M. U. Ndagi
8 November 2008
opinion
Our discussion on issues that relate to the rights of individuals in business transactions as well as agreements arising therefrom continues this week.
Islam generally prohibits any transaction that allows the exploitation of one party by another as a means to acquiring wealth. Allah (SWT) states in Qur'an 4:29 "O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you traffic and trade by mutual goodwill...". Any act of cheating or deceit which results in reducing others to penury while some prosper (at others expense) is tantamount to exploitation. Fraud in commodities of trade, gambling and games of chance are all central to the concept of exploitation which is forbidden in Islam. Allah (SWT) reminds us in Qur'an 83;1-3 "Woe to those who deal in fraud; Those who when they have to receive by measure from men exact full measure; But when they have to give by measure or weigh to men, give less than due".
Islam permits two or more individuals to partner together for the common purpose of transacting in a particular business or trade from which each party would share fairly in the profits that accrue from it. Partnership in business is called 'sharikah' in Islamic jurisprudence. Abu Hurayrah (RA) reports that the prophet (SAW) said "Allah (SWT) said: I am the third of two partners so long as one does not cheat the other. If one cheats the other, I am not part of them". Shariah stipulates that the share of each partner to a business in terms of profits and losses shall be proportionate to the funds each has contributed.
Sharikah would come in to effect when one or all parties to the business or trade contribute a specified amount of capital, labour or skill. Sharikah could also be of a mixed character in terms of cash and labour. There are two broad types of ordinary partnership, viz: partnership by possession and partnership by contract. Partnership by possession comes in when two or more persons are joined together in a gift or inheritance. Partnership by contract, which is peculiar to joint investments is of four kinds and would briefly be discussed here.
The first of the four is sharikat ul-Inan. It is a limited form of partnership in which a partner in a business does not have the right to do anything or take decisions that affect the business without the knowledge of his co-partner. The second is sharikat ul-Abdan, which practically implies partnership in labour. It involves two or more persons associating together in the exercise or practice of a trade or handicraft such as vehicle repair, carpentry, electrical and wielding works or any similar jobs. Profits from this kind of partnership shall be shared equally among partners in the trade even though they may differ in the rate at which each of the partners works or provides labour. While Imam Malik opines that each of the partners in this type of joint associations in business would provide working tools for himself, other jurists maintain that working tools should jointly be provided and owned by the partners or could be hired for use at their common expense in case they lack the means to provide same.
The third form is sharikat ul-mufawadah, which is a type of partnership that involves negotiations that is founded on four conditions: All partners must be of the same religion, Islam; must all have a sense of maturity; must contribute equal amount of capital to the business; and each of the partners would act as an agent to other partners in buying, selling or transacting a business. The fourth is sharikat ul-wujuh, which is a form of partnership that allows two or more persons to transact business even though without a specified capital with a view to sharing the profits that may accrue from such. Malik and Shafi'i schools of Islamic jurisprudence both disapprove with this kind of partnership even though the Hannafite and Hanbalite schools both consent to it.
Mudarabah is another form of partnership in which certain property or stock (ra's ul-mal) is provided by a partner while another person is brought in as an active partner in managing the business. Both partners would share in the profits that accrue from the business. Mudarabah usually comes in to effect when an individual who has a capital lacks enough ability to manage or invest in it or when a person who has good investment skills lacks the wherewithal. Some of the principles guiding the practice of Mudarabah include the fact that the capital must be in cash and should be unambiguously known to the other party. Profits from the business must be shared in fractions proportionate to each partner's contribution. Imam Malik and Shafi'i opine that the owner of the capital in this kind of partnership should not restrict activities of the workman who partakes in managing the trade or business to a particular town, item of trade or period of transaction. However, Abu Hanifa and Imam Ahmad are of the view that restrictions could be imposed on the workman when necessary. The workman is not allowed to incur feeding expenses from the capital of the business but from his pocket except if the provider of the capital permits him to do so. Mudarabah becomes void if either of the partners dies or the workman fails to safeguard the interest of the business.
There is also another form of partnership called al-Qirad, which is different from the ordinary partnership of sharikah. Al-Qirad, in other words, is a dormant kind of partnership in which (unlike the sharikah) a partner provides another with funds or capital while the active agent operates the concern almost without control on condition that the latter shall participate in the profits, in clearly defined proportion. Al-Qirad could be likened to the mudarabah type of partnership but yet with a difference because while both parties are active in mudarabah, only one of the parties is active in the trade in al-Qirad.
Qirad is permitted on certain principles which include the fact that the active partner would receive nothing if no profits were made from the business. Light manual labour (such as folding and unfolding of clothes in the sale of textile materials) is part of the duties of the active partner. If, however, he engages the services of other people (as attendants) for such kinds of work, there remuneration shall be at his own expense and not at the expense of the capital provided for the business. The active partner is not under any obligation to admit another partner in to the business. Neither is he allowed to merge or join his private funds with those of the Qirad. The active partner is not permitted by shari'ah to give out gifts from the Qirad funds.
We took time to discuss the different forms of partnership in business because it has been noted that many of those who partner in business do so with limited knowledge about the principles guiding its permissibility or validity, which is also the reason why many partnerships collapse before such deals mature. Equity is the foundation upon which every act of trade or business must be built in Islam. No party to a transaction should under any circumstance cheat another and must similarly not allow himself to be cheated. All that matters to businessmen of today is profit irrespective of whether other parties to the transaction are fairly treated or not. This capitalist tendency is responsible for the present state of unblessed wealth in the hands of many of us. We appear to be rich, yet, without prosperity. May Allah (SWT) guide us to complete all our business deals according to rules laid down by shari'ah, amin.
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