Published on March 11, 2014
Profit Maximization from theProfit Maximization from the Islamic PerspectiveIslamic Perspective Presented by: Musliza Binti Musa G1236556 Siti Maisarah Binti Sewandi G1237154
OutlineOutline Introduction A Review on the Islamic Perspective Common Views of Contemporary Scholars Authors’ Views and Reasoning on the Islamic Perspective Conclusion
• The philosophical objective of an Islamic economic system is to fulfill the internal positions of satisfaction and motivations • The operational objectives: – to spend wealth and materials to accomplish aim (economic - based objective) – to achieve cooperation and harmony and to maximize social interests (social - based objectives) (Zaman, A., 2008) IntroductionIntroduction
• In an Islamic framework, it is accepted that a firm’s behavior must be guided by Islamic values and ethics • The motivation of a firm in the Islamic framework is profit and public good. In mainstream economics, the firm’s motivation is solely to maximize profits. (Ali S.A) IntroductionIntroduction
• In Islam, the market is an institution that equilibrates the behaviors of consumers and firms to ensure greater welfare in this world, as well as the greatest reward in the hereafter through dealings involving profit maximization. (Samad, A., 2008) IntroductionIntroduction
A Review on theA Review on the Islamic PerspectiveIslamic Perspective Central Issues or Objectives • The real issues in relation to profit-maximization from the Islamic social justice viewpoint : – fairness of the firms’ actions towards the buyers in the product market – the equitability of the consumers towards the sellers, especially labor, in the factor market; and – the usage of profit from the activity
A Review on theA Review on the Islamic PerspectiveIslamic Perspective • These objectives could be further explained through (Chaudry, M. S., 2003) : – Achievement of al-Falah – Fair and Equitable Distribution – Provision of Basic Human Needs – Establishment of Social Justice – Promotion of Brotherhood and Unity – Achievement of Moral and Material Development – Circulation of Wealth – Elimination of Exploitation
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 1) Achievement of al-Falah Spiritual, moral and socio-economic success in this world and in the world hereafter. In Islamic economics, profit is allowed but maximization of profit is denounced by many Islamic economists. It includes reward and sin which means Allah’s blessing and also His wrath (Al-Qasas: 77)
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 2) Fair and Equitable Distribution (al-Hashr: 7) Wealth should not be allowed to be concentrated in only a few hands but instead should be freely circulated among everyone The Islamic firm would view profit from a more socially beneficial perspective.
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 3) Provision of Human Basic Needs It is important that the society is provided with all basic necessities to live like food, clothing and shelter. A hadith narrated by Tirmizi: “The son of Adam has no better right than that he would have a house wherein he may live, and a piece of cloth whereby he may hide his nakedness, and a piece of bread and some water.”
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 4) Establishment of Social Justice “He (Allah) placed therein firm hills rising above it, and blessed it and measured therein its sustenance in four days, alike for (all) who ask” (Fussilat: 10) “Never will you attain the good [reward] until you spend [in the way of Allah] from that which you love. And whatever you spend – indeed, Allah is knowing of it” (ali-Imran: 92)
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 4) Establishment of Social Justice To make economic resources distribution fair and just, an elaborate system of Zakah and Sadaqah has been established in the Islamic economic system. Many restrictions have been put in place to bar an individual earning wealth through unfair, illegal and unjust measures.
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 5) Promotion of Brotherhood and Unity "They ask you, [O Muhammad], what they should spend. Say, "Whatever you spend of good is [to be] for parents and relatives and orphans and the needy and the traveler. And whatever you do of good - indeed, Allah is knowing of it." (al-Baqarah: 215)
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 5) Promotion of Brotherhood and Unity Islam sets out the foundations of sympathy, brotherhood (ikhwan), friendship and love among all the members of Ummah. For a firm: it will automatically gear up its motive towards the interest of the Ummah rather than just focusing in achieving maximum profit. Social accord will be attained and full cooperation will exist between all parties.
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 6) Achievement of Moral and Material Development It can be achieved particularly through Zakah. Through the paying out of Zakah particularly in regards to firms who obtains profit, consumption and investment would be boosted. Through the multiplier effect, there will be a greater growth of national income. Unemployment will be minimized and resources would be fully and efficiently utilized
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 6) Achievement of Moral and Material Development “And whatever you give for interest to increase within the wealth of people will not increase with Allah . But what you give in zakah, desiring the countenance of Allah - those are the multipliers” (ar-Rum: 39) The human soul and wealth are purified via Zakah and Sadaqah
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 7) Circulation of Wealth "This is what you hoarded for yourselves, so taste what you used to hoard" (at-Taubah: 34– 35) As with points 2 and 4, keeping wealth for one’s oneself is discouraged. Allah threatens that there will be calamitous penalty for the persons responsible for this dreadful offense.
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 8) Elimination of Exploitation Firstly is the abolition of interest or usury as it is the worst form of human exploitation. For those who have only profit-maximization as motivation, they would totally disregard this. Allah wages war against those who are involved in this crime.
A Review on theA Review on the Islamic PerspectiveIslamic Perspective 8) Elimination of Exploitation 2nd measure: Stop the exploitation of human in relation to slavery. To maximize its profit, a firm might pay its workers less than they are worth or pay the wages late or may not pay at all. A hadith “Pay the labourer his wages before his sweat dries up” (Ibn Majah)
Common Views of ContemporaryCommon Views of Contemporary ScholarsScholars Majority of the Contemporary Scholars or the Islamic Economists seem to agree that profit is allowed in the Islamic economic system However, profit-maximization conflicts with the other objective of a firm in the Islamic economy which is the upholding of human welfare or public interest.
Common Views of ContemporaryCommon Views of Contemporary ScholarsScholars Hasan (2002) states that the concept of maximization in itself conflicts with the moral code of Islam. Amin et al (2003) on the other hand is in view that profit maximization can still be applied in an Islamic framework to achieve the desired outcomes of an Islamic economy, provided that Islamic values are explicitly incorporated particularly in the measurement of the cost of production of an Islamic firm
Common Views of ContemporaryCommon Views of Contemporary ScholarsScholars Hasan (2011) stated that scarcity, self-interest and maximization can be incorporated in Islamic economics with advantage after interpretative modifications to meet the Shari’ah norms Samad (2008), parties in the Islamic markets will combine twin objectives: • maximization of profits/utility, i.e. welfare in this world • maximization of success in the world hereafter, i.e. achievement of Paradise
AuthorsAuthors’’ Views and Reasoning on theViews and Reasoning on the Islamic PerspectiveIslamic Perspective From our point view, this topic is relevant in providing society’s benefits. Islam has its own prescriptions in order to tackle this issue. This is because in Islam there are also economic activities and participation in business that have spiritual beliefs. “Eat not up your property among yourselves in vanities; but let there be amongst you trade by mutual good-will” (an-Nisa’: 29)
AuthorsAuthors’’ Views and Reasoning on theViews and Reasoning on the Islamic PerspectiveIslamic Perspective Rasulullah (pbuh) made engaging in business affairs an obligation, “Seeking earning is a duty for every Muslim” and “Some sins can be abolished only by working hard to get earnings”. The elevation of participation in business activities bring important factors toward social stability, coherence and development and growth besides strengthening the spirituality and civilization of society.
AuthorsAuthors’’ Views and Reasoning on theViews and Reasoning on the Islamic PerspectiveIslamic Perspective Entrepreneurial framework according to the Islamic Worldview is not only profit-oriented for this world but it crosses the boundaries of the physical world to a dimension that cannot be seen with the normal human senses, namely the Hereafter (Hasan, Z., 2011). The concept of profit (gains) and losses (loss) should be viewed in the medium and not just based on the theory of rational human reason alone.
AuthorsAuthors’’ Views and Reasoning on theViews and Reasoning on the Islamic PerspectiveIslamic Perspective Thus, without the guidance of revelation resulted in man being ta’sub and fascinated to live in a world full of lies Result in oppression, tyranny & the practice of riba' Islamic guidance consists of a balance between individuals’ rights and their responsibilities towards others in opposition to self-interest and altruism (Dusuki, A. W., & Abdullah, N. I., 2007).
ConclusionConclusion We believe that profit maximization can still be applied in order to achieve the desired outcomes of an Islamic economy system. Although the present economic environment and the values of mainstream economy may not completely imitate the ideal values of Islam, we do hope that the analysis of this paper provides valuable knowledge in supporting our Islamic economic framework.
ConclusionConclusion The government must undertake this responsibility to ensure that the goal is attained and coincide with the market of society. We believe that economic and social justice values of the firm need to be in same discussion. Islam via the concept of vicegerency visualizes shareholders’ financial resources plus society’s economic resources, holding their property in trust for the benefit of the whole society with ultimate goal to gain the blessing of Allah.
Q&A SessionQ&A Session
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