctified, and wealth has become a goal in and of itself. Both, on the other hand,
allow for private property ownership, entrepreneurial freedom, and competitive marketplaces.

Dr. Muhammad Bakr Ismail (one of the scholars from al-Azhar, Egypt) explained in his collection
of fatwas (Baina as-Sa-il Wa al-Faqih, Sheikh Dr. Bakar Ismail). There is no specific limit in Islam for profit
(which should be taken in business or sale-purchase) according to the most authentic view of the Islamic
scholars. The trader should set the price according to the rate that is pleased by him and also pleased by
the buyer. The sale-purchase agreement is built on mutual agreement between the seller and the buyer
as per the word Allah:

"O you who believe, do not use the wealth of one another in a wrong way (cheating,
gambling, etc.), except with the way of business done in mutual pleasure between
you" (an-Nisa ': 29).

From the fatwa above we can conclude two things regarding the pricing of goods/products;

a) There are no specific restrictions from the Shari'ah for the profits that must be taken from the
products sold. So, the pricing of the product/goods is entirely up to seller/manufacturer.

b) However, sellers/manufacturers must take into account the consumer's satisfaction with the set
price. There is no need to commit price fraud or ghabn fahisyh (i.e. excessive price difference from the
actual price in the market) which causes buyers to lose their sense of satisfaction towards buying and
selling when they knowing the true value in the market. For example; selling cheap goods at exorbitant
prices by exploiting the buyer’s ignorance of the true value goods/products in the market, such as selling
goods worth RM20 at a price of RM100 without the buyer knowing the true value.

Regarding the rate of price difference that is allowed -to avoid the occurrence of ghabnu fahiysh
(excessive price difference) -, the scholars have different views:

a) According to the section of Malik and Syaffie; not more than 1/3 or 34% of the market price (if the
market price is RM 10.00, it must be sold not more than RM13 40)

b) Imam Nasir bin Yahya al-Balkhi distinguishes between three types;

(1) Real Estate; do not exceed 20%

(2) Livestock; do not exceed 10%

(3) Goods; do not exceed 5%

c) The Hanafi and Hanbali schools of thought; the rate of price difference allowed is not fixed at a certain
percentage, it varies according to the uruf (custom) among traders and their valuations. This view is the
rajih because there is no nas Syarak limiting the maximum price that can be placed, by thus the
determination goes back to 'human uruf.