On issues of Islamic legal development theory, one point popped in my mind today when thinking about Ahkam al-Sharikat that is the Law of business partnerships. This point is, and hence the title, is “In spite of vs. in light of”.
What I mean by this is that in the development of Islamic Law, certain aspects of that legal system developed “in light of” the texts. Many if not most of these are things which are explicit in nature, and are related in numbered explicit texts or innumerable implicit ones.
Take for instance the law of Business partnerships. There is a whole array of laws in all of the various books of classical Islamic law regulating this sector of the law. However, upon closer analysis, we find that there are only about 3-4 verses of the Quran if not less, and 10-15 hadith at most that speak on this topic specifically. When they do, it is usually after the fact, i.e. a transaction or partnership was created, a problem was presented, and then the prophetic guidance was given for that problem. That would then necessitate that the law as presented in the sacred texts developed in a reactionary manner to the prominent social convention of the time, and in general presents a broad regulatory framework for the issue at hand.
When we look at the books of Islamic law however, we see that they spell out for us only five types of partnerships (barring the agriculture based ones of Musaqah, etc.). Those five types are:
1- Sharikat al-‘Inan: a partnership of two parties both providing capital and sharing equally in labor.
2- Sharikat al-Abdan: a partnership of two parties sharing equally in labor with no capital investment from either of them.
3- Sharikat al-Wujuh: a partnership between 2 or more people whom enter a mutual liability based on their collective influence to enter a deal.
4- Sharikat al–MuDarabah: a partnership of two parties in which one provides capital and the other provides labor.
5- Sharikat al-MufawaDah: Being a partnership that includes all of the previous
Now the presence of these in classical works of fiqh is all fine and dandy. However the problem comes when we wish to apply them to modern forms of partnership such as corporations, LLC’s, etc.
And this is where the differentiation comes in, and draws us to ask some questions:
– Were these forms of partnership decreed by sacred text?
– Or were they conventions that were prevalent at the time?
– If new contracts arise, are we obligated to refer them back to the codified from of these medieval partnerships?
– Or do we look to the texts for broad regulatory guidelines and accept that the base ruling of all contracts and conditions is that they are permissible?
I’ll only take one type of partnership contract here, that being Sharikat al-Abdan.
Sharikat al-Abdan is usually substantiated by the statement of Abdullah ibn Mas’ud who said “Myself, Ammar, and Sa’d were were partners in anything that we gathered on the day of Badr; Sa’d returned with two captives, and Ammar and I returned with nothing.” This was narrated by al-Nisa’i, and is a weak hadith.
The scholars of the Shafi School rejected this form of partnership, while the majority accepted it. Now despite this hadith being weak, lets just say that it was authentic for arguments sake. In fact there may be supporting evidence for it, although I haven’t gone back to look. The scholars of the Shafi School may have rejected it based on the principle that the statements of the Sahabah are not admissible as evidence. They may have considered weak.
Regardless, let’s look at the context of the hadith. It is hardly a prophetically ordained mode of partnership. It is also not conclusive that there was any prophetic approval of the contract.
Even though the majority of scholars may have allowed it based on this statement, it doesn’t follow that we are in need of this statement of that companion to say that this is allowed. Additionally, to designate a distinct type of partnership based on this would also not follow. Leaving the very open ended agreement that “partnerships are permissible as long as there is no harm” would have seemed more conducive to growth of the Muslim economy and in line with the flexibility of Islam.
Those that admitted this statement as evidence for the permissibility of this type of partnership then formulated all types of rulings for default, harm, and profit distribution, etc. and designated various sub-categories of this partnership agreement, all based not on text, but on the convention that was agreed upon in that time and place. Even though this fit the constraints of the era they lived in, it was detremental in that later generations took these rulings to embody Islamic legal canon, and as such everything after that was illegitimate. In essence the Majority of Scholars went the way of the Zahiri school as per contracts and their creation, contradicting themselves in principle.
Shihab al-Din al-Qarafi says:
Holding to rulings that have been deduced on the basis of custom, even after this custom has changed, is a violation of Unanimous Consensus (‘Ijma) and an open display of ignorance of the religion
Here we then see that with the development of this section of law that it developed very much in spite of specific textual guidance in contrast to developing in light of that guidance. Not that that is a bad thing per se, however when convention and custom then changes, it is important to relegate differences and rulings on the permissibility of a said action back to the broad regulatory framework as found in the sacred texts, instead of judging a later period convention according to that of an earlier one.
Anyone seeking to study Islamic Law as relates to Business and finance should then analyze the issues at hand, it being preferable for those capable of doing so to infer directly from the texts their broad maxims that regulate the sector in question, rather than appealing to the authority of the past or invoking the sacrosanctity of discontinued convention.