THE INSTITUTION OF HISBAH: ITS ROLES IN NURTURING FAIR AND JUST ECONOMIC SYSTEM IN ISLAM 1

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1 1 THE INSTITUTION OF HISBAH: ITS ROLES IN NURTURING FAIR AND JUST ECONOMIC SYSTEM IN ISLAM 1 Fauzan Saleh * Abstract Islam is deeply concerned with the fair and just economic system. Generally speaking, it deals with the moral issues in doing business and all economic transactions. From its earliest emergence, Islam has strongly emphasized the necessity of maintaining the validity of business transaction to avoid all types of fraud for a particular interest. The Prophet himself was reported to have frequently inspected the market places to make sure that people do their business fairly, no cheating and no fraudulence. Maintaining just and fair business is absolutely a prerequisite for establishing prosperity. Nevertheless, it is not always easy to sustain fairness to make a good profit. Many tend to ignore it, as if it will be too unbending to follow all ethical norms and regulations to make good profits. In Islam, the duty of safeguarding the proper standards of religious morality, including those in business enterprise, becomes the ultimate responsibility of the state. The establishment of the hisbah institution is meant to assist people obediently follow these proper standards of morality. In business enterprise, the role of this institution is of a particular interest, because it is only through keeping it in function that economic system, as sanctioned in Islamic belief, will make a great benefit for nurturing a fair and just economy. In turns, it is through maintaining a just and fair economy that the prosperity will prevail for the common well-being. This paper will examine how the institution of hisbah is developed in the Islamic economic system and how it functions in the history of Islamic economy, as well as how it applicably survives in the modern world under the domination of Western-secular economic system. Introduction The world today has witnessed the collapse of great financial institutions in the Western countries, which has caused a dreadful recession in the world economy. Almost all nations are effected by this economic catastrophe. Some economists suggest that this calamity has happened because of the greedy market players who maintain their own interests notwithstanding the heavy burden of their corporate institutions. On the other hand, the world economy today has been overwhelmingly dominated by the doctrine of no regulation economy and of the internationalization of economic competition. In all parts of the world, and in all eras of history, economic policies based on greed have failed to generate prosperity. Based on Foreign Policy in Focus s report (2007), over the past two decades, free trade policies applied in the U.S. have paradoxically contributed to poverty and inequality. These policies, which are really corporate-managed trade not free trade, increase the power of corporations to bargain down wages and benefits by pitting workers from different 1 Paper to be presented at the National Conference On Islamic Economics 2009 on 10 th -11 th February 2009 at Universiti Malaya. * The writer is professor and vice-principal academic of STAIN Kediri, Indonesia. He is also lecturer of the Islamic Economy Institutions at the Post-Graduate Studies Programs, IAIN Sunan Ampel Surabaya.

2 2 countries against one another. They encourage governments to export the very natural resources on which the livelihoods of so many of their citizens depend. And by protecting the patent rights of giant pharmaceutical firms, they reduce access to affordable medicines. But the most devastating effects of free trade have been in agriculture, which employs about 70% of the developing world s poor. Current trade rules restrict a government s power to control imports. As a result, cheaper foreign goods flood in and undercut local farmers. In general, there has been no definite control for the world economy on behalf of free market and the doctrine of laissez faire. Basically, however, Islam acknowledges the validity of open market mechanism. It is based on a saying attributed to the Prophet who suggests that It is Allah who fixes price through an open market mechanism of supply and demand. Nevertheless, unlike the Western concept, in which economists regard the forces of supply and demand as invisible hand, Islam recognizes them as Allah s will. Therefore, in Islam, interference with a free market mechanism is totally unacceptable, and thus requires absolute honesty in business. However, since there is always possibility of dishonesty and fraud in doing business, it is mandatory for the state to ensure that Muslim businesspersons conduct their business transactions in proper, fair and ethical manner. It is in this regard that the state has an important role to safeguard fairness in business, as well as to avoid all possible frauds and dishonesty made in the marketplaces. In realizing this responsibility the Islamic state has to establish a particular institution called the hisbah. The word hisbah literally means sum or reward. Technically, it connotes the state institution to promote the proper conducts and to avoid all types of misdeeds or offences. Although the Qur an envisages every Muslim has responsibility for the propagation of good and the eradication of evils, the state is empowered to establish arrangements to oversee the implementation of this institution, as decreed in 3:104 of the Qur an. The function of the hisbah, therefore, consists of maintaining public law and order and supervising the behavior of buyers and sellers in the market with a view to ensure the right conduct. In this regard, the Prophet himself has acted as the first muhtasib, or person responsible for the maintenance of the institution of hisbah. Subsequently, he appointed some of his companions to perform this duty, including Said b. al- As in Mecca and Umar b. al-khattab in Medina. In general, the functions of muhtasib cover the rights of God and the people, including duties dealing with prayers, maintenance of mosques, community matters, market dealings, etc. The hisbah is a religious institution established under the authority of state. That institution is responsible to appoints people to carry out the responsibility of enjoining good, whenever people start to neglect it, and forbidding evil whenever they start to engage in it. The purpose of it is to safeguard the members of society from deviance, protect their faith and ensure the welfare of the people in both religious and worldly manners according to the law of God. The domain of hisbah is therefore essentially dealing with safeguarding the limits of Allah from being violated, protecting the honor of people and ensuring public safety. In addition, it also includes monitoring marketplaces, craftsmanship and manufacturing to make sure that the laws of Islam are upheld by these entities. It must also ensure that quality standards are maintained. Basic Principles of the Hisbah Islam aims at bringing about a stable and secure society filled with love, whereby the members of society work together in righteous and wholesome activities. Such an environment allows everyone to carry out the responsibility of being Allah s vicegerent on earth and to fulfill his purpose of existence, i.e. to worship Him. As vicegerents of Allah on earth, as commonly believed, people need order in their lives and, consequently, they are in need of some authority to

3 3 ensure that order. Because of that there must be someone to remind the people of this order and to keep tabs on how well they are adhering to it. This is why enjoining good and forbidding evils is so instrumental in Islam. Since Islam has established laws which come to ensure the welfare of humanity and to prevent or at least to diminish all things that cause harm, the Muslim jurists have put some principles to preserve the five universal needs of mankind i.e. faith, life, reason, lineage, and wealth. The existence of the hisbah institution is therefore meant to ensure that this injunction is properly carried out. More deliberately, the main goals of hisbah include: 1. Protecting Allah s religion by ensuring that it is applied in the lives of the people and by safeguarding it from being corrupted or spoiled. The hisbah official is charged with encouraging the people to fulfill their religious duties as prescribed by Islamic law. He is also responsible to prevent them from introducing deviation and corruption into these prescribed acts of worship. He must prevent innovation from being introduced into the religion as a whole and is authorized to mete out punishment to those who try to introduce them. In short, the hisbah official is concerned with everything that deals with safeguarding, reviving and facilitating the faith. 2. Preparing a righteous society by supporting and cultivating high moral standards and by combating immoral behavior. 3. Preparing the righteous believer to be concerned with the affairs of his society and to work for its welfare. 4. Providing the members of society with a constant monitoring of their activities, supporting and strengthening positive activities, while combating and preventing corrupt ones. All people, as Ibn Taymiyah suggests, need to live together as members of a society and to establish mutual assistance for the perfection of their welfare in this worldly life and in the hereafter. For this reason, man is said to be civil by nature. When people come to live together, they need a leader to supervise their common interests. They also need something to work together both to acquire benefits and to avoid injuries, with the leadership of the one trusted to deal with their general well being. As members of their society, people have to be obedient to their leader who ordains those desirable objects and rules out what is injurious. It means, the society needs some rules to maintain its members general interests and common well being. In order to implement these rules, there should be a control mechanism, undertaken by the one appointed to carry out this responsibility. The hisbah is actually a control mechanism established by Islam to maintain the order of social life, so as everyone will enjoy security and fulfillment of his or her basic needs. The one who is appointed to the post of hisbah, as has been mentioned earlier, generally called al-muhtasib, must have certain qualifications to assure that he can fulfill his duties out of obedience to Islamic law. The most important of which are: sincerity and impartiality, knowledge and wisdom, and mild temper. In addition, the mushtasib has the functions that could be categorized as those relating to: 1. The rights of God, such as punctuality of prayers, organization of Jumu ah and Ied congregations, and maintenance of mosques. 2. The rights of people, dealing with the community affairs and behavior in markets. 3. Municipal administration, such as keeping the roads and streets clean and lit at night and preventing the building of factory or dwelling place which could harm the community interests.

4 4 To fulfill his functions, the muhtasib cannot sit in an office in expectation of complaints. He must always be out of his office and in field, inspecting and looking into everything, to guarantee observance of the Shari ah. A good part of his day is usually spent in the marketplace, where most disputes and acts of injustices may take place. He has also to inspect the weights and measures to prevent cheating. He has the rights to check the notaries who write down the contracts on behalf of the contracting parties, and the deeds of sale. He listens to the complaints of the public and attends to them on the spot, paying special attention to children and women. He inspects the kuttab, the law courts, and all places where people congregate to enforce observance of Islamic law and ethics. He has to examine the goods and services of the whole village or town in order to prevent cheating in their quality or measurement, keeping the standard units of measurement in his office. The muhtasib also has the responsibility to stop cruelty to animals. He has to see that the beasts of burden and the ships were not overloaded, thereby exposing the lives of human and animal to danger. Thus, he is also authorized to intervene and to stop instances of cruelty to animals. Next in his order of priority are the public services, the freedom of passage on the streets, and maintenance, lighting and cleanliness of the mosques, restaurants, and public baths. After all, the hisbah has great implications for Muslim economic as well as public life. Nevertheless, the economic history of the Muslim people has not been chronicled in detail. Information on the mode of production, distribution and exchange and the credit system have received little attention, as they were not properly documented to let us know types of institutions and operation of Muslim economies. However, literature on hisbah helps us in reconstructing a vision of the economic system of Islam during the hey-day of its civilization. Some of salient features of an Islamic economy as can be seen from the literature of hisbah are enumerated as follows. Many of the muhtasib functions imply that the economy was actively managed by the state and was not left to the vicissitudes of events. Economic equilibrium was manipulated to attain a reasonable degree of efficiency and justice. This was a more concretely distinct proposition than classical economist vision of laissez faire. Accordingly, the muhtasib has the authority to regulate production and supply of goods and services in some ways, such as: 1. He would see that resources did not flow to the category of haram or forbidden. 2. He would keep a strict watch on the supply position of essential articles especially foodstuff. 3. All trade should be done in an open market. 4. The traders should not collude to bid up prices artificially. 5. The traders should not form groups to push newcomers out of the market. 6. The urban traders were not allowed to meet the rural suppliers on their way and to buy their products at cheaper rates, keeping them in darkness about the market conditions. 7. The middlemen who did not add any utility to the products but only reaped margins from buyers and sellers were disbanded. 8. The interest of merchants as a class was also protected against dumping in the market by a minority of merchants. 9. The traders and the craftsmen were not allowed to hide the defects of a product. With regard to price control, better known as ta sir, which is basically unacceptable in Islam, some jurists suggest that it would be allowed when there happen market rigidities. In such a situation the price level is sometimes manipulated by the economically powerful class to their benefit. Thus, the muhtasib is authorized to apply corrective measures. In reality, it is possible that powerful groups in the market may manipulate prices by withholding supplies, slackening

5 5 production, dumping output, or by mere collusion. In similar cases, the prices may be fixed by the muhtasib at a reasonable level which may rehabilitate the natural trends. The muhtasib would approve the prices periodically and give wide publicity. Delinquent traders were also to be punished. In the present day context, the muhtasib would have to keep himself informed of the overall economic conditions and cost structures in the economy. The survival of hisbah in modern economic system The institution of hisbah has survived in some Islamic countries, at least into the present. Saudi Arabia is perhaps the only Muslim state which has retained the religious wing of the hisbah intact to this day, although it has distributed the secular functions to different departments and ministries. However, with advent of Western colonialism, most of the Muslim institutions underwent drastic modifications. Like many other institutions, the hisbah also declined in effectiveness. It is either integrated into a number of departments or remained ineffective appendage of the state organs. By the 19 th Century, Persia, Egypt and India had already transformed the hibah function into secular departments discarding its religious content irrelevant. In the present day Muslim societies the secular functions of hisbah have been assigned to various departments of the government and the religious functions have been relegated to a secondary position. Although less explicitly admitted as an implementation of hisbah, some modern governments in the Islamic world today have been concerned with the necessity of supervising all aspects of financial matters as well as all economic dealings. Ultimately, all of these are meant to assure that the principles of economic justice and fairness in business are well fulfilled. As the state in general is responsible to fulfill the basic needs of all the people living under its jurisdiction, it is only understandable that the state must do every means possible to support the survival of its citizens. As M.N. Siddiqi has correctly put it, the purpose of an Islamic state is to establish a good society with justice, peace and security, where life flows in accordance with the will of Allah. Thus, the power of state must be exercised in a democratic manner, in which all matters dealing with the public interests must be decided in consultation with the people or their representatives. Accordingly, the rulers must do all that is necessary for the good of the people, as the state is mainly aimed at achieving some particular economic goals, including need fulfillment, reduction of inequality, and development, in addition to accomplishing some social, political and spiritual goals. As has been stated above that with the advent of Western colonialism, some Islamic economic institutions have declined in function. Likewise, the hisbah is also very much affected by the establishment of some secular institutions having similar responsibilities to the hisbah institution, especially to control any misdeed in doing business and economic enterprise. Therefore, in discussing how the hisbah may survive functionally in modern world, some secular establishments maintaining such aims in Islamic countries are worth of our consideration. The following is an examination of some institutions established by the Indonesian government, as one of the Muslim countries, to maintain economic justice and fairness in business enterprises, which can be considered as representing implementation of the function of hisbah. One of such institutions is the so-called Komisi Pengawasan Persaingan Usaha (KPPU), or Commission for the Supervision of Business Competition. This is a public institution, a law enforcement agency, and an independent arbiter on issues concerning business competition practices. It has been established to supervise the implementation of the law concerning the prohibition of monopolistic practices and unfair business competition, and thus it must be independent from the interference of the government and of other parties. It has a particular

6 6 responsibility to draft and implement some regulations as well as to examine any party being suspected of violating law. It also has an authority to issue a binding decision and to impose legal measure or punishment on any violation of the law. However, in spite of its independent status, in executing its jobs, the Commission is responsible to the President and the People s Representative Assembly. First established in 2000, the Commission plays an important role in shaping an efficient economy of the state through the creation of a good and healthy economic competition by ensuring business certainty. In general, the Commission is aimed at creating a favorable business climate that may guarantee equal opportunities for all business enterprises by thwarting any monopolistic practices and unfair competition. Competition is a rivalry between individuals, groups, nations, or animals for territory, a niche, or allocation of resources. It arises whenever two or more parties strive for a goal that cannot be shared. Competition occurs naturally between living organisms co-existing in the same environment. Business is commonly associated with competition as most companies are in competition with at least one other firm over the same group of customers. As defined by Merriam-Webster, competition means the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms. As the pillar of capitalism, competition is believed to be able to stimulate innovation, encourage efficiency or drive down prices. It is not surprising, therefore, that competition is frequently claimed as the foundation upon which capitalism is justified. According to microeconomic theory, no system of resource allocation is more efficient than pure competition. Competition, in turn, causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater selection naturally causes lower prices for the products, compared to what the price would be if there were no competition that causes monopoly or little competition, or oligopoly. Nevertheless, competition may also lead to wasted effort and to increased costs (and prices) in some circumstances. For example, the intense competition for the small number of top jobs in music and movie acting leads many aspiring musicians and actors to make substantial investments in training which are not recouped, because only a small number of them will ultimately gain success. As an organized effort to sell products and services on a regular basis, business generally stimulates competition among manufacturers in developing products that retail stores want to stock. Competition among businesses or stores consists of trying to get the customers to buy their product instead of the one offered by the competitor. In such cases, there is a clear winner and loser. But in the larger picture, businesses compete to see which has the greater market share and is more successful. Businesses, according to Ron Kurtus (2007), compete through performance, head-to-head, and predatory models. In performance, most businesses follow the affected performance competition model. Each competitor seeks to acquire knowledge of what his competitors are doing, and this will affect their own strategies. They realize that in selling the same products, for instance, their performance determines their success. In head-to-head model, some companies not only try to beat the opponent in performance, but they also take actions to try to prevent the opponent from making sales. This may include negative advertising that criticizes the opponent, locating a store right next to a competitor s store, and controlling supply of goods. In predatory model, some large companies not only want to be successful in their competitions, but they also want to have complete control or monopolies in the marketplace. They make efforts to drive smaller companies out of business or even simply purchase them to make them out of the competition. Generally, this predatory model applies in the hostile takeover, in which a company or even wealthy

7 7 individual will purchase enough stock in a competing company in order to take control of it. They may dismantle the company and sell off pieces, thus eliminating a competitor. It is for the aim of maintaining a good and healthy competitiveness among the businesspersons or firms that the KPPU is established. As the name of the Commission reveals, the core responsibility of the Commission is to supervise against any form of monopoly in doing business. Therefore, as an institution in charge of maintaining fairness and controlling misdeed in business competition, KPPU has some principal duties, including: 1. Evaluating agreements that may result in monopolistic and unfair business competition. 2. Evaluating business activities which may result in monopolistic practices and unfair business competition. 3. Evaluating the abuse of authority by the dominant position that may cause monopolistic or unfair business. 4. Undertaking actions in accordance with the authority of the Commission. 5. Providing advice and opinion concerning Government policies relating to monopolistic practices and unfair business competition. 6. Preparing guidelines and publications relating to this law, and 7. Submitting periodic reports o the results of the Commission s works to the President and the People s Legislative Assembly. In addition to the above responsibilities, the KPPU is authorized to undertake some actions to promote fairness and justice as well as to restrict any monopolistic practice in business. It may include: 1. Receiving reports from the public and business actors regarding allegation of monopolistic practices and unfair business competition. 2. Investigating some possibilities of business activities which may result in unfair competition. 3. Investigating and inspecting any allegation of monopolistic practices and unfair business competition reported by the public or something discovered by the Commission members as a result of their investigation. 4. Making conclusions regarding the results of its investigations or inspections as to whether or not there is any monopolistic practice and unfairness in business. 5. Summoning business persons being suspected of violating the provision of this law. 6. Summoning and inviting witnesses and any person deemed to have knowledge of violations of the provision of this law. 7. Obtaining and evaluating some letters, documents or other instruments of evidence for investigations. 8. Determining and stipulating some losses that occurred on the parts of business-persons or society in general. 9. Pronouncing the Commission s decision to businesspersons being suspected of having engaged in monopolistic practices. 10. Imposing some administrative sanctions on businesspersons caught in violating the provision of this law. Concluding Remarks The hisbah is basically a control mechanism established by Islam to maintain the order of social life, so as everyone will enjoy security and fulfillment of his or her basic needs. It is also meant as an instrument to safeguard society from deviance, to protect the faith and ensure the welfare of

8 8 the people in both religious and worldly matters based on the will of Allah. According to the basic Islamic tenets, all people should maintain truthfulness and avoid lying, especially when they deal with the business enterprises and economic interests. Since human beings are prone to neglect the necessity of truthfulness and are frequently tempted to engage in misdeed or fraudulence, there should be an institution authorized by the state that serves as a mechanism to help people keep their truthfulness and avoid all types of misbehavior. This is because people need order in their lives and, consequently, they are in need of some authority to ensure that order. Because of that, there must be someone to remind people of this order and to keep tabs on how well they are adhering to it. This is why enjoining good and forbidding evil is so instrumental in Islam. With regard to the fact of the global crisis which hampers the world economy today, it can be said that the basic problem of the issue is due to the lack of control in marketplaces. This is the consequence of the laissez faire era, which allows free and pure competition among all people engaging in business. The state should not interfere the market mechanism, because it has its own regulation based on the principle of invisible hand, and even if the invisible hand was aggravated by greediness and avarice. Let the powerful win the marketplaces, and let the weak lose them. Business competition, seen as the pillar of capitalism, basically has both beneficial and detrimental effects. Like in evolution theory, as claimed by evolutionary biologists, inter-species and intra-species competition has been the driving force of adaptation, and ultimately of evolution. Controversially, however, some social Darwinists claim that competition also serves as a mechanism for determining the best-suited group, politically as well as economically. In business, competition has caused commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. Yet, competition may also lead to wasted effort and to increased costs. The establishment of hisbah institution in Islam is indeed meant to offer a solution to such problems. Islam, above all, admits the validity of free market mechanism and recognizes the existence of invisible hand. But if there happen market rigidities so that the price level is manipulated by the economically powerful class to their benefit, the state, through the authority of the hisbah institution, should apply corrective measures. It is very common to see that powerful groups in the market may manipulate prices by withholding supplies, slackening production, dumping output, or by mere collusion. All of these are indications of injustices in business which Islam has strongly condemned. Though the existence of the hisbah institution in the modern world is mostly overshadowed by the more prevalent institutions of the secular states, Islamic literature on this institution has helped us in reconstructing a vision of the economic system of Islam during its hey-day. Today, with the advent of Western colonialism, the hisbah has declined in effectiveness. It is either integrated into a number of departments or remained ineffective appendage of the state organs. Nevertheless, modern day economy remains cognizant of the necessity of control and supervision in administering business. Some particular institutions are established more or less as a means to control some violations that may occur in dealing with the business enterprises that cause unfairness and lead to injustice. Such institutions may vary from country to country, both in scale and mode of administration, depending on the their respective demands. In general, it can be seen, among the others, in Competition Law or Antitrust Law in the United States, whose main objective is protecting the interests of consumers and ensuring that entrepreneurs have an opportunity to compete in the market economy. Similarly, in Indonesia, the Commission for the Supervision of Business Competition may be considered as one of the instruments authorized by the government to undertake the function of hisbah in controlling unfair business competition. Its

9 9 principal responsibility lies within maintaining a good and healthy competitiveness among the businesspersons or firms, and preventing against any form of monopoly. Of course, in Indonesia, like in many other countries, there are still some other institutions bearing equivalent functions of the hisbah as that of the Commission for the Supervision of Business Competition. This may include Badan Pengawas Pasar Modal dan Lembaga Keuangan (BAPEPAM), or Capital Market and Financial Institutions Supervisory Agency, under the Ministry of Finance of the Republic of Indonesia. This, and several other institutions, have a great responsibility to enhance truthfulness and justice in economic dealing established by the government. They are meant to supervise and control any economic misbehavior which may cause great public losses and deficiencies. It is still very interesting to further discuss how these institutions, representing the hisbah functions, may play role in stimulating fairness and justice in business enterprises for a better future of the whole people in the country. Finally, we all realize that some people do not believe that truthfulness always leads to a big profit. Yet, it is the Prophet Muhammad who ordains us to maintain truthfulness and fairness in all business dealings. We have to trust him that it is only through our awareness of keeping truthfulness that our economic life will prosper, with divine blessing.

10 10 Reference Faruqi, Ismail R. The Cultural Atlas of Islam. New York: Macmillan, Al-Haritsi, Jaribah b. Ahmad. Fikih Ekonomu Umar bin al-khathab, trans. Asmuni Solihan Zamakhsyari. Jakarta: Khalifa, Ibn Taymiyah, al-shaykh al-imam. Public Duties in Islam: The Institution of Hisbah, trans. Muhtar Holland. Leicester: The Islamic Foundation, Schacht, Joseph. An Introduction to Islamic Law. Oxford: Clarendon Press, Siddiqi, M. Nejatullah. The Role of State in the Economy: An Islamic Perspective. Leicester: The Islamic Foundation, Monopoly, accessed 2 February KPPU: Commission for the Supervision of Business Competition, accessed 2 February Competition, accessed 2 February Competition Law. accessed 3 February Kurtus, Ron. Business Competition, accessed 2 February Marwa Rakha, The Egyptian Ministry of Hisbah Fact or Fiction? accessed 5 September The Hisbah, accessed 5 September 2008.