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    U1l4notes Financial Contracts of Islam

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    U1l4notes Financial Contracts of Islam

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    u1l4notes Financial Contracts of Islam

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    25 views33 pages

    U1l4notes Financial Contracts of Islam

    Uploaded by

    Amira

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 33

    Financial

    Contracts in
    Islam
    Grade 11
    Page 52
    Learning Objectives

    1. Define the meaning of Contracts


    2. Explore the importance attached to the regulation of financial
    contracts
    3. Determine the elements and conditions of a financial contract
    4. Clarify the classification of financial contracts in terms of
    legitimacy and purpose
    5. Illustrate the features of financial contracts in Islam
    Warm Up Time
    Longest Ayah of the Qur’an?

    ●Which is it?
    ●What is it about? DEBT/LOAN
    ●What message does it convey?
    DOCUMENTATION
    ‫ عقود‬/ ‫عقد‬
    Aqd / Contract definition
     Linguistic definition:
    Uniting various sides/parties and joining them
    together.
     Technical definition:
    The legal binding of two parties’ intent in a
    transaction in a manner that is sanctioned
    and permissible by Islam.
    Discuss and deduce
    WAFA
    ۚ ‫ َيا َأُّيَها اَّلِذ يَن آَم ُنوا َأْو ُفوا ِباْلُعُقوِد‬
     “O you who have believed, fulfill [all] contracts.”

     The command in the Quranic verse


    is directed to the believers to fulfill all contracts

     Synonyms of contract:
    Promise – transaction – agreement – commitment
    Contracts and Commitments
    according to their subjects.
     Religious Contracts – Giving a word / Promise

     Social Contracts – Marriage

     International Contracts – Treaty between countries

     Scientific contracts – Patent, Copyright act

     Educational Contracts – Scholarship with the agreement to pay


    back.

     Financial Contracts – Lease, Loan, Mortgage etc.


    Vow - Oath

    Marriage

    Peace Treaty (Truce)

    Sale - Lease

    Scholarship
    How do we regulate and *notarize
    contracts? LEGAL
     First:by documentation.
     Second: by witnesses / Guarantor / Surety
     Third: by other suitable means.
     Allah SWT said in the longest ayah of the Qur’an:

    ۚ ‫َواَل َتْس َٔـُم ٓو ْا َأن َتْك ُتُبوُه َص ِغيًرا َأْو َك ِبيًرا ِإَلٰٓى َأَج ِلِهۦ‬
    * Definition of notarize
    to acknowledge or attest as a notary*.
    * Definition of notary
    a public officer who attests or certifies writings (such as a deed)
    to make them authentic and takes affidavits, depositions, and
    protests of negotiable paper
    Significance of Regulating and
    Notarizing Contracts
     The arrangement of financial contracts has a great
    importance in preventing conflicts.

     Guaranteed by determining duties and rights of each party of


    the contract based on documentation and witnesses

     Allah mentions in the verse of debt:


    (Surat Al Baqarah: 282) “Don’t be averse to writing down (the contract) whether
    it be small or great, with (the record of) the term thereof”
    Conflict- Harm – loss of trade– loss of trust

    Avoiding conflict by determining the duties


    of every party in the contract
    Guaranteeing the rights of both the parties
    Read the following Ayah and try to extract
    the significant element of contract
    ‫َبْيَنُك ْم ِباْلَباِط ِل ِإاَّل َأْن َتُك وَن ِتَج اَر ًة َع ْن‬ ‫ َيا َأُّيَها اَّلِذ يَن آَم ُنوا اَل َتْأُك ُلوا َأْم َو اَلُك ْم‬
    ‫َهَّللا َك اَن ِبُك ْم َرِح يًم ا‬ ‫َتَر اٍض ِم ْنُك ْم ۚ َو اَل َتْقُتُلوا َأْنُفَس ُك ْم ۚ ِإَّن‬
    O you who believe! Squander not your wealth among
    yourselves in vanity, except it be a trade by mutual
    consent, and kill not one another. Lo! Allah is ever
    Merciful unto you.
    Elements of Financial Contracts 1)
    Form of Contract
    Formulation of offer and acceptance
     1. Either by word, writing, gesture, or act.
     2. Can be expressed in any clear, understood, customary
    way such as modern communication means in concluding
    contracts.
    writing

    Action (by deed)

    Saying (by word)


    1-Form of Contract
     It
    is formed by Offer and Acceptance by either a
    word, writing, gesture, act.

    Every saying or action or gesture that signals


    willingness.
    Elements of Financial Contracts
    2) The Two Contracting Parties
     1. Sanity/Maturity: Both parties must be mature.
     Insanity and childhood are NOT considered!

     2. Adulthood is where a person can handle financial


    matters independently and make the best use of
    properties.

     Mutual Consent: To indulge in a contract, willingly


    and voluntarily.
    Compulsion/coersion SHOULD NOT EXIST!!
    Elements of Financial Contracts 3)
    Subject of Contract
    What is concluDED within the contract

     1. Goods/Kind: such as a sales contract


     2. Usufruct: such as leasing
     3. Service/Action: such as power of
    attorney
    Write the subject of the matter of the contracts below

    1. Mortgage contract = _________


    2. Lending contract = _________
    3. Security contract = __________
    Elements of Financial Contracts - 3)
    Subject of Contract (Continued)
    1. 1. Possessed by the contractor - The Messenger of Allah said
    “do not sell what you do not have”.
    2. 2. Lawful - wine, pork, and harmful goods are not allowed to be
    sold
    3. 3. Known and defined - Not allowed to sell unknown or falsey or
    insufficiently described things lest any defect might be covered
    or hidden!!
    Types of financial contracts
     According to Shari’ah
    A. Legal contracts: They are accredited by
    Shariah, with entailed juristic effects.
    B. Illegal contracts: They are the ones which
    Islamic shariah prohibited and did not entail
    any legal effects. This happens because of a
    forbidden condition or description in relation to
    a contract, making it illegal. Such as contracts
    that have usury, gambling, cheat or fraud.
    Features of financial contracts in Islam:
    1. Flexible and compatible with the spirit of our age:
    The original state of financial contracts and their conditions is that everything
    is permissible except when there is clear Shariah evidence of prohibition as
    Allah says: "Allah has permitted trade and has forbidden interest”.
    Shariah is valid for all times, and cannot become outdated. Scholars have to
    exert their thinking and do research especially the field of economics is
    constantly evolving.

    2. Regulated by ethical and faithful values:


    a. A Muslim is supposed to be honest and sincere, and should not wrong an
    employee or cheat anyone whether young or old, should be fair with all
    people.
    b. Cannot accept any unlawful contract or condition or perjure to attain any
    gain in his contracts or dealings
    c. All earnings must be legitimate
    Features of financial contracts in Islam:
    3. Fulfilling the needs of society:
    a. To read the paragraph – page 61

    4. These must be enforced:


    b. Islam attaches a great respect to contracts and enjoins
    adherence to the conditions and fulfilment them.
    c. Allah said. “And fulfil every commitment. Indeed the
    commitment is ever to be questioned!”
    d. The reward of honoring the promises of these contracts
    is not confined mundane or material gains but it is also
    extended to the Hereafter whether good or evil
    EXTENSION ACTIVITY

    View this Video on

    Bitcoin & Crytocurrency


    https://www.youtube.com/watch?v=cHSomztO
    LbQ
    sequestration

    Complete the following xercises

    Lender -Borrower

    sequestration mortgagee - mortgagor

    Lessor - Lessee

    Debtor - Creditor
    Concrete
    Object

    Concrete Object

    Proxy action

    usufruct

    Not permissible because he doesn’t own it

    Not permissible because the subject of the contract is unlawful for its harm

    Not permissible . He cannot rent it out without the owners permission


    Legal contract

    Illegal contract for it contains Usury


    Types of financial contracts

    Based on exchange of items like buying and selling


    Voluntary based like a gift or donation

    based on getting ones right back. Like a security cheque .


    Forward sale – Sale –
    Mudharabah

    Endowment – grant - Lending

    Sequestration - guarantee
    Legal contracts: Flexible and
    to fasten by drawing Form of Contract. they are contracts Exchange contracts: compatible with the
    together the parts or accredited by sharia e.g. Sale . Leasing spirit of our age
    sides and knotting Illegal contracts: Regulated by
    with strings or laces. two contracting they are the ones ethical and
    parties which Islamic faithful values
    Sharia prohibited Donations contracts
    Fulfilling the
    the legal binding such as usury, e.g. Endowment –
    fraud, …….etc
    needs of society:
    of two parties’ Grant
    The subject mater
    wills of the contract
    Security contracts: They must be
    e.g. guarantee – enforced
    sequestration

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