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What Does Sharia Law Mean For Islamic Businesses?


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As far back as the 2011 census, the Muslim community in the UK was at 1,012,823. Of course, those numbers have grown exponentially since then. It is only to be expected that a large portion of that growing, expansive population is interested in starting up their own business or growing an existing one. Without following Sharia law, it would be hard for a Muslim business in the UK to genuinely grow and expand.

As a Muslim entrepreneur, you already known that Sharia law is a system of rules and regulations designed to help you lead a life in accordance with God’s will. ‘Life’ refers to more than just your personal dealings, but also to your business dealings too. The Sharia law system is based on the Quran and the rules according to Islamic scholars. As such, they provide a guide to living that covers absolutely every aspect of Muslim life, from donations to the poor, to fasting and prayers offered. To you, it’s a code for living – to your business it’s an ethical business model that must be followed.

Sharia Law Forbids 3 Elements in Business Transactions.

Sharia law doesn’t seek to manipulate or confine a business, but rather wants to root Muslim businesses in strong ethical foundations. Every business decision made by an Islamic company must be ethically driven with the morals of Islam in mind.

Because of this, when an Islamic company is conducting business, 3 things are forbidden according to Sharia law. These are:

  1. Riba
  2. Gharar
  3. Maysir

If you aren’t a Muslim and don’t have much experience in dealing with Islamic companies, you might not understand what these 3 elements are all about, so let’s delve a little more into them briefly.

  • Riba.

Riba is interest that is charged on an account or finance. Interest is strictly forbidden according to Sharia law. This can make it quite tricky for entrepreneurs to find providers of Islamic business finance that operates within the confines of Sharia no-interest laws. According to Sharia law, interest is a way to gain an unjustified advantage and is therefore forbidden.

  • Gharar.

If you look up Gharar in an Islamic dictionary, you will find the definition to be “the sale of what is not yet present”. What does that mean? It basically refers to any risk or uncertainty that is typically around transactions on commodities that don’t exist yet. Think of the sale of fish not yet caught, or plants that have not yet been grown. Sharia law considers Gharar to be a form of unjust enrichment that is derived by a contract that is not completely defined or certain. Sharia law frowns on uncertainty.

  • Maysir.

Maysir quite literally means gambling or taking chances. In Islamic law, Maysir is prohibited because the agreement between the two parties involved, is immoral and based on the personal hope that they may gain by chance, without considering the possible losses.

In addition to the 3 elements that are prohibited, Sharia law also imposes some restrictions on Islamic businesses which are presented below.

Restrictions on Islamic Businesses by Sharia Law.

The restrictions on Islamic businesses by Sharia law are in place to protect the business, any other parties dealing with the business, as well as ensure that the Muslim entrepreneur can live in strict accordance with his faith. The following areas within an Islamic business, experience some restrictions by Sharia law.

  • Finance/loans.

As already mentioned, Islamic business finance can seem tricky to acquire. The high street bank will certainly want to charge a start-up business interest on their business loan, but as you know, that is forbidden according to Sharia law. When it comes to Islamic finances, it is believed that money is only a form or token of exchange and has no real value itself. The belief is that the monetary value is exactly equal to another item or token of the same denomination and therefore, Sharia law does not allow one to make any profit on money exchanges. As a Muslim entrepreneur, you cannot make any profit on the lending or receiving of money in any way.

For this reason, the unsecured business finance world has seen leaders in the market carefully creating ethical Islamic business finance options for Muslim entrepreneurs in the UK. Now, Islamic entrepreneurs can apply for interest-free Islamic finance of between £1,000 and £500,000, which is typically paid out within just 24 hours.

What do you need to qualify for an interest-free, unsecured Islamic business loan? Requirements will vary from one provider to the next, but most require the applicant’s business to be registered in the UK and for the business to have been trading for at least 6 months.

  • Contracts.

Contracts can be a tricky business even for non-Islamic enterprises. However, Sharia law requires the terms and conditions of a contract for a joint venture to be drawn up in such a way that there is no possibility of any dispute arising throughout the term of the contract, especially in terms of operations, profit sharing, and loss bearing.

  • Joint Stock.

When it comes to joint stock companies, according to Sharia law, the shareholders have no agency rights and are considered co-owners. In joint business ventures, the measurement of productivity and profit is also dependent on the invested capital. The share of profits that a co-owner gets is not determined by the portion of capital invested alone.

  • Trade.

An Islamic business may only trade with Sharia compliant businesses in terms of the core business activities. This means that Muslim entrepreneurs cannot start-up businesses within certain industries. This also means that Muslims running businesses, that sell certain prohibited products and services, cannot apply for Sharia-compliant finance or ethical Islamic business finance. According to Sharia law, prohibited industries include:

  • Financial services business where interest is charged or profit is made on money (banks, gambling businesses and so on).
  • Production, sale or handling of weapons.
  • Entertainment industry products and services that involve or relate to any adult materials (pornography of any kind).
  • Food and beverage management and sales that include alcohol, pork, or meat products from suppliers that don’t slaughter in a way that is acceptable to Sharia law.
  • The acquisition and trade of drugs (tobacco and other illegal drugs).

The Real Meaning of Sharia Law for Muslim Entrepreneurs.

While it might seem like Sharia law imposes great limits on the Muslim entrepreneurial community to those looking in (with no background or understanding of Islam), that is certainly not the case. Islam holds its business owners to a high standard and expects ethical practice. Most of the laws in place protect the business and ensure good dealings for all parties involved in a transaction. From here it looks like Sharia law enables Muslims to behave ethically in business and gives them access to reliable, unsecured, interest free Islamic business finance amongst other things.