Islam and MNC

By

Asep Setiawan

This essay assesses whether Islamic fundamentalism is a threat to multinational business. Two variables are applied for the assessment : the Islamic way of thinking and the impact of the manifestation Islamic system on international business particularly banking dan finance sectors. It seems those fields are more affected than, for instance, in extracting or manufacturing sectors. Based on those variables this essay will analyse whether Islamic militant is a hazard to transnational business. In this paper Islamic fundamentalism refers to a search for fundamentals of faith, the foundations of Islamic polity and the bases of legitimate authority.1 While multinational business is defined as a group of

corporation that is operating in different countries but is controlled by its headquarters in a given country. In this essay, the first section deal with Islamic world-view and then, the second part, to assess the Islamic fundamentalism's impact to multinational business. II To begin with, it is useful to consider the origins of the fundamentalism. Islamic fundamentalism as the movement back to the basic value is not a new
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phenomenon throughout the Islamic history. Generally speaking the emergence of fundamentalism has been closely associated to the spiritual, social and political crises. In other words, when the existence of the Islamic polity and moral integrity were under threat the forms of a fundamentalism could be appeared. A major crises in Islamic history and in muslim identity was precipitated by the advent of the combining the Western colonialism and the Christian missionaries. The Arab-Israel conflict also generates radicalism. Other factors that contribute to the emergence militants are a class conflict, modernization, an corrupt prothe military impotence particularly when the
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Western regime, communism and Arab countries

were defeated by Israel. To some extent, the presence of

Western firms from the point of view of some fundamentalist is perceived as a tool American-European power to maintain colonialism in the new forms. Gilpin notes that the dominating presence of foreign corporations in the host country is characterized as constituting for of cultural imperialism.
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Since fundamentalism is the effort to establish Islamic system in a society, it is important to explore briefly what Islam is. The name "Islam" is the key to understanding the nature of the religion. Islam means "to submit". Therefore, a muslim is one who accepts and submits to the will of Allah. According to Sardar, "Islam is perceived not as a religion with set of rituals nor as body of law with catalogue of dos and don'ts, but as a total, systemic holistic world-view."5 Because Islam is the detailed way of live, it brings about the implications to various activities such as economics and politics even international relations.6

Thus, it seems that all muslims activities can not be separated from the religion. The shari'a which contains Qur'an and Sunnah is the foundation of an Islamic society.

As mentioned above, Islam covered all muslims activities including the economics matters. Khan argues that the basic economics concept in Islam is that the ownership of everything belong to God alone. Man is God's vicegerent on earth. God has subjected to man's service. Legal ownership of the individual, that is to say, the right of possession, enjoyment and transfer of property, is recognized and safeguard in Islam. But all ownership, as Khan explains, subject to the moral obligation that in all wealth all sections of society have right to share. As a consequence, the Islamic economic should be based on shari'a and merely to implement Allah's will.
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Moreover Islam constitutes the special framework in the finance and banking issues. Above of all Qur'an ordains the prohibition of interest (riba) by which is meant the receipt and payment of interest. This can be considered that an Islamic business cannot deal in any negotiable instrument that would entail the receipt or payment of interest. It is because of the Muslim's believe that an interest is prohibited for all purposes and in all its form. From the Islamic view point of view, riba is prohibited because it tends to draw wealth into the hands of small circle. In the case of loans which bear interest, the lender in effect takes advantages of and makes a profit from the need or distress another.
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However,

Watt states that the precise meaning of riba is uncertain and there have been divergent views.
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In practice, it is useful to underline here that within Islam exists two sects, Sunni and Shi'a. Although Sunni is majority within Islamic community, Shi'a is often associated with fundamentalism. Revolution in Iran under Ayatollah

Khomeini's leadership has made the fundamentalism become popular in the world. Both of the Sunni and the Shi'a's fundamentalists have the similar voices : they call for the emergence of Islam as a social, political and economic

movement which seek to go back to the original message of Islam and to rebuild the society and its institutions in the light of Islamic milieu. III The explanation above shows that Islam has an unique world-view to which seems different from the Western conception. As a consequence, the fundamentalists is or will not accept the Western values. In contrast, the West particularly the US Government consider fundamentalism as a threat to their interests. Hadar notes that there are some voices to consult Bill Clinton's administration that radical Islam would replace communism as a global threat.
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He calls the threat as "Green Peril" to replace "Red Peril" or communism. Miller also mentions that some of the Western observers see Islam as a potential replacement for the Soviet Union in East-West confrontation.14 Other analyst such as Martin Kramer argues that militant Islam groups by nature cannot be democratic, pluralistic or pro Western. Moreover, Bernard Lewis explains that

Islam refuse any legal recognition of corporate person which is at the heart of representative institutions embodied in Roman Law. Thus, the fundamentalists are often perceived as the threat to the Western politics, economics and strategic interest.
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The confrontation between multinational business and the host

countries in Vernon's words the so-called "a clash of national cultures".16 However, Hadar argues that the impact of fundamentalists' threat too simplified because in fact the radical movements are not monolith.

International banking and finance can be considered as the representative Western interest in a muslim society. Their expansion seem as a part of multinational corporations operation.
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Indeed their operations have been seen

not only provide financial services for the multinational business or the domestic customers, but they also carry the Western value. In Alvin Toffler's term, banking is the central institution of the modern money system. Accept the banks, Sardar argues, it means to accept the entire exploitative and theoretical framework that comes with it.18 So, the presence of the foreign banks touches one of the Islamic fundamental values: the prohibition of riba. More than that financial institutions deal with money, one of the cores of the modern economy. In this field fundamentalist strictly follow shari'a or as Watt explains they interpret Qura'n literally.19 Therefore, those businesses have much more attention than non-bank multinational enterprises.

The manifestation of fundamentalist movement is not only into a group but also a state.
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A state, a Hassan Turabi argues, is only the political expression of

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an Islamic society.

In implementing shari'a, the militants seem to impose

banking and finance sector both domestic and foreign owner bank with freeinterest system. This change, in term Tschoegl, is political philosophy risk which involving changes in attitude toward private ownership.
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In a case

fundamentalist articulation is a group the threats could be different. They are possibly operated in a secular state such as in Indonesia or Egypt or within orthodox muslim countries such as Kuwait. Indeed the radical groups might be operated within Western countries as its happened in the case of the World Trade building's sabotage in New York. The executives of multinational business could be target of some fundamentalist groups. In this circumstance, kidnapping or killing may be occurred.

Some cases shows that international banking and finance have been forced to adopt shari'a, otherwise they withdraw from Islamic areas. Sudan is one example where the fundamentalism manifests into the state's form and it

becomes the threat to international banking. In 1984, as part of move to Islamize the country's banking system, the government of Sudan has ordered all banks operating in the country to stop paying or charging interest. Muslim law forbids interest of payments; instead, banks are expected to invest their clients's funds and share profits or losses with them. Sudanese government's action will affect 27 banks, including nine foreign banks operating in that country.
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In Iran's case

many American companies and its allies had been forced to abandon their operations after Islamic's revolutionaries seized power in 1979.

The incident in Iran and Sudan have the same root : Islamic fundamentalism. The two cases also explain that either the militant groups or the states can be seen as the threat to the finance industries. The threat , however, seems same as common threat in business risk literature such as expropriation, transfer risk or nationalization. However, banks are exposed to other risks. They lend money to foreign governments, government-owned or controlled companies and private borrowers.
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The international banks have showed a certain respond

to the threat. Chase and Citibank lost assets in Iran during the revolution and then approached US Government to freeze Iranian assets in American bank.
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More than that it can be argued that a hazard from a fundamentalist movement arise because it confronts the basic value of financial or banking business. As Dunn points out that all economic transaction take place in real social settings.
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The operating interest system can be one of the reason.

However, the prohibition riba it self comes from the Islamic system which seems the meaning of money, capital, ownership differ with the Western model.

Indeed, such firms are themselves product of culture as evidence by the fact that their organizational forms, management philosophies and main objectives different with Islamic concept on business.

In fact, however, not all Islamic community which refuse riba at the same time reject the presence the un-Islamic banking and finance. Saudi Arabia can be seen as an appropriate example of this case. Some say Saudi Arabia is the fundamentalist state because it implements shari'a. Another view put the country as an orthodox Islamic state. But in practice, Saudi administration prohibit riba in the whole economic system. It seems that the need for Western technology particularly for oil exploitation, may bring the multinational business come to this country. At the same time, the wealth from oil brings about Saudi to contact with the Western financial institutions for business reason. To bridge the difference between free-interest system and Western banking and finance institutions, Saudi and some countries establish what the so-called "House".
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This kind of a

compromise could be achieved because some countries adopt a policy that is based on a principle "permission due to necessity". They recognize contact between Islamic and foreign banks and finance institutions.28 It means that those companies have an opportunity in those areas although they are advised to manage this cultural difference. Moreover, in a country with majority muslim like Indonesia, foreign banks may have broad opportunities to gain profits. In this case some possible actual threats are transfer risk, expropriation or nationalization. IV

To sum up, generally the Islamic fundamentalism posses an hostility

attitude toward multinational business particularly banking and financial services. This is because Islam has its own concept on those fields which is different from the Western notion. This attitude from Islamic militant will become an actual threat if the fundamentalism takes in the form of a state. The experiences in Iran and Sudan are appropriate examples for this case. Indeed, there is small scale of threat posed by the fundamentalist. However, since such a threat usually arises within a secular state, it can be handled by the host government.

The difficulties facing foreign companies in encountering actual threat from fundamentalism behaviour lies in their failures to anticipate the emergence of the radicalism which is neither neat nor sudden. So, if transnational business has great interests in Islamic areas, they should understand the Islamic

environment and possible risks posed by such environment.

Notes and References

1. See R Hrair Dekmejian, Islam in Revolution. New York, Syracuse University Press, 1985, p. 4. In this essay the term of Islamic fundamentalism is same as Islamic resurgence, Islamic revival, Islamic awakening, Islamic militant or Islamic radical. 2. Parviz Asheghian and Bahman Ebrahimi, International Business. New York, HarperCollins Publishers, Inc., 1990, p. 12. This paper also uses multinational corporation, transnational business or multinational enterprises for multinational business. 3. Dekmejian, op.cit. p. 35. 4. Robert Gilpin, The Political Economy of International Relations. Princeton, Princeton University Press, 1987, p. 248. 5. Ziauddin Sardar, Islamic Future. London, Mansell Publishing Limited, 1985, p. 11. 6. See Verna Terpstra, The Cultural Environment of International Business. Cincinnati, South Western Publishing Co., 1978, p. 49. 7. Muhammad Zafrulla Khan, Islam. London, Routledge and Kegan Paul, 1980, p. 150. 8. Khan, Ibid. 9. See Habib Shirazi, Islamic Banking. London, Butterworths, 1990, p. 5. 10. Khan, op.cit., p 153. 11. William Montgomery Watt, Islamic Fundamentalism and Modernity. London, Routledge, 1988, p. 108.

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12. Khurshid Ahmad, "The Nature of the Islamic Resurgence", in Voices of Resurgence Islam edited by John L Espito, New York: Oxford University Press, 1983, p 220. Choueiri suggests some common characteristics fundamentalist are the return to original Islam as the religion of oneness of God, the advocacy of independent reasoning in matters of legal judgements (ijtihad), and the necessity of fleeing (hijra) the territories dominated by unbelievers. See Youssef M Choueiri, Islamic Fundamentalism. London, Pinter Publishers,1990, pp. 23-24. 13. Leon T Hadar, "What Green Peril?" in Foreign Affairs, Spring 1993, Vol. 72, No. 2. See also Ghasam Salame, "Islam and the West" in Foreign Policy, No. 90, Spring 1982. 14. Judith Miller, "The Challenge of Radical Islam", in Foreign Affairs, Spring 1993, Vol. 72, No.2. 15. Miller, op.cit., in Foreign Affairs, Spring 1993, Vol. 72 No.2. 16. Raymond Vernon, Sovereign at Bay. New York, Basic Books Inc., 1971, p. 204. 17. Multinational banks are growing as a respond to increasing numbers of multinational corporations. They provide a tool of techniques and market instrument used to maximize the return on the firms investment. See Theo Kiriazidis and Stephen Regan "The Globalization of Financial Services" in International Business edited by Jill Preston. London, Pitman Publishing, 1992, p. 87. 18. Alvin Toffler's view is quoted by Ziauddin Sardar from The Third Wave. See Sardar, op.cit., p.204. 19. Watt, op.,cit., p. 2. 20. A state on Islamic's view is different from Western concept on nation-state. State here is based on shari'a not nation or community within certain areas. See for example PJ Vatikiotis, Islam and the State. London, Routledge, 1987, pp. 35-40. 21. Hassan al-Turabi, "The Islamic State", in Esposito, op.cit., p. 241. 22. Adrian E Tschoegl, "Ideology and Changes in Regulations: The Case of Foreign Bank Branches Over period 1920-80" in

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Political Risks in International Business edited by Thomas L Brewer, New York, Praeger, 1985, p. 87. 23. See James K Weekly and Raj Aggarwal, International Business. Chicago, The Dryden Press, 1987, p. 41. 24. See Wendell H McCulloch, Jr., "Country Risk Assessment by Banks" in Global Risk Assessments edited by Jerry Rogers, California, Global Risk Assessments, Inc, 1986, p 121. 25. Anthony Sampson, The Money Lender. London, Hodder and Stoughton, 1981, pp. 244-246. In 1981, under Algiers agreement, an accord was signet by Iran and the US which allowed the release or Iranian assets than had been frozen the Federal Bank of new York in return for the release of US hostages in Iran. See Frederict Stapenhurst, Political Risk Analysis Around the North Atlantic. London, St Martin's Press, 1992, p.141. 26. John Dunn, "Country risk: social and cultural aspects", in Managing International Risk, edited by Richard J. Herring. Cambridge, Cambridge University Press, 1983, p. 163. 27. The establishment of the Islamic Development Bank at Jeddah (Saudi Arabia) followed by the formation of Islamic banks at Dubai (The United Arab Emirates), Cairo (Egypt), Khartoum (Sudan) and Jordan. Muhammad Nejatullah Siddiqi, Issues in Islamic Banking. Leicester, The Islamic Foundation, 1983, p. 35. 28. Siddiqi, ibid.

Source: http://globalpolitics.asepsetiawan.com

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