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Kuliah 1
ESSENTIAL SHARIAH & FIQH RULINGS
IN COMMERCIAL CONTRACTS
Universiti Kebangsaan Malaysia
Faculty of LawPursuing PHD Program in Law
P58462
Musbri Mohamed
DIL; ADIL ( ITM )
MBL ( UKM )
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Nota Penulis
Syukur Alhamdulillah kerana Allah s.w.t membuka kesedaran tentang
keperluan serta kepentingan berkaitan kewangan dan ekonomi Islam yang
mulai bercambah dengan baik di lingkungan umat Islam di peringkat
nasional, serantau dan global menjelang Abad ke 21 kini.
Penulis bukan seorang pakar di dalam perundangan Islam namun merasabertanggungjawab untuk bersama-sama rakan Islam yang lain untuk
berdakwah tentang muamalat Islam khususnya sistem kewangan dan
perbankan Islam.
Pandangan penulis di lembaran ini agak ringkas dan pembaca perlulah
merujuk kepada lain-lain bahan yang lebih terperinci bagi memperolehi
kebaikannya secara optima dan semuga ianya menjadi amalan di dunia yangmembawa kebaikan di akhirat buat kita semua. Insyallah.
Musbri Mohamed
September 2011
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Firman Allah s.w.t melalui Surah Al-Baqarah Ayat 278 :-
"Wahai orang-orang yang beriman, bertaqwalah kamu kepadaAllah dan tinggalkanlah saki baki riba sekiranya kamu benar-
benar beriman, sekiranya kamu tidal meninggalkannya,
istisharkanlah perang dengan Allah dan RasulNya"
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Salah satu dari Tujuh Dosa Terbesar
Berdasarkan hadis Nabi Muhammad s.a.w :
Ertinya : "Jauhilah tujuh dosa besar yakni
syirik, sihir, membunuh tanpa hak, makan
harta anak yatim,makan riba, lari dari
medan peperangan (kerana takut) dan
menuduh perempuan yang suci dengan zina
( tanpa saksi adil) "
Riwayat al-Bukhari dan Muslim
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GENERAL RULE IN COMMERCIAL CONTRACT
Initial legal ruling in commercial contract is permissibility.
Contrary to act of devotion (ibadah).
No legal injunctions is needed in sanctioning new contract.
Every contract is considered lawful and acceptable if no principle of Sharah
is violated. Open a very wide door for further innovations.
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THE PROHIBITION OF RIBA IN ISLAMIC LAW
Riba was prohibited by the Quran in four stages.
1st in al-Rum : 39
2nd in al-Nisa : 160-161;
3rd in Ali Imran ; and4th in al-Baqarah : 275-285
In the 4th stage, the final prohibition of riba is made
conclusively and decisively in al-Baqarah (2: 275):
...they say: trade is like riba, but Allah has
permitted trading and forbidden (haram) riba(usury)...
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Sunnah
There are also a number of narrations from the Sunnah on the
prohibition of riba
Some of the narrations give general prohibition of riba, e.g.:
The Prophet of Allah s.a.w cursed the receiver and the payer of
riba, the one who records it and the two witnesses to the transaction
and said: they are alike (in guilt).
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OBSERVATION
From the provision in the Quran and Sunnah, all the jurists deduced
that riba is prohibited (haram).
However, there are lengthy discussion among jurists on the
meaning, scope and types of the prohibited riba.
SOME DEFINITIONS OF RIBA
Riba literally means: excess, increase, expansion, growth.
Definition 1: Riba is every excess in return of which no reward or
equivalent counter value is paid.
Definition 2 : Riba is predetermined excess or surplus over and
above the loan received by the creditor conditionally in relation to aspecified period.
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RIBA AL-DUYUN (LOAN)
The basis for the prohibition of riba in loan transactions as a result of delay in
time is the Quranic verses, e.g 2:275.
In loan transactions, riba will occur if the three conditions below are fulfilled:
(1) There is excess or surplus over and above the loan capital;Determination
of this surplus in relation to time;Stipulation of this surplus in the loan
agreement.
(2) The debtor borrowed money to be paid in certain time, and the amount is
more that the amount borrowed.
(3) A creditor gives a periodic loan and takes monthly interest. The capital
sum lasts until the expiration of the period. Upon expiry, if the debtor cannot
pay, the period to pay back the capital will be extended and interest will
charged.Arising out of exchange contract, a buyer must pay a consideration.If he failed to settle on time, the period will be extended by increasing the
amount (principle + interest).
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Riba al-Buyu (exchange)
The basis for the prohibition of riba in the exchange of ribawi commodities
is the famous hadith of the Prophet on six commodities:
Gold for gold, silver for silver, wheat for wheat, barley for barley, dates
for dates, salt for saltlike for like, equal for equal, and hand-to-hand
(spot); if the commodities differ, then you may sell as you wish, providedthat the exchange is hand-to-hand or spot transaction.
These commodities can be classified under two main categories which
make the illah (ratio decidendi) for their prohibition:
Medium of exchange (currency) : gold and silver
Staple foods : wheat, barley, dates and salt
* Any other items, even though not mentioned in the hadith but serve the
same purpose will be considered as having the same illah by way of qiyas
(analogy)
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OBSERVATIONS
In modern banking, riba may occur as a result of many factor,
such as : delay in time and excess in quantity
Example 1 : interest charges for bank loans are riba al-nasiah
(due to delay in time) because they were charged in relation tothe time given to repay the loans:
Example 2 : the delay in the exchange of currencies may
amount to riba al-nasiah currently exchange must be cash
/spot because currencies are riba-bearing (ribawi) items
Riba in certain controversial contract (bay al-inah, bay al-
dayn, etc)
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The issue of Riba has long been a problem for Muslims.
Even what constituted Riba itself has been a subject under
serious discussion.
The existence of Riba has been argued to be a major factor
for the low participation of the Malays in the economic
activities of Malaysia. The establishment of BIMB is a
major step towards an interest-free financial system in
Malaysia. This marked the establishment of more Islamic
commercial institutions under the new mode of the
Islamization Policy of Dr. Mahathir Muhammad.
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THE PROHIBITION OF GHARAR IN ISLAMIC LAW
All jurists agree that ghararshould be avoided in commercial
exchanges contracts.
This is because ghararis one of the elements prohibited in Islamic law.
MEANING OF GHARAR
Literally : gharar in the arabic languanges covers a number of
negative elements, e.g., deceit/fraud , uncertainty, danger/risk, and
peril/hazard (khatar) that might lead to destruction and loss.
Technically: gharar is often used to refer to uncertainty and ignorance
of one/both of the parties in a contract over the substance or attribute
s of the object of sale, or of doubt over its existence and availability
at the time of contract.Thus, gharar exists when its substances or consequences are hidden
and unknown to the contracting parties.
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GHARAR IN THE QURAN
The word gharar and its derivatives appear in the Quran in 27 instances.
But, in all these instances, the word gharar has been used to refer to
theological and religious themes, i.e., the need for the believers to be
aware and vary of the deceptive character of the worldly pleasures of this
profane life, and not to be deceived by such temptations
Thus, the jurists did not use these 27 references to gharar in the Quran tojustify the prohibition of gharar in contractsthey were meant
exclusively for religious themes.
However, through the observations of the jurists, and guided by the many
ahadith on gharar, it has been concluded that ghararis an element that
comes under the meaning of other terms that are expressly prohibited in
the Quran, e.g.: al-batil (falsehood/deception), al-maysir(gambling) and
riba(usury)
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The prohibition of al-batil is made, for example, in
Surah al-Nisa (4:29)
O you who believe! Eat not up your property
among yourselves unjustly (bil batil i.e., by
falsehood and deception) except it be a tradeamongst you, by mutual consent...
The jurists agree that the word al-batil in the
above verse includes all categories of illegal and
defective elements in commercial contract,
including that ofgharar
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GHARAR IN THE SUNNAH
The sunnah uses the word gharar and its derivatives much moreextensively that the Quran in the sense that several new
meanings are added.
In relation to commercial transactions, the Prophet s.a.w in
many of his sayings directly prohibited the sale involving
gharar(uncertainty) andjahalah (ignorance).
Thus, the prohibition ofghararis made conclusive by the
sunnah/hadith of the Prophet s.a.w
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EXAMPLES OF THIS KIND OF SALE IN HADITH
Sale of fish in the sea, birds in the sky.
Sale of unborn calf in its mothers womb.
Sale of runaway animal, slaveinvolve item which may or may not existHowever, the Prophet did not lay down the principles (qawaid) for the
prohibition ofgharar.
Examples given in the hadith were some of the manifestations of the
doctrine, but not principles.
This has led to the dispute among jurists on the area and coverage of
gharar.
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PURPOSE OF THE PROHIBITION OF GHARAR
To ensure full consent and satisfaction of the parties in a contract.
Without full consent, a contract may not be valid.
Full consent can only be achieved through certainty, full
knowledge, full disclosure and transparency, and zero deceit/fraud.
Gharar also results in the risk between the parties being built into
the contract at its inception and which must result in a profit for
one party and a corresponding loss for the other (zero-sum game-
similar to gambling).
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Application ofGharar
Brodly speaking, gharar will effect the
validity of contract if it occurs in these
areas:
Gharar in kind/type/attribute/quantity
of the object;
Gharar due to delivery time;
Gharar due to the price /mode of
payment; and
Gharar over the ability to deliver.
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'Gharar' is a broad concept and has been given a variety of definitions,which will not be reviewed here. Suffice it for our purposes to highlight
an aspect of 'gharar' which coincides with 'maysir' and 'qimar', and that is
the uncertainty over gain and loss which is in common between 'gharar'
and gambling. Although many jurists in the Maliki and Shafie schools
have defined 'gharar' by this description, it is not an accurate definition
as this would also apply to many contracts such as partnership and
'mudaraba'.
It is evidently difficult to draw a clear distinction between 'gharar' and
'maysir'. One thing that merits attention though is that 'maysir' is played
for its own sake often as a game whereas 'gharar' proceeds over sales and
contracts. 'Gharar' is usually not the purpose of a contract but incidental
to it whereas 'maysir' is the purpose of the game which has no othersubject matter or purpose then winning and beating one's opponent in
order to take his property.
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Maysir
The avoidance of transactions involving maysir(gambling).
Involves the creation of risk for the sake of risk.
A combative relationship between two contracting parties, each
of whom undertakes the risk of loss and the loss of one means
gain for the other.
Apply to all game of pure chance.No economic activities are gained in the practice. The gambler
will simply seek to amass wealth without efforts.
Gambling is ghararin its worst scenario
Prohibited by al-Quran in Surah al-Maidah (5:90)
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Speculation And Gambling
Many observers regard speculation and gambling as synonymous terms. One
hears of "investing in securities" and "gambling in futures". Others regard them
as distinctly different activities. The main difference between them relates to
the nature of risk and potential contribution to the social good. Gambling
involves creation of risk for the sake of risk. Horse racing and poker, for
example, create risks that would not be present otherwise. The gambler chooses
to seek out risks that were not there before. Even if they had been there before,
they had not concerned him personally and no social good is accomplished by
gambling.
Investing, on the other hand, consists of committing capital to an enterprise in
the hope of earning a profit. The difference between investment and speculation
is largely semantic, but most would agree that commitments with time horizonslonger than several months qualify as investment regardless of whether the
commitment is in securities, real estate, or commodities.
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Defining speculation or identifying the speculator is always difficult.Many have stated that no clear definition can be given, for the
distinguishing lines between investment, speculation, and gambling are
not always clear, and the gray area between them tends to persist
regardless of particular definitions.
Speculation consists of risks that are necessarily present in the process of
marketing goods and services in a free-market economy. For example, as
a wheat crop grows and is harvested, concentrated, and dispersed, the
obvious risks of price changes must be taken by those who own the
wheat or have a commitment to buy it. These risks would be present
whether futures markets existed or not. If speculators were unwilling to
take them, someone else would have to do. The issue here is whether the
winners and losers would be the producers and consumers, or whetherthe price risks would be shifted to speculators, the government, or
diffused through market mechanisms.
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The motivation of many individual speculators could well be identicalwith that of gamblers, with the main difference being that futures
speculation reallocates risk from those who do not want it to those
who do. Futures speculation, in other words, directs the appetite for
risk into an economically productive channel. Futures markets are
basically risk-transfer mechanisms that redistribute price risk, and
speculators are those who assume it. Without them, there would be noone to whom hedgers could shift their risks. Speculation in the
positive sense consists of intelligent and rational forecasting of future
price trends on the basis of evidence and knowledge of past and
present conditions.
Speculators in commodities are not simply gamblers, for the risks are
real commercial risks, quite a different matter than the activity of agambler, who assumes no risk other than that created by the rules of
the game.
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A common criticism of futures speculation is that it causes volatile
price moves that cause considerable hardship to those engaged in
more productive pursuits. Wide publicity is given to the relatively
rare, but highly dramatic, manipulations that cause many to
conclude that speculation is synonymous with gambling.
Speculators can point to equally scandalous events throughout
history. Some early instances of manipulation by Americans cometo mind: Hutchinson, Leiter, and Patten in the late nineteenth
century and, in 1980, Bunker Hunt's foray into the silver market,
all of which resulted in price distortions. Since then, however,
balance has returned to the market and this, aided by the
introduction of regulatory and punitive legislation, has diminished
the prospects for such manipulation.
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Moreover, existing data do not confirm the suspicion that futures trading isdominated by large speculators. Data may vary from market to market, but,
regardless of market, the total holdings of large speculators' long and short
positions are less than 20 percent of the total holdings of small traders. Large
speculators probably constitute less than 2 percent of the total futures trading
population. Major price movements are usually caused by basic changes in the
supply or demand for a given item and only rarely by a group of speculators
creating a self-fulfilling prophecy. Evidence obtained from considerable researchsuggests that "speculation probably does more to smooth price fluctuation than to
increase it. Research on the behavior pattern of such goods as onions and live beef
cattle before and after the institution of futures markets have supported, on the
whole, the conclusion that futures trading has not increased price fluctuation in the
cash market. Statistical analysis shows that the volatility of futures prices is
approximately the same as that of equity prices.What makes futures trading more
prone to speculative risk taking is the high degree of leverage that results from low
margin requirements. This low margin facility is not available in the stock market
and is the main factor that is accountable for the high volume of speculative
trading in futures.
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TRANSACTION INVOLVING PROHIBITED COMMODITIES
It is also not allowed to conclude contract on illegal commodities such as
pork, liquor etc. Illegality of certain commodities has been spelt out clearly
in texts of al-Quran and the Sunnah of the Prophet.
E.g : Surah al-Maidah 5:5
Surah al-Maidah 5:90
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ENCOURAGEMENT OF TRADE BY MUTUAL
CONSENT
The Quran encourages work and trade.
The Prophet s.a.w himself was a trader.
The encouragement of trade is evidenced by the many
instruments of trade available during the Prophets lifetime
and in Islamic history thereafter.
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BUSINESS CONTRACTS RECOGNISED IN ISLAM
Contract of sale and purchase (bay) including all its
subdivisions, like:
Normal or spot sale.
Mark-up sale (murabahah).
Deferred payment sale (BBA).
Sale with advance payment but deferred delivery (bay al-salam).
Sale for future delivery of goods with flexible payment of the
price or manufacturing contract (bay al-istisna).
Sale of currency (sarf)., etc
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Some controversial sales :
Sell and buy back (bay al-inah).
Sale of debt (bay al-dayn).
Islam recognises partnership contract which are mainly based on
profit and loss sharing (PLS), e.g. :Mudharabah
Musharakah
A relatively new invention in this regard is :
Musharakah mutanaqisah
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Islam recognises public and private project financing, e.g.:
Leasing (ijarah)private;
Endowment (waqf)private/public;
State treasury (bay al-mal)public.
Modern form of private project financing :
Operational leaseFinancial leaseAITAB (hybrid contract)
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Islam recognises other additional contracts to provide security to the
parties in a contract, i.e., the contract of security (uqud al-tawthiqat), e.g
surety ship/guarantee (kafalah) involves three parties.
Mortgage (rahn) : involves two parties.
These security contracts are normally combined with other types of
contract, e.g.The contract of BBA may be secured by a contract of securityinvolving collateral (rahn).
Other contracts recognised in Islamic law:
Contracts of trusts (al-amanat), e.g : safe-keeping (wadiah).
Contract to do a specified task, e.g.: commision (jualah); agency
(wakalah).
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CONCLUSION
Islamic law is dynamic due to the continuous interaction betweenfiqh and Shariah.
The general rule in Islamic finance and commerce is permissibility, except when the
activity involves prohibited acts, i.e., riba , gharar , maysir and prohibited
commodities.
The variety of contract expressly and impliedly allowed by Islam are potentialinstruments to meet current and contemporary financial needs.
The range of Islamic financial products is open to further expansion and re-
interpretation by the scholar (fiqh), as long as they are guided by the Shariah
Musbri Mohamed
October 2011
Continue to Kuliah 2