Islamic Social Enterprise

One of the most interesting recent articles from the Guardian social enterprise hub comes from Sheeza Ahmad, founder of HelpingB.   

She describes how the Qur'an and the example of the prophet Muhammad, a humble merchant guide their work.

In Islamic law, the principal economic obligation is the payment of the capital levy called the zakat (Holy Qur'an, 22:79), which is "a levy imposed upon the well-to-do which is returned to the poorer sections of people". This law applies to both individual and business wealth. In the wealth that is produced, three parties are entitled to share: the working man, the person supplying the capital, and the community as representing mankind. According to Khan, "The community's share in produced wealth is called the zakat. After this has been set aside for the benefit of the community, the rest is 'purified' and may be divided between the remaining parties that are entitled to share in it."Though zakat is imposed only as a small percentage on one's actual assets, Islamic teachings encourage the injection of wealth into communities where support is small or absent. Wealth is encouraged to be in constant circulation, either into the business, or into local communities to ensure the poor and sick are consistently attended to.

Several years ago, I'd been a guest at a Muslim wedding celebration. This group, know as the Dawoodi Bohras had a spirtual leader. The groom's father took me aside to offer me the advice that their leader had given them. Expecting some kind of spiritual enlightenment, I was rather surprised when he said "Never work for someone else, always start your own business"  Later I discovered the the term 'bohra'  derives from the Gujurati word for trade.

Whether our own founder was aware of zakat when he wrote his paper on an alternative to capitalism, I can't say but I do know he'd explored Eastern culture at some length. There was considerable congruence, however in what he said about a business which invested 'at least 50% of profit' to stimulate a given local economy. He compared this with charity, pointing out that:

In Chapel Hill, North Carolina, for example -- where P-CED was born in 1997 -- multi-millions of dollars are donated each year to charities, after which the money is typically given away, spent, and gone. Two churches adjacent to the university campus recently raised in excess of four million dollars to improve their buildings. (As a counterbalance, a third church chose to forego its own plans for a building and donated its entire building fund to a badly-needed support program for the elderly.) If twenty percent were set aside to fund a "P-CED enterprise", that money would never go away, but would instead grow as it should in business. Once the seed capital is available and the business plan implemented, everything after that goes the normal way of business. Employees are paid according to the local pay scales, receive benefits, and so on. They would also enjoy profit-sharing directly for themselves from a total pool of ten percent of profits. Forty percent of profits would be rolled back over into the company for growth. The remaining fifty percent would go to the trust fund. Thus, aside from the final direction of profits, everything is exactly the same as with any other business enterprise.

What if, he asked, we did business for the benefit of other people? 

This approach of business for social purpose has become prominent in the last decade through the influence of Muhammad Yunus, a native of Bangladesh. Yunus, the pioneer of microfinance has been critical of others who seek to profit from making loans to poor people. As Yunus puts it - It's all about others, nothing about me:

 

 

In 2003, with a proposal to assist the repatriated Tatars of Crimea, we'd made this point about capitalism:

Traditional capitalism results in profits for the few people who own an enterprise. Over time, this often results in enormous amounts of money for a few people. This is the appeal of capitalism: the possibility of gaining great personal wealth, becoming rich. The problem is that money is not an unlimited resource. If money piles up in the hands of a few people, this must come at the expense of others who will then have less, or nothing at all. There is no other possibility. This is the basic flaw and weakness of capitalism, and was the central point of the 1996 paper. The end result is uneven distribution of resources.

Six years later at Davos, Sir Richard Branson would be saying the same thing.

One of the frequent criticisms of microfinance that it depends on high interest rates is countered in the 2003 proposal which suggests combining i  the 'Community-Funding Enterprise' with the provider of community finance, such that the former helps reduce the cost of the latter:

By combining a community-funding enterprise (CFE) with a micro-credit union, the limitations inherent in each one is greatly diminished. The CFE provides sufficient funding to ensure the operating costs of the credit union, reducing the risk that the credit union will have any need to use its capital to sustain itself. The credit union immediately makes available sufficient loan money to match the needs of the community, thereby eliminating the time needed for the CFE to generate the same amounts of money. Additionally, CFE profits over and above what is needed to help with the operating costs of the credit union can be put directly into the credit union. Over time, the amount of money used to originally fund the creation of the CFE is offset by CFE contributions to the credit union. The credit union is increased so that larger amounts of money become available either to make larger loans or to service more borrowers. Together, the CFE and credit union create an enterprise where the original funding not only remains but also increases with time. They complement and balance each other by addressing the economic goals both have in common and offsetting each other’s limitations.

Another interesting approach is that of Chris Cook's model of shared asset based finance, described as a Capital Partnership. In his video presentation he reveals how he learned that this was something which was congruent with Islamic finance.

 

 

In 2009 with the Papal encyclical 'Caritas in Veritate, we see another call for application of profit for social objectives:

This is not merely a matter of a “third sector”, but of a broad new composite reality embracing the private and public spheres, one which does not exclude profit, but instead considers it a means for achieving human and social ends. Whether such companies distribute dividends or not, whether their juridical structure corresponds to one or other of the established forms, becomes secondary in relation to their willingness to view profit as a means of achieving the goal of a more humane market and society’

Striving to meet the deepest moral needs of the person also has important and beneficial repercussions at the level of economics. The economy needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centred.

The Charter for Compassion which P-CED joined in 2009, reminds us that the golden rule of reciprocity binds us, as humanity