PRINCIPLES OF ISLAMIC

COMMERCIAL CONTRACTS (‘AQD)

TOPIC 2

ASSOC.PROF. DR. NORAIZA CHE

AWANG
INTRODUCTION

Freedom, where there is no compulsion imposed

on the sale and they were given time to choose to
continue or cancel a transaction. While the
freedom to make money purely temporal strictly
forbidden in Islam and has been described in Surah
Ali-Imran verse 196 which says:

“Never you be fooled by the unbelievers freedom

to move and build their smooth development of
trade and industry in the state of the world. All of
that only temporary pleasure. Then (in the
Hereafter) their abode in Hell.
 Definition

Contract in Arabic is called Aqd.

Literal meaning of Aqd is to
bind or to strengthen. The
word Aqd is also used in Arabic
in the sense of confirming an
Arabic term : oath. As such, any covenant,
pact, agreement and treaty will
also be referred to as Aqd since
all of them demonstrate firm
resolve for execution. Plural of
Aqd is Uqood.
 Means a connection of the words
of one party (ijab) to the words of
Shariah-based definition : the other party (qabul) which
constitutes legal implication on
the subject matter.
 Pillars of Contract

Pillars of
contract

Contracting
Expression (Ijab Subject matter
Parties (al-
and Qabul) (Mahl Al-Aqad)
ahliyyah)
 Expression (Ijab and Qabul)

An offer is a proposal to make a deal. An acceptance is

the acknowledgment made by the person to whom the
offer was made to and that the offeris accepted.
Therefore, an offer is an agreement that is made by one
of the parties to the contract, and acceptance is the
statement that is made by thesecond party in response
to the offer. As an illustration, if the first party (seller)
says, "I want to sell this house to you for RM150,000"
and thesecond party (buyer) says, "I accept", then what
has been said by the seller is 'Offer' and statement
made by buyer is called 'Acceptance'.
Method of Offer and Acceptance

• It is unanimously agreed that verbal

communication will be the best way to manifest
the consent of the contracting parties.

• The Malikis & Hanbalis accept as a sufficient

manifestation of consent anything that is
customarily regarded as indicative consent.

• The Shafi’i accepts writing as manifestation of

consent.

• The Hanafis are of opinion that writing, conduct

and even gesture are acceptable to manifest
consent.
Condition of Offer and Acceptance

The offer and

acceptance has to be
It is necessary that the
executed in the same
acceptance conforms Existence of offer till
session. In the event Assent must be
to the offer in all its the issuance of
any party to the genuine as the person
details. If the offer acceptance. An offer
contract is missing, giving his consent may
contains any material must remain open until
then the session lasts not be mentally
change in, or addition it is accepted, rejected,
until the knowledge of competent or he may
to, the terms of the retracted, or has
it reaches the party be a person subjected
original offer, it will not expired. A counter-
through a messenger to coercion or under
be accepted. A offer closes the original
and he replies and influence.
counter-offer is a new offer.
communicates his
offer in Islamic law.
acceptance to the
'offeror'.
 • The contracting parties are the parties
2) who exercise the sighah of ijab &
qabul. In order to conclude a valid
Contractin contract, the contracting parties must
g Parties have legal capacity.
• Al-Ahliyyah/legal capacity has been
(al- defined by Muslim jurists as the
‘eligibility of a person to establish right
ahliyyah) for and obligation upon himself”.
 Al-Ahliyah

Ahliyyah al-wujub Ahliyyat al-ada’

The eligibility of a person to The eligibility of a person to

acquire rights for and upon execute or discharge his right
him. and duties in a manner
recognised by the law
 Ahliyyat al-wujub

Incomplete Complete
(foetus in uterus) (infant)

(Incomplete. it is part Complete capacity to

of the mother as it acquire certain rights
does not have an & responsibility. He
independent can acquire rights
personality, but it will resulting from any
be considered a transactions held by
complete independent the guardian or trustee
human being where it acting on his behalf.
has the potential to be
born alive.)
 Ahliyyat al-ada’

Incomplete (age 8 Complete

to puberty & idiot) (baligh/major)

He has a complete He can enter to any

capacity to attain ‘aqd without the
rights and need to get any
responsibility and one’s approval.
to contract in
certain types of
‘aqd
3) Subject matter (Mahl Al-Aqad)

Islamic law stresses on the following matters described

below when relating to the subject matter of the
contract, namely, the object and consideration:
• Lawfulness: The object must be lawful and should be permissible to
trade. It must be of legal value, which means its subject matter and
underlying clause must be lawful and it must not be prohibited by
Islamic law, neither a nuisance to public order nor morality.
• Existence: The parties to a contract must legally own the object. The
issue of existence presupposes that the object of a contract must be
inexistence at the time of a contract (selling fruits which are not
ripe/ready for the market is illegal as it does not meet this criteria).
 Delivery: The object should be
potentially capable of certain
delivery to the buyer at the time
of the contract. Therefore,
Syariah prohibits the sale of a
camel which has fled, a bird in
the air, or a fish in water.

Determination: The object

should be something known to
the parties. It must be
determined precisely as to its
essence, its quantity and itsvalue
to avoid any kind of exploitation
and future disputes.
Purpose and Effect of a Contract
Syariah contracts are
divided into several
classifications with regard
to the purpose for which
certain contracts are
entered into.
• Exchange-based Contracts
(‘Uqud Al-Mu’awadat)
• Charity-based Contracts
The classifications are as (‘Uqud Al-Tabarru’at)
follows : • Waiving Contracts (‘Uqud Al-
Isqatat)
• Partnership Contracts (‘Uqud
Al-ishtirak)
 • Contracts which are entered into by
two transacting parties to acquire
Exchange- ownership of an asset or
based commodity which end up with the
transfer of ownership of the
Contracts exchanged counter values.
(‘Uqud Al- • The exchanged counter values can
Mu’awadat either be usufruct in a lease
contract or a corporeal thing in a
) currency exchange, forward sale
and manufacturing contract.
 2) • Contracts effected by someone on
the basis of benevolence (ihsan) and
Charity- cooperation (ta’awun), which does
not require the exchange of
based something for another thing.
Contracts • Therefore, an asset ownership in this
regard is acquired without any
(‘Uqud Al- counter value.
• For examples : gift (hibah), charity
Tabarru’at (sadaqah), endowment (waqf) and
) asset borrowing (i’arah).
 3) • Contracts which are entered into by
someone to waive a right that has
Waiving been established in one’s liability
whether with or without a counter
Contract value.
• If it is effected without a counter value
s (‘Uqud such as a rebate (ibra’) and the right of
pre-emption (shuf’ah) is waived, then
Al- it is called isqat mahd (purely waiving
contract) and if oterwise, then it is
Isqatat) termed as isqat al-mu’awadah.
 • Contracts which are entered into for
4) the purpose of having a partnership in
work and profit.
Partnershi • It is founded upon the spirit of
p cooperation and partnership in the
sense that profits are shared together
Contracts by the partners and losses are borne
by both of them.
(‘Uqud Al- • Examples of partnership-based
Ishtirak) contracts are musharakah, mudarabah,
muzara’ah and musaqah.
 Ijarah

The reward given for service

Definition : rendered

Derived from word ‘ajara’ – means

to recompense, compensate or to
give a consideration or return.

Technically, Ijarah is ‘a contract for

the transfer of ownership of a
usufruct for compensation’
 Ijarah
Related Terms : Ijarah Ijarah
and Bay’ and Kira’
Ijarah : remuneration for human
Ijarah : sale but only of the
labor
usufruct.
Kira : compensation given to the
Bay : transfer of the corpus
lease of real estate property.

Ijarah : may be carried out

immediately or at a future
date.
Bay : must be carried out
immediately.
 Ijarah

Based on
subject
type
Based on
contractua Based on
l subject
relationshi Types matter
p of
Ijarah
Based on
Based on
time the
its
contract
bindingnes
becomes
s
effective
 Ijarah
Ijarah based on the subject type :

Tangible asset (‘ayn)

• Comprises all tangible assets such as properties,
transport facilities, factories, etc.

Labour/non-tangible asset (‘amal)

• May be excecuted in two types of workers : an
employee (ajir khass) and an independent contractor
(ajir mushtarak)
• An employee - work for the interest of a particular
employer.
• Independent contractor – offers his services to the
general public.
 Ijarah
Ijarah based on the specification of the subject matter :
1) A particular source of benefit (ijarah
mu’ayyanah)

Lease contract is related to a specific piece of property such

as car or a shop.
2) A liability or a pledge to be fulfilled by a
lessor (ijarah mawsufah fi al-dhimmah)

A contract on a particular usufruct that the lessor assumes

the liability to provide.
 IJARAH

Ijarah based on the time the contract becomes effective :

Instant lease (ijarah munajjazah)

• Comes into effect immediately after the offer is accepted without relation to a future event
or a fixed future date

Lease at a future date (ijarah mudafah)

• Its effect is delayed to a future date

Lease subjected to fulfilment of certain conditions (ijarah mu’allaqah)

• Effectiveness is tied to a future event
 IJARAH
Ijarah based on its bindingness :

Non-binding
Binding (lazimah) (ghayr lazimah)
 IJARAH

Ijarah based on the contractual relationship

Operating • Conducted by IFIs or business companies

lease (ijarah • It is not tied with a purchasing agreement
• Suitable for costly assets
tashghiliyyah)

• Conducted by IFIs and tied to purchasing or gifting

Finance lease • Widely used for real estate, machinery and equipment
(ijarah • Contract used in this ijarah is termed in Arabic as al-
ijarah thumma al-bay (AITAB), al-ijarah wa al-iqtina’ or
tamwiliyyah) al-ijarah al-mutahiyah bi al-tamlik.
 IJARAH

Application of Ijarah in Islamic Finance

Purpose Application

Financing Simple ijarah, al-ijarah thumma al-bay (AITAB), musharakah mutanaqisah, ijarah based credit
card (restricted to leaseable terms)

Government and corporate sukuk Ijarah sukuk

Risk management and hedging Ijarah rental swaps

purposes
 Mudharabah

Qirad meaning 'surrender' is used to refer to

the surrender of capital, hence the
alternative name for mudarabah which is
muqaradah.

The term mudarib, a user of the capital of an

investor (the investor being the rabb al-mal),
gives rise to the alternative description of
this form of finance, hence mudarabah.

The mudarib, regarded as an entrepreneur,

contributes management input, itself
viewed as a form of capital.
 Mudharabah
Conditions applied to modern mudarabah contracts are that:
• The investor is an investor on a non-executive basis
• According to Imam Hanifa, the contribution of capital to the mudarabah is to be
made in the form of cash. Imam Malik however argues that a non-cash contribution
can be made provided that its cash value can be established prior to employment in
the partnership. Thus material contributions must first be valued or sold for cash
before establishing the contributor's share in the mudarabah.
• A profit share between mudarib(s) and investor(s) is agreed at the outset. Profits can
be shared in any ratio agreed at the outset of the mudarabah.
• Ownership of the invested assets remains with the investor at all times.
• Losses should be shared according to the financing share of each financier. The
financier's maximum loss is limited to his share of the financing and the mudarib
must not bear any of loss attributable to invested capital. Any liability is limited to
the extent of the total capital contribution made by the investors, except where such
an investor has allowed the mudarib to incur debts on his behalf.
 Mudharabah

The mudarib may be

Mudarabah may be
required by investors
The mudarib is not enacted as a single-tier
With the permission of to engage only in
allowed to draw agreement in which
the investor, the strictly defined Imams Hanifa and
remuneration in any the investor deals
mudarib may activities in which case Hanbal argue that the
The mudarib may only other form than profit- directly with the
contribute some of his the mudarabah term of a mudarabah
lend available funds share. In the absence entrepreneur. In a two-
own capital to the becomes one of can be restricted,
with the permission of of a guaranteed wage, tier mudarabah,
project or raise fresh mudarabah al- whilst Shafi and Malik
the investor. the entrepreneur has investors pool their
capital from others on muqayadah. Where no argue against any such
no recompense for his funds with an
the basis of restrictions apply, the restriction.
efforts unless the intermediary who
mudarabah. mudarabah becomes
project is profitable. subsequently deals
one of mudarabah al-
with entrepreneurs.
mutlaqah.
 Musharakah
Definition

“musharakah”  root word ‘sharaka’ sharing and mixing shares of two or more parties to make them
interchangeable.

Hanafi : a contract between partners on both capital and profit.

Maliki : permission to transact where each of the partners permits the other to transact with the same
property while at the same time retaining his own right to transact with the same property.

Shafie : a confirmation of the rights of two or more people over a common property.

Hanbali : amalgamation of rights or the freedom to use.

AAOIFI[Standard No 12 (item 2/1) ]  an agreement between two or more parties to combine their assets,
labour or liabilities for the purpose of making profit.

BNM,2015 : a partnership between two or more parties through contractual relationship or by

operation of Islamic Law ( all partners will share the profit and bear the loss from the
partnership )
 TYPES OF MUSHARAKAH

Musharakah

Sharikah al-milk Sharikah al-aqd

(ownership (contractual
partnership) partnership)

Sharikah al amwal Sharikah al amal Sharikah al wujuh Sharikah al

Sharikah al-ikhtiyar Sharikah al-jabr (partnership in (partnership in (partnership in mudarabah (profit
capital) labor) goodwill or credit) sharing partnership)

Sharikah al
Sharikah al inan
mufawadah (capital
(general
share/equal share
partnership)
partnership)
 Sharikah al milk (Partnership in ownership)

Sharikah al Sharikah al
ikhtiyar jabr
Ownership Ownership
based on the act established
of partners mandatorily and
Eg : Asset been not due to act of
jointly partners
purchased by Eg : They
them became new
owners of an
asset through
Sharikah al-Aqd (Contractual
Partnership)

• Partnership affected by a mutual contract

• It is an agreement between two or more
person to combine their assets, labour or
Definitio liabilities for the purpose of making
profit.
n: • All contracting parties willingly enter into
a contractual agreement for joint
investment and the sharing of profit and
risks.
Sharikah al-Aqd (Contractual
Partnership)

Sharikah al amwal
(All partners contribute
capital into the business)

Sharikah al inan Sharikah al mufawadah

(general partnership) (equal partnership)
 Sharikah al-Aqd (Contractual
Partnership)

Sharikah al inan (general partnership)

• AAOIFI Shariah standard No12 [Item 3/1] defines as partnership
between 2 or more parties where each partner contribute a specific
amount of money on condition profit is distributed according to
partnership agreement, losses are borne in accordance with
contribution of each partner to the capital.

Sharikah al mufawadah (equal partnership)

• Mufawadah means musawah (equality). Form of partnership which the
contributed capital, work, mutual responsibility and debt liability are
equally shared by each partner.
Sharikah al-Aqd (Contractual
Partnership)

Agreement two or more Does not require a

parties to provide a service contribution in the form of
jointly and share the profit monetary capital.
according to agreedSharikah
ratio. al amal
(partnership in
services/labor)
Permissible : Hanafi,Maliki,
Also known as sharikah al and Hanbali scholars
abdan
 Sharikah al-Aqd (Contractual
Partnership)
Sharikah al wujuh (partnership in goodwill or credit)
The partnership buy assets on
credit on the basis of their
The parties should
reputation for the purpose of determine their
Partnership in goodwill making profit, they undertake to percentage of profit
or creditworthiness fulfill their obligation according to
the percentages determined by sharing and of liability
the parties. sharing.

Does not require Permissable by Hanbali

monetary capital and Hanafi scholars
 Sharikah al-Aqd (Contractual
Partnership)

SHARIKAH AL MUDARABAH (PROFIT SHARING PARTNERSHIP)

The losses will be borne

one party (rabb al mal)
by the capital provider
provides capital and the
(rabb al mal) and the
other party (mudarib)
mudarib will lose his
provides labor.
effort.

The profit will

be shared Hanafi &
Maliki & Shafie
between them Hanbali =
= qirad
on a mutually mudarabah
agreed ratio
Basic rules & condition of Sharikah al Aqd

The ratio of profit sharing between

partners should be determined and
mutually agreed to avoid element of
gharar and the possibility disputes in
future.

Capital of sharikah should be

contribute in the form of monetary
assets. If partners provide tangible
assets as capital, the monetary value
should be determined and expressed in
currency.

The business carried out should be

permissible and in compliance from
the perspective of shariah.
Legality of musharakah

"God the Most High says, I am the third (partner) to

two partners as long as one of them does not betray
the other ; if they betray each other ; I leave them"
(Abu Daud)

"Allah's hand is with the two partners so long as one

does not betray the other"
(Al Daraqutni)
 Wakalah

Defini Technical term refers to authorizing another person to

undertake any dealings on one’s behalf.
tion
Muwakkil (principal) authorizes a party as his wakil
(agent) to perform tasks on his behalf.

AAOIFI Shariah Standard No.23 (item 2/1/1) – wakalah is

the act of one party delegating the other to act on its
behalf in what can be a subject matter of delegation.
 Wakalah

• The principal should

commission the agency based
Basic rules on his free will without any
pressure from others. In the

and same manner, the agent

should not be forced in
conducting the tasks
conditions delegating to him.
• The principal should know the
agent, either by name or his
of a physical appearance. Likewise,
the agent should identify his

Wakalah principal either by name or his

characteristic.
• If the agent is given a

contract : remuneration for the provided

service, the Shariah rulings of
ijarah shall apply.
 WAKALAH

Types of wakalah contract :

• Scope of the agency
• General / comprehensive wakalah
• - Principal say to the agent ‘buy me ahouse’ without specifying any
condition.
• Specific / restricted wakalah
• Principal identifies certain requirements such as price, features,
mode of payment, etc.
• E.g : Principal says ‘buy me a bungalow which costs about RM1
million via installment payment’
• Payment to the agent
• Paid falls under the ruling of Ijarah
• Non-paid falls under the ruling of charitable act.
 WAKALAH

Types of wakalah contract :

• Bindingness of the parties
• Non binding contract on both principal and agent since they can revoke
anytime
• Binding contract when :
• When it is a paid agency
• When it involves the rights of others
• When the agent starts a task that cannot be withdrawn without causing
injury to him or the principal
• When the principal or the agent promises not to revoke the contract within
a specified period
• Duration of the agency contract
• In general, no time limit for an agency contract because its non binding
nature.
• Can be restricted to a certain period based on agreement of both parties
 WADIAH

Sayyid Sabiq
Hanbali scholars (1983) stated Al-
Whereas add the element Wadiah is
Legally, the
according to of charity when keeping
The term Wadiah Hanafi scholars
Shafie and Maliki they define something from
is derived from define it as an
scholars, Wadiah Wadi’ah as someone to
the verb wada’a, empowerment
Deposit in Arabic is presentation in representation in another, either
which means to to someone for
is called Wadiah. keeping keeping (other’s from an
leave, lodge or keeping the
possession of property) and it individual or
deposit (Al- owner’s property
respectable is done (by the organization that
Farabi, 1987). explicitly and
private goods in keeper) as has to be
implicitly.
specific way. charity (ISRA, guarded safe and
2012). give back on the
demand.
 Wadiah

Types of
Wadiah

Wadiah yad Wadiah yad

Amanah Damanah
 WADIAH

Safe
custody • Originally term of deposit is Amanah (trust)
where it is charitable and divinely

based rewarded.
• It is basically a trust to keep. So, the custodian
shall keep the deposit as his keeping and
on trust taking care of his own property.
• He is not responsible for any damages except
(Wadiah due his negligence. He does
profit from the contract.
not gain any

• The permission will be required of the utility

yad of the property. Last, he must return the
property at any time upon demand of the
Amanah owner.

)
 WADIAH

• This is the combination between safe-

keeping (al wadiah) and guarantee
Guarantee (daman).
• This type deposit facilities wider
d Safe application in the Islamic banks system,
particularly where the deposits are the
Custody sources of funds for banks.
• Some of the features: the custodian is
(Wadiah entitled to use the deposit property for
yad trading or any other purposes.
• So, has right to gain some profit derived
Damanah) from the utilisation of the property and
the sometime he is fully responsible for
the damage (ISRA, 2013).
 Wadiah

Contracting parties: the The depositor is able to the take

depositor and the custodian the property whenever he
must be person of sound mind. wants (Irsyid, 2007)
Basic rule and
condition of
Wadiah (deposit)
Offer (ijab) and acceptance Deposited property: it must be
(qabul): the majority of jurists owned and deliverable. The item
are the view there is must be a must be also form of property
valid offer and acceptance that can be physically possessed
made in wadiah contract (ISRA, 2013).
 Kafalah
“A contract of guarantee is a contract to perform the
promise or discharge the liability of a third person in
case of his default". According To This Definition The
Claim And Demand Should Be Made By On Both, The
Principle Debtor Or The Surety.

The Literal Meaning Of This Word Kafalah Is

Joining Or Merging
 KAFALAH

Conditions of Kafalah:

1. Conditions Of The Guaranteed

Jurists differed as to conditions of the guaranteed:

The debtor must be able to deliver the debts that has been guaranteed either by himself or through his or her agent. Another school of thought says that
that Kafalah for a deceased is valid, because death doesn’t discharge the liability of the insolvent debtor. Imam Hanafi jurists also rule that the guarantor
knows the debtor whose debt he guarantees. Imam Shafie and Hanbali rule to the contrary, since the contract of guarantee is valid even without a
proper acceptance from the guaranteed, it is also ilogical to allow the guarantee to be created even if the person is unknown, because in both
circumstances, no acceptance will be made.

2. Conditions Of The Guarantor

Unanimous agreement on the requirement that the guarantor must have the legal capacity to enter into a gratuitous relating to his property and free
from restrictions to enter into the contract. Imam Maliki extend the conditions by further excluding woman from guaranteeing a liability that covers
more than 1/3rd of her property without the consent of her husband.
 Kafalah

Conditions of Kafalah:

3. Conditions On The Object Of Guarantee

Guarantee for the property held in a fiduciary relationship is not allowed. Thus non-fungibles held as a possession of trust
cannot be an object of guarantee. It is not permissible to stipulate in trust (financing) contracts like agency contracts or
contract of deposit that a personal guarantee or a pledge be produced as such a stipulation is against the nature of the
contract. The debt to be guaranteed must be valid and binding debt on the debtor where the liability will be dropped only
through the repayment or exoneration. E.g. Debt of a slave to his master.

4. Conditions Of The Creditor

The creditor should be known to the guarantor. Abu Hanifa and Muhammad Al-Shaybani stipulate that the creditor should
be present in the session or be represented by someone. Abu Yousuf holds that Kafalah does not require acceptance by the
creditor for Kafalah only conveys the meaning of junction, which is realisable by the unilateral declaration of the guarantor.
 KAFALAH

KINDS OF KAFALAH:

• Kafalah Bi Al-Nafs (Physical Guarantee)

Majority jurists accept physical guarantee if the liability is related to financial matters. Shafie is extend the
ruling cover for rights of humans such as Qisas or punishment for libel. But not valid for hadd
punishments. Imam Hanafi and Hanbali prohibit both.

Generally, it is permissible for a guarantee for a specified period of time, E.g: Guarantor can be forced only
at the end of the time and is not responsible for immediate delivery.

Abu Yousuf opined otherwise, E.g: From the start till the end. This view has been said to agree with
customary common practice.
 KAFALAH

2. Kafalah Bi Al-Mal (Financial Guarantee)

The gurantee that the debtor will pay his debt, fine or any other personal liability, thereby joining
the debtor’s liability to his recourse and non-recourse. Three types of financial guarantee:

Kafalah bi al-Dayn (guarantee for debt): This Means To Guarantee The Payment Of Debt To The
Creditor Owed By The Principal Debtor

Kafalah bi al-Taslim (guarantee for delivery): It Is To Be Surety To Deliver Property To Its Owner Such
As To Be Surety On Behalf Of A Lessee To Transfer Possession Of Leased Property To The Lesser Or
His Agent On Expiry Of The Leased Period.

Kafalah bi al-Dark: Guarantee given by a seller that he will return the price of the object if it is taken
over by someone else in the exercise of his better right. It is also defined as a guarantee in favors of
the seller that if the title of the seller is defective, the guarantor will make good the loss suffered by
the purchaser on the account.
 Ju’alahJu’alah

• A contract whose subject matter is a work or task to be done.

• More specifically, one of the parties (general offeror or ja’il) offers specified
compensation (ju’el) to anyone (worker or ‘amil) against achieving a
predetermined work, task or result in a period of time, whether predetermined
or not.
• In principle, ju’alah is not a binding contract; that is, the offeror or the worker
can rescind the contract unilaterally before the worker sets to work. However, it
becomes binding on the offeror when the worker commences work.
• It is also binding on the worker if he undertakes not to revoke the contract
during a specified period. Once the work initiates, the property of the offeror is
transferred to the possession, not ownership, of the worker, and therefore, the

Definition : worker is deemed as a trustee, not a guarantor as to that property.

• In other words, the worker will not be liable for any losses or damages that may
occur except in the case of negligence, misconduct or violation of the conditions
stipulated by the offeror.
 Ju’alah

Ju’alah can be distinguished from ijarah by the following

aspects:
• Uncertainty of work (Gharar) doesn’t invalidate Ju’alah contracts
irrespective of the extent of the required result.
• Unlike typical commutative contracts, Ju’alah doesn’t require
acceptance.
• Not knowing the other party doesn’t render Ju’alah invalid.
• Ju’alah is not a binding contract (it can be terminated by either party
unilaterally), in contrast with ijarah which is a binding contract.
• The worker is entitled to ju’l (compensation) only if the underlying
work/task has been completed and the result has been achieved.
PROHIBITED ELEMENT IN
TRANSACTION

RIBA GHARAR

MAISIR
 Riba

Definition • literally means excess, expansion, increase, addition or growth

• Technically riba is defined as an excess over and above the principal of loan without
any countervalue.
• Riba also defined as an unlawful gain derived from the quantitative inequality of the
countervalues in any transaction.
• Riba is not restricted to increase in loan transaction due to the deferment of time of
payment only, it might also occur in any unjustified excess above and beyond the
capital, whether in loans or in trade

Classification • Riba in loan contract (Riba al-duyun) (Riba al-nasi’ah)

• Refer to increment charged on debt principal in consideration of the repayment
period. It is also known as interest due to a loan (riba al-qard) or penalty due to
late payment (riba al-jāhiliah).
• The Prophet [SAW] was reported to have said that any added benefit for the
lender that is contractually derived from a loan transaction is a riba. [Ibn Abī
Shaybah]
• Riba in exchange contract (Riba al-buyu) (Riba al-fadl)
 Riba in exchange contract
(Riba al-buyu) (Riba al-fadl)
• Riba al-buyu occur from an exchange contract in which a commodity is
exchanged for the same commodity in an unequal amount and/or
delay of the delivery of one of the commodities. This is not compliant
Gold for gold, silver for silver, with the condition stipulated in the hadith mention.
wheat for wheat, barley for • If the exchange involves the same genus, such as gold for gold, or
barley, dates for dated, and salt wheat for wheat, both rules of equality and spot delivery must be
for salt, like for like, equal for applied
equal and hand to hand, if the • If the item are different genus, such as gold for silver, Malaysian ringgit
commodities differ, then you may for US dollar, or wheat for dates, only rules on the spot delivery is
sell as you wish provided that the applicable.
exchange is hand to hand. • A delay in delivery in an exchange of ribawi item involving diffent
[Muslim] gneus, will trigger riba al-nasa. The party receiving immediate delivery
is in a position to benefit from it immediately while the party receiving
Two rules apply in order to avoid delivery at a later date is prevented from the benefit throughout the
riba : waiting period.
• It must be a on the spot
transaction
• It must be equal counter value
 Commodity 1 Commodity 2 Rules Applied Non-riba Riba

Currency A Currency A • Equality • RM100 with RM100 exchanged • RM100 with RM150
• Hand to hand on the spot • RM100 with RM100 deferred delivery

Currency A Currency B • Hand to hand • RM380 with USD100 • RM380 with USD100 on deferred
exchanged on the spot basis

Currency A Food Free trading • RM50 with 10kg of dates

Food A Food A • Equality • 10 kg of wheat with 10kg of • 10 kg of barley with 15 kg of barley

• Hand to hand wheat exchanged on the spot • 10 kg of barley with 10 kg of barley
deferred delivery

Food A Food B • Hand to hand • 10 kg of dates with 15 kg of • 10 kg of dates with 15 kg of wheat

wheat exchanged on the spot deferred delivery
Gharar
Definition • Literally means as deceit, fraud, uncertainty, or hazard that may be lead to destruction loss
• Technically, Ibn Qayyim described gharar as a sale in which the vendor is not in a position to hand over the subject matter to the
buyer regardless if the subject matter is in existence or not.
• Al-Sarakhsi defined to any bargain whereby the result of it is hidden.
• The element of uncertainty in an exchange contract is likely to harm at least one of the party as the intent of each party is to
maximize its own benefit from the exchange

Prohibted of gharar • There is no verse from the Quran could be found directly prohibiting gharar. However, Quran clearly prohibits all forms of
in Quran and business transaction which cause injustice to any of the party. For example :
Hadith “O you who believe! Eat not your property among yourself unjustly by falsehood and deception, except it be a trade
amongst you, by mutual consent. [Suruh al-Nisa, verse 29]
• Abu Hurayrah narrated that the Prophet SAW prohibited all sales on gharar. It was reported that two types of transaction
prohibited by Prophet SAW namely :
• Al-mulamasah – Sales which could become binding when the buyer touched the object of sale.
• Al-munabadhah – Form of sales concluded by each party throwing his garment to the other party without any
inspection
Type of Gharar Yasir Gharar Fahlsh
Gharar • Type of gharar is tolerate and • This type of gharar is not tolerate and may
will not invalidate a contract result in contract voidability
• For example, hibah or
bequest.
• There is a publich need for
the transaction

Gharar due to the non-existence Gharar due to inadequacy or Gharar due to undue complexity of
of the subject matter or not inaccuracy of information. This the contract such as combining
having control over the subject type of gharar may arise due to two sales in one, two or more
matter. This is known in the non-disclosure of material interdependent contract. As
conventional modern term as information on the subject example, a person say ‘I sell to you
settlement risk where the seller is matter. The reason for the this item at RM100 in cash today
not in a position to hand over the prohibition of this type of gharar and RM110 to be paid within a year’.
subject matter to the buyer. is the possibility of deceit or fraud The buyer then said, ‘I accept’
that exist in such a contract. without specifying at which price he
would buy the item.
Maysir
Definition • Gambling is often referred by two words, gimar and maysir
• Literally, qimar is derived from the verb qamara, which means betting something and winning it.
• Technically qimar refer to an act of betting one’s asset in order to acquire another person’s asset
• Al-Zayla defined qimar as something which provided equal probability to two party to bear the loss.
• Ibn Qudamah defined qimar as situation in which each party must either enjoy gain or bear loss

Characteristic • It takes place between two or more party

• Each party bets his property
• Each party has equal probability of gain or loss
• The winning party’s gain corresponds exactly with the losing party’s loss

Maysir in Quran Surah al-Maidah

O believers, wine and gambling, idols and divination by arrows are but abominations devised by Satan ; avoid them so
that you may prosper. Indeed Satan seeks to stir up enmity and hatred among you by means of wine and gambling and to
keep you away from remembrance of Allah SWT and from your prayers
Type of Contract

Mudharabah
Sales Ijarah and
Musharakah

Wadiah,
Wakalah Kafalah and
Ju’alah
Sales

Bay al-
Sales of debt
Dayn

Sale and Buy- Bay al-

back Inah

Bay al
Cash Financing
Tawaruq
Definition
Bay al-Dayn (Sale of Debt)
Sale of debt which can be Legality of Bay al Dayn
either against a debt or • Majority of Islamic jurist
other than debt, to the allow the sale of debts to
debtor or other than the the debtors.
debtor, on a cash basis or Type of Bay’ al-Dayn • The legality of bay al dayn
on a deferred payment • Sale of debt to the debtor on a depend on its types which is
basis cash basis determined by the number
• Sales of debt to the non-debtor on of parties involved, the
a cash basis party to whom the debt is
Sale of Debt to Debtor on • Sale of debt to a debtor for a sold, and the modes of
Cash Basis deferred price delivery
Majority of Islamic jurist • Sales of debt to a non-debtor for a
Sale of Debt to
allow this type of debt sale deferred price
Debtor for a
on the premise that what is
Deferred Price
established in one’s
Majority of Islamic
liability is considered
jurist do not allow
existent and present in
this type of debt
actuality and the legal
sale.
ruling for something that is
in one’s possession.
Sale of Debt to a Non-debtor on a Cash
Basis
Bay al-Dayn (Sale of Debt)
Islamic jurist hold different view on the
legality of this sale contract. The view by
Shafie and Maliki school of law is Sale of Debt to a Non-debtor for a
permissible but subject to certain condition. Deferred Price
1. Payment should be made on the spot Islamic jurist such as Ibn Taymiyyah and Ibn
2. Debtor is present at the point of sale Qayyim allow this type of debt sale on the
3. Debtor must confirm the debt so as to basis of analogy upon a transfer of debt. But,
avoid any objection from his side that majority of scholar opinion that this type of
may lead to a dispute sale is impermissible.
4. Debtor should have the legal capacity
and hence can be legally bound to law
5. Payment is not of the same types as the
dayn, should be sold at par value
6. If the debt is gold, it cannot be sold for
silver.
7. Dayn should be goods that are
tradeable before taking possession.
8. There should be no enmity between
debtor and the buyer
Definition Bay al-Inah (Sale and Buy Bank)
• Literally inah is a loan or
an advance payment
Legality of Bay al-Inah
• This is usually when
• Muslim jurist hold different opinion
someone barters one thing
Form of Bay al-Inah concerning the issue of the formation and
for another on credit or
1. A sells a commodity to B for a substance of a contract.
when he buy on credit.
certain price with payment • According to Abu Hanifah, Al-Shafie and
• This type of sale is named
delayed until specific date and Ibn Hazm, view that the validity of
credit sale because buyer
then buy it back from A at a transaction is determined by its
of commodity for a fixed
lower price in cash expression or the form of the contract.
time will take its
2. A buy commodities from B • The SAC-BNM agreed that the objection
compensation in cash on
through intermediary present to bay al-inah are adopted by majority
the spot.
at the time of the transaction. Shariah scholars, but ruled that bay al
3. A sells a commodity to B for inah is acceptable if the following
certain price with payment condition are met :
delayed until a specific date. He • The mechanism practiced is
then buys it back with payment accepted to Shafie school
delayed until a date later than • The transacted item is not a ribawi
that of the first transaction at itme.
the higher price.
 Bay al-Tawarruq (Cash Financing)
Definition • Tawarruq is the infinitive of the verb tawarraqa (to eat leaves), which can be used as tawarraqa al-haywan (animal ate the leaves)
• Tawarruq was used by earlier generation for the purpose of seeking silver money, while it is used nowadays for seeking paper
money

Legality • Majority of scholar and fiqh councils consider individual tawarruq as permissible in principle. However, they laid down some
condition to guarantee its proper application.
Type of Tawarruq • Tawarruq on individual basis (tawarruq fardi)
• IFA-OIC defines this as ‘purchase of commodity possessed and owned by the seller for a delayed payment, whereupon
the buyer will resell the commodity for cash to other than original seller in order to acquire cash’
• Organised tawarruq (tawarruq munazzam)
• This is when seller handles process by which cash is acquired for the seeker of cash (mutawarriq). The seller sell
commodity to the mutawarriq for a delayed payment. Then seller sell the same commodity on the mutawarriq’s behalf
to third party for cash, and hand over the cash to mutawarriq.
• Banking tawarruq (tawarruq masrafi)
• Process where IFI organizes the sale of commodity between international commodity market or other market and the
mutawarriq for a delayed payment on a binding condition.