1. Chapter 5:
Contract/ Principle
In Islamic Business
BPMS 1013 Theory & Practices of
Islamic Business
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2. • Definition if Contract/ Principle??
• Why we do need Contract/ Principle in Islamic Business?
• The different between Islamic Business and Conventional?
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Islamic Business
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3. INTRODUCTION
Freedom, where there is no compulsion imposed on the
sale and they were given time to choose to continue or
cancel a transaction. While the freedom to make money
purely temporal strictly forbidden in Islam and has been
described in Surah Ali-Imran verse 196 which says:
"Never you be fooled by the unbelievers freedom to move
and build their smooth development of trade and industry
in the state of the world. All of that only temporary
pleasure. Then (in the Hereafter) their abode in Hell. "
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Islamic Business
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4. Sources of the Shariah
•
Primary Sources
 The Holy Quran
 Sunnah (the sayings, deeds and endorsements of Prophet Muhammad PBUH)
•
Secondary Sources (mostly by the exercise of Ijtihad (reasoning by the learned))
 Ijma (Unanimous decision of the Ulama)
 Qiyas (analogy)
 Istishan/ Istihab (equity in Islamic law)
 Maslahah (necessity of the people)
 Surdul Dara’ih (Blocking the means)
 U’ruf (custom)
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5. ACCAD TRANSACTION
• Islam is very concerned
about the contract or the
contract.
• Without a contract, the
contract or a legal bond
between both parties will
be considered invalid.
• When a contract is the
case then both parties
have rights and
responsibilities.
BPMS 1013 Theory & Practices of
Islamic Business
PILLARS OF CONTRACT
TRANSACTION
CONDITIONS OF
TRANSACTION
• Pillars are things
fundamental to the
existence of a practice or
act.
• Conditions are the
properties that determine
the validity of a practice
or act.
• Pillars of the sale are: • seller
• buyer
• Goods sold
• price
• Sighah (ijad and qabul)
• Terms of sellers and
buyers
• Provided goods
• Terms of price
• Terms sighah
• Sample contracts in
government housing
loan scheme.
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6. KHIYAR
 Khiyar is one of the contracting parties can continue the contract or not to
proceed.
 Is typical of the rules regarding the selection of the forward purchase
contract or otherwise
 Intended to give a right to the parties' buy and sell is not a loss or regret
after the agreement was made due to certain things, arising from the
purchase or sale consented either in terms of price, article, etc.
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7. • as performed by the seller and the buyer before parted.
Khiyar Majlis
• it happened during the sale aqad conducted where both parties agreed to unconditionally to pursue the sale or otherwise
Khiyar Syarat
Khiyar Aib
Khiyar Ta’yin
Khiyar
Rukyah
• where there are defects on the goods and the buyer does not know it during the purchase process
• There are c0ndition on Khiyar Aib:
• defects occur before or after akaq or goods not been submitted yet, if there has been handing it can not Khiyar anymore.
• if the buyer is aware of the defect but still buy the goods can not be Khiyar.
• allow the buyer to choose the option purchase one of the three items he wanted to buy.
• The goods must be different in terms of price, and the nature
• unauthorized purchases if buyers do not see what would be purchased in advance as a condition for Khiyar is see what to buy.
• To prevent fraud
• Imam Hanafi opinion Khiyar Naqdi is a branch of the Khiyar conditions.
• requires that the buyer does not submit all the total price within a specified time. The set time is three days, if more than three days then
Khiyar Naqdi purchase canceled
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8. CONTRACT OF DEALING
contracts
mandate
(without)
Contract
Muawadah (pay)
musawamah
contract
(bargain)
Contract
tabaruat
(without)
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9. Almudarabahah
Contract
Al-ishrak
Contract
METHOD
BASED ON A
TRUST
CONTRACT
Tauliyyah
Contract
Al-wadziah
Contract
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10. Gift/Present
Wakaf
Ji’alah
METHOD
BASED ON A
TABARURUAT
CONTRACT
Donations
Or Charity
Hibah
Alqardhul
Hassan
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Islamic Business
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11. METHOD BASED ON A ACCAD
MUSAWAMAH
Cash Method
Of Trading
Bai’bathaman
Ajil
Sell Shares
Musyarakah
Mudharabah
Bai’ Al-i’nah
Bai’ Al-wafa’
Al-wadiah
Al-rahnu
(Mortgage)
Istisna’
Contract
Bai’ Al-istijrar
Ijarah
Al-sarf
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12. KEY ISLAMIC COMMERCIAL CONTRACTS
Gratuitous
Contracts
Gift
Trading
Contracts
Sale
Waqf
Loan
Ibra’
Operational
Lease
Financial
Lease
Bay`
Bithaman
Ajil (BBA)
Mudarabah
Kafalah
Rahn
Hiwalah
Wadiah
Murabahah
Wakalah
Salam
BPMS 1013 Theory & Practices of
Islamic Business
Supporting
Contracts
Musharakah
Leasing
Investment
Contracts
Istisna’ etc.
Jualah
Muqasah
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13. Islamic Banking
SOURCES OF
FUND
BPMS 1013 Theory & Practices of
Islamic Business
APPLICATIONS
OF FUND
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14. EQUITY
FINANCING
Mudharabah
Musharakah
DEBT FINANCING
Sale based financing
BBA / Murabahah
‘Inah/Tawaruq/dayn
Salam
Istisna
Comsumer
Banking
BPMS 1013 Theory & Practices of
Islamic Business
Lease Based Financing Fee Based Services
-Ijarah
Wakalah
-AITAB
Kafalah
Corporate
Banking
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15. ISLAMIC CAPITAL MARKET
Equity
Market
Bond
Market
Musyarakah
Mudarabah
-Debt Based
-ABS
-Equity Based
Mutual Fund / Islamic
REITs
Wakalah / mudarabah
/ musharakah
BPMS 1013 Theory & Practices of
Islamic Business
Derivatives
Market?
-Future Contract
-Options
-Swap
Islamic
Hedge Fund
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16. What to do and what to avoid





Conclusion of contract by mutual consent
The avoidance of riba’
The avoidance of gharar
The avoidance of transactions involving maysir (gambling)
The avoidance of transactions involving prohibited
commodities
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17. WHAT TO BE AVOIDED
 Riba – prohibited in many Quranic verses and
sayings of the Prophet s.a.w.
 Meaning: riba is every excess in return of which no
reward or equivalent counter value is paid, in
short, every unjust enrichment is riba
 Literally: excess, expand, increase, growth
 Any unjustified excess above and over the capital, whether in
loans (between creditor and debtor) or in trade (with similar
commodities)
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18. PROHIBITION OF RIBA IN THE
QURAN
4 STAGES
First Stage
(30:39)
• Compare riba
with zakat &
charity
• Praising zakat &
charity, not riba
Second Stage
(4:160-161)
• Attaching the
practice of riba
with the Jews
• Consider the
practice as an
iniquity (zulm)
BPMS 1013 Theory & Practices of
Islamic Business
Third Stage
(3:130)
• Prohibiting the
practice of
charging double
and multiple riba
Fourth Stage
(2:275-281)
• Conclusively
prohibiting all
forms of riba
• Any excess over
the capital is
disallowed
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19.  “and that which you give in gift (to others), in order that it
may increase (your wealth by expecting to get a better one in
return) from other people’s property, has no increase with
Allah…”
(Surah Ar Rum 30: 39)
 “… and their taking of Riba though they were forbidden from
taking it and their devouring of men’s substance wrongfully….
and we have prepared... a painful torment.”
(Surah An-Nisa’4:160 – 161)
 “O you who believe, Eat not Riba doubled or multiplied, but
fear Allah that you may be successful.”
(Surah al-Imran 3:130)
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20. •
•
•
•
•
“those who eat riba will not stand (on the Day of Resurrection) except like the standing
of a person beaten by Shaitan leading him to insanity. That is because they say: trading
is only like Riba,” whereas Allah has permitted trading and forbidden Riba. So
whosoever receives an admonition from his Lord and stops eating Riba, shall not be
punished for the passt; his case is for Allah (to judge); but whoever returns (to
riba), such are the dwellers of the Fire – they will abide therein forever.
( Surah al- Baqarah 2: 275 )
Allah will destroy riba and will give increase for sadaqat (deeds of charity, alms)
( Surah al- Baqarah 2: 276 )
O you who believe, be afraid of Allah and give up what remains (due to you) from Riba
(from now onward), if you are really believers
( Surah al- Baqarah 2: 278 )
And if you do not do it, then take a notice of war from Allah and hiss Messenger but if
you repent, you shall have your capital sums. Deal not unjustly (by asking more than our
capital sums), and you shall not be dealt with unjustly (by receiving less than your
capital sums).
( Surah al- Baqarah 2: 279 )
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21. • And if the debtor is in a hard time (has no money), then grant him
time till it is easy for him to repay; but if you remit it by way of
charity, that is better for you if you did but know.
• And be afraid of the Day when you shall be brought back to Allah.
Then every person shall be paid what he earned, and they shall not
be dealt with unjustly.
(Surah al- Baqarah 2:280 – 281)
•
There are also a number of narrations from the Sunnah on the
prohibition of riba
•
Some of the narrations give general prohibitions 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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22. • Under Islamic law, riba can occur in two main
situations, i.e.:
o riba al duyun (loan): the riba or excess which occurs in
debt and loan transactions because of extension/delay in
repayment
o riba al buyu` (exchange): the riba or excess which occurs
in trading transactions involving the exchange of ribabearing commodities without observing the required rules
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23. PROHIBITION OF RIBA (Loan)
Surah al-Baqarah, ayat 275
“ … But Allah hath permitted trade and forbidden usury
Interpretative Efforts
What amounts to
Trade
Criteria
■ Fair exchange of goods or
value
■ Fair distribution of risk &
return
BPMS 1013 Theory & Practices of
Islamic Business
Usury
Criteria
■ Oppressive / unfair distribution of
risk & return
■ Unjustified enrichment at expense
of others
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24. PROHIBITION OF RIBA (Exchange)
Sunnah of the Prophet:
Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for
dates, salt for salt - like for like, equal for equal, and hand-to-hand (spot); if the
commodities differ, then you may sell as you wish, provided that the exchange is
hand-to-hand or spot transaction.”
Interpretative Efforts
Application
Currency
Rules
■ Same denomination
■ At Par
■ Spot
■ Different denomination
BPMS 1013 Theory & Practices of
■ Spo
Islamic Business
Staple Food
Rules
■ Same Type
■ At Par
■ Spot
■ Different Type
■ Spot
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25. SUMMARY OF RULES UNDER THE
HADITH
2 conditions:
• money1 + money1
=
– Equality
– Hand-to-hand
2 conditions:
• food1 + food1
=
• money1 + money2
=
• food1 + food2
=
• money + food
=
No condition – free trading
• others + others
=
No condition – free trading
BPMS 1013 Theory & Practices of
Islamic Business
– Equality
– Hand-to-hand
1 condition:
– Hand-to-hand
1 condition:
– Hand-to-hand
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26. DIVISION OF RIBA
Riba’ al-Duyun
(RIba’ in Loan
Contract)
BPMS 1013 Theory & Practices of
Islamic Business
Riba’ al-buyu’
(Riba in exchange
contracts )
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27. Riba’ al-duyun
 The debtor borrowed money to be paid in certain time, and the
amount is more than the amount borrowed
 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 be 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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28. Riba al-Buyu’
• Mainly based on the saying of the Prophet: “Gold for gold, silver for
silver, wheat for wheat, barley for barley, dates for dates, and salt for
salt; like for like, hand to hand, in equal amounts; and any increase
is riba’”.
RIBA IN MODERN FINANCIAL TRANSACTIONS:
• Riba’ al-duyun in loans and certain
(bay’ al-’inah, bay’ al-dayn, etc)
controversial contracts
• Riba’ al-buyu’ mainly in bay’ al-sarf
(exchange of currencies)
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29. CONCLUSION
• Islam is not limited to specific acts of worship alone but all
that is done solely for Allah is considered as
worship, including business.
• Muslims can seek the pleasure of Allah through business.
• That takes business must be to comply with god's commands
and prohibitions leave.
• Businesses need to be ethical.
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