INDIVIDUAL ASSIGNMENT 1

ID: ZP04211

If the goal of a firm is to maximize the shareholder wealth does it mean profit is
not important at all? Please discuss”.

In my point of view, Profit maximization is a short term approach whereas wealth maximization

is a long term approach. Profit maximization focus on how much money does the company takes

and wealth maximization is refers to the value of the money. Overall, profit is the subset of

wealth.

Therefore, The earlier you recover money from your investment, the better you are .If profit

maximization is the ultimate goal of the firm, they will look into the total profit that often tend

managers to take wrong decisions while investing. It happens because they believe that profit

maximization is the ultimate goal. But they need to consider how much money they are

generating from their investment. Since every organization needs money to operate, you will be

in a superior position if you could generate good return from your investment in a quickly

manner. But profit often tends managers to take decisions for their investment and ignores timing

and level of risks.

If we look into the primary difference between profit and non-profit organization is that, “for-

profit “organization, they look into maximize wealth versus non-profit organization, which look

into provide a greater good to society. In non-profit organization, creative tensions may develop

in the effort to balance mission with “margin” or revenue.

For example, Prof Muhammad Yunus, the owner of Graemen Group(Bangladesh) has

discussed between the hardcore poverty vs urban poverty. Prof stated that they both share the

same problem which is poor but at different places. Prof explained that they are poor not because

of their incapability, but because of the failure of the system that make them poor. In capitalism,

maximizing profit is the shareholder/owner interest, create gap between rich and poor. The

solution given in Islam is to spread and share the wealth through zakat and encourage

philanthropy, including waqf. But in social entrepreneurship, giving money to the poor is not the

best way to help, instead of provide them excess to capital and setting up his/her business, for

sustainable income.

In conclusion, even though profit is one of the objective of a firm, but these are the reason why

profit maximization can’t be the ultimate goal of any organization. Therefore, the superior goal

for an organization should be Wealth maximization. For example, maximizing the wealth of its

owners.
Mohammad Yunus and the Grameen Bank -How Muhammad Yunus shows at the example

of the Grameen Bank how even in a Muslimsetting micro-finance banking can be

implemented on a secular base.

Gerd SeiboldStudent
ID: 900035924
Course number: 1654 – 4001
Course title: Foundations for the Advanced Study of the History
of Islam and Modern Muslim Societies
Dr. Michael Tanchum
Long paper (7000 words)
Semester 1/ Fall 2012

1Moshe Ben Levi, The Torah, New King James Version. (Mount Sinai: Elohim, ~ 1300 BC),
Exodus 22:25, Leviticus 25:36, Deuteronomy 23:19.

2Mohammed Ibn 'Abd Allah Ibn 'Abd Al-Muttalib Ibn Haschim Ibn 'Abd Manaf Al-Quraschi,
The Quran(Meca, Medina: Allah, 610 - 632), sura 3.130, sura 2.275, sura 4.161, sura 30.39.

3Muhammad Yunus, Banker to the Poor – The Autobiography of Muhammad Yunus, Founder of
the Grameen Bank (1998), line 421/6068 e-book: „ ...credit should be accepted as a human
right ...“