Discussion on Risk-Bearing & Profit-Sharing in an Islamic Framework

I am surprised to know the point of view of the paper regarding the ability of the labourers to share the profit in any company to be established in the Islamic world and to carry the risk and responsibilities following this sharing of profit. My comment is that since the labour usually cannot be made responsible for management and because of the specification of work distributed among the whole group, working in a company, I believe that with the present distribution of work between labour and the management the company will go more smoothly than by involving the labour force in the management affairs where they do not have the ability to judge and differentiate between the good and bad from the managerial point of view in the modern world. Now more types of incentives are created to give the workers the needed push to produce better and as much as the establishment could produce. We should keep the labour out of the management as much as we can and give an opportunity to specialists in the management to apply the best modern theories and conclusions they had drawn in their fields of experience. Only then there will be better productivity as well as more satisfaction. By distributing the work according to specializations combined by fairness in payments in volume and time, roles will be clear and conflicts could be avoided.

In short I am not against sharing profits by the labourers but it should not be the main principle in applying Shari'ah on investment. Special shares could be used as rewards to the labourers for better realizations.

Dr. Muhammad Tahir

We should be very careful in using these terminologies and the concepts which have grown out of overdevelopment in other countries whereas we have not yet even started the development. German and English economies have already suffered from such models of income distribution suggested by Dr. S. Aftab Ali. English economy is almost ruined and the German economy also has not done as well as other economies (like Japan) have done. We would be making a blunder if we accept these ideas.

Prof. Hussain Mullick

There is a confusion in whole of the article. The introduction of the paper gives an impression that the author is going to talk about mudarabah and Sharakab — the two concepts that Islam has given for investment but the paper does not deal with the investment problems and rather deals with the problems of risk-bearing or profit-sharing between the employee and the capitalist (or management). The concepts of mudarabah and Sharakah relate to the problems of developing proper tenets and mechanism by which an investment will take place in an interest-free economy. These concepts do not relate to the problems that the author has discussed.

Secondly, the author, by mistake or deliberately, repeatedly mentioned that profit-sharing replaces interest or duplicates the function of interest. It is not clear what the author means by this phrase.

Dr. F. R. Faridi

A point has been raised about the similarity and dissimilarity of Islamic system with that of capitalism and socialism after making necessary corrections in these two systems. The point is that any attempt to correct the two systems will not really bring them nearer to the true Islamic system. There are distinct features of Islamic system that distinguish it with the other system. To discover these distinct features of Islamic system, the following verses from the Surah Al- Baqara need to be consulted:

And the parable of those who spend their possessions out of a longing to please God, and out of their own inner certainty, is that of a garden on high, fertile ground: a rainstorm smites it, and thereupon it brings forth its fruit twofold; and if no rainstorm smites it, soft rain [falls upon it]. And God sees all that you do.

Would any of you like to have a garden of date-palms and vines, through which running waters flow, and have all manner of fruit therein — and then be overtaken by old age, with only weak children to [look after] him — and then [see] it smitten by a fiery whirlwind and utterly scorched?

In this way God makes dear His messages unto you, so that you might take thought. [2: (265 — 266)]

The kind of spending is different in the Islamic system. Not only the kind of expenditure but also the motives are different.

O you who have attained to faith! Spend on others out of the good things which you may have acquired, and out of that which We bring forth for you from the earth; and choose not for your spending the bad things which you yourselves would not accept without averting your eyes in disdain. And know that God is self- sufficient, ever to be praised.

Satan threatens you with the prospect of poverty and bids you to be niggardly, whereas God promises you His forgiveness and bounty; and God is infinite, all-knowing. [2: (267-268)]

The main point is that the human knowledge is different from Hikma which we are searching here. The true knowledge is different from the knowledge that the other systems are based on. It continues till it says,

If you do deeds of charity openly, it is well; but if you bestow it upon the needy in secret, it will be even better for you, and it will atone for some of your bad deeds. And God is aware of all that you do.

It is not for thee [O Prophet] to make people follow the right path, since it is God [alone] Who guides whom He wills.

And whatever good you may spend on others is for your own good, provided that you spend only out of a longing for God’s countenance: for, whatever good you may spend will be repaid unto you in full, and you shall not be wronged. [2:(271—272)]

Thus we are trying to improve the living conditions of such people by providing them their needs. And this is not considered as charity but an objective.

Even the behaviour of these people is different from the behaviour of such people in other systems.

Those who spend their possessions [for the sake of God] by night and by day, secretly and openly, shall have their reward with their Sustainer; and no fear need they have, and neither shall they grieve. [2: (274)]

This is voluntary spending by all the people in the community for the benefit of whole community. It is not the responsibility of the government or the state but it is the responsibility of the whole Ummah. The whole Ummah is collectively responsible for this spending. Then it comes to the evil in the other system.

Those who gorge themselves on usury behave but as he might behave whom Satan has confounded with his touch; for they say, “Buying and selling is but a kind of usury" — the while God has made buying and selling lawful and usury unlawful. Hence, whoever becomes aware of his Sustainer's admonition, and thereupon desists [from usury], may keep his past gains, and it will be for God to judge him; but as for those who return to it — they are destined for the fire, therein to abide! [2: (275)]

The two systems cannot really meet. They are different and thus no other system, in essence can be reconciled with the Islamic system.

Dr. Omar Zubair

Profit-sharing implies that we are providing for a sharing of the uncertainty or risk-bearing (of which the profit is the reward). The question that how far, along the line, we shall provide for sharing of the risk-bearing, needs to be attended to. In this context Dr. Aftab Ali was required to pay more detailed attention to the case of a simple mudarabah in which a person without capital but with some idea of making capital usefully employed comes forward and gets funds from a capitalist and then he works and shares the profit. What is involved here simply, should have been the focus of attention of Dr. Aftab Ali’s paper. Also we have a provision for Shirkatul Abdan in which two persons without any capital arrive at an agreement to work together and share the proceeds. Herein also we can get some new insight into what Dr. Aftab Ali is looking for.

Dr. Faridi’s criticism of Dr. Aftab’s approach in this connection is not understandable (as it deals with the problem of risk between employees and capitalists and does not deal with mudarabah. Suppose I have some capital and an idea to establish a firm for producing certain types of ready-made garments. I am willing to invest a million rupees in providing for the purchase of sewing machinery and material for renting building etc. I want to employ a tailor but I do not want to pay wages.

I declare a formula of profit-sharing. There will, of course, be a number of enterprizing tailors who have enough funds to subsist for a couple of weeks or months and can prefer to share the profits of the firm. Here, I assume that the tailors (the workers) do not have capital but they do have some funds for subsistence. The system as such can co-exist with a system of fixed wages. Here is a whole new area that deserves to be explored rather than dismissal altogether.

Dr. Nejatullah Siddiqi

There seems to be an unnecessary debate over the view that elimination of interest is not the whole story. Nobody thinks that it is so. The profit maximizing motive of the capitalist society has been played up too much by the paper and specially by the comments of Dr. Kemal to de-emphasize the importance of eliminating interest. To conclude, that we should not eliminate interest unless other things are also changed, is not correct. I think still there is quite a bit of reason and validity for eliminating interest from our society without changing other things. Even America will benefit much if they only eliminate interest from their society.

Profit maximization motive of capitalism has been blown up too much and it has been said that the profit and interest are two pillars of the economy. I doubt that they are the only two pillars. Even in capitalist society today, you can easily see the multistructure in all kinds of decision-making. It is very difficult to say that it is profit that makes the system a capitalist system. And we should not forget that we have profit in Islam also. Playing too much with profit and playing too little with interest in my view is a mischief in thinking.

Even to present interest under the umbrella of relativism to say that interest could be good at some places or under certain circumstances is quite misleading. If that is true then I wonder why Allah Subhanahu Ta'ala prohibited it. It seems to me if interest is unjust then it is unjust everywhere even in the capitalist system and even in America. We should take a different approach in adopting a critique of capitalist and socialist systems. We should clearly be aware of where should we start from and what kind of ideology we stem from. I do not think we can follow any kind of relativism.

Dr. Monzer Kahf

Dr. Aftab Ali deserves compliments for drawing the attention of the house to this aspect of profit-sharing which has not been discussed before. It should, however, be pointed out that to work for an uncertain wage is un-lslamic. It would lead to a lot of exploitation. The alternative is that we opt for a system of sharing profit where we have a fixed wage plus a share in profit. Though the author seems to favour this view, he has not explicitly revealed his preference whether he is for a fixed wage plus profit-sharing or he is for pure profit-sharing.

Prof. Syed Nawab Haider Naqvi

Dr. Aftab Ali has pointed out an economic tool being used in other countries. We have to see how we can apply this in an Islamic framework. We have to see the motivation behind the use of these tools. The same tool can be used with a different motivation as we can use scars and knives for different motives. So there is no need to be very dogmatic about the proposal put forward by Dr. Aftab Ali. We should look at it as a tool.

Secondly, I am getting worried about the undue discussion on the idea that elimination of riba is not the whole thing. If the repeated discussion of this topic implies that unless you can jump to Islam in one go you should let riba continue, I think this is just ridiculous. It is not sensible to say that just because elimination of riba is not the whole of Islam, we should wait until we are able to practise all aspects of Islam in one jump. This is just the opposite of both logic and reasoning as well as the opposite of the logic history. Can anyone of us give me an example where we jumped from one state to another state in one go. This is simply an overplaying of the concept which has become rather a dangerous game. I would rather take strong exception to this. I would admit that by eliminating interest we will not become perfect Muslims but this we must do. This is a big pillar in Islam. After eliminating interest we can then go for adopting other aspects of Islam also. This is how all the systems of the world have developed. The logic of all or nothing is not acceptable and I would rather not repeat and I would not like my other brothers to repeat that elimination of interest is not the whole thing or that we should wait till we can do everything in one jump.

Dr. Anas Zarqa

Dr. Naqvi’s impression that I seem to subscribe to just profit-sharing has, perhaps, been gathered from earlier version of my paper which was later on revised. I recognise that uncertainty about wages in Islam is not permissible and in my presentation, I have made it abundantly clear that there will be a fixed wage and over and above that there will be a sharing of profit. Even there will be an option. If some of the workers choose not to participate in the risk and rather have some more income they can decide to do so. The idea of pure profit-sharing does not make sense. Also I may clarify that I am not looking for a global economy wide solution. That will be too much to ask for in one shot. The framework suggested by me should be evaluated properly and, if found practical, should be adopted on experimental basis on a small scale in only those sectors where we have ample knowledge. For example, we have the case of textile industry in Pakistan. We have almost perfect knowledge of what had happened between the labour and management relationship. We can experiment profit-sharing in this sector and see what happens to productivity. I am aware of the scheme of cash bonuses but that would not do. Labour should be allowed to participate in the management decisions.

Winding up by Dr. Aftab Ali

Source: Fiscal Policy and Resource Allocation in Islam, Ziauddin Ahmed, Munawar Iqbal and M. Fahim Khan. Republished with permission.