Profit Maximization versus Price Ceiling from Maqasid al-Shari’ah Perspective: A Wasatiyyah Approach
Abstract
Islamic law does not restrict the magnitude of profit digits if the underlying business undertakings are lawful. Islamic law does not stipulate any specific price or profit of goods and services in a marketplace, and it promotes a non-monopolistic free market. At the same time, the demand and supply forces determine the prices. Thus, Islam has no strict limit on profit rates earned following commodity, place, and period factors. No evidence dictates the limitation of profits to specific percentages. Islamic law advocates the principles of justice (‘adalah) in the distribution of wealth, and hence the profit margin shall comply with that. Contemporary scholars believe that the notion of maximizing the profit is not consistent with the superseding objective of optimally serving society and avoiding manipulation (Chapra, Hassan & Metwally). The issue of profit maximization is related to the issue of fixing specific prices for goods and services. In a typical situation, none should manipulate the market price as fixing the prices is not allowed in Islamic law, and market prices should be left to flow to the market's dynamic. Anas bin Malik (R.) reported, the people said: O Messenger of Allah, the price has become very high; you may fix the price for us. Then the Prophet (pbuh) replied: ‘Allah is the one who determines the price, who takes and gives, and He is the provider. I hope to meet Allah while you do not have any claim against me either in blood or in wealth (Ibn Majah). Nevertheless, though the general rule says fixing the price is not permissible of whether to be lower or higher than the market, another second opinion says in some circumstances it is permitted. Fixing the price is permissible when it secures the actualization of maqasid al-shari’ah and public well-being. Thus, imposing a ceiling for the price and profit is permissible to preserve justice and eliminate harm and injustice (zulm) from the market, ensuring the protection of public interest (maslahah ammah). Muslim jurists opine that the government or related authority is allowed to fix the market price when there is a price increase above the average price in the market. Nonetheless, a wasatiyyah (balanced) approach shall be maintained to fix the price ceiling and profit margin so that none of the parties involved in the transaction will be affected adversely. Observing a wasatiyyah approach would secure the realization of fairness and the removal of harm which is the restrictive clause for the lawfulness of fixing the price and profit.
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