Transcript PowerPoint Template

Shariah Principles in Islamic
Finance
Assoc. Prof. Dr. Mohamad Akram Laldin
Executive Director, ISRA
Page  1
PRESENTATION OUTLINE
 Shari’ah
 Shariah vs Fiqh
 Dynamism of Shariah
 Objectives of Shariah
 Islamic Law of Contract
 Understanding Qawaid Fiqhiah
(Islamic Legal Maxim)
(2)Page  2
WHAT IS SHARIAH?
Literally means ‘path to watering place’
Technically, a path to tread for guidance in this world
/ Commands, prohibitions, values prescribed by Allah
for His slaves either through Al-Quran or As-Sunnah
(the teachings of the Prophet Muhammad s.a.w.)
Normally, the Sharī’ah is described as ‘Islamic Law’. But
the boundaries of Sharī’ah extend beyond the limited
horizons of law.
Sharī’ah is a set of norms, values and laws that go to make
up the Islamic way of life .
According to one observer, the Sharī’ah is the “epitome of
Islamic thought, the most typical manifestation of the
Islamic way of life, the core and kernel of Islam itself” .
(3)Page  3
ISLAM & Components of Shariah
I`tiqadiyah
(Belief)
Economics
`Amaliyah
(Dealings)
Akhlaqiah
(Morality)
Ibadah
Muamalah
(Human with Creator)
(Human with human)
Family Law
Criminal Law
Issues in Islamic finance
(4)Page  4
Politics
Approach in Deriving Hukm Syar’I (Islamic Legal Ruling)
Ibadah (Worship)
 Fixed
 Determined by God
 Original Ruling is prohibited
unless there is a valid
justification that explains its
permissibility
 Otherwise, it is considered
bidaah (innovation)
Page  5
(5)
Muamalah (Dealings)
 Combnation of fixed and
flexibility
 Based on premise:
‫األصل في األشياء االباحة‬
“The original ruling is
permissible”
 Unless there is a clear and
valid justification that suggest
otherwise
 Understanding the ‘illat
(rationale) and maslahah
Characteristics of Shari`ah
Revelation
from Allah
Emphasis on
general
principle
Universality of
Shariah
Serves as raw
material to guide
human race
(6)Page  6
Two Vital Sciences in Shari’ah
Fiqh
Usul
Fiqh
7
Page  7
• Literally : comprehension or understanding
• Technically: the science of understanding the
derived rules obtained from their particular
sources or the exercise of intelligence (ijtihad) in
deciding a point of law from its sources
• Literally: basis of fiqh or also called source of
Islamic law
• Technically: the science to derive legal rules
from its sources. Knowledge of the rule of
interpretation.
• It results into the Dynamism of the Shari’ah
Characteristics of Fiqh
• Humanly acquired through the
process of ijtihad (legal reasoning).
• A result of deduction and analysis
of the Shari`ah sources
• Detailed rulings of any related
issues
• Flexibility and subject to change
and modification in many instances
(8)Page  8
Components of Fiqh
Page  9
(9)
Rulings of Fiqh
Page  10
Wajib
Sunnat
Mubah
Makruh
Haram
(Compulsory)
(Recomanded)
(Permissible)
(Undesirable)
(Prohibited)
(10)
Differences between Shariah & Fiqh
Shari`ah
Fiqh
Divine
Humanly acquired through the
process of ijtihad.
Comprehensive teaching
(general principles for general
application)
Detailed rulings of any related
issues
Raw material which is not
subject to change
Flexibility and subject to
change and modification in
many instances
(11)
Page  11
12
Sources
of
Shari’ah
Page  12
Exercise
of Ijtihad
(12)
Pluralism
of Fatwa
Dynamism
of Shari’ah
Sources of Shari’ah
Secondary Sources:







Page  13
Ijma` (consensus)
Qiyas (analogy)
Istihsan (juristic
preference)
`Urf (customary practice)
Maslahah (public interest)
Istishab (presumption of
continuity)
Etc.
(13)
Primary Sources:
1. Qur'an
2. Sunnah
 sayings
(sunnah qawliyyah)
 practices
(sunnah fi`liyyah)
 tacit approvals
(sunnah taqririyyah)
Primary Sources
1.
Al Quran
•
Divine revelation (book) that contains the basic rules
of law - comprehensive
2.
•
3.
•
4.
•
•
(14)
Page  14
Sunnah
The tradition of the Prophet (in the form of saying,
practices & tacit approval) that explains & extends the
Quranic injunctions
Ijma’
The unanimous decision of the Muslim scholars (no
dissenting opinion)
Qiyas
Analogical deduction/ legal reasoning (ratio decidendi ) of
a ruling
Comparison of a case not covered by the text with a case
covered by the text on account of their common Shari'ah
value (‘illah/cause) in order to apply the law of the one to
the other
Secondary Sources
1.
Juristic preference (Istihsan)
•
2.
Presumption of continuity (Istishab)
•
3.
the general practices of the people that does not contrary to the Shariah principles.
Consideration of public interest (Masalih al-Mursalah)
•
Page  15
(15)
Istishab means the remaining of the facts or rules of law which has been proven in the
past are presumed to remain in the absence of any evidence /decision to the contrary.
Custom (Urf)
•
4.
a method of exercising personal opinion in order to avoid rigidity and unfairness which
might result from the literal enforcement of the existing law.
Maslahah is the consideration which secures a benefit or prevents harm but is, in the
meantime, harmonious with the aim and objective of the Shari`ah.
5.
Blocking the means (Sadd al-Dharai’)
6.
Practice of the people of al-Madinah (‘Amal ahl al-Madinah).
Ijtihad
 A process of a systematic reasoning to reveal the rule of law
 Making use of all one’s ability in the search for the legal status based on
sources of Islamic law
 Ijtihad - door to divergent opinions
 the scholars may derived to different ruling on the same issue due to
differences of methodoly / sources utilised in the process of ijtihad
 Opinions of scholars (ijtihad) are represented in the forms of :
 fatwas (legal opinion of Jurist)
 Qada’ (judicial judgment of court); and
 Fiqh (academy writings of jurist and scholars)
 This renders Islamic law (fiqh, fatwa & qada’ ) ‘plural’
(16)
Page  16
Formulation Of Legal Rulings
Shari’ah (Quran & Sunnah)
Primary Sources
Decisive texts
Non-Decisive texts
Applied directly as
legal rulings
(hukm shari`i)
Undergo interpretation
(ijtihad)
according to recognised
Methodology
(usul al fiqh)
Legal rulings (hukm fiqhi)
ISLAMIC LAW
Page  17
Secondary Sources
Ijtihad of a Scholar
Ijtihad is the best and
systematic effort in the
search for an opinion
for the legal rule
The mujtahid (scholars)
must preserve professional
integrity & diligence
and adopts a
systematic
standards of
interpretation
(usul fiqh)
The process
should be void of
any negligence and
non-professional
conduct of
mujtahid
Page  18
The Result of a Scholar’s Ijtihad
The result of the
exercise of
opinion is always
“right” with
respect to ijtihad
A scholar can be
‘right’ in his
professional
conduct as a
scholar without
necessarily being
‘right’ in his
conclusions.
Page  19
‫إذا حكم الحاكم فاجتهد ثم‬
‫أصاب فله أجران وإذا حكم‬
‫فاجتهد ثم أخطأ فله أجرا‬
“ If a judge makes the
right decision through
ijtihad, he shall be
doubly compensated.
However, if he err, he
shall be compensated
once”.
Factors for Divergence
Necessity
Public Interest
The Factors of New Ruling / Departure from Strict Ruling
Juristic Preference
Sadd Al Zara’i’
Page  20
Pluralism of Fatwa
Page  21
Pluralism relates
to differences and
disagreements in
branches of law
(furu’) instead of
principles of law
(usul)
Pluralism of
Fatwas has been
an integral
element in the
development of
Islamic Law vis-àvis ijtihad
The very basic
premise of Islamic
Law (i.e. fiqh) is
that it is not given
ready made.
On the contrary, it
has to be
constructed from
raw materials
which are given
and revealed.
Result of Pluralism of Fatwa
Offers wider choice
to different
segments of the
society in different
time or place
Leads to
divergent
opinions which
are not
reconcilable and
tolerable
Page  22
RESULTS OF PLURALISM OF FATWA
Page  23
MAQASID OF SHARIAH
• Objectives and
wisdom (hikmah)
as prescribed by
Shariah in all its
rulings to protect
and preserve the
benefits and
interests
(maslahah) of
society
Page  24
• The benefits or
interests which are
deemed necessary
from Syariah
perspectives to
protect and
preserve the five
basic essentials
‫وما ارسلناك إال رحمة للعالمين‬
“And We have sent you (O Muhammad) not but a mercy to the
whole universe” (Al-Ambiya:107)
Eliminate Prejudice
Alleviate Hardship
Justice
Maqasid as-Shariah (The Objectives of Shariah)
Religion
Wealth
Intelect
Life
Posterity
Preservation and Promotion
Page  25
(25)
Application of Maqasid Shari’ah in Islamic Finance
 In Islamic banking activities, especially, in financial transactions, to
ensure consistency of form and substance in the following matters:
‘Aqad
Financial Reporting
Legal Documentation
Maqasid Al Shari’ah
This is to ensure that the system is ‘Islamic’ and not merely Shari’ah
compliant.
 Realization of CSR by IFIs and preserving rights of consumer.
 To avoid imitating conventional products and dealing with debts, hence
promoting profit-sharing products for more shared prosperity.
 Enhancing retail products development for the benefit of larger
consumer.
(26)
Page  26
MAQASID PARADIGM
Satisfying
financial
operation
Fulfilling
legal
documentation
Focus on
Form of
Contract
(27)
Page  27
Shariah
Compliance
is Only
About
MAQASID PARADIGM
Compliance
in FORM &
SUBSTANCE
Ethical
Operation
Socially
responsible
activities
(28)
Page  28
Instead,
Shariah
Compliance
Requires
Highest Objectives of Shariah: The Aim
Islamic finance is to open up new horizons for business,
commerce and banking and uphold social justice
Progress towards genuine operation and distance from
conventional practices.
Islamic finance will be ‘the option’ and not merely an ‘alternative’
to the conventional system; a socially responsible finance system.
Islamic finance should assist in the development of Islamic
economics as a whole
Page  29
Development of Rulings in Transactions
AL-QURAN
Islamic law of contract starts with Quranic verses which contains
both rudimentary elements of several types of nominate contracts
& certain contractual maxims {40 verses on 12 types of contract
(exclude contract of marriage)}
AL-SUNNAH
Al-Sunnah supplement the Quranic groundwork &
expand the application of general injunctions
IJTIHAD OF MUSLIM JURISTS
The law (general principles) were later developed
by jurists using the mechanism of usul al-fiqh
Page  30
(30)
Development of Rulings In Transactions
 The Quran gives mostly very general principles
and rules on contracts and commercial
transactions, e.g.:
– the basis of wealth transfer is contract by mutual
consent; al Nisa’ (4:29)
– the need to fulfill contractual obligation; al Maidah
(5:1)
– the prohibition of riba (usury), gambling and
cheating in contract
 The Prophet further supplements the general
principles and rules laid down in the Quran,
sometimes by giving more details, e.g.:
(31)
Page  31
Cont’d…
– further emphasis on full consent and satisfaction by
the parties, while giving examples of situations
where consent may be defective (e.g. mistake,
defective product, lack of understanding due to
infancy or insanity, under duress, etc.)
 Prohibition of fraud, cheating and manipulation
 Encouragement of honesty, transparency and
disclosure
 Explaining further on the prohibition of riba and
its types
(32)
Page  32
Cont’d…
 Approving certain existing commercial and trade
practices in the society at the time (e.g.
partnership contracts, advance payment sale or
salam)
 The scope and application of this branch of law is
extendable to new cases and situations which
ensures the dynamic development of Islamic law
and fiqh al mu`amalat itself.
 This
dynamism
contributes
to
further
development of Islamic instruments in the
financial system as evidenced today.
Page  33
(33)
In Essence, Transaction under Islamic Law
Emphasizes on the following:
Avoidance of Batil
(unfairness,
deception &
uncertainty)
Justice to both
seller and buyer
(full satisfaction)
Seller needs
to be more
vigilant
Page  34
Prevention
from disputes
(34)
FUNDAMENTALS OF CONTRACT
(AQAD) IN ISLAMIC LAW
Page  35
(35)
Theory Of Contract In Islamic Finance
Any transfer of wealth or property has to be made through a
valid contract or `aqad
Underlying rule : all contracts are deemed permissible except
when there is contravention of any established principles of
Islamic law
The parameter : Avoidance of any contravention of the
established principles and prohibitions in Islamic law
The Quran says:
“O you who believe! Eat not up your property among
yourselves unjustly except it be a trade amongst you, by
mutual consent…” (4:29)
Page  36
(36)
Any transfer of wealth or property has to be
made through a valid contract or `aqad
Divine Sources
(Quran & Sunnah)
Page  37
Mutual Consent
(Redho)
(37)
Definition of a contract in Islam
• Contract in Islamic law is termed as
`aqd or `uqud (plural)
• `Aqd literally means: bond or knot
• `Aqd legally means: the linking of offer
and acceptance, resulting in legal
effects on the subject matter of the
contract.
• In Islamic law, `aqd includes both
bilateral as well as unilateral contracts
(38)
Page  38
PILLARS OF CONTRACT
Contractual expression or sighah, i.e. offer and
acceptance (ijab wa qabul)
Parties to the contract (`aqidan)
i.e. offerer or and offeree
Subject matter of the contract (mahall al ‘aqd)
i.e. the goods and the price/consideration
Page  39
Contractual Expression
Clear &
Unambiguous
Conformity
between Offer Acceptance
Offer and
Acceptance
made in 1
contractual
session
Page  40
Unity of
contractual
session may
be actual/
constructive
Parties to Contract
Fully
competent to
enter &
execute
contract
Observe
impediments
to legal
competency
Understand
contract’s
implication
Possess legal
power/authority
to conclude the
contract
Page  41
Subject Matter of Contract
In existence or
capable to be
delivered
Known to the
parties
A valuable
item
Legally
recognized
material
Page  42
In Summary:
ESSENTIAL CONDITIONS OF
A VALID CONTRACT
CONTRACTUAL
EXPRESSION (Sighah)
Offer
Acceptance
• Clear
• Consensus ad idem
• Corresponding offer
& acceptance
Page  43
CONTRACTING
PARTIES
(Aqidan)
Offeree
Offeror
• Of full contractual capacity
(ahliyyah al-ada’ al-kamilah)
• Legal authority to contract
• As owner & in possession
of asset
• legal representative
(agent, guardian etc.)
(43)
SUBJECT
MATTER
(Mahall al `aqd)
Goods/
asset
Price/
consideration
• Something of value
• Ascertainable
• Legal
Conditions in Contract
• Conditions in contract can be classified into two
main categories:
▫ The Shari' Conditions - these are the
conditions set by the lawgiver which must be
fulfilled by any contract which includes all the
conditions stated earlier for the pillars of
contract.
▫ Additional conditions - these are the
conditions agreed by the parties involved in
the contract.
(44)
Page  44
Conditions in Contract
(cont’d…)
• The additional conditions can be any conditions as long as
these conditions are not contravening the objectives of the
said contract.
• For instance, the selling and buying contract with the
condition that the seller will have full right to utilize the
contracting item after the contract is concluded.
• This condition contravenes the objective of the buying and
selling contract which is the complete transfer of ownership
including the usufruct.
• Profit guaranteeing in Mudhrabah (profit sharing) contract
• Lost is borne by one party in Mushrakah (profit-loss sharing)
contract
(45)
Page  45
Al-Zulm/
Riba (Usury)
Shariah Parameter
in the Theory of
Contract
Qimar
(Gambling)
Gharar
(Uncertainty)
)‫(اسباب التحريم‬
Islamic Contract
Page  46
(46)
In Summary:
GENERAL PRINCIPLES OF ISLAMIC TRANSACTIONS
CONTRACT (AL-AQD) AS BASIS OF
TRANSACTIONS
Mutual consent
( al-taradi )
Riba
(Usury)
Page  47
AVOID
Gharar
(Uncertainty)
Maysir
(Gambling)
(47)
Lawful Contractual
Objective
Other prohibitions
Eg: liquor, pork
Riba (Usury)
Page  48
Literally
means excess,
increase,
expansion,
growth
A surplus of
commodity or
an excess in
return without
counter value
Riba was made
forbidden in
the 8th or 9th
year after the
Hijrah (flight
from Makkah
12 Quranic
verses dealing
with Riba
Categories of Riba
1.
2.
Riba al-Qard
( Riba in Exchange)
(Riba in Loan)
•
•
Page  49
Riba al-Buyu’
Applies to loan or to any debt
regardless of the cause of
that debt be it because of a
loan contract or because of
any transaction like a price
that has not been paid yet by
the buyer in a sale contract
•
Applies to sale transactions in
certain commodities
•
It has two types:
1.
Riba al nasi’ah (delay in paying or
delivery of one or the two sold
items); and
2.
Riba al fadl (exchanging one
ribawi commodity for the same
commodity but unequal in amount.
•
Also known as Riba as-Sunnah
Also known as Riba al-Quran
(49)
Prohibition of Riba (in Exchange)
Sunnah of the Prophet s.a.w.:
“Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates,
salt for salt - like for like, equal for equal, and hand-to-hand (spot); if the
commodities differ, then you may sell as you wish, provided that the exchange is
hand to hand or spot transaction
Interpretative Efforts
Application
Currency
Riba (Usury)
Same denomination :
• At par
• Spot
Different denomination:
• Spot
Page  50
Same type:
•At par
•spot
Different type:
•spot
(50)
Examples
• In loan transactions, riba
will occur in:
• In debt securities/bonds
issuance, riba can occur in:
▫ There is excess or surplus
over and above the loan
capital
• All interest based lending
activities (conventional bonds)
• Fixed return on deposits in
conventional banking (designated
account for receivable of the
bonds)
▫ Determination of surplus in
relation to time
▫ Stipulation of surplus in
loan agreement
Page  51
• In the secondary trading of debt
securities (if the transaction is
not spot & if there is discounting)
-according to global standard
(51)
Gharar
 Literally: Deceit, fraud, uncertainty, danger, peril, or hazard that might
lead to destruction or loss
 Technically: uncertainty and/or ignorance of one/both
parties in a contract over the substance or attributes
of the object of sale, or doubt over its existence and
availability at the time of contract
Rationale for prohibition:
 To ensure full consent and satisfaction of the parties in a contract
 Gharar in commercial contracts may lead to injustice, exploitation and/or
enmity among contracting parties
(52)
Page  52
Types of Gharar
1
Gharar yasir
(minor or slight)
Tolerated and will not
invalidate a contract
e.g. Bay salam (forward
sale)
(53)
Page  53
2
Gharar Fahish
(major or excessive)
Not tolerated and may
result in contract
voidability
e.g. Bay ma’dum (sale of
inexistence object)
Gharar Is Tolerable
Exceptional Contract
(e.g. salam, istisna)
Charitable Contract
(e.g. hibah, takaful)
Gharar is tolerable!
No Issue of Gharar!
Why?
Why?
1. Public needs
(hajiyat and
maslahah)
2. Gharar is trivial
with stipulated
conditions
(54)
Page  54
It is a unilateral
contract and hence
does not lead to
dispute
Understanding Islamic Legal Maxims )‫(القواعد الفقهية‬
• Islamic legal maxims are general Fiqh principles
which are presented in a simple format consisting of
the general rules of Shari’ah in a particular field
related to it.
▫ E.g: Majallat al-Ahkam al-Adliyyyah (The Mejelle)
▫ Codification of shariah principles in the form of
standard provisions /guidelines
 These legal maxims are used in the formation of
Islamic law as principles to deduce many rules of
Fiqh. E.g. The original ruling is permissibility
(55)
Page  55
‫اليقين ال يزول‬
‫بالشك‬
‫األمور بمقاصدها‬
“Matters are determined by
intention”
‫ال ضرر وال ضرار‬
“Harm shall not be inflicted
nor reciprocated”
“What is certain cannot be
removed by doubt”
5 Major
Maxims
“Hardship Begets Facility”
‫العادة محكمة‬
“What is certain cannot be
removed by doubt”
Page  56
56
‫المشقة تجلب‬
‫التيسير‬
(56)
Islamic Maxim
Description
‫األمور بمقاصدها‬
‫العبرة في العقود للمقاصد والمعاني ال‬
‫لأللفاظ والمباني‬
“Matters are
determined by
intention
‫المشقة تجلب التيسير‬
“Hardship Begets
Facility”
Page  57
“In contracts, effect is given to
intention and its meaning and not
words and forms”
- In the event of difference between
implicit and explicit intention,
judgement based on intention to the
extent that it may be established
Any ruling whose implementation
causes hardship to a person or the
action is unable to be performed by a
particular person for a specific
acceptable reason, then there are
alternatives to overcome the
hardships.
(57)
Examples of Application
If 2 persons conclude a contract
apparently of a loan but in
consideration for which a specific
rental is provided for, the contract
would be regarded as a contract of
hire as its real meaning indicates
not a loan as the wording would
suggest.
Basic ruling for ijarah, a person
cannot cancel the contract unless
it is agreed by both contracting
parties. However such ruling is
exempted if the lessee has to
travel for a valid reason and hence
not occupying the premise.
Islamic Maxim
‫اليقين ال يزول بالشك‬
“What is certain
cannot be removed
by doubt”
‫العادة محكمة‬
“Custom is
Arbitrary”
(58)
Page  58
Description
Examples of Application
Any doubt that occurs when
certainty prevails will have no
power to remove the certainty.
Likewise, if something has not been
established with certainty, it will
remain so until proven otherwise.
If a person has taken a loan from
another person and is in doubt
whether he is still in debt, he is
considered to be in debt until
there is proof to show otherwise.
Custom in this maxim means the
practices of the people whether
they are the general practices of
the people or the practices of
certain group of people.
Any dispute arises on a particular
transaction, the normal practice in
that particular transaction should
be the arbitrator to resolve the
dispute.
The custom that involves
transactions is the sale of
offering and accepting or bay` alta`ati, which is normally
concluded without the utterance
of offer and acceptance.
‫يتحمل الضرر الخاص لدفع‬
‫ضرر عام‬
“To repel a public harm a private
damage is preferred”
‫الضرر االشد يزال بالضرر‬
‫االخف‬
“Severe damage is avoided by a
lighter damage“
‫الضرر يدفع بقدر اإلمكان‬
‫الضرر يزال‬
“Harm is repelled as far as
possible”
“Harm is put to an end”
‫ال ضرر وال ضرار‬
“Do not Inflict Harm nor reciprocate harm”
‫الضرر ال يكون قديما‬
“Harm must not be
sustained”
(59)
Page  59
‫الضرر ال يزال بمثله‬
“Harm cannot put to an end
to by its like”
‫درء المفاسد مقدم‬
‫على جلب المصالح‬
“The repealing of harm is
preferred to the
attainments of benefits”
Page  60
Description
Examples of Application
Any potential harm to the society
has to be prevented as much as
possible. This resembles the
proverb ‘prevention is better than
cure’. It is easier to prevent
something from happening rather
than treating it when it has already
happened.
Dumping toxic waste as a form
of externalising a firm’s cost to
society must be averted, such
that it must not even be
considered as an option for costminimising strategy.
Any harm must be stopped or
abolished. It is obligatory to remove
the harm and try to rectify the
damage
If a firm is found disposing its
harmful waste (toxic) in a
residential area, such an act
must be stopped. If the public
suffers health problems as a
result of such an act, the firm
must take the responsibility and
pay compensation accordingly.
(60)
Page  61
Description
Examples of Application
In an attempt to remove harm or
damage, it must not invoke another
type of harm either in the same
degree of harm or worse.
In avoiding risky investments
which may harm the shareholders’
fund, managers must not instead
invest in illegitimate activities
(based on Sharī’ah viewpoint),
albeit higher returns.
If harm or damage is unavoidable, the
strategy is to choose the lighter
damage between those two. Another
similar maxim is that the smaller of
two harms is chosen.
In the event where a banking firm
has no other option except to
reduce a certain number of
employees or close branches in
order to remain sustainable, it may
do so because the damage of a
collapsed bank is more severe than
the suffering of the few workers.
(61)
Page  62
Description
Examples of Application
One has to succumb to the damage
which is private in nature in order to
prevent social harm. In other words,
a firm’s operation should be biased
in favour of society if two harmful
acts are conflicting.
Avoiding of financing companies
that manufacture illicit drugs or
activities detrimental to public
consumption is deemed
necessary even at the expense of
undermining individual profits.
Anything which may cause harm
must be abolished regardless of
whether it is old or new. It implies
that any preceding harm must not
be allowed to continue although
circumstances which originally
cause such harm might have
changed.
An Islamic firm which acquires
another firm must cease any
illegitimate business activities or
contracts (e.g. investment in
alcohol business, gambling etc.)
which the latter used to operate
(62)
Page  63
Description
Examples of Application
If there is a conflict between
harm and benefit, it is obligatory
to repeal or lift the harm first
even if by so doing it will remove
the benefits. This is because
harm can easily spread and
cause severe damage, and
hence priority ought to be given
to the aversion of harm over
attaining benefits.
A bank should avoid financing
activities,
which
might
be
perceived as productive in terms of
profits or supposed to satisfy some
demand
(e.g.
pornography,
gambling, prostitution, promotion
of alcohol, etc.), but nevertheless
contain elements which may
severely damage and bring harm
to the society, moral, health, etc.
(63)
Other Maxims related to Finance and Commerce:
The original rule in contracts is permissibility.
‫األصل في األشياء اإلباحة‬
Gain is (allowed) with (the undertaking of) risk.
‫الغنم بالغرم‬
In contracts, attention are given to the objects and meaning
and not to the word and form.
‫العبرة في العقود للمقاصد والمعاني ال لأللفاظ والمباني‬
The remaining of a thing in the state in which it was.
‫األصل بقاء ما كان على ما كان‬
(64)
Page  64
Promote Maslahah
(Public benefit)
Freedom from
Riba (Usury)
Entitlement to
Equal, Adequate,
Accurate Info.
Promote
Brotherhood
Freedom from
Gharar (Uncertainty)
A system grounded
on moral and
ethics
Freedom from
Dharar (Harm)
Freedom to
Contract
Characteristics of
Shariah-compliant
Banking and Financial
System
Freedom from
Qimar & Maysir
(Gambling)
Freedom from
Price control &
Manipulation
Page  65
(65)
Entitlement to
Transaction at
Fair Price
General Classification of Contract in Islam
Charitable Contracts
(Tabarru`)
(66)
Page  66
Profit-Making Based
Contracts
VARIOUS FORM OF ISLAMIC CONTRACT
Sales-based Contracts
BBA – deferred sale; Murabahah
– cost-plus sale; Bai al-Inah –
sale & buy back, Bai al-Tawarruq
– tripartite sale
Deposit-taking Contracts
Safekeeping with guarantee, Profit
sharing (mudharabah); (Loan
without interest (al-Qard)
Fee-based Contracts
Kafalah/Dhaman (Guarantee);
Wakalah (agency)
Equity-based Contracts
Profit Sahring Contract Mudarabah, Musyarakah (ProfitLoss Sharing Contract)
Page  67
Islamic
Contracts
Lease-based Contracts
Ijarah Wa Iqtina; Ijarah Thumma
Al-Bai’, Ijarah Muntahia
Bitamleek
Hybrid Contracts
Musyarakah Mutanaqisah
(Dimishing Partnership), AITAB
(Laese and Sale) etc.
Profit Making
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Page
 68
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