Not Fair!

Vol 4-Issue 3 Not fairDid you know that a generation back in corporate America, CEOs made 40 times more than workers? Today they make 400 times more. Did you also know that in the US 44% of discrimination cases won by workers are reversed on appeal, while only 6% of cases won by employers are reversed? In all likelihood, the Pakistan scenario is much worse. Although laws requiring protection of workers’ rights are in place, enforcement is ineffective due to limited resources and corruption. It seems that whether it’s corporate America or a local company in Pakistan, fairness at the workplace is not really on the priority list of employers.

It’s mind-boggling to understand, why Muslim employers are unmindful about the importance of justice in Islam. Perhaps, they are unaware or may be they just need a reminder. So, let’s take a look at what Allah (swt) and Prophet Muhammad (sa) say about fairness.

Allah (swt) says:

“O you who believe! Stand out firmly for justice, as witnesses to Allah, even though it be against yourselves, or your parents, or your kin, be he rich or poor, Allah is a Better Protector to both (than you). So follow not the lusts (of your hearts), lest you avoid justice; and if you distort your witness or refuse to give it, verily, Allah is Ever Well-Acquainted with what you do.” (An-Nisa 4:135)

“Verily, Allah enjoins Al-Adl (i.e., justice and worshipping none but Allah Alone—Islamic Monotheism).” (An-Nahl 16:90)

“Verily, Allah loves those who act justly.” (Al-Maidah 5:42)

Prophet (sa) says:

Abdullah Bin Umar (rta) narrated: “Allah’s Messenger (sa) said: ‘Injustice will be darkness on the Day of Standing.’” (Bukhari)

Ibn Abbas (rta) narrated: “The Prophet (sa) sent Muadh (rta) to Yemen and said: ‘Fear the curse of the oppressed one, as there is no screen between his invocation and Allah.’” (Bukhari)

Rights Given to Workers

If Allah (swt) has placed so much importance on ensuring fairness, let’s look at some of the rights employees have been given.

Right to receive prompt payment

Abdullah Bin Umar (rta) reported Prophet Muhammad (sa) as saying: “Give the worker his wages before his sweat dries.” (Ibn Majah)

Right to considerate treatment

Anas (rta) said: “I served the Messenger of Allah (sa) for ten years, and he never said to me ‘Shame!’ or ‘Why did you do such and such?’ or ‘Why did you not do such and such?’” (Bukhari and Muslim)

Abu Hurairah (rta) reported Allah’s Messenger (sa) as saying: “A slave is entitled to his food and clothing, and he should have imposed on him only such work, as he is capable of doing.” (Muslim)

Right to equal treatment

Al-Marur (rta) has narrated: At Ar-Rabadha, I met Abu Dharr (rta), who was wearing a cloak, and also his slave was wearing a similar one. I asked about the reason for it. He replied: “I abused a person by calling his mother with bad names. Prophet Muhammad (sa) said to me: ‘O Abu Dharr! Did you abuse him by calling his mother with bad names? You still have some characteristics of ignorance. Your slaves are your brothers and Allah (swt) has put them under your command. So whoever has a brother under his command should feed him of what he eats and dress him of what he wears. Do not ask them (slaves) to do things beyond their capacity and if you do so, then help them.’”

(Bukhari)

According to Abu Hurairah (rta), Prophet Muhammad (sa) said: “Your servant brings your meals to you, then if someone does not let him sit and share the meals, then he should at least give him a mouthful or two mouthfuls of that meal or a meal or two meals, as he has prepared it.” (Bukhari)

Rights of the Employer

Demanding rights and not fulfilling duties would result in injustice to the employer. Among the rights awarded to employers is:

Right to be served with sincerity

Abu Hurairah (rta) has narrated: “Prophet Muhammad (sa) said: ’Goodness and comfort are for him, who worships his Lord in a perfect manner and serves his Master sincerely.’” (Bukhari)

How can Employers Create a Fair Workplace?

1. Make Dua

The importance of praying to Allah (swt) should not be underestimated. The person seeking to enforce justice can say the following Quranic Dua: “My Lord! Bestow Hukm (religious knowledge and right judgment of the affairs) on me, and join me with the righteous.” (Ash-Shuara 26:83)

2. Have an open-door policy

Modern managers harp on and on about keeping an open-door policy. Yet, Caliph’s Umar’s (rta) open-door policy is enough to put such fancy talk to shame. Often foreign envoys and messengers sent to him by his generals found him resting under a palm tree or praying in the mosque among the people, and it was difficult for them to distinguish, which man was the Caliph. He also insisted that his appointed governors live simple lives, keep no guard at their doors and are accessible to the people at all times.

3. Be prepared to apologize

Abu Hurairah (rta) has narrated that Allah’s Messenger (sa) said: “Whoever has wronged his brother should ask for pardon, as there will be neither Dinar nor Dirham (in the hereafter), for he should do this before some of his good deeds will be taken and given to his brother, and if he will have no good deeds, then some of the bad deeds of his brother will be loaded on him (in the hereafter).” (Bukhari)

4. Get out of your office and meet the workers face to face

Modern management calls this action ‘walk-arounds.’ Although fancy management literature did not exist at the time of the four rightly guided Caliphs, the Islamic principles were sufficient for motivating them to be fair and just. Once again we have Caliph’s Umar’s (rta) example – he spent many watchful night on the streets of Madinah to see whether anyone needed help.

5. Be ready to counsel someone, if you feel he/she is being unfair

Anas (rta) narrated that Allah’s Messenger (sa) said: “Help your brother, whether he is the oppressor or the oppressed one.” People asked: “O Allah’s Messenger (sa)! We rightfully help the oppressed, but how can we help him if he is an oppressor?” The Prophet (sa) said: “By preventing his hands from oppressing others.” (Bukhari)

So, You’ve Been Quarrelling?

Vol 4- Issue 2 So you've been QuarrellingShipment deadlines are approaching, but the supply has been slack. It is likely that the consignment may be delayed and you’ll lose that foreign client you worked so hard to get. The supplier now calls requesting further delay. You’ve had it now, and refuse to take anymore, flaring up at the person on the other end of the line, (who’s been having a hard day too) you have the perfect ingredients for a boiling quarrel. What follows is an exchange of the choicest of words—but wait; did you wonder what’s that leading you to? Certainly not Allah’s (swt) pleasure!

An analysis of the above case would show that there are several reasons for the quarrel taking place: anger on both sides; increasing work pressure and other problems on both ends. So, is quarrelling the solution to the problem? Not at all, as we know from the following Ahadeeth:

The Prophet (sa) said: “The most hated person near Allah is the most quarrelsome” (Bukhari). And one of the characteristics of a hypocrite is that, “Whenever he quarrels he behaves in a very imprudent, evil and insulting manner.” (Bukhari)

The above are strong points for working towards resolving an argument.

Conflicts Can Be Costly

Negative responses to conflicts can result in quarrels, long winding disputes or even workplace violence. According to the Centre for Effective Dispute Resolution (CEDR), Europe’s biggest alternative dispute resolution body, it is how you approach conflict that makes the difference. According to its calculations in the United Kingdom alone, conflict costs businesses ₤33 billion every year of which legal fees amount to ₤6 billion whilst the cost of the damages alone is ₤27 billion. If this sum were a country it would be the world’s fifty-seventh biggest economy! Moreover, disputes can go out of control resulting in workplace violence. Workplace Violence Research Institute reports that losses in 1995 from workplace violence in the United States alone amounted to approximately $35.4 billion. Therefore, it is important that conflicts be dealt with positively and prevented from flaring up into negative situations.

What types of quarrels exist in the workplace?

These can be broadly divided into two:

  • Task-related
  • Person-related

How do I Deal with Task-related quarrels?

Find the underlying reason for the quarrel

It’s easy to flare up at someone, and more difficult to find the underlying reason for the quarrel—but the more difficult approach is definitely more rewarding as it would help you to tackle the problem rather than flaring up at the symptoms. Underlying reasons could include system and environmental problems, or organizational problems.

Work towards a win-win solution

Instead of letting differences and difficulties build into heated arguments try negotiating a solution that eventually benefits both the parties.

A famous example from the Seerah is that of the placement of the sacred Black Stone during the rebuilding of Al-Kabah. The Prophet (sa) helped diffuse a tense moment and created a win-win solution by involving the different clans.

Another example is that of Allied Signal, a maker of auto parts and aerospace electronics. The company worked out win-win agreements with many of its suppliers. In 1993, it offered to double its orders from one of its suppliers, Mech-Tronics on the condition that the latter would cut its prices by 10%. This resulted in an initial elimination of Mech-Tronics’ profits, however with help from Allied Signal it improved its efficiency and the higher volume soon paid off.

Have someone arbitrate or make peace

Called a peacemaker or an arbitrator, such a person or an institution resolves disputes between two parties. However, it’s important that the arbitrator resort to the guidance of the Quran and Sunnah to solve the problem and be just so that both parties are willing to accept the proposed solution to the conflict.

The Prophet (sa) was the arbitrator in Medina. In fact, accepting solutions proposed by the Prophet (sa) was a sign of faith among the believers. Allah (swt) says, “But no, by your Lord, they can have no Faith, until they make you ( Muhammad) judge in all disputes between them, and find in themselves no resistance against your decisions, and accept (them) with full submission.” (Surah An-Nisa 4: 65)

How do I Deal with Personal Quarrels?

Find the underlying problem

Unlike a task-related quarrel, personal quarrels can be due to negative emotions, for instance, dissatisfaction, jealousy, a hot temper or simply personality differences. Controlling emotional reactions or the responses to these differences can stop the difference from escalating into a heated argument.

Understand the different personality types

Try understanding the different personality types and deal with them accordingly. Identify their comfort zones, and what ticks them off. You can do this through patient observation and listening. We have the Prophet (sa)’s example to emulate in this respect. His observation was so minute that he would speak to his guests using their own accents and dialects. He was quite eloquent at both Bedouin and town speech.

Be well-mannered

Allah (swt) praised the Prophet’s (sa) conduct in the Quran, “And verily, you (O Muhammad (sa) SAW) are on an exalted (standard of) character.” (Al Qalam 68: 4) and also said: “And by the Mercy of Allah, you dealt with them gently. And had you been severe and harsh-hearted, they would have broken away from about you” (Aal Imran 3: 159)

Politeness pays enormous dividends both in this world and the hereafter. The Prophet (sa) said: “Nothing will be placed in the balance heavier than good conduct, and a person with good conduct will attain the rank of one who fasts and prays.” (At-Tirmidhi)

Dua is a Must

No matter how hard we try to turn away from resorting to quarrelling as the sole solution, we can’t do much without Allah’s (swt) help. So let each one of us pray that, O Allah “guide me to the best character for no one can guide to the best (character) except you, and turn away bad conduct from me for no one can turn it away from me except you.” (Muslim) Ameen.

Can I Trust You?

In this article, the third in a series of articles on work ethics, Sumaira Dada discusses the importance of honesty in the workplace

A Pakistani bank executive wrote about his experience of the Far East work ethics. He noticed, how there people slogged at work, finished assignments within office hours and left work at 5 pm. In Pakistan, however, he was used to tea breaks, friendly chit chats, and long hours at the office. And at the end of the day, the amount of work done was much less compared to the number of work hours. Are you wondering about the reason for such inefficiency?

Take another case: a textile company has shipment deadlines to meet for its foreign client. Cutting corners, the company purchases low quality material, but manages to deliver on time. The consignment is rejected for not meeting specifications, and both the company and the country earn a bad name. Sound familiar?

Why is it that talk about honesty and trustworthiness are disdained? Let’s look at what Allah (swt) and the Prophet (sa) have to say about it.

Allah (swt) says: “Verily, Allah commands that you should render back the trusts to those, to whom they are due.” (An-Nisa 4:58)

“O you who believe! Betray not Allah and His Messenger, nor betray knowingly your Amanat (things entrusted to you, and all the duties which Allah has ordained for you).” (Al-Anfal 8:27)

Prophet (sa) says:

Anas bin Malik (rta) narrated: “Allah’s Messenger (sa) addressed us and said in his sermon: ‘He has no Iman, who is not trustworthy, and he has no Deen, who does not keep promises.’” (Ibn Hibban)

Abu Hurairah (rta) narrated that Allah’s Messenger (sa) said: “The signs of a hypocrite are three: whenever he speaks, he tells a lie; and whenever he promises, he breaks his promise; and whenever he is entrusted, he betrays (proves to be dishonest).’” (Bukhari)

Abu Hurairah (rta) narrated: “Allah’s Messenger (sa) said: ‘Return the trust to one, who has entrusted you, and do not be treacherous to one, who was treacherous to you.’” (Abu Dawood)

Safeguarding your trust is important

It is clear that in the light of the Quran and the Ahadeeth, one cannot afford to slack about building up honesty and trustworthiness in oneself. First, we must understand the meaning of trust (Amanah).

What is Trust (Amanah)?

A simple definition is that every entrusted thing is an Amanah. This covers not only office duties, but also office hours, your skills and abilities, your clients, and even your own health – physical and spiritual.

The opposite of Amanah is Khiyanah, which means lessening or decreasing, in short, betrayal.

Does honesty pay off?

Most people would consider honesty as being another word for stupidity. But research shows that honesty does pay off. A study of the US market found that the three-year total return to shareholders was almost three times higher at companies with high trust levels. However, most employees did believe that trustworthiness in the workplace has seriously declined. In one study, more than half of those polled said that they considered hypocrisy as the biggest problem in corporate America today, and that the upper levels of management are to blame.

Although facts and figures have their importance, yet risking Allah’s (swt) dislike is really not worth it. Allah (swt) says in the Quran: “Certainly Allah likes not the treacherous.” (Al-Anfal 8:58)

Is being trustworthy an unachievable goal?

If Allah (swt) and the Prophet (sa) have emphasized the importance of trustworthiness, then it is an achievable goal. In Muslim history, we will find the example of Umar Bin Abdul Aziz, the celebrated Umayyad Caliph, whose empire stretched from the shores of the Atlantic to the highlands of Pamir. His short rule is regarded as the brightest period in the 91-year Caliphate of the Umayyads. He was once sitting in his private chamber, examining a pile of state documents. When his wife sought to discuss a private matter with him, he asked her to put off the state lamp and put on their own lamp, as he did not want to burn the state oil for private purposes! According to “Tabaqat Ibni Sa’ad”, Umar bin Abdul Aziz never performed his private work in the light of a lamp, which burned the state oil.

Another incident also shows the utter honesty of the Caliph. Every Friday, Farat Bin Muslama brought state papers for his perusal and orders. One Friday, the Caliph brought a small piece of state paper in his private use. Muslama, who was aware of the exceptional honesty of the Caliph, thought that he had done it out of sheer forgetfulness. But the following Friday, when he brought back home the state papers, he found in them exactly the same size paper as used by the Caliph.

Once the Caliph’s servant burnt the firewood in the guest house (funded by the state treasury) to heat water for ablution. He had the same quantity of firewood deposited in its place. On another occasion, he refused to use the water heated from the state charcoal. Skeptics might frown at these incidents as being fictitious; nevertheless, they are facts on the deeds of our pious predecessors, enough to bring us to shame.

How do I become trustworthy?

The following tips might be helpful:

  • Remind yourself that Allah (swt) does not love those who betray (Al-Anfal 8:58). Keep constant reminders that you will be questioned about whatever you are entrusted with.
  • Make prayer for help from Allah (swt). Read the Quran regularly and study Ahadeeth to develop trustworthiness. We learn from the following Hadeeth:
  • Hudhaifah (rta) has narrated: “Allah’s Messenger (sa) said to us: ‘Certainly, Al-Amanah descended from the heavens and settled in the roots of the hearts of men (faithful believers), and then the Quran was revealed, and the people read the Quran, and also learnt it from the Sunnah.’” (Bukhari)
  • Realistically assess, whether you are able to handle the task given to you. Discuss your apprehensions with your supervisor.
  • Don’t be afraid to say ‘no,’ when you feel that you cannot realistically meet a deadline.

The Truth about Lying

bsr005Want to take a day off from the office? Lie that you are not well. Want to miss that deadline? Lie that you had forgotten. Want to be late for work? Make the excuse that there was a traffic jam. These thoughts, which translate into actions, show that Satan will not spare us at all.

As survey shows, lying at the workplace is very acceptable. According to the Aziz Management Communications Index, more than a third (37%) of British bosses believe that it is acceptable for their employees to tell white lies to customers, while nearly half (46%) think that telling untruths is acceptable to safeguard the company. Although the survey is limited to the UK, it would be safe to presume that the situation would not be much different in this part of the world. This certainly rings some alarm bells for all of us.

What the Quran and Ahadeeth tell us

When reality is put side by side with the teachings of Islam, one is taken aback by the intensity of the warning from Allah (swt). Allah (swt), the Exalted, says: “Truly, Allah guides not him, who is a liar and disbeliever.” (Az-Zumar 39:3)

In another verse, Allah (swt) states: “O you who believe! Be afraid of Allah, and be with those who are true (in words and deeds).” (At-Taubah 9:119)

The words of the Prophet (sa) also show that lying will never lead to salvation. The Prophet (sa) said: “Indeed, truthfulness leads to Al Birr (righteousness, and Al-Birr leads to Paradise. A man keeps on telling the truth, until he becomes a Siddiq (truthful person). Lying leads to Al-Fujur (wickedness), and Al-Fujr leads to the Hellfire, and a man keeps on telling lies, till he is written as a liar before Allah.” (Bukhari)

Abu Hurairah (rta) narrated that the Prophet (sa) said: “The signs of a hypocrite are three: whenever he speaks, he tells a lie, whenever he promises, he breaks it, and whenever he is entrusted, he betrays.” (Bukhari)

Truth leads to success

Honestly – who doesn’t know that lying is a sin? We all confess that we have lied to get out of a tight situation to the extent that we have got used to it and do not believe that there is a way out. If this is an echo of your mind, then you are probably taking a defeatist approach. It is possible to be truthful as well as successful.

Our dearest Prophet Muhammad (sa) was an honest man to the extent that he was known As-Sadiq (the truthful) and Amin (the trustworthy). When Khadijah (rta), a successful businesswoman of Makkah, assigned Prophet Muhammad (sa) to do some business for her, she found more profits and blessings than she was used to. Her servant also told her about the good manners and honesty of the Prophet (sa).

New research by the Institute of Business Ethics shows a relation between success and ethical environment. UK companies with an explicit commitment to ethical business were found to have produced profits an average of 18% higher than those that did not.

So how do we break the lying habit?

1. Reexamine your level of Iman (faith)

Is it important to you that you stop lying? Do you believe that truthfulness will benefit you in this world and in the Hereafter? Are you convinced that lying eventually leads to Hellfire? These are just some of the questions that you can ask yourself.

2. Make prayer

The earnestness of doing something is reflected in the kind of prayers that we make. One of the prayers of the Prophet (sa) was: “O Allah! Purify my heart from hypocrisy, my deed from any kind of showoff, my tongue from lying.” (Baihiqi)

3. Fix your own penalty for lying

This penalty can be in cash or in kind. Give something to charity or keep reminding yourself that you did something wrong today.

4. Read up on examples of people, who were ethical and successful

Reading about the Companions of the Prophet (sa) and modern day success stories of ethical companies will provide you with the much-needed encouragement and guidance.

5. Assess the consequences of lying

Draw up or think of all the direct and indirect, long term and short term consequences of lying. If you can logically figure out the disastrous effects of lying in this world and the Hereafter, it may be enough to control the ‘fibbing habit,’ Insha’Allah.

6. Remember that truth leads to peace of mind

According to a Hadeeth of the Prophet (sa): “Leave what appears doubtful to you and adopt that which is not doubtful to you, for truth is peace of mind and the lie is a means of doubt.” (At-Tirmidhi)

Advantages of telling the truth over lying

  • Telling the truth reduces medical expenses by keeping your blood pressure in the normal range.
  • If you tell the truth, you don’t have to worry about what to say, when you get caught.
  • If you tell the truth, you don’t have to learn any fancy ambiguous words to mislead people.
  • If you tell the truth, you get practice telling the truth, which can pay off, when telling the truth is really hard.
  • If you tell the truth, people have a chance to find out about problems, while there’s still time to do something about them.
  • If you tell the truth, it’s easier to sleep at night.
  • If you’re known as a straight shooter, fewer people will ask you to shoot crooked.
  • If you tell the truth often enough, when you say something, people are more likely to actually believe you.

Is it a Luxury?

bsr005This article is the first part of a new series about ethical dilemmas at work.

A young business executive complained bitterly about gender discrimination at work. A wife was griping about the fact that her husband had to spend his Sunday at the office to compensate for the hours lost because of Eid vacations. A marketing student was having difficulty reconciling marketing principles with her knowledge of Islam. A businessman expressed how difficult it was to get work done without resorting to bribery. The list can go on and on. Do our prayers and fasting in Ramadan help us become better Muslims? Or is it just fine to leave Islam at home, when you come to work?

Allah (swt) says: “And I (Allah) created not the Jinn and mankind except that they should worship Me (Alone).” (Al-Dhariyat 51:56) Therefore, it’s important to realize that the purpose of our life is to submit to Allah’s (swt) will; in short – to be Muslims.

Before committing to a code of ethics, clarify your intention and remind yourself that as a Muslim you ought to pay heed to what your Creator tells you. He knows best; therefore, you ought to give yourself up to Him.

An eye-opening Hadeeth emphasizes the importance of safeguarding our faith, whether at home or at work. Abu Hurairah (rta) narrated that the Prophet (sa) said: “Hasten in good deeds before calamities, which will come like portions of a dark night. A man will get up a believer in the morning and an unbeliever at dusk, and a believer at dusk and an unbeliever in the morning. He will sell his religion in exchange for the frail goods of this world.” (Muslim)

Keep in mind the last words of the Hadeeth. Most of us believe that a step towards ethics means a step towards economic loss. The two, however, do not connect. We have no less than our own Prophet’s (sa) example, who had worked as a trader. When Khadijah (rta) employed him to go to Syria for trade, he returned with more profits and blessings than before. Khadijah (rta) was informed by her servant about Muhammad’s (sa) good manners, honesty, deep thought, sincerity, and faith.

We also have other examples, such as Abdur-Rahman ibn Awf (rta), who was a wealthy trader, and Muhammad ibn Ismail Bukhari (better known as Imam Bukhari), who also was a wealthy trader and a Muhaddith (Hadith scholar). On the flip side of the coin, we have today’s examples of such as Enron and Worldcom, which had to suffer because of unethical decisions at the executive level.

Before proceeding with issues regarding work ethics, it’s important to do self-check for assessing, whether we have the level of Iman for taking a principled stand in dealing with ethical dilemmas at work.

Check your Taqwa Level

As Muslims we need to check our level of Taqwa (consciousness about Allah (swt)), for it has a direct bearing on our compliance with the Islamic code of ethics. How to do this is a question many wonder about.

Check the state of your heart in three situations: (1) when listening to the Quran, (2) in gatherings, where Allah’s (swt) Dhikr is done, and (3) in solitude. Check how you feel in such situations. Do you feel that Allah (swt) is watching you? If not, then pray to Allah (swt) for a sound heart (Qalb-e-saleem).

Keep in Mind the Hereafter

Belief in the fact that life in this world is temporary and whatever we do here has a bearing on life in the Hereafter is an important component of faith. Reading the Quran, keeping in mind death, and doing Dhikr help us to remain conscious about life after death. We should not merely believe in the Hereafter but have the highest level of conviction that we will have to give an account of our deeds, for which we will be justly recompensed. Describing the qualities of the Muttaqin (the pious), Allah (swt) says: “…and they believe with certainty in the Hereafter.” (Al-Baqarah 2:4)

Offer Salah and Make Duas

It’s important that as a practicing Muslim, you should offer your five daily mandatory prayers. You should also try to offer voluntary prayers (Nafl), whenever you can. Allah (swt) says: “O you who believe! Seek help in patience and As-Salat (the prayer). Truly, Allah (swt) is with As-Sabirun (the patient).” (Al-Baqarah 2:153)

Dua (supplication) is also an important form of contact with Allah (swt). A very comforting verse of the Quran is: “And when My slaves ask you (O Muhammad) concerning Me, then (answer them), I am indeed near (to them by My Knowledge). I respond to the invocations of the supplicant, when he calls on Me (without any mediator or intercessor)…” (Al-Baqarah 2:186)

Pray to Allah (swt) to grant you piety and to purify your soul. A beautiful supplication of the Prophet (sa) is as follows: “O Allah! Grant my soul (Nafs) its piety and purify it, for You are the Best of the ones to purify it, (as) You are its Guardian and Master.”

Don’t be Sad

Don’t despair, if your self-assessment does not come out excellent. Allah (swt) says: “Say: ‘O Ibadi (My slaves), who have transgressed against themselves (by committing evil deeds and sins)! Despair not of the Mercy of Allah (swt): verily, Allah (swt) forgives all sins. Truly, He is Oft-Forgiving, Most Merciful.” (Az-Zumar 39:53)

Also, try to look for friends inside and outside the organization, who may help you stick to your principles, when faced with ethical issues. Above all, remain committed and pray for help to Allah (swt). May He reward your efforts. Ameen.

How to decide, whether your act was ethical or not?

Ask yourself the following

1.   Did this act bring you closer to Allah (swt)?

2.   Did this act move you away from Satan?

3.   Did this act bring you closer to Paradise?

4.   Did this act move you away from Hell?

Interesting Fact

Xerox Corporation has a 15 page ethical code, one section of which states:

“We’re honest with our customers. No deals, no bribes, no secrets, no fooling around with prices. A kickback in any form kicks anybody out. Anybody.”

Sukuk

Vol 2 -Issue 4 SukukWhat is Islamic Sukuk?

Bonds are fixed income securities that promise the holder a specified set of payments. A bond investor has lent money to the bond issuer. In return, the issuer of the bond promises to pay interest and repay the principal on maturity.

Islamic Sukuk is a form of debt financing structured under the rules of Shariah. Sukuk are term finance certificates (TFC) of equal value representing undivided shares in ownership of assets of a particular project or special investment activity.

Difference between Sukuk and Conventional Bonds

The basic difference between conventional bonds and Sukuk lies in the way they are structured and floated. In the conventional system of bond issue and trading, the element of ‘interest’ is at the centre of all transactions. Sukuk, on the other hand, are structured in such a way that the issue is asset backed and is based on “an exchange of approved asset for some financial consideration” that allows the investors to earn lawful profits from transactions. The underlying asset, contract, and payment mechanism of the Sukuk while being commercially viable, has to be aligned with the requirements of the Shariah.

Types of Sukuk

Thus, the issuance of Sukuk requires an exchange of a Shariah compliant underlying asset for a financial consideration through the application of various Islamic commercial contracts, such as the Mudarabah, Musharakah, Ijarah, Istisna’, Salam, and Murabahah. The equity-based nature of Mudarabah and Musharakah Sukuk exposes investors to the risks connected with the performance of the project for which the financing is raised. In contrast, issuance of Sukuk on principles of Ijarah and Murabahah yields deterministic receivable and hence result in predictable and somewhat fixed returns for the prospective investors.

Mechanism of Ijarah Sukuk

The Ijarah Sukuk  is one of the most popular concepts among issuers of global Islamic Sukuk. The structure of Ijarah Sukuk can be understood from this example. If a corporation requires, for example, USD50 million for the purchase of land, real asset, equipment, aircraft, etc., it can issue Ijarah Sukuk equalling that amount in small denominations, say USD10,000 each. The firm then either purchases the asset on behalf of the Sukuk holders (investors or certificate holders) or transfers the ownership of the already acquired asset to Sukuk holders by establishing a Special Purpose Vehicle (SPV), which owns the underlying assets. The investors or Sukuk holders, own the shares of this SPV. The asset is then leased back to the firm and the lease proceeds from the asset are distributed to the Sukuk holders as dividend. The returns on the Sukuk certificates, or shares of the SPV, could be either fixed or floating. The expected returns (pre-determined rental payments) are fixed and can be treated as predictable like the coupon payments of a conventional bond.

Ijarah Sukuk can be issued through a financial intermediary, a bank, a brokerage house or directly by the users of the lease asset. A third party can also guarantee rental payments, and since the yield is predetermined and the underlying assets are not liquid but tangible and secured, the Ijarah certificate can be freely traded in the secondary markets at par, premium or discount.

Note: The prevalent system of Islamic banking the world over is truly not the ultimate and ideal solution. It is only a step towards creating an interest free environment to provide Muslims with an option. Much needs to be achieved keeping in view the injunctions of Quran and Sunnah.

Takaful: Islamic Insurance

Vol 2 -Issue 3 TakafulWhat is Takaful?

Takaful is an Arabic word that means ‘guaranteeing each other.’ It is a scheme of mutual support that provides insurance to individuals against hazards of falling into unexpected and dire needs.

Is there a need for Islamic insurance?

Yes, there definitely is a need for Islamic insurance:

  • One of the ways to reduce the risk of loss in business due to misfortunes is through insurance. The concept of insurance, where resources are pooled to help the needy, does not contradict Shariah.
  • This is not a new concept; in fact, it had been practiced by the emigrants of Makkah and the Ansar of Madinah following the migration of the Prophet (sa) over 1400 years ago. (Practices, such as A’Qila – communal assistance for killings, Hilf – mutual assistance, Tawun – self help, and Tabbaru – donation were prevalent at that time).
  • Conventional insurance involves elements of uncertainty (Al-Gharar) in the contract of insurance, gambling (Al-Maisir) as a result of the presence of uncertainty, and interest (Al-Riba) in the investment activities of the conventional insurance companies. All these contradict the Shariah. Takaful, thereby, provides an alternative.

How does Takaful run?

  1. A group of people form a pact and agree to guarantee jointly among themselves against loss or damage that may be inflicted upon any of them.
  2. A fund is set up, where every group member contributes a sum of money.
  3. Should any member or participant suffer a catastrophe or disaster, he would receive a certain sum of money or financial benefit from the fund, as defined in the pact, so as to help him meet the loss or damage.

What is Tijari Takaful?

The Takaful system can be operated within the Tijari (commercial) aspect of the private sector. Here, Takaful is based on the Islamic commercial profit-sharing principle of Mudharabah.

How does Tijari Takaful run?

  1. A group of people join to form a Takaful fund.
  2. A Takaful operator or Al-Mudharib is designated to manage the contributions to the fund.
  3. The funds are invested by the Takaful operator.
  4. The obligation to assist fellow participants financially is fulfilled.
  5. Thereafter, the profit that arises after the fulfillment of obligations is shared, according to a mutually agreed ratio.

Current practice

Theoretically, scholars suggest that the cooperative insurance can be the basis of the Islamic insurance. The model envisaged by scholars is that the management and control of a Takaful company are in the hands of the members, who are also the policyholders. The insured and the insurers are, therefore, the same people. Its main purpose is mutual security, not profit-making. However, not all companies strictly follow this recommendation. Whereas companies in Sudan follow the cooperative insurance model, companies in the ASEAN (Association of Southeast Asian Nations) region are primarily commercial in nature.

Takaful – A local form existing in Pakistan

Though not entirely conforming to Shariah laws, a local form of mutual insurance based on the principle of co-operation (Tawun) exists in Pakistan. The form is comprised of a ‘committee’ (literally, a group of people) where participants contribute a certain sum of money, and the entire pool periodically accrues to each member in turn. This total amount could be used by the participant to pay off a debt in lump sum or to cover expenses. Nevertheless, this is an informal system that does not have legal protection or cover and, therefore, is open to abuse.

Information sources:

http://www.islamic-insurance.com/

http://www.islamic-banking.com/

http://www.takaful.com/

Note: The prevalent system of Islamic banking the world over is truly not the ultimate and ideal solution. It is only a step towards creating an interest free environment to provide Muslims with an option. Much needs to be achieved keeping in view the injunctions of Quran.

Ijarah – Islamic Leasing

Vol 2 Issue2 IjaraahWhat is Ijarah?

Ijarah means: ‘to transfer the usage of a non-consumable asset by the owner (the lessor) to another person (the lessee) for an agreed period, at an agreed price (rent).’

Basic Rules of Ijarah

  • Transferring the usufruct, not the ownership, for an agreed period, at an agreed price.
  • The non-consumable asset should have identifiable value and quantity.
  • The lessor bears all liabilities of ownership, while the lessee is responsible for those of the use of property. (Example: The property tax should be paid by the lessor, while the water and electricity bills referable to the use of the house should be borne by the lessee.)
  • Throughout the leasing period, the lessee bears the risk of ownership, i.e., the reduction in the value of the real estate or any harm caused by the factors beyond the control of the lessee. However, the lessee is liable to compensate the lessor for any loss due to his/her negligence. After the lease period completes, the remaining asset should be given back to the owner (the lessor).

Additional Rules

  • The asset can be insured, preferably through a Takaful (Islamic insurance) company, at the expense of the lessor, not the lessee.
  • Ideally, the rent charged for the leased asset and its periodical increase should be benchmarked to the current prevailing market rates of the pool of similar assets classes. However, in practice, banks usually use interest rates as benchmarks. Although not preferable, these bank benchmarks can be used, until a suitable Islamic based benchmark becomes available.

Differences between Ijarah and Conventional Leasing

Leasing such as, Murabaha, is not originally an Islamic mode of financing. However, Islamic financial institutions adopted it by making some relevant modifications in the structure of the leasing contract (i.e., its terms and conditions), in order to conform it to the rules of Islamic Shariah.

In conventional leasing, instead of offering an interest-bearing loan, banks and leasing companies provide to the lessee an asset along with the risk of ownership. Many basic features of the conventional lease are Islamic, except these two:

1. In Ijarah, the lessee’s liability for the rent starts, when the lessee takes delivery of the asset and not from the day the price has been paid, either directly or through the lessee.

2. In Ijarah, there is no hire purchase arrangement at the start of the leasing contract. After the leasing period has ended, the lessor can, under a separate contract, sell the previously leased asset to the lessee or any other person. Unlike conventional leasing agreements, the Ijarah contract itself should not contain the ‘express clause,’ a pre-condition of gift or sale at the end of the lease period.

How Ijarah is practiced

An asset, usually a car, machine, equipment or household durables, is leased to the lessee on an agreed fixed rental payments for a maximum of 5 years. After the end of the leasing period, through another contract the asset is usually sold to the lessee at the book value of the asset.

In Pakistan, Ijarah form of financing is provided by Islamic Banks, Islamic windows of Commercial Banks and Modarabas. The Ijarah structuring is the most common method used for Islamic Sukuks (bonds).

Note: The prevalent system of Islamic banking the world over is least permissible and truly not the ultimate and ideal solution. It is only a step towards creating an interest free environment to provide Muslims with an option. Much needs to be achieved keeping in view the injunctions of Quran.

Mudarabah: A Special Partnership

financeWhat is Mudarabah?

It is a special kind of partnership, where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner (Rabb-ul-mal), whilst the management and work is the exclusive responsibility of the other partner (Mudarib).

How many types of Mudarabah are there?

There are two main types of Mudarabah:

(1) Restricted Mudarabah, where the investor specifies a particular business for the manager, who may then invest in that particular business only.

(2) Unrestricted Mudarabah, where the investor allows the manager to invest in any type of business.

How will the profits be distributed?

  • Before forming Mudarabah, the parties should agree about a definite proportion of profit, to which each one of them would be entitled.
  • The investor and the manager can share the profit equally or they can allocate different proportions.
  • They cannot allocate a fixed, lump amount, nor can they allocate a fixed percentage of the capital.
  • Different proportions of the profit can be agreed to under different situations, e.g., it can be agreed that the manager can get 35% of the profit, if he works in his hometown. If he works in another town, he can get 50% of the profit.
  • The manager cannot draw any periodical salary or fee for the work done by him for Mudarabah. However, Imam Ahmad has allowed that the manager draws his daily expenses of food from the Mudarabah account. Hanafi jurists, on the other hand, have allowed that the manager draws his expenses, if he is on a business trip outside his own city.

What happens when Mudarabah incurs both a profit and a loss?

In such situation, the profit shall be used to offset the loss. Then, the remainder, if any, shall be distributed between the partners, according to the agreed-upon ratio.

What roles does the Mudarib play?

  • A trustee responsible to look after the investment.
  • An agent for the investor, as he purchases from the funds provided by the investor.
  • A partner, who shares in any profit.
  • Liable to provide for any loss to Mudarabah, due to his actions.
  • An employee, who receives salary, when Mudarabah becomes void.

When does Mudarabah terminate?

  • When the period specified in the contract expires.
  • When either of the two parties informs the other party about the termination of the contract by serving a notice.

What happens when Mudarabah is terminated?

  • All the liabilities are paid off and receivables collected.
  • Assets are liquidated to determine the value of Mudarabah.
  • The investor receives back the amount he / she invested.
  • The balance amount is to be distributed as profit, according to the agreed ratio. If no balance is left, the manager does not get anything.

How do we apply the Mudarabah model for financing purposes?

Mudarabah can be applied to project financing business models, opening letters of credit without margins. The Mudarabah model can also be combined with the Musharakah model for financing large enterprises, import and export businesses (pre-shipment financing), etc.

Sources

  • Usmani, Muhammad Taqi. “An Introduction to Islamic Finance.” Idarat ul-Marif, Karachi, Pakistan.
  • Usmani, Dr. Muhammad Imran Ashraf. “Meezan Bank’s Guide to Islamic Banking.” Darul-Ishaat, Karachi, Pakistan.

Murabaha: An Islamic Sale

Vol 1-Issue 2   Islamic FinanceDifferent types of Sales in Islam

Sales are divided into two categories with respect to cost and price:

1. Bargaining Sale (Musawamah): where the buyer and the seller agree on the selling price without taking into consideration the cost of the merchandise.

2. Trust sales: where the buyer and the seller agree on the price of the merchandise, taking into account its original cost. This type of sale is further subdivided into three types:

a. Murabaha: where the price of the merchandise includes an amount greater than the original cost.

b. Tawliyah: where the price of the merchandise is equal to its cost (i.e., with no profit, nor loss).

c. Wadhee’ah: where the price of the merchandise is less than its cost (i.e., a loss).

Necessary conditions for the validity of the Murabaha sale

1. The buyer should know the cost of the merchandise. If he feels that there has been any deception in setting the price, he has a choice to revoke the sale.

2. The profit should also be known

3. The price and merchandise should not be of the same type (or commodity), otherwise it becomes Riba (Riba Al Hadith, in particular). For instance, if gold is traded with gold, with a difference in the amount it would be riba, and therefore not allowed.

How Murabaha is carried out today

A person wants to buy merchandise but cannot pay its price in cash. He asks the Islamic bank to buy it for him and pay its price in full. Thereafter, the bank buys the merchandise or imports it from the local market and sells it to that person in installments, with a fixed profit that is agreed upon in advance.

Answers to some objections

Skeptics argue that the Murabaha contract involves the sale of the merchandise that is not in the possession of the seller. However, one of the conditions of the Murabaha sale is to ratify the contract only after the bank is in possession of the merchandise. Therefore, this allegation becomes baseless. Another objection raised is that it is a type of loan sale, and a way to circumvent Riba. Once again, this is a false claim because the selling and the buying occur effectively.

Yet another objection raised is that there are two sales in one, which has been forbidden by the Holy Prophet (sa). However, a closer look at the transaction shows that this is not the case. In a Murabaha transaction, the person does not say, “buy this merchandise from me and I will buy it from you at a higher price.” The deal is about a merchandise that the client wants to acquire by buying it in installments from the bank, whom he has asked to purchase from the merchant.

Opponents of Murabaha argue that the promise to buy in a Murabaha contract constitutes an obligation that was not enjoined by the Shariah. However, it is to be noted that the mutual promise between the bank and the client, that includes the promise of the client to buy, and a promise from the bank to execute the sale once it is in possession of the merchandise, is simply a promise and not an obligation. Many Quranic verses and many Ahadeeth have encouraged the fulfillment of promises.

(Adapted from “Selling at a Profit: Murabahah”; Al Jumuah, Vol 12, Issue 11)

Musharakah: Sharing Profits and Losses

Vol 1-Issue 2   Islamic FinanceWhat is Musharakah?

Musharakah means ‘sharing.’ The root of the word is Shirkah, which means ‘being a partner.’ Under Islamic law, Musharakah is a joint enterprise, formed for conducting business, in which all partners share the profit according to a specified ratio, while the loss is shared according to the ratio of the contribution.

Differences Between Interest-Based Financing and Musharakah

1. In interest-based financing, the financer predetermines a fixed rate of return on a loan, irrespective of the profit earned or loss suffered by the debtor. In Musharakah, the return is based on the actual profit earned by the joint venture.

2. If a Musharakah joint venture fails, the financier also suffers a loss. In a system based on interest, the financier secures himself against such an eventuality by fixing a rate of interest.

Basic Rules

Musharakah or Shirkat-ul-amwal is a relationship established by the parties through a mutual contract. Therefore, all the necessary ingredients of a valid contract must be present. For example, the parties should be capable of entering into a contract; the contract must take place with the free consent of the parties, without any duress, fraud, or misrepresentation. However, there are certain rules specifically related to a Musharakah contract.

Rules of Capital

The capital in a Musharakah agreement should be:

  • quantified (Ma’loom),
  • qsecified (Muta’aiyan),
  • not necessarily merged,
  • not necessarily in liquid form.

Management

Every partner has the right to manage the business as well as to work for it. However, the partners may agree upon a condition that the management would be carried out by one of them, and no other partner would work for the Musharakah. In such case, the ‘sleeping partner’ would be entitled to the profit only to the extent of his investment – the ratio of his profit would not exceed the ratio of his investment. However, if all partners agree to work for the joint venture, each one of them would be treated as the agent of the other in all matters of business.

Rules Regarding the Distribution of Profit and Loss

1. Profit:

  • The profit ratio of each partner must be determined proportionally to the actual profit of the business and not in proportion to the capital invested by him.
  • It is prohibited to set a fixed amount for any partner or attach any specific rate of profit to his investment.
  • It is allowed for both partners to agree on profit percentage according to their investment, no matter if both of them work or not.
  • If an investor is working, his profit share can be more than his capital investment, no matter if the other partner is working or not.

2. Loss:

  • Loss is distributed exactly according to the ratio of investment.

Termination of Musharakah

A Musharakah will stand terminated in the following cases:

1.  If the purpose of forming the business has been achieved. For example, if two persons had formed a partnership for a certain project, e.g., buying a specific quantity of cars in order to sell them, and the cars are purchased and sold with mutual investment, then the contract stands terminated.

2.  Every partner has the right to terminate the Musharakah at any time, after giving his partner a notice that will cause the Musharakah to end.

3.  In case of a death of any one of the partners or any partner becoming insane or incapable of carrying out commercial transactions, the Musharakah stands terminated.

Termination of Musharakah Without Closing the Business

If one of the partners wants termination of the Musharakah, while the other partner would like to continue with the business, a mutual agreement should take place. The partner interested in the business may purchase the share of the partner wishing to terminate his partnership.

(Courtesy: Meezan Bank’s Guide to Islamic Finance)

Islamic Finance and Banking: How It All Began

financeBackground of the system

The first experiment of Islamic banking started in1963, when Mit Ghamr Saving Bank began a project offering interest free banking in Egypt. The project was a success and led the bank to open four new branches by 1967. In the same year, eight new banks started offering interest free banking.

It was the Organization of Islamic Countries (OIC) summit in 1974, in Lahore, Pakistan that fostered the concept of an “Islamic bank” and recommended the creation of an Islamic Development Bank. There are estimated to be over 200 Islamic financial institutions all over the world. The industry is said to be growing at rate of 15% per annum. Not only do a number of Islamic countries such as, Kuwait, Dubai, Saudi Arabia, Iran, Malaysia, Brunei, Bangladesh and Pakistan have Islamic financial institutions, but many non-Muslim countries also house Islamic institutions. Some of these non-Muslim countries include USA, UK, Canada, Switzerland, Australia, and Sri Lanka. Major international conventional banks, such as Citibank, ANZ Grindlays, ABN Amro, HSBC, and Standard Chartered also have Islamic windows.

Islamic banking in Pakistan

Financial institutions in Pakistan seem to follow a cautious “wait and see” approach towards Islamic banking. A number of key players have obtained a license for conducting Islamic banking operations. These include: Meezan Bank Limited, Faysal Bank Limited, Al Baraka Islamic Bank and First Islamic Investment Bank. Meezan Bank is already operating as the first Islamic bank of Pakistan since May 1, 2002 when it acquired the Pakistani operations of Societe Generale. Other banks, including Habib Bank, Habib Bank AG Zurich, National Bank of Pakistan and United Bank Limited, are in the process of initiating Islamic banking products. Muslim Commercial Bank has already set up a dedicated Islamic banking branch.

Efforts towards establishing an Islamic economic system really took off after the Supreme Court’s judgment in the latter half of 1999, ordered the government to abolish the ‘interest-based system’ and establish an alternative Shariah-based system. For the launch of Islamic banking in the country, the State Bank of Pakistan (SBP) has given three options, i.e., to establish an independent Islamic bank, to establish subsidiaries of the existing banks or any commercial bank or to set up stand-alone branches. The stand-alone branches would have to carry business only in the Islamic banking area where both deposit and grant of loans would be according to Islamic injunctions. The development of Prudential Regulations for Islamic banking is already in process. The SBP is also working towards the establishment of an Islamic banking division. The launch of Islamic T-bills, known as Ijarah Sukook, is already under serious consideration in order to solve the liquidity problems of Islamic banks.

These instruments are being developed at a rapid pace. The huge market potential for Islamic products is proof of the fact that the efforts of these entities are bearing fruit. Moreover, while the current conventional financial system has had years to reach the maturity it enjoys now, a modern model of Islamic finance has only been developing over the past few decades.  As difficulties arise and are resolved, the industry is sure to ripen.

The Islamic Finance and Banking System

Image finance“O believers, fear Allah and give up what is due to you from the interest (usury), if you are true believers. If you do not do so, then take notice of war from Allah and His Messenger. But, if you repent, then you can have your principal. Neither should you commit injustice nor should you be subjected to it.” (Al-Baqarah 2:278-279)

Riba in the Bible

One would perhaps be a little surprised to learn that the commandment regarding the prohibition of usury (Riba) also occurs in the Bible.

“Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury.” (Deuteronomy 23:19)

Key aspects of Islamic Finance

Islamic finance is popularly understood as that mode of banking, in which interest or Riba is forbidden. Although this aspect forms the crux of Islamic finance, there are also various other principles, according to the Shariah, that form the basis of an Islamic banking system which are:

Making money from money is not permissible: One of the assumptions on which all theories of interest are based is that money is a commodity. It is therefore argued that money can be bought and sold; bought in the form of deposits and sold in the form of loans. This is just as if a merchant can sell his commodity for a higher price than his cost, he can also sell his money for a higher price than its face value. Islamic principles, however, do not accept this assumption. Islamic financial institutions must trade in “real” assets or services. Money and commodity have different characteristics and therefore, they are treated differently.

Gharar (Uncertainty) is prohibited: Under this prohibition any transaction entered into should be free from uncertainty and speculation. Contracting parties should have perfect knowledge of the counter values intended to be exchanged as a result of their transactions. Thus, options, futures, and derivatives are considered un-Islamic and so are forward foreign exchange transactions because rates are determined by interest differentials.

Maisir (speculation or gambling) is not allowed: Transactions undertaken for purely speculative purposes are not allowed. Trading or investment transactions, which involve the risk of incurring losses as well as earning profits, do not fall under the definition of Maisir.

Investments should only support Halal activities: The Shariah does not permit Muslims to invest in any business or activity that involves the production of items or pursuit of activities that are considered to be Haram, or impermissible.

Role of a bank in the Islamic context

The functions of Islamic financial institutions can be divided into two parts: the safeguarding of deposits and the partnership of financial institutions with shareholders and depositors in profit-making ventures. Demand deposit facilities (called Amanah or Qard-Hasan deposits) are similar to safekeeping and transferable deposit functions performed in standard conventional banking. The Amanah or Qard-Hasan deposits pay no return and the financial institution is obligated to preserve the nominal value of the deposit.

The partnership activities of Islamic financial institutions have mixed features that include conventional bank intermediation, mutual funds or limited partnerships. To a large extent, Islamic financial institutions act as conventional intermediaries by issuing deposit-like instruments to the public in order to raise funds to finance commercial activities. The investments, many of which are negotiable and are known as “investment deposit certificates”, have properties similar to those of shares in a company or a mutual fund.