Islamic entrepreneurship : affects of religion, tradition and culture on entrepreneurial activity of people in Muslim countries

MASTER THESIS

Islamic entrepreneurship – affects of religion, tradition and

culture on entrepreneurial activity of people in Muslim

countries.

School: University of Amsterdam Program: MSc Business Studies Track: Entrepreneurship & Innovation

Name: Lukas Prvy Student Number: 10604774

Supervisor: Dr.Tsvi Vinig Date: 15.07.2014

Acknowledgements

I would like to express my gratitude to my thesis supervisor Professor Tsvi Vinig, for his continuous support of this research, his patience and valuable advice. This paper would not have been possible without guidance of Professor Vinig. I would also like to thank all my respondents for finding time to participate in interviews. They first hand insides helped form the structure of this thesis.

Abstract

Many scholars propose that entrepreneurship is a part of Islamic culture. As entrepreneurship is booming almost everywhere in the world, in Muslim world is still underdeveloped. Purpose of this study is to investigate how culture, tradition and religion of Islam affect entrepreneurial activity of people in Muslim countries. In first part of this research existing literature linking entrepreneurship and Islam is examined as well as reports of entrepreneurial activity in Muslim countries. Data and insides for this study have been gathered through in depth 10 interviews with experienced and starting Islamic entrepreneurs. Results from these interviews were reflected on framework created for the purpose of this study. This framework shows how dimensions of religion, culture, tradition and institutional approach (driven out of culture, tradition and religion) affect entrepreneurial activity. On the basis of the results of this research, it can be concluded that religious teachings of Islam encourage economic and entrepreneurial activity, while cultural and traditional aspects discourage this kind of behaviour. Institutional approach varies through different countries.

Key Words: Islam, entrepreneurship, tradition, culture, religion, institutional approach

Table of Contents

1. INTRODUCTION ... 5

2. LITERATURE REVIEW ... 6

2.1 Religion and entrepreneurship ... 6

2.2 Islamic entrepreneurship ... 6

2.3 Al-Qur’an and al-Hadis ... 9

2.4 Islamic Finance ...12

2.5 Doing Business ...16

2.5.1. Starting a Business ... 17

2.5.2. Dealing with Construction Permits ... 18

2.5.3. Getting Electricity ... 19

2.5.4. Registering Property ... 20

2.5.5. Getting Credit ... 21

2.5.6. Protecting Investors ... 22

2.5.7. Paying Taxes ... 23

2.5.8. Trading across borders ... 24

2.5.9. Enforcing Contracts ... 25

2.7 Entrepreneurial Activity throughout the region ...26

2.7.1. Motivations of Early-Stage Entrepreneurs ... 27

2.7.2. Sector of Activity: ... 29

2.7.3. Degree of Market Competition ... 30

2.7.4. Start-Up Financing ... 32

2.7.5. Training on How to Start a Business ... 33

2.7.6. Entrepreneurial Attitudes and Perceptions of the Adult Population ... 34

2.7.8. Indonesia + Malaysia ... 37

3. RESEARCH DESIGN ... 40

3.1 Description of research instrument(s) and procedures: ...40

3.2 Strengths and limitations of research design ...41

3.3 Accessing and obtaining the sample ...41

4. CONCEPTUAL MODEL ... 43 5. DISCUSSION ... 44 5.1. Religion ...45 5.2. Culture ...45 5.3. Tradition ...48 5.4. Institutional approach ...51

5.4.1. Oil rich countries ... 51

5.4.2. Arab Countries ... 53

5.4.3. Non-Arab Muslim Countries ... 55

5.5 Suggestions ...56

6. CONCLUSION ... 57

7. BIBLIOGRAPHY ... 58

8. APPENDIX ... 62

1. INTRODUCTION

Entrepreneurship is one of the fundamental features of today’s modern market economy. According to Kayed (2006), term “entrepreneur” first appeared in the writings of Richard Cantillon in 1730 where he used this term to describe the risk associated with business decision due to uncertainty. Later, Say (1818) defined the entrepreneur as being an agent who unites all means of production and applies new knowledge and expertise to add value to the original product or idea. One of the most prominent figures, which are associated with entrepreneurship, is Austrian American economist and political scientist Joseph Schumpeter. In 1934 Schumpeter proposed that entrepreneur is the innovator who implements change within markets through process of carrying out new combinations. The carrying out of new combination can take several forms: 1) the introduction of a new good or quality thereof, 2) the introduction of a new method of production, 2) the opening of a new market, 4) the conquest of a new source of supply of new materials or parts, 5) the carrying of the new organization of industry. In his research, Vargas-Hernández (2010) on entrepreneurial behaviours in Muslim countries, proposes more recent definition of entrepreneurship by Hupalo (2007), "Entrepreneurship is the recognition and pursuit of opportunity without regard to the resources you currently control, with confidence that you can succeed, with the flexibility to change course as necessary, and with the will to rebound from setbacks." Studies suggest that entrepreneurship is definetly one of the key factors generating growth and development, Baumol (2002). As Lazear (2002) concludes, “The Entrepreneur is the single most important player in a modern economy.” High number of theoretical literature associating entrepreneurship with economic growth supports Lazear’s, and other scholars, conclusions. So far research on relationship between culture and entrepreneurship has been largely focused on dimensions of national culture proposed by Hofstede in 1980. Religion influence on entrepreneurship and economic development has attracted only slight attention so far. In this paper I am going to research Islamic religion, culture and tradition and their influence on entrepreneurial activity of people. Research question of this thesis is: How religion, tradition and culture of Islam affect entrepreneurial activity of people?

Thesis starts with a literature review, where Islamic entrepreneurship and religious affect are defined and the relevant literature that examines their relation are revealed. Entrepreneurial activity and ease of doing business in Muslim countries is

also examined. This is followed by research design section, which gives information about research instruments, procedures, strengths and limitations of research design. Conceptual framework offers propositions and framework, which was created to give an overview of different dimensions affecting entrepreneurship. The results of the research are succeeded by discussion and conclusion.

2. LITERATURE REVIEW

2.1 Religion and entrepreneurship

In their research paper, Audretsch, Boente and Tamvada (2007) point that religion and entrepreneurship have had a tenuous relationship. Scholars dating back to Adam Smith and Max Weber era have argued that religion plays a fundamental role in shaping economic development, Audretsch, Boente and Tamvada (2007). Moreover, as Phelps (2007) argues, “values and attitudes are as much a part of the economy as institutions and policies are. Some impede, others enable.” Iannaccone (1998) concludes, “At the level of individuals and households, economic behaviour and outcomes do correlate with religion.” by Audretsch, Boente and Tamvada (2007), determined similar conclusions that religion does influence an individual’s decision to become an entrepreneur. On the other hand we can see arguments such as religion limits individuals’ ability to think freely and restricts the scope of their inquiry. Goody (2003) states that absence of religion with the various restrictions that religion implies was in part responsible for enormous expansion of intellectual horizons in Greek thought. Similar thought was presented by Lewis (2002), who argued that religion and its spiritual manifestations are personal matters and call for strict separation between religious and other human activity such as economic activity.

2.2 Islamic entrepreneurship

On a matter of religion of Islam and its effect on entrepreneurship, which I am going to research in this thesis, there are few publications linking these two phenomena. In Weber’s study, it has been argued that Islam with its fatalistic, warrior ethic and other worldly inclinations is incompatible with modern economy and polity. For instance, in his oft-quoted statement, Lerner (1964), referring to the modernization process in the Middle East and Turkey, has argued that Muslims had to

choose between “Mecca or Mechanization” meaning that Islamic values are not compatible with the modern capitalist economy. Lerner seemed to suggest that Muslims had to either give up Islam or accept underdevelopment as their fate. Also, Kuran (2007) proposes that Muslim world is trapped in some kind of state of underdevelopment, lack of creativity, excessive risk aversion, and hostility to innovation, which have been seen as causes of economic shortcomings. Patai (1983) argues that certain observers have linked such attitudes to Islam, and that Islam inculcates a belief in predestination, commonly referred to as fatalism. Adas (2006) claims that Islamic entrepreneurs are well aware of the stigma attached to Islam as a religion that impedes economic development. They argue that Islam is stereotyped because the West has misunderstood Islam. According to them, the western and westernized elites mistakenly take Islam as a synchronic reflection of the social conditions prevailing in Muslim societies. Moreover, he states, “Those who claim that Islam does not support economic development and entrepreneurship simply do not know anything about Islam. “Had the prophet lived today, on his business card it would have been written exporter and importer”, Adas (2006). In his research, Yousef (2000) argues that engagement in economic activities is an obligation for Muslim. Kriger and Seng (2005) concludes that entrepreneurs believing in Islam are likely to pursue extrinsic work values as such values are consistent with Islamic teachings. It is expected that these entrepreneurs will also view the extrinsic aspect of their work positively as for Muslims, economic life is thus seen as a means to a spiritual end, where prosperity means the living of a virtuous life. According to Yousef (2000), Islamic teachings also suggest a positive relationship between Islam and intrinsic work values. As Islamic adherents approach work, they are likely to view the intrinsic aspects of work (i.e. having an interesting job or a job useful to society, etc.) positively, as ‘work is considered to be a source of independence and a means of fostering personal and communal growth, respect, satisfaction, and self-fulfilment’. This will lead to ultimate outcome of attaining spiritual, as well as, socio-economic well-being, Ahmad (1994). According to Adas (2006), those who perceive Islamism as a traditional reaction against modernity, often fail to see how strongly Islamists resent popular Islam, or the traditional Muslim mentality. He states that the Muslim masses are regarded as ignorant people who unconsciously practice tradition as religion. They are not only unknowledgeable about their religion, but do not seek to be informed either, and hence fail to see and understand the true essence of Islamic

entrepreneurship. Muslim entrepreneurs argue that this misunderstanding has prevented Muslims from developing economically and presenting Islam as a viable alternative for the problems of the modern world that resulted in marginalization of Islam in modern times, Adas (2006). Research also brings interesting classification of types of entrepreneurial figure in Islam. First, Adas proposes esnaf or “traditional businessman”, which is highly pious in his religious orientation and avoids the institutions of modern capitalism. He fails to see that Islam preaches harmony and balance in life and mistakenly favours otherworldly activities over this-worldly ones. Because of such beliefs, he cannot accumulate large amounts of capital (MÜSIAD Bulletin Year. 3, no. 3, April, 1995). He is moral and righteous, but lacks the entrepreneurial spirit that is inherent in true Islam. The second type is Homo-economicus, which is a rational, calculating, self-maximizing, utilitarian businessman. He is said to be devoid of any morality other than his greed, materialism, egoism and love of wealth for the sake of wealth, Yarar (1994). Unlike esnaf, he lacks moral and ethical values but has strong entrepreneurial spirit. Yarar (1999) proposes alternative to these two businessmen types, Homo-Islamicus. Unlike homo-economicus and esnaf, homo-Islamicus is said to be both entrepreneurial and moral. He is an Islamic personality who defines his existence by combining private and public life and religious and economic activities through his Islamic ethical values and norms, Adas (2006). He is seen as a role model and ideal persona Islamic world who will bring genuine economic and technological development to community, while being fair towards others as dictated by his religion.

One of the main aspects of Islamic culture, according to, Faizal, Ridhwan, Kalsom (2013) is brotherhood and sense of unity, which it creates, where all work together as a team. The cooperative and collaborative work within the team and between teams in Prophet Muhammad and his companions’ era created powerful drivers for innovative societal change. It is seen that because of strong sense of brotherhood, which is inhabited deeply in Islam and teaching of the Prophet, Islamic entrepreneurs have the urge to bring economic development and prosperity to their societies. The concept of entrepreneurship in Islam also bases on generosity and benevolence. That is why Islam really encourages ‘uqud al-tabarruat or unilateral contract such as loan, in order to promote cooperation and inculcate sense of brotherhood amongst Muslims. At the same time Islam extremely prohibited monopoly, exploitation, fraud or usurious transactions. In other word, every

entrepreneur should always preserve the good deeds and avoiding the evil such as being honest, fair, and accurate in every transaction Ismail (2006). Radiniz (2007) proposes eight principles of thoughts, on which Islamic entrepreneurship focus. 1. Entrepreneurship is an integral part of Islamic religion.

2. By virtue of human nature, the Muslim entrepreneurs are ‘khalifah’ and have the

responsibilities 
developed prosperity and sees bibadah or good

deed.

3. Motivation – success in Islam is not merely measured by the end result but also the way and means of 
achieving them .

4. Ibadah – business activity is part of ibadah or “good deed”

5. Position of Entrepreneurship and business in Islam – Islam encouraged its followers to venture into business.

6. Islamic Economic System - Islamic Entrepreneurship should operate within the domain of Islamic Economic system and act as the vehicle towards global acceptance of Islamic Economic System.

7. Guiding Principles of Islamic Entrepreneurship is by the al-Quran and al-Hadith. 8. Entrepreneurial Ethics based on exemplary conducts of Prophet. As was pointed out by many scholars, Islamic entrepreneurs have to engage all their activities within Halal. Mohammed (2009) states, the Qur’an has stipulated criteria to non-halal actions some of which are:

Contracts: ‘O you who have faith, when two of you agree to become indebted by

means of a debt, then record it.’(Q2:282) 
‘O you w ho ha

contracts’ (Q5:1)

Interest: ‘Allah has permitted trade but prohibits interest’ (Q2:275) 
‘O you w ho believe, devour not usury doubled and multiplied, but fear Allah’ (Q3:130)

Alcohol and Gambling: ‘O you who believe! Alcohol and gambling are an abomination; of Satan’s handiwork...’ (Q5:90)

2.3 Al-Qur’an and al-Hadis

guiding principles based on al-Qur’an and al-Hadis to guide entrepreneurship operation are researched in more depth by Faizal, Ridhwan, Kalsom (2013). Muslim scholars state that entrepreneurship is a part of Islamic culture and that evidence of this can be trace back to Prophet Mohammad who before his prophetic missions was a merchant engaged in economic activity. Faizal, Ridhwan, Kalsom (2013) propose, that in Islam, separation between entrepreneurial activities and religion does not exist. There are several guiding principles and characteristics of entrepreneurship based on al-Qur’an and al-Hadis to guide economic activity.

1. Taqwa as a Framework

Taqwa means faith, so successful entrepreneurs must have faith in Allah and in his skill set to earn profits from entrepreneurial activities. Ali states citation from al-Qur’an: “O you who have believed, shall I guide you to a transaction that will save you from a painful punishment? [It is that] you believe in Allah and His Messenger and strive in the cause of Allah with your wealth and your lives. That is best for you, if you should know” (Al-Saff. 61: 10-11).

2. Halal as a top priority

Halal can be translated as accepted. On the other hand, Haram means not accepted. With respect for teachings of holy al-Qur’an, Muslim entrepreneurs cannot engage in entrepreneurial or economic activity, which includes Haram goods – alcohol and pork. Ali (1987): “O ye people! Eat of what is on earth, lawful and good; and do not follow the footsteps of the evil one, for He is to you an avowed enemy”. (Al-Baqarah. 2: 168). Beg, (1979) noted that Islam does not only motivate Muslims to be entrepreneurs, but in fact, it makes it obligatory on them to work hard and gain Halal earnings beyond their immediate needs in order to care for the community.

3. Do not waste

According to Faizal, Ridhwan, Kalsom (2013), Islam supports people to possess blessings of life without waste. Ali: “Oh children of Adam! eat and drink but waste not in excess, for Allah does not love the wasters” (al-A’rāf 7: 31).

4. Worship to Allah is a priority

Ali: “And when prayer is over, disperse in the world and search for the bounty of Allah” (Al-Jumu’ah 62: 10). “It is He Who made the earth manageable for you, so

traverse ye through its tracts and enjoy of the sustenance which He furnishes: but unto Him is the resurrection”(Al-Hijr 15: 67). Based on these Qur’anic citations Sadeq (1997), pointed out that entrepreneurship in Islam is highly regarded, and forcefully argued that Islam provides not only the incentives but also the conducive framework for economic and entrepreneurship development.

5. Practicing high moral values

Teachings of Islamic values incorporated in al-Qur’an and al-Hadis clearly honour moral entrepreneurship. Not moral entrepreneurial activity is for example Riba, which means taking interest rates. Ali proposes Qur’anic citation: “But Allah hath permitted trade (bay’) and forbidden usury (riba)” (Al-Baqarah 2: 275).

6. Trustworthy

The very inner existence of an entrepreneur implies with honest economic transaction of buying and selling in good faith. Abu Sa‘ēd reported: “The truthful trustworthy merchant is with the Prophet (SAW) the True ones and the martyrs (on the Day of Resurrection)” (Al-Tirmidhi. Book 14: #1213).

7. Concern for welfare

Islamic religion, tradition and culture teach its followers to care about poor and less fortunate. One of the examples that is deeply incorporated in Qur’anic teachings is Islamic social welfare system or Zakat. Within Zakat every Muslim is obligated to give a percentage of their excess goods to community. Theory also proposes second type of charity involving property, al-Waqf. By partaking in al-Waqf, truthful Muslims contribute property, including money, buildings, land, wells and other possessions, precisely for the sake of Allah, as a form of worship, thanking Allah for His bounty and in anticipation of a reward in the hereafter, Faizal, Ridhwan, Kalsom (2013). Ali: “Never will you attain the good [reward] until you spend from that which you love. And whatever you spend indeed, Allah is knowing of it” (Ali ‘Imrān 3: 92).

8. Knowledgeable

It is said that Prophet Muhammad was very committed to education and valued importance of knowledge. Faizal, Ridhwan, Kalsom (2013), state that Prophet and his followers engage in teachings in the community. Those who followed attitude of sharing knowledge became prosperous entrepreneurs, who played an important role in

other communities beyond Arabia. Faizal, Ridhwan, Kalsom (2013) propose Qur’anic citation: “Proclaim! (Or read!) In the name of Thy Lord and Cherisher, who created-; Created man, out of a (mere) clot of congealed Blood; Proclaim! And Thy Lord is Most Bountiful; He who taught (the use of) the pen; Taught man that which He knew not”. (Al-‘Alaq. 96: 1-5).

2.4 Islamic Finance

Particular part that points interest within entrepreneurship is Islamic finance. Archer & Abdul Karim (2002) states that Islamic law or Sharia prohibits any transactions baring interest. This in essence means that Islamic financial institutions cannot charge or earn interest in any form for any transactions – both debit and credit, and if it does, the institution cannot utilize that money given away as charity, Mohammed (2002). According to Segrado (2005), proponents of Islamic finance provide strong motivations to support the ban of interest rate. He states that in Islamic profits sharing contract, the return on capital will vary on productivity and the allocation of funds will be mainly based on the thoroughness of the project, improving the capital allocation efficiency. Islamic profit sharing system between financial institutions and entrepreneurs will ensure fair and impartial distribution wealth and the creation of additional wealth to its owners. According to the Dr. F.R. Faridi, “Islamic Economics comprises Justice, Equality and Fair Play. In fact, it is the best form of bringing about equality among the masses. According to Salehi Hematfar, Khatiri (2011), fundamental aim of Islamic financial system is to fulfil the teaching of the Holy Quran, as opposed to reaping maximum returns on financial assets. The basic principle in the Shariah is that exploitative contracts based on Riba (interest or usury) or unfair contracts that involve risk or speculation (Gharar) are unenforceable. Islam also forbids money hoarding because it means averting it from getting its intended objectives and therefore its function as a viable tool for development diminishes, Kayed, Hassan (2011). Many researchers of Islamic finance propose citation from Qur’an 9:43 as an evidence: “those who hoard up gold and silver and do not spend it in the way of Allah, give them the tidings of a painful punishment.” Islamic financing functions much like Western equity financing. Mohammed (2002) explains, the principle of risk sharing, which are applicable to both the sources and deployment of funds. Holders of profit-sharing investment

accounts (which substitutes for interest-bearing bank deposits) are essentially shareholders. They are exposed to the risks and returns associated with the fund’s performance. In addition, the institution assumes risk in the deployment of the funds to an investment, Mohammed (2002). Segrado (2005), proposes the basic principles of Islamic banking.

1. Al Zakat – purification or growth. One of the most important principles of Islam is that all things belong to God. Paid Zakat to the poor can purify possessions of Muslim people.

2. Al Riba – the prohibition of taking interest rates.

3. Al Maysir – prohibition of unproductive speculation or unearned income (for example gambling).

4. Freedom from excessive uncertainty 5. The prohibition of debt arrangements

Due to prohibition of interest rates, Islamic financial institutions needed to discover other customs to earn Shari’a-compliant profits and to gain Shari’a compliant returns on their investments, Brown (2008). Islamic banks developed several products and structures which are considered Shari’a-compliant. Islamic financial institutions can utilize in both consumer and corporate financing market through number of various instruments.

Musyarakah: Musyarakah in Arabic language means partnership, which is similar to joint venture agreements, in which a bank and an entrepreneur jointly contribute capital and manage a business project, Salehi Hematfar, Khatiri (2011). Musyarakah gives both the bank and the entrepreneur chance to share finances as well as management of venture. Under this type of agreement, profits and losses are shared according to pre-determined proportions. Anwar (1987), points out that as a Muslim entrepreneur in a interest free economy try their best to maximise profits, they also maximize returns of their partners – hence, Islamic financial institutions. As said earlier, spirit of partnership and cooperation is one of the main teachings and attributes of Islamic culture. The mutually beneficial relationship of Musyarakh is aimed to promote cooperation between Muslim entrepreneurs and wider community and consequently builds towards development as well as promotion of entrepreneurship.

between at least two types of partners one partner provides the capital who is or as “rabb-ul-maal” or the investor and the second is term as “amil” or “Mudarib” who is responsible for the working and management of business (Saleh, 1986). The worker or amil is completely responsible for all the affairs of the business (Chapra, 2005). Whereas the distribution of profit – loss is concern in case of profit it will be distributed in a pre-decided ratio and in case of loss only financial institution, or rabb-ul- maal bear it (Siddiqui, 1969). Under Mudaraba the entrepreneur assumes total management of business. According to Kayed (2006), Islamic financial institutions usually rely on faith, trust and sound confidence in the entrepreneur who is expected to abide by Islamic business ethics. Banks usually insist on the entrepreneurs having convincing arguments for economic feasibility of the proposed business activity.

Murabahah: According to Bank Negara Malaysia (2010), Murabahah is a form of trust-sale that aims to finance acquisition of assets on short or long term basis. Murabahah is based on a mark-up (or cost plus) principle, in which a bank is authorized to buy goods for a customer and resell them to the customer at a predetermined price that includes the original cost plus a negotiated profit margin, Salehi Hematfar, Khatiri (2011). Brown (2008) explains it as a contract in which a bank acquires an asset on request of customer. Later on, based on a second agreement, the customer acquires the asset from the bank at an agreed marked-up (cost up) price on a postponed payment or installment basis. Islamic financial institution does not provide customer with money like basic interest bearing loan, but purchase the goods and holds the title to an asset. This way profit of bank is derived from sale of goods rather than from lending of money.

Bai’ salam: is structured based on a forward sale concept. This method allows an entrepreneur to sell some specified goods to a bank at a price determined and paid at the time of contract, with delivery of the goods in the future, Salehi Hematfar, Khatiri (2011). Price which bank pays is generally lower than final price of the goods. Profit of the financial institution is difference between these prices. Scholars propose that Bai’ salam was allowed to meet the needs of farmers who needed assets to grow their crops and provide for families up to the harvest time.

Ijara: is straightforward leasing agreement between the financing institution and the client. Ijara based plans require Islamic financial institution to purchase an asset identified by customer who are in turn required to engage in payment of the asset. The bank has the obligation to insure the object of use and to carry out larger

scale maintenance although the bank may contractually assign certain obligations in this regard to the user of the object, Brown (2008). In one case, Islamic financial institution leases an asset to its customer agreeing on lease payments for a certain

period of time but excluding the option of ownership for the client. 
In the second case, the client has the option ownership by buying the asset from the financial

institution, Segrado (2005). The conditions governing both types of leasing are that assets must have a long or secure productive life, and must not be handled in an un-Islamic way, meaning that the lease payments must be agreed on in advance to avoid any speculation, Zahier, Hassan (2001). Depending on an agreement between two parties, security deposit may be treated as a capital investment based on Mudaraba agreement, or may be held in trust but not invested. This amount can also be used as a prepayment of the lease of an asset, Brown (2008).

As we can see, intrinsic values, which are taught by Islam, are reflected in many aspects of the Muslim society. Halal rules in Islamic banking, which come from tradition, religion and culture of Islam, over time created range of Shari’a-compliant Islamic financial structures. These instruments have high potential to encourage development of entrepreneurship in Muslim countries. As said before, Islam prohibits money hoarding. Best alternative to hoarding is investing it business activities that are moral, productive and socially desirable. Entrepreneurs are therefore encouraged to start or engage in business partnership with other entrepreneurs to create new ventures. As not all people possess the personality traits of and entrepreneur, Islamic financial institution, theory, accommodates such situation by allowing the investor to have a share in the business venture through partnership arrangements with the potential entrepreneur who does not have the financial resources to start business, Kayed, Hassan (2011). Potential entrepreneurs therefore does not engage in business activity disadvantaged with a heavy interest burden, but with help of financial institution which also benefits from entrepreneurs success. Banks provides expertise and encourages entrepreneurs to engage in innovative business activities. Mohammed (2009) states that Islamic financial institutions are interested in the success of the venture, since this determines revenue streams and profit to be shared. Having financed, the financial institutions cannot afford to sit back and expect a profit regardless of the venture’s performance. It is clear that Shari’a-compliant Islamic financial structures and instruments, theoreticaly play a positive role in promoting entrepreneurship. A said earlier, entrepreneurs are also provided with risk and

uncertainty protection by spreading them between all parties. Islamic finance together with values incorporated in Islamic culture is obviously motivating and encourage Muslims to engage in productive economic activities, Kayed, Hassan (2011).

2.5 Doing Business

Entrepreneurs across the Arab world often face regulatory procedures, which prevent them from starting business and challenge them with weaker investor and property rights protections than their equivalents in other regions, The World Bank (2012). Ruler and regulations that are transparent and accessible and predictable to population are required in order to boost economic activity on national level. Research done by The World Bank gives us clear information in terms of how difficult it is for a local entrepreneur to open and run a small to medium-size business in Muslim countries. It covers and measures 9 areas: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and their influence on ease of doing business in Arab world. Doing Business reports provides a ranking on the ease of doing business and ranks economies from 1 to 189. Reports done by The World bank shows that entrepreneurs in Muslim countries face less business friendly environment than in high-income innovation driven economies.

Average ranking on sets of Doing Business indicators (Table 1):

Economies in Arab World rank on the ease of doing business (Table 2):

Source: The World Bank, 2012 2.5.1. Starting a Business

Companies that are formally registered have many benefits such as access services and institutions from courts to banks as well as to new markets. Employees can benefits from protection provided by law. The World Bank proposes that there exist a connection between business entry regulations and social and economic outcomes, therefore making the process of business incorporation easy also has broader benefits for the economy.

Ease of starting business: (Regional Average of Muslim Countries) (Table 3):

Source: The World Bank, 2012

2.5.2. Dealing with Construction Permits

As this process is still difficult in most Muslim countries, some economies are applying e-governance and information and communication technology solutions. For example Bahrain, according to research done by The World Bank, posts fee schedules and information on procedures online. Free applications forms are able for download and people dealing with construction permits are able to submit all necessary documentations online, which saves time and money. Good and transparent construction regulations are very important for building sector. Because of complicated and costly regulations 60–80% of building projects in developing economies are undertaken without the proper permits and approvals, The World Bank (2012). Access to application requirements for building permits remains most difficult in Arab World. For example, reports show that in Egypt almost 90% of new

constructions are considered illegal.

Ease of dealing with constructions permits (Table 4):

Source: The World Bank, 2012 2.5.3. Getting Electricity

World Bank report shows that most of the lower and middle-income economies consider electricity to be among the biggest constraints to their business. According to research, people engaging in entrepreneurial ventures estimate losses because of power outages at an average 5.1% of annual sales. Economies in Muslim countries started to try to tackle this issue by trying to limit number of interactions businesses have to undertake and lowering costs when applying for new connections. As World Bank states, electricity issue varies greatly in Arab World. While the process takes around 6 weeks in Kuwait and Jordan, it takes almost 6 months in Djibouti. In the Comoros and Qatar only 3 procedures are required in Egypt and Kuwait there are 7 required procedures.

Ease of getting electricity (Table 5):

Source: The World Bank, 2012 2.5.4. Registering Property

In terms of property registration The World Banks measures procedures necessary for a business to purchase a property and to transfer the property title to the buyer’s name. Clear and transparent property rights are inevitable in order to support investments, enhance productivity and growth. When property is informal or poorly administered, it has lesser chance of being accepted as collateral for loan, which usually limits access to finance, The World Bank (2014). Other than private sector, government also benefits from correct land registrations. Reliable and up-to-date land registries are very important in order to properly collect tax revenues. The process of registering property differs among Arab world. For example registering property in Saudi Arabia takes 2 days, it takes more than 2 months in Egypt. In UAE it requires only 1 procedure, but 10 in Algeria. Property registration, for example, costs nothing in Saudi Arabia but cost more than 27% of the property value in Syria, The World Bank (2012).

Ease of registering property (Table 6):

Source: The World Bank, 2012 2.5.5. Getting Credit

The World Bank measures two types of frameworks that facilitate access to financial means: credit information registries and the legal rights of borrowers and lenders. Legal rights and laws of borrow and lenders enable businesses to use their assets, especially movable property, as security to generate capital. Credit information systems enable lenders to view a potential borrower’s financial history, The World Bank (2014). Effective creditor rights and bankruptcy systems bring significant advantages, for example expanded availability of loans available for potential entrepreneurs.

Ease of getting credit (Table 7):

Source: The World Bank, 2012 2.5.6. Protecting Investors

If laws do not sufficiently protect investors and minority shareholders, they may not provide funding to companies, which limits ability of companies to raise the capital they need to innovate and compete. The World Bank in Doing Business report measures three dimensions of investor protections: rules on the approval and disclosure of related-party transactions; liability of company executives for self-dealing and shareholders’ ability to access corporate information before and during litigation. Economies with the effective protections of investors require detailed disclosure, definition of clear duties for directors, detailed disclosure, access to corporate information and well-functioning courts that allow investors to obtain a judgment within a reasonable time.

Strength of investor protection index (Table 8):

Source: The World Bank, 2012 2.5.7. Paying Taxes

The World Bank measures mandatory contributions that businesses have to pay with three indicators: payments, time and the total tax rate. Reports show that tax rates are being considered as one of the top three constraints to doing business. Taxes are crucial for effectively functioning economies as they fund the public amenities, infrastructure and services. Taxes need to be kept at reasonable level. This way economy can better encourage the development of the private sector – small and medium enterprises. Tax administrations have to keep clear and transparent in order to help businesses to become formally registered and the economy to grow. In order to reduce administrative costs and simplify process of paying taxes, economies are adopting principles of self-assessment, The World bank (2012).

Ease of paying taxes (Table 9):

Source: The World Bank, 2012

2.5.8. Trading across borders

Doing Business report by World Bank measures time and costs linked with importing and exporting goods and the number of documents necessary to complete the transaction. The key dimensions in terms of trading are documentation requirements, procedures at customs and logistical aspects. Local markets in developing economies are often too small so when these dimensions are costly and time consuming, it prevents the growth of businesses and economies of scale. By removing unnecessary obstacles like inadequate infrastructure, inefficient port operations or excessive documentation requirements, entrepreneurs are more encouraged to look outside of national borders for business opportunities. International trade also allows developing economies to become part of global supply chains, which can lead to favorable externalities such as the transfer of know-how, The World Bank (2012).

Ease of trading across boarders (Table 10):

Source: The World Bank, 2012 2.5.9. Enforcing Contracts

Doing Business report by The World Bank measures the time, cost and procedural complexity of resolving a commercial lawsuit between 2 domestic businesses. Studies show that where processes regarding contracts are long, complex and bureaucratic, ventures prefer to make deals with people they know witch can limit their opportunities to grow. Efficient and transparent courts are effective in enforcing contracts and businesses are more likely to engage with new customers. Efficiency in terms of speed of the process is one of the most important aspects as small entrepreneurs may struggle with resources to stay in business while awaiting the outcome of a long court dispute.

Ease of enforcing contracts (Table 11):

Source: The World Bank, 2012

2.7 Entrepreneurial Activity throughout the region

Reports provided by International Development Research Centre offer valuable insides on entrepreneurial activity across countries in different phases of national economic development. By measuring entrepreneurial intentions; nascent, new and established business activity and business discontinuation activity, International Development Research Centre “ analyze the level of entrepreneurial activity and related indicators in a variety of developed and developing economies to advance the knowledge base about this important field of inquiry, and to identify policies that may help governments and economic development stakeholders to strengthen the role of entrepreneurship in creating jobs and driving innovation and growth”(International Development Research Centre, 2010).

Global Entrepreneurship Monitor offers main results of key total entrepreneurial activity for the 55 participating countries in GEM 2009 (Table 12):

2.7.1. Motivations of Early-Stage Entrepreneurs

In terms of motivation, GEM explores whether involvement in a start-up is to take advantage of a business opportunity (“opportunity- entrepreneurship”) or because there was no better choice for employment (“necessity- entrepreneurship”). Findings suggest that proportion of necessity-entrepreneurship is much higher in developing or low-income countries than in developed or high-income countries. “Overall, almost 27% (Table 13) of entrepreneurial activity in these countries is motivated by necessity” (International Development Research Centre, 2010). As GEM points out better- educated early-stage entrepreneurs are more likely to be motivated by opportunity than necessity.

Total Entrepreneurial Activity Motivation – Necessity-Opportunity (Table 13)1:

Source: Global Entrepreneurship Monitor: 2009 Global Report

1 _{Entrepreneurial activity report by Global Entrepreneurship Monitor (GEM) covers}

mainly following countries: SY – Syria; PS – Palestinian Territories; JO – Jordan; LB – Lebanon; MA – Morocco; DZ – Algeria; YE – Yemen; SA – Saudi Arabia; AE – United Arab Emirates; TN – Tunisia; IR – Iran; EG – Egypt.

Estimate of Ventures Being Created by Early-Stage Entrepreneurs (Table 14):

Source: Global Entrepreneurship Monitor: 2009 Global Report 2.7.2. Sector of Activity:

In term of sector activity of enterprises GEM created four categories:

1. Extractive activities which include farming, forestry, fishing and mining

2. Transforming activities which include manufacturing, construction, and wholesale distribution

3. Business service activities which include service enterprises where the primary customer is 
another business;

4. Consumer-oriented activities which include enterprises as retail enterprises, restaurants, bars, hotels and lodging, health, education, personal and social services, and recreation-oriented enterprises

GEM states that as economies of Muslim countries are slowly transforming from factor-driven to innovation driven, the share of transforming and business service enterprises rises. Unlike established businesses, early-stage enterprises are more likely to engage in consumer-oriented areas of activity and business services more than in transforming industries and the extractive sectors.

Sector Distribution of Early-Stage and Established Enterprises (Table 15):

Source: Global Entrepreneurship Monitor: 2009 Global Report

From this Gem report (Table 15) we can see that Lebanon, Morocco, and Algeria, have is a higher proportion of early-stage activity in the consumer-oriented sectors (about 70%) and Palestine and Yemen have much higher proportion in the extractive sectors (more than 20%). Morocco and Jordan have the highest shares of early-stage entrepreneurial activity in the transforming sectors (20%).

2.7.3. Degree of Market Competition

Around 60% of early stage entrepreneurs in MENA countries covered by GEM research are frequently entering markets where businesses offering same or similar products already exists.

Proportion of Businesses Offering Similar Products or Services (Table 16):

Source: Global Entrepreneurship Monitor: 2009 Global Report

Because businesses and new ventures tend to enter market where they will encounter with many competitors, they should increase product and service differentiation. However, reports suggest low level of innovation of differentiation in product and service, together with the large number of “me-too” start-ups. GEM suggests that established businesses are less innovative than early-stage enterprises. It is evident that emerging enterprises are more likely to engage in innovations and differentiations of their offerings.

32 2.7.4. Start-Up Financing

Distribution of Start-Up Capital Needs by Size (Table 17):

Source: Global Entrepreneurship Monitor: 2009 Global Report

According to GEM report on start up financing (Table 17), 40% of the promising entrepreneurs in covered MENA countries estimate that they need less than the equivalent of US$10 000 to start their new businesses. As it is evident from the table, in Morocco almost half of starting entrepreneurs need less than US$5000 to start business. On the other hand the largest star up capital requirement, US$20 000 is in Syria. Entrepreneurs who are not able of financing their businesses by themselves receive external financing for their start-ups from different sources.

Sources of Start-Up Financing Used by Nascent MENA Entrepreneurs (Table 18):

33 As we can see (Table 18), Immediate Family members are the most important source of external financing. Except of Jordan, it provides finance for more than half of starting entrepreneurs. Government Programs as a source of financing are significantly used only in Algeria. Sources, which have personally provided funds for new businesses started by upcoming entrepreneurs, (Immediate Family Members, Other Relatives, Work Colleagues, Friend or Neighbors) are defined by GEM as informal investors. As it is evident from the report, informal investors are an important source of financing for start-ups in all MENA countries. “In less developed economies, especially in overwhelmingly Muslim societies with strong reservations about receiving or paying interest, people tend to avoid the commercial banking system and opt for personal sources of financing or Islamic banking” Chong and Lui (2009).

2.7.5. Training on How to Start a Business

Entrepreneurship education and training on how to start a business have number of positive impacts entrepreneurial activity. It usually improves know-how, approaches and problem solving skills of upcoming entrepreneurs. It also helps entrepreneurs to identify unfeasible or low opportunity ideas, which leads to more feasible start-ups. GEM report shows that proportion of MENA countries, entrepreneur training is at low level.

Early-Stage Entrepreneurs with Start-Up Training (Table 19):

From Table 19 we can see, for example, that after completing formal education, only 29.8% of early stage entrepreneurs in Palestinian territories receive start up training, which is the highest proportion from covered countries.

2.7.6. Entrepreneurial Attitudes and Perceptions of the Adult Population GEM research proposed three indicator which have been used to measure national attitudes toward entrepreneurship (Cultural Concept):

1. Percentage of adults who believe that entrepreneurship is a good career choice 2. Percentage of adults who believe that those who succeed at starting a new

business have a high social status

3. Percentage of adults who state they often see stories in the media about successful new businesses

For assessing the entrepreneurial potential of individuals, GEM used four indicators (Individual Concept):

1. They see good opportunities for starting a business in the next six months in the area where they live

2. They possess the knowledge and skill required to start a new entrepreneurial venture

3. Whether fear of failure would prevent potential entrepreneurs from starting a business

4. Whether they know someone who started a business in the past two years, (International Development Research Centre, 2010).

Bosma and Levie (2010) state, that people in countries at lower levels of development are likely to have more positive attitudes toward entrepreneurship and higher intentions to start a business in the next three years. These countries show high proportion of percentage believe that entrepreneurship is a good carrier choice. In terms of individual concept, around half of most MENA countries see good opportunities for starting a business in the next six months. Also high proportion of individuals in these countries believe that they posses necessary skills and knowledge for engaging in entrepreneurial activity.

Entrepreneurial Attitudes and Perceptions in Adult Population, GEM-MENA Countries (Table 20):

Source: Global Entrepreneurship Monitor: 2009 Global Report

GEM report shows us (Table 20), that intensions of starting a business in next three years is more or less the same in all MENA countries covered by GEM research except of Syria, where more than half of the adult population expect to start some kind of entrepreneurial activity in next three years.

Start-Up Intention Prevalence Rates by Demographic Variables (Table 21):

Source: Global Entrepreneurship Monitor: 2009 Global Report

As Table 22 shows us, intent to start a business varies on different demographic variables. Except of Yemen start-up intention rate decline with age - 18–24 and 25–34 age groups have the highest rates of intent. Start-up intentions are generally higher among the better- educated cohorts and tend to rise with education level as well as with household income. In terms of Labor Force Attachment, it is clear that students and self-employed people have the highest intentions of starting a business. Except of Jordan, most of people employed in private micro-enterprises are more likely to have higher intended for engaging in business activity. Adults employed in large private enterprises show the highest intentions of starting entrepreneurial activity in every MENA country covered by GEM research, International Development Research

Centre, (2010). Overall we can see that adults have relatively positive attitudes toward entrepreneurship and confidence in their own abilities to be able to start a business.

2.7.8. Indonesia + Malaysia

Two of major Islamic countries that are located in Southeast Asia, which show high percentage of Muslim population are not researched in the reports, however GEM offers clear overview of their entrepreneurial activities.

Entrepreneurship – Indonesia (Table 22):

Entrepreneurship as desirable career choice Entrepreneurial intention TEA Established business ownership rate

Entrepreneurship – Malaysia (Table 23)2:

2 _{Entrepreneurship as a desired career choice was off the chart in case of Malaysia,}

however it is steadily declined over the years.

Entrepreneurial intentions

Established business ownership rate TEA

For clearer image, I propose comparison of Total Entrepreneurial Activity (TEA) in Southeast Asia with selected Arab countries (Table 24).

3. RESEARCH DESIGN

Main subject of this research is to gather insides about religion, tradition and culture of Islam and how these three phenomena influence actual practices of potential entrepreneurs in Muslim world. Gathered knowledge and insights will help me reveal direct linkage between practices of Islamic entrepreneurship and teaching of Islam. Hopefully, this process will allow me to discover interesting insides and conclusions in behaviour of Islamic entrepreneurship within tradition, religion and culture of Islam. This research is highly feasible since I will be communicating and interviewing experts in the field of Islamic entrepreneurship. I will carefully focus my attention on gaining the perspectives of practitioners within Islamic entrepreneurship who had been directly involved in entrepreneurial and economic activity while following traditions of Islamic religion.

3.1 Description of research instrument(s) and procedures:

“Qualitative research can provide thick, detailed descriptions of actual actions in real-life contexts that recover and preserve the actual meanings that actors ascribe to these actions and settings” (Gephart 2004). The case can be categorized as exploratory because its scope is to refine and expand existing theory on Islamic entrepreneurship. This research study can be described descriptive study, as it will describe the phenomenon of Islamic entrepreneurship and the real-life context in which it occurs. Through semi-structure interviews of successful Islamic entrepreneurs, I will gather valuable insides and additional knowledge of the theory. Personal contacts have provided me Muslim entrepreneurs who will be willing to participate in my interviews. The questions that are going to be covered during interviews are based on literature review on tradition, religion and culture of Islam and Entrepreneurship. Also services and products of Islamic finance, which are result of deeply inherited Muslim tradition, and their influence of entrepreneurial activity will be encountered in interviews. One of the issues that will be approached is guiding principles based on al-Qur’an and al-Hadis to guide entrepreneurial and economic activities. For example: How strict are Muslim entrepreneurs when it comes to Halal goods? Is concern for welfare one of the initial things that encourage Muslims to engage in economic activity? Most importantly, questions are going to be aimed to gather insides on disagreement between teachings of Islam about economic activity and practice. I am going to ask interviewees to elaborate also on low entrepreneurial activity of young

Muslims. Another issue is perception of Islamic finance within Islamic entrepreneurship. In this case questions like: Is Islamic finance and its services an advantage for Muslim entrepreneurs? How deeply are traditions of Islam inherited in services of Islamic Banking? All interviewees will be asked for permission to record interview, as I believe that coming back to it several times in research process will uncover insights that have not been realized before

3.2 Strengths and limitations of research design

This case study will offer conclusions of investigating and understanding importance of religion, tradition and culture of Islam for potential entrepreneurs in Muslim countries. Hopefully it will offer valuable insights and will reveal conclusions that will expand this field of research. Disadvantages of this research lay in lack of experience in interviewing and engaging in qualitative study. Another disadvantage from my point of view is that this research is very dependent on respondents without whose the research could not be finalized. Respondents have to fit specific category, therefore sample of respondents would be limited by my contacts. Number of respondents will be 10, which is still small sample.

3.3 Accessing and obtaining the sample

The main methodology this research project utilized was my own network of individuals I knew. I had a small group of friends who I knew for the demographic of my research project, being a Muslim entrepreneur. I then used the snowball effect, so after completing an interview, I would ask them if they had any family or friends who would also like to take part in this research. I was able to conduct 10 interviews, as time constrains and lack of contacts didn’t allow me to have more respondents.

Participant 1: First participant was from Saudi Arabia, 28 years old and have been experienced in many business ventures. He had owned car repair shop, restaurant, have been in charge of cosmetics material import and currently co – owns venture capital company.

Participant 2: Participant number 2 was 25 years old Jordanian man who currently runs family business (belt making company). This business was assigned to him when his father passed away.

Jordan. He is struggling with this idea as he cannot get sufficient help from government.

Participant 4: 54 years old Turkish entrepreneur in area of travel business. Has a lifelong experience with entrepreneurship and worked with various entrepreneurs from various environments.

Participant 5: 24 years old student from Jerusalem. Currently in a process of opening Fitness center with his brother.

Participant 6: 6th participant is a 26 years old Lebanese who after mastering in engineering started construction company.

Participant 7: Saudi Arabian who owns a successful clothing company. Has recently become venture capitalist in order to stimulate young Saudis to entrepreneurship. Participant 8: Participant number 8 is a 34 years old Turkish man who has experience in starting multiple ventures. Currently operates as a football agent.

Participant 9: 30 years old Qatari, has experience in culinary business. Currently own restaurant specialized for Indian food.

Participant 10: Participant number 10 was 22 years old Turkish student of business. He is in the process of launching his smartphone application.

4. CONCEPTUAL MODEL

In the literature review, the concepts of Islamic entrepreneurship are explained and the link between those two have been made in order to answer the main research question. Clear definitions of Islamic entrepreneurship have been made with the help of the literature and models created by the scholars and the focus has been put on the relationship between those two concepts. However, in order to further explore to what extent religion influences entrepreneurship, focus needs to be broadened at culture and traditions of Islam. Here I can formulate propositions based on literature learnings, which have been acquired from the previous studies. In propositions, I focused on culture, tradition and religious teaching of Islam separately and altogether and their affect on entrepreneurship. As proposed in literature review, entrepreneurship and economic activity hold strong position in Islamic religion. However, culture and tradition drawn out of culture of Islam may affect entrepreneurial activity differently.

Proposition 1: Islam, with its religious teachings, cultural and traditional behavioural patterns positively affect entrepreneurial activity of Muslims.

Proposition 2: Religion of Islam encourages entrepreneurship, while cultural attributes and traditions of Islam discourages entrepreneurship.

For clearer overview of religious, cultural and traditional affect on entrepreneurship I created framework connecting these dimensions. These frameworks consist of Religion line, which shows attitudes toward entrepreneurship drawn out of Islamic religious teachings. Culture dimension shows attitudes of cultural aspects on entrepreneurship. Here we define culture as collective programming of the mind, which distinguishes the members of one group or category of people from another, Hofstede (2010). Dimension of tradition, in terms of behaving that has been used by the people of certain society. Last dimension is institutional approach, which represents approach towards entrepreneurship in practice and is drawn from culture, tradition or religion. I am going to rank each dimension (high encouragement of entrepreneurship, medium, low or discouragement of entrepreneurship) based on insides gathered from interviews with Muslim entrepreneurs. This will allow me to see how each dimension influences entrepreneurial activity.

Dimensions affecting entrepreneurship framework (Table 25):

5. DISCUSSION

In this part I will revel insides about mentioned dimensions and their influence on entrepreneurship. This section focuses on linking the existing literature with the findings gathered from interviews. These insides were gathered from 10 in depth, semi structured interviews with professional in the field of Islamic entrepreneurship. Interviews will be reflected on the framework, which will allow clear overview of these dimensions and their influence on entrepreneurial activity.

5.1. Religion

Findings from existing research in literature review, suggested that economic activity is an obligation for Muslim seen as a means to a spiritual end, where prosperity means the living of a virtuous life. Another proof that economic activity is deeply embedded in Islamic religious teachings is guidelines drawn out of al-Qur’an and al-Hadis, which suggest that separation between entrepreneurial activities and religion does not exist. All interviewed entrepreneurs have confirmed the fact, that economic and entrepreneurial activities of people are inherited in Islam. Many of them gave examples of different sayings from history about Prophet Mohamed and his companions that have taught basics of commerce and business and urged people to follow such path. From literature review it is clear that there exist different opinions on perception of Islam on entrepreneurship. Although some of them differ significantly, none of them disagree on encouragement of entrepreneurship from religious point of view. As I have found out from interviews as well, teachings that came from Islam as a religion strongly encourage economic activity. Here I can quote one of the interviewees explaining low entrepreneurial activity in Arab countries: “It’s not the religion that is at “fault” here, its something else.”

5.2. Culture

One of the main cultural aspects of Islamic faith is following hadiths. Hadiths, as also explained in literature review, are sayings of prophet Mohammed that has been incorporated as a cultural attributes. During my research I have come across some additional hadiths, to those I have explained in literature review. For example, it is believed that Prophet said: “Just do it, put it in your mind and do it.” Or: “Nine out of ten of ten of commerce, comes from braveness.” All of these hadiths can be translated to modern world and it is clear that deep down they are aimed to motivate people to take action. As proposed in literature review, 5 Pillars of Islam are very important aspect of Muslims life. Most important and common of these, as I have found out, is Zakat, which is concern for welfare and charity. It can be say that these aspects can be understand as indirect motivators of economic activity. Other thing, which is drawn out of Islamic teachings, and deeply incorporated in culture, is prohibition of Haram activities (alcohol, gambling, interests etc.). Affect of Haram and Halal on entrepreneurial activity is going to be explained in next part as it comes from Islamic tradition. Islamic culture teaches people to be trustworthy, people are not allowed to

lie and are expected to engage in good deed. Islamic culture also prohibits money hording, interest, waste, usury and monopoly. As I have found out during the interviews, big majority of Islamic entrepreneurs follow these principle because they believe that God will count all their good deeds. During my interviews I came across interesting quote on this matter: “When there is some issue and they have to make some payments, there are usually no records, no signing of contracts, even with payments over 1 million dollars there is no official paperwork. These are honest people, which I can trust and they take they word very seriously.” Or, for example, prohibition of money hoarding ensures that money goes back into the market and circle around. All these practices create environment that can be very attractive and safe for potential entrepreneurs, where they don’t have to think and be careful about additional risks. These have been suggested in eight principles of thoughts, on which Islamic entrepreneurship focus proposed by Radiniz (2007). Another interesting thing is the strength of family ties in Islamic culture. For Muslims, family is everything and they aim almost all of their activities for family prosperity. If family is poor, people try to break the circle of poverty and try to engage in business activity as much as they can. If family is wealthy, there is no need to take extra effort. This is strongly linked with another aspect of this culture, collectivism. As Faizal, Ridhwan, Kalsom (2013) proposed, Islam teaches strong sense of teamwork and community, therefore, if community, for example family, is doing well economically and financially, there is no need for individuals to take extra step. Research by GEM also suggests that in most countries, higher income is negatively correlated with entrepreneurial intentions. This is driven by uncertainty avoidance, risk aversion and sort of laziness, which are deeply embedded, in Islamic culture. From GEM research it is clear that fear of failure in one of the most common obstacles for starting a business. All interviewees agreed that starting entrepreneurs do not have lucrative social status in society. They are seen as poor people that have been forced to engage in economic activity to survive. Muslim people, especially older people have old mindsets. Saying “God gives, God takes away" suggest that people want to earn just enough to get them through the day, they generally have no ambitions or future plans. Therefore Islam is seen as fatalistic culture. We can link this inside to Weber’s study, which argued that Islam with its fatalistic is incompatible with modern economy and polity. However, from the reports and from interviews as well, we can see that way of thinking and culture of young people are starting to push towards more individualism and escape

rom circle of collectivism. Most of young people have tendency to start something of their own, follow their ambitions, dreams and develop themselves as individuals. From GEM researches, in most cases, we can see negative correlation between age and entrepreneurial intentions. Other things that stand in way are institutional approaches (explained in next part) and obedience towards elderly. Obedience towards elderly comes from one of the most important aspects of Islamic culture explained earlier - family. Interesting thing is that in traditional Islamic family, n of the most important things is age. Whoever is the oldest, regardless the experience, skills or knowledge, is always right. How this aspect affect entrepreneurship in practice, is going to be explained in tradition part of Islamic religion.

5.3. Tradition

In this stage, we examine tradition that is drawn from Islamic religion, teachings and culture. During engagement in interviews with Islamic entrepreneurs I have discovered many insides that has positive or negative affect on entrepreneurship. As propose earlier two most important of pillars are Zakat and Halal/Haram. We have seen that these are among guiding principles and characteristics of entrepreneurship based on al-Qur’an and al-Hadis to guide economic activity proposed by Faizal, Ridhwan, Kalsom (2013). As it seems, Zakat in particular, has been one of the major drivers, along with prosperity of a family, to engage in economic activity. This tradition of caring for less fortunate and creating something sustainable for them has been drawn out of religious and cultural aspect – following pillars of faith. Second most important pillar, which can be liked to entrepreneurship, is Halal/Haram activities. Islamic teachings clearly explain Haram (prohibited) and Halal (allowed) ideas. As I have observed in all of my interviews, Haram goods or activities are out of the question for Islamic entrepreneurs. Even if they do Haram activities from time to time, all of them showed significant hostility towards engaging in business in Haram area. Most of them are also opposed to not clearly Haram or Halal activity. For example, on of the interviewees have huge opportunity to start working in music industry, which would generate him significant profits. However, music industry is “blurry area” in terms of Halal/Haram, he didn’t do it. Other one had the same opportunity with betting agency. It is clear that Muslim people feel strong aversion towards Haram goods in terms of economic activity. This way they miss out of huge business opportunities that can generate significant income for individuals, communities or areas. One thing that has been proposed in cultural part, which also has very big influence traditionally, is family and collectivism. As proposed earlier, if family is generally poor, members are economically active and engage in business activities to break the circle of poverty. When a member of a family breaks through as an entrepreneur, whole family benefits from it. He employs everyone from family regardless education, and they function as a family business. Every family member feel obligated to work for the family, praise the family name and create some kind of legacy. This becomes a closed circle where every member of age, starts to work in family business. Obedience towards elderly, which comes from Islamic culture plays