How I came up with the Idea behind my Doctoral Thesis?

In 2008, I felt inclined toward playing a part to cure the economic injustice prevalent in my society. In my pursuit of finding answers to the questions regarding effective solutions, I was introduced to a debate which argued that both capitalism and communism do not sufficiently address the problem of economic injustice, so a third alternative is needed for which Islamic economic system (sic) was claimed as a prospective candidate (see Chapra, 1992; Choudhury, 1983). Having a religious mindset I got attracted to the notion and began my intellectual journey to explore the third proclaimed alternative. In this context, I volunteered to participate in a non-profit organization called GEAR (Generating Employment Alternatives for self-Reliance) which provided interest-free microfinance to the poor along with guidance on how to set up a small business. During my time at GEAR, I was introduced to the discourse of Islamic banking and finance (IBF), which considered interest-based lending and speculative investments in the conventional banking system as the root cause of economic injustice. Hence, an alternative banking system free from interest and speculative contracts was required which would involve the Islamic alternative of Musharakah[1] and Mudarabah[2].

As my interest grew in the so-called Islamic alternative, I went to do MS (equivalent to MPhil) in Management Sciences with majors in IBF. During my studies, when I dug deeper, I realized that practice of interest-free banking is different from what is taught in theory. The entire emerging industry is exclusively driven by profit maximization, for which it competes with its conventional counterpart, which forces it to abide by the rules of the games of the modern free-market. Musharakah and Mudarabah which were claimed as a source of justice among the trading parties (the bank and a business looking for liquidity) were barely practiced, as it did not give interest-free banks a competitive edge over their competitors[3]. On the contrary, in the name of competition, a significant number of contracts used by interest-free banks mimicked the contracts used by conventional banks, due to lesser risk and higher operational efficiency. IBF thus turned out to be “a reproduction of conventional finance with a few cosmetic changes, Islamic only in name” (Rethel, 2011, p. 93).

This realization made me wonder how Musharakah and Mudarabah were practiced throughout Islamic history, how the trust (prerequisite of a profit sharing contract) was established between the trading parties, and what socio-cultural arrangements made such contracts possible? To answer these questions I dug into the historical experience of bazaars in Ottoman Empire and published my findings in a paper (see Javaid, 2015). I discovered that Musharakah and Mudarabah were practiced very frequently between trading parties because of a high degree of trust between the partners which was a function of a unique socio-cultural scenario prevalent in bazaars in Ottoman history. Most partners knew each other since childhood because they were members of the same extended family or community; they even prayed together in the same mosque throughout their lives. Musharakah and Mudarabah were practiced between two or more individuals who intimately knew each other, in contrast to the a-personal relationships between companies in the contemporary market system. During the research for the paper, I also came across some literature suggesting that even today similar communities still exist.

The more I explored, the more I was intrigued by the factors which contribute towards creation as well as sustainability of such an environment of trust and cooperation over time. During my exploration, previous literature on Ottoman bazaars and contemporary entrepreneurial communities in Muslim world suggested that economic injustice may not be just perpetuated by financial institutions in the market; rather it may be the outcome of a socio-cultural and economic organization of a community or society as well, in which socially and culturally compatible entrepreneurial activity perhaps plays a key role. The question was how such a type of entrepreneurship during contemporary times is organized and contributes towards the sustainability of a socio-cultural order organized around the idea of socio-economic justice. The lack of literature on the subject thus led me to pursue this research project on socially sustainable entrepreneurship as practiced in three seemingly dominant entrepreneurial communities in Karachi.

End Notes:

[1] A partnership contract, where two parties invest with an agreed upon ratio of profit while the loss is to be shared as per the ratio of investment by each party, hence the outcome is believed to be just.

[2] Another form of partnership contract where the one partner invest while the other works profit is shared as per agreed ration, however, any accidental loss is born by the investor

[3] Due to higher risk and added agency cost to validate the records of their customers, the whole proposition of using Musharakah and Mudarabah was financially unattractive for Islamic banks