The Sociocultural & Economic Context for Practicing Shirkat-ul-Aqd in Ottoman Guilds

Abstract

This paper examines & explores the original sociocultural & economic context where musharakah & mudarabah, or shirkat, have been widely practiced in history until the emergence of western style markets & political transformations in the Muslim world. The idealists in Islamic banking and academia dream of practicing these contracts in the modern corporatized economic world, while the practitioners argue that these modes are too risky due to possibility of foul play and misrepresentation of profits; their use in the domain of agriculture, SME development and particularly microfinance is rather considered unthinkable. This conceptual paper reviews the literature on the design of traditional Islamic bazaar to sketch its structure and functionality to learn how such risks and the information asymmetry was managed; these observations are then compared with that of the contemporary market scenario. The findings suggests that the agents in pre-colonial Islamic bazaars were predominantly related to each other on three planes first as a mentor – apprentice, then as a family relative, and thirdly as a follower of the same sufi order. No surprise that these multidimensional relationships created trust and also attached huge social costs to betrayal. Court system nevertheless existed to curb any violators. All of this eradicated the risk and uncertainty which exists in the impersonal systems prevalent today. Such clan based business communities still exists today in the Muslim world and it is in this setting where we may expect shirkat-ul-Aqd contracts to revive again. On the other hand, the alienated atmosphere of the modern corporate world may not be conducive enough for the creation of Islamic styles of business.