In the musharakah (partnership) business, two or more persons participate in certain economic activities with a defined amount of capital or with their labour or creditworthiness to jointly carry out an economic project and share profit/loss in some predetermined percentage.

In the Islamic profit/loss sharing system, business losses are distributed among the owners of the capital in proportion to their shares in the capital investment. It implies that no investor can be free from risks and uncertainties of the business world. It also implies that any party who has not invested any capital will not bear any capital loss resulted from economic conditions.

In the mudharabah (commenda or investment with no participation in Management) form of business arrangement, an investor makes available surplus funds to an entrepreneur to be invested in some productive economic activities and then return the principal along with the pre-fixed percentage share of the profits to the same investor. As a reward for management efforts and risk taking, the entrepreneur receives the remaining percentage share of the profits. In the event of business loss, financial losses are exclusively borne by investors and entrepreneurs lose the time and efforts invested in the venture. The entrepreneur shares the financial loss only in the event of his/her mismanagement of the business.

The Howard Government has recently set up a taskforce on home affordability. This taskforce will examine proposals which include allowing first-home buyers to share the equity in a property with a financial institution. The Manzies Research Centre is responsible for research on this shared housing equity scheme (see, www.afr.com.au or www.smh.com.au).

The proposals outlined by the Prime Minister John Howard on 20 September 2002 canvass an arrangement in which a passive institution would bear part of the cost of owner occupied housing in exchange for part of the sale proceeds later. This is a partnership arrangement which would involve the joint acquisition of a property by a person to occupy and own and a financial institution where the two participants would share the equity in the property. If the property is sold, both the person and the institution would share a proportionate capital gain out of the increase in the value of the property.

The financial institutions would earn a profit through the creation of a residential real estate securities market, where investors would buy and sell equity in homes.

This initiative would make way for home ownership to all Australians without paying the soaring house prices. It would also increase banks’ equity in Australia’s booming residential property market by effectively making them silent partners in the family home.

This proposal for housing finance would conform to the principles of Islamic partnership business. It will present a good opportunity especially for Australian Muslims to own homes in a way compatible to Islamic commercial values. The residential real estate securities market would be a suitable economic vehicle to invest Muslim surplus funds in the Australian economy.

Although not in an enterprise context, some of the large Australian businesses are partly applying the concept of the Islamic profit/loss sharing to provide incentives to their employees. The bosses of these businesses are finding it pays to look after employees. It was recently reported that Kennards Hire and Fisher and Paykel have shared annual profits with their employees as a reward for their service and loyalty (see, www.todaytonite.com.au).

On 8 July 2002, all 530 Kennards Hire workers from the factory floor through to the office were posted a big bonus - a share of the company’s annual profit amounting to more than $2,000 each. Director Andy Kennard says this million-dollar give away was simply a way to thank his staff for a profitable year. "We like to reward our people. We like to try and appreciate our people. I don’t think we ever show it enough," he said.

For manufacturer Fisher and Paykel, it’s a regular profit share for all workers, according to Brisbane general manger Roger Cooper. "We think we’re getting more than our value for money. We think it’s a very, very wise investment," Mr Cooper said. Fisher and Paykel employee Chris Johnston says this show of appreciation goes a long way for his family, and his enthusiasm for his job.

"Knowing that what we contribute at the end of the year can not only get us our annual salaries but extra money in the way of a bonus is great," Mr Johnston said. "I’ve been with the company for close to 11 years now and I had about four or five jobs before that but no, I’d never heard of any profit sharing before I came here. "I’ve been very lucky in the 11 years that I’ve been here that, I think, every year we’ve received some sort of a bonus, so it’s been really good."

Islam provides a universal way of life including business and finance which could be applied to derive benefits for all human beings. Apart from Muslim societies, experience tells us many of the graceful Islamic practices and values are found in people other than Muslims. In Malaysia, one of the first few clients of then newly introduced Islamic pawn shops was a Chinese. Most of the Malaysian trading banks have Islamic counters to offer Islamic banking services and they have a good base of non-Muslim clientele. This is hard evidence to the fact that Islamic methods of finance are capable of meeting financial needs of people with different religious and cultural inclinations. These methods could also be successful in the Australian financial market.

There is a need for some understanding of Islamic financial services in a Western country like Australia. Importers in the Muslim world may arrange their own credit through Islamic banks. It is, hence, clearly important for the Western exporter to have some understanding of the interest-free banking, even if the exporter is not directly involved with the interest-free banks, so that the Western exporter can appreciate the principles of operation involved. At the moment, very few Western business people deal with Islamic banks, although this is now beginning to change as these people are penetrating Muslim markets. ASEAN Muslim economies and Arab countries are increasingly significant markets for Australian products.

The onus is on Australian Muslims to demonstrate the applicability of Islamic economics and finance to businesses of this great country of diverse people. We have a great deal of work to do in finding opportunities to educate Australian communities about this system. For a start, we have local Islamic financial establishments offering Islamic products to all Australians, although we have just sadly lost the first incorporated Islamic credit union in Australia. In the years to come, we would find Islamic banks, Islamic finance companies, Islamic insurance companies, Islamic mortgage originators and Islamic financial planners are operating and contributing to the growth of the Australian economy.