Question: Is there any limit in keeping margin of profit? This question arises in the context that if no limit is imposed then profiteering may result in.
Answer: Islamic law (Shari’ah) does not fix any upper limit of the margin of profit. A seller can keep any margin, resulting in high or low prices. The buyer, on the other hand, is not compelled to purchase at the price offered by the seller. He can negotiate, bargain, refuse and move on to other sellers. Both have free wills and the transaction would be affected only on mutual consent. The risk of losing the buyer owing to market competition may compel the seller to offer a price of his commodity commensurate with those of other sellers. Shari’ah, as a matter of general principle, depends on the efficacy of such market forces.
There are specific traditions of Prophet Muhammad (peace and blessings of Allah be to him) where he was asked to fix prices in market, but he refused. Two such traditions are noted hereunder.
Narrated Abu Hurairah: A man came and said: Messenger of Allah, fix prices. He said: (No), but I shall pray. Again, the man came and said: Messenger of Allah, fix prices. He said: It is but Allah Who makes the prices low and high. I hope that when I meet Allah, none of you has any claim on me for doing wrong regarding blood or property. [Recorded by Abu Dawood, Hadith Number 3450]
Narrated Anas ibn Malik: The people said: Messenger of Allah, prices have shot up, so fix prices for us. Thereupon the Messenger of Allah ﷺ said: Allah is the one Who fixes prices, Who withholds, gives lavishly and provides, and I hope that when I meet Allah, none of you will have any claim on me for an injustice regarding blood or property. [Recorted by Abu Dawood, Hadith Number 3451, and Ibn Majah, Hadith Number 2200]
In the first tradition, the Messenger ﷺ said that Allah makes the prices low and high and in the second tradition he said that He fixes prices. In our own narrative we can say that the system of price adjustment in the open market depending upon their demand and supply has divine approval. So, the state/administration should desist from intervening because that would simply amount to denial of the right of the seller to offer the price that he wishes, which the Messenger of Allah, in the above referred to tradition, has described as ‘injustice regarding blood and property.’ Such interplay of market forces, in today’s parlance, is called ‘invisible hand of market’ and the intervention of the state/administration is known as ‘visible hand of market’. Islam encourages the former ‘hand’ and discourages, if not forbids, the latter.
However, it would not be proper to give the blanket statement that ‘invisible hand of market’ has no place in Islamic economics. The state may be compelled to intervene in specific cases where public good is at stake. Obviously, public interest may supersede individual rights in certain cases. Further, no fraud or deception in the name of individual right can be permitted. ‘Profiteering’ and all forms of exploitation have to be checked. The state may, rather should, intervene in following situations.
- Creation of artificial shortages of essential goods, particularly food items, by hoarding (ihtikar);
- Overbidding for the sole purpose of driving the prices up (Najash);
- Lack/concealment of vital/material information in a transaction that may cause disputes later (Jihlmufdhiilan-niza)
As an example of mechanism for market control, the case of purchases of agricultural products from villagers outside the city and selling in the market at higher price may be cited. The Prophet discouraged the practice and directed that the products should be traded only after they reach the market.
Another example is that of Umar (may Allah be pleased with him), reported in Muwatta Imam Malik; it is worth noting. “Umar bin Khattab passed by Hatib bin Balta’ah who was selling dried grapes in the market. Umar told him either to raise the price or leave the market.” However, Imam Shafi’i has presented additional version of the story, as a rejoinder, that after rethinking Umar went to Hatib’s house and told him, “that whatever I told you was neither an expert’s opinion nor a verdict. It was only a personal concern for welfare of people. So, you can sell it whatever rate you like and wherever you like.” It may be noted here that Hatib himself was a companion of the Prophet and any reference of ‘peoples’ welfare’ must have been sufficient for his subsequent behaviour.
It may be summed up that government interference in market is not justified in normal cases. However, exceptional circumstances such as protection of public interest may require exceptional actions including interplay of the ‘visible hand’ of law.