BPMS6023 MUAMALAT MANAGEMENT

Group Assignment

SEMESTER A142 JAN/JUNE 2015

Islamic Ethics in Muamalat

PREPARED BY:
ANWER ALI MOHAMED ABDO (819120)
MOHAMED IDRIS BIN MOHAMED SHAHABUDEEN (814159)
WAN NURUL ADILAH WAN YUSOFF (815761)

PREPARED FOR:
DR. MOHD SHAHRIL BIN AHMAD RAZIMI
SUBMISION DATE:
MEI 25, 2015

Defining ethic
In generally, ethics can be defined as the set of moral principles that distinguish what is right
from what is wrong. Besides that, some scholars also define ethics as a proper behavior or
guideline should be followed in harmonizing the human relationship and social welfare. But,
in Islamic context, ethics is much related to the tauhid concept. That means, Muslim people
can build a proper ethical behavior when they put their belief in God. There are several terms
regarding ethics in Al-Quran and Sunnah for Muslim guidance in dealing with the ethical
issue such as:

Khyar (goodness)
Birr (righteousness)
Qist (equity)
adl (justice)
Haqq (truth and right)
Maruf (known and approved)
Taqwa (piety)

1. Factors influencing ethical behavior in Islam

There are three main factors that contribute to ethical behavior:
i.

Legal interpretation - aspect will influence individual behavior differently. For

example, in secular societies the interpretations are based on modern value and
standards. However, in an Islamic society, shariah and the collection of precious

ii.

fiqh judgments as guidance for them to interpret the legal action.

Organizational factors the degree of leaders commitment to ethical conduct in
term of communication such as through code of ethics, speeches and policy

iii.

statements will influence members behavior.

Individual factors living in the same country, under the same law and working
in the same organization will not influence the same level ethical behavior among
communities. Factors such as moral development, personality value, family
influence, peer influences and life experiences may lead for different ethical
behavior among individual.
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2. Principles of Ethics in Muamalah Islam

There are six principles for Islamic Business Ethics:
a. The truth
Honest in running business, without any misleading information. For example Prophet
Muhammad (pubh) never gave sweet promise to the customers in order to hold their heart,
but instead of that he had use proper and effective communication skill. And also Prophet
Muhammad never cheated neither promised to customer something that he could not give.

There is a hadith from Abu Hurairah (bless Allah upon him), Rasulullah (Pbuh) said swears
or sweet promises given to make the business expand will turn to the lower profit (hadith
from Muslim).

b. Trust
Trust is a moral virtue and duty incumbent on a Muslim in the performance of his affairs. For
example:
At the age of 17 to 20 Prophet Muhammad got the trust from his uncle (Abu Talib) to manage
his business because Prophet Muhammad is the businessman who is honest and fair in
making business deals. He never makes customers complained. He always keeps his promise
and delivered the orders goods on time.
Besides that, a wealthy business woman named Khadijah requested Muhammads expertise in
negotiating a business venture for her. Khadijah as a person who give 100 percent her
business to Prophet.

c. Sincere
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Sincere and committed to the business which is person who getting involved in business must
be an efficiently and no manipulation when deal with their business.
For example:
From Anas Radiallahuanhu;
Prophet Sallallahu Alaihi Wassalam said: those who feel tired due to work to find a halal
substance, indeed forgiven his sins.

d. Brotherhood
Good relationship with stakeholder such as employees, customers and society.
For example, Prophet Muhammad also did compete with other traders especially in term of
pricing but he never cross the line and he does compete well with others.
As narrated from Abdullah bin Umar (bless Allah upon them), Rasulullah said, do not
compete (with wrong way) your own relatives (Hadith from Muslim and Bukhari).

e. Knowledge
Businessman should run their business with the proper knowledge and education. For
example,

Prophet Muhammad recognizes the markets in the area where his business going well and got
attraction from peoples. He strives to recognize the character of the society in those places in
order to get some knowledge about the characteristics of his customers. Besides that, Prophet
Muhammad expanding its business network with builds strategic alliances with potential
partnership.

f. Justice
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No discrimination. That means, business transaction must be done in fair manner. Al-Quran
has specified clearly the general principle of all transaction is justice.

Sadness to those that 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 weight to men give less than
due. Do they think that they will be called account?
Deal no justly and you shall not be dealt with unjustly.

Forbidden transactions in Muamalat

Various Shariah compliant products are offered by Islamic Financial Institutions (IFIs) based
on the underlying Shariah contracts/concepts. Nonetheless, Muamalat have defined certain
prohibitions that will render a contract null and void if they are not obeying to.

1 Transactions must be free of riba (interest) elements

Riba generally refers to interest in loan (riba alqurudh) and interest in sale (riba al-buyu).
Both these types of riba are prohibited by Islamic perspective. For evidences that riba is
prohibited, we can refer to Quran verses such as Allah SWTs revelations in al-Baqarah
verses 278 -279 that cover commands to cease riba activities:
O you who have believed, fear Allah and give up what remains [due to you] of interest, if
you should be believers. And if you do not, then be informed of a war [against you] from
Allah and His Messenger. But if you repent, you may have your principal [thus] you do no
wrong, nor are you wronged. (Al-Baqarah: 278 279)

a Riba al-qurudh
Riba al-qurudh is riba occurs when granting loans or debts. When analysing the current
performance of conventional trade and financial practices, it is shown that they are oriented
towards riba al-qurudh because banks or institutions granting these loans charge interest on
them. Jabir bin Abdullah reported that during the Prophets Wida Hajj (farewell pilgrimage),
the Prophet PBUH stated:
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 And the usury of Al-Jahiliyyah is destroyed and the first riba to be destroyed is the riba
paid to Abbas bin Abd al-Mutalib. Verily, it has been annulled in entirety
Verily, every case of riba from the Jahiliyyah is completely annulled. You will only take back
your capital without increase or decrease. The first riba that I annul is the riba of Abbas bin
Abd al-Mutalib, all of it is annulled. (Hadith Ibn Majah, al-Darimi and al-Baihaqi)

b Riba al-buyu
Riba al-buyu is the riba which occurred in the trade, and it is limited to the exchanges of
ribawi items comprising gold, silver, wheat, barley, dates and salt which do not obey the
Islamic rules and regulations. Hadith of the Prophet PBUH discussed riba al-buyu where he
said:
Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for
salt, in the same quantities, of the same type and for cash. Apart from these categories, sell
as you wish as long as there is acceptance and an exchange.
Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt
for salt. (When a transaction is) like for like, payment being made on the spot, then if anyone
gives more or asks for more, he has dealt in riba, the receiver and the giver being equally
guilty. (Hadith Muslim)

2 Transactions must be free of gambling elements (maisir)

Gambling refers to any activity which involves betting and taking extreme risk, where the
entire sum betted will be taken by the winning party while the losing party loses his bet.
Casinos are the places which usually contain the gambling and the premises of four- digit
operators and lotteries.
Ijma of scholars identify that gambling is prohibited based on many proofs, such as Allahs
revelation in the Quran verse al- Maidah 90 which says:
O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to
other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it
that you may be successful. (Al-Maidah: 90)
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Transactions may not involve the sale of goods and services

prohibited by Islam

Islam also prohibits the trade of prohibited goods such as pork and games that include
gambling. A hadith attributed to Jabir RA indicates some of the goods prohibited for trade:
Truly Allah and His Messenger have prohibited the sale of liquor, dead animals, pork and
idols.

Massage services between different sexes also fall under the prohibited trade beside that also
the provision of interest-bearing loans, and fortune telling or divination.
Immoral services are also prohibited such as entertainment in casinos, discotheques and pubs,
and the production and distribution of films and music that violates Islamic ethics. For
example, film and music field re heavily exploited by women, where the womens voices are
used and their displaying their intimate parts of the body as known by Islam (awrah) which
could create trials (fitnah).
In addition, activities related to the production and sale of tobacco could also be classified as
immoral. This classification has been agreed upon by the majority of scholars who sit at
various international bodies and fatwa councils, including the Dow Jones Islamic Market
Index Shariah Supervisory Board.

Transactions must be free of extreme gharar (uncertainty)

elements

Gharar in Islamic transactions is defined by Islamic scholars as the contracts entered into for
purposes that are vague and uncertain. The basis for this is the hadith of the Prophet PBUH
who forbade the trading and selling of goods with gharar elements. He said:
Do not buy fish that is still in the water because there are elements of gharar. (Hadith
Ahmad)
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Dr. Sami al-Suwailem uses simple game theory to argue that a gharar transaction occurs
where one party can only benefit by the other's loss, under conditions of uncertainty.
Commercial insurance is given as an example of this, since either the insured pays a premium
and receives no counter value, or the insurer pays out much more on a claim than was
received by way of premium. Professor Mahmoud el-Gamal states that gharar involves the
trading of unbundled risk. For example, if a homeowner insures his home conventionally
against damage by fire, then the homeowner can be said to have separated the risk of fire
from the right of ownership of the house (in other words, to have "unbundled" risk and
ownership). The insurance company is paid to accept the risk of damage by fire, while the
homeowner retains ownership of the house.

5 Transactions must be free of all types of fraud

Among the forbidden frauds in Islam are:
Al-Tanajush: It is the illegal cooperation with or between seller and buyer, whereby the
buyer will create an illusion of high demand by pretending to buy the sellers products at a
higher price. As a result, other customers are fooled and compete to buy the same goods at a
high price.
Tadlis Al-Aib: Refers to when the seller hides the flaws or defects in his goods purposely.
Al-Khilabah: Occurs when one of the parties perpetuate fraud through actions or words to
an aqad, in order to persuade the other party to enter into the contract.
Al-Khiyanah: Refers to fraud or deceit in stating the actual ratio of capital utilised in
purchasing goods or in pursuing other activities that result in the same outcome.

ISLAMIC ETHIC

CONVENTIONAL PERSPECTIVE

Ethic is a norm share by a group on a basis of mutual and usually reciprocal recognition
(Hazard 1994-1995: 453)
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ISLAMIC PERSPECTIVE

Ethic, it was eventually shaped as a successful amalgamation of the Al-Quran teachings, the
teachings of the Sunnah of Muhammad, the precedents of Islamic jurists (Ulama).

Axioms of Islamic Ethical Philosophy

Five key principles govern Islamic Ethics as introduced by Naqvi and summarize by Beekun.
These axioms act as guidelines for Muslims to act accordingly either when dealing with their
business or personal matter.
1. Unity: Related to the concept of tawhid. All aspects of humans life, which consist of
political, economic, social and religious aspects, are emerged from a homogeneous.
Discrimination, unethical practices and excess accumulation of wealth among
Muslims will not happen since everybody is following the same unified code of
behavior (Al-Quran and As-Sunnah).
2. Equilibrium: Is related to the concept of adl which also known as justice and
equity. Balancing among various aspects of humans life, to produce the best social
harmonization. Islam encouraged in creating generous and reasonable society. AlQuran and As-Sunnah condemned greediness and spendthrift people.
You are the best of the nations raised up for (the benefit of) men; you
enjoin what is right and forbid the wrong and believe in God; and if the
followers of the Book had believed it would have been better for them; of
them (some) are believers and most of them are transgressors. (Quran:
3:110)
3. Freewill: Mans ability to act without external force within the parameters of Allahs
creation and as Allahs trustee on earth. Unlike other creatures, human being has been
endowed with the ability to think and form judgments, to act accordingly or not,
according to whatever code of conduct he chooses, ethically or unethically. Muslims
have chosen and submit the will to Allah s.w.t and agree to behave accordingly and
therefore, there is no conflict in their personality. The will honors their contracts
(promises).
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4. Responsibility: Human need to be accountable for their actions.

5. Benevolence: Ihsan or an action that benefits persons other than those from whom the
action precedes without any obligation. Islam encourages kindness.

ISLAMIC VALUE AND MORAL

CONVENTIONAL PERSPECTIVE

Moral as notions of right and wrong that guide each of us individually and subjectively in
our daily existence (Hazard 1994-1995: 45)

ISLAMIC PERSPECTIVE

Guiding shariah is that god orders the good because it secures the welfare of the community
and forbids evil because it is evil and because it is againts the public good( Abdel-wahab
2008, p17)
Traditional Islamic values are contained in the Sharia, or Islamic law, which dictates both
personal piety and societal law. The five basic values upheld in the Sharia are life, religion,
intellect, family and wealth. "Islam preaches that a human being cannot live without these
values," writes Dr. Ahmet Akgunduz of the Islamic University Rotterdam.
LIFE (AL-NAFS)
Surah 5, verse 32 of the Quran states that whoever kills a person has metaphorically killed all
of humanity. This verse refers to God's original commands to the Children of Israel, and it's
similar to the Judeo-Christian "thou shalt not kill" from the 10 Commandments. The
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protection of life does not extend to criminals who have undergone due process, and this
exception can be seen in surah 6, verse 151 of the Quran.
RELIGION (AL-DIN)
The establishment of religion is valued in traditional Islam, and its protection can take on
many forms. The Quran forbids forcible conversion in surah 2, verse 256. This protects the
Islamic "umma," or community, from insincere adherents. The protection of religion also
inspires blasphemy laws in Muslim-majority countries, where insulting Islam or Muhammad
--and often previous religions such as Judaism and Christianity -- is a criminal offense.
INTELLECT AND REASON (AL-'AQL)
The very first revelation of the Quran states that God "taught man that which he knew not."
Knowledge is from God in Islamic belief, and a person needs a sharp mind to receive God's
knowledge through activities such as prayer and study of the Quran. The protection of
intellect includes the prohibition of alcohol and other intoxicants because they hinder clear
thought.

FAMILY (NASAB)
Islam values the family, advocating traditional roles for husbands, wives and children. These
family values can include polygamy -- the Quran, surah 4 verse 3, allows Muslim men to take
up to four wives. Divorce is permissible, but the family unit is the key structure of many of
the Sharia's financial laws such as those regarding inheritance. Muslims try to follow the
example of Muhammad, who was a proud father and grandfather.

WEALTH AND PROPERTY (AL-MAL)

Islamic finance can be thought of as capitalism coupled with strict moral guidelines. Muslims
are permitted to earn as much money as they desire; but in a Muslim society, the poor must
be given their share. The obligatory zakat, a poor tax that is one of the five pillars of Islam, is
taken from accumulated assets, and this discourages the hoarding of wealth. Islam protects
wealth through laws against theft and usury.
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God sums up to help needy with wealth in verse 177 of Surat Al Baqarah:
It is not righteousness that you turn your faces towards East or West; but
it is righteousness (the quality of ) the one who believes in God and the Last
Day and the Angels, and the Book, and the Messengers; who spends of his
wealth, in spite of love for it, to the kinsfolk, to the orphans, to the needy, to
the wayfarer, to those who ask and for the freeing of slaves; and who is
steadfast in prayers, and gives Zakah (Alms); and those who fulfill their
covenants which they made; and who are patient and perseverant in
poverty and ailment and throughout all periods of fighting. Such are the
people of truth, the pious.

ISLAMIC NORMS

CONVENTIONAL PERSPECTIVE

Norms is standards of proper or acceptable behavior

ISLAMIC PERSPECTIVE

The essence of Islamic worldwide is a tauheed with mean oneness and sovereignty of god
(Allah) mean unity of god and creation, it has implication related to all aspect of life
including economic and finance. The concept of tawheed also implies that Allah is only
sources of value and Norm. Thus, all discussion on low and morality ensue from this concept
(Kamali 2008,p 17)
Islam has paid great attention to norms, which can protect basic values. We cant explain all
Islamic norms relating to basic values, which we have mentioned above. But we would like
to mention four important norms here as examples:
1. Self Interest vs. Self-sacrifice
While the present economic order, right from a small level player to Trans National
Companies, is self-centered, Islam advocates the concept of self-sacrifice. It accepts that
secret of progress lies in self-sacrifice, and in holding the nation's benefit above personal
benefits. Every Muslim should expend all his effort and energy for the society he belongs to.
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Such efforts of his would be rewarded by Allah not only in this world but hereafter also.
'Should I die, let my community live, for I have an everlasting life in my community.
2. Extravagance vs. Frugality
The present economic world order generates profit as well as consumer in a cyclic manner. It
has produced a society, which believes and practices a wasteful or extravagant life-style and
considers it their right to "use" because they "have" it. This is in total contrast to Quran
model of modesty, simplicity and frugality. A Muslim must be humble with God and with
other people
And turn not your face away from people (with pride), nor walk in
insolence through the earth. Verily, God likes not each arrogant boaster.
And be moderate (or show no insolence) in your walking, and lower your
voice. Verily, the harshest of all voices is the voice (braying) of the ass.
(Quran 31:18-19)

3. Greed vs. Contentment

"Excess and wastefulness lead to greed, and greed has three consequences:" The First is
dissatisfaction. As for dissatisfaction, it destroys endeavor and enthusiasm for work, and
causes the unsatisfied person to complain instead of giving thanks, and makes him lazy. Such
a person abandons possessions which though few in number are licit and seeks possessions
which are illicit and free of trouble. And he sacrifices his self-respect on that way, and even
his honor. The Second Consequence of Greed is disappointment and loss. The greedy person
drives away what he wishes for, is found disagreeable, and is deprived of assistance and help.
He even confirms the saying: 'The greedy person is unsuccessful and suffers loss.'
The Third Consequence: Greed destroys sincerity and damages actions in regard to the
Hereafter. For if a God-fearing person suffers from greed, he will desire the regard of others.
And someone who considers the regard of others cannot have complete sincerity. This
consequence is extremely important and worth noticing. .
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4. Peace and Forgiveness

In first step, Islam treats of peace in the human life, almost. A second way in which the Islam
looks at peace might be called the psychological sense, as tranquility and peace of mind, an
inner confidence born of faith that enables the religious believer to face adversity without
anxiety or despair. Particularly when one is facing the approach of death, the believer can
attain a peace of mind, which will enable the person to overcome spiritual turmoil and fear. A
third aspect of peace is universal peace. It reflects the widespread conviction of the time that
humankind can sink no lower in criminality towards its own kind and expresses the hope for
a time of peace and prosperity for all mankind. According to Sayings for our Prophet, the
virtues of civilization will prevail, the face of the earth cleaned of filth, and universal peace
be secured.
Islam commands that one believer should not be vexed with another believer for more than
three days, and that so long as there is no reconciliation, both sides perpetually suffer the
torments of fear and revenge.

Recommendations:

Follow the Shariah and the Islamic rules in all the business transactions, whereby
many scholars argued that avoiding the forbidden transactions in Muamalat helps in
avoiding economic bubbles (and bursts).

Businessman according to Islam not only interest for profit, but, it more focus on
orientation to attitude that can help each others as implication in social business
activity. Regarding in Hadith narrated by Abu Zar;
Rasulullah saw threaten by poignantly punishment to perjurer in business and Allah
do not care with him later in judgement day (H.R Muslim).
Besides that, Rasulullah SAW ethics in business was also friendly. A businessman
must be friendly in doing their business. Prophet Muhammad Saw utterance. Allah
blessing a friendly man and tolerant in business (H.R Bukhari and Tarmizi).

Religion in general and Islam in particular can play positive role in reviving common
values for mankind and uniting people for justice and equality to all human life.
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Islamic country should unity together to practice real Islamic ethic that can open the
western eye and mind that the Islamic way are the best practice of the ethical issue.

Conclusion
The ethics while performing the business dealing. There are sunnah Prophet Muhammad
S.A.W that he perform in his business which are inform the customer about the weakness
or defect products sold honestly and prudently. Refund money or replace with a new one
to the customer if there are complaints of damage, he smile and take action on that. He
takes a little profit and for customer service preferred. As a conclusions, place is very
important if we want to start a business. We must choose place that have high market,
many residents and strategist. When we start a business, its mean that we must concern
the people that we performed the business with. Example here is the supplier and
customer; how we manage buy and sell the stocks with them. Lastly, we must take care
our attitude or akhlak. This elements is also very importance. Be honest and strict while
performing the business dealing. Respect other people and they will respect us too.

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