282 chapter six
of value-exchange, valeur appreciative, the concept of profit, the con-
cept of the comparative advantage in international trade, and credit
sale and time value of money are some examples.
Furthermore, Ibn-Khaldùn provided an interesting concept in busi-
ness, and perhaps in determining the profit margin by the entre-
preneur in cost-plus pricing. He explained that although, “the profit
is small in relation to capital, when the capital is large, the profit
becomes large, because many times a little is much”. If this argu-
ment is to be expanded further, it could be applied to the difference
between the internal rate of return on capital employed and the net
present methods in investment appraisal. In large projects in partic-
ular, the present value method is advocated as being superior to the
internal rate of return. True, Ibn-Khaldùn did not talk about the
net present value as such, but the analogy in relation to the con-
ceptual principle does exist.
Financial risk
Ibn-Khaldùn identified a number of business and financial risks that
may face a business, or the trader. These are mentioned as follows:
Physical risk, “tampering with the merchandise which may ruin it”
Bad debts, “delay of payment which may ruin the profit, since such
delay while it lasts prevents any activity that could bring profit”
Moral hazard, “There will also be non-acknowledgment or denial
of obligations, which may prove destructive of one’s capital unless
the obligations have been stated in writing and properly witnessed.
The judiciary is of little use in this connection, since the law requires
clear evidence.
Loss of profit or capital, “All this could cause the merchant a great
deal of trouble. He may make a small profit, but only with great
trouble and difficulty, or he may make no profit at all, or his cap-
ital may be lost”.
Amazingly, and amusingly, Ibn-Khaldùn suggested that as a result
of these surrounding risks, not everybody could be suitable to be a
merchant. He should be a person who is willing to accept the risk
and has some “qualities” of being a merchant. He should not be
afraid of quarrels, knows how to settle an account, and is always
willing to enter into dispute and go to court, as in this way he stands