Fiqh Muamalat 1 & 2

CHAPTER 1

MEANING OF MUAMALAT

1. All transactions are justice is concerned with the affairs of the world, with regard to the activities of one's life, such as buying and selling, barter system, borrowing and lending, and so on.
2. Muamalat is also the procedure or rules of human relationships among people to meet their needs and based on the laws of Allah S.W.T involving economic and social Islam.
3. Transactions is defined in economics as the focus all of people to gain the pleasure of living in this world and salvation in the hereafter.
4. All property that is in the universe, whether on earth or in the bottom of the sea belong to God in mutlak. The people asked to have the property provided by God through knowledge and skills to them. Their bestowed with wealth in the world is as the message of Allah and are responsible for these properties.

The Word of God S.W.T :

هُوَالَّذِيجَعَلَلَكُمُالأرْضَذَلُولافَامْشُوافِيمَنَاكِبِهَاوَكُلُوامِنْرِزْقِهِوَإِلَيْهِالنُّشُورُ

Meaning: Who has made the earth for you, easy to use, so walk everywhere and eat every nook and cranny of the things which the Almighty Allah and remember Allah belongs (your return) in the wake (so cherish the joy and fear his wrath)

(Surah Al-Mulk verse 15)

1. Finding wealth is encouraged by Islam, because the property is a tools to achieve the pleasure of living in this world and in the Hereafter. The property is one that can meet his needs as well as to fulfill its responsibilities towards religion.
2. In search of wealth, Muslims are required to use a portion of their wealth in charity and welfare benefits.
3. To ensure the economic activities carried out by humans performed well and achieve the pleasure of Allah Islam has laid down some rules for achieving these goals.

Chapter 1.1: Transactions Regulations

1. Finding wealth in a good and blessed by God S.W.T
2. Adopt-a noble morality in the conduct of economic affairs with other parties, such as trust, fair, honest, do not cheat and others.
3. Carry out an economic activity that will benefit the whole of mankind.
4. All activities undertaken should be based on faith and piety to Allah and Islam. Faith in God is a fortress to prevent a person from doing things that are not welcome.
5. All activities are carried out to establish relationship with other people. Benefits incurred in the course of economic activity will indirectly foster the spirit of unity and brotherhood among Muslims and non-Muslims.

Chapter 1.2: Purpose of Transactions

1. That is so in human life is not going to happen any dishonesty as a prey-seizing, sloppy-encroaching on the ownership and deluded thinking and so on.
2. Will the man himself is putting human values ​​and high standards to have the pleasure of Allah in this world and in the hereafter.
3. Muamalat also determine the rules to try and work for people with a halal way.

(The Prophet s.a.w: meaning):

Abdullah bin An – Nukman bin Basyir r.anhuma said: "I heard the Prophet saying: it was real clean (clear ruling) and that illegal also clear (clear ruling) and in between the two (halal and illegal) that there are things syubhah (which will obviously not halal and prohibited), which is not known by many people, then those who watch from syubhah things he has liberated himself with religion and honor, and whoever falling into things syubhah then he has fallen into the unclean things, like a shepherd herding around a fenced pasture almost gembalaannya in animals and eat the grasses that are fenced. Then know that every king that she had a prohibited area, and know that Allah is indeed protected areas things - things that have been on the list goes it haram know that in the body there is a piece of flesh, if it whole body and if it is broken then broken watches of the whole body, for it is the heart. "

(Narrated by Al-Bukhari and Muslim)

Chapter 1.3: The Role of Transactions

1. Existing the peaceful and prosperous society. Transactions are carried out in accordance with Islamic law will create a safe and away from any fraud, extortion, injustice, monopolizing wealth and so on, this is the goal of the Islamic Muamalat for the benefit of mankind.

2. Muamalat in Islam seeks to prevent the occurrence of any human oppression. Islam forbids its followers to commit acts that are not good to be troublesome in the suppress.

3. It cause, all economic activities carried net of any act which is prohibited by Allah, we shall leave vile things like usury, corruption, fraud or other prohibited by Allah

(The Prophet s.a.w: Meaning):

Abu Huraira r.a. he said: The Prophet saw said, "Whoever gets wealth from illegal sources and then he donated the property, he will not get a reward, but sin that will override"

(Narrated by Ibn Khuzaimah, Ibn Hibban and Al-Halim)

4. Bermuafakat create a virtuous man in carrying a message of Allah

5. It easy for people to experience God's grace and pleasure with the correct technic. If no rule muamalat, people will do anything to acquire wealth, they will also use the property in accordance with the desires without considering the interests of others.

6. To encourage people to work hard to improve the economic status of the family, community and country.

7. Existing the community working together, and helping each other for the good and welfare.

8. It cause, the wealth provided by God not only in the monopoly by certain groups only. All human beings are entitled to and possession of the property in accordance with their capabilities as long as the right way and blessed by Allah swt

Chapter 1.4: Benefit Transactions

1. Acquire wealth by way chosen by Allah S.W.T
2. A person is able to use some of his wealth in charity.
3. A person who uses his wealth for the benefit of other people will have their reward from Allah SWT
4. Those who spend their wealth in the way of Allah will receive the blessings of living in this world and in the hereafter.

The Word of God s.w.t:

آمِنُوابِاللَّهِوَرَسُولِهِوَأَنْفِقُوامِمَّاجَعَلَكُمْمُسْتَخْلَفِينَفِيهِفَالَّذِينَآمَنُوامِنْكُمْوَأَنْفَقُوالَهُمْأَجْرٌكَبِيرٌ

Meaning: Believe in Allah and His messenger, and spend (in charity) out part of the property (the gift of God) has made you heirs, then those of you who believe and spend (in the way of the real God) then fixed have a great reward.

(Surat al-Hadid, Verse 7)

1. Regulations in accordance with Islamic bermuamalat indirectly create a virtuous man.
2. To create a society that is fair, responsible, trustworthy, honest and free from doing anything that is not good.
3. Among the effects that arise when muamalat conducted not in accordance with Islamic law, including:

a) Bringing the fighting and hostility

b) Produce an insecure society.

c) Produce individuals being selfish.

d) Get the property in a manner that is not kosher.

e) Using the property on the things that do not please God and wasteful.

f) Produce human greedy, selfish, greedy and willing to oppress others for the sake of self-interest.

References & Quotes taken from the Book:

1) Book Matla'al Badrain-Sheikh Daud Fattani compiled by Ibn mercy

2) Fiqh Shafi Volume 2-Ustaz Ahmad S.H H.Idris

3) Sharh Hadith 40-Mulla Ibrahim Khalil Khotir

4) Issue-DJ Sasbadi Pregnant @ Amir Abdul Hameed

5) Fiqh Muamalat & Crime / Fiqh 11 (PPJJ UKM)

i) Dr.Muhammad Hj Md Daud

ii) Dr.Ahmad Hj Kamaruddin Hamzah

6) The concept of Shariah in Islamic Banking System

i) BIMB Institute Of Research And Traning Sdn.Bhd (BIRT).

CHAPTER 2

ARTICLE REGARDING TRANSACTIONS

MURABAHAH (SALES INCREASE PROFITS)

1. That mention the price of capital goods purchased to be purchased with a condition that the goods be profit.

Example 1: For example, someone said: "This Stuff I bought for RM100, now give me 10% profit" and accepted by the people who will buy . Then, vendors for RM10 profit from buying the precious capital of RM100.

Example 2: For example, someone said: "I sell this house with my purchase price plus 10% profit."

Example 3: For example, someone said: "I sell to you as I have bought and gained one dirham on every ten dirhams" said the buyer, I accept it.Then, the lawful sale.

Example 4: For example, someone said: "I want to sell stuff that has shall it, when you want to buy all the stuff that every 10, I give you. So purchased is 9, while the other is a gift. "

WADI’AH (STORE)

1. The means goods delivered (mandated) to a person that the goods be treated well appointed. So the mediator goods goods Wadiah message should be returned to the owners, when they came to ask.

The Word of God s.w.t:

وَإِنْكُنْتُمْعَلَىسَفَرٍوَلَمْتَجِدُواكَاتِبًافَرِهَانٌمَقْبُوضَةٌفَإِنْأَمِنَبَعْضُكُمْبَعْضًافَلْيُؤَدِّالَّذِياؤْتُمِنَأَمَانَتَهُوَلْيَتَّقِاللَّهَرَبَّهُوَلاتَكْتُمُواالشَّهَادَةَوَمَنْيَكْتُمْهَافَإِنَّهُآثِمٌقَلْبُهُوَاللَّهُبِمَاتَعْمَلُونَعَلِيمٌ

Meaning: "Therefore let him who is entrusted to execute what is entrusted to him, and let him fear Allah".

(Surah Al-Baqarah verse 283)

The Word of God s.w.t:

إِنَّاللَّهَيَأْمُرُكُمْأَنْتُؤَدُّواالأمَانَاتِإِلَىأَهْلِهَاوَإِذَاحَكَمْتُمْبَيْنَالنَّاسِأَنْتَحْكُمُوابِالْعَدْلِإِنَّاللَّهَنِعِمَّايَعِظُكُمْبِهِإِنَّاللَّهَكَانَسَمِيعًابَصِيرًا

Meaning: "Allah commanded you, so that the message is delivered to the person entitled to receive it (the owners)."

(Surah An-Nisa 'verse 58)

BAI'SALAM (DELAY SUBMISSION OF GOODS)

1. The word Salam deliver the original meaning or grace, the sense here is selling an item that is deemed to be the liability of a person in order to sell or order (order items).

Example 1: For example, Ali Zaid said to him: "I strike a woll cloth pants from a light yellow, size 105cm long, 70cm waist, great legs 25.5cm, 43cm wide hips, back pocket and so the price of RM100.

The Word of God s.w.t:

يَاأَيُّهَاالَّذِينَآمَنُواإِذَاتَدَايَنْتُمْبِدَيْنٍإِلَىأَجَلٍمُسَمًّىفَاكْتُبُوهُوَلْيَكْتُبْبَيْنَكُمْكَاتِبٌبِالْعَدْلِوَلايَأْبَكَاتِبٌأَنْيَكْتُبَكَمَاعَلَّمَهُاللَّهُفَلْيَكْتُبْوَلْيُمْلِلِالَّذِيعَلَيْهِالْحَقُّوَلْيَتَّقِاللَّهَرَبَّهُوَلايَبْخَسْمِنْهُشَيْئًافَإِنْكَانَالَّذِيعَلَيْهِالْحَقُّسَفِيهًاأَوْضَعِيفًاأَوْلايَسْتَطِيعُأَنْيُمِلَّهُوَفَلْيُمْلِلْوَلِيُّهُبِالْعَدْلِوَاسْتَشْهِدُواشَهِيدَيْنِمِنْرِجَالِكُمْفَإِنْلَمْيَكُونَارَجُلَيْنِفَرَجُلٌوَامْرَأَتَانِمِمَّنْتَرْضَوْنَمِنَالشُّهَدَاءِأَنْتَضِلَّإِحْدَاهُمَافَتُذَكِّرَإِحْدَاهُمَاالأخْرَىوَلايَأْبَالشُّهَدَاءُإِذَامَادُعُواوَلاتَسْأَمُواأَنْتَكْتُبُوهُصَغِيرًاأَوْكَبِيرًاإِلَىأَجَلِهِذَلِكُمْأَقْسَطُعِنْدَاللَّهِوَأَقْوَمُلِلشَّهَادَةِوَأَدْنَىأَلاتَرْتَابُواإِلاأَنْتَكُونَتِجَارَةًحَاضِرَةًتُدِيرُونَهَابَيْنَكُمْفَلَيْسَعَلَيْكُمْجُنَاحٌأَلاتَكْتُبُوهَاوَأَشْهِدُواإِذَاتَبَايَعْتُمْوَلايُضَارَّكَاتِبٌوَلاشَهِيدٌوَإِنْتَفْعَلُوافَإِنَّهُفُسُوقٌبِكُمْوَاتَّقُوااللَّهَوَيُعَلِّمُكُمُاللَّهُوَاللَّهُبِكُلِّشَيْءٍعَلِيمٌ

Meaning: "O ye who believe, when you contract a debt (reprieved) until a certain time, then you can write (and the debt repayment) it.

(Surah Al-Baqarah verse 282)

AL-IJARAH (WAGE)

1. The term in Arabic, the word Ijarah refers to payments given to people who do a job as a reward for what he did.

Example 1: Ahmad came to bring a piece of cloth to a tailor to be made trousers, tailoring the guarantee in his confession, that the jeans will be completed within 3 days. When the time came, the Ahmad came to take his trousers and handed over the money of RM 50 to tailor it.

The Word of God s.w.t:

قَالَتْإِحْدَاهُمَايَاأَبَتِاسْتَأْجِرْهُإِنَّخَيْرَمَنِاسْتَأْجَرْتَالْقَوِيُّالأمِينُ

قَالَإِنِّيأُرِيدُأَنْأُنْكِحَكَإِحْدَىابْنَتَيَّهَاتَيْنِعَلَىأَنْتَأْجُرَنِيثَمَانِيَحِجَجٍفَإِنْأَتْمَمْتَعَشْرًافَمِنْعِنْدِكَوَمَاأُرِيدُأَنْأَشُقَّعَلَيْكَسَتَجِدُنِيإِنْشَاءَاللَّهُمِنَالصَّالِحِينَ

Meaning: Any one of the two women said: "O my father take him to be hired (herding our goats), surely the best of men for thee to employ is the strong man be trusted. Her father said (to Moses) "I want to marry with one of two daughters, on condition that thou serve me for eight years, in the meantime if you complete 10 years, then that is of your own accord. And (remember) I shall not trouble you, you will find me, inshallah, from the righteous. "

(Surah Al-Qasas verse 26-27)

AR-RAHNU (PAWNBROKER)

1. To make the property as security for a debt that is meant to make the goods as security for a debt and the payment of, if not able to pay the debt later.

The Word of God s.w.t:

وَإِنْكُنْتُمْعَلَىسَفَرٍوَلَمْتَجِدُواكَاتِبًافَرِهَانٌمَقْبُوضَةٌفَإِنْأَمِنَبَعْضُكُمْبَعْضًافَلْيُؤَدِّالَّذِياؤْتُمِنَأَمَانَتَهُوَلْيَتَّقِاللَّهَرَبَّهُوَلاتَكْتُمُواالشَّهَادَةَوَمَنْيَكْتُمْهَافَإِنَّهُآثِمٌقَلْبُهُوَاللَّهُبِمَاتَعْمَلُونَعَلِيمٌ

Meaning: "And if you're on the way (and you owe) and you do not get people who will write then be handed to the security hold".

(Surah Al-Baqarah verse 283)

AL-WAKALAH (proxy)

1. That’s means a person who submits a business to others on what can be delegated according to Islamic law, so that the person delegated to do something that is handed to him as long as the hand is alive.
2. Al-wakalah more respect muamalat & Munakahat like chapters and chapters of sale and purchase wedding and others. Delegate void prayer, fasting and other matters associated with the worship of Hajj & Umrah except (both of which can be delegated), because worship is the human relationship with his Lord.

The Word of God s.w.t:

وَإِنْخِفْتُمْشِقَاقَبَيْنِهِمَافَابْعَثُواحَكَمًامِنْأَهْلِهِوَحَكَمًامِنْأَهْلِهَاإِنْيُرِيدَاإِصْلاحًايُوَفِّقِاللَّهُبَيْنَهُمَاإِنَّاللَّهَكَانَعَلِيمًاخَبِيرًا

Meaning: "So go send (send) a judge of a family man and a judge from her, if both the middle Duan (sincerely) seeks to reconcile".

(Surah An-Nisa 'verse 35)

Al-MUDHARABAH (Profit Sharing)

1. The language is traveling for business.

The Word of God s.w.t:

إِنَّرَبَّكَيَعْلَمُأَنَّكَتَقُومُأَدْنَىمِنْثُلُثَيِاللَّيْلِوَنِصْفَهُوَثُلُثَهُوَطَائِفَةٌمِنَالَّذِينَمَعَكَوَاللَّهُيُقَدِّرُاللَّيْلَوَالنَّهَارَعَلِمَأَنْلَنْتُحْصُوهُفَتَابَعَلَيْكُمْفَاقْرَءُوامَاتَيَسَّرَمِنَالْقُرْآنِعَلِمَأَنْسَيَكُونُمِنْكُمْمَرْضَىوَآخَرُونَيَضْرِبُونَفِيالأرْضِيَبْتَغُونَمِنْفَضْلِاللَّهِوَآخَرُونَيُقَاتِلُونَفِيسَبِيلِاللَّهِفَاقْرَءُوامَاتَيَسَّرَمِنْهُوَأَقِيمُواالصَّلاةَوَآتُواالزَّكَاةَوَأَقْرِضُوااللَّهَقَرْضًاحَسَنًاوَمَاتُقَدِّمُوالأنْفُسِكُمْمِنْخَيْرٍتَجِدُوهُعِنْدَاللَّهِهُوَخَيْرًاوَأَعْظَمَأَجْرًاوَاسْتَغْفِرُوااللَّهَإِنَّاللَّهَغَفُورٌرَحِيمٌ

Meaning: "And the other people who are traveling the earth to search for the Bounty of Allah."

(Surah Al-Muzammil verse 20)

1. Mudharabah is also known by the name qiradh the cut, because the person who owns the property to cut a property to be sold with the property.
2. Mudharabah also known as mu'amalah is meant here is an agreement an agreement made ​​by two parties:

The first: Give some money to the second party to do business, provided the profit is divided between them by agreement, as promised, such as 1 / 2,1 / 3 and so on.

The second: Endeavour or dealing with capital provided by the first follow all the conditions agreed by both parties.

QARDHUL HASSAN (DEBT WITHOUT CONDITIONS / UNDERTAKING)

1. It is an unconditional debt or a promise to pay back more than the debt, but give consolation to the owner of the current debt to pay, not because of the condition or promise.

Example 1: A debt of another person without the condition or promise of any payment or benefit more, in the contract or outside the contract or before the debt is explained but when people pay the debt it owes to reward or prize to the owner of the debt.

Example 2: Ali pay a debt to Abu RM50 RM3 well be a consolation.

AL-BAI BITHAMAN AJIL (SALE PRICE WAITING)

1. Sales with deferred or installment sale is to sell something to hasten the delivery of goods sold to the buyer and the delay cost price up to a set time or a fee gradually.

For example: antique chairs, cash price RM2000, RM2200 if grace.

References & Quotes taken from the Book:

1) Book Matla'al Badrain-Sheikh Daud Fattani compiled by Ibn mercy

2) Fiqh Shafi Volume 2-Ustaz Ahmad S.H H.Idris

3) Sharh Hadith 40-Mulla Ibrahim Khalil Khotir

4) Issue-DJ Sasbadi Pregnant @ Amir Abdul Hameed

5) Fiqh Muamalat & Crime / Fiqh 11 (PPJJ UKM)

i) Dr.Muhammad Hj Md Daud

ii) Dr.Ahmad Hj Kamaruddin Hamzah

6) The concept of Shariah in Islamic Banking System

i)BIMB Institute Of Research And Traning Sdn.Bhd (BIRT).

CHAPTER 3

SALE & PURCHASE

1. Purchase Agreement from the term language was changed to something else. In Islamic terminology is changing the property of the property in accordance with the particular ways.

Arguments should and halal trading:

i) Firman Allah s.w.t says: -

"And Allah has permitted trading and forbidden usury." (Surah Al-Baqarah: verse 275)

ii) Firman Allah s.w.t means: -

"Do not eat the property that is in between you in vanity, except by way of sale and purchase is pleased with you." (Surah An-Nisaa ': Verse 29)

iii) The Holy Prophet s.a.w which means: -

"Indeed, it is born from the trading-meredhai pleased."

(Reported by Ibn Hibban)

1. Wisdom permissible trading: -

i) Allah has created human nature that requires a change in the property interest between people, whether through buying and selling, tenancy and so on.

ii) The availability of these trading rules will terhindarlah maja-seized or confiscated incident of robbery in which humans would have no property on him.

iii) with one another is to teach people to live together and live under the rule of law.

1. Pillars of trading divided into six: -

i) Vendor

ii) the Purchaser

iii) the purchase price

iv) The goods

v) Sighah (pronouncement seller)

vi) qabul (pronouncement buyer)

1. Conditions seller and buyer: -

i) baligh and understanding

ii) Not bankrupt or stupid

iii) No forced

iv) Muslim

v) Independence

vi) Not dealing with the enemies of Islam.

1. The conditions and prices of goods sold: -

i) The goods must be pure and clean.

ii) the goods belong to the seller's own ayau dealer

iii) Submit the goods to the buyer during a sale and purchase contract.

The Holy Prophet s.a.w which means: -

"From Abu Hurairah that the Prophet Muhammad was banned from selling sales intrigue."

iv) Sellers and buyers must know the nature, pace and nature of goods sold.

1. Conditions Ijab (pronouncement Vendor) qabul (pronouncement Shopper)

i) No other words punctuated by a contract when buying and selling.

ii) There is punctuated by a long silence in between consent and qabul

iii) Equal Ijab qabul although different in terms of its meaning in terms of sighah

iv) Not limited time.

v) Not bertakliq.

1. When not enough rules and conditions in the sale and purchase is not valid.
2. Conditions buying holy Al-Quran and Al-Hadith it shall Muslims.
3. Several questions involving the sale and purchase: -

i) Not valid selling wild animals.

ii) No shit legally sell something that can not be purified.

Unauthorized sale of property which was mortgaged to another person except with the consent of the person holding the mortgage.

CHAPTER 4

RIBA

The meaning of Usury:

1. The language is more or fertile.
2. In the Shariah is an agreement for an exchange of certain goods but not known similarity according to Islamic counts when aqad or known equation using both the change or either one of them.

Usury is divided into three parts: -

a) Riba Al-Fadhl - Laptops paid more at a party that turns things on the scales.

For example: One kilo of rice due to two kilos of rice of the same type.

b) Riba Al-Yad - usury paid more because not acceptable in the dealings aqad.

For example: A person who beraqad RM 100.00 but when outside aqad paid RM 105.00.

c) Riba Al-nasi'ah - usury paid more because of missed payment or payments the same but different types.

For example: loan of RM 100.00 then repaid .RM 120.00 or ordinary rice but give loan payable super rice. Reference of the Fiqh Manhaji.Jilid 3 Issued Darul Qalam, Damascus .Tahun 2000 m / s: 59-61

Textual prohibition of riba ':

Allah S.W.T says:

"Allah has permitted trading and forbidden usury. "

(Surah Al - Baqarah - Verse 275)

Allah S.W.T says:

" Who believe, do not consume usury, which multiplied and fear Allah that ye may prosper."

(Surah Ali Imran - Verse 130)

The Holy Prophet s.a.w which means:

"Allah has cursed those who eat usury unrepresentative people in it, and secretaries and witnesses, and they said they were the same. "

(Narrated by Muslim)

Wisdom forbidden usury:

1. Riba is an oppression and exploitation of the poor because the poor poorer, increasing worried mind for thinking about how to pay the ever-increasing debt when the late payment of interest thereon.
2. The consuming riba 'become richer and easier.
3. Riba 'of eating will lead a life of leisure without work and effort while Islam encourages its followers to strive and work.
4. Riba may alienate damaging relations between the rich eater of usury to the poor so will cause chaos in the society and the nation emerge here and there robbery, murder and so on.

Terms of the sale of goods in order to avoid riba ': -

1. goods of the same kind: -

a) Should the same measurement or weight them.

b) Should the same as cash.

c) Should the council aqad accepted.

1. Items which are not of the same type: -

a) shall be in cash.

b) shall accepted in aqad council.

1. If the exchange of goods of different kinds of rice and money and so not subject to any conditions and accessible to as the agreement between the two parties.

(Reference Book - Book Matla'al Badrain - Sheikh Daud Fattani)

BAB 5

TYPES OF PROPERTY

VALUABLE PROPERTY (MUTAQAWWIM) AND PROPERTY IS NOT WORTHY (ghayr MUTAQAWWIM)

1. valuable property / value of each property is held by a person and syara` require its use.

For example: all kinds of immovable and movable properties of the delicacies or the like.

1. Real worthless / worth is property that is not in storage or held the fish in the river, the birds of the air also minerals that are in the bowels of the earth or the property is not to be used on syara` such as alcohol, pork, both these two should not be for Muslims
2. use except when emergencies only such magnitude thirst or hunger that can lead to death if not used.
3. The purpose of the distribution of property to the property is valuable and not valuable:

1. valuable property is valid for all the religious affairs of such trade, grant, loan, mortgage, wills and the companies.

2 Real worthless the religious void in all matters such as illegal selling of alcohol and pork.

3 Compulsory compensate by damaging valuable property damages either identical goods, if any, or pay the price.

4 Real worthless optional compensate the damage.

PROPERTY OF THE MOVEABLE (`IQAR) & PROPERTY OF NOT MOVEABLE (MANQUL)

1. Immovable property – property that can not be removed or altered from their original places such as building and land

1. Moveable property – property that can be removed or altered from its places whether the form and nature remain with removed or changed shape such as the money, good for business, animals or others

1. Sometimes turned into moveable and immovable otherwise.

1. Interest distribution to the moveable and immoveable properties are in accordance with the laws of fiqh differences

CHAPTER: 1.0 INTRODUCTION TO CONTRACT

1. THE FOUNDATION OF CONTRACT

1. The foundation of Shariah standards business contracts:

1. Belief : can be define as akidah or our faith which is comprises with 6 basic beliefs as follows:

1. Faith in God
2. Faith in Angles
3. Faith in Scriptures
4. Faith in Prophets
5. Faith in Resurrection and judgement day
6. Faith in Destiny

1. God Consiousness : can be define as taqwa or To implement the commandments and avoid those which are prohibited (amar makruf nahi mungkar)

1. Knowledge: can be define as In the Islamic theory of knowledge, the term used for knowledge in Arabic is'ilm, which, as Rosenthal has justifiably pointed out, has a much wider connotation than its synonyms in English and other Western languages. 'Knowledge' falls short of expressing all the aspects of 'ilm. Knowledge in the Western world means information about something, divine or corporeal, while 'ilm is an all-embracing term covering theory, action and education. Rosenthal, highlighting the importance of this term in Muslim civilization and Islam, says that it gives them a distinctive shape.

1. Sincerity: To carry out an action or deed, solely for the pleasure of Allah Tala and not to please the creation.

1. Sources of Law: Our references in life is Al-Quran and Sunnah

1. Human beings: Islam has clarified that the reality of man emanates from two origins: The far origin, that is his first creation from mud when Allah (S.W.T.) made him and breathed into him life, and the close origin, that is his creation in the womb of his mother. Allah (S.W.T.) says in surat As-Sajdah, (Verses 7-9), about the origin of man, what can be translated as, "He is the one who excelled in everything He created, and He started creating man from clay and then made man’s progeny from a worthless fluid, then He made him and breathed into him from his soul, and made for you the hearing, the visions, and the hearts, and little thanks you gives." Other than that there a lot something special of human being such as, human being have ‘aqal’, honoured creatures and etc

1. FORMALITIES OF CONTRACT

1. Offer ( ijab )

1. Modes of offer (namat al –ijab):

An offer can be made in any of the following ways:

i. by words / oral

Article 168 of the Majallah provides that an offer can be made by words used for concluding a sale (Bai) by the common usage and the custom of the place

ii. by writing

An offer could also be made by writing or deed which will have equal legal effect as the one made verbally. Article 173 of the Majallah provides that an offer can also be made in writing in the same way as it is made by the words.

iii. by gesture

An offer could also be considered if it is made by a person who is incapable of making it either verbally or in writing. For example, an offer made by a handicapped or dumb or deaf as ruled out in Articles 174 of the Majallah.

According to Hanafi and Shafii Schools of jurisprudence, an offer by gesture is valid in the absence of capability in words or writing. Maliki and Hambali Schools of Law approve an offer by gesture, because it is better than al-Mu’atah.

iv. by conduct

An offer by conduct is in all circumstances valid. For example, an offer by advance delivery or performance or payment or silence as provided under Article 175 of theMajallah.

v. By Post and Telegram, Telex, Fax, Phone, or by E-Mail.

Because, all these technical means represent an offer by word and writing.

vi. An offer could also be made using customary practices as provided by Article 168 of the Majallah that an offer could also be made using the words of common usage and place.

1. Tense of offer ( sighah al-ijab) :

By virtue of Article 169 of the Majallah, an offer is generally made using past tense. But in some situations, an offer could also be made in other tenses and manners. For example, Article 170, which provides that an offer may be made by the aorist tense in which if it indicates to a present tense then the sale is valid but if it indicates to a future tense then the sale is invalid. In other word, an offer is valid and has a legal effect if it is made using future or imperative sense the contract would be held invalid. Article 171 of the Majallah provides that a sale is not concluded by words in the future tense. Similarly, Article 172 of the Majallah provides that a sale is not concluded by words in the imperative tense.

Hanafi School of Islamic jurisprudence strongly opposed the validity of an offer made using future or imperative tense despite that there is a proof of intention (Niyyah) by the offeror. Because, an offer of these two tenses evolves around the element of Garar.

1. Counter Offer (Ard al-Muqabil)

In order to create a building agreement, the offer and acceptance must match. The offeree must accept all the terms of the offer. If in his reply to an offer, the offeree introduces or poses a new term(s) or varies the terms of the offer then that reply cannot amount to an acceptance. Instead, the reply is treated as an offer itself, a free to accept or reject.

1. Revocation of an Offer (Ruju ‘an al-Ijab)

According to Hanafi and Hambali School of jurisprudence, the offeror has the right to revoke at any time before the acceptance is made. Although, this right also theoretically exists in the Shafii School of Jurisprudence, it is doubtful whether the offeror will have even found time to exercise it. This is because; the Shafiis, require the acceptance to be made immediately after the offer was made, otherwise the offer will cease to exist.

According to Maliki School of Law, the offeror is bound by his offer until the meeting breaks up. Thus, if he revoked his offer and the offeree afterwards accepts before the meeting breaks up the contract would be concluded.

The question, whether the revocation of an offer can have any effect before it is communicated, does not, therefore, arise in Maliki School. Nor it is of much significance in Shafii and Hambali Schools. This is because, these two schools allow either party to repudiate the contract after it has been concluded, at any time before the meetings breaks up.

In Hanafi School of law, there are two views in the matter. According to one view, the revocation is not effective until it is communicated. Thus, if the seller should say, “I have sold to you this for so much”, and added, “ I have revoked my offer” and the buyer without leaving the revocation should say, “I have bought” sale is not concluded.

According to the other view, the offeror can revokes his offer whether or not the other party knew of the revocation.

Since the Hanafi School insists that both the offer and acceptance should be communicated, the better would seem to be that the revocation of an offer also has to be communicated.

1. Different types of acceptance

1. Modes of acceptance (namat al Qabul)

An acceptance may be made in any of the following methods:

i. Oral Acceptance: An acceptance may be made by words of mouth so long as the offeror could understand it easily. (Hatab writes that an acceptance may be made either by word or sound so long as something covers the meaning of acceptances rending on obligation character on the contracts).

ii. By writing: Article 173 of the Majallah provides that, an acceptance may be made by writing in the same way as it is made by words of month.

iii. By Gesture: By virtue of Article 178 of the Majallah, the agreement by implication or gesture of the acceptance with the offer is sufficient. Article 174 also provides that a sale also be concluded by gesture made by a dumb person.

iv. By Delivery: By virtue of Article 175 of Majallah, a sale is also concluded by an exchange being carried out, as that is evidence of that, which is the principal object of an offer and acceptance, which is the mutual agreement of the two parties.

v. By Payment: An acceptance in a contract of sale could also be presumed by the payment of the buyer in consideration of the subject matter.

vi. By Performance: An acceptance could also be made or presumed by the performance of the valuable consideration from the offerors part.

vii. By Conduct: Hattab opines that it is not necessary that the acceptance be expressed in any special form; sign, conduct or word which conveys the idea of an acceptance renders and obligatory character on the contract.

viii. By the Customary Practices: By virtue of Article 168 of the Majallah, an acceptance is the word used for concluding a sale by the common usage and custom of the place.

ix. Letter of Post: A letter or message sent by post or messenger containing the message of acceptance may be substituted for a verbal and personal communication in the contract of sale, the place of receipt of the letter and delivery of the message being accounted for the meeting.

viii. By Telex, E-mail, Telegrams, Phone and Fax: An acceptance also be made by these instantaneous methods of long distance communication so long as any method represent the actual nature and function of an acceptance made by word or writing is justified by the general principle of contract. Zuhaili has termed this sort of communication as al-Ta’aqud bi al Hatif wa al-Murasilah(Contracts by Telephone) and other means of communication). According to him, the Fuqaha in the field of Islamic jurisprudence recognize such types of modes of acceptance to conclude a valid contract.

1. Tense of acceptance (sighah al –Qabul)

For a valid contract, an acceptance must either be of past or present tense. In no situation, an acceptance could be justified if it referred to a future tense. By virtue of Article 132 of the UAE Civil Code, if the present tense is intended by an acceptance, the expression of intent may be expressed in the imperative. Article 169 of the Majallahprovides that an acceptance is generally used by past tense. Article 170 of the Majallahprovides that, by the aorist tense, if the present tense is made, the contract is concluded but if the future tense is made the contract would not be concluded.

Furthermore, Article 172 of the Majallah provides that an acceptance could also be made by an imperative tense provided it indicates present tense.

But an acceptance if made using a future tense or imperative tense indicating future tense or aorist tense, which indicates future tense, the contract will not be held valid.

Islamic law prohibits Garar. Therefore, express stipulations must not be found in the future tense as it evolves around the element of Garar. But in the present or past tense or any word or sign or conduct which indicates an acceptance with past or present tense.

Article 17 of the Majallah provides that, an acceptance using aorist tense, which indicates future tense, will not constitute a valid acceptance. Likewise, Article 171 of theMajallah provides that, an acceptance using the future tense will not have any legal value. Similarly, Article 172 of the Majallah provides that, an acceptance by imperative tense with indicates future tense shall have no legal effect.

1. Tense of acceptance (sighah al –Qabul)

The importance of communication of the offer and acceptance appears to have played not a vital part in the Islamic law of transaction. Most of the texts are silent as to whether such a communication is essential for the formation of a valid contract. TheFiqh under the Hanafi School of Thought on the assumption that the parties are contracting orally and in the presence of each other make it a condition for the conclusion of the contract that the offence must hear the offer and the offeror must hear the acceptance.

The juristic basis for the necessity of this mutual hearing is not clear. According to one of the Fiqh, these can be no consent without such mutual hearing. Some other Fiqhs’maintain that, the necessary connection between the offer and the acceptance will not take place unless each party hears what was said by the others. It has even been suggested that if the parties did not hear each other there will be no unity of the meeting place.

Whatever the true juristic basis of this requirement may be, it seems clear that as far as the Hanafi School is concerned, there will be no contract without such mutual hearing where parties are contracting in the presence of each other. Shafii school of thought maintains that it is not necessary that the offeree shall hear the offer or the offeror shall hear the acceptance provided that both the offeror and acceptance are made in a voice loud enough that it will normally be heard by those present in the meeting place. Since it is not necessary that, the offeree shall hear the offer or that the offeror shall hear the acceptance, it appears that the requirement that, the offer and acceptance should be made in a voice loud enough that it will normally be heard by those present in meeting place is merely evidentiary value.

It could be summed up here that, in Shafii School, it is not necessary for the offeror and acceptance to be communicated. It is not clear from the text of the Fiqh of Hambali and Maliki School of law whether the offer and acceptance should be communicated.

CHAPTER 2: CONTRACT OF SALE

2.1 The contract of sale

2.1.1 Contract of sale according to meaning, object and price

Allah says about the contracts: “O you, who believe, fulfill your contracts.” (Al-Ma’idah: 1).

The Arabic equivalent of the word “contracts” is uqud, plural of ‘aqd. The literal meanings of this word are “to tie,” “to knot,” “to join,” “to lock,” “to hold,” “to contract,” etc. Among these meanings, the last one is closely related to its technical meaning. Technical term in Islamic law of aqd (contract),is:“Conjunction of a proposal or ijaband an acceptance or qabul.” Or: “Conjunction of the elements of disposition, namely, proposal (ijab ) and acceptance (qabul).”

Summary definition of sale

An exchange of one item for another, the exchange of property for property, transfer of corpus for a consideration (tamlik al-ayn bi iwad)

Arabic term ‘bay’’ refers both to the activities of buying & selling- derived from the term ba’ (for arm) because one extends one’s arm to give or take

Legitimacy of Sale

Sales are permissible:

(a) Al-Quran

“But Allah has permitted trade” (2:275), “But take witnesses whenever you make a commercial contract” (2:282), “But let there be among you traffic and trade by mutual good will” (4:29), “It is no crime for you to seek the bounty of your Lord” (2:198)

Conditions of Sale

1. The party must be a person of sound mind or reason
2. There must be more than one party in the sale
3. There must be mutual consent of the panics
4. The acceptance must be consistent with the offer except where the acceptance is better than the offer
5. There must be a unity of the session where the offer and acceptance are made- both parties are present- the session where the offer reaches to the knowledge of the offeree who is not present
6. The subject matter of the sale must be property of legal tender in view of the Shariah
7. The object of sale must be owned @ can be owned by the parties or the parties have legal authority over it
8. The goods must exist or be possible to exist & possible to be delivered at the time of the sale
9. The object of sale must be known or can be ascertained by the seller and the purchaser
10. The object and the terms of sale must be stated clearly and be known to the parties
11. The sale should not be subjected to a certain period of time
12. The goods must not be subjected to the rights of others- mortgaged property

2.1.2 The condition for validity of sales

1. Seller and buyer:

The parties who have legal capability to enter into a contract must have the following attributes:

1. Puberty

Both contracting parties must attain puberty. A male can attain it when he starts to ejaculate sperms in his night dreams, while a female can attain it at the onset of menstruation. if these signs do not appear and they become older, they are considered pubescent, if they reach a certain age.

According to Imam Abu Hanifah, this age is eighteen years for a male and seventeen years for a female.

Imam Malik considers the pubescent age to be seventeen years for both male and female.

Abu Yusuf and Muhammad al-Shaibani maintain that this age is fifteen years for both male and female. There is no text of the Quran or Hadith with regard to puberty age.

2. Sanity

Both parties must be sane. If both or one of them is insane, no contract is to be made. If someone temporarily becomes insane and later regains sanity, he is allowed to conclude a contract when he remains sane, but he is not allowed to do so when insane.

3. Maturity

Both parties must also attain maturity (rushd). According to jurists, maturity is: “Good and proper dealings with wealth from a worldly viewpoint”. If someone is a wrongdoer from the religious viewpoint, yet from a worldly viewpoint, he is capable of dealing with money and wealth properly without wasting or misusing it, he is considered to be mature.

1. Seller and buyer:

The subject matter of a contract (mahall al-‘aqd) can either be a tangible thing (such as money, wealth, goods, etc.), a utility, or a work. In all these cases the subject matter must fulfil the following conditions:

A. Suitability of a Subject Matter for a Contract

Muslim jurists have unanimously maintained that a subject matter must be suitable for concluding a contract on it. If it is not suitable, the contract will be invalid. Many reasons can make a subject unsuitable for a contract.

Some of these reasons are as follows:

i. If a subject matter is not considered property of value to one of the parties, it is not suitable for forming a contract. For instance, the flesh of a dead animal is not considered a property of value to a Muslim. Therefore, this flesh is not suitable as a subject matter for a contract.

ii. If a subject matter is not owned by any of the parties, such as fish in the sea or a bird in the air, it is not a suitable subject matter for a contract.

iii. If a subject matter is forbidden by the Shariah, it is not suitable for a contract. For instance, a marriage contract is not allowed to be concluded with a woman whom one cannot marry. Therefore, a man is not allowed to conclude a marriage contract with his daughter, and sister others.

B. Being of a Subject Matter Known to both Parties

Jurists basically agree that the subject matter of a contract must be known to both parties. They dispute over whether this condition must be fulfilled in all types of contracts or not. The Shafi‘i School of Law maintains that for the different types of contracts the subject must be known to both parties. The Hanafi School of Law opines that this condition should be fulfilled for a marriage contract and contracts relating to the exchange of property.

According to them, contracts for donation or charity, such as making a will (wasiyyah), gift, etc., do not require fulfilment of this condition because ignorance in these types of contracts does not cause a dispute. The opinion of the Maliki School of Law in this regard conforms to that of the Hanafi School. It should be noted that a subject of a contract can be known and identified by the contracting parties through physical viewing at the time of the contract or before the contract or viewing a similar object with the same description.

It can also be identified by the description of the genus, type and amount in the case where the subject matter is commonly known by the people.

C. Capability of a Subject Matter to be Handed Over

All jurists agree that for contracts that involve the exchange of property, their subjects must be capable of being handed over at the conclusion of the contract Therefore, a sale contract for a stray animal, which the seller cannot hand over to the buyer, is invalid.

Likewise, a prey is not allowed to be sold, if it has escaped following its capture because it is not possible to be handed over. It is not legal to conclude a contract for performing a job, which is not possible to be accomplished. For instance, a sick person is not allowed to conclude a contract with a doctor, by paying him if he is cured of a disease because nobody is capable of curing except Allah. Jurists dispute on the fulfilment of the above condition for contracts of donation and charity.

The Maliki School of Law maintains that the above condition is not required for these types of contracts. The majority of jurists opine that this condition is indeed required. Therefore, according to the majority of jurists, no one is allowed to donate a stray animal or to give it to someone as a gift because it is not possible to be handed over to the receiving party.

D. Presence of a Subject Matter at the Time of Contract

If the subject of a contract is a tangible thing, it should normally be present at the time of the contract. The Prophet (pbuh) forbade the selling of a good, which does not exist. Therefore, a contract for the sale of an animal embryo, which is still in the womb of its mother, cannot be concluded because there is no surety that it will be born alive. Likewise, selling grains or fruits before their perfect appearance is not allowed because there is no surety that they will really appear and grow.

1. Price:

Condition for price in Islamic contracts:

• Price must be quantified, which means it must be in the number and currency. If it is not use number and currency, the contracts are illegal.
• Price must be specified, means the subject or object that want to sell must be specified with reasonable price. It based on quality, quantity, scares and so on.
• Price must be certain to put it on subject or object without gharar.

1. Offer and acceptance:

Muslim jurists have given remarkable importance to the statement or sighah of a contract because without it a contract cannot be formed. The Hanafi School of Law maintains that the statement is considered to be the only pillar of a contract. They opine that other aspects will automatically follow the statement. Therefore, those other aspects are not considered pillars of a contract. According to the majority of jurists, statement and two other aspects, that is, two contracting parties and the subject matter are also included among the pillars.

Since the consent of the parties is the primary condition of a contract, and it is an internal and intangible aspect, offer (ijab) and acceptance (qabul) are considered as external proof of the contract. sighah or statement is formed through offer and acceptance. According to the Hanafi School, offer is what is stated first by one of the two parties, and acceptance is what is secondly stated by the other party because the latter occurs as consent to what the first party has established.

The majority of jurists maintain that offer is what is stated by the one who transfers the ownership, irrespective of whether it occurs firstly or secondly. While acceptance is what is said by the one to whom the ownership is to be transferred, indicating his/her consent to what is offered by the other party. According to a number of contemporary jurists, the view of the Hanafi School in this regard is preferred because it is precise and also, by this standard, differentiation between offer and acceptance becomes easier.

CONDITIONS OF THE SIGHAH

1. Use of Past Tense

Jurists prefer the past tense for verbal expression for forming an offer and an acceptance, such as “I sold,” and “I bought.” This is because although the past tense is originally for the past, according to linguistic uses, this tense is utilised for instant offer and acceptance. According to most jurists, other tenses such as present, future, or the command form of a verb, could be utilised for forming a contract depending on the intention, circumstances, and custom of the parties.

If these tenses prove an intention to form a contract, it will be formed; otherwise the contract is not concluded. Beside verbal expression, writing also could form an offer and acceptance, irrespective of whether both parties are able to talk, unable to talk, or one is able and the other is unable. An offer and acceptance for a marriage contract between those who are present are not allowed except in writing, unless one of the parties, the bride or the bridegroom, is unable to talk.

An offer and acceptance for all types of contracts are allowed to be formed in writing in absence, but the acceptance must be made at that session when the written offer arrives to the second party. In a contemporary context, an offer and acceptance are allowed to be made through fax with the parties attesting their signatures. Using the telephone for verbal expression or using it with an instant view of the photos of the parties, is also allowed to form an offer and acceptance.

Other than verbal and written expressions, jurists have disputed whether an offer and acceptance are allowed to be formed through silent consent by means of giving a price and handing over the sold good (ta`ati). The majority of Muslim jurists opine that this type of offer and acceptance is permitted. Due to the fact that customary practice of this nature did prevail in the past and it has been continuing the world over until now

CONFORMATION OF OFFER TO ACCEPTANCE

An acceptance must conform to an offer. If this conformity does not exist, there will be no consent. This conformity could either be explicit or implicit. For instance, if someone offers and says to another: “I sold my house to you for one hundred thousand dollars,” and the second party says: “I bought it for that price,” this is considered as explicit and real conformity of an acceptance to an offer because both conform to each other completely.

In the above example, if the second party says: “I bought it with one hundred thousand and two hundred dollars,” this is considered as an implicit conformity because the one who is wiling to buy with one hundred thousand and two hundred, is obviously willing to buy for less, that is, one hundred thousand which is the offered price. If the second party mentions “eighty thousand” instead of “one hundred thousand,” there will be no conformity at all. This will lead to a counter offer by the offeree

Clarity of Offer and Acceptance

Both offer and acceptance must be clear and void of ambiguity. In order to make an offer and acceptance clear, they should be in conformance with the words and terms that are normally used in the customs of the parties to indicate a particular type of contract.

Connection of Acceptance with Offer

This is related to the doctrine of session of contract (majlis al-‘aqd). According to the Islamic system, an acceptance must be connected with an offer. Both should be in the same session (majlis), if both parties are present. Jurists dispute on whether a contract is binding immediately following an offer and acceptance, or parties are allowed to delay for further thinking about it until the end of the session, which is called in Arabic as khiyar al-majlis.

2.1.3 The types of invalid sales

1. Sale of non-existent object

VOID/NON EXISTING OBJECT (BAI BAATIL)

Certain conditions are not met. These relate to:

• conditions of offer and acceptance
  • Oral acceptance OR Implied acceptance
• conditions for Buyer and Seller
  • Sane AND Mature
• conditions for Sold Goods where goods should be:
  • Existable, Valuable, Usable, Capable of ownership/title AND Capable of delivery/possession
  • the buyer does not have the title to subject matter
  • the seller does not have title to price
  • Both subject matter and price cannot be used lawfully
  • the produce of both will be unlawful

1. Sale of undeliverable goods

Sale of undeliverable good is invalid in fiqh muamalat because the transaction has been made but the goods are not delivering to the customer in the spot time of transaction. When this is happen the element of gharar exist and it can be a riba nasiah transaction

1. Sale of debts

Based on Surah Al-Baqarah : 275 : Allah has permitted sale and prohibited riba’.

As we can see from the evidence from Al-Quran, certainly stated that Allah ony has permitted sale transaction and not debts transaction to gain profit.

But, there is some condition of sale of debts that permissible to use in fiqh muamalat which is can be explained more detail in next topic.

1. Gharar sales and others

There are numerous Hadiths forbidding Gharar sales, and specific instances there of. One of commonly cited Hadith was narrated by Muslim Ahmad, Abu Dawud, AlTirmidh, Al-Nasa’I, Al-Darami nd ‘ibn Majah on the authorithy of ‘Abu Huraya..

The Prophet (pbuh) prohibited the pebble sale and the Ghrarar sale.

A gooq translation of Gharar is “risk” or “ uncertainty”. It could also be difine as:

Gharar is the sale of probable items whose existence or characteristics are not certain, due to the risky nature which makes the trade similar to gambling

CHAPTER: 3.0 SALAM (CONTRACT OF ADVANCE PAYMENT SALE)

3.1 The contract of advance payment sale (Salam)

3.1.1 Salam

The Salam is payment in advance with delaying the receipt of the purchased item.

The Muslim Jurists (faqih) (may Allah have mercy on them) define the Salam as:

"A contract according to which the price of a clearly defined item is paid in advance at the price of concluding the contract, and the sold item it to be received later."

This kind of transaction is permissible according to the Qur'an, the Sunnah and the consensus of Muslim scholars.

Allah says in the Qur'an: "O you who believe, when you contract a debt for a specified term, write it down..." (Al-Baqarah: 282)

Ibn 'Abbas (may Allah be pleased with him) says: "I testify that Allah has made lawful to us (Muslims) to pay in advance for the price of a thing to be delivered later after a specified term". He then recited this above-mentioned verse". (Source: Al-Hakim (3189) [2/342], Al-Bayhaqi (11081) [6/30] and 'Abdur-Razzaq (14064) [8/5].)

When the Prophet (SAS) arrived at Medina and found its people paying in advance the price of fruits to be delivered later after a year, two or three, he said: " Whoever pays in advance the price of a thing - (or "...of fruits..." according to another narration) - to be delivered later should pay it for a specified measure at specified weight for a specified period." (Related by Al-Bukhari and Muslim).

This hadith proves that the Salam is permissible when these conditions are fulfilled. Besides, Ibn al-Mundhir and other scholars report that scholars uniformly agree that the Salam is permissible. (Al-Ijma', p.54). Moreover, people need the Salam, since one of the parties of the transaction may be in need for being paid the price of an item in advance while the other may be in need for buying an item for a cheap price

Evidence of Salam

Al-Quran

282. O you have believed, when you contract a debt for a specified term, write it down

lbnu Abbas commented that: ‘I bears the witness that al-Salaf (Al-Salam) stipulated for a stated term had been made legal by Allah in His holy book and His permission is in it”. He then recites the above verse.

Pillar of Salam

1. Al-Muslim
   • The Buyer
2. Al-Muslam Ilaihi
   • The Seller
3. Al-Muslam
   • The Price
4. Al-Muslam Fih
   • The Product
5. Sighah
   • Ijab (Offer)
   • Qabul (Acceptance)

3.1.2 Conditions of valid Salam

There are some conditions necessary for validating the Salam:

First: The sold item the price of which to be paid in advance must have definite properties. This is because items whose properties cannot be defined undergo many changes, which causes disputes between the two parties of the sale (at the time of receiving the sold item). Thereupon, the Salam is not valid in items whose properties may change, such as pulses, leather, utensils and jewels.

Second: The kind and the class of the sold item must be defined. For example, if the sold item is wheat, the kind must be defined, which is wheat here, and the class of that wheat must be defined such as "as-salamuni" (a type of wheat).

Third: The sold item must be a specified quantity, weight or measure. This is according to the meaning of the hadith in which the Prophet (SAS) says: "Whoever pays in advance the price of thing to be delivered later should pay it for a specified measure or a specified weight and for a specified period." (Related by Al-Bukhari and Muslim). Besides, if the quantity of the sold item is unspecified, it becomes difficult to exact.

Fourth: There must be a specified period for receiving the purchased item. This is because the Prophet (SAS) says in the above-mentioned hadith, "...for a specified period." Besides, Allah, Exalted be He, says: " O you who believe, when you contract a debt for a specified term, write it down..." (Al-Baqarah: 282).

With regard to this issue, both the hadith and the noble verse state that in the Salam both parties agree to the condition stating that the sold item is to be delivered later according to a specified period known to both of them.

Fifth: The item sold must be existing when the time of reception is due, in order to be delivered at the stipulated time. Thereby, if that item is not available when its time of delivery is due, the Salam does not become valid, such as paying the price of ripe dates and grapes in advance and stipulating that the sold item be delivered in winter, when such crops are not available at such a time.

Sixth: The price of the sold item must be paid fully in advance at the time of concluding the contract. This is according to the hadith in which the Prophet (SAS) says: "Whoever pays in advance the price of a thing to be delivered later should pay it for a specified measure..."

In this connection, Imam Ash-Shafi'i (may Allah have mercy on him) said: "The transaction of the Salam is not valid, except when the price is paid in advance and before the two parties (the seller and the buyer) leave the place where they have concluded the transaction. Besides, if the price of the sold item is not paid at the time of concluding the contract, it will be regarded as selling a debt for a debt, which is impermissible."

Seventh: The sold item is not to be specific (e.g. a certain house or a specified tree). Rather, it should be regarded as a debt in the seller's liability. Thereby, the Salam is not valid when specifying a certain house or a certain tree to be given, because this tree or house may get damaged before being delivered to the buyer. In this way, the desired purpose for which the Salam has been decreed will not be fulfilled.

Besides, the delivery of the sold item is to be in the same place where the contract of the Salam has been concluded, if possible. If this place is not fit to delivery (e.g. they concluded the contract at a certain spot on land or at sea), then the place of delivery must be mentioned in the contract.

Moreover, if the two parties agree on the place of delivery, the Salam becomes permissible. Otherwise, they must resort to the place where the contract has been concluded, for it was fit for concluding the transaction from the start, as mentioned before.

• One of the rulings on the Salam is that it is not permissible to sell the item purchased according to the Salam to someone else (by the buyer) before it is received. This is because the Prophet (SAS) forbade selling foodstuff before receiving them. (Source: Ahmad (15253) [3/402] and An-Nasa'i (4610) [7/329]). In this case, the Hawalah (transfer of a debt) is invalid, since the Hawalah is only valid regarding a stable debt while the Salam can then be annulled.

• Another ruling on the Salam is that if the sold item is not present or available at the due time, such as in cases when the trees have not born fruits at the year of delivery, the one who has paid for the item in advance may choose whether to wait until the fruits are available, or he may ask for annulling the contract and ask for the money he has paid. This is because in case the contract is annulled, it is obligatory for the seller to repay the price paid in advance. If the payment given by the buyer against the sold item is damaged, a compensation for it must be paid. And Allah, Exalted be He, knows best.

In fact, allowing such a kind of transaction is a sign of the facilitation and benevolence by which our Shari'ah is characterized. This is because the Salam facilitates many things for people and helps them do what benefits them. Besides, the Salam does not involve Riba or the like of other forbidden transactions.

Bai Salam (Between farmer and bank): This is a contract of sale of goods where the purchase price is paid in advance while the goods are delivered in the future. Under this contract, the farmer will undertake to supply crops of a specific quality and quantity to the bank at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no room for ambiguity. The bank will then sell the crops and the difference between the selling price and the purchase price is therefore the bank's maximum profit. In essence, Bai Salam is a prepayment sale, i.e. contract of sale whereby payment is made today by the bank and goods are delivered in the future. Such an agreement benefits both parties (Rosly, 2005).

There are several mandatory conditions that are expected to be met in BaiSalamarrangements(Gulaid, 1995):

1. The commodity should not yet exist when the finance is provided
2. The settlement price should be known in advance;
3. The payment must be immediate and on the spot. A condition contrary to this statement can not be enforced on the seller unless it is clearly stipulated in the contract. Even under the latter condition, payment is made when the seller submits the goods to the buyer.
4. The delivery of goods is on a future date.
5. The goods to be delivered are specific and can clearly be defined physically and quantitatively, i.e., kilograms of wheat, etc...
6. Quantity, quality, maturity date and place of delivery must be specified clearly in the contract;

The Bai Salam contract is both interest and collateral free and is widely used in Malaysia, Middle East and other Muslim countries. Hence, it will be more appropriate to use Bai Salam contract as an underlying financing principle.

3.1.3 The modern application of Salam to Islamic banking products

• The Salam sale has the flexibility to cover the needs of various sectors of people such as farmers, industrialists, contractors, exporters or traders. It can be used to meet the capital requirements as well as to meet the cost of operations.
• Salam sale is suitable to finance the agricultural operations
  • Where the Bank transact the farmer to fulfill the promise to deliver the commodity.
  • Salam can fulfill all the requirement of farmer i-e liquidity, Purchase of inputs, fertilizers, render the transportation etc.
• Salam sale is also used to finance the commercial and industrial activities, especially in phases prior to production and export of commodities and that is purchasing it on Salam and marketing them for lucrative prices.
• The bank can financing craftsman and small producers to improve productivity.

CHAPTER 4: ISTISNA (CONTRACT OF MANUFACTURING)

4.1 The contract of manufacturing/construction (Istisna)

4.1.1 Istisna

Definition of istisna’ contract

Literally the word istisna’ is a derivative from the root word sana’ or to manufacture or to construct something. Istisna’ is an order or request to manufacture something, whereby the requestor invited, induced or caused another to make or manufacture some goods for him. Technically, it is a contract to purchase for a definite price something that may be manufactured later on according to agreed specifications between the parties. In other words, it is a contract of sale of specified items to be manufactured or constructed with an obligation on the part of the manufacturer or contractor to deliver them to the customer upon completion (Akhtarzaite, 2006).

In other words, istisna’, like the bay’ al-salam contract, is a contract whereby the sale of future goods is allowed on a certain condition or conditions. The istisna’ contract allow an order to be placed with a manufacturer to make a certain product, answering a definite description at an agreed price to be paid either in advance or on completion. In istisna’, the subject matter is non-existent goods at the time of the conclusion of the contract but it is treated as valid the principle of equity (istihsan) and on the basis of customary practice (‘uruf) (Nawawi, 1999).

The contract of Istisna’ creates a moral obligation on the manufacturer to manufacture the goods, but before he starts the work, any one of the parties may cancel the contract after giving a notice to the other. However, after the manufacturer has started the work, the contract cannot be cancelled unilaterally (Usmani, n.d.).

Evidence of Istisna’

• The Prophet (PBUH) required that a pulpit (platform) be built for preaching [Bukhari 2/908]
• The Prophet (PBUH) required that a finger ring be manufactured for Him [Bukhari 5/220 and Muslim 3/1655]

Pillar of Istisna’

1. Seller
2. Buyer
3. Subject matter
4. Price
5. Sighah

4.1.2 The conditions of valid Istisna

Conditions of istisna’

i. The subject matter should be well defined without ambiguity with respect to quality, quantity and other relevant characteristics. This follows since the object to be manufactured is an object of sale, which must be known by specifying those aspects. Therefore, if any of those aspects of the object of the contract is not specified, the contract would be rendered defective due to ignorance that may lead to legal dispute (Sudin & Shanmugam, 2001);

ii. The subject matter should normally be used by the people (e.g. jewelry, shoes, pots, means of transportation, etc.). The istisna’ is not proper if the subject matter is rarely used by the people;

iii. There is no specific term of deferment is specified. Hanafi school ruled that if the parties to the contract specify a term of deferment, the istisna’ becomes defective and the contract is converted to a bay’ al-salam that must satisfy all the other conditions of the latter contract;

iv. The price of the subject matter of istisna’ is known at the time of the conclusion of the contract. The price could not be increased or decreased on account of the normal increase or decrease in commodity prices or the cost of labor. This is to avoid gharar (uncertainty) in the price of the subject matter. The price or consideration for the manufactured good to be determined could be in cash or tangible goods or the usufruct of an asset for a particular duration. As a matter of fact, the utilization of the usufruct of the manufactured item itself (the subject matter of istisna’ upon completion) could also be the price of the contract; and

v. The manufacturer must undertake to construct the goods with his own material. If the buyer supplies the raw material to be manufactured it is considered then as Ijarah, instead of istisna’. It is not permitted for the manufacturer to stipulate in the contract of istisna’ that he will not be liable for defects in the subject matter. The reason for this prohibition is that istisna’ is a sale of specified goods to be delivered in future, while the exclusion of liability as to defects is valid only in the sale of particular identified goods (Muhammad Al-Amine, 2001).

Differences between Istisna‘ and Salam

Keeping in view this nature of istisna‘ there are several points of difference between istisna‘ and salam which are summarized below:

1) The subject of istisna‘ is always a thing which needs manufacturing, while salam can be effected on any thing, no matter whether it needs manufacturing or not.

2) It is necessary for salam that the price is paid in full in advance, while it is not necessary in istisna‘.

3) The contract of salam, once effected, cannot be cancelled unilaterally, while the contract of istisna‘ can be cancelled before the manufacturer starts the work.

4) The time of delivery is an essential part of the sale in salam while it is not necessary in istisna‘ that the time of delivery is fixed.

4.1.3 The modern application of Istisna to Islamic banking products

Areas of application of Istisna'

Istisnd' is applicable to the various industries as long as they can be monitored by measurement and specifications and which could be manufactured or constructed at any stage of the process of production. Thus, it can be used in the food processing, drying, or canning industries or beverage manufacturing. The Istisna' contract is applicable also in high technology Industrie such as aircraft industries, locomotives, ships, cars, electronics and machines produced in big factories and workshops.

It can also be used to finance intangible assets, such as electricity and gas. In addition, Istisna' could be used as an international mode of investment (especially among Muslims countries) in pre-shipment financing of the acquisition of capital goods in projects for which no other suitable mode of financing is available.

The Islamic development bank, for instance, has so far used instalment sale and leasing mostly for financing finished goods. Working capital needed for the production of such goods falls outside the ambit of the Islamic Development Bank financing. With the introduction of Istisna' as a mode of financing, it lias now become possible for the Islamic Development Bank to finance working capital needed for the production of capital goods.86 But the most common area of financing through the contract of Istisna' up to now is in house building finance. Perhaps this is due to the infancy of the manufacturing sector in most Muslim countries or due to the general policy in Islamic banking where the goal of Islamic financial institutions in an Islamic state should take into consideration the goal of achieving the basic needs of the society, of which housing is one of paramount importance.

In the Gulf states, for instance, where the establishment of Islamic banks, synchronised with the galloping building expansion and increasing revenues of these countries as a result of the 1970s oil boom, a considerable part of investment has gone into the housing sector".87 The construction industry was the field where Istiina' has played a prominent role and where the investment of a single Islamic bank reached billions. Thus, Istisna' has contributed in solving one of the crucial contemporary problems.

On the other hand, the Islamic Development Bank has been generally financing economic infrastructure through loans. This is because financing of infrastructure has been the exclusive zone of the public sector. However, in recent years, the financing of economic infrastructure projects has witnessed a shift from the public to the private sector. It has, for several reasons, been realised that some infrastructure projects may be more efficiently financed and managed by the private sector. The projects that have featured prominently in this shift are those that have regular and reliable cash flows, such as telecommunicatio is, power generation, transmission and distribution, toll roads, airports, seaports, pipelines and water supply and sanitation. Given that the development of infrastructure is a prerequisite of general economic development, the Islamic banks should not be less keen in their support of these projects because they have shiftec from the public to the private sector. On the other hand, it will not be feasible for the Islamic banks to extend financing to private sector projects through interest free loans. Istisna' will give the Islamic bank a mode of financing infrastructure projects that cannot easily lend themselves to financing by way of instalment sale or leasing.

Modes of application of Istisna'

The Islamic bank can use Istisna' as a buyer by contracting with industrial and manufacturing institutions, or with any artisan to manufacture or construct for it some commodities with specific description. Then, it can sell them after receipt, for cash, installed or deferred payment through Murabahah or bay' bi al-Thaman al-'ajil. Thus, the Islamic bank will be involved in direct investment. But this method is related to some extent to the position of the Islamic bank where in practice some Islamic banks are not allowed to be involved directly in commerce.

It is also permissible for the bank to enter an Istisna' contract in the capacity of seller to those who demand the purchase of a particular commodity. Then, it will draw a parallel Istisna' contract in the capacity of a buyer with another party to make or manufacture the commodity agreed upon in the first contract. This method is more suitable to the practice of Islamic banks nowadays but in Malaysia in particular, despite the very wide definition given to "Islamic banking business" in the Islamic Banking Act, which can accommodate easily the concept of Istisna.' It is appreciated that Parliament intentionally gave Islamic banking business a general and, therefore, a very wide definition so as to give as much flexibility and scope as possible to Islamic banks to enable them to grow, expand their operations, and to evolve into viable competitors to conventional institutions.91 Bank Islam Malaysia unfortunately has not been involved up to now in this important mode of investment as it should be.

The first Istisna' can be immediate or deferred and the payment in the second Istisna' can be cash or deferred as well. The parallel Istisna' is the most applicable form of Istisna'. Accordingly, the deal may involve three parties: firstly, the customer (the buyer); secondly, the Islamic bank (the seller); and finally, the original manufacturer. Sometimes, especially in building construction, it may involve four parties; the customer; the Islamic bank (contractor); the subcontractor; and a consultant or an expert to supervise the execution of the construction contract.

It is worth noting that the contract between the Islamic bank and the customer and the contract between the Islamic bank and the manufacturer or sub-contractor should be separate and independent from each other. Moreover, the Islamic bank should not wait for the coming together of two parties agreeing on the manufacture or construction of something, and proposing that the bank finances the project only because such a deal can no longer be an Istisna' but rather a loan with interest (qard bi al fai'dah). This is because in such a deal the Islamic bank is just lending money to the seller for a determined profit.

It is necessary for the Islamic bank to set up its special unit on matters related to Istisna' having its own special relation with the manufacturers and constructors with whom it can bargain and contract on its own responsibility, sharing with them the risk, benefit, and bearing the liability of any defect in the manufactured or constructed commodity. Only in this way, it is possible to make the difference between a usurious (Ribawi) and interest-free investment. Furthermore, Islamic banks have their own objectives, which differ from the conventional bank; an alteration therefore, in the structure of the bank is necessary to fulfil this objective in a Shari' manner.

On the other hand, a correct implementation of Istisna' can avoid the problems and criticisms that are encountered in Murdbahah in its application. Thus, ir Murabahah the agreement between the Islamic bank and the customer must be ar ordinary promise according to the majority of Muslim scholars, and the customer would not be liable for any misfortune which may face the specified commodity. Moreover, the customer has a full option to accept the requested item or to reject it even without reason. It is obvious that under such circumstances the use of Murabahah by the Islamic banks will be very limited due to the different risks mentioned above. To avoid these problems, some scholars have adopted the view that the promise between the customer and the Islamic bank should be considered as binding which would mean that the customer will be under an obligation to accept the commodity. But the legal bases of this opinion is controversial and for these reasons even the proponents of this idea, such as al-Qaradawi, are discouraging the Islamic banks from an excessive use of Murabahah.

The second criticism advanced against Murabahah is that it involves a sale prior to taking possession while it is a requirement of a valid sale in Islamic law that the purchaser may not sell the goods purchased until they are in his possessio. In support of this ruling, jurists have referred to the authority of some ahadith. Although some scholars have tried to restrict this principle, it is far from being a point of consensus of the majority and it is difficult in such conditions to gain the confidence of the customers. In addition, the role of the Islamic bank is almost negative in Murabahah as practised nowadays just limited to the act of delivering the various cheques and signing the documents.

On the other hand, the good performance of Istisna' could be proven by ihe following figures. Thus, in Dubai Islamic Bank, for instance, and in the field of real estate activity in particular, Istisna' jumped from zero in 1990 to 49 per cen! in 1994 compared to Murabahah which declined from 100 per cent to 51 per cent in the same period.93 In addition, according to Ibrahim al-Ghafaly, the Deputy General Manager of al-Rajihi Banking and Investment, Istisna' represents a vehicle which allows flexible payment options and now constitutes 27 per cent of Al-Rajihi's portfolio.

CHAPTER 5: MURABAHAH (COST PRICE PLUS PROFIT CONTRACT)

5.1 The contract of deferred payment sale using cost price plus profit

1. Murabahah

• Literally:
  • Increase or profit
• Technically:
  • Mudharabah is a contract or a partnership where one provides the capital and the other the entrepreneurship with the profit being shared among them with a predetermined condition
• The term mudharabah is derived from the expression making or performing a journey (Ad-dharb fil ardh) and it is called this because the agent (entrepreneur) gets profit by virtue of his hard work and efforts in performing long journeys.
• The term Mudharabah was widely known in the classical literature as Qiradh.
• Imam Nawawi says: A joint-stock company is called Qiradh or Mudharabah
• It exists between two persons, one of whom supplies fund to the other to trade with, on condition that the former has a share in the profit.

Pillar of Murabahah

1. Sahibul Mal
   • Owner of capital, fund provider
2. Mudharib
   • Entrepreneur
3. Ra’sul Mal
   • Capital
4. Al-Amal or Mashru’
   • Business Venture or projects
5. Ribh
   • Predetermined share of profit
6. Sighah
   • Ijab (Offer)
   • Qabul (Acceptance)

1. The conditions of valid Murabahah

• Conditions of Work
  1. The work or business venture under Mudharabah must be conducted solely by the entrepreneur (mudharib). It is not legal if the capital provider (rabbulmal) was also required to conduct the daily operation.
  2. The project must be legal and permissible(halal)
  3. All the expenses will be taken from the capital provided that is not more than the justified expenses required in the venture

• Conditions of Capital
  1. Must be in the form of money and not commodities since commodities fluctuate in price and cause uncertainty and ignorance
  2. The capital must be clearly specified, determined and known at the time of the contract

• Conditions Of Profit
  1. The distribution of profit must be determined proportionally between the capital provider and the entrepreneur
  2. The pre-determined profit must be in ratio form or percentage and not in fixed amount

5.1.3 The modern application of Murabahah to Islamic

banking products

Working Capital Financing Under the Principle of Al-Murabahah

The customer may approach the Bank to provide financing for his working capital requirements to purchase stock and inventories, spares and replacements, or semi-finished goods and raw materials.

1. The bank first purchases or appoints the customers as its agent to purchase the required goods on its behalf and settles the purchase price from its own funds
2. The banks subsequently sells the goods to the customer at an agreed price comprising its purchase price and profit margin, and allows the customers to settle this sale price on a deferred payment of 30 days, 60 days, 90 days or any other period as the case maybe.
3. On due date the customer pays the bank the agreed sale pric

CHAPTER 6: BAI BITHAMAN AJIL (BBA), QARDHUL HASAN, BAI AL INAH AND TAWARUQ (DEFERRED PAYMENT SALE)

6.1 The contract of deferred payment sale:

6.1.1 BBA, Qardul Hasan, Bai al Inah and Tawaruq

BBA

• BBA is a defined as an instalment sale.
• BBA is a sale contract in which the payment of the price is deferred and payable at a certain particular time in the future.
• It is a contract whereby the commodity is delivered immediately and the price is paid by instalments.

The payment is delayed to a fixed and stipulated period of time. The selling price includes the cost price plus an agreed profit margin which will increase depending on the length of period over which the deferment is agreed upon

Evidence of BBA

• In general, no issue arises from the practice of deferring the payment of sale price.
• It is reported in a Hadith by a Companion, Jabir, that the Prophet (s.a.w) bought a camel from him outside the city of Madinah whereby the payment was settled later on in Madinah.
• In another Hadith, it was narrated that the Prophet (pbuh) purchased a quantity of grain from a Jew on the basis of deferred payment and he pledged his armour by way of security.
• The dispute arises from the practice of increasing the price due to deferrment.
• According to majority jurists inc. Al-Kasani, Ibn 'Abidin, Ibn Rushd and Al-Nawawi increasing the price due to the deferment in the payment is permissible because the increase is against the commodity and not against the money.

Pillar of BBA

1. Seller
2. Buyer
3. Subject matter
4. Price
5. Sighah

Qardhul Hasan

• Qardh: Loan/ Debt
• Literally:
  • To cut something off; money given to the borrower is called Qardh since portion that has been cut off from the property of the lender
  • Also known as al-Salaf or al-Dayn
• Technically:
  • Specific contract on transferring a specified property to another party on condition that a similar property will be given back in return
• Pillar of Qardhul Hasan
• Muqridh
  • Creditor or Lender
• Muqtaridh
  • Debtor or Borrower
• Maal
  • Property
• Sighah
  • Ijab: Offer
  • Qabul: Acceptance
• Bai al Inah
  Bai' al inah is a financing facility with the underlying buy and sell transactions between the financier and the customer. The financier buys an asset from the customer on spot basis. The price paid by the financier constitutes the disbursement under the facility. Subsequently the asset is sold to the customer on a deferred-payment basis and the price is payable in installments. The second sale serves to create the obligation on the part of the customer under the facility. There are differences of opinion amongst the scholars on the permissibility of Bai' al 'inah, however this is practised in Malaysia (A set of strict conditions must be complied) and the like jurisdictions
• Pillar of Bay al-Inah
• Seller
• Buyer
• Subject matter
• Price
• Sighah
• Technical Meaning of Tawarruq
  Tawarruq technically is the purchasing of a commodity on credit by themutawarriq (seeker of cash) and selling it to a person other than the initial seller (3rd party) for a lower price on cash (Dusuki, 2008). Actually, tawarruq is a sale contract, whereby a buyer buys an asset from a seller on deferred payment and subsequently sells the assets to the third party for cash, with a price lesser than the deferred price. This transaction is called tawarruq, mainly because when the buyer purchases the asset on deferred terms, it is not the buyer’s intention to utilize the benefit from the purchased asset, rather to facilitate him to attain liquidity (waraqh maliah).
  Tawarruq
  Literal Meaning of Tawarruq
  The term Tawarruq is derived from the word al-warq or al-waraqa, which means minted dirham or any silver that issued to serve as a medium of exchange, in this concept; it is designated to someone who has an abundance of silver coins. In another term tawarruq comes from “masdar” the verb taqarruqa is saidTawarruq al-hywan which it means the animal at the leaves (Bouheraoua, 2009). The term of basically tawarruq comes from the word wariq (Khayat, 2006) as it mentions in surah Al-Kahfi: 9
  “So send one of you with this silvery coin of yours to the town.”
  Which it means Dirhams made of silver. However, there are two different accents in the Arabic language (wariq-warq). Furthermore, Tawarruq and the verb derived from al-warraq are not directly traceable in the Arabic language; linguists mention only variable nouns, as an al-Iraq (which applied to become rich) and al-istiraq (which applied to a man who is seeking Dirham or money). So the scholars invent the term of tawarruq for the one who may be pressure himself on how to obtain “al-wariq” or cash money.

Pillar of Tawarruq

1. Seller
2. Buyer
3. Subject matter
4. Sighah
5. price

6.1.2 The conditions of valid BBA, Qardhul Hasan, Bai al Inah and Tawaruq

Condition of Valid BBA

• BBA is permitted in Islam only for non-ribawi commodities
  • For ribawi commodities of different category and type since the exchange of items must be conducted according to the principle of spot transactions and within the same contract session. Any delay in the exchange will transform this dealing to prohibited transaction.
• Majority of jurist stated that duration of contract must be clearly stated in a precise manner whether using Islamic calendar or any foreign calendar provided it is realiable.
• The payment of BBA could be made in several form:
  • Instalment spread over a certain period
  • One lump sum in the future
  • Combination of both provided it clearly stated in the contract and both parties agreed with term and condition in the contract.

Condition of valid Qardhul Hasan

• Ijab (Offer) and Qabul (Acceptance)
  • Must be in a very clear and concise type of sighah (offer & acceptance)
• Ahliah
  • Eligibility of the contracting parties (sane, adults & qualified)
• Quantity and Quality
  • Must be specified in quantity, weight & quality
  • Items that are not mixed with other material

Condition of valid Bai al-Inah

1. There must be two clear and separate contracts in the facility
   1. The sale contract from the bank to the customer
   2. The purchase contract by the bank from the customer
2. Payment of the price in the bank’s purchase contract must be on cash terms.
3. The subject matter of the transactions must not be a ribawi item
4. In each of the contracts there must be real and valid taking possession of the subject matter of the contract according to the shariah and trade convention.
5. Allocation of the property as the subject matter of the contract must be real and the fixing of the price must also be real and reasonable and according to market price.
6. The first contract must be executed first (signal by both parties) before entering into the second contract, to avoid the sale of a property not owned by the seller.

Condition of valid Tawwarruq

These conditions can be divided into general conditions and specific conditions. The main purpose of these imperative rules is to exclude elements that Shariah considers impure and to maintain strict and perfect differences between Tawarruq and other prohibited contracts in Islamic law. As a contract, tawarniq must fulfil the basic requirement of a valid contract under Shariah i.e. the capacity of the contracting parties, offer and acceptance and the subject matter should be valuable. Apart from the general requirements, most modern jurists and Fiqh institutions affirm that the Tawarruq is valid in the eyes of the Shariah, if the following requirements should be fulfilled: .

The Existence and the Acquisition of the Commodity

The commodity used for Tawarruq must exist and be ready for immediate delivery at the time when the contract is concluded. A subject of which existence is uncertain cannot be sold on Tawarruq basis. The purpose of this requirement is to protect contracting parties against any risk or hazard which may lead to dispute22. The existence of commodity is not enough only for the validity of Tawarruq: the commodity must be owned by the party selling it at the time of sale to the buyer; this can be achieved either by physical possession or constructive possessions. .

Accordingly, the original seller, whether individual or Islamic bank. must not sell any item in a Tawarruq transaction before having full acquisition of it. .

Likewise, when the original seller orders an object from the supplier, he is not allowed to sell it before concluding the purchase from the supplier. These two requirements are confirmed by numerous Hadiih. in which the Prophet (pbuh) prohibits a person from selling what he does not own. For instance. Hakim Ibn Hazzan asked the Prophet (pbuh) that 'a man asked me to sell him that which I did not possess, so should I buy it in the market? [That is to say in order to sell it to the man afterwards,]' The Prophet replied him: "do not sell what you do not hare "24.

The Commodity must be Ascertained

It is necessary that the commodity be ascertained and are known to the par-tics. To determine how the ascertain ment and the knowledge of the parties can be attained. AAOIFl standard maintains that the commodity should be defined in its genus, species, quality, quantity and location. Such knowledge is sufficient to avoid any future dispute 25. More importantly, once the contract is concluded all rights and obligation attached to the commodity must be passed to the buyer without any limitation which may affect his ownership right, as he becomes the ultimate owner of the commodity. .

The Commodity must be Sold to Third Party

The foremost condition lor the validity of Tawarruq is that a third party must be involved in the contract. This means that the commodity must be sold by the first buyer in the market to the party who is neither the original seller, nor his agent. The purpose of this requirement is to distinguish between Tawarruq and the forbidden Inah contract in which the commodity is sold back to the original seller. According to Fiqh Academy. Tawarruq is a permissible and valid contract provided that; .

The commodity is not sold hack either directly or indirectly [through the agent] to the original seller, from whom the commodity wax purchased on deferred payment basis. When the commodity is re-purchased by the seller, the contract is accounted to Inah which is considered as prohibited legal stratagem to evade Riba

Similarly, in the case where the original seller purchases the commodity from the supplier, the first buyer is not allowed, in any case, to sell the commodity to the same supplier. There is no doubt that when the commodity is sold back to the supplier, the supplier and the underlying asset would have, for all practical purpose, been fictional, just as fiat money used in conventional fmance27. .

There should be no a Simultaneous Combination of Two Contracts

Another important condition for the validity of Tawarruq is that the second contract the cash sale contract - must be evidenced in the document separate from the first contract the deferred payment contract. In other words, the two contracts must not be interrelated to the extent that the second one is a precondition of the first contract28. Should there be any kind of relation, the two contracts will be considered void according to the consensus of jurists. Combination or' two contracts in this form is prohibited by a well known Hadith which prohibits two sales in one sale29. This requirement of the separation of the first contract from the second one has as its purpose the protection of the parties in the sense that the obligation and liabilities are not linked to each other..

Additionally, there should be an interval in time between the two contracts, i.e. the first purchase from the original seller at one time and the sale by the client to the third party at another time. This time gap is essential to keep liability with the seller which justify that 'the gains from the transaction(s) are a reward for the risk borne, hence making it free from riba

Another condition of a valid and permissible Tawarruq is the absence of any pre-arrangement between the three parties. However, the modem practice of tawarruq is somewhat different from the classical tawamiq and strict adherent to these conditions arises some practical problems for Islamic banks.

6.1.3 The modern application of BBA, Qardhul Hasan, Bai al Inah and Tawaruq to Islamic banking products

BBA

• In Malaysia, BBA financing is employed by bank to provide medium to long term financing to clients for acquiring eg. Property, land, motor vehicle, consumer goods, shares, overdraft facility, education financing package etc
• House financing is the most popular facility granted under the concept of Bai Bithaman Ajil (BBA) either to purchase existing completed houses, build or construct new house on customer’s land even as a refinancing facility.
• In BBA, the customer sells the property purchased to the bank for a cash sum paid to the customer and the property will then be immediately resold back by the bank to the customer at higher price which include the bank’s profit on the sale, payable by the customer to the bank by monthly installments over a fixed period of time.
• Islamic bank also provides a facility of Overdraft Naqad by using this type of sale.
• The operation of overdraft Naqad involves two aqad or contracts.
• First, the bank buys the asset from the customer in cash and the latter sells it in cash as well.
• Then, the bank deposited the money received from the customer in a designated current account (ASM/D).
• The bank controls the money in this account. Therefore, the customer is actually uses his own money deposited by the bank in a current account.

Qardhul Hasan

1. The debt transactions must be documented in a written contract and binding agreement.
   • Jumhur Fuqaha
     • The command to “put it down in writing” is recommended command indicating the best suggested practice; not compulsory
     • Supported by Abdullah Yusuf Ali that it is not obligatory in law.
   • Contemporary scholars (Mohd Tahir Asyur & Sayid Qutb)
     • Original ruling for the command is mandatory practice, that all debt must be documented and not optional.
     • Reason: Obviously understood especially if we studied report on cases of false claims, forgery, and fraud in the society which intensifies in an almost alarming rate every year.
   • The objectives (maqasid ) of this rulings;
     • Secure the right of all parties involved and legitimize their claim from one another
     • Avoid any future dispute or argument
     • Organize and standardize the procedure of muamalat in the business society
     • Enable to distinguish between legal and illegal contracts
2. The parties involved must not be reluctant or wary in documenting every single loan transaction regardless of its size or duration. The emphasis given on documentation of debt has been justified as in above verses:
   • Aqsat
     • It is preferable, equitable and fairer for all parties in sight of Allah
   • Aqwam
     • A documented testimony or evidence is more reliable and consistent than oral testimony which based solely on memory
   • It can prevent any suspicion or doubt on the contract itself, or any claim made by any parties
3. The parties involved must provide witnesses to certify the debt contract with the following conditions:
   • The witnesses must be either 2 males or 1 male and two females
   • The witnesses must be reliable and approved or accepted by both parties. Reliability is based on the track record of the witnesses.
   • The witnesses must not refuse to testify when they are called upon by disputed parties or by the relevant authorities

The modus operandi of classical tawarruq is:

1. The Islamic Financial Institution (IFI) purchases commodity from Trader A in the commodity market on cash basis;

2. Ownership of the identified commodity will then be transferred to IFI;

3. Thereafter, the IFI sells the commodity to the Counterparty (e.g. other Islamic financial institutions, or client) on deferred price, i.e. cost price plus profit margin);

4. The ownership of the commodity will be transferred to the Counterparty;

5. The Counterparty will then sell the commodity to Trader B on cash basis in the commodity market;

6. Finally, the ownership of the identified commodity will be transferred to Trader B.

6.1.4 Justify alternative to BBA - Musharakah Mutanaqisah

Diminishing Musharakah

Another form of Musharakah, developed in the near past, is 'Diminishing Musharakah'. According to this concept, a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share until all the units of the financier are purchased by him so as to make him the sole owner of the property, or the commercial enterprise, as the case may be.

The Diminishing Murabahah based on the above concept has taken different shapes in different transactions. Some examples are given below:

1. It has been used mostly in house financing. The client wants to purchase a house for which he does not have adequate funds. He approaches the financier who agrees to participate with him in purchasing the required house. 20% of the price is paid by the client and 80% of the price by the financier. Thus, the financier owns 80% of the house while the client owns 20%. After purchasing the property jointly, the client uses the house for his residential requirement and pays rent to the financier for using his share in the property. At the same time, the share of financier is further divided in eight equal units, each unit representing 10% ownership of the house. The client promises to the financier that he will purchase one unit after three months. Accordingly, after the first term of three months he purchases one unit of the share of the financier by paying 1/10th of the price of the house. It reduces the share of the financier from 80% to 70%. Hence, the rent payable to the financier is also reduced to that extent. At the end of the second term, he purchases another unit increasing his share in the property to 40% and reducing the share of the financier to 60% and consequently reducing the rent to that proportion. This process goes on in the same fashion until after the end of two years, the client purchases the whole share of the financier reducing the share of the financier to 'zero' and increasing his own share to 100%.

This arrangement allows the financier to claim rent according to his proportion of ownership in the property and at the same time allows him periodical return of a part of his principal through purchases of the units of his share.

2. 'A' wants to purchase a taxi to use it for offering transport services to passengers and to earn income through fares recovered from them, but he is short of funds. 'B' agrees to participate in the purchase of the taxi, therefore, both of them purchase a taxi jointly. 80% of the price is paid by 'B' and 20% is paid by 'A'. After the taxi is purchased, it is employed to provide transport to the passengers whereby the net income of Rs. 1000/- is earned on daily basis. Since 'B' has 80% share in the taxi, it is agreed that 80% of the fare will be given to him and the rest of 20% will be retained by 'A' who has a 20% share in the taxi. It means that Rs. 800/- is earned by 'B' and Rs. 200/- by 'A' on daily basis. At the same time the share of 'B' is further divided into eight units. After three months 'A' purchases one unit from the share of 'B'. Consequently the share of 'B' is reduced to 70% and share of 'A' is increased to 30% meaning thereby that as from that date 'A' will be entitled to Rs. 300/- from the daily income of the taxi and 'B' will earn Rs. 700/-. This process will go on until after the expiry of two years, the whole taxi will be owned by 'A' and 'B' will take back his original investment along with income distributed to him as aforesaid.

3. 'A' wishes to start the business of ready-made garments but lacks the required funds for that business. 'B' agrees to participate with him for a specified period, say two years. 40% of the investment is contributed by 'A' and 60% by 'B'. Both start the business on the basis of Musharakah. The proportion of profit allocated for each one of them is expressly agreed upon. But at the same time 'B's share in the business is divided to six equal units and 'A' keeps purchasing these units on gradual basis until after the end of two years 'B' comes out of the business, leaving its exclusive ownership to 'A'. Apart from periodical profits earned by 'B', he gains the price of the units of his share which, in practical terms, tend to repay to him the original amount invested by him.

Analyzed from the Shariah point of view this arrangement is composed of different transactions, which come to play their role at different stages. Therefore, each one of the foregoing three forms of diminishing Musharakah is discussed below in the light of the Islamic principles:

House financing on the basis of diminishing Musharakah
The proposed arrangement is composed of the following transactions:

1. To create joint ownership in the property (Shirkat-ul-Milk).
2. Giving the share of the financier to the client on rent.
3. Promise from the client to purchase the units of share of the financier.
4. Actual purchase of the units at different stages.
5. Adjustment of the rental according to the remaining share of the financier in the property.

Steps in detail of the arrangement
i) The first step in the above arrangement is to create a joint ownership in the property. It has already been explained in the beginning of this chapter that 'Shirkat-ul-Milk' (joint ownership) can come into existence in different ways including joint purchase by the parties. All schools of Islamic jurisprudence have expressly allowed this. Therefore no objection can be raised against creating this joint ownership.

ii) The second part of the arrangement is that the financier leases his share in the house to his client and charges rent from him. This arrangement is also above board because there is no difference of opinion among the Muslim jurists in the permissibility of leasing one's undivided share in a property to his partner. If the undivided share is leased out to a third party its permissibility is a point of difference between the Muslim jurists. Imam Abu Hanifa and Imam Zufar are of the view that the undivided share cannot be leased out to a third party, while Imam Malik and Imam Shafi'i, Abu Yusuf and Muhammad Ibn Hasan hold that the undivided share can be leased out to any person. But so far as the property is leased to the partner himself, all of them are unanimous on the validity of 'Ijarah'.

iii) The third step in the aforesaid arrangement is that the client purchases different units of the undivided share of the financier. This transaction is also allowed. If the undivided share relates to both land and building, the sale of both is allowed according to all the Islamic schools. Similarly if the undivided share of the building is intended to be sold to the partner, it is also allowed unanimously by all the Muslim jurists. However, there is a difference of opinion if it is sold to the third party.

It is clear from the foregoing three points that each one of the transactions mentioned herein above is allowed, but the question is whether this transaction may be combined in a single arrangement. The answer is that if all these transactions have been combined by making each one of them a condition to the other, then this is not allowed in Shariah, because it is a well settled rule in the Islamic legal system that one transaction cannot be made a pre-condition for another.

However, the proposed scheme suggests that instead of making two transactions conditional to each other, there should be one sided promise from the client, firstly, to take share of the financier on lease and pay the agreed rent, and secondly, to purchase different units of the share of the financier of the house at different stages. This leads us to the fourth step, which is the enforceability of such a promise.

iv) It is generally believed that a promise to do something creates only a moral obligation on the promisor, which cannot be enforced through courts of law. However, there are a number of Muslim jurists who declare that promises are enforceable, and the court of law can compel the promisor to fulfill his promise, especially, in the context of commercial activities. Some Maliki and Hanafi jurists can be cited, in particular, who have declared that the promises can be enforced through courts of law in cases of need. The Hanafi jurists have adopted this view with regard to a particular sale called 'bai-bilwafa'. This bai-bilwafa is a special arrangement of sale of a house whereby the buyer promises to the seller that whenever the latter gives him back the price of the house, he will resell the house to him. This arrangement was in vogue in countries of central Asia, and the Hanafi jurists have declared that if the resale of the house to the original seller is made a condition for the initial sale, it is not allowed. However, if the first sale is effected without any condition, but after effecting the sale the buyer promises to resell the house whenever the seller offers to him the same price, this promise is acceptable and it creates not only a moral obligation, but also an enforceable right of the original seller. The Muslim jurists allowing this arrangement have based their view on the principle that "the promise can be made enforceable at the time of need".

Even if the promise has been made before effecting the first sale, after which the sale has been effected without a condition, it is also allowed by certain Hanafi jurists.

One may raise an objection that if the promise of resale has been taken before entering into an actual sale, it practically amounts to putting a condition on the sale itself, because the promise is understood to have been entered into between the parties at the time of sale, and therefore, even if the sale is without an express condition, it should be taken as conditional because a promise in an express term has preceded it.

This objection can be answered by saying that there is a big difference between putting a condition in the sale and making a separate promise without making it a condition. If the condition is expressly mentioned at the time of sale, it means that the sale will be valid only if the condition is fulfilled, meaning thereby that if the condition is not fulfilled in future, the present sale will become void. This makes the transaction of sale contingent on a future event, which may or may not occur. It leads to uncertainty (Gharar) in the transaction, which is totally prohibited in Shariah.

Conversely, if the sale is without any condition, but one of the two parties has promised to do something separately, then the sale cannot be held to be contingent or conditional with fulfilling of the promise. It will take effect irrespective of whether or not the promisor fulfills his promise. Even if the promisor backs out of his promise, the sale will remain effective. The most the promisee can do is to compel the promisor through court of law to fulfill his promise and if the promisor is unable to fulfill the promise, the promisee can claim actual damages he has suffered because of the default.

This makes it clear that a separate and independent promise to purchase does not render the original contract conditional or contingent. Therefore, it can be enforced.

On the basis of this analysis, diminishing Musharakah may be used for House Financing with following conditions:

a) The agreement of joint purchase, leasing and selling different units of the share of the financier should not be tied-up together in one single contract. However, the joint purchase and the contract of lease may be joined in one document whereby the financier agrees to lease his share, after joint purchase, to the client. This is allowed because, as explained in the relevant chapter, Ijarah can be affected for a future date. At the same time the client may sign one-sided promise to purchase different units of the share of the financier periodically and the financier may undertake that when the client will purchase a unit of his share, the rent of the remaining units will be reduced accordingly.

b) At the time of the purchase of each unit, sale must be affected by the exchange of offer and acceptance at that particular date.

c) It will be preferable that the purchase of different units by the client is affected on the basis of the market value of the house as prevalent on the date of purchase of that unit, but it is also permissible that a particular price is agreed in the promise of purchase signed by the client.

Diminishing Musharakah for carrying business of services:
The second example given above for diminishing Musharakah is the joint purchase of a taxi run for earning income by using it as a hired vehicle. This arrangement consists of the following ingredients:

a) Creating joint ownership in a taxi in the form of Shirkat ul-Milk. As already stated, this is allowed in Shariah.

b) Musharakah in the income generated through the services of the taxi. It is also allowed as mentioned earlier in this chapter.

c) Purchase of different units of the share of the financier by the client. This is again subject to the conditions already detailed in the case of House financing. However, there is a slight difference between House financing and the arrangement suggested in this second example. The taxi, when used as a hired vehicle, normally depreciates in value over time, therefore, depreciation in the value of the taxi must be kept in mind while determining the price of different units of the share of the financier.

Diminishing Musharakah in Trade
The third example of diminishing Musharakah as given above is that the financier contributes 60% of the capital for launching a business of ready-made garments, for example. This arrangement is composed of two ingredients only:

1) In the first place, the arrangement is simply a Musharakah whereby two partners invest different amounts of capital in a joint enterprise. This is obviously permissible subject to the conditions of Musharakah already spelled out earlier in this chapter.

2) Purchase of different units of the share of the financier by the client. This may be in the form of a separate and independent promise by the client. The requirements of Shariah regarding this promise are the same as explained in the case of House financing with one very important difference. Here the price of units of the financier cannot be fixed in the promise to purchase, because if the price is fixed before hand at the time of entering into Musharakah, it will practically mean that the client has ensured the principal invested by the financier with or without profit, which is strictly prohibited in the case of Musharakah. Therefore, there are two options for the financier about fixing the price of his units to be purchased by the client. One option is that he agrees to sell the units on the basis of valuation of the business at the time of the purchase of each unit. If the value of the business has increased, the price will be higher and if it has decreased the price will be less. Such valuation may be carried out in accordance with the recognized principles through the experts, whose identity may be agreed upon between the parties when the promise is signed. The second option is that the financier allows the client to sell these units to any body else at whatever price he can, but at the same time he offers a specific price to the client, meaning thereby that if he finds a purchaser of that unit at a higher price, he may sell it to him, but if he wants to sell it to the financier, the latter will be agreeable to purchase it at the price fixed by him before hand.

Although both these options are available according to the principles of Shariah, the second option does not seem to be feasible for the financier, because it would lead to injecting new partners in the Musharakah which will disturb the whole arrangement and defeat the purpose of Diminishing Musharakah in which the financier wants to get his money back within a specified period. Therefore, in order to implement the objective of Diminishing Musharakah, only the first option is practical.

Uses:

• All Purchase of Fixed Assets

• House Financing

• Plant & Factory Financing

• Car / Transport Financing

• Project Financing of fixed assets.

CHAPTER 7: IJARAH (LEASING CONTRACT)

7.1 The contract of leasing

7.1.1 Ijarah

• Literally:
  • Ijarah came from the root word أجر which means compensation or عوض. It also means the sale of usufruct.
• Technicallly:
  • A contract of proposed and known usufruct with a specified and lawful return or compensation for the effort or work which has been expended. It is used to express the sale (bay’) of a known benefit in return for its known equivalent.
  • Usufruct:
    • The usage of shelter for house, transportation for vehicles and others for a fee.
  • Services:
    • To work using physical energy or skills such as lifting goods, cleaning of office, writing, lecturing, and others for a fee

Pillar of Ijarah

1. Muajjir:
   • A person who give something for hire – Lessor, lanlord, owner etc.
2. Musta’jir:
   • A person who takes on hire – Lessee, tenant, renter etc.
3. Ma’jur:
   • A thing given for rent
4. Al-Manfaah:
   • The benefit from a thing – usufruct, services etc.
5. Ujrah:
   • Price or fee given for the payment of rent or lease
6. Sighah:
   • Offer (Ijab) and Acceptance (Qabul)

7.1.2 Classifications of Ijarah

1. Al Ijarah Muntahia bi al-Tamlik

• Ijarah Muntahia bi al-Tamlik means a lease contract which ends with the transfer of the
• legal title of the leased asset to the lessee. Effective transfer of the legal title is a consequent
• to the conclusion of the lease arrangement that can be in the form of a sale or a gift of the
• asset to the lessee. Al-Ijarah Thumma al-Bai’ as adopted in Malaysia is a form of Ijarah
• Muntahia bi al-Tamlik where the sale of asset to the lessee is executed at the completion of the
• lease period.

b. Al Ijarah Thumma al Bai’ (AITAB)

• AITAB also known as ijarah wa iqtina’ (إجارة واقتناء) or al-ijarah muntahiya bi-tamlik (الإجارة المنتهية بالتمليك)
• Definition:
  • Owning the benefit of certain assets for a specific period of time, by paying an agreed sums of rental, with an agreement that the owner will transfer the rented asset to the hirer at the end of the agreed period or during the period, provided all rental payments or installments have been made in entirety

• In theory, the contract of AITAB shall consist of two different contracts, namely:
• The contract of lease (al-ijarah ‘ain)
• The contract of sale (al-bay’)
• AITAB is a contract of leasing with a promise to sell the asset.

7.1.3 The conditions of valid Ijarah

• The conditions for Property
  1. The property must be belong to lessor
  2. The property is known to both parties and is specified
  3. The property can be acquired by the lessee for his use until the end of tenancy or lease
  4. The property should be in a good condition possible for leasing
  5. It is the liability of the lessor to repair damages of the property in order to make it possible for leasing
  6. It is the liability of the lessee to ensure the cleanliness and safety of the property
  7. The liability of the lessee over the property is under the concept of trust (wadiah yadd amanah). However, in the case of damages due to his negligence, the lessee is liable to pay the compensation (dhaman).
  8. The lessee cannot lease the property to another tenant and the second contract is considered as illegitimate.
  9. The sale of a lease property is legitimate. However, the lessee has a right to use the property until the lease contract has expired, where the property will then be submitted to the buyer.
  10. The concept of al-Wadiah is applied when the lease contract has expired and the lessee is still holding the property.

• The conditions for Usufruct
  1. The use of the service (usufruct) can be valued with money.
  2. The usufruct must be valid according to Islamic commercial law.
  3. The lessee should be able to make use of the property on lease.
  4. The usage of the property should be made clear in order to avoid any argument.
  5. The usufruct does not entitled the lessee to own the property.
  6. The lessee is not obliged to inform the lessor his intention for using the property, except in the case of possible destruction.
  7. The usufruct of property beyond its normal usage is considered as an act of intention.

• The conditions for Payment
  1. The amount of payment of rent must be known. If the payment is not in form of cash money, the goods in return must be specified its quantity, types and its characteristics.
  2. The payment of rent can be made in advance.
  3. If the condition for payment does not prescribed to be paid in advance, the payment begins when usufruct started.
  4. If the payment is made on daily, weekly or monthly basis, the payment should be made at the end of period unless otherwise stated on the agreement.
  5. If the property cannot be used the payment is not obliged upon the user.

• The conditions for Sighah
  1. The contract of offer and acceptance should follow all the conditions of the contract of sale in Islam; i.e. it should be on mutual acceptance, cannot be made in form of promises or an order and the offer and acceptance should be the same.

7.1.4 Differentiate Ijarah Muntahia Bittamlik and Ijarah Thumma al Bai’

IJARAH MUNTAHIYAH BITTAMLEK

Ijarah Muntahia Bittamleek or Ijarah Wa Iqtina is a form of lease contract that offers the lessee an option to own the asset at the end of the lease period.

Transfer of ownership can be in the following forms:

(i) Transfer of ownership through gift, i.e. the transfer of legal title for no consideration.

(ii)Transfer of ownership through transfer of legal title at the end of a lease for a token consideration or other amount as specified in the lease.

(iii)Transfer of ownership through transfer of legal title prior to the end of the lease term for a price that is equivalent to the remaining Ijarah instalments.

(iv)Transfer of ownership through gradual transfer of legal title of the leased asset.

7.1.5 The application of Ijarah to Islamic banking products

1. Operational Lease
   • The bank purchases and maintains assets.
   • The bank rents these assets to other parties on terms and conditions agreed upon for a specific time.
   • After the termination of the period the asset is returned to the bank. The bank then leases the same asset to a new lessee.
   • The bank bears the risk of recession or diminishing demand for these assets.
   • At the end the bank may choose to scrap or dispose the asset
   • Hire-purchase-Financial Lease
   • It refers to a type of ijarah that ends with ownership.
   • The bank purchases the asset based on a promise from a customer.
   • The customer promises to own the asset through lease.
   • The asset will not be returned to the bank at the end of the lease period, as is the case in operational lease, but will be bought by the lessee.
   • The rental is calculated based on the value of the asset which is financed, amount of rent, and the period of financing.
2. Operational lease is different from financial lease in a way that the former does not offer an option to the customer to buy the leased asset at the end of the lease period while in the latter the option is offered. If a lessee chooses to buy the asset a new contract will be concluded.

CHAPTER 8: MUSHARAKAH (CONTRACT OF PARTNERSHIP)

8.1 The contract of partnership

8.1.1 Musharakah and Musharakah Mutanaqisah

Musharakah

• Musharakah is also known as al-sharikah (الشركة)
• Literally:
  • Intermingling of properties whereby one cannot be differentiated from the other
  • Mixing of two properties so that they could not be distinguished from each other
• Technically:
  • A form of partnership where two or more persons combine either capital or labor or creditworthiness together to carry on a business venture on condition that they will share the profits, enjoying similar rights and liabilities.
• It is basically a profit and loss sharing partnership whereby the ratio for the distribution of profits must be determined and specified in advance
• If one partner is to be paid a fixed remuneration he will not be deemed a partner
• Each partner may dissolve the partnership at his/her pleasure provided he gives ample notice for the others.

Musharakah Mutanaqisah

Diminishing Musharakah is a form of partnership, which ends with the complete ownership of a partner who purchases the share of another partner in that project by a redeeming mechanism agreed between both of them. Diminishing Musharakah is used mostly when one party who wants to own an asset or a commercial business which does not have adequate funds to pay the full price; and takes the assistance of financing from another party. The share of the financier is divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share till all the units of the financier are purchased by the client so as to make him the sole owner of the asset. In this kind of partnership, all partners are co-owners of each and every part of the joint property or asset on a pro-rata basis and one partner cannot make a claim to a specific part of the property or asset leaving the other parts for other partners

Evidence of Musharakah

• Hadith:
  • Reported by Abi Hurairah R.A that the Prophet S.A.W said “Allah had said that: “I am the third of the partners, as long as any one of them does not betray the other. If he/she does betray the other, I will withdraw (move away) from them”
  • Reported by As–Saib Al–Makhzumi R.A that he used to be a partner of the prophet S.A.W (in business) before his prophet-hood. During the opening of Mecca he said to the prophet S.A.W: “Welcome my brother and partner!”

Pillar of Musharakah

1. Shuraka’
   • Shareholders
2. Ra’sul Mal
   • Capital
3. Mashru’
   • Project or business venture
4. Ribh
   • Pre-determined profit allocation
5. Sighah
   • Ijab (Offer)
   • Qabul (Acceptance )

8.1.2 The conditions of valid Musharakah

• The Conditions Of Shareholders And Partners
  1. The shareholders and partners must be qualified person to appoint an agent or to be appointed as an agent under the principle of al-Wakalah. Each shareholder is considered as a joint owner of the company and has a right to run the business for him and other shareholders when appointed as an agent.
  2. Al-Musyarakah i.e. partnership and company based business can be made between individuals or organizations

• The Conditions Of Capital
  1. The capital must be cash or things that can be valued by money.
  2. The capital must be pooled together and are not segregated so that it cannot be identified the owner of actual share.
  3. The amount of share is not determined to be of the same.
  4. The shareholder can transfer his share to other person.
  5. The contract of al-Musharakah can be terminated to become a contract of ownership. As for example, a Bank has agreed to finance to project together with a housing developer. At the time when the project has completed, the bank can sell his share to the developer so that it will become a sole owner of the property.

• The Conditions Of The Project
  1. The project must be lawful according to Islamic law, i.e. it must be halal. The term “shariah compliance” is widely used in current situations.
  2. The evaluation for works carried out by the partners is made on individual basis, but to be putted together so that the profit can be divided among them.
  3. The shareholder can designate the work to one of them and it can be considered as a specified term or condition of the contract.
  4. The appointed shareholder who carried out the project is held responsible under the principle of Yad Amanah (trust). In the case of his negligence he is held responsible for compensation under the principle of Yad Dhamanah (guarantee).

• The Conditions Of Profit
  1. The shareholders must agree to a specific ratio for profit sharing upon execution of the contract.
  2. Loss sharing, except in the case of deceit or negligence, is according to percentage of shareholding.

8.1.3 The modern application of Musharakah to Islamic banking products

The application of Musharakah in different types of financing are:

Application of Musharakah in domestic Trade: Here the bank enters into a partnership agreement with the client for sale and purchase of local goods whose specifications are given by the client. The total cost of the goods is divided between the parties and both parties agree to contribute their shares of cost of the goods. A specialMusharakahaccount is opened at the bank immediately after the signing of the contract, which specifies all the transactions pertaining to this account. It is the responsibility of the partners to arrange the purchase and sale of goods. An agreed percentage of the profit is given to the client in case of profit and if there is a loss all the partners share the loss according to their contribution in the Musharakah. In Sudan, Al Barakah bank is using this technique to finance the purchase and sale of local goods.

Application of Musharakah to the importation of goods: the importer requests the bank to participate in the import and sale of certain goods. The total cost of importing the goods is declared and the capital contribution of each party is specified.

Letters of credit on a Musharakah basis: the customer informs the bank about the requirements of the letter of credit. The bank, after analyzing, the proposal asks the customer to deposit his portion of the Musharakah, and the bank contributes its portion. A letter of credit is then issued by the bank for importation of goods.

Application of Musharakah in agriculture: this is being experimented in Sudan. Here the bank provides the farmer with ploughs, tractors, irrigation pumps, sprayers etc. and some working capital such as seeds, pesticides and fertilizers etc. The farmer contributes his land, labor and management to the Musharakah. When the crop is ready the farmer gets 30% as his reward for management and labor. The rest 70% is distributed between the farmer and the bank according to the pre agreed ratio.

CHAPTER 9: MUDHARABAH (CONTRACT OF PARTNERSHIP)

9.1 The contract of partnership

9.1.1 Mudharabah

• Literally:
  • Increase or profit
• Technically:
  • Mudharabah is a contract or a partnership where one provides the capital and the other the entrepreneurship with the profit being shared among them with a predetermined condition

Evidence of Mudharabah

• Hadith:
  • Reported By Hakim Bin Hizam that he had stipulated to a man that if he gave him certain asset to be utilized for Muqaradah (Mudharabah, Qiradh) , he must not use it to purchase livestock, or carries it (travel) through the sea, or drop by at the oasis, if the man committed any of the above, he is considered to be the guarantor of my property

Pillar of Mudharabah

1. Sahibul Mal
   • Owner of capital, fund provider
2. Mudharib
   • Entrepreneur
3. Ra’sul Mal
   • Capital
4. Al-Amal or Mashru’
   • Business Venture or projects
5. Ribh
   • Predetermined share of profit
6. Sighah
   • Ijab (Offer)
   • Qabul (Acceptance)

• Conditions of Work
  1. The work or business venture under Mudharabah must be conducted solely by the entrepreneur (mudharib). It is not legal if the capital provider (rabbulmal) was also required to conduct the daily operation.
  2. The project must be legal and permissible(halal)
  3. All the expenses will be taken from the capital provided that is not more than the justified expenses required in the venture

• Conditions of Capital
  1. Must be in the form of money and not commodities since commodities fluctuate in price and cause uncertainty and ignorance
  2. The capital must be clearly specified, determined and known at the time of the contract

• Conditions Of Profit
  1. The distribution of profit must be determined proportionally between the capital provider and the entrepreneur
  2. The pre-determined profit must be in ratio form or percentage and not in fixed amount

9.1.4 The modern application of Mudharabahah to Islamic banking products

• Another popular savings account offered by Islamic Bank is Al-Mudharabah savings accounts.
• Under this concept, the depositors shall entrust the bank to utilize the deposits for its financing and investment activities without any interference from the depositors.
• Profit earned from the bank's investment will be shared between the Bank and depositors in accordance with the agreed profit sharing ratio (PSR).
• It is interesting to note that under Mudharabah savings, the profit-sharing-ratio (PSR) is only valid for one (1) day.
• At end of the day, whatever PSR during the day is terminated but it will be automatically renewed the next day.
• To operate in this manner, the Bank need to seek consent from the Depositors on this automatic profit sharing renewal arrangement on condition the PSR remained unchanged.
• If the Bank decides to change the PSR, it still need to advise the depositors in writing by giving sufficient time such as 14 days to object the change in the PSR.
• Without any objection, the bank can change the PSR without any written acknowledgment or consent from the depositors.
• If the depositor objected to the change in the PSR, the bank reserves right to request the depositor to withdraw the money.
• This type of arrangement must be clearly explained to depositors to ensure transparency.
• So when a new depositor intends to open a Mudharabah savings account, the depositor MUST BE VERBALLY advise by the counter staff of this arrangement before opening the account instead of just asking the depositors to read the fine line (most depositors do not read the standard terms) in the application form.
• Since this savings account uses Al-Mudharabah principle, the depositors are exposed to risk i.e. losses (if any) is to be borne by the depositors.
• Likewise, this possibility must also be highlighted to the depositors.
• To match risks with rewards, profit rates payable to Mudharabah savings account holders are normally higher than conventional savings deposits rates.

CHAPTER 10: RAHNU, KAFALAH AND HIWALAH (CONTRACT OF SURETYSHIP)

10.1 The contract of suretyship

10.1.1 Rahnu, Kafalah and Hiwalah

Rahnu

• Literally
  • constancy, or holding and binding.
• Technically
  • To make an object with economic values in Islamic law perspective as a trust for the payment of debts, so that enabling mortgagee (murtahin) to get all or a part of the debts from the object
• Rahn literally means to detain a thing. Legally, it is the detention of a corporeal property on account of a claim such as a debt which may be satisfied out of that property.

Evidence of Rahnu

• Quran
• According to Quranic verses, every soul is in pledge or rahina for its deeds. {Quran, 74:38}

Pillar of Rahnu

1. Rahin
   • Pledgor – a person who gives rahn/ the debtor
2. Murtahin
   • Pledgee – a person who takes rahn/ the creditor
3. Marhoun
   • Pledged asset – a property to be pledged
4. Marhoun Bih
   • The liability of rahn/ the debt
5. Sighah
   • Ijab (Offer)
   • Qabul (Acceptance)

Kafalah

• Kafalah
  • Gurantee for future obligations involving human beings such as bailing to ensure the attendance of the accused criminals to the court for judgement
• Dhamanah
  • Guarantee for future obligations involving property such as debt obligation, the return of borrowed property, the delivery of products, payment for purchase of products or services or the security if goods.
• Hamalah
  • Guarantee for future obligations involving diyat (blood-money)

• Kafalah comes from the root word kafala (كفل) which means junction – joining combination responsibility or suretyship.
• Legally kafalah means the joining of one obligation to another obligation with regard to a claim on.
• Literally
  • Guarantee, bail, surety, responsibility, suretyship
• Technically
  • The pledge given by the guarator/surety (al-kafil) to a creditor (al-makful lah) on behalf of the principal debtor (al-makful anh) to secure that the guaranteed (al-makful bih) i.e the debtor, will be present at a definite place, e.g to pay his debt, or fine, or, in the case of retaliation, to undergo punishment.
• In kafalah a person joins another person in undertaking certain obligation. Consequently, both persons become jointly liable to meet any claim that may arise from this obligation

Pillar of Kafalah

1. Creditor
2. Debtor
3. Guarantor
4. Aqad

Hiwalah

• Literally
  • To turn over; move or transfer
• Technically
  • To make a transfer of a debt from one debtor to the debtor account of another
  • To transfer a debt from one person (debtor) to another with the same price, it comes to the consequence than the liability of the debtor is abolished. In other words, the first obligator is freed from any financial obligations.
• Hiwalah is a contract which caused the transfer of debt from one party to another.
• According to Mughni Muhtaj, the term Hiwalah is refer to the debt transfer from a party/person to another.

Evidence of Hiwalah

• Hadith
  • The Prophet S.A.W:“The deferment (of paying debt) by the richer is an injustice. When there is one of you, get the offer from other to transfer your debt to another person, just accept it”
  • In Riwayat Ahmad, Prophet Muhammad S.A.W: “Whom of you (the debt is transferred to a rich person) to settle the debt, please just accept the offer.”

Pillar of Hiwalah

1. Muhil
   • A person who is transfers his debt to another person.
2. Muhal-Lah
   • A creditor, whom his property/ debt is transferred to be paid by another person instead of his debtor.
3. Muhal Alaihi
   • Tranferee– a person who accept a hiwalah to himself
4. Muhal Bih
   • The things which is transferred by Hiwalah
5. Sighah
   • Ijab (Offer)
   • Qabul (Acceptance)

10.1.2 The conditions of valid Rahnu, Kafalah and Hiwalah

Condition of valid Rahnu

1. Any object that can be sold can be pledged; and what cannot be sold cannot be pledged
2. A person can borrow something which he can pledge with whom he should specify to the lender
3. If the mortgagor and mortgagee agree to place the pledge with 3rd person, they cannot change this agreement as long as the 3rd person remain honest
4. If the mortgagor pay back the debt, the mortgage does not terminate; it will stay until the whole sum is paid back
5. The mortgagor cannot dispose the object by selling, granting, or endowing it
6. A pledge is a trust in the hands of mortgagee

Condition of valid Kafalah

• Creditor
  • Must be known by the guarantor
  • Has the right to claim the debt from either the debtor or the guaranot in case of default
  • Can relief the guarator from his obligation but the debtor is still obligated to settle his debt
  • Can relief the debtor from his obligation and in this case, the guarator is no longer obliged to settle the debt on behalf of the debtor

Condition of valid Hiwalah

1. The parties should be competent
2. The parties should agree with the hawalah
3. The acceptance of the creditor and the transferee should be given during the session of the contract.
4. The subject matter of hawalah should be debt (dain) and not a specific thing (‘ain).
5. The transferee should owe a debt to the principal debtor. If the transferee is not indebted to the principal debtor and agrees to pay to the creditor the contract is changed to kafalah. As in this case the transferee is paying for the principal debtor.
6. Both the debts should be known.
7. The principal debtor (muhil) should owe a debt to the creditor (muhal). In the absence of such a debt if the creditor (muhal) is refereed to the transferee, the contract is not a hawalah but is considered wakalah.

10.1.3 The modern application of Rahnu, Kafalah and Hiwalah to Islamic banking products

Application of Ar-Rahnu

Pawn-broking is a source of short-term financing generally used by the lower income group to alleviate their cash flow problems. It is also employed by petty traders as a mean to obtain working capital for their business. To cater for the demand of non-interest bearing pawn-broking services by the lower income group, a few Islamic pawn-broking institutions were established in the early 1990’s. The first Islamic pawn-broking institution, Mu'assasah Gadaian Islam Terengganu (MGIT), was set up by the Majlis Agama Islam dan Adat Istiadat Terengganu in January 1992. In March 1992, Kedai Al-Rahn (KAR), a subsidiary of Permodalan Kelantan Berhad commenced its operations. On 21 August 1993, the Minister of Finance announced the introduction of a scheme, known as Skim Al-Rahnu (SAR) through the collaboration of three institutions namely Bank Negara Malaysia, Yayasan Pembangunan Ekonomi Islam Malaysia and Bank Kerjasama Rakyat Malaysia Berhad. Later, on 27 October 1993 the first phase of SAR was launched at six branches of Bank Rakyat.

Al-Rahnu or pawn-broking is an activity whereby a valuable item is collateralised to a debt which may be utilised as payment should the debt is not repaid within the agreed period. In the event the debtor is not able to repay the debt, the pawned asset will be sold off to settle the outstanding debt and any surplus will be given back to the owner of the asset. However, if the owner of the asset could not be traced, it is the responsibility of the Islamic pawn-broker to place the fund in the Baitulmal account for future savings should any claims be made for the surplus by the owner or his heir. A combination of three concepts is applied for the short-term financing under Islamic pawn-broking, i.e.Qardhul Hasan (benevolent loan), Al-Rahnu and Al-Wadiah (custodian).

(a) Qardhul Hasan

A bank will grant a benevolent loan to the applicant who wishes to pawn his valuable item. The loan will be issued under the concept of Qardhul Hasan, whereby the customer is only required to pay the amount borrowed

(b) Al-Rahn

Prior to disbursment of cash to the applicant, the applicant is required to place a valuable asset as collateral for the loan extended by the bank;

(c) Al-Wadiah

The bank accepts custody of the valuable asset on a Wadiah concept whereby the bank promises to keep the valuable asset in a safe place. The bank will need to take precautionary measure such as providing security and insurance to ensure its safe returns once the customer pays his debt. Under the Wadiah concept, the bank will charge the customer for the services rendered in keeping the valuable asset

Application of Kafalah

• Letter of Guarantee (LG)
  • Principle of kafalah has been used in Guarantee facilities as a basis in structuring the Letter of Guarantee
  • Guarantee facilities refers to contract or assurances made by Islamic bank to 3rd parties.
  • Customer will fulfill his/ her obligations towards the respected third party.
  • In this assurance, bank agrees to assume the liability of its customer in the case of default or breaching of contract as agreed between customer and the 3rd party.
  • The issuance of LG usually subject to various terms and conditions. A common practice is that the bank would require customer to cover fully or at least partially value of the LG.

Application of Hiwalah

• Suftajah (Bills Of Exchange)
  • By this application it enables a debtor to make payments in another place through his agent or a second person.
  • Example: A person gives a portion of his property to a merchant to pay to another person in a different country. The sender benefits by insuring himself against the risks of transferring that property himself.
• Other banking products and facilities
  • Issuance of a cheque against a current account(Issuer = transferor/ Bank = Transferee/ Beneficiary = Creditor)
  • Overdrawing from an account or overdraft: Issuer = Transferor (no balance)/ Beneficiary = Creditor (get cheque)/ Bank =Transferee.
• Endorsement of a negotiable instrument.
• Transfer of money (remittance).

CHAPTER 11: WADIAH (CONTRACT OF SAFE CUSTODY)

11.1 The contract of safe custody

11.1.1 Wadiah

• Literally:
  • Al-wadiah it means to leave, quit, abandon etc
• Technically:
  • A thing or commodity committed to the trust and care of a person
  • A contract whereby a person leaves his property for safe protection to another person
  • Al-wadiah is the commission given by the depositor to the depositary for holding his property in safe custody; al-amanah

• Hadith:
  • “Discharge the trust to the person who entrust it to you, and do not betray the one who betrays you”

Pillar of Wadiah

1. Al – Muwaddi’
   • Depositor, Owner of the property
2. Al – Wadi’
   • Depositee, Custodian of the property
3. Al-Wadiah
   • Property for safe keeping
4. Sighah
   • Offer (Ijab)
   • Acceptance (Qabul)

11.1.3 The conditions of valid Wadiah

The conditions of Wadi’ah

1) The contracting parties: mumaiyyiz, puberty and mature

2) Wadi’ah: can be delivered

11.1.4 The modern application of Wadiah to Islamic banking products

• Responsibility of an Islamic Bank is considered as Yad Dhamanah when:
  • Bank imposes certain fee on the safe keeping of the items and provides a special place for the safe custody of these items.
  • The bank will be held responsible for the replacement of these items in cases of loss, damage or destroy even if these disaster occur unintentionally or due to negligence.
  • Bank uses the cash money for business purposes. In this case, the bank is obligated to fully return the al-Wadiah money that has been used back to the owner, regardless of whether the bank had made any profit or even loss from the business venture using the al–Wadiah money.
  • This means that any profit would be owned by the bank and they have the right to give all or part of the proceeds back to the depositor based on their discretion as a gift or token which are not promised earlier

• Al-Wadiah Current Account
  • Islamic Bank mobilizes customers’ deposits in Current Account under the principles of Al-Wadi’ah Yad Dhamanah (guaranteed custody).
  • It is based on the combination of contract of custody (al-Wadi’ah) and guarantee (Yad Dhamanah).
  • Bank receives deposits from its customers who want to make a safe custody of their funds and utilizing the services provided under the scheme of a current account.
  • The bank then will ask permission to utilize their funds. However, the customers may withdraw their saving any time they desire.
  • All the profit generated by the bank from the use of funds belongs to the bank.
  • The bank provides cheque books and other services provided by conventional bank to the current account.

• Al-Wadiah Saving Account
  • Islamic Bank mobilizes customers’ deposits in Savings Account under the principles of Al-Wadi’ah Yad Dhamanah (guaranteed custody).
  • It is based on the combination of contract of custody (al-Wadi’ah) and guarantee (dhamanah)
  • Bank accepts deposits from its customers who want to make a safe custody of their fund
  • Profit generated by the bank from the use of such funds belong to the bank.
  • Bank may at his discretion reward the customer by returning a portion of profits generated from the use of their funds from time to time.
  • Bank provides its customers with saving passbook and other usual services provided for saving accounts by the conventional banks. ah).

CHAPTER 12: WAKALAH AND UJR (CONTRACT OF AGENCY)

12.1 The contract of Agency

12.1.1 Wakalah and Ujr

• Literally
  • Agency, representation, proxy, mandate, authorization, delegation, empowerment etc.
• Technically:
  • The appointment of someone to take over the appointer’s affairs on his/her behalf for the purpose of accomplishment of certain tasks
  • Wakalah implies a kind of delegation by a person of his business to act on his behalf.
• It is lawful if a person appoints another as his representative for selling or buying, letting or hiring, giving or taking a pledge for depositing or receiving a gift, for safe keeping, for making a compromise, and for giving an acquaintance and for making an admission etc.

"Al-Ujr" refers to commissions or fees charged for services.

Evidence of Wakalah

• Al-Quran
  • .
  • The verse indicate the assigning of agents for zakat management (collection and distribution)
• Hadith:
  • Reported by Urwah R.A that the prophet S.A.W gave him one gold Dinar to buy with it (be an agent for the Prophet S.A.W) a sheep but instead he managed to buy two sheep. He then sold one of it for one gold Dinar and then presented the prophet with both the sheep and one gold Dinar that he acquired. The prophet S.A.W prayed for him to be given blessings (barakah) in all his trade and transactions and mentioned that even if he sells solid soil, he will definitely gain profit in it.
  • Reported by Abi Hurairah R.A to the effect that: the Prophet S.A.W had sent Umar R.A to be his agent in Zakat collection
    • (representative in zakat collections)

Pillar of Wakalah

1. Wakil
   • The authorized agent, representative, proxy, trustee
2. Muwakkil.
   • Authorizer, mandatory, client, principal
3. Muwakkal Bih
   • Things or subject matter that is being entrusted for, or the business deals involved
4. Sighah
   • Ijab (Offer)
   • Qabul (Acceptance)

12.1.2 The conditions of valid Wakalah and Ujr

Condition of valid Wakalah

1. The agent must be someone that is capable of performing the responsibility and fulfill the minimum requirement (being sane, adult and smart)
2. The subject matter or business dealings must be clearly specified in the contract by the authorizer.
3. It is legal to entrust certain business dealings to an agent even if the authorizer is capable of performing the same deal himself.
4. The authorizer has the freedom to terminate the contract or the service of the agent and the agent could also withdraw from the contract
   • Except if the responsibility of the agent towards the other party is still pending or his obligation towards the other party has yet to be fulfilled.
5. The Wakalah contract ends with the accomplishment of the entrusted tasks or mission

Condition of valid Ujr

12.1.3 The modern application of Wakalah to Islamic banking products

• Letter of Credit (LC)
• Under the concept of al-Wakalah, the bank acts as an agent to the customer:
  • The customer informs the bank of his LC requirement and requests the bank to provide the facility.
  • The bank may require the customer to place a deposit to the full amount of the price of the goods to be purchase, which the bank accepts under the principle of al-Wadiah Yadd Dhamanah.
  • The bank establishes the LC and pays the proceeds to the negotiating bank utilizing the customer’s deposit and subsequently releases the document to the customer
  • The bank charges the customer fees and commission for its services under the principles of al-Ijarah.