Questions on Commercial Ethics
The essence of commerce is sincerity, safety, well comprehension of the age and utmost kindness and utmost decency shown towards customers. One who lacks one of them actually causes damage to the essence of commerce and thus blocks his own livelihood.
The essence of commerce is sincerity, safety, well comprehension of the age and utmost kindness and utmost decency shown towards customers. One who lacks one of them actually causes damage to the essence of commerce and thus blocks his own livelihood.
The essence of commerce is based on trade, enterprise and use of capital. Allah the Glorious says: “O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you traffic and trade by mutual good will.” (al-Nisa,4:29).
“God hath permitted trade and forbidden usury.” (al-Baqarah, 2:275).
“O ye who believe! When the call is proclaimed to prayer on Friday (the Day of Assembly), hasten earnestly to the Remembrance of God, and leave off business (and traffic): That is best for you if ye but knew! And when the Prayer is finished, then may ye disperse through the land, and seek of the Bounty of God: and celebrate the Praises of God often (and without stint): that ye may prosper.” (al-Jumu’ah, 62:9-10).
Some of the advice of the Messenger of Allah to tradesmen is as follows: “A tradesman who is straight (honest) both in his words and actions is in the shadow of the sky on the Day of Judgment.” (Ibn Majah, Commerce 1) “If one collects eatables and sells them at the current market price, he earns thawabs as if he gave them freely to the poor and the needy.” (Ibn Majah, Ruhun 16).
“O community of tradesmen! Doubtlessly, there are a lot of lies in trade. For this reason, compensate for it with sadaqah.” (Abu Dawud, Buyu 1) “A tradesman who is reliable in his words and actions is with prophets, the siddiq and martyrs.” (Tirmidhi, Buyu 4; Ibn Majah, Tijarat 1)
The Messenger of Allah (pbuh) also advised on commercial partnerships. The Quran gives only general ethical principles on the subject. “Truly many are the partners (in business) who wrong each other: Not so do those who believe and work deeds of righteousness, and how few they are!” (Sad, 38:24).
Another verse talks about partnership in inheritance as follows: “If the man or woman whose inheritance is in question, has left neither ascendants nor descendants, but has left a brother or a sister, each one of the two gets a sixth; but if more than two, they share in a third.” (an-Nisa, 4:12).
A holy hadith narrated by Abu Huraira is as follows: “As long as two partners in business do not betray each other, I am their third (I am with them). If they betray each other, I leave them.” (Abu Dawud, Buyu 26).
Other hadiths are as follows: “Allah’s hand of power is with partners in business as long as they do not betray each other.” (Abu Dawud, Buyu 26).
“Profit return is shared according to conditions determined freely by partners. And the loss is dealt with according to a ratio of their capitals.” (Ibn Majah, Tijarat 63)
The Prophet has got many remarks, actions and statements related to commercial and financial life. As a matter of fact, when the Messenger of Allah was asked what the best way of livelihood was, he answered: “It is one’s elbow grease and acceptable trade.” (Ahmad bin Hanbal, Musnad, 3/466). And this refers to trade in which there are no betrayal and lying.
The Prophet himself (pbuh), too, traded, lent, hypothecated and had business partners. He became a prophet in a time when people were involved in various commercial activities and he did not forbid them from trade but contrarily encouraged them saying nine tenth of livelihood comes from trade. (Munawi, Fayzu’l-Qadir, 3/220).
However, interest, black marketing, lying, trickery, fraud and uncertainty which can lead to ill-gotten gains were banned and a financial system in which the rightful person can have his right and those who want to wrong others are eliminated was targeted. For a trade free of problems, shopkeepers and tradesmen must have enough knowledge in their fields or must have an expert to whom they can resort to at any time.
As a matter of fact, Hazrat Umar started a campaign for gaining knowledge and information in trade when he became the caliph. The first notice of commerce that he sent to all governors is as follows: “One who does not know Islamic judgments related to his own trading may not trade in our markets and bazaars because he may fall into interest due to his ignorance.”
Is there a limit for the rate of profit?
Commerce and profit are mentioned in the Quranic verses and hadiths, in general, and financial life is asked to continue in accordance with some certain principles of life and within its own natural rules. Profit made from commercial activities which are done according to their own rules and Islamic principles are considered lawful.
However, necessary precautions were also taken against excessively greedy people who might want to exploit people making excessive profit. With these precautions, it was aimed to protect the essence of open competition and to prevent exploitation of people’s needs. Amongst these precautions, prohibition of interest, black marketing, lying and fraud, stopping ways of unrequited earning and applying government-regulated prices when necessary can be listed. In this sense, it is understood that Islam does not determine a limit to profit on a percentage basis added to prices of various goods in trade.
Generally, pricing dependent on rules of supply and demand and within the principles of open competition is taken as a criterion. The following answer of the Messenger of Allah to people who resorted to him for controlling current prices and determining the limits of profit is meaningful: “Doubtlessly, It is Allah who determines prices, gives abundance and poverty and endows livelihood. I would not like to return to my Lord while one of you wants his rights from me because of an injustice in property and life matters.” (Abu Dawud, Buyu 49; Tirmidhi, Buyu 73; Ibn Majah, Tijarat 27).
However, we should state right away that the absence of a limit to profit on a percentage basis in sales contract does not mean that one can sell things at any price he likes. “Prohibitive price becomes in question when something is sold above the current prices by influencing customers with false swearing, hiding the good’s defect, praising the good by attributing to it facilities which it does not really have, showing a cost of the production higher than it is and taking advantage of the scarcity of the goods. In this sense, the extra profit which is not rightful to the seller is not lawful for him.
What is exorbitant profit? What is the percentage of profit?
Defrauding is expressed as “ghabn” in Islamic terminology. It is divided into two as “exorbitant ghabn and moderate ghabn. It means defrauding to a large extent and to a small extent because it is difficult to avoid it. Besides, people consent to small differences in price. On the other hand, if the price is too much above the current prices, customers think they are defrauded and do not make the extra price they pay halal to sellers.
Therefore, the issue of exorbitant price comes out. The amount of exorbitant (prohibitive) price has been determined by jurisprudence (case law).
According to Hanafis, there is fraud (ghabn) in prices which are too low or too high when compared to evaluations by experts. Nusair ibn Yahya, who is a jurisprudent of Belh, (death 268/881) limited exorbitant fraud to 20% for immovable properties, 10% for live animals and 5% for other movable goods and stated that pricing above or below current prices in the market, exceeding these limits, is considered exorbitant fraud, taking into consideration the flow rate of goods that are in sales contract in market and people’s demand for them.
Extra pricing which is below these percentages is considered moderate fraud. The Majallah (Islamic-Ottoman civil code) made these criteria into an article of law with article numbered 165. However, exorbitant fraud can be a reason to cancel sales contract only when there is trickery at the same time.
Otherwise, there is not any Islamic objection when one sells his goods at any price he likes, on condition that he gives true information about them to customers, without any lies and tricks. According to Malikis, it is the exorbitant price when it is above or below the general price in the market with the price being one-third higher than the real cost of the good. This was the same in Abu Bakr’s practice.
We think that the reason why Islam has not determined a certain limit to the amount of profit to be considered exorbitant is to leave its determination to the customs of countries and regions. Different madhhabs putting forward different criteria on this subject indicates this, too. On the other hand, it is necessary to evaluate cash sales and credit sales separately because it is known that the rate of profit is high in credit sales.
In conclusion, for the one who sells something with a price higher than the general price in a market by lying and tricks, the extra profit he makes is not lawful. He must seek customer’s forgiveness. If this is impossible, he must donate to the poor and needy to compensate for it. A hadith says: “O community of tradesmen! Doubtlessly, there are a lot of lies in trade. For this reason, compensate for it with sadaqah.”(Abu Dawud, Buyu 1; Tirmidhi, Buyu 4: Nasai, Ayman 7)
What is Black Marketing?
Black marketing means storing something people need and wait until its price increases before putting it on the market. It is an Islamic principle not to control commercial life strictly and to allow prices to be determined by free competition. When some goods are stocked for black marketing, it causes scarcity on the market and prices begin increasing due to too much demand. This is already what black marketers aim at.
The Prophet (pbuh) said: “How evil is a black marketer! He is upset when he finds out that prices are decreasing and is happy when he hears them increasing.” (Kamil Miras, Tajrid-i Sarih, 6/549). “One who keeps an eatable in store for 40 nights (while it is needed) is away from Allah and Allah makes him away from Himself.” (Ahmad bin Hanbal, Musnad, 3/33). For black marketing to occur, the following conditions are necessary:
1- The stored items must be bought,
2- They must be eatables,
3- People must have difficulties buying the stored items and must be in need of them.
According to Abu Yusuf, there exists profiteering in all kinds of items the storing of which harms people along with eatables. The storing period of an item is normally forty days; however, this period can be shortened in case of social difficulties. As a matter of fact, today the society will have great difficulties if utility goods such as fuel and bottled gas are taken off the market for more than two or three days. Otherwise, there is no objection to fixing prices officially (narh), especially for necessary articles.
What is the sales ban before reception of goods? What kind of effects does it have on commercial life?
Actual reception of goods that are bought is called “qabd.” In case of selling of goods by the customer to a third party before they are actually received, any disagreement on the reception of goods that may occur between the first seller and buyer will affect the second sale. Goods may not be received as a result of the first seller breaking his promise, goods being defected or destroyed for some reason. In this case, the second seller will not be able to keep his promise until the other problem is solved.
The Prophet (peace be upon him) said: “Whoever buys an eatable product, should not sell it to someone else until he receives it.” (Bukhari, Buyu 54, 55; Muslim,Buyu 29-32; Abu Dawud, Buyu 65).
The eatable product mentioned in this hadith is just an example and it covers selling of all movable items. If the goods are sold to someone else before they have actually been received, it results in increase of price before the goods have not been taken over and even before they have been actually produced. Some resellers, this way, earn money on paper before seeing the goods.
According to Abu Hanifa and Abu Yusuf, it is permissible to make use of immovable items before they are received. The evidence they base their opinion on is the principle of “istihsan”. The possibility of an immovable property to be destroyed or changed before reception is quite rare. And a rare thing cannot be accredited. According to Imam Muhammad, Zufar and Shafii, it is impermissible to sell immovable properties just like movable properties, before reception.
What are rights and duties of debtors and creditors in Islam?
It is important to keep promises that have been made in commercial life, like in all fields of life. Our people have internalized sayings such as “as straight as a die”, “my word is my bond” and “either appear as you are or be as you appear.”
It is important to keep promises and to fulfill commercial contracts on due dates in commercial life, which mostly deals with personal rights. Otherwise, personal rights will be violated and they will be left to revenge in the hereafter unless wrongdoers seek forgiveness from the ones they have wronged while alive. It is demanded from people to record mutual debts on paper and to comply with promises and contracts. The Quranic verses say: “O ye who believe! Fulfill (all) obligations.” (al-Maidah, 5:1).
“Fulfill (every) engagement, for (every) engagement will be enquired into (on the Day of Reckoning).” (al-Isra, 17:34).
The following hadith of the Prophet interprets the verses above: “Muslims comply with the conditions which they have determined amongst themselves. However, conditions which make haram halal and halal haram are excepted.” (Bukhari, Ijarah 14; Tirmdhi, Ahkam 17).
On the other hand, debtors who have got difficulties in paying their debts must be given a chance. The Quranic verse says:“If the debtor is in a difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.” (al-Baqarah, 2:280). However, a debtor, who does not pay back although he can afford, is considered to be unjust to creditor. The following is stated in a hadith:“It is injustice of one who is able to pay his debt to delay it.” (Bukhari, Hawala 1, 2; Muslim, Musakat 33; Abu Dawud, Buyu 10; Tirmidhi, Buyu 68).
The creditor has got the right to collect his payment from such a debtor through court. One can get into debt in order to meet his needs, to expand his business and to increase his endorsements by buying more properties. There is no objection to getting into debt to the degree that one can pay it back. As a matter of fact, the Prophet got into debt from time to time in order to meet his needs, too. For instance, he bought food from a Hebrew and left his armor as mortgage. (Bukhari, Jihad 89).
Allah the Glorious helps those who get into debt with the intention of paying back later. A hadith narrated by Abu Huraira says: “Whoever gets into debt with the intention of paying back later, Allah enables him to pay it back. Whoever takes one’s property with the aim of wasting it, Allah wastes him away and he cannot pay back.” (Bukhari, Istiqrad 2).
The importance of aim in getting into debt is clearer in the following hadith narrated by Abu Umamah: “If anyone takes other people's money with the intention of repaying it and then he or she should die without settling the debt, Allah will pay the debt on his behalf. And if anyone takes money or property (of others) with the intention of destroying it, Allah will destroy him." (Kamil Miras, Tajrid-i Sarih, 7/273). However, these warnings do not mean that it is impermissible to get into debt according to Islam.
Islam’s advice on getting into debt is being moderate and not to get into a debt that is beyond what we can pay back.
We would ask Allah the Glorious to endow upon us livelihood, free of harams.
Footnotes
1- Ghabn which means fraud in trade, giving inadequate amount, hiding, not realizing is divided into two according to the Hanafis and both have got their own judgments. Exorbitant ghabn means selling an item at a price much higher than what is determined by experts or buying it at a price that is much lower. Moderate ghabn means selling an item with a difference price that is neither so high nor so low, which people can tolerate though considering it a fraud.
2- Gharar means the risk of fraud and uncertainty in trade. Islam prohibited selling of fruits, vegetables and harvest before they have ripened enough because there is gharar with such products; that is, the risk of being wasted away.
3- Narh means determining of prices by state, government or other authorities and prohibiting shopkeepers and sellers to exceed them.
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