Mu‘amalat at-Tijariyya (Islamic Trade and Commerce)

Mu‘amalat at-Tijariyya
(Islamic Trade and Commerce)
as a Solution for Contemporary Economic Problems

Talk given at the Shaykh Nurjati State Islamic University,

Cirebon, Indonesia

on 29th April 2026

by

Dr. Riyad Asvat

 

Introduction

I will divide this presentation into 3 parts. In the first part we will look at Islamic trade and commerce when it functioned historically. In the second part we will look at the way trade and commerce is practiced today, which is, capitalist. In the third part we look at re-establishing mu‘amalat at-tijariyya, that is, Islamic trade and commerce.

Part 1
Islamic Trade and Commerce in history

Pre-Islamic Arabia

This is the period before the Prophet Muhammad, peace and blessings of Allah be upon him. From before his birth Makka was a major political, economic and religious centre in Arabia. Makka’s economy was dependent on trade since it had no agriculture or commodity production. It had water and a haram (sacred space) that attracted both pilgrims and merchants. Makka’s sacredness and its trade were intimately linked because the success of one helped to increase the success of the other. Qusayy ibn Kilab the head of the Quraish tribe and his successor Hisham ibn ‘Abd Manaf, introduced several administrative and institutional practices, which had far reaching consequences for the commerce of the city. He opened up the possibility of trading with markets under Byzantine control in Bursa, Gaza, and Alexandria. Following successes in these markets the Makkans were encouraged to make similar arrangements with merchants in Abyssinia, Yemen, and Persia. Hisham succeeded in creating a network of markets with Makka as the centre of that commercial network.

The level of institutional complexity, the ability to collect taxes and the monopoly of power held by the Quraish to make and enforce the law made Makka a city state. Makka had become an oligarchic state, that is, political, economic and military power was in the hands of the wealthy elite. In alliance with each other the merchants, royal families, temple officials, tribal chiefs and landlords were able to monopolize the political, civil and religious institutions of the society. These groups, through their control of wealth and resources, dominated the state. Social stratification of the population of Makka was determined by disparity of wealth. As time went by the gap between the rich and the poor widened and the social structure that came into existence was shaped by ownership of wealth. Division of labor was another development arising out of the commercialization of Makka. People became wage laborers, craftsmen and service providers to the caravan economy. The market gave rise to many types of skilled professionals such as veterinarians, shopkeepers, blacksmiths, tailors, arrow-makers, carpenters, herders, guards, entertainers, servants, porters, food vendors, and guides. Money-lending with riba became another way to increase capital, and many Makkan merchants amassed their wealth through this practice. Riba worked in two ways, the first allowing the concentration of huge amounts of wealth in the hands of a few individuals and secondly impoverishing others. For those who were driven to poverty infanticide was seen as a way of alleviating poverty, particularly the killing of female infants.

The Prophet, may the peace and blessings of Allah be upon him, in Makka

By the time the Prophet, may Allah bless him and grant him peace, began propagating the message of Islam in the year 610 the leaders of Makka were Abu Sufyan of the Banu Umayya clan and Abu Jahl of the Banu Makhzum clan. The Prophet, may Allah bless him and grant him peace, delivered the Qur’anic message, which was that Allah is the Creator of the world and He has made laws by which human societies can function harmoniously and in peace. He taught that the aim of leadership was to preserve social order and assure the prosperity of Allah’s subjects. He maintained that since governing is primarily associated with the production, distribution and consumption of resources, the circulation of wealth must be guaranteed by the law (the shari’a.)

The economic consequences would be radical because the revelation called for a complete change of attitude. Wealth belonged to Allah and human beings possessed it as a trust from Him. It was to be used as a means to an end, the end being Paradise. Strict parameters were laid out for the acquisition of wealth, discouraging banking, prohibiting usury, gambling and unjust trading practices. The law guaranteed the movement of wealth among all sections of the society implying the end of the oligarchy that prevailed in Makka. Socially all human beings were regarded as equals in the sight of Allah. The revelation called for women to be treated with honour, non-Muslims to be respected and the freeing of slaves to be regarded as meritorious acts.

As expected, the Makkans reacted to the Prophet, may Allah bless him and grant him peace, with extreme violence. They felt that all their values and institutions were threatened. They physically beat him and insulted him. They accused him of being a poet, a sorcerer, and of being possessed. When that failed to stop him from spreading his message they tried to bribe him but he refused. Due to severe persecution some of the Companions of the Prophet sought refuge in Abyssinia. Then the Makkans decided to use the well-tried weapon of boycott to extinguish this new movement. The boycott lasted about two years and the Prophet and his clan suffered extreme hardships from the moment that their food-supplies ran out. The boycott finally ended when the Makkans could not agree on how to enforce it. Having thus failed the only option left was to kill the Prophet and that opportunity arose when Abu Talib died. Even this failed when the Prophet, may Allah bless him and grant him peace, outwitted them and migrated to Yathrib.

The Prophet, may the peace and blessings of Allah be upon him, in Madina

Yathrib was renamed Madina al-Munawwara (the Illuninated City) by the Prophet, may Allah bless him and grant him peace, after his arrival there. It was here that he was able to fulfil the Qur’anic call for him to be the perfect model for human behaviour and his society to be the standard for mankind. The Prophet, may Allah bless him and grant him peace, succeeded in making Madina and it set the standard for Muslim civilizations till the early twentieth century. Madina was a nomocracy, that is, a law-governed society led by Allah’s representative (caliph), the Prophet, may Allah bless him and grant him peace.

In order to establish freedom of trade the Prophet, may Allah bless him and grant him peace, founded a new market in Madina. There were to be no fees levied in the market and it was to be tax-free. There was a dispute between the Prophet, may Allah bless him and grant him peace, and Ka‘b ibn al-Ashraf, the chief of the Jews, over the setting up of this market. Ka‘b considered the establishment of the new market as competition to the existing one of his tribe the Banu Qaynuqa‘. This dispute indicates that the opening of the new market was essential for the establishment of the new deen. Up until then the Jews of Madina monopolized commerce, trade, industry, agriculture, knowledge and learning in the city. The market of the Prophet, may Allah bless him and grant him peace, spelt the end of that dominance. It was clearly understood by the antagonists that the Islamic market was the most important instrument for political transformation of the society.

Expansion of Trade after the Prophet, may Allah bless him and grant him peace,

Abu Bakr, the first caliph after the Prophet, may Allah bless him and grant him peace, emphasized the shari‘a’s intention for the movement of wealth amongst the members of society when he declared war on the tribes who refused to pay zakat. It was ‘Umar ibn al-Khattab (r. 634-644) the second caliph, due to the rapid expansion of the dawla (territory governed by Muslims) in his time, who initiated numerous administrative measures that related to financial matters. He had conquered Damascus in 635, Jerusalem in 637, Babylon in 641 and Alexandria in 642 and large parts of Syria, Persia, Egypt and North Africa came under his control. The administrative measures he introduced included: policing; the army; land surveying; regional development; appointment of judges in different cities; the diwans (registers to organize the pay of the fighting forces, public records and official bureau); bayt al-mal (the treasury); maritime transportation; department of amenities; civil engineering; awqaf; and taxation. Sayyidina ‘Umar renovated buildings, built cities, dams, bridges and canals. It was ‘Umar who defined the legal weights of the currency i.e. the dinars and dirhams and was the first to issue Islamic coins in 18 Hijra (640). ‘Uthman added Libya, Cyprus, Armenia, Azerbaijan, and Afghanistan to the territories he already ruled. Islam had also reached Abyssinia, East and Central Africa. Sayyidina ‘Ali added parts of Sistan to the caliphate and his navy went as far as Kohan, near Bombay in India in 38 A.H.

After the seventh century the Mediterranean became a ‘Muslim Lake’ and Western Europe was a tiny outcrop lying on the edge of a vast African and Asian economy. Islam also spread into Europe – Spain between 711 and 1492 and Sicily in 902. Eastwards Islam spread to India, Southeast Asia and China and southwards into sub-Saharan Africa particularly through commercial influence. Naval ports on the shores of the Red and Arabian seas enabled trade with Africa and India. Muslim ships carrying cargo sailed down the East African coast as far as Mozambique and Madagascar. There was gold-mining in Ethiopia and Zimbabwe and the Tanzanian city of Kilwa was the principal port facilitating for the import, export, collection and distribution of goods. East African ports had commercial relations with Aden, Suhar and Siraf. This long-distance trade helped stimulate trade into the African hinterland and West African ports such as Sijilmassa (in Morocco) and Awdaghast and enabled the inter-linking of the eastern and western coasts in both the northern and sub-Saharan regions.

The Middle East has been described as the ‘Bridge of the World.’ During the Abbasid caliphate) Baghdad stood as the key cross point where the most heavily travelled land and sea routes intersected. Iraq was described as situated near the centre of the world and the most prosperous country in the world. The Muslim Abbasid dawla was the greatest centre of science, arts and civilisation in the world during its time. That came to an end when the Mongols invaded most of the Abbasid caliphate, sacked Baghdad and executed the caliph al-Musta’sim on 20 February 1258. Ibn Khaldun noted that the Mongol invasion had destroyed the Abbasid economy.

The Ottomans crossed into Europe in 1354 and a century later Mehmed II conquered Constantinople bringing an end to the Byzantine Empire. During the period 1453 and 1606 the Ottoman caliphate emerged as a world power and directly challenged Spain in the Western Mediterranean. They supported the emerging nations of north-west Europe whilst at the same time projecting their power in the Indian Ocean all the way to Sumatra to aid the Muslims of the region against the Portuguese. For six centuries until World War 1 the Ottoman Caliphate was at the centre of intercontinental trade, stretching from the Balkans and the Black Sea through Anatolia, Syria, Mesopotamia, the gulf of Egypt and North Africa.

During the reign of Suleyman I, the Ottomans were the most powerful empire in the world. The Pax Ottomana (peace and stability across the Ottoman Empire) lowered commercial protection and transaction costs, established uniform trading practices and increased the speed of trade. Ottoman rule was crucial to safeguarding traders from piracy on the seas and banditry on land. Pax Ottomana linked trade between Russia and Central Asia with Europe via the Black Sea. It also linked the Levant and North Africa to the Indian Ocean where most of Euro-Asian trade was conducted. Trade and communication between the Ottomans and Europe assisted the transmission of social and technological knowledge into Europe and Ottoman traders introduced their business methods, such as their system of credit, simsar (brokerage) associations and partnerships into their transactions with Europeans.

What happened to Islamic trade and commerce with the termination of caliphates, sultanates and amirates?

The answer to this question is too extensive to be covered in the time that we have. Let us, very briefly, take the Ottoman dawla as a case study. No understanding of the current situation of the Muslim umma is possible without analysing the abolition of the Ottoman caliphate. The Ottoman Caliphate was not defeated and destroyed by war. It was infiltrated and eroded for over 150 years with a new deception. Weapons, naval and train transportation and military technology and know-how were imported from Europe.

From the 16th century onwards there grew up in Europe a new world economy which was able to consolidate itself and develop the capitalist mode of production and the inter-state system. As this capitalist world economy expanded it incorporated the Ottoman Caliphate and by the 20th century it had incorporated the entire planet. Incorporation meant the establishment of links between the production processes of the Ottoman Caliphate with Europe, which was the locus of production and consumption. It also meant the integration of the political structures of the Ottoman Empire into the interstate network of the world system. Once established, these links bound the Ottoman caliphate into the capitalist world economy and as a result it ceased to exist as an independent unit by itself. Importation of Western technology was attached to financing which inevitably led to debt and bankruptcy. Modern transport technologies involved foreign enterprises capitalized in Europe and built by Western engineers. Government borrowing on domestic and international markets was from financiers who charged interest on the loans. The Ottoman foreign debt reached phenomenal levels leading to the establishment of the Ottoman Public Debt Administration (OPDA) in 1881. As a result of which some of the major sources of revenue of the state were handed over to the OPDA. In effect the Ottoman caliphate was colonised by the bankers just as they have colonised all of the world directly or indirectly.

This brings us to the second part of this presentation which is the capitalist way in which trade and commerce is practiced today.

Part 2
Capitalism

The promise of capitalism

Firstly what is capitalism? We have been told by the media that capitalism gives everyone a fair and equal opportunity to make a living or even to amass a fortune if you want to. The educational system is there to help you develop your full potential and capabilities so that you may excel at what you wish to do. The health system is there to help you maintain your well-being and keep you at your optimum capacity. The democratic system allows you to determine who will represent your interests in the political processes. Legislation will be in your best interests and will be adjudicated by the legal system which will guarantee justice for you. Police will guarantee that the law is implemented and that you will be safe. The army will keep you secure from external threats. Institutions developed to facilitate the goals of global capitalism were the United Nations Organization, the World Trade Organization, the International Monetary Fund and the World Bank. We are told that finally humankind has achieved one global world state, one world government, that is, the United Nations Organization and one currency, the US dollar. We are also told that the multitude of benefits that were to result from globalization were that: the nation state would wither away, power will lie with global markets, economics and not politics will shape human events, global markets will establish international economic balances, the boom-and-bust cycles would end, waves of trade will generate economic prosperity all over the world, dictatorships will turn into democracies and governments will become debt-free. With the fall of the USSR it was declared that the end of history had arrived and what we witnessed is not just the end of the Cold War or the passing of a particular period of post-war history but the end point of mankind’s ideological evolution and the universalisation of Western liberal democracy as the final form of human government.

Let us examine the evidence to see if the reality confirms the above description of capitalism

On the positive side those who say yes are pleased that the total wealth in the world grew by 6 percent over 12 months in 2022 to $280 trillion, marking this as the fastest wealth creation since 2012. More than half of the $16.7 trillion in new wealth was in the U.S., which grew $8.5 trillion richer. There are approximately 58 million millionaires globally, representing about 1.5% of the world’s adult population. The United States, home to over 24 million millionaires, accounts for approximately 41% of the global total. This affluent group holds nearly half of the world’s wealth. While the total number of millionaires worldwide declined slightly that year, the U.S. solidified the country’s position as home to the largest number of millionaires globally.

On the negative side those who say no provide the global results obtained from the United Nations agencies is as follows:

1. In 2024 10.6 %, that is 35.9 million people, of the population of the USA lived in poverty. In the same year 770,000 people were homeless.
2. Nearly 1/2 of the world’s population — more than 3 billion people — live on less than $2.50 a day. More than 1.3 billion live in extreme poverty — less than $1.25 a day.
3. 1 billion children worldwide are living in poverty. According to UNICEF, 22,000 children die each day due to poverty. Hunger is the number one cause of death in the world, killing more than HIV/AIDS, malaria, and tuberculosis combined.
4. 805 million people worldwide do not have enough food to eat.
5. More than 750 million people lack adequate access to clean drinking water. Diarrhoea caused by inadequate drinking water, sanitation, and hand hygiene kills an estimated 842,000 people every year globally or approximately 2,300 people per day.
6. 1/4 of all humans live without electricity — approximately 1.6 billion people.
7. 80% of the world population lives on less than $10 a day.

Look at the statistics for the world biggest economy the USA. 10.6 of the country’s population, that is, 35.9 million people live below the poverty line and 770,000 people are homeless. The society is fractured and communal life is shattered leaving in its wake addiction to drugs, alcohol, pornography and gambling. On average 44,000 Americans commit suicide every year and 1.1 million attempt suicide annually.

From the evidence that I have presented we can conclude that capitalism has failed the overwhelming majority of the world’s population. The rich are getting richer and the poor are getting poorer and the movement of wealth is going from the poor to the rich.

How capitalism came to dominate the world

Let us take a brief look at how capitalism become the dominant system globally. It was in Europe that the modernist worldview that pervades the entire world, including Muslim society, developed. We will talk about the rise of capitalism firstly in Europe where capitalism began and then in the USA which became the guardian of global capitalism because of its control of the US Dollar, the world’s reserve currency. Capitalism, as we know it today, was the end result of modernity. It developed an elaborate ideology and a range of institutions that enabled it to function. The transformation of pre-modern Christian society involved the removal of God’s control of individual and social action. It also involved the rise of the belief in the self’s power to morally organise society resulting in the secularisation of society. Socio-economic and political matters was to be controlled by the state whilst religion became a personal matter.

The 19th century witnessed the emergence and evolution on the world stage of banking. The bankers took advantage of the great technological advances that were taking place around them and banks evolved from being usurious clearinghouses of currencies into powerful institutions of technological project investment. They acted as middlemen between governments and these technological projects. Governments gave privately owned Central Banks control over the money supply on the condition that they guaranteed government expenditure. Credit money or fiat money is the currency of modern states that is imposed on the populace by government regulation or law. Governments benefit from this arrangement because it allows them to access unlimited amounts of money without having to burden the tax payer with direct taxes. The banking cartel benefits by being able to create a perpetual flow of unearned wealth in the form of interest on money made out of nothing. The creation of money out of nothing is no secret and just in case we have forgotten the statements made by the founder of the Bank of England, William Paterson in 1694, they issued another statement in 2014 stating that the common assumptions of how banking works are simply wrong. When banks make loans, they create money out of nothing to back it. At this point the power nexus of states moved from the political to the economic. The operational model of political economy became oligarchy, that is control of the state by wealthy elites, with liberal democracy acting as the public relations interface for it. The national state and its institutions, both executive and judiciary, have no access to or control over the financial system. In order to receive a loan the recipient country must adhere to the political programs designed for them by the IMF and the World Bank, the financial oligarchs. The foundation of capitalism is fractional reserve banking which is firstly fraudulent, secondly it is the theft of the wealth of future generations through inflation and thirdly it is usury due to the creation of unjustified value. The most important of the oligarchic elites are the bankers, the others being in commodities, media and big tech.

Capitalism in Crisis

Capitalism is always in crisis because of fractional reserve banking, and the idea that there can be perpetual growth through interest. Whilst both of these phenomena are structured in a logical way they are irrational. Something cannot be created out of nothing and there cannot be infinite growth in a finite system. Each time there is a crisis, for example the 2008 financial crisis and the 2020 COVID pandemic, governments authorise the central banks to print trillions of dollars and inject them into the economy to stop the system from collapsing.

During crises the Federal Reserve Bank, the US central bank, institutes major changes to the monetary system. During these periods of emergency normal constraints are suspended allowing changes to be made to financial structures that would be politically impossible during stable periods. The Petrodollar is losing its status as the world’s reserve currency because oil producers are denominating oil in other currencies, such as yuan, rouble, and rupees, as well. The crisis created by the war between Iran and Israel and USA will help enable the US to take steps to maintain US Dollar hegemony. Dollar hegemony is crucial for global capitalism because whilst the biggest financial centres are in Western Europe, North America and Asia, the policing agent for global capitalism is the USA. The US, therefore, needs to have enormous amounts of money to maintain its military might.

The US petrodollar is being replaced by the digital dollar to ensure that digital money remains dollar denominated and under US oversight. The US is building the digital pipeline through which economic crisis management would be delivered. This would be a new method of economic governance. The CBDC’s/ crypto/ stablecoins nexus that is being assembled is the digital architecture through which economic crisis management would be implemented. Money creation, direct payments and bailouts will be undertaken by the Federal Reserve in a way that is technical and invisible to the public thereby evading political scrutiny that would normally accompany formal political decisions. In the US expansion of stablecoins will generate demand for government debt because they are primarily backed by short-term US Treasuries. Global circulation of digital dollars will prolong the demand for US Treasury bills thereby financing the American deficits and reinforcing the US dollar’s role in global finance.

Conclusion to capitalism

I have dealt with capitalism at a philosophical level and avoided discussion of it at the microeconomic and macroeconomic levels. Capitalism is best understood as a religion. Two important elements of religion are belief in the supernatural and something that binds and connects. The unnatural element of capitalism is the money supply the very foundation of capitalism, which as I have shown is not real it is purely an illusion. This illusion is perpetuated through an elaborate ideology supported by highly developed institutions. The ideology is backed up by politics, state capture, economics, scientific materialism, public relations, the nuclear family, education and media. Capitalism is a false religion whose god is money, its theology is philosophy, its cosmology is economics and its sacraments are the material culture of production and consumption of commodities and technologies. Its moral codes are contained in management theory and business journalism and its priests are the corporate intelligentsia made up of economists, executives, managers and business writers. Its icons consist of advertising, public relations, marketing and product design.

Part 3
Mu‘amalat at-Tijariyya

Introduction

When we hear the word mu‘amalat the first thought that comes to mind is Islamic banking and finance. There is a vast body of knowledge that is critical of the way that they practise mu‘amalat. One criticism is that Islamic banking and finance is based within the fractional reserve banking system and therefore problematic. Another criticism of Islamic banking and finance is misuse of the ahkam, that is, rulings relating to Islamic trade and commerce. We do not have time to go into the problems relating to Islamic banking and finance. In the time that we have left I want to talk about the rulings of the Shari‘a relating to Islamic trade and commerce and the objectives of those rulings. Defining mu‘amalat at-tijariyya would be a good place to begin. The term mu‘amalat is the plural of mu‘amala which means behaviour, work, deed, action and practice. The Prophet, may Allah bless him and grant him peace, said “ad-din al-mu‘amalah” – the din, religion as it is commonly translated, is behaviour. Mu‘amalah means bilateral transactions in all spheres of life be they social, economic, political or spiritual. The application of the law, that is the fiqh, with regards to mu‘amalat aims at regulating the conduct of people amongst themselves. Mu‘amalat at-tijariyya means transactions between people relating to trade and commerce. Ahkam, the rulings with regard to the legality of the transactions, have built into them the maqasid, that is the objectives of the Shari‘a. The objectives of the Shari‘a are preservation of religion; life; intellect; lineage and property. The objectives are tied to practice and cannot be extrapolated, that is, used to acquire political and economic power as has happened in the 19th and 20th centuries.

The topic of this talk is Mu‘amalat at-tijariyya as a solution for contemporary economic problems. I identified capitalism as the problem with wealth circulating amongst the rich and flowing from poor to the rich. One of the objectives of the Shari‘a as I just mentioned is preservation of property. Balance of financial dealings and communal sharing of wealth are part of this objective. In relation to that Almighty Allah has commanded that wealth must “not become something that merely revolves between the rich among you.” (Qur’an 59:7) In economic terms, Islam demands equity, freedom and justice in trade and commerce. This is guaranteed by the Shari‘a. Islamic law promotes the circulation of wealth and inhibits its stagnation, that is, impedes the development of oligarchy. Islamic law guarantees justice and equity in the financial affairs of all people. There are three ways through which this is achieved, and these are prohibitions, contracts and institutions. Let us look at them briefly

Obligations

The economic and political implications of zakat, for example, are enormously significant. Firstly, zakat has to be paid to a zakat collector who is appointed by an amir, a leader. Secondly, the zakat has to be paid with commodities such as gold, silver, salt, leather or anything with intrinsic value. Thirdly, the zakat has to be paid on wealth that is earned in a halal (lawful in Shari’a) way.

Prohibitions

Riba is uncompromisingly prohibited as Almighty Allah says in the Qur’an:

“Those who practice riba (usury) will not rise from the grave

except as someone driven mad by Shaytan’s (Satan’s) touch.

That is because they say, ‘Trade is the same as riba.’

But Allah has permitted trade and forbidden riba. (Q. 2: 274)

Those who take it, those who pay it, its scribes and its witnesses are all regarded as guilty.

The following behaviour is also prohibited: hoarding commodities and withholding them from circulation (Q. 70: 18); engrossing; monopoly; price fixing; undercutting; overpricing; dishonesty and theft (Q. 7: 85), looting and arson (Q. 2: 205), highway robbery (Q 7: 86), depriving others of their inheritance (Q 89: 21), defrauding customers in relation to weights and measures (Q. 55: 7), betraying trusts (Q. 4: 104), and female infanticide due to fear of poverty (Q. 17: 31).

Contracts

Qirad or Mudaraba; Wealth provided by an investor in the trust of an agent for commercial purposes, the agent receiving no wage but taking a previously agreed share of the profits after the capital has first been paid back to the investor.

Sharika or Musharaka; Sharikat are profit-sharing partnerships between two or more partners. There are several different sharika partnerships available:

1. sharika al-a‘mal (or al-abdan): labour partnership, based on the partners’ work
2. sharika al-‘aqd: contractual partnership
3. sharika al-mal: finance partnership based on the partners’ contribution of money
4. sharika al-mulk: proprietary partnership
5. sharika fil-ba‘y: the transfer, at cost price, of goods from one partner to another who then becomes a partner in those goods and agrees to sell it for both of them. The profit is then shared between them
6. sharika wujuh: credit partnership

Murabaha; a contract between the seller and a buyer in which the seller has bought equipment, goods or commodities to re-sell at a profit which is predetermined and fixed. The seller must have had, of his own initiative, already bought the equipment, goods and commodities, without having a prior agreement with the buyer.

Ijara; A contract in which the leaseholder pays for the temporary use of a house, beast or piece of equipment for a specific period of time and stipulated hire charge.

Musaqa; Cropsharing, tending to an existing plantation in exchange for a share of the yield

Muzara‘a; Farming partnership in which the owner of land allows the land to be cultivated in exchange for a portion of the produce

Salam; A sale in which the price is paid at once for goods to be delivered later. Ownership passes to the buyer as soon as the contract is made and the delivery date is specified.

Institutions

The institutions that developed from the Madinan model in subsequent Islamic history were the caliphate, the wazirate (vizierate), the judiciary, the bayt al-mal (the treasury), hisba (administration of the city), the mint, the suq (market), the awqaf (charitable endowments), the asnaf (guilds), the shurta (police) and the army (jaysh). These institutions, regulated by Islamic law, provided the means by which Muslim societies functioned. We will briefly mention those institutions relating to trade and commerce.

Hisba – Public Order and Governance of the City

Public order and governance of the city is the responsibility of the muhtasib who is the most important functionary of the caliph/amir/sultan. The muhtasib has to investigate unacceptable behaviour in order to discourage it and renew good behavior that has been abandoned. He had assistants in order to discharge his duties.

The task of the muhtasib covers all spiritual, political and economic considerations and reflects the unity that Islam has always sought to achieve between the Muslim’s material and spiritual life. It is customary to divide the muhtasib’s duties into two categories. The first, those relating to the “spiritual” life (‘ibada) of the city and includes: the arrangements for the Friday-prayer, the Eid-prayer, the five daily prayers, the adhan (the call to prayer) at the time of prayers; and many other duties which are too numerous to list here.

The second category of his duties deals with the mu‘amalat, the physical environment of the city (the heart of which is the market) and comprehensively covers trade and commerce. In this sense he is also the ombudsman charged with the responsibility to guarantee that all goods and services that enter the market place are good for society and the environment. His economic functions included: 1. ensuring the supply of necessities such as foodstuffs, etc.; 2. supervision of industry including product standardisation, arbitration, minimum wages, etc.; 3. supervision of professional services such as medical practioners, pharmacologists, teachers, etc.; 4. supervision of trading practices relating to weights and measures, product quality, enforcing laws against forbidden practices, etc.; and 5. civil and municipal functions ensuring public safety, appropriate business locations and enforcing anti-pollution rules.

The Market

Suq (market) refers to both the place where commercial transactions take place and the commercial exchange of goods and services itself. The market was an open space situated adjacent to the mosque and no buildings were to be constructed in it.

The key characteristics as to the functioning of trade and commerce that are found in the writings of the early fuqaha (jurists) are as follows:

1. Markets evolve as part of the ‘natural order’ of things in an interdependent, competitive environment.
2. Demand and supply are the fundamental determinants of prices.
3. Greed must be avoided and profits are not to be excessive.
4. Individual and social utilities are categorised as: necessities, conveniences or comforts, and refinements or luxuries. The production of necessities is viewed as obligatory.
5. Money as a medium of exchange evolved as a social necessity because barter is susceptible to problems such as lack of a common denominator, the double-coincidence of wants and lack of indivisibility.
6. Hoarding of money is frowned upon and counterfeiting and debasement of coinage is prohibited.
7. Riba is prohibited.

The economic principles outlined above had the force of the law behind them. The caliph, the amirs, the judiciary and the muhtasibs were responsible for their practical implementation.

Bayt al-Mal

Literally the ‘house of wealth’ institutionally developed to become the treasury of the Muslim dawla. The origin of this institution can be traced back to the Prophet, may Allah bless him and grant him peace, when the revenues that came into it were distributed almost immediately. It maintained similar characteristics during the time of the first caliph, Abu Bakr but developed into a complex institution in the time of the second caliph ‘Umar when huge amounts of wealth were acquired by Muslims after Persia, Syria and Egypt were conquered by them.

Craft, Artisan and Trade Guilds

Craft, artisan, and trade guilds were variably known as asnaf, ta’ifa and futuwwa in the Muslim world. The guilds were integrated into an economic milieu that included the professions, markets and physical localization of each profession in their own quarters in the market. Guilds were autonomous organizations in which members of the same craft elected a master (shaykh) from among their ranks, and have their nominee endorsed by a qadi in a law court. The professional ranks were apprentice (al-ajir or al-mubtadi’), journeyman (as-sani‘) and master (al-mu‘allim or al-ustadh).

Guilds formed the dominant economic and social institutions in Muslim lands and stability of the economic and social life can be attributed to the guilds. The guilds ensured the following for the craftsmen; an organized way of work; a balanced income; a minimum of competition; and more important a high standard of work ethics that included all religious and ethnic groups. Three economic functions performed by the guilds are noteworthy here: 1) inhibiting monopoly capitalism, 2) providing social security and 3) protecting the integrity of the bi-metallic currency. The use of debased coins was frowned upon as a grave sin and their withdrawal from circulation was obligatory.

Awqaf

A waqf, the singular of awqaf, is a charitable endowment, that is, a property or an amount of wealth etc. dedicated to benefit people for the pleasure of Allah. Islamic society was financed through the waqf system. Before the twentieth century wide range of what we now call public or municipal services such as welfare, education, construction and maintenance of the water system, hospitals, etc. were set up, financed and maintained by awqaf. Awqaf supported so many sectors of the economy that the evolution of Islamic civilization is incomprehensible without taking them into account. There were awqaf catering to all the needs of people.

The Mint

Whilst anyone may mint coins, the minting of coins itself was under the authority of the caliph and was a symbol of his authority. In subsequent history this right was exercised by governors as well. The office of the mint was responsible for standardizing the quality of the coins and guarding against their falsification (clipping). The rulers mark on the coins indicated their good quality and purity. Islamic law requires the use of physical commodities as money and the gold dinar and silver dirham are known as Shari‘a currency. The dinar and dirham are imperative for preserving a stable currency that fluctuates in value but is not subject to inflation. It does not undergo inflation because it cannot be substituted by money created out of nothing. Islamic law prohibits fractional reserve banking.

Practical Steps We Can Take

The way forward is through action with regards to trade and commerce. This will be done through the establishment of Mu‘amalat Networks. The Networks must aim to create self-employment through partnerships in businesses and to attract investments for the setting up of these business enterprises. The Networks must provide training, mentoring and auditing for the businesses that are established under its supervision. The services provided by the Network must include:

1. Islamic Partnerships and Commercial Contracts

2. Training

3. Guild Development

4. Markets

Training will cover the following areas:

1. Mu‘amalat in the Qur’an and Sunna
2. The Fiqh of Trade and Commerce
3. Partnerships and Commercial Contracts
4. Markets and Muhtasibs
5. Caravans
6. How to Join a Guild and Manufacture or Procure a Product or Provide a Service.
7. Awqaf
8. Plan to Sell your Product or Services (Business Planning), Pricing, Costing, Break Even and Budgeting.
9. Selling your Product. Marketing
10. Commercial Law. Book-Keeping, Auditing, Legal and Administrative Requirements for Business.
11. Expanding your Business. International Trade