SUBMITTED BY : BILAL KHAN

REG NO : 662-FSL/LLB5Y/S22
SUBMITTED TO : DR. ANAS RIZWAN SB
SECTION : A {S 22 BATCH}
DATE : 21/12/2023
Four Principles of Islamic Law of Contract for Modern Finance

Islamic law, guided by the Sharia principles, offers a unique framework for contracts, emphasizing
fairness, ethicality, and social responsibility. In the realm of modern finance, several key principles
remain relevant and offer valuable insights:

1. Jaiz vs. Lazim (Permissibility and Validity):

 Jaiz: A contract must be based on lawful objects and activities. Activities prohibited by the
Quran and Sunnah (like gambling, interest-based transactions) are considered Jaiz
(impermissible) and render the contract invalid.

 Lāzim: A valid contract becomes binding on both parties, except under exceptional
circumstances (e.g., fraud, force majeure). This ensures certainty and stability in economic
transactions.

Verse: "O you who believe! Fulfill contracts." (Quran 5:1)

Hadith: "The Messenger of Allah (‫ )ﷺ‬said: 'Muslims are bound by their stipulations unless
they stipulate something forbidden.'" (Sahih al-Bukhari)

2. Daman vs. Amana (Liability and Trust):

 Daman: In contracts involving tangible goods or money, the custodian (debtor) bears the risk of
loss or damage unless negligence or mismanagement by the owner can be proven.

 Amana: In contracts involving services or intangible assets, the custodian acts as a trustee and is
only liable for negligence or intentional misconduct.

 Verse: "The Messenger of Allah (‫ )ﷺ‬said: 'A guarantor is responsible for the debt."
(Sahih al-Bukhari)
Hadith: "A Muslim is a guarantor for another Muslim, and a woman is a guarantor for her
husband and family." (Musnad Ahmad)

3. Rules Governing Delay in Payment and Performance:

 Payment: Islamic finance encourages prompt payment and discourages excessive debt. Some
contracts (e.g., Murabaha) may include fixed repayment schedules, while others may allow
deferred payments with mutual agreement.

 Performance: Delay in fulfilling contractual obligations may lead to compensation or

termination depending on the nature of the contract and reason for delay.

Verse: "And let those who fear Allah give alms out of what Allah has given them." (Quran
3:92)

Hadith: "The Messenger of Allah (‫ )ﷺ‬said: 'The debtor is under the protection of his creditor
until he pays him." (Al-Mu'jam al-Kabir)

4. Sale of Dayn for Dayn (Bay' al-Dayn):

  Islamic law allows the sale of existing debts, provided the transaction is transparent and based
on a fair value exchange. This facilitates financial instruments like debt restructuring or
securitization.

Verse: "And if a debtor is in straitened circumstances, grant him a postponement until [a time
of] ease." (Quran 2:280)

Hadith: "The Messenger of Allah (‫ )ﷺ‬said: 'Whoever buys a debt and then remits some of it,
it will be regarded as charity from him." (Sunan an-Nasa'i)

5. Promises in Islamic Law (Wa'd):

 While not legally binding like contracts, promises carry moral weight and are encouraged in
Islam. Breaking a promise without a valid reason may lead to social disapproval and negative
consequences in the Hereafter.

Verse: "And fulfill [part of] your covenant and break not the oath after affirming it." (Quran
16:94)

Hadith: "The Messenger of Allah (‫ )ﷺ‬said: 'A Muslim is one who keeps his promises and
trusts." (Sahih al-Bukhari)

Conclusion:
These principles, rooted in ethical and faith-based values, offer valuable insights for modern finance. By
embracing transparency, fairness, and social responsibility, Islamic finance can contribute to a more just
and equitable financial system. However, it's important to acknowledge that diverse interpretations and
scholarly opinions exist within Islamic jurisprudence, leading to variations in the application of these
principles in financial products and practices. Consulting qualified Islamic scholars and financial experts
is crucial for navigating the intricacies of Islamic finance in practical settings.