Editor’s Note There is a wide and long held belief that religion is fraught with backwardness and dogmatism. This has led to many predictions that as the world become gradually more secular due to materialism, modernization, and technological innovation, the role of religion in public life would be obliterated. However, such prophesies have not come to fruition. Religion has become “the pot that refused to get broken” It has not crumbled and vanished from the face of the earth. In fact, conversely to prescient of opponents of religion, there has been a resurgence and re-establishment of religious mood among nations, and more notably, in Islamic countries. Religion cannot be blithely wished away from our daily lives, activities and broad developmental equation There is dearth of research investigating how religion and entrepreneurship are linked. The earliest research in this realm was carried out by Dodd and Seaman (1998) who investigated the relationship between religion and entrepreneurship in UK at three levels namely: the relationship between society, religion and entrepreneurship; the relationship between individual faith, religion, and entrepreneurship; and finally, the relationship between theory, religion and entrepreneurship. They find that religion and entrepreneurship are not mutually exclusive but have a “complex and interdependent” relationship. Moreover, the findings suggest that both surveyed samples of British entrepreneurs and British nonentrepreneurs have comparable low level of religiosity. Existing academic literature offers four main theories on the nature of the relationship between religion, development and entrepreneurship. The first view suggests that religions world over, particularly Islam, are developmental in nature. Religions demand their adherents to uphold high ethical and moral standards in all and sundry business activities. Religions thus promote proliferation of a better human beings (‘being more”) rather than materialism (“having more”). The second hypothesis view religion as an obstacle to rather than an instrument for development and progress. The requirements for high moral and ethical standards inhibit free thought and hamper the span of individual inquiry. In this view, religions, especially Islam, are obsolete, redundant and conflict-ridden. Religions are thus impediments to development and progress. To buttress this idea, proponents of this view argue that the very absence of a restrictive world religion was partly responsible for the vast growth of intellectual horizons in Greek thought.
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The third view upholds the idea that religion and its appurtenances are personal matters. Therefore, religion and other human (economic) activities are strictly separate and distinct issues. This is the contemporary secular course adopted by western countries where religion is excluded from the affairs of the state. In fact, this is enshrined in the constitution of a majority of the western nations. Private and public lives of individuals are considered separate. The fourth view is premised on Weber’s thesis. This view divides the role of religion into two: pro- and anti-development and entrepreneurship. In the pro category, religion plays a productive role in embracing and advancing industrial activities. In the anti group, religion is the stumbling block to entrepreneurship development. Weberian thesis has elicited majority of studies and debate in intellectual forums. Academic research and literature have not provided methodological tools to test causality between religion and entrepreneurship or assess the impact of cultural values (religion) on entrepreneurship. However, the views of religion-based cultures could afford some intuitive elucidation on cultural attitudes towards entrepreneurial activities. Islam, unlike western countries that strongly propagates that economic and entrepreneur activities, similar to all other human activities, should not only be socially acceptable but be premised on sound moral and ethical standards. In Islam, both entrepreneur and economic activities take moral and religious dimension. Specifically, the profit motive of an entrepreneur should be free of interest (riba), greed, speculation and exploitation. All the worldly gains should be utilized to meet community and religious duties in addition to fulfilling individual entrepreneur’s economic needs. This way, entrepreneurs will achieve falah in this worldly life and be compensated generously in the hereafter. The first paper “The Theory of Islamic Banking: Look Back to Original Idea” by Ismail argues that the early discussion on Islamic banking system and theory is limited to mudarabah and musharakah only. The author present some stylized facts which suggest that mudarabah and musharakah are utilized far less than other forms of Islamic financing primarily due to principal-agent problems. The study suggests optimal contract for profit-sharing in Islamic bank bearing two different characteristics (contracting for effort and contracting for outcomes) to overcome principal-agent problems.. The second paper “An Ideal Islamic Economic System: A Gone Case?” by Shaikh argues that Islamic finance industry mostly uses LIBOR-based financial contracts analogous to conventional debt financing relative to the two more preferred participatory financing modes of mudaraba and musharaka. This is because
Editors Note, JIEBF, Vol. 7, No. 3, Jul.– Sep. 2011
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Mudarabah and Musharakah, (considered as orthodox and practical in Islamic finance) are incapable of providing adequate financing even in a simple model economy. This implies that LIBOR-linked Islamic products will continue to be widely used in practical Islamic finance. Islamic finance may thus remain incapable of providing egalitarian benefits it once promised. Moreover, the current orthodox understanding of Islamic fiscal redistribution mechanisms like Zakat and Inheritance also make them incapable of contributing towards the establishment of an egalitarian economic framework. Ironically, the lack of Islamic values like justice, equality, truth, trust, kindness, honesty and responsibility in practiced Islamic finance is the primary rationale why preferable participatory modes remain unusable. The third paper “Credit Risk Management Practices in Banks: An Appreciation,” by Rahman examines that the banks in Bangladesh have started undertaking a number of quantitative and qualitative measures to understand the credit risks when a counterparty or obligor (client) fails to fulfill contractual obligations to the bank. Unlike traditional bank financing where the emphasis was on collateral pledged by the borrower, contemporary Islamic banks are gradually adopting a number of sophisticated financial techniques in credit appraisal process and risk-grading to rigorously assess the borrower’s credit risk, business risk and financial position. In some cases, the rate of adoption of risk analysis tools and techniques is highly incredible especially in credit operation. This change requires credit risk management guidelines along with effective risk grading system. The fourth paper “Modelling Ar-Rahnu Use in Eastern Malaysia: Perspectives of Muslimah,” by Amin examines the factors affecting Islamic women or Muslimah decision to utilize ar-Rahnu transactions or Islamic-based pawnshop in Eastern Malaysia. The study use primary data collected by through personal interviews. The author then employs structural equation modelling to investigate the interaction between the factors and the Muslimah usage intentions for ar-Rahnu. The study finds that religious obligation, transaction cost and information on ar-Rahnu as the main factors that determine the use of Islamic-based pawnshop. The result suggest that there is need for is better planning for Islamic-based pawnshop in terms of Shariah adherence, reasonable cost charged and the awareness program. Finally, the article “The Application of Wadi‘ah Contract By Some Financial Institutions in Malaysia,” by Ibrahim and Noor argues that Islamic finance is a substitute of the capitalist-oriented conventional financial practices. Islamic finance distinguishes itself from conventional finance in two main fronts; First, Islamic finance bears no profit-making motive but only seeks the pleasure of Allah’s mercy in the hereafter. Second, Islamic finance is based on asset backed-transactions and contractual profit distribution system. These features are reflected in all the
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transactions of Islamic Financial Institutions (IFIs) established to achieve the aims and objectives of Islam and Muslims as the vicegerents of Allah on earth and one who are bound by injunctions in all their transactions. To this end, the author states that Islamic banks alienated themselves from the conventional banks in practices and brands of products. One of these products is rebranding of the conventional savings account with the Wadi‘ah account. Originally, Wadi‘ah was based on Amanah (trust). However, in contemporary Islamic banking, wadi‘ah has taken daman (liability) form which may be greater or less than a loan. The study aims to substantiate the concept of wadi‘ah, types of wadi‘ah, the evidences of its legitimacy, conditions for its use, prohibited elements in wadi‘ah transaction, and how it has been applied in some Islamic financial institutions in Malaysia.. I hope the readers will find these five articles very informative and rich in information. Further Reading:
Key References: Rasem N. Kayed and M. Kabir Hassan. Islamic Entrepreneurship. Routledge Publishing Company, London, 2010.
M. Kabir Hassan, Editor Philadelphia and New Orleans, USA July, 2011