This impressive book documents the variety of organizational forms that emerged to sustain economic cooperation, from antiquity until the 19th century, all around the world. A great achievement and a must read for everyone interested in the evolution of social organizations, and in how they influenced economic development and the evolution of other institutions.
Guido Tabellini, Professor of Economics, Bocconi University
Barry Hawk’s Family, Partnerships and Companies: From Assur to Amsterdam provides a comprehensive and insightful analysis of how business organization and partnerships shaped economic activities, trade networks, and societal structures in ancient civilizations. Through meticulous research and engaging narratives, the book delves into the diverse forms of business entities, from basic partnerships and guilds to state-controlled enterprises, that flourished in ancient Mesopotamia, Egypt, Greece, Rome, India, China, and other regions. The author skillfully explores the socio-economic dynamics, legal frameworks, cultural influences, and technological advancements that influenced business practices in the ancient world. By highlighting the roles of merchant guilds, family businesses, trade routes, financial institutions, and legal systems, the book offers valuable insights into the collaborative efforts, risk management strategies, and entrepreneurial spirit that drove economic prosperity and trade expansion in ancient societies. This manuscript represents a compelling and enlightening read for legal scholars, (legal professionals) historians, and business enthusiasts alike, providing a deeper understanding of the foundational principles, historical precedents, and enduring legacies of business organization and partnerships in shaping civilizations and economies throughout history.
One of the most significant chapters entitled “Islamic World,” that I found very interesting. As generally well-known, that in Islamic business and commercial philosophy, conceptions are mainly divided into the ma‘loum (known) and the maghoul (unknown). The former is that which is grasped by the mind, while the latter is that which may possibly. Known notions are either self-evident—objects known to normal human minds with imminence as “being”, “thing” and “necessary”—or acquired (objects known over mediation). Accordingly, Muslim scholars divided assent into the known and the unknown, and the known assent into the self-evident and the assimilated. The self-evident assent is demonstrated by “the whole is greater than the part”, and the acquired by “the world is composite.”
In this chapter, Hawak argues that, indeed, a huge bulk of Islamic business law is subject to legal reasoning and is dependent thereon. The reasoning behind this is restricted to legal rulings stated in the Qurʾānic texts and the Sunnah (Mohammad’s teachings) have a definitive nature, and the rest of the legal body of the Shārīe‘ā is contingent upon the jurists’ ījtīhād (legal reasoning). This is not at all a shortcoming in the law, since the lawmaker who set out conclusive legal rulings, was certainly able to enforce an exclusively definitive law, the application of its legal rulings is not subject to any analogical deduction. However, there have been significant reasons behind this flexible nature of Islamic law. This very nature of Islamic norms has made the law flexible and adjustable to all societies and regions (at any given time and place). Furthermore, the law has become susceptible to developing and adopting different means and methods of change, its development can be shown through selecting certain legal interpretations that are more proper than others in addressing the business legal cases concerned. The progress can go even further than that by generating new legal views as new legal cases arise. This aspect explicitly indorses Islamic business law legally valid for all legal cases irrespective of time and place. The importance of the interpretation of the Shārīe‘ā—especially in commercial and economic transactions—does not lie in the different legal views held by several scholars concerning a particular legal case, rather it primarily resides in the way in which the jurist interprets the law.
It should be noted that, in Islamic law, a legal text never stands on its own according to Islamic legal system, but it is with no doubt influenced by a various of events that support the jurist to infer the most suitable legal ruling for the legal case in question. Consequently, elements of coherence and intertextuality are of chief significance and should always be in the jurist’s mind during the interpretation process of the legal provisions. In this domain, īstiḥsān (juristic preference) is a special legal practice exercised by Islamic economic jurists, which falls within the scope of legal reasoning. It is considered an interpretation made based on a revealed text, though gives rise to a different legal outcome from that emerged via qiyas (analogical deduction). The key difference between analogy and preference lies in the fact that while the analogical reasoning falls predominantly within the large body of the law with no exemption permitted, the reasoning behind preference, is to find a precise exception through the jurist’s choice of a revealed text that allows this very exception. It is worth noting in this respect that reasoning by preference is based on a valid authentic hadith (prophetic tradition) and hence replacing the reasoning by analogy. Not all preference exceptions are created on revealed texts, some of which are based on ījm‘ā (consensus), while others are based on the dārourāh (principle of necessity).
On the other hand, the author tries to underscore that īstiṣlāḥ (public interest), especially the economic one is another legal practice which is controlled within legal reasoning. The reasoning of public interest does not seem to be founded on the Qurʾān. Public interest (common benefit) yet plays an irrefutably critical role in the determination of the ratio’s appropriateness peculiar to analogy. This robust connection between the ratio and suitability has caused in considering public interest by some jurists an extension to analogy. There are certain common principles on which the Shārīe‘ā is generally based. These reside in the protection of one’s life, his/her mind, offspring, religion as well as property. If the feature of public interest in a case is in line with these general principles, the reasoning in accordance with publish is this supposed to be public’s interest must be exercised. It should be noted that the element of universality is of dominant importance as the law intends to serve interests of Muslims at large. Islamic business law, like any other law, is full of a set of legal commercial terms with concepts which may not exist in other legislations, notwithstanding the fact that such legal notions endure conceptual progresses across different legal systems. Thus, even though concepts peculiar to legal terms go through certain processes of development across miscellaneous sets of laws, they, yet, have different legal existence in various laws.
The Timely Islamic Finance: A Trend Towards Sukuk (Islamic Bonds)
Muslims devoted in and kept financial assets according to their spiritual principles for fourteen centuries. Reinterpreted medieval Islamic contract laws form the rudimentary structures of the new asset class that doesn’t breach Islamic law. Shārīe‘ā -compliant financial instruments along with Islamic investments can’t pay or collect rībā (usury/interest)—as Christian Biblical values—due to Islam’s prohibition of usury; and can’t be associated with alcohol, gambling, pornography, or other Muslim prohibitions. Accordingly, risk-sharing, and profit-sharing must be structured into contracts, investments should enrich society, and financing should be backed by assets. Islamic banks have developed techniques to address these restrictions and perform their basic function: to take deposits, invest them, and profit from the spread. One of the main building blocks of Islamic finance is murābāha, where “two parties agree to trade at a price equal to the cost-plus mark-up or profit,” as in conventional finance, the bank lends money at a certain interest rate using the car as collateral, while the murābāha, dealing the bank buying the goods and then vends it to its customer. Other financial instruments as pre-payment, ijarah (leasing), murābāha, (profit sharing between investors and managers), mushārakāh (joint venture), sukuk (Islamic bonds), and takaful (Islamic insurance), allow the development of Islamic financial products that span retail and business banking, private equity, and insurance.
A key principle in Islamic finance is to have a straight link between the real and financial economy. Shārīe‘ā boards (oversight committees) have been tolerant at times with some structures, but hold firm to the principle that financing must benefit the real economy, as these boards operated as a precaution against the excess of conventional finance. Islamic finance has long challenged the criticism that it’s just imitating the broader market. Sukuk and Islamic banking won’t have a dramatic influence on global finance for the conceivable future, but its growth in the West can have political welfares and benefit the embryonic industry become more professional, standardized, and innovative. In terms of Islamic finance, Muslim scholars emphasized using fīqh (Islamic jurisprudence) as a hermeneutical device to search for the logic of Islamic economic fīqh, a critical divergence in the application of abduction as a chief element of inference in Islamic business law between Western and Islamic legal thinking.
Accordingly, the concept of māṣlāḥā (common good) and its connection to the area of Islamic economic legal thought as discoursed by distinguished Muslim scholars both in the past and at present time. In terms of Islamic business, the economic māṣlāḥā should be embodied within the Islamic legal reasoning, the sort of meaning conveyed by māṣlāḥā, the economic and(or) legal reading it hypothesizes and the notion of whether law, morals and theological sources play an equal role in the advance of the concept of māṣlāḥā in financial terms. The concept of māṣlāḥā has always been part of the theory of Islamic business law but has seldom been tackled within the context of economic legal theory. The concept of māṣlāḥā within the context of Islamic economics, placing special emphasis on the work of ālGhāzālī—one of the liberal Islamic law pioneers—that investigates the Islamic economic jurisprudence and Islamic economic theory as understood and discoursed by influential scholars of economic studies in Islamic business, with credibility lent to the view that Islamic economics is powerfully linked to the spirit of Islamic legal reasoning, as Islamic economics as a principle and not a science. ālGhāzālī—from the economic perspective—examines the legal foundation of Islamic finance with its normativity, casting lights on the idea that legal norms have been included within Islamic economic reasoning, a notion which resides in the concept that patterns of Islamic economic law have been created socially together with certain features of Islamic economic reasoning. He claims that although literature of Islamic law and that of Islamic economics are twisted on primary Islamic legal and economic sources (Qurʾān and Sunnāh), they, however, lie in moral cosmology which is even more than just being an exact dogmatic matter.
Additionally, the concept of partnership is entirely dealt within Islamic corporate law. Under the Shārīe‘ā, there is no single description that covers the various sorts of partnerships. The definition of each is based on the conditions and rules that oversee the relationship. Understanding business partnerships is very significant in today’s environment. Individuals form associations, corporations, and firms that create profit through precise businesses. There are partnerships in capital, labor, services, and work and in other cases, one partner nominates the other as his/her agent or trustee. Although Shārīe‘ā does not directly address the notion of business (commercial) corporations, it does discuss in deep the numerous kinds of partnerships, based on some elements as responsibility, restrictions, and division of work and profit. The issue is imperative as it is concerned in the development of business vehicles—i.e., platforms that permit effective development and structuring of Islamic financial products in the areas of venture capital, project finance, joint ventures, and asset-backed securities. Under Islamic business law, discussion on corporate personality derived from the views of the Muslim jurists on the entity of shākhsīyāh ‘ītbārīyāh (artificial person). Most modern Muslim scholars claimed that this concept was known to Islamic law, while others are doubtful whether this concept, in fact exists.
Under Islamic corporate law, the term “musyārākāh” or “shīrkāh” is used to refer to business entities. Shīrkāh means—literally—“intermingle” inferring the combination of properties that form the capital, whereby one cannot be distinguished from the other. The perspective in categorizing business entities is different between the common law and the Islamic law systems, whereby under the common law, the regime of a company is entirely different from a partnership, and both are subject to various legal regulations. However, under Shārīe‘ā law, shīrkāh refers to both company and partnership structure. In the shīrkāh, individuals are not separated from it, as it is not regarded as a legal entity. The earlier Muslim jurists were aware of the concept of corporate personality but denied it, however, they opposed that this nevertheless does not mean that Islamic law totally deny the concept. Since the early days of development in Islamic jurisprudence, there were several evidence, show that the concept of fictitious person had been developed and applied. For instance, the recognition of waqf (endowment/trusts), bāyt-a-māl (public treasury), and the masjid (mosque) as an entity. Mustāfā ālZārqā—a liberal jurist—stated: “If these institutions which exist now recognized ‘fictitious personality’ existed in the early era of development in fīqh, it would be obvious that it (the principle of fictitious legal personality) would be recognized by the jurists—at that time—through legal justifications which are similar to legal justifications of the institution of dāulāh [state], bāyt-a-māl, ālwāqf.” Thus, the theory which recognizes an entity other than human being as a legal person can be justified through the theory of āl-dhīmmāh (obligation).
Muslim scholars have approved the corporate form based on fīqh principles of qīyās (analogy and individual reasoning) and īstīhsān/māsālihā mursālāh (public interest and juristic preference). However, this, does not mean the acceptance of any modern business corporation within the framework of Islamic law. The closest approximation to corporate legal entities found in Islam have wāqf and mufāwāḍā (business partnership). However, it should be noted that institutions as āwqāf are basically non-economic organizations, and their features are rather distant from those of business-oriented corporations. An example from the Shāfi‘ī moderate school of thought close to the concept of a legal person is a joint stock company. According to this doctrine, if more than one person runs a business in common with others and mixes his/her property with those of others, zākāh (commercial duty) is not levied on each business partner individually, and instead is payable on their joint stock. So, the only type of business organization—historically—found and debated deeply in an Islamic economy are “partnerships.” Under Shārīe‘ā business law, there is no assumption in the contract that liabilities will never exceed assets. The partner’s liability for the debts of a partnership is unlimited as Islamic law does not legalize the concept of limited liability. Thus, it appears that the model developed must not only be shārīe‘ā-compliant, but it needs to work proficiently within current regulatory frameworks. Professor Mohammad H. Kamali stated that:
It is equally evident that the methodology of usul āl-fīqh [Principles of Islamic jurisprudence] would have little meaning and [p]urpose if the Shārīe‘ā were meant to be a fixed and unchangeable entity. Usul āl-fīqh is predicated on the idea of development and growth, and functions as a vehicle of accommodation and compromise between the [normative] values of Shariah and the practicalities of social change [. . .]
Mohamed ‘Arafa, LL.M., SJD, is a Professor of Law at Prince Sultan University College of Law (Saudi Arabia) & Alexandria University Faculty of Law (Egypt) & an Adjunct Professor of Law and the Clarke Initiative Visiting Scholar at Cornell Law School.
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