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Enterprise and Entrepreneur
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Forms of Organisation
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Mudarabah
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Musharika or Shirkah
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I- Enterprise and Entrepreneur
Enterprise, after
land, labour and capital, is the fourth factor of production.
Enterprise plays a leading role in production. The supplier of
this factor is called entrepreneur or organiser. Enterprise is
also called organisation. The whole job of organisation, planning
and managing of business is called enterprise.
In the simple
economic life of earlier times, all the factors of production i.e.
land, labour, capital and enterprise were normally controlled by
one person. He owned his own land or workshop, supplied his own
capital, worked with his own tools, planned the operations himself
and faced the consequences of the venture himself. In other words,
one himself was the landlord, the labourer, the capitalist and the
entrepreneur all combined in one. But due to emergence of large
scale production as a result of industrial revolution,
specialisation of functions started as all the functions connected
with land, labour, capital and enterprise could not be discharged
by one person. Factors of production today like land, labour and
capital are separately owned and thus lie scattered. Some one is
required to bring them together and put them to work of
production. This is done by a person who is called entrepreneur.
The entrepreneur is
a specialist in the work of organisation. He may not own any land,
he may not have any capital, he will not be expected to be like a
common labourer, but he possesses organising ability and
management skill. He gets land on rent, borrows capital, hires
labour and uses each in best possible manner so as to get best
possible results. Thus the main function performed by the
entrepreneur is to organise and co-ordinate the other factors of
production after securing them and putting them together. He
remunerates all the other factors of production : pays rent on
land, interest on capital and wages to labour, and after making
these payments he is left with the residue which may be profit or
loss. A successful entrepreneur is a good judge of men and
possesses qualities of leadership. He is very intelligent, worldly
wise, tactful, hardworking, sharp, quick witted and patient. Thus
to make a good entrepreneur, a rare combination of the qualities
of head and heart is required.
In the modern
industrial world, organisation or enterprise plays a very
significant role and it has become the most important factor of
production. It is the entrepreneur who employs other factors of
production, remunerates them and gets maximum production with
minimum cost. He is thus like a captain of a ship who steers the
ship of industry to safe waters in the harbour of economic
prosperity.
Islam has attached
much importance to organisation and enterprise. Al-Qur’an, the
revealed book of Islam, in its chapter 12 in the story of Joseph
relates how Prophet Joseph persuades the king of Egypt to appoint
him incharge of storehouses. The relevant verse reads : “He said :
set me over the storehouses of the land. Lo! I am a skilled
custodian.” (12:55). The Arabic version of this verse is more
clear. In that version two words ‘Aleem’ and ‘Hafeez’ have been
used which mean knowledgeable and trustworthy or custodian. Both
these qualities are essential requirement for a entrepreneur or
organiser. Thus on the basis of these two qualities, the great
Prophet requests the king to put him over the organisation of
storehouses of kingdom. That post in old egypt resembled today’s
minister of finance.
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II- Forms of Organisation
In the modern
world, enterprise finds its manifestations in the form of
different business organisations. Sole proprietorship, firm or
partnership, Joint-stock company, public sector corporation, etc.
are examples of business organisation. In Islam, mainly business
organisations like sole proprietorships, Mudarabah, Shirkah and
Agency, etc. have existed. But Islam does not oust any modern
business organisation from its fold provided it is not involved in
usury or in gambling or in other un-Islamic business practices. We
shall discuss in the subsequent sections Islamic business
organisations like Mudarabah and Shirkah.
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III- Mudarabah
Meaning of
Mudarabah:
Mudarabah is form of business organisation in which
one person gives capital to another person for business and both
of them share profits in mutually agreed proportions. The former,
the supplier of capital, is called the ‘Mudarib’ and the latter,
the user of capital or entrepreneur, is called ‘Darib’. Thus
‘Mudarabah’ is a contractual relationship executed between two
parties, one supplying the capital and the other supplying the
labour and skill, for business the profits of which are shared by
both in accordance with agreed terms. In case the business
sustains loss, the entire loss is borne by the Mudarib who assumes
full responsibility and makes no claim on the Darib, although the
latter also suffers because he does not receive any share in
profit or any reward for his services.
The ‘Mudarabah’ is
an Iraqi term which is derived from the Arabic word ‘Darb’. The
‘Darb’ means to walk or travel in the land. It is so called
because in mediavel times the ‘Darib’ had to travel in distant
lands for commercial ventures to make profits. “In the language of
law Mudarabah signifies a contract of partnership of which the one
partner (namely, the proprietor) is entitled to profit on account
of his stock, he being denominated ‘Rabbi Mal’, proprietor of the
stock (which is termed Rasmal); and the other partner is entitled
to a profit on account of his labour, who is denominated the Darib
(or manager) in so much as he derives a benefit from his own
labour and endeavour.” Some jurists call ‘Mudarabah’ a partnership
contract because both the Mudarib and Darib participate in sharing
profits, but some others call it an agency contract between the
principal (Mudarib) and the agent (Darib) because the entire loss
is borne by the principal.
The Medinites
called this form of business as ‘Muqaradah’ which is derived from
the Arabic word ‘Qard’. ‘Qard’ means loan which signifies
surrender of right over capital by the owner to the user. The
Muqaradah is also called Qirad.
It is said that
Mudarabah was in vogue at the time of advent of Islam and the
Arabs widely practiced it. The Holy Prophet himself is reported to
have worked as Darib for Khadijah during his youth. His companions
are also reported to have been practicing this form of business
partnership. But had the Mudarabah business been so common, there
would have been its detailed mention in Hadith literature.
However, there is no reference to it in any Qur’anic verse and
there is hardly any instruction about it in any tradition of the
Prophet of Islam.
It appears that
concept of Mudarabah was developed by the Muslim jurists later on.
They have taken pains to build up sizeable amount of literature
regarding the concept of Mudarabah. They have laid down detailed
rules and regulations about the terms and nature of its contract,
about the duties and rights of the Darib as well as the Mudarib,
duration of the contract, etc. Some of the basic rules laid down
by the jurists are:
Rules &
Conditions :
1. Two or more persons, of their own free will,
should enter into contract whereby one party provides a specified
amount of capital to the other who employs this capital in
business to make profit.
2.
Share of each party in the profit should be clearly
defined in definite ratio or percentage. However, the loss of
business should be the responsibility of the Mudarib.
3.
The capital should be in terms of gold or silver
coins or standard money in circulation and not in commodities.
4.
The Mudarib should hand over the capital to the
Darib before the Darib starts business.
5.
The Darib is absolutely free to trade or do
business with the capital as he deems fit. Any condition limiting
his freedom may render the contract invalid.
6.
The duration of Mudarabah is neither predetermined
nor limited but either party can terminate it by giving a notice
of his intention to do so.
The Mudarabah is
not restricted to trade or business only but it can be extended to
industry also.
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IV- Musharikah or Shirkah
Shirkah means
conjunction of two or more estates. In law, however, Shirkah
stands for partnership of two or more persons in business or in
property. Doing business in partnership has been upheld by Islam
as legal and valid. This form of business organisation has existed
among all communities from time immemorial. During the time of the
Prophet and his companions, partnership was popular among the
Muslims not only in business but also in agriculture and
gardening. The Prophet of Islam, in fact, helped in establishing
partnership between the Muhajrin and Ansar in Madinah in field of
agriculture and gardening.
Kinds of
Partnership :
Shirkah is of two kinds : Shirkah Milk and Shirkah
Akid. Shirkah Milk or partnership by the right of property applies
where two or more persons are owners of one thing. It is optional
where two persons make a joint purchase of one particular
property. It is compulsory where properties of two or more persons
become united without their willful act, for example inheritance.
Shirkah Abid or
partnership by contract comes into existence when two or more
persons, by their free consent, enter into contract to do some
business with a view to share its profits and losses. It is
effected by proposal and acceptance. It is of four kinds which are
briefly described as follows:
1.
Shirkat-ul-Mufavadha : In this form of partnership,
the capital contribution of the partners and their shares in
profits and losses are equal.
2.
Shirkat-ul-Anan : In this form of partnership, the
partners neither contribute equally in capital nor do they share
the profits and losses equally. This form of partnership was very
common among the men with women or children or between masters and
their servants.
3.
Shirkat-ul-Sanai : In this form of partnership,
artisans, technicians and other manual labourers participate.
4.
Shirkat-ul-Wujooh : This is a form of partnership
which is started by the person who have neither capital nor skill
but they start the business on credit as partners and share the
profits among themselves.
Conditions of
Partnership :
Jurists have laid down the following conditions
which should be fulfilled in order to made a valid contract of
partnership :
1.
All the partners should enter into contract with
their own free consent to do a business in partnership, and the
date from which partnership would come into force would be clearly
mentioned in the contract.
2.
Partnership contract, according to some jurists is
legal only if it is in legal tender money.
3.
Jurists like Imam Sarikhsi prescribe that
partnership contract should be executed in writing. According to
him, Quranic condition laid down in verse 282 of its chapter 2 for
a contract of debt is also applicable to contract of partnership
because like contract of debt this contract is also made for a
definite period.
4.
The amount of capital contributed by each partner
should be clearly stated in the deed of partnership.
5.
The share in the profit or loss to be obtained by
each partner should also be clearly stated in the deed so as to
avoid any dispute which may arise.
Similarities
between Islamic concept of partnership and the provisions of
British Partnership Act of 1890 are so real that one is tempted to
say that the British draftsman of the partnership Act had been
influenced by Hedaya, a renowned work of Islamic Fiqh, which had
been translated by Charles Hamilton in English in the year 1870.
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