Islamic Code of Business Ethics

Presented by
Yasir Umer
15U03105
Section-A

Presented to
Prof. Azmat
Islamic Studies
Summer 2017

Lahore School of Economics

As Muslims, we have to adhere to ethical standards, not only in business but also in all aspects of
life. Both business and ethics are interrelated. There is more to transactions than simple trade; in
Islam, there is a certain and specific code of business ethics that must be followed. The Islamic
principles in transactions refer to those principles and rules that have been derived from the
sources of the Islamic Law, or Shariah, and which pertain to transactions in general and include
such things as commercial transactions, economic transactions and financial transactions. These
principles have, as a reference, the decisions and fatawa (legal verdicts) issued by the
jurisprudence academies relating to contemporary issues. Individual opinions are not to be
considered if they contradict those of the Muslim scholars or those of the jurisprudence
academies. Understanding and observing the Islamic principles in transactions has a host of
benefits such as seeking Allahs pleasure, guidance and mercy and avoiding contradicting His
Laws. It also results in increasing ones wealth. Moreover, it helps to avoid falling into
prohibited acts and thereby eschewing sins and evil deeds. It also avoids suspicion among
Muslim community and establishes justice amongst all people in transactions. Eventually, it
leads to setting an ideal example for the Muslim businessman in the arena of life and enables the
implementation of Allahs Law with a view to save humanity from misery and suffering. Prophet
Muhammad (pbuh) was an ideal human being. He was the best teacher, preacher, and guide; the
best statesman, lawgiver, judge, diplomat, negotiator of treaties, and military commander; the
best family man, a good husband, a kind father, a good neighbour, and friend of his people. He
was also a very honest and successful businessman. There is a reference to this point in the
Quran: For you in the Messenger of Allah is a fine example to follow (Al-Ahzab 33:21).

The Prophet was chosen by God to be His last prophet at the age of 40. Before that he was very
much involved in business. He was born in Makkah, frequented by caravans from Syria in the
north and Yemen in the south. The Prophet would join these caravans and that is how he traveled
to Syria, Yemen, Bahrain, and many other places in Arabia. Some historians have also suggested
that he probably traveled to Iraq and Ethiopia.
From his early age, he was involved in commerce. He had a good reputation as a hardworking,
truthful businessman. It was due to this reputation that Khadijah, a wealthy businesswoman,
hired him to work for her business. Many people in Makkah had asked for her hand and worked
for her, but they either cheated her or she was not satisfied with their work. Finally, she found
Muhammad (he was not a prophet at that time) and she asked him to work for her. He made
several business trips. She was impressed with his work as well as his impressive personality,
they later got married. After marrying Khadijah, the Prophet took several business trips
throughout parts of Arabia. Ancient Arabia used to have commercial fairs in almost all major
towns and regions; it is probable that the Prophet visited some of these commercial fairs. After
becoming a prophet, his business activities decreased, although he would occasionally participate
in business transactions. His vast business experience helped him in dealing with people with
great care. He often used to mention the names of people and tribes whom he met in his
journeys. People were often amazed of his knowledge of people and their regions.

The Prophet emphasized that honesty and kind dealings with customers are the secrets of success
in business. He said, The truthful and honest merchant is associated with the Prophets, the
upright and the martyrs (Al-Tirmidhi). God shows mercy to a person who is kindly when he
sells, when he buys and when he makes a claim (Al-Bukhari). The Prophet gave many teachings
on business and economic issues, he covered almost every aspect of business and economics.

In the light of the Holy Quran and Holy Prophet (S.A.W) teachings, a detailed code of ethics can
be framed for the guidance of businessmen and traders. The basic rules of this code of ethics are
as follows:

1) Halal things alone should be sold or purchased. There are certain requirements which
a seller specifically must consider to ensure that the sale is Halal. The most basic
principle is that neither anyone is permitted to be engaged in the sale and purchase of
unlawful things nor trading in these things in any way. Moreover, correct standards of
weights and measures should be used and no short weight or short measure be given to
the customer. Liberality and generosity should be shown in giving weights and measures
as the Holy Prophet (S.A.W) saw a weigher and said to him: Go on weighing. Let the
scale weigh down. The adulteration or mixing in goods should be totally avoided.
Lastly, the customer should be informed of any defects in the article prior to the state as a
sale should be made purely on honesty.
2) Sale and purchase should be executed by mutual agreement of the parties. This
means that while dealing with each other, the seller and the buyer should observe
courtesy, leniency, forgiveness and toleration as the Holy Prophet (S.A.W) said: May
Allah Almighty bless the man who in selling or buying or collecting his loan shows
leniency and toleration. For instance, if one party wishes to cancel the deal, the other
party should be liberal enough to agree to do so. This is known as Aqala. The Holy
Prophet (S.A.W) has recommended Aqala by saying: Whose gives Aqala (agrees to
cancel the deal) to the party which shies away from the deal, Allah will give him Aqala
(agree to write off) all his sins on the Day of Judgement.

3) The motive of the sale or purchase should be profit but it is strictly forbidden to
show any dishonesty. Sale and purchase should be singularly free of falsehood i.e lies
and deception. According to a saying of the Holy Prophet (S.A.W): The whole goodness
and blessing of trade lies in Bai Mabroor, that is, virtuous, good and entirely honest
dealing. The goods should be supplied at the notified rate. Sometimes , in compliance to
government orders or for some other reason a rate is displayed on the board outside the
shop, but inside the shop a higher rate is charged from the customer. This practice
violates the code of business ethics and should be shunned. Moreover, if the deal is made
on credit, the terms should be soft and convenient. Moreover, the motive should not be to
exploit the other party or indulge in any unethical activity such as practices like Tabkhees
should be scrupulously avoided. This implies that the standard of a commodity should not
be reduced in order to make more profit on it. The practice of Akhatar i.e hoarding of
goods to earn greater profit should be shunned. Profiteering by artificial increase in prices
through monopolistic control of supply should not be resorted to. Dummy customers
should not be brought to raise the price. All deals should be executed honestly and in
good faith for mutual benefit. The second buyer should not step into the deal till the first
buyer has withdrawn his offer to buy an article. When the vendor and the purchaser have
made a deal at a certain price, the third party should not offer to buy the same thing at a
higher price. The Holy Prophet (S.A.W) said: No man should bid after his brothers
 bid. No mode of dealing should be adopted which is purported to cause loss to the other
party. The Holy Prophet (S.A.W) said: Neither take nor give loss. Further, He (S.A.W)
warned: A Muslim is he from whose hand and toungue the other Muslims are safe.

4) Sale and purchase should not involve any dispute. The purchasers should avoid
forming a league to force the seller to reduce his price. The parties to a bargain must
always be willing to remedy errors in account or other mistakes through oversight. For
instance, the seller made a deal to supply goods of inferior quality, but actually supplied
superior quality goods. The buyer should either pay the difference in price or return the
goods. The buyers and sellers should abide by their agreement under all circumstances.
Suppose the seller has made a deal at a price. Suddenly there is a rise in the price. The
seller should not repudiate the deal, but should supply the goods at the agreed price.
Similarly, the buyer has struck a bargain and has agreed to pay a certain price. Suddenly
the price falls. He should not refuse to take delivery of the goods, but should complete the
deal of the agreed price. If the buyer is unable to pay the full price at the stipulated time,
his earnest money should not be forfeited. He should be given more time to complete the
deal. Similarly, if the vendor cannot deliver goods at the stipulated time, he should not be
made to pay damages. In such cases the buyer and seller should deal with each other in
good faith. Important deals should be put in writing to remove he possibility of dispute
and to preserve documentary evidence of the ownership of goods.

5) Quality of goods: False oaths should not be sworn to push through the sale of goods.
Goods offered for sale should be pure, clean, neat and hygienically prepared and
preserved. The buyer and seller should make a deal over existing goods. The sale and
purchase of birds flying in the air, fishes in the river or offspring in the womb of a female
animal etc. is invalid. The total supply of goods should conform to the sample shown at
the time of the deal. The practice of showing one thing and giving another has been
strictly forbidden.
 Conclusion:

Business people and their enterprise require to be reminded about their role and responsibilities.
Some issues need special attention in the present scenario. The primary issue is that
Globalization should mean that all people are considered to comprise one family. All human
beings should be treated with respect, equality, and fairness. Exploitation of one group by
another should stop. There should not be any division among people because of their race,
colour, nationality, gender, or faith. Furthermore, the resources of the Earth are not only for us,
we share this biosphere with other species, and so we take care not to waste or destroy them. The
universal golden rule states, Like for others what you like for yourself. We should try to
empower others and work to eradicate poverty, hunger, illiteracy, disease, and unsanitary
conditions in order to live in peace and tranquility. Businesses should promote ethical standards
in their enterprise, People involved in business should always be honest, truthful, and fulfil all
promises and commitments. We must eliminate fraud and cut-throat competition.