Eugenia Bitsani
The Arab Approach to Business
The Arab Approach to Business [1]
Islamic religion constitutes a whole way of life, encompassing political, spiritual, and economic aspects. Therefore, Arab culture has been shaped to a large extent by religious principles regulating everyday transactions:
Islam is not simply an acceptance of creed; rather, it is an affirmation of ultimate reality and participation in its daily fulfillment in everyday life, a total consciousness of this reality in everyday act of eating, working, paying, dreaming, in recreations and in interpersonal relations (Yazbeck, 1982, p.136).
Islamic economics are thought to be different from economics in general, as Muslim scientists are eager to point out. Capitalism is unwelcome, since ethical values are believed to be displaced by fierce competition. On the other hand, communism lacks a spiritual dimension and discourages from private initiative (Esposito, 1991). Islam recognizes the institution of private property, the necessity of profit, and the function of the market, but postulates that all wealth belongs to God, and man acts as a trustee of God (Amin). This trusteeship (Amanah) entails obligations which distinguish the Islamic economic system from the rest (Chapra, 1995):
- Resources are to the benefit of all and not just a few. They must be utilized equitably for the wellbeing of all, not only of selected individuals and their families.
- Everyone must obtain resources rightfully as indicated by the holy teachings.
- Nobody is authorized to destroy or waste God-sent resources.
Therefore, according to the Muslim thought, Islam might constitute an ideal terrain for business activity:
The modern mode of production is claimed above all to be rational. It is orderly, sensitive to cost-effectiveness, thrifty rather than addicted to display, much given to a division of labour and the use of the free market. It requires those who operate it to be sensitive to the notion of obligation and contract, to be work oriented, disciplined and not addicted to economically irrelevant political and religious patronage networks. If this is indeed what a modern economy demands and above all if it is required by the construction of a modern economy, then modern Islam would seem to be custom made (Gellner, 1992, p. 14).
Cornerstones of Islamic approach to business include attitudes to work and interest.
Attitudes to Work
Many westerners have formed a vague idea of Arabs being rather idle people, but this is contradicted by religious teachings:
When the prayer is finished, then disperse ye through the land and seek the bounty of God (Quran, 12: 10).
In western culture work is a mean for earning a life or for accumulating wealth. By contrast, in the Arab countries work is considered as Ibada (a deed of spiritual value). Any vocation serving a social need is thought to be righteous when performed honestly and effectively. Industries and manufacturing are praised, while the Quran makes specific reference to exemplary achievements, such as the construction of a boat by the Prophet Noah.
However, rewards received through work should be appropriately utilized for the benefit of mankind. Letting resources idle, or even worse, hoarding resources, constitutes a major sin condemned by the Quran.
Interest
A most important principle of Islam concerns the denouncement of usury, to be substituted by Zakath. Zakath is a religious tax which has been imposed by God on rich individual Muslims, as well as on business institutions. Purpose of this tax is dual: to help the poor and the handicapped of the community, and to finance pilgrimage (Hadj) to Mekkah. According to the Islamic economic thought, wealth which is produced should be divided among three stakeholder groups, namely labor, capital suppliers, and the community; Zakath constitutes the community share. Business transactions, as well as institutions that are subject to Zakath are to be determined by the authorities. Also the exact amount of Zakath varies within each Arab state.
On the other hand, as mentioned in the previous, a most important religious principle concerns condemnation of any kind of material exploitation of humans. Following this trend, usury (Ribah) constitutes a primary source of exploitation. Usury is defined as the premium that has to be paid by the borrower to the lender in addition to the initial amount of the loan. Therefore, according to the Islamic thought, usury is incompatible with the holy teaching:
God has led His curse on usury and blessed almsgiving with increase. God bears no love for the impious and the sinful. Those that have faith and do good works, attend to their prayers and render the alms levy, will be rewarded by their Lord and will have nothing to fear or to regret. Believers, have fear of God and waive what is still due to you from usury, if your faith be true; or war shall be declared against you by God and His apostle (Quran, 2: 275-278).
Following this trend, Islamic banking is based on partnership agreements which are free of interest. Funds are raised for the bank by attracting investment over a period of one year to five years or more. Investment certificate holders are eligible to participate in profits of the bank in the form of dividends by the end of each financial year (Mannan, 2007). A certain amount of the Zakath tax is withdrawn from profits.
Nevertheless, short-term loaning has an important place in the contemporary economic context. Obviously it is unproductive for an Arab bank to provide short-term loans to numerous individuals without receiving an interest. Consequently, short-term loans are provided mostly to institutions which have been established to this end, such as co-operatives and credit agencies.
The Islamic approach to finance without interest is to reach profit-and-loss agreements, whereby parties conduct business transactions by exposing themselves to risk, often by establishing joint ventures, or by exchanging shares between institutions. The most widely encountered categories of agreements includeMudarabah and Musharakha, according to the extent of financial participation of the entrepreneur (Mudarib). According to the former, the entrepreneur contributes her/his time and effort, but loss is undertaken only by the financer. On the other hand, under Musharakha the entrepreneur has to contribute part of her/his capital in addition (Manan, 1987).
Theoretically, this ought to render Arab companies and financial institutions rather prone to risk. However, this is not corroborated by Hofstede (1991), since Arab countries are found in the middle with regard to the cultural dimension of “uncertainty avoidance”, but other Muslim countries such as Iran, Malaysia and Indonesia scored high in this dimension. Nevertheless, there should be mentioned that desire of Arabic financial institutions to realize profitable investments is counterbalanced by chronic problems pestering economic life of Arab countries, including corruption, bureaucracy, prohibitions, and a number of additional taxes, tariffs, quotas etc imposed by the state. The latter are also likely to dissuade foreign corporations from proceeding to investments within certain countries belonging to the Islamic domain.
Arab culture has to be taken seriously into account during business negotiations. Islamic religious beliefs have to be respected. Impulse, feelings, and personal relations may play an important role when attempting to reach a business agreement. Finally, subtle nuances of Arabic language should be taken into account. A fluency in Arabic language is likely to guarantee an auspicious opening for business discussions.
[1] This article is a small part of my research paper entitled: “Facets of Arab Culture: Implications for Business” that constitutes part of a broader research, which focuses on the historically shaped social/cultural relations of the Mediterranean people and on the distinctiveness of the Arab cultural identity. Throughout this study, dichotomies and dilemmas confronting Arab culture are presented. Islamic religion encompasses all aspects of human life of Arab people, including the economic one. Business principles prescribed by religion and culture focus, among others, on honesty, equitable distribution of goods and resources, and encouragement of private initiative. Emergent globalization has led to the strengthening of ties within business community, but on the other hand the schism between the Arab culture and the western one remains unabridged.
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