‫دعاء‬

The Prophet ) ‫ ( ﷺ‬used to say: "O Allah, I seek refuge in Thee from
leprosy, madness, elephantiasis, and evil diseases."
Can you guess what our topic is today?
 Financial
Contracts in
Islam
 LESSON OBJECTIVES

❖ Define the meaning of contracts in Islam.

❖ Explore the importance attached to the regulation
of Financial contracts
❖ Clarify the classification of financial contracts in
Islam of legitimacy and purpose.
❖ Illustrate the features of financial contracts in
Islam.
 CHAPTER 5 THE
• O believers! Honour TA B L E S P R E A D
- ‫سورة المائدة‬
your obligations. All A L - M A E DA : V E R S E 1
grazing livestock has ‫ه‬ ْ ‫ه‬ ‫ه‬ ْ
been made lawful to ‫َّللا الرحم ِن الر ِح ِيم‬ ِ ‫ِبس ِم‬
you—except what is ْ ‫ُّ ه‬
‫يا أيها ال ِذين آمنوا أوفوا‬
hereby announced to ْ ْ ‫ه‬ ْ
‫ود ۚ أ ِحلت لكم ب ِهيمة‬ ِ ‫ِبالعق‬
you and hunting while ْ‫ْاْل ْنعام إ هَّل ما ي ْتلى عل ْيك ْم غير‬
on pilgrimage. Indeed, ِ ِ
‫الص ْيد أ ْنت ْم حر ٌم ۗ إنه‬ ‫ه‬ ‫م ِح ِلي‬
Allah commands what ِ ‫ِو‬
He wills ْ
‫َّللا يحكم ما ي ِريد‬ ‫ه‬
• O believers! Honour your obligations. All grazing livestock has been made
lawful to you—except what is hereby announced to you and hunting while
on pilgrimage. Indeed, Allah commands what He wills.
• (Surat AI-Ma'idah: 1 ‫)سورة املائدة‬

Deduce the command mentioned in the Qur'anic verse

and synonyms of the word "Al'uqood" or contracts?

Covenants -
Fulfillment of the Agreements -
Covenants Guarantees
Definition of ‘Aqd’ (contract)

Linguistic definition of Aqd

(contract) is to fasten by drawing
together the parts or sides and
knotting with strings or laces.
Constructive definition: The legal
binding of two parties' wills.
➢Religious
➢Social
➢International
➢Financial
➢Scientific
plenary
 Classify the following items to the correct topic

Truce, Scholarships, Vow, Sale, Oath, Lease, Marriage

Divisions of Contracts and

commitments
Oath, Vow
Marriage
Truce
Sale, Lease
Scholarships
282 ‫ اآلية‬- ‫وَّل تسأموا أن تكتبوه صغيرا أو كبيرا إلى أجله سورة البقرة‬
"Be not averse to writing down (the contract) whether it be small or
great, with (record of) the term thereof." Surat Al-Baqara: 282.

Significance of regulating and notarizing contracts

The arrangement of financial contracts has a great
importance in preventing conflicts and avoidance of harm.
This is guaranteed by determining duties of each of the two
parties of the contract as well as their rights based on
documentation and witnesses and other suitable means.
Almighty Allah says in the verse of debt, which is the longest
verse in the Holy Qur’an.
The consequences of violating the contract in the
following case:
The buyer undertook a remittance while the seller did not
carry out the delivery of goods
Loss of the buyer
conflict and greed

Infer some merits of notarization and regulation of contracts.

Save the rights of people

Reducing the causes of conflict
Increase confidence among people in society
 Elements of Financial Contracts

1.Form of Contract
2.The Contracting Parties
3.The Subject Matter Of Contract
 ْ ً ْ ‫ه‬ ْ ْ ْ ْ ْ ْ ‫ُّ ه‬
ٍ ‫اط ِل ِإَّل أ ًن تكون ِتجارة عن تر‬
‫اض‬ ِ ‫(يا أيها ال ِذين آمنوا َّل تأكلوا أموالكم بينكم ِبالب‬
ْ
ْ ‫ه‬ ‫ه‬ ْ ْ ْ
29 ‫ِمنكم وَّل تقتلوا أنفسكم ِإن َّللا كان ِبكم ر ِحيما) النساء‬

You who believe! Squander not your wealth among

yourselves in vanity, except it be a trade by mutual
consent, And do not kill yourselves (nor kill one another).
Surely, Allah is Most Merciful to you " (Surat AI-Nisaa: 29)
Coercion in contract
The coerced sale is not legal except if coercion is rightfully
implemented, such as when a judge obliges a
procrastinating debtor to sell some of his properties to
pay off debts, and when private property is expropriated
for public interest according to legalistic criteria.
The First Element: Form Of Contract:
Formulation of offer and acceptance: it is either by word
(saying), writing, gesture or act (reciprocal delivery).
Formula can be expressed in any clear, understood and
customary way such as by modern communication means in
concluding contracts.
Extract from lesson lexicon
plenary
Explain the kind of contract formula in the following cases:
*** Najma sent a list of books she wanted to buy from a web site then
received an electronic positive response. She, afterwards, paid the
sum by a credit card
Writing
*** In a commercial market, a buyer paid the price shown on screen to
the clerk without speaking..
Gesture / Action
*** Naveed exported a ton of dates and the contract was concluded by a
telephonic audio and video communication.The exporter said: I sold you
a ton of dates we have agreed upon at twenty thousand Dirhams and
importer replied: I accepted.:

Saying / verbal
 The Second Element: The two contracting parties
Infer from the two following texts the most important conditions that
should be available in the two contracting parties and is there any
difference between male or female according to the texts.
Almighty Allah, Glory be to Him, said:
A: ْ‫و ْابتلوا ْاليتامى ح هتى إذا بلغوا النكاح فإ ْن آن ْستم م ْنه ْم ر ْش ًدا ف ْادفعوا إل ْيه ْم أ ْموالهم‬
ِ ِ ِ ِ ِ ِ
Prove orphans till they reach the marriageable age; then, if you find them
of sound judgment, deliver over unto them their fortune. (Surat AI-Nisaa: 6)

B: The Messenger of Allah, peace be upon him, said: "The pen has been
lifted from the three:
• From the sleeper until he wakes up
• From the minor until he grows up
• And from the insane until he comes back to his senses
"reported by Ahmad in his Musnad."
 1. Rationality
2. Puberty / Adulthood

3. Sanity / Mind

4. Willingly and voluntarily choose

There is no difference between man and woman

in establishing contracting legal capacity. Such
capacity is even extended to non-human beings
(legal person) such as enterprises and commercial
corporations.
 Mortgagee – mortgagor - Lessor / Lessee and
Tenant, Creditor and Debtor, Lender and Borrower
The two contracting parties in each of the following are:
Proxy contract (agent - principal)

Lender – Borrower ).
1- Loan contract(.......................................................................

2- Mortgage contract(……
Mortgagee – mortgagor.).
……………....................................

Lessor – Lessee / Tenant .).

3- Leasing contract(…….......................................................................

Debtor - Creditor ).
4- Debt contract (.......................................................................
The Third Element : Subject of contract (contracted object):
It is what is concluded within the contract: it might be in kind
such as sales contract, a usufruct such as leasing or an action
like power of attorney.
I determine:
The subject matter of contract in each of the following contracts
(action - in kind - usufruct):
Action
• Conventional sequestration contract: ...................................

In kind
• Mortgage contract: ........................................

Usufruct
* Lending contract: ...........................................
Among the conditions of the contract subject matter, it must
be:

1. Possessed by a contractor: The Messenger of Allah,

peace be upon him, said: "Do not sell what you do not
have" (Reported by Annasaei). It is not allowable to sell
possessions of others.

2. Lawful: Wine, pork (or pig) and harmful goods are not
allowed to be sold.

3. Known and defined: It is not allowed to sell unknown or

falsely or insufficiently described thing lest any defect
might be covered or hidden.
plenary
I render a justified judgment:
What are the Juristic rulings on the following contracts?
1. Asad rented a car from the company he works in without informing its
owners.
It is not permissible because he is not the owner of the commodity.
…………………………………………………………..………………………………………………....

2. Ahmad made a contract with a company to supply expired foods.

It is not permissible because the contract is illegal and to harm others is
……………………………………………………………..……………………………………………….....
not allowed.
3. Asad rented an apartment for residence and then illegally sublet it.
It is not permissible, because he is not its owner, and the owner's
permission is not sought.
4- - Rahim made a contract with a person to invest his money provided that,
the investment must be free from any illegal dealings.

It is permissible
……………………………………………………………..……………………………………………….....
Types of financial contracts in Islam:
Jurists divided financial contracts according to some
considerations among which are:
First consideration (according to Shari’a):
Contracts are divided into two divisions (in terms of
religious recognition or prohibition):
a) Legal contracts:They are contracts accredited by
Sharia, with entailed juristic effects. A Muslim
should observe the validity of the contract
elements and never add any unlawful condition to a
contract. If he is unfamiliar with any kind of
contracts, he should refer to specialized jurists and
reliable Fatwa center in the country.
b) Illegal contracts:They are the ones which
Islamic Sharia prohibited and did not entail any
legal effects.
This happens because of a forbidden condition or
description in relation to a contract, making it
illegal, such as contracts that include usury,
gambling, cheating or fraud.The Messenger of
Allah, Peace Be Upon Him, said: "Muslims abide by
the conditions", and "Reconciliation is allowed
among the Muslims, except for a reconciliation
that makes the lawful unlawful, or the unlawful
lawful."(Reported by Abu Dawud).
State the juristic ruling:
*** Faheem made a contract with a person to
invest his money provided that investment
must be free from any illegal dealings.
Permissible contract
……………………............................................................................................................................. .....................................................................................................................................................................................................................................................................

Azher borrowed a sum of money; but the

lender stipulated that he should repay it at 20%
interest.
Not permissible because of a Haraam stipulation
……………………............................................................................................................................. ..........................................................................................................................................................................................................................................................
 The Second Consideration (according to purpose)
Contracts are divided in accordance with their purposes into:
exchange, pledges and security contracts
I extract from the lesson lexicon:
• Exchange contracts:
Based on exchange of items like buying and selling
..........................................................................................................................................................................................

• Pledges contracts: .

Voluntary based like a gift or donation

......................................................................................................................................................................................................................................................................................................................................................
.
* Security contracts: .

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

......................................................................................................................................................................................................................................................................................................................................................
Categorize:
Financial contracts in conformity with their equivalents in the table:
Mortgage - endowment - lending - forward sale - grant - guarantee - sale -
speculation

Divisions of financial Contract Contract

Exchange contracts Forward sale –Sale–Mudharabah

Donations contracts Endowment – Grant - Lending

Security contracts Sequestration - Guarantee

 UAE Identity
A contract is the law of the contractors

This is adopted in the UAE by the H.H. Leaders of the

UAE not to be unjust towards the workers who
support us in the country’s progress and prosperity.
 FEATURES OF FINANCIAL CONTRACTS IN ISLAM:
1. Flexible and compatible with the spirit of our age:
Financial contracts and their conditions are originally based on
lawfulness and permissibility except in case of Sharia evidence of
prohibition: Almighty Allah says
"Allah permits trading and forbids usury.". ( Surat Albaqm:m ) .
Islamic Sharia is eternal and valid for any time or place without any
possibility of being outdated. The contracts investigated by old jurists
were simple, determined and suitable to their times. Contemporary
financial contracts, however, are complicated and sophisticated.
Although they are many and variant, contemporary jurists managed to
figure out appropriate juristic rulings such as Murabaha sale for the
purchaser, credit cards, Lease-purchase, insurance contract and other
kinds of contracts that are ever evolving.
2-Regulated by ethical and faithful values:
A Muslim is honest and sincere and does not wrong an employee or cheat anyone whether old
or young. He is supposed to be fair with all people whether he made a contract with a Muslim or
a non-Muslim. He cannot accept any unlawful contract or condition or perjure to attain any gain
in his contracts or dealings. All means of profit and earning must be legitimate since the end
does not justify the means. The deterrent in transactions is not only the law but also fear of
Allah and internal control within the heart. Fear of Allah is much more powerful than any other
effective means that might hinder human being from resorting to cheat or breach of trust.

3-Fulfilling the needs of society:

The Forward Sale: Ibn Abbas, may Allah be pleased with him, reported that: when the Prophet,
peace be upon him, came to Al-Madinah, they used to pay for dates, two or three years in
advance. He said: 'Whoever pays in advance for dates, let him pay for a known amount or a
known weight, to be delivered at a known time.“

4-They must be enforced:

Islam attaches great respect to contracts and enjoins adherence to their conditions and
fulfillment of them. Almighty Allah said: "and keep the covenant. Lo! of the covenant it will be
asked." The reward of honoring the promises of these contracts is not confined to mundane life
or material gains but also extended to the hereafter whether good or evil.
Worksheet
 Financial contracts in
Islam

Elements Division of Division of

Concept of of contracts contracts Features of
contracts contracts in terms of in terms of contracts
legitimacy purpose in Islam

1-Linguistically 1- Legal contracts:

Form of Contract. they are contracts
1.And its example Flexible and
compatible with the spirit of
To fasten by drawing together accredited by Sharia Exchange contracts: our age
the parts or sides and knotting e.g. Sale . Leasing
with strings or laces.
Regulated by
ethical and faithful
2- values
2.
Two contracting
parties Illegal contracts: Donations contracts
they are the ones e.g. Endowment –
which Islamic Sharia Fulfilling the
prohibited such as Grant needs of society
2- Constructively
usury, fraud, …….etc
The legal binding of two
parties’ wills 3-
The subject matter of the 3.
They must be
contract Security contracts:
e.g. guarantee sequestration enforced
I answer on my own:
Student Activities
+First: Choose for each contract its equivalent from
the brackets:
Naveed took a small water bottle and gave the grocer
one Dirham and no one of them talked.
(lawful- unlawful)

Sameer said to him: "I bought this cell phone from you
by all what I have in my pocket."
(lawful- unlawful)

They agreed on the price but the buyer stipulated that

payment be paid in installments and the seller
accepted.
(lawful- unlawful)
Second: Choose the correct answer from the following:
Only one contract among the following contracts is
legitimate according to Sharia :
A He agreed to sell his car for fifty thousand Dirhams.

B He agreed to sell pork for thousand Dirhams.

C He agreed to lend him one hundred thousand

Dirhams to be repaid a year later provided that he
should pay a 5 % fine for each month's delay.
D He agreed to lend his traveling father's car without
informing his father.
2. Among the effects of abiding by contracts:

A Guarantee of rights among citizens of society.

B To instill confidence in the souls of dealers.

C To encourage investment.

D All of the above.

One of the following entities is ineligible and its
actions do not entail any legitimate effects:
A A dumb person.

B Enterprises

C A person under coercion

D All of the above

Third : Put true ( ) or false (x) in the blank in
front of the following sentences:

A- He monopolized a commodity to raise its price and

control its sale among people.

B- One of the two contractors accepted the other’s

demand to dismiss the sale and cancel the contract.

C- He concealed from the buyer that his car had a big

accident.