‫بسم ہللا الرحمن الرحیم‬

Islamic Microeconomic Foundation:

An Introduction to
Islamic Law of Business Transactions

Dr. Syed M. Abdur Rehman Shah

Islam- A Complete Code of Life

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Nature of Activities in Islamic Law

‫عبادات‬ ‫معامالت‬
Detailed Brief

Static
Dynamic
No
Ijtehad
Ijtehad

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Nature of Conventional Economies

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Basic Economic Markets- Commodity Market(1)
Commodity Market Alternate:
Islamic Law of Sale
Contracts

Elements of contract:
 Seller,
 Buyer,
 Sigha (O and A),
 Subject matter,
 Thaman

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Basic Economic Markets- Labor Market (2)
Alternate is ‫اجارة‬
There are two basic types of Ijarah:
1: Lease of an Object (‫)اجارةاالشياء‬
Parties: Lessor (‫)مؤجر‬
Lessee (‫)مستاجر‬
Banking products are dealt in
framework of ‫اجارةاالشياء‬
2: Hire a Labor(‫)اجارةاالشخاص‬
Parties: Employer (‫)مستاجر‬
Employee (‫)اجير‬
In Islamic economics, labor market
and Modern HRM practices are
dealt in framework of ‫اجارةاالشخاص‬.
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Basic Economic Markets- Financial Markets (3)
 Money Market Alternate is Riba-Free
alternates as Shari’ah prohibits
from interest (Riba, Usury,
Ribit) paid on all loans.
Some of the Islamic modes
finance
Include Mudarab’ah,
Musharak’ah, Murabah’ah,
Salam, Istisn’ah and Ijar’ah
which support the development
of real sector economy to
enhance growth of an
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 Methodology of Shariah for Ibadat and
Muamlat
Imam ibn Taymiyyah says:
The acts and deeds of individuals are of two types:
i) Ibadaat ( (‫عبادات‬are devotional acts to improve religiousness.
 Shriah establishes that devotional acts are sanctioned by injunctions
of the Shariah. Thus, what is not commanded cannot be made
obligatory.

ii) Adat (‫ )عادات‬are transactions which we need in daily routine matters.

 As for transactions, the principle governing them would be
permissibility and absence of prohibition. So nothing can be prohibited
unless it is proscribed by Allah (SWT) and His Messenger (SAWW).

‫ان االصل في االشياء االباحة اال ان يكون هناك دليل يدل على حرمته‬
Reference: (Al- Fatawa al- Kubra- 1997)
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General Framework for Business
Transactions
In nut shell, different people at different places and in
different times may seek guidance. The lawgiver
conceded the right to Muslim Jurist (‫اء‬$‫ )فقه‬to frame
specific rules for Muamalat, which may be deemed
necessary under prevailing circumstances based upon
“Ijtehad”.

This methodology of Shariah provides people a

reasonable degree of liberty in their dealings with each
other and entering into contracts and transactions.
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General Islamic Law of Contracts
The learning objectives of these sessions are to make
students understand:

General Principles of Contract in Islamic Law

Elements of contract: (Seller, Buyer, Sigha, Subject

matter, Thaman)

Sharia Ruling: Sahih (Valid) ,Fasid (Invalid) and

Batil(Void) sale contract
General Islamic Law of Contracts
1. Free Mutual Consent

2. Prohibition of Gharar (Uncertainty)

3. Prohibition of Riba

4. Prohibition of Qimar (Gambling)

& Maysir (Games of Chance)
5. Prohibition of Khilabah & Ghishsh (Fraud &
Deception)
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General Islamic Law of Contracts
6. Prohibition of Bayatan fi Bayah
(Combining Two Inconsistent Contracts)
7. Principles of Entitlement to profit with Risk &
Liability for Loss

8. Observance of Maslahah & Maqasid al-Shariah

9. Permissibility as General Rule

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 General Islamic Law of Contracts

1. Free Mutual Consent: No fraud from both sides, both

parties are agreed.

2. Prohibition of Gharar: Uncertainty about ultimate outcome

of a contract which cause dispute and court case. (Separate
Session)
General Islamic Law of Contracts
3.Prohibition of Riba (Separate Session)
4.Prohibition of Qimar and Maysir:
Qimar is an acquisition of something depends on luck and chance
like lottery.
Maysir is near to Qimar , means getting something too easy or
getting profit without any work.
 General Islamic Law of Contracts
5. Prohibition of Khilaba and Ghish (Fraud and deception)
- Khilaba ( Fraud)
- Ghish ( Mixing to cheat )
- Najash ( Bid to rise price )
- Talqqi e rukban
- Tatfeef ( Cheat in measure)

Woe to Al-Mutaffifun (those who give less in measure and weight). (1) Those who, when they
have to receive by measure from men, demand full measure, (2) And when they have to give by
measure or weight to (other) men, give less than due.
 General Islamic Law of Contracts

6. Prohibition of contingent contracts:

Baytane fi Bay ( Two sales in one sale)
A) Two goods for two prices

B) Contingent sale : I sell you this good if “C” sells

that thing to me
 General Islamic Law of Contracts

7. Observance of Maslahah & Maqasid al-Shariah

(Separate Session)
 Preservation of Deen, Nafs, Nasl, Aql and Maal

8. Usufruct revolves with liability: No risk no profit

9. Permissibility as a General Rule:

 Every thing is permissible, if it does not contradict with any
explicit text of Quran and sunnah.
 Element of contract
1. Seegha : Ijab o Qubool ( Offer and Acceptance)
 A declaration that is made first with a view to creating an
obligation while the subsequent declaration is called Qubool.
 Kinds of Sigha:
 By words: No dispute between Fuqaha in conclusion of
contract through words. Because there is clear expression in
using words. Tense of sigha also matters , it should be in Past
or present, not in future tense.
 By Writing : Hanfi, Malki are of the view that Offer and
acceptance through writing is permissible even one party is
missing in session. In that case offer will be in form of letter.
 Shafi :writing is allowed for the person who is unable to
speak.
 Element of contract
 Gesture or indication: Hanfi and Shafi do not allow this.
Because words or writing is more powerful expression of
willingness, whereas Maliki allow it . According to them what
conveys the willingness of the parties, is sufficient whether
words are used or not.

 Muataat ( Conduct ): A says to B this book is Rs.100 worth.B

places the Rs.100 on counter and take the book without saying
any thing. It is allowed with following three conditions:
(i) Delivery of counter values must be from both sides in a way
that seller tells the price and then seller delivers the item and
takes the price.
 Element of contract
(ii) There must be an intention that confirms mutual consent
through body language.
(iii) Item must be of small value. Maliki allows even in expensive
items.

Imam Shafi does not allow neither in small value item nor in
expensive item. These jurists say that offer and acceptance must
be in words or writing with their conditions. So they do not
allow the formation of contracts via conduct or Taati.
 Element of contract
2. Subject Matter:
(a) Legality of SM: The commodity, service or
performance should never be “Haram” things
like wine, pork, prostitution , public property
ect. It also require that there should be no
encumbrance or right attached to it as mortgage
property to which the rights of the creditor
/mortgagee are linked.
 Element of contract
(b) Existence of SM: Transaction must be free from
elements of uncertainty and risk with respect to the
existence and acquisition of SM.
i) fruits on tree before appearing their quality
ii) Fish in water , milk in udders of animal, bird in air
iii) fetus yet in mother’s womb

NAS: Holy prophet SAWW said “ sale not what you

do not have” (Hadith)

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 Element of contract

“ sale not what you do not have”

Hanfi: The SM must be present during the contracting session.
Contracting over a non existing thing is invalid like selling
crop before it is visible as it is possible that crop might not
appear. It would be generalized for the things which involve fear
of non existence like selling of fetus that might not servive.

Hanbali: Hadith mean “do not sell what is not in your possession”
So Hadith does not make “Adam” as illah but Gharar. The gharar is
due to the inability to deliver the SM like stray animal. So sale
of Madoom is void because of inability to deliver, not because
of its non existance.
 Element of contract
(C) Certainty of delivery:
If delivery of SM is not certain then contract is void as
stray animal, fish in sea

(D) Precise determination of SM:

SM must be precisely determined as regards its genus,
quality, quantity and value. Examples:

- I sell you one goat from this flock and did not specify.
- I sell you wheat from this heap of wheat.
- I sell you this thing in price that Mr. A will decide.
 Element of contract

SM can be determined by two ways :

i) By examination: If SM is present in Majlis
(session), then its examination is necessary by the
parties.
ii) By description: If goods or property to be sold are
already known then highlighting the specification or
characteristics would be sufficient like seller’s house or
cow.
Note: In Misli (Fungible) goods, genus, kind, and quantity must
be described in the absence of goods.

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 Element of contract

(E)Legality of Object and Underlying cause:

If seller knows that buyer will do any Haram
deed with bought good, then sale is prohibited.
So motivating purpose must be legal:
- Selling of weapon to person who will kill an innocent
- Selling of graps to the person who will make wine
form it
 Types of Sale
 According to Ahnaaf, there are three types of Sales:
Bay Sahih , Bay Fasid and Bay Batil.

Basic two concepts:

i. Asl
Rukun ul bay : Ijab o Qubool
Mahal ul Aqd : Mabee or Subject matter.

ii. Wasf of Aqd

An external feature of Aqd like Riba ,Gharar
 Types of Sale
 Bay sahih: A sahih contract is that whose Asl and Wasf are in
accordance with law.
 Bay Fasid : A Fasid contract is that whose Wasf is prohibited
by Lawgiver. The contract is legal regards its Asl but it is not
proper as the wasf is prohibited like Riba .
 Bay Batil: A Batil contract is that which is illegal in its Asl as
well as its wasf. The causes which render a contract “Batil” or
invalid ,may be divided into two kinds:
i) Intrinsic causes which relate to asl or elements of contract
such as Illegality of SM, non-existence of SM ,the absence of
the contractual capacity (ahliyat).
ii) Extrinsic causes which relate to wasf or external feature
such as contract contain element of riba or gharar.
Sharia Compliance Check List
Void Invalid Valid
Shari’ah
(Batil) (Fasid) (Sahih)
Ruling
‫الحکم الشرعی‬

Offer &
X √ X √ √

Asal ul Aqad
Acceptance

‫ق‬
‫اصل الع‬
Subject
√ X X √ √ Matter

‫د‬
External
√ √ X X √

Wasaf ul Aqad‫ف‬
Attributes
(Riba &
Gharar)

‫العقد‬
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 Hukm r Shari (Shari’ah Ruling)
In Fasid contract :
- Ownership is obtained after taking possession on SM.
- Both seller and buyer have option to cancel the contract or
they should amend the contract, otherwise cancelation of
contract is Wajib because it leads to commitment of a kabeera
sin.

In Batil contract:

- There is no ownership because contract is void.
 Test the Concepts
Tell the names of following sale contracts:
Sale of stray animal.
Sale of milk in the udder of Animal.
Sale of the bird in air.
I sell you my house if “C” sold me his house.
I sell you this Bag and give me a bottle of wine as a price
Sale of Salt for salt at spot and equal bases.