A section of the Islamic finance principles which are used today used to exist in the pre-Islamic times in peninsula. Those Islamic finance principles were also practiced by the Arabians. During the pre-Islamic times, prophet Muhammad himself used to trade based on these principles. The first wife to Prophet Muhammad was called Khadija. Khadija was a business lady who hired men to carry out her business transactions. They carried some of her goods and merchandise to Syria. The sale agreement that existed between Khadija and the men was profit sharing form of agreement. When Khadija got to know the honesty and the good traits of the prophet, she decided to work with him on the basis of sharing profit after every business transaction. The profit sharing agreement was according to the Islamic finance principle which was termed as the Mudaraba (Friedman & Figg, 2001). The honorable dealings and pure honesty from Muhammad in the process of doing business with him made Khadija to ask for a hand in marriage with the prophet. Fifteen years down their marriage, Prophet Muhammad got a calling to convince people to turn and worship the only God (Alamad, n.d.). In the process of convincing people, thirteen years down the line, he started an initiative of moving people to Madinah. It is at this place that he began his Islamic state.
During this pre-Islamic time, usury which means interest was highly spread in Arabia. During this time, the Quran addressed the practice to be unethical practice. For this reason, the practice was highly forbidden with the utmost strong words. The holy book of the Muslim says that “those people that swallowed the usury, can never rise” Qur’an 2:275. The holy book continues to say that “all those who believe, they need to be very careful of their duties” Quran 2: 278-279. Therefore, during this time, the capital expense according to the holy book was not the interest rate, but it was perceived to be the profits and financial benefits from the starting capital which was perceived to be the profit (Lapidus, n.d.).
During the pre-Islamic time, the main focus of the prophet Muhammad, and his companion was to come up with a defined trading and business opportunities among the Islamic states. The social justice that existed within the Islamic societies were supported by the concerns of the religious groupings together with the obligations and the Islamic teachings compared to the legal system. During this time, the Muslims were waging wars and going through battles in order to survive during their young state (El-Ashker & Wilson, 2006). As such, they specifically focused on the benefits of public money instead of managing the financial system which started taking shape during the pre-Islamic period. The current concept of the social justice came out clearly in the west as a result of the industrialization movement in Britain and France, back in the 40s.
During this pre-Islamic period, Prophet Muhammad was considered to be the role model on issues to do with the financial processes and activities that people went through during this period. He is one of the originating fathers of both the financial and the economic system who came up with the foundation of a functioning financial system together with other tools that addressed issues that was oriented to financial matters (Lapidus, n.d.). During this period, one of the landmarks that the prophet established was the reformed and current where he focused on planting seeds that solidified the social aspects that exists in the society by coming up with a concept that defines brotherhood between people. The Makkah people assimilated into the current system which later on was integrated into a single society.
The period was also characterized by a flourished trade which was specifically defined within the finance principles of the Muslims. The needed the development of the comprehensive tax system as a result of the new financial and trading structures. Under this measure, the financial management of the profits that were gotten from those trades to the states were needed. As a result, the treasury of the state for managing those public money was also generated. Additionally, there was the aspect of record keeping for all the financial affairs based on their utilization and the maintenance of their distributions. During this phase, the Islamic economy shifted from the economic system that fully depended on the livestock to a system where they now fully depended on the agricultural system after gaining lots of lands due to bringing in more regions. The income that were generated from the Islamic states now started shifting from depending on the charity collections and other spoils of war (Alamad, n.d.). The economic growth of the countries that were this “colony” also took part in the process of developing the entire economy within the Islamic regions. At this period, the legal frameworks governed all the development aspects of the entire economy of those Islamic states.
The period also saw the establishment of the Islamic financial principles which were highly captured within the prophetic sayings. Based on the currency exchange, Prophet Muhammad used to practice lots of money exchange. When Zaid bin was asked about it, he directly narrated what the prophet had to say about the currency exchange. The prophet asserted that they are active traders during the era of Allah apostle and he asked him on the issues to do with money exchange (Friedman & Figg, 2001). Allah replied that the transaction was from direct from one trader to another, therefore, there is nothing wrong in doing it. When al-Bara was asked about the same issue, he said that it is way better than I and they all said that the Allah was against any form of credit transactions between traders. Pre-Islamic period was also characterized by the mortgage and borrowing type of businesses. Prophet Muhammad, also managed to purchase the food grains from Jews on credit. At the same time he mortgaged their iron armor to him. According to Hakim bin Hisami, the apostle said that the business partners are free to negotiate their dealing provided each partner is within his measure and they are yet to part ways. And in a situation whereby both the parties are open to each other then there transactions will all be filled with pure blessings.
The post Islamic society saw the emergence of the silk trade. This was after the disintegration of the Caliphate which took place in 9th century. The reforms within the Islamic institutions and the reorganizing of the state and the society had a bid influence on the long distance trading that took place (Lapidus, n.d.). This affected the mode of trading and particular the silk trade. The Islamic empire was then separated into two linguistic domains.
The hint of trading by Prophet Muhammad during the post Islamic period started after the natural disasters. Some of this natural disasters include the plague of the Basra which led to the killing of lots of farmers. As a result, there was political instability and the economic growth on labor which was very crucial during this time (El-Ashker & Wilson, 2006). There was need to ensure that there was security in the region that needed the development of the police unit which was later gotten from the outsiders. Majority of the foreigners were the Turkish slaves who came and took the security jobs. There was massive growth in the agricultural sectors which made the religious leaders to bring in more human capital from the African countries. For this reason, they depended entirely on the slaves that existed within the agricultural sectors as they continued to manage other domestic farmers.
At the time of post Islam, after the emigration of the prophet, he came up with a new market where the market place was at the age of ignorance for purposes of speeding up the vitality of the market. The prophet encouraged his companions to take part in trade. He clung to the phrase that the honest and the reliable merchants exists with the prophets, and saints. He also believed that there was no obstacle in women to participate in trading. During his trading time, he encouraged earning that were halal and strongly forbid those earnings that were perceived to be haram. The prophet frowned on lies and deceptions and when he came to realize that some of the wheat that appeared to have dried on top was wet on the inside he clearly said that those people who lied are not part of them. During this time he warned people against any form of empty promises when in the process of trading and that all the purchases that were made in installments need to be arranged based on the written documents and there also needs to be witnesses.
The prophet also claimed that all the purchases that were made need to be under a written documents and the responsibility for any person who was wronged need to sort out with the administration. He highly ordered that the property of other people need not to be abused and restricted all the earning that were not gained in an honest manner. The prophet ordered that a great care needs to be shown to properties of the orphans and later ordered that every person needs to conform to the law in order to protect that balance that is established between the inherited rights of both men and women. The prophet also appointed the inspectors who made sure that the official knew the religion and acted based on their understanding and those that were highly respected in the society (Lapidus, n.d.). The prophet also announced various needs for the craftsmen to make sure that the development of the commercial lives were pleased with those people who carried out the trade like the tailors, the nurses, and the bakers. There was no trade that existed in the period of ignorance that was deemed important for the human life. However, majority of the people were warned against form of practices in those trades. In the post Islam period, there was no form of obstruction to trade for women that took part at the market place.
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During the post Islam, Prophet Muhammad trades a collection of goods that circulated in the entire period along the trade networks at the time of various continents and water bodies. During this time, the best known routes were those that ran between the Asia and the Europe at the western base of Silk Road (Alamad, n.d.). The convergence of such routes developed a confined setting for cultural trading exchange like the pilgrims, and the merchants who came into constant communication along such networks. The prophet Mohammed trade luxurious silks, incense, and spices which were considered to be the most desired goods. The silk was priced by the Sasanian court. Silk played a crucial role as one of the valuable commodities that ensured that its production continued for many more centuries (El-Ashker & Wilson, 2006). Such were considered to be the luxury goods which were within the ratified elites. Most of the trade items formed the right foundation of the post Islamic economies. The prophet also traded the coins which were valuable since they were normally dated and included the name of rulers which allowed the scholars to map the changing patterns in the process of circulating money (Lapidus, n.d.). The financial crises was discerned in the coins which lowered the metal content of the most important coins. There was also surviving weights and balancing which gave that sense of tools which was used to negotiate the commercial transactions. The glass weights which were used by the government assured the consumers that those balances were balanced in a fair manner. It was therefore, important to make sure that both the gold and the silver were yet to be shaved or even modified in terms of their value.
Comparing the manner in which the prophet traded pre and post Islam period, the prophet recorded similar aspect on his trading deals. This all came from his deeds as a young man. As a young man, the prophet turned towards trading as his main vocation. The uncle also liked his work. He could accompany trade caravans with the merchandise and every time he could come back with lots of profit (Alamad, n.d.). The people that he accompanied had an ample opportunity observing some of his qualities of graceful behaviors and honest dealing which he applied during both the pre and the post Islam. This is a feature that he got from his early trading days. As such, all those people in Makkah with whom he engaged into business terms with, were witnesses to his upright, and gracious character in all his business dealings. According to Abdullah, he entered into business dealings with the prophet even before he deputed to Prophet hood.
In both eras, his success was all attributed to his entrepreneurial skills and nature. He applied business management that is the reason why he achieved spectacular success. He applied his skills as an entrepreneur that is the reason he recorded huge profits for him and other investors. None of the businesses that he engaged in both eras ever received a loss. In both eras he also engaged in the travel trades. The first trip was his trip to Yemen. The second one was Najd, and the third one Najran (Friedman & Figg, 2001). In addition, he was highly involved in the processes and affairs of the big business at the time of Hajj season during the festivals and also during the Dhul.Majas Ukas trade. In the other seasons, he was busy handling the wholesale markets for the Makkah. When carrying out other businesses, the prophet clearly applied the management principles that were highly accurate and reliable to as his business would remain profitable and never record a loss.
In conclusion, those Islamic finance principles were also practiced by the Arabians. During the pre-Islamic times, prophet Muhammad himself used to trade based on these principles. The honorable dealings and pure honesty from Muhammad in the process of doing business with him made Khadija to ask for a hand in marriage with the prophet. Therefore, his tradings were based on clean dealings. The social justice that existed within the Islamic societies were supported by the concerns of the religious groupings together with the obligations and the Islamic teachings compared to the legal system. Based on the currency exchange, Prophet Muhammad used to practice lots of money exchange. When Zaid bin was asked about it, he directly narrated what the prophet had to say about the currency exchange. Prophet Muhammad, also managed to purchase the food grains from Jews on credit. At the same time he mortgaged their iron armor to him.
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