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SHARIAH RULES IN FINANCIAL TRANSACTIONS

SHARIAH RULES IN FINANCIAL TRANSACTIONS. Prof. Dr. Zainal Azam Abd. Rahman. Islamic contracts from binding effect perspective. Sahih (valid contract) and the fulfillment of pillars and conditions of validity

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SHARIAH RULES IN FINANCIAL TRANSACTIONS

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  1. SHARIAH RULES IN FINANCIAL TRANSACTIONS Prof. Dr. Zainal Azam Abd. Rahman

  2. Islamic contracts from binding effect perspective • Sahih (valid contract) and the fulfillment of pillars and conditions of validity • Batil (void contract) and non-fulfillment of pillars and major conditions of validity • Fasid (defective contract): the Hanafi theory of pillars of aqad being only offer and acceptance • Implications of being in the category of fasid

  3. Islamic contracts from mutuality of exchange perspective • Contracts with consideration take effect upon valid formation of the contract: once duly formed the implication and binding effects can be enforced by the relevant parties • For contracts without consideration, full and binding effects will take place after delivery of the subject matter (ain) to the other party • Cancellation of contracts without consideration is possible

  4. Islamic contracts from desired objective perspective • Uqud al-Tamlikaat: to grant ownership and right • Uqud al-Isqataat: to waive right or claim • Uqud al-Itlaqaat: to widen limitation put by contracts/conditions • Uqud al-Taqyidaat: to limit freedom granted by contracts and conditions • Uqud al-Sharikah: to share ownership and profit • Uqud al-Tawthiqaat: to provide security/collateral • Uqud al-Ishtihfazat: to provide for safe-keeping

  5. Islamic contract from construction of the sighah perspective • Uqud munjazah: contracts whose effects can be enforced immediately after the formation • Uqud mudafah: contracts whose effects are suspended to future time/events • Uqud muállaq: contracts whose effects depend on fulfillment or occurance of certain conditions

  6. Islamic contracts from the perspective whether they are named or otherwise • ‘Uqud al-musamma: contracts whose names are known from earliest period of Islamic law • ‘Uqud ghayr al-musamma: new contracts that do not come within the ambit of the named contracts • Whether acceptability depends on this factor or not?

  7. PROHIBITED ELEMENTS IN CONTRACTS • Duress( ikrah) • Mistake (ghalat/khata’): as to parties, subject-matters • Inequality (ghubn): serious and non-serious ghubn • Deception (taghrir): verbal and non-verbal deception • Illegal goods/assets • Illegal motives/purposes

  8. SALE-BASED PRINCIPLES • Legal and illegal sales • Al-Musawamah, al-amanah, al-murabahah,al-tawliyyah • Al-naqd, bi-thaman ajil/biltaqsit • Al-salam, Al-Istisna’ • Bai al-dayn, bai al-wafa’, al-tawarruk, bai al-inah

  9. PROFIT-SHARING PRINCIPLES • Sharikat al-amwal/al-milk: partnership based on joint-ownership@musha’ • Sharikat al-uqud: partnership based on contract • Al-Mudharabah: capital + management/labour • Al-Musharkah: capital/mgt + capital mgt -Inan: partners are agents -Mufawadhah: partners are agents and guarantors -wujuh: credit reputation and assumption of financial liability for credit obligation = modern corporation?

  10. LEASE-BASED PRINCIPLES • The distinction between ayn (corpus/physical componant) and manfaah (usufruct/use/benefit/utility) • Milk al-raqabah@ legal ownership • Right to utilise/use • Sale of usufruct or granting right to use for consideration/price • Granting of usufruct for free and iarah

  11. FEE-BASED PRINCIPLES • Ijarah ‘ala al-a’mal: contract of service/contract for service • Ajir khass: employee • Ajir mushtarak: independent contractor • Al-Wakalah bil ujur: hiring an agent • Ujrat al-mithl: equitable fee/salary/remuneration

  12. BENEVOLENT CONTRATS • Granting of ownership or usufruct for free • The need for offer and acceptance • The significance of acceptance • The significance of actual delivery of the subject matter • Binding effect of concluded aqad • Practical application

  13. SUPPORTING CONTRACTS • Rahn • Wakalah • Kafalah • Hiwalah • Sarf • Wadiah/amanah

  14. PRE-REQUSITE OF SHARIAH SALE CONTRACT • Shighat al-aqd and its conditions -to express intention to form contract -must be clear enough to express intention -ijab and qabul -implication on contract • Contracting parties and their legal capacity -qualities that create capacity -quality that negate capacity • Subject-matter of the contract -must be in existence -must be given full specification -must there be possibility of delivery -must be legal • Price paid or consideration -can be certain amount of money -certain quantity of goods -certain type of services

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