The Differences between Sharia Business and Conventional Business

Abstract

This paper discuss the differences between sharia business and conventional business and I will try to give an opinion about them and also a few examples about sharia financial concept.

Intoduction

The current global financial crisis has not only shed doubts on the proper functioning of

conventional “Western” business, but has also increased the attention on Islamic business.

Academics and policy makers alike point to the advantages of Shariah-compliant business

products, as the mismatch of short-term, on-sight demandable deposits contracts with long-term

uncertain loan contracts is mitigated with equity elements. In addition, Sharia-compliant

products are very attractive for segments of the population that demand financial services that are consistent with our religious beliefs.

They are 4 concepts in Sharia Business:

1  -   Tauhid

teaches human to the recognize of the unity of God (Allah)  as the Lord of the Worlds,  to believe that everything in nature is sourced and ends in Him. He is the absolute and the owner of all Allah created. Therefore, all activities particularly in muamalah and business man should follow the existing rules do not violate the constraints given.

2.       Equilibrium

is a concept that suggests social justice, fairness in all matters, including business rules of sharia.

3.       Free Will

that humans have a potential in determining the different choices, because human freedom is not restricted. But the free will given by God (Allah) to man must be in line with the basic principles of human creation that is as inheritors of the earth. So that free will must be in line with the welfare of individual interests to the interests of people.

4.       Responsibility

closely related to human responsibility for all activities conducted with Allah as well as a responsibility to the human community. Because human life is not himself he did not escape the laws made by the man himself as a social community. Responsibility to God is certainly the Hereafter, but the responsibility to the people in the world to come in the form of the laws of formal and non formal legal sanctions such as moral and others.

in a conventional business, the main motivation is for profit as much as possible in a way that is not limited  anyway.

competition can also be done freely so they are the possibility of a huge business monopolies.

Conventional business is also knowing the principles of humanity just like the sharia business but without any religious beliefs that encourage the principles it would just be a pile of unwritten rules that are not used by anyone.

A few sample why Islamic business is more consider than the conventional one:

 Islamic financial transactions cannot include the interest

payment (Riba) at a predetermined or fixed rate; rather, the Holly Qur’an stipulates profit-loss-risk

sharing arrangements, the purchase and resale of goods and services and the provision of

(financial) services for a fee.  A second important characteristic of Islamic business is that they are

in general prohibited from trading in financial risk products, such as derivative products.

One important feature is the pass-through of risk between depositor and borrower. 

Among the most common Islamic banking products are partnership loans between bank and

borrowers.  Under the Mudaraba contract, the bank provides the resources, i.e. the “loan”, while

the client – the entrepreneur – provides effort and expertise.  Profits are shared at a

predetermined ratio, while the losses are borne exclusively by the bank, i.e. the entrepreneur is

covered by limited liability provisions. While the entrepreneur has the ultimate control over her

business, major investment decisions, including the participation of other investors, have to be

approved by the bank.  The Musharaka contract, on the other hand, has the bank as one of

several investors, with profits and losses being shared among all investors.  This partnership

arrangement is mirrored on the deposit side, with investment accounts or deposits that do not

imply a fixed, preset return but profit-loss sharing. Such investment deposits can be either linked

to a bank’s profit level or to a specific investment account on the asset side of a bank’s balance

sheet. 

By the example I had given above I think Sharia Business model is more ideal than the conventional one. And it would be wiser if start using Sharia Business in every part in this world to seek prosperity in this time being and in the afterlife.

Reference:

Islamic vs. Conventional Banking: Business Model, Efficiency and Stability. A paper (journal) made by Thorsten Beck, Asli Demirgüç-Kunt and Ouarda Merrouche.

https://openknowledge.worldbank.org/bitstream/handle/10986/3929/WPS5446.pdf?sequence=1