Islam, as such, is not the author of business systems like shirkat or mudharabat. These systems of business were in vogue at the time of Prophet Muhammad (peace and blessings of Allah be to him). He either maintained silence about them (taqreer) or corrected wrong practices (naha an rasoolullah)." Dr. Waquar Anwar opined thus while presenting his paper on "Corporate Finance in Islamic perspective."

Dr. Anwar was speaking in the meeting of the Forum for Group Discussions on Islamic Issues (FGDEI), organised by Sahulat Microfinance Society in association with Radiance Viewsweekly. His focus was on the financial management of a typical business corporation engaged in the economic activity of production/service.

He informed the house that Islamic scholars in the light of the commandments of the Qur'ān and traditions of the Prophet (peace and blessings of Allah be to him) have described the wrong business practices which are required to be controlled, checked and banished as: Riba – Interest (Increase in debt); Dharar – Causing harm or getting harmed; Gharar – Misleading the other party; Maysir/Qimar – Gambling; Jihl mufdhi ilan-niz – Lack of material information leading to dispute; Tadlees – Misrepresentation and causing wrong impression about the product; Taghreer – False description of goods; Ghaban – Excessive profiteering; Khulaba – Impressing buyers by gestures and sales talk / art of deceit,; Ihtikar – Hoarding of food grains and essential items; Baiatain fil bai – Two-in-one transaction / Conditional deal; Kharaj without dhaman – Earning profit without corresponding risk/ authority/ possession; Bai madoom – Dealing in non-existing product; and Malikil ghair – Transaction in products that are in the possession of any other person.

Dr. Anwar further elaborated that Islam stands for justice, equity, growth and welfare. In this regard Islamic scholars have described the higher objectives of Islamic law as protection of life, religion, reason, progeny and property, as also preservation of dignity and freedom. He asked the audience to refer to the book Riba, Bank Interest and the Rationale of Its Prohibition by Dr. Muhammad Nijatullah Siddiqi for a discussion on the subject.

We need not recreate any old system. Rather the correct approach may be to study the prevalent business systems and carry on corrections based on the cardinal principle of ensuring justice, equity, growth and welfare. One has to keep in mind the relevant provisions of the Qur'ān and Sunnah and the valuable work done by Islamic scholars in explaining the principles emanating therefrom. There is the need to analyze afresh this new situation and take new positions in the lights of the provisions of our basic source and the principles developed by our past scholars.

The speaker gave the example of relationship between shareholders and a Joint Stock Company. It is not proper to understand this in the light of old parlance of Shirkat and Mudharabat. It is a new situation and it demands new deliberations. Further, one should look into the deliberations of contemporary non-Muslim scholars and the worthwhile literature available on the issue of corporate governance or on ensuring rights of minority shareholders or on lifting corporate veil or on discloser requirements with Balance Sheets.

He presented his suggestions for addressing short term partnership in the initial period of business and project financing in the interim period. Short term initial capital may be provided either through Venture Capital or Angle Finance. Venture capital is provided by mutual funds while Angle Finance is provided by individuals who have surplus funds. These are essentially equity based finance and so they are suitable in Islamic perspective. Such finances are available only in initial period of business and afterwards the promoter of business carries on the enterprise on his own.

Another requirement of capital may be for an ongoing business that needs short term financial arrangement to finance a particular project. This is the case of a business continuing before this arrangement and which shall continue in future after the expiry of this. The speaker called it project financing. He said the profit sharing between partners may be done on the basis of gross profit or profit before tax, instead of net profit.

Another possibility is to do computations on marginal costing basis bifurcating expenses into fixed and variable. In that case, profitability may be shared at contribution which is sales minus variable cost. This system is justified where fixed expenses are recovered by the business as usual. So the marginal increase in profit on account of the new project may be shared with the project financer. Thus a mutually agreed arrangement is possible for financing based on the merits of the case in hand.

As regards burden of loss, it is an agreed position between Islamic scholars that it will be done on the basis of capital. This can be done by mutually agreeing about the respective capital in the business at the beginning of any finance deal.

The presentation was thought provoking and it was followed by interactive session in which several participants asked questions and presented their observations. The concept of sharing gains of business on the basis of marginal profit (contribution) was noted as interesting and it was felt that this needs further elaboration.

The program was conducted by Azeem Hussain of Sahulat Microfinance Society. Participants included students and research scholars besides Dr. Hasan Raza, Khursheed Najmi and Arshad Ajmal.

FGDEI has been organizing such meetings on economic issues regularly on monthly basis. The format is submission of a paper followed by threadbare interactive discussions in an open academic atmosphere. This forum has been started under the guidance of Dr. Muhammad Nijatullah Siddiqi.