Advertisement

Trading Under Islamic Commercial Law

Chapter
  • 149 Downloads
Part of the Palgrave CIBFR Studies in Islamic Finance book series (PCSIF)

Abstract

This chapter provides a comprehensive introduction to the concept and application of trading under Islamic commercial law. As a religion, Islam does not distinguish between wordly and spiritual affairs of life. Instead, both these are intertwined in a balanced manner. An act like trade and business which may appear a mundane life activity is regarded spiritual by Islam if conducted as per the rules and conditions laid by Islamic commercial law. Accordingly, this law provides a comprehensive list of activities, practices and transactions which are deemed impermissible and prohibited. Similarly, it provides a list of different types of contracts that can be undertaken to fulfil the basic needs of human society. Accordingly, this chapter digs deep into these two and further explores the mechanism of consumer protection that is embedded inside the prohibited and permissible elements of Islamic commercial law. In terms of Islamic law and jurisprudence, such protection comes in the form of different types of options available to consumers which ensure that their rights and property are protected completely, but not at the stake of businessmen and dealers simultaneously.

Keywords

Islamic law Riba Gharar Maysir Option 

Introduction

Islamic law, also referred to as Shariah, governs the whole life of an individual, from the time before one is born until and even after death. It emphasizes on proper conduct in all matters including one’s intention and areas pertaining to worship, transactions, and judgments. State and religion are not separated and even worldly acts by an individual are considered as worship if done with good faith and performed in a way prescribed by Islamic law. It does not treat ethics and morality outside the boundary of the mundane affairs of human life. The entire human life is composed of serving the Creator if the tenants of Shariah are properly observed. Trade and commerce are no exception to this general rule and this is what distinguishes Islam from other man-made systems where a clear demarcation exists between worldly and religious affairs. In fact, Shariah declares a very high status for an honest tradesman. The Prophet Muhammad (SAW) himself was a trader before prophethood was assigned to him. Consequently, the Muslim jurists have developed a detailed theory of trade and business which one finds to be revived today in the Islamic financial system which is grooming fast around the globe. The principles laid down by Muslim jurists to construct Islamic commercial law is the foundation of contemporary Islamic finance which has flourished during the past few decades and has attracted the attention of many, especially in the wake of the global financial crisis.

The term “commercial law” is not used in a unanimous meaning even under existing man-made legal systems. Thus, this term denotes only transactions but not institutions under the common law. However, its equivalents in civil law encompass both transactions and institutions. In addition, there is further disagreement even among the Western systems with respect to the use of the term commercial law. Some systems make a formal distinction between commercial and non-commercial law but others do not. For instance, no such distinction exists in Italy. Even the USA does not make a formal distinction between commercial and non-commercial law in contracts which is in contrast to what is found under the French law. However, the first dichotomy between institutions and transactions does not apply in the case of Shariah mainly due to the nonexistence of legal personality, even though there are contracts that resemble current-day partnerships. With respect to the distinction between commercial and non-commercial law, although categorization of Shariah was made by jurists, it broadly consisted of akhlaq (morals), ʿibadah (religious observance), and muʿamalat (transactions). Besides, the jurists also recognized the difference between commercial and non-commercial contracts but it was not similar to the one found in West today (Foster, 2006).

There is an additional factor that puts Shariah in contrast to these systems. In Shariah, the same principles of morality apply to all situations and all spheres of life. Thus, a believer is expected to behave in the same manner whether at home or at office. This is not the case with Western systems which ask for different attitudes and moral standards for commercial and non-commercial transactions. To sum up, Shariah shares some features with other legal systems of the world but it also has some unique characteristics of it.

Contract Under Islamic Law: Definition and Types

The Arabic word for contract is aqd which literally means tying up or to knot. This word is also found in Quran which is the main source of Shariah. The concept of aqd is very broad in Shariah as it is applied to contracts and obligations of many types. It encompasses an individual’s obligations toward God, the political obligations contained in treaties, the interpersonal obligations of marriage, and the commercial obligations of the contracting parties involved in different types of contracts. The underlying principle of all these obligations is the Quranic injunction that contracts must be fulfilled. In its general sense, the term contract can be defined as a two-party transaction which consists of an offer from one side and an acceptance from the other (Hassan, 2002). According to the famous Majallat al-Ahkam al-Adliyyah which is a codified form of Islamic civil law, a contract is defined as the connection of an offer with an acceptance in a lawful manner which marks its effect on the subject of that connection (The Mejelle, Article 103). However, there might be contracts from one side too—a guarantee, gift, or bequeath. There is disagreement among the modern scholars as to whether a general theory of contracts, i.e., general default rules, applies to all contracts. Arguments exist on both sides (Hassan, 2002). However, it is difficult to deny that Islamic law of contract is comprehensive as well as flexible by nature and its application in the form of modern Islamic finance contracts is an evidence of this claim.

A term related to aqd is wa’ad (promise) which has got significant importance in the context of contemporary Islamic finance. Traditionally, a promise made by one party is not legally binding as per Islamic law, although it is the moral responsibility of the promising party to fulfill its promise and breaking of promise is strongly despised in Shariah. In modern Islamic finance, promise has been declared as legally binding on the basis of the ruling in the Maliki School. This stance has been taken in order to make customers fulfill their promises (to purchase a commodity from an Islamic bank) toward Islamic banks in order to save the later from losses which may result from non-fulfillment of promise by the customer. Nevertheless, such promise is not synonymous to a formal contract under Islamic law and differences do exist between a legally binding promise and a formal/valid contract.

Generally speaking, the commercial contracts in Islamic law are broadly categorized into exchange-based contracts and charity-based contracts. In exchange-based contracts, the transacting parties enter into a contract to acquire ownership of an asset or commodity for a price. The contracts in this category end up in the transfer of ownership. On the other hand, the parties in a charity-based contract do not have such intention; instead, they are based on benevolence and cooperation (ISRA, 2011). It is the first category of contracts that will be the main focus in our case.

In terms of the legal status, i.e., whether a contract is valid or otherwise, a contract is divided into three types: valid, voidable, and void. If all conditions and accessories required for validity are met in a contract, it is valid. However, a voidable contract is the one which contains the essential elements of a valid contract but lacks some additional/nonessential attributes. This logically leads us to the definition of a void contract in which some essential pillar of a valid contract is missing (Ayub, 2009).

A sale contract can also be divided on the basis of the time of price payment and delivery of subject matter. As a general rule, both price and subject matter need to be exchanged immediately following the conclusion of contract. However, it may be the case that one of these is deferred to some specific time in future. If the payment of both counter values is mandatory at the time of contract, it is called sarf (currency exchange contract). If price is paid on the spot but the subject matter is to be delivered in the future, it is known as salam contract. In the reverse case, i.e., the subject matter is delivered on spot but the price is to be laid in future (either in full or in installments), the contract is known as bay muajjal or deferred payment sale. It is noteworthy that the deferment of both price and subject matter, commonly known as bay al-kali bi al-kali is not allowed under Islamic law (Saleem, 2013).

Yet another classification is based on the determination and nature of price. If the contracting parties agree upon the price of, for instance, a piece of land without bothering about and any reference to the cost price, it is known as a bargain (musawamah) sale. However, if the seller discloses the price to the buyer, then the sale can be concluded in three possible ways. The seller either concludes a deal with buyer at exactly the cost price without earning any profit, or earns some profit over and above the cost price, or incurs some loss by selling the item at lower than cost price. These types are known as tawliyah (sale with no profit), murabahah (sale with cost plus profit), and wadi’ah (sale with loss), respectively. It is pertinent to note that in contemporary Islamic finance, it is cost-plus-profit mode of sale which is predominantly adopted by and practiced in Islamic financial institutions (Saleem, 2013).

Another classification of sale contract is based on the nature of two compensations exchanged. If the compensations are non-fungible, like the exchange of a dress with an animal, it is known as exchange sale. However, if a non-fungible is exchanged for a fungible item, it is known as a general sale which is the most common type of sale. If both the compensations are currency, the sale is known as sarf (currency exchange), whereas the exchange of a liability as the object of sale for a non-fungible price is known as salam (Al-Zuhayli, 2007).

Contracts Under Islamic Commercial Law: Pillars and Ethics

According to the majority of Muslim jurists, there are four essential pillars of a sale contract: the contracting parties (seller and buyer), the object of sale, the price, and expression/wording/language of the contract. The wording of sale contract consists of an offer and an acceptance. An offer is the expression made by the first party to the contract, be it buyer or seller. Acceptance is what follows an offer. Both offer and acceptance should be in accordance with each other. Traditionally, offer and acceptance should take place in the same session in order to comply with the stipulation of unity of session. However, the contemporary scholars allow online and other forms of sale where the parties are not present in the same session provided that certain conditions are met and all types of uncertainties are removed by agreeing on detailed terms and conditions. In any case, Bakar (2003) maintains that Islamic law is distinct from other legal systems in that it insists on the session of contract, whereby both offer and acceptance are to be jointly connected in a single session without any gap in time or place.

The Muslim jurists also allow a particular type of sale which takes place without any express language or offer and acceptance. This is known as sale by conduct. For instance, a buyer and seller may agree on the exchange of an object against a price without expressing their agreement, and even offer and acceptance, in words. But they both know and are agreed over the price and the object of sale. This form of sale has become a norm nowadays where automated process relieves one from time-consuming processes of contract including any physical contact with the other (seller/buyer) party.

For a sale contract to be valid under Islamic law, there are general conditions that must be present in all types of sale contracts. These essentials are related to the four pillars of a contract referred to above. Regarding the parties to the contract, they must be legally competent to enter into contract. There are two aspects regarding measurement of the competence of contracting parties in Islamic law: prudence and puberty (Bakar, 2003). Thus, an insane person or a minor does not have the legal capacity to enter into a contract.

With respect to the expression of a contract, Islamic law allows it to be oral or written. As mentioned earlier, even sale by conduct with no verbal and written offer and acceptance is deemed permissible. In addition, it is also required that offer and acceptance should take place in the same session. According to Bakar (2003), the stipulation that offer and acceptance should take place in the same session is a unique feature of Islamic law which distinguishes it from other legal systems of the world. Offer and acceptance must also be such that price, place, and date of delivery are precisely determined and fixed.

For a sale to be valid, the subject matter of the contract should be permissible under Shariah and should also be alienable. Likewise, the owner of the subject matter should take the related ownership risks in order to be eligible for profit. The subject matter must also exist at the time of sale and a nonexistent item cannot be sold. It is also required that the object of sale is precisely determined and that the seller has it in his ownership. Apart from ownership, the seller also needs to have it in his possession. But the possession need not be physical as it can also be constructive (Ayub, 2009).

Apart from the legal requirements mentioned above, there are certain commands related to the code of ethics and moral that Islamic law prescribes in trade and commerce. Hassan (2007) divides this moral code into practices encouraged and those which are discouraged or prohibited in Shariah. The first category includes: being mindful of doubtful property and work, starting business from early morning, trustfulness in business transactions, generosity in bargaining and modesty in claiming debts, giving time to distressed debtor to pay his debts, generosity in business, and voluntary recession of an unwanted sale contract. On the other hand, business transactions in mosque, raising voices in the market, false swearing, lying or hiding facts in a sale, and fraudulent activities in trade are discouraged and prohibited. Similarly, Zuhayli (2007) maintains that ethical considerations in sale contract include: the avoidance of excessive profits, truthful and complete disclosure of information, ease of conduct, avoidance of swearing (even if truthful), frequent paying of charity, and documentation and witnessing of all debts.

Elements Prohibited in Islamic Commercial Contracts

Apart from the moral and ethical injunctions regarding the prohibition of certain practices, Islamic law has explicitly prohibited some practices. These prohibitions are at the core of Islamic commercial law and these include, inter alia, the prohibition of riba (interest), gharar (grave uncertainty), and maysir (gambling).

Riba is an Arabic word which literally means increase and includes all gains from loans and debts and anything over and above the principal of loans and debts and covers all forms of “interest” on commercial or personal loans (Ayub, 2009, p. 47). Therefore, the payment and receipt of interest as practices by conventional banks are prohibited under Islamic law. However, it is noteworthy that the term riba is far broader in its application and meaning. It includes other elements and practices too. Accordingly, the Muslim jurists, inferring from the different sources of Shariah, divide riba into two broad categories: riba in loan/debt transactions and riba in exchange transactions. An example of the first is bank interest which is prohibited. An example of the second category may include the sale of one kilogram of good quality wheat for two kilograms of cheap quality wheat. Riba in exchange is primarily prohibited in Hadith literature just as the first type is explicitly prohibited in Quran. It is worth mentioning that riba is condemned with the strongest possible expression in Quran; it has been declared against Allah and His Messenger. Additionally, riba is also prohibited in other Abrahamic religions.

Scholars have presented different views as to why riba is prohibited? According to Saleem (2013), interest, whether the loan is taken for investment or consumption, causes injustice. This is because there are four possible situations once money is borrowed. The borrower may make sufficient profit to repay the capital plus interest and keep the balance; he may only earn profit to pay back the interest and capital without any balance left for him; there may not be any profit at all and only return the capital and interest by any means; and losses may be incurred by the borrower. This interest-based transaction is not fair even in the first case where the borrower has earned sufficient profit to pay back the lender and keep a share from profit because the borrower in this case may have returned a very small percentage to lender and kept a large share of profit for himself (or the case may be vice versa). Consequently, interest charged on productive/investment loan can also be exploitative to either or both the parties.

Regardless of what the possible cause for such prohibition is, a consensus has been reached among the contemporary Muslim scholars that riba in all its forms, especially in the form of bank interest, is prohibited (Hasan, 2014).

The second fundamental prohibition under Islamic commercial law is related to gharar which literally means hazard, risk, or grave uncertainty. In simple words, it refers to excessive uncertainty caused by lack of clarity regarding the subject matter or the price in a contract of exchange (Ayub, 2009). In its technical sense, gharar includes selling something which is not present at the time of sale, or the sale of something, the outcome of which is not known. Likewise, gharar may also include selling something about which it is not certain whether it will come into existence later on. Examples may include the selling of fish which is still in the water, or the selling of fetus in the womb of animal. The reason for the prohibition of gharar includes the possibility of fraud because the seller may obtain price from buyer but may not be able to deliver the sold item later on. Additionally, the scenarios of gharar possibly lead to disputes and disagreements between the parties which Islamic law wants to block by any means (Bakar, 2003).

The prohibition of gharar is based on the rule of justice and fair dealings because the existence of gharar in a transaction may lead to injustice and loss of properties to one or both the parties to the contract. If the outcome of a contract is unknown to the parties, it will expose them to unnecessary risk which will lead to subsequent disputes between them. Ultimately, it can be said that gharar is a means of blocking future disputes between the contracting parties (ISRA, 2016).

According to Zuhayli (2007), gharar is purposive cheating and deception as well as ignorance of the object of sale and un-deliverability of the object. Gharar may occur in a variety of ways including through un-deliverability of the object of sale, the nonexistence or ignorance of the object of sale, lack of full ownership of the object by the seller, or in any of a number of other forms.

However, it is noteworthy that the law itself accommodates gharar in certain contracts, like salam and istisna, once reasonable measures are taken to restrict the gharar factor within tolerable limits. Similarly, in gratuity contracts like gift, bequeath, and will, gharar is tolerated. It is also noteworthy that the prohibition of gharar is unique to Islamic law unlike the prohibition of riba which is propagated by other religions too. Additionally, many modern financial contracts and instruments like swaps and some types of derivative instruments are opposed by scholars due to the element of gharar in them.

Maysir which means gambling is the third explicit prohibition in Islamic commercial law. The word literally means ease. Since the money earned through gambling is made with ease, the relationship between literal and technical meaning is evident. According to Quran, gambling does contain some benefits for the people. However, the evils and miseries it causes them are far greater when compared with such benefits. Maysir is found in many financial instruments today which make them impermissible from Shariah perspective. For instance, conventional insurance is prohibited due to the existence of maysir. Similar is the case with prize bonds as well as some other types of lotteries and lucky draws.

Consumer Protection Under Islamic Commercial Law: The Concept of Khiyar (Option)

Once a sale contract has been concluded with all its essentials fulfilled, it becomes binding upon the parties. Its effect in the form of transfer of ownership is established and the parties are bound to fulfill their contractual obligations. However, Islamic law is cognizant of the exceptional circumstances, whereby a contract will need to be reviewed and canceled due to certain reasons. Such reasons can be many. For instance, one of the parties may need further time to consult experts regarding the contract. It may similarly be the case that a party wants to make sure that the subject matter is according to his expectations as well as the description of seller and is not defected. These and other reasons are recognized by Islamic law on the grounds that no party should face unwanted and unnecessary consequences as a result of the sale transaction. Toward this end, the Muslim jurists have elaborated the theory of khiyar or option which addresses these and other similar situations, whereby one of the parties has the right to rescind the contract even after its conclusion.

The notion of khiyar or option is somewhat unique to Islamic law. In common law, for instance, it is the responsibility of the buyer to be cautious when entering into a transaction, a rule generally known as caveat emptor . However, Islamic law tends to give more protection to buyer which may be due to the fact that the seller is more aware of the potential issues/defects of the subject matter, whereas the buyer is ignorant of such issues. The norm in Islamic law, therefore, is that the seller should be aware and should not try to deceive the buyer intentionally or unintentionally. Therefore, both the parties are protected from harm by providing them with different types of options respectively. However, option in this context is different from options in conventional financial terms which is a financial instrument in the derivative market, whereas the one in our case is a legal term related to post-contract scenarios under Islamic law.

Although there are as many as 17 types of options discussed by Muslim jurists, the most important options are briefly explained below.

Option of Session

As discussed earlier, both offer and acceptance should be in the same session. However, once an offer has been made by one of the parties, this party has the right to retreat from its offer as long as it is not accepted by the other party. If he retreats in time, his offer will cease to exist and any acceptance by the other party will have no legal effect. But once an acceptance is issued by the other party, then the party making an offer does not have the option to retreat from his offer.

Option of Defect

Under Islamic law, it is the responsibility of the seller to disclose all the defects in the subject matter of sale. In case something is sold with a defect and the buyer is unaware of this defect, he has the right to either cancel the sale or accept it with the price he had paid. Just like the existence of a defect gives rise to this option, it is also established in case that a specific feature is missing in the object of sale. In both cases, the buyer has the right to accept the contract or to cancel it.

Option of Stipulation

In some situations, any of the two contracting parties may need some time to ponder over the sale contract after the sale conclusion. In such a situation, Islamic law gives option to both the parties to stipulate at the time of contract that he will have the option to cancel the contract within a specific period of time (usually three days). This option enables both parties to consult experts about the item and decide accordingly. But limiting it to three days restricts them to utilize the option within reasonable time to allow the other party to dispose it off within a proper time frame.

Option of Inspection

At times, an item may be sold without being inspected by the buyer. In this case, the buyer has the right to investigate the item after he sees it and to find out if all the features described at the time of sale contract are present in the item. In case the buyer feels that the deal is not in his favor, he has the right to cancel the contract after inspecting the item.

Option of Price Payment

This option is found in cases when something is sold on credit basis. The seller may stipulate at the time of concluding a credit sale that in case the buyer does not pay the price within three days, the deal will be canceled. This option protects the seller from unwanted delay in price payment by the buyer.

Fraud Option

In this case, the buyer is deceived with respect to amount of price or quality of the sale item. For instance, the seller may put the best quality items on top of a display but underlying it is the worst quality. Similarly, the seller may claim that the price is as per the market custom but it may be very high than the customary market rate in which case the buyer has the right to cancel the contract.

Prohibited Trading Practices and Transactions Under Islamic Law

There are specific types of transactions and sale contracts that are prohibited under Islamic commercial law. All these types were prevalent in the Arab society before the advent of Islam. However, their very nature was exploitative and contained harm to one or both the parties. Therefore, they were prohibited mainly because they consisted of some prohibited elements like gharar. On the other hand, as we shall discuss in the next chapter, those contracts that did not contain any prohibitive element and were not harmful to any party were retained by Islamic law.

Some well-known prohibited contracts and trading practices include the following.

Sale by Throwing Stone

As its name suggests, this type of sale was conducted by throwing stones. Accordingly, the vendor and purchaser would agree that a stone would be thrown in the air and whichever cloth, camel, or sheep it fell upon would have to be bought by the purchaser. This transaction was prohibited because it contained the element of gharar.

Sale by Touching

This was a sale contract in which a piece of folded cloth would be bought or sold merely by touching. The buyer was not allowed to open and inspect the cloth and even both the parties would renounce their right of option in advance. This sale was prohibited by Islamic law.

Sale by Throwing

Under this practice, a piece of cloth or an article would be thrown from one contracting party to the other to signify the sale. Both parties would throw, for instance, a garment to each other without inspecting it and each garment would be considered a compensation for the other.

Sale by Description

Under this transaction, an item would be sold without possession or inspection. It would only be described while the delivery was to be made at some later stage.

Sale of Unspecified for Specified

In this sale, fruit of a known weight would be sold for fruits in bulk which were unspecified in weight, measure, or number. For instance, a definite measure of ripe dates would be sold for an unknown amount of green dates.

Sale of Fruits Before Ripening Appears

Here, fruits and vegetables or grains would be sold by the owners before they started to ripen. The very nature of the transaction was such that it would result in a lot of disputes because of the unknown loses that would occur at the later stage. Therefore, this practice was prohibited by Islam.

Sale of Fetus

This refers to the sale of fetus of an animal. It also included the sale of an animal which would be brought forth later from the fetus itself. Thus, the parties would imply that a she-camel would give birth first and then offspring would later become pregnant after growing up. Again this sale was declared void by Islam (Saleem, 2013).

Sale of Haram (Prohibited) Items

Certain items are declared prohibited by Islam and these cannot be bought or sold. Examples include blood, wine, pork, dead animal, and the like.

Sale of Nonexistent Objects

If the object of sale does not exist at the time of sale, though it is permissible per se, it cannot be sold—for instance, the sale of fetus or the sale of fruits and plants before they appear. Other examples of the sale of nonexistent include the sale of the male camel’s sperms, the sale of female camel’s eggs, the sale of pearls in the shell, milk in an udder, and wool on the back of sheep; these sales are prohibited because of the ignorance or uncertainty about the quality and volume of the object of sale.

Sale of Undeliverable Objects

An originally permissible subject matter of sale which cannot be delivered also falls under the prohibition. Examples include a bird that flew away from its owner, runaway camels, wild cows, and the like (Zuhayli, 2007).

Sale of Meat for Animal

It is also not permissible to sell a living animal for slaughtered meat.

Combination of Sale and Loan

Sale and loan cannot be combined in such a way that they form part of the same dealing. For instance, A sells his car to B and as a result of this bargain B will lend him a specific amount of money.

Deferment of Both Price and Subject Matter

If a sale contract is concluded with permissible object but neither the price is paid on spot nor the subject matter is delivered, it is also not permissible (Bakar, 2003).

Fraudulent Overbidding

If two parties are in the middle of concluding a deal and they are busy in bargaining, it is not permissible for a third party which has no intention to buy the item to induce the buyer to offer a higher price. The third party here has no intention to buy the item; he only wants the potential buyer to increase the price offered and this situation is usually pre-planned between the third party and the seller. This is contrast to bidding which is allowed in Islam.

Concealment of Defects

Cheating and concealment of defects were a common practice in pre-Islamic Arabia but this practice was denounced by Islam (Saleem, 2013). If a buyer is deceived by such means, Islam gives him the right to opt for the sale or to exit from it once the real situation is known to him. This is contrast to the common law system where the buyer should be careful and he needs to save himself from such situation.

Meeting Caravan Outside the City

In case there is a caravan approaching the city, it is not permissible for someone to go outside the city and buy the stuff from caravan (Zuhayli, 2007), especially when those in caravan do not know the price that could be offered to them in the city or when the people in the city are in need of the items brought by the caravan.

Thus, one can see that the prohibition of these different kinds of practices and sales aims to serve justice among the individuals and the society at large. This also shows the proactive nature of Islamic commercial law in particular, whereby the means to exploitation and injustice are blocked by declaring such practices prohibited and void.

Prohibited Types of Sale Due to Gharar

Gharar is more related to “uncertainty” than to risk. This uncertainty is generally linked to the presence of the subject matter, rights of the parties, and the outcomes of the contract. Gharar as discussed earlier may also be defined as trickery through unawareness by parties to a contract. Following are some types of sales which have been prohibited by Prophet (SAW) due to gharar:

Prohibited types of sale due to Gharar

1

Bai’

Al-Ma’doum

Nonexistent

2

Bai’

Al-Khattar

Items in danger of not being found

3

Bai’

Al-Mahameen

Sperm of male animals

4

Bai’

Al-Maliqih

Eggs of female animals

5

Bai’

Al-Nabal al-Habala

Fetus in womb of female animals

6

Bai’

Al-Ma’jouz

Something impossible to deliver

7

Bai’

Al-Qanis

something before possessing it

8

Bai’

Al-Gha’iss

Divers catch before seeing it

9

Bai’

Al-Muzabana

Fruit on tree for dates/money

10

Bai’

Al-Muhaqala

Harvested wheat for unharvested

11

Bai’

Al-Mulmasa

By touch

12

Bai’

Al-Munabaza

By throwing

13

Bai’

Al-Hassat

By stone

14

Bai’

Al-Majhoul

Of unknown

15

Bai’

Al-Jahal bi al-Ajal

If unknown time for credit

16

Bai’

Al-Jahl bi al-Mabi’

Unknown quantity/size/weight, etc.

17

Bai’

Al-Jahl bi al-Thaman

If price/cost unknown

18

Bai’

Al-Jahl bi Jinsithaman aw Mathnoun

When kind/quantity of goods is elsewhere

19

Bai’

Atan fi Bai

Is two sales in one deal + one conditional upon other

20

Bai’

Ma la Yurja Salamatauh

Near death animal/slave

21

Bai’

Al-Mutamal-Wujudh

What may not be present

22

Bai’

Al-Muhtamal-Taslimuh

What may not be delivered

23

Bai’

Wa shart

If with a condition

24

Bai’

Al-Ghaib

The invisible

25

Bai’

Al-Thamara

Seeds of tree before they become fruit

26

Bai’

Majhoul bi Majhoul

Unknown for unknown

27

Bai’

Al-Souf

Wool still on sheep

28

Bai’

Al-Laban fi Dhari’

Milk in udders of cow

29

Bai’

Bidoun haq al-Tasaruf

Without right to possession

30

Bai’

Al-Hayat Wa-maout

For limit of life or after death

31

Bai’

Al-Dayn

Sale of debt

32

Bai’

Al-Arbun

Downpayment sale

Conclusion

Whether Islamic commercial law could give a comprehensive theory of contract or not is still debated among the scholars. However, it is evident from the discussion in this chapter that Islamic commercial law has provided a comprehensive list of contracts that are permissible and those which are prohibited. Islam as a religion did not abrogate the earlier practices, especially in the sphere of commerce and finance, outrightly. Instead, it canceled only those contracts which were based on exploitation and injustice. On the other hand, it retained some contracts in their entirety, as we shall see in the coming chapter, while modifications were introduced in a number of other contracts. We also observed in this chapter that Islam has strictly prohibited riba in all its forms. However, Islamic law is unique in the sense that it also put a complete ban on gharar and this feature is not found in other religions. No wonder why Islamic finance was spared from the miseries of the global financial crisis in 2007–2008. Many practices and instrument especially those in the derivatives market could not find acceptance from Shariah scholars. Consequently, Islamic financial institutions are by and large safe from such practices so far, with the exception of a few practices in some jurisdictions. Likewise, we also observed that consumer protection has a special space in Islamic commercial law and this is evident from the theory of options or khiyarat as discussed in this chapter.

The next chapter will further elaborate on the nature, modes, and types of contracts which are permissible under Islamic commercial law. The chapter will also elucidate on some contested contracts found in contemporary Islamic finance sphere.

References

  1. Al-Zuhayli, W. (2007). Financial transactions in Islamic jurisprudence (M. A. el-Gamal, Trans.). Beirut: Dar al-fikir al-Mauaser.Google Scholar
  2. Ayub, M. (2009). Understanding Islamic finance. Chichester: Wiley.Google Scholar
  3. Bakar, M. D. (2003). Contracts in Islamic commercial and their application in modern Islamic financial system. Iqtisad Journal of Islamic Economics, 30–44. Google Scholar
  4. Foster, N. H. (2006). Encounters between legal systems: Recent cases concerning Islamic commercial law in secular courts. Amicus Curiae, 68, 2–9.Google Scholar
  5. Hasan, Z. (2014). Islamic banking and finance: An integrative approach. Oxford: Oxford University Press.Google Scholar
  6. Hassan, A. A. H. (2007). Sales and contracts in early Islamic commercial law. Petaling Jaya: The Other Press. Google Scholar
  7. Hassan, H. (2002). Contracts in Islamic law: The principles of commutative justice and liberality. Journal of Islamic Studies, 13(3), 257–297.CrossRefGoogle Scholar
  8. ISRA. (2011). Islamic financial system: Principles and operations. Kuala Lumpur, Malaysia: International Shari’ah Research Academy for Islamic Finance (ISRA).Google Scholar
  9. ISRA. (2016). Islamic financial system: Principles and operations (2nd ed.). Kuala Lumpur, Malaysia: International Shari’ah Research Academy for Islamic Finance (ISRA).Google Scholar
  10. Saleem, M. Y. (2013). Islamic commercial law. Singapore: Wiley.Google Scholar
  11. The Mejelle. (n.d.). Being an English translation of Majallah al-Ahkam al-’Adliyyah and a complete code on Islamic civil law (C. R. Tyser, Trans.). Lahore: Law Publishing. http://www.islamicthinkers.com/index/index.php?option=com_content&task=view&id=195&Itemid=26.

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Taylor’s Business SchoolTaylor’s UniversitySubang JayaMalaysia
  2. 2.Department of Islamic TheologyIslamia College PeshawarPeshawarPakistan

Personalised recommendations