Master file. back up

Sources of Islamic Law & Applied principles 2014

1

INDIVIDUAL ASSIGNMENT

INSTITUTE OF BANKERS OF SRI LANKA

College of Banking & Finance

Diploma in Islamic Banking & Finance – 2014

(Module II – Sharia Framework for Islamic Banking)

Sources of Islamic Law (Shariah) & Applied Principles

Prepared by

Inshaf Fazil – DIB/2014/12

Assignment Director

Mr. M.F. Burah

INSTITUTE OF BANKERS

College of Banking & Finance

November 2014


2

Contents

Page No.

1. Sharia 4 –7

2. Sources of Sharia 8 - 15

a. Primary sources

Qur’an 8 - 9

Sunnah 9 – 10

b. Secondary sources

Ijma 11 - 12

Qiyas 12 –13

Ijtihad 14

Urf 15

3. More about Sharia 16 – 20

The Classification of Sharía Laws 18 – 19

The Scheme of Sharia Law 19 – 20

4. Applications of Sharia in Commercial contracts 21 – 22

Classifications of Financial Transactions in Islamic 21 – 22

Commercial Law

http://en.wikipedia.org/wiki/Ijma

http://en.wikipedia.org/wiki/Qiyas

http://en.wikipedia.org/wiki/Ijtihad

http://en.wikipedia.org/wiki/Urf


3

5. Islamic Commercial Law 23 – 34

a. Principles of Islamic banking

Riba – (Interest \ Usury) 24 – 29

Maysir – (Gambling) 30

Gharar – (Uncertainty \ Speculation) 31

Zakat – (Islamic tax) 32 – 34


4

1. SHARIA.

Before we discuss economics and economic aspects of human beings in the light of Islamic

Shar¯ı́ ah (Shar¯ı́ ah in brief) we should explain what Islamic Shar¯ı́ ah is and what its

objectives (Maq¯asid) are. This is because all business and financial contracts in the framework

of Islamic finance have to conform to the Shar¯ı́ ah rules with the objective of helping to

achieve Maq¯asid al Shar¯ı́ ah. Shar¯ı́ ah refers to a code of law or divine injunctions that

regulate the conduct of human beings in their individual and collective lives. In addition to

some general rules there are some specific branches of these injunctions which are: Aq¯aid, or

matters of belief and worship; Akhl̄ aq, or matters for disciplining one’s self; Ahkam, or socio-

economic and legal systems; Fr¯aidh, or obligations; and Naw¯ahi, or prohibitions. Islamic

economics directly or indirectly deals with all these disciplines.

(Extracted from Understanding Islamic finance – Muhammad Ayub).


5

Sharia in Islam

The word “sharia” literally means “a way.” In Islamic terminology, it means the legal

system of Islam. It is normally translated as the laws of Islam or the Islamic laws.

Islam is a din—religion. The word din bears a concept wider and more comprehensive than

the word `religion'. It means believing in the fundamentals as well as living according to the

Islamic laws. This concept of religion is beautifully conveyed in the terms used by Islamic

scholars to describe the fundamental beliefs and the practical laws of Islam. The “beliefs” are

described as “usûlu’d-dín — the roots of religion”. The “sharí‘a laws” are described as

“furû‘u’d-dín — the branches of religion”. Beliefs without practice is incomplete Islam; and

practice without belief may be useful in this world but not of much use in the hereafter.

The sharí‘a is a complete way of life; no aspect of human life is outside its domain. Islam

expects a Muslim to follow its laws in every aspect of life: personal and familial, religious and

social, moral and political, economic and business, etc. After all, “Muslim” means one who

submits to God. The Qur’ân says, “When Allah and His Messenger have decreed a matter, it is

not for any believing man or believing woman to have a choice in their affairs. And whosoever

disobeys Allâh and His Messenger has gone astray into clear error.” (33:36)

Man’s nature dictates that he can only function properly within a society. Human beings are

interdependent by nature. This interdependency of human beings on each other is beautifully

expressed in the following passage:

“The baker told me to bake my own bread; the tailor told me to cut and sew my

own clothes; the shoemaker told me to make my own shoes; similarly, the

carpenter, the engineer, the farmer, and all the laborers and workers told me to

do everything by myself. It was then that I looked at myself and realized that I

am naked, hungry and powerless with no shelter over my head, waiting for death

to overcome me. It was then that I realized that I cannot survive without my

fellow human beings; my survival depends on living in the society.”*


6

A society, however, depends for its existence on laws and regulations. If there are no laws

in a society, it is overtaken by the law of the jungle: the struggle for existence and the survival

of the fittest. So the need for laws to regulate the lives of human beings is beyond any doubt.

Islam teaches that because of the imperative need of laws for a civilized society, God has

sent a series of messengers and prophets with divine laws for man's guidance from the very first

day of his creation. The last Messenger was Prophet Muhammad (may peace and blessings of

God be upon him and his family) who brought the final and the perfect set of laws, Islam, as a

guide for mankind till the end of time.

Many people think that there is no need for God-made laws; we can make laws by

ourselves. Islam believes that a human being is a very sophisticated creature; and since he has

not made his own body, nor did he create the world in which he lives, he, therefore, is not the

best candidate for making laws about himself. Common sense says that when you buy a

complicated piece of equipment, like a computer, you should use it according to the ‘instruction

manual’ prepared by the manufacturer of that particular machine. To learn the computer by trial

and error is not the smart way. Similarly, God as the Creator of man and the earth knows better

how the human being should live.

The ‘instruction manual’ that God sent for us is known as the Qur'ân. But the human being

is not just any ordinary machine; rather he is more complicated than the most advanced

computer a human can ever produce. So God did not only send the Qur’ân—He also sent an

instructor known as Prophet Muhammad. The Prophet of Islam brought the Qur’ân to us and

also provided practical examples in how to conduct our lives. According to Shi‘a Islam, after

the Prophet, the Imams of Ahlu 'l-bayt are the protectors of the Qur’ân and the interpreters of

its laws.


7

Primary Objectives.

The primary objectives that Shar¯ı́ ah tends to realize are the protection and preservation of:

The Objective of Sharia

To protect the

Izzath

(Honor)

Jaan

(Life)

Aqi

(Knowledge)

Maal

(Wealth)

Nasl

(Generation)

Of Human beings


8

2. Sources of Sharia.

Various sources of sharia are used by Islamic jurisprudence to elucidate the sharia, the body of

Islamic law. The primary sources, accepted universally by all Muslims, are the Qur'an and

Sunnah. The Qur'an is the holy scripture of Islam, believed by Muslims to be the direct and

unaltered word of God. The Sunnah consists of the religious actions and quotations of the

Islamic Prophet Muhammad and narrated through his Companions and the Imams.

a. Primary sources

Qur’an

Qur'an, one of the primary sources of sharia.

The Qur'an is the first and most important source of Islamic law. Believed to be the direct word

of God as revealed to Muhammad through angel Gabriel in Mecca and Medina, the scripture

specifies the moral, philosophical, social, political and economic basis on which a society

should be constructed. The verses revealed in Mecca deal with philosophical and theological

http://en.wikipedia.org/wiki/Fiqh

http://en.wikipedia.org/wiki/Elucidate

http://en.wikipedia.org/wiki/Sharia

http://en.wikipedia.org/wiki/Islamic

http://en.wikipedia.org/wiki/Muslims

http://en.wikipedia.org/wiki/Qur%27an

http://en.wikipedia.org/wiki/Sunnah

http://en.wikipedia.org/wiki/Holy_scripture

http://en.wikipedia.org/wiki/God_in_Islam

http://en.wikipedia.org/wiki/Hadith

http://en.wikipedia.org/wiki/Islamic_Prophet

http://en.wikipedia.org/wiki/Muhammad

http://en.wikipedia.org/wiki/Sahabah

http://en.wikipedia.org/wiki/Imams

http://en.wikipedia.org/wiki/Jibril

http://en.wikipedia.org/wiki/Mecca

http://en.wikipedia.org/wiki/Medina

http://en.wikipedia.org/wiki/Islamic_economics

http://en.wikipedia.org/wiki/Islamic_philosophy

http://en.wikipedia.org/wiki/Islamic_theology


9

issues, whereas those revealed in Medina are concerned with socio-economic laws. The Qur'an

was written and preserved during the life of Muhammad, and compiled soon after his death.

The verses of the Qur'an are categorized into three fields: "science of speculative theology",

"ethical principles" and "rules of human conduct". The third category is directly concerned with

Islamic legal matters which contain about five hundred verses or one thirteenth of it. The task

of interpreting the Qur'an has led to various opinions and judgments. The interpretations of the

verses by Muhammad's companions for Sunnis and Imams for Shias are considered the most

authentic, since they knew why, where and on what occasion each verse was revealed.

Sunnah

The Sunnah is the next important source, and is commonly defined as "the traditions and

customs of Muhammad" or "the words, actions and silent assertions of him". It includes the

everyday sayings and utterances of Muhammad. (PBUH)

Justification for using the Sunnah as a source of law can be found in the Qur'an. The Qur'an

commands Muslims to follow Muhammad. During his lifetime, Muhammad made it clear that

his traditions (along with the Qur'an) should be followed after his death. The overwhelming

majority of Muslims consider the Sunnah to be essential supplements to and clarifications of

the Qur'an. In Islamic jurisprudence, the Qur'an contains many rules for the behavior expected

of Muslims but there are no specific Qur'anic rules on many religious and practical matters.

http://en.wikipedia.org/wiki/Islamic_ethics

http://en.wikipedia.org/wiki/Shia_Imams



10

Muslims believe that they can look at the way of life, or Sunnah, of Muhammad and his

companions to discover what to imitate and what to avoid.

Much of the Sunnah is recorded in the Hadith. Initially, Muhammad had instructed his

followers not to write down his acts, so they may not confuse it with the Qur'an. However, he

did ask his followers to disseminate his sayings orally. As long as he was alive, any doubtful

record could be confirmed as true or false by simply asking him. His death, however, gave rise

to confusion over Muhammad's conduct. Thus the Hadith were established. Due to problems of

authenticity, the science of Hadith (Arabic: Ùlum al-hadith) is established. It is a method of

textual criticism developed by early Muslim scholars in determining the veracity of reports

attributed to Muhammad. This is achieved by analyzing the text of the report, the scale of the

report's transmission, the routes through which the report was transmitted, and the individual

narrators involved in its transmission. On the basis of these criteria, various Hadith

classifications developed.

To establish the authenticity of a particular Hadith or report, it had to be checked by following

the chain of transmission (isnad). Thus the reporters had to cite their reference, and their

references reference all the way back to Muhammad. All the references in the chain had to have

a reputation for honesty and possessing a good retentive memory. Thus biographical analysis

(ìlm al-rijāl, lit. "Science of people"), which contains details about the transmitter are

scrutinized. This includes analyzing their date and place of birth; familial connections; teachers

and students; religiosity; moral behavior; literary output; their travels; as well as their date of

death. Based upon these criteria, the reliability (thiqāt) of the transmitter is assessed. Also

determined is whether the individual was actually able to transmit the report, which is deduced

from their contemporaneity and geographical proximity with the other transmitters in the chain.

Using this criterion, Hadith are classified into three categories:[7]

1. Undubitable (mutawatir), which are very widely known, and backed up by numerous

references.

2. Widespread (mashhur), which are widely known, but backed up with few original

references.

Isolated or Single (wahid), which are backed up by too few and often discontinuous references.


http://en.wikipedia.org/wiki/Hadith

http://en.wikipedia.org/wiki/Science_of_hadith

http://en.wikipedia.org/wiki/Isnad

http://en.wikipedia.org/wiki/Ilm_ar-Rijal

http://en.wikipedia.org/wiki/Sources_of_sharia#cite_note-NomaniH-7

http://en.wikipedia.org/wiki/Mutawatir


11

b. Secondary sources

All medieval Muslim jurists rejected arbitrary opinion, and instead developed various

secondary sources, also known as juristic principles or doctrines to follow in case the primary

sources (i.e. the Qur'an and Sunnah) are silent on the issue.

Ijma

The Ijma’, or consensus amongst Muslim jurists on a particular legal issue, constitutes the third

source of Islamic law. Muslim jurists provide many verses of the Qur'an that legitimize Ijma' as

a source of legislation. Muhammad himself said:

"My followers will never agree upon an error or what is wrong",

"God's hand is with the entire community".


http://en.wikipedia.org/wiki/Consensus

http://en.wikipedia.org/wiki/Ayah


12

In history, it has been the most important factor in defining the meaning of the other sources

and thus in formulating the doctrine and practice of the Muslim community. This is so because

Ijma' represents the unanimous agreement of Muslims on a regulation or law at any given time.

Qiyas

Qiyas or analogical reason is the fourth source of the sharia. Analogical reason in Islam is the

process of legal deduction according to which the jurist, confronted with an unprecedented

case, bases his or her argument on the logic used in the Qur'an and Sunnah. Legally sound

analogy must not be based on arbitrary judgment, but rather be firmly rooted in the primary

sources.

Supporters of the practice of qiyas will often point to passages in the Qur'an that describe an

application of a similar process by past Islamic communities. According to supporters of the

practice, Muhammad said: "Where there is no revealed injunction, I will judge amongst you

according to reason. Further, supporters claim that he extended the right to reason to others.

Finally, supporters of the practice claim that it is sanctioned by the ijma, or consensus, amongst

Muhammad's companions. Islamic studies scholar Bernard G. Weiss has pointed out that while

analogical reason was accepted as a fourth source of law by later generations; its validity was

http://en.wikipedia.org/wiki/Qiyas




http://en.wikipedia.org/wiki/Consensus

http://en.wikipedia.org/wiki/Sahaba

http://en.wikipedia.org/wiki/Bernard_G._Weiss


13

not a foregone conclusion among earlier Muslim jurists. Thus the issue of analogical reason

and its validity was a controversial one early on, though the practice eventually gained

acceptance of the majority of jurists.

The success and expansion of Islam brought it into contact with different cultures, societies and

traditions, such contact; new problems emerged for Islamic law to tackle. Moreover, there was

a significant distance between Medina, the Islamic capital, and the Muslims on the periphery on

the Islamic state. Thus far off jurists had to find novel Islamic solutions without the close

supervision of the hub of Islamic law.

The general principle behind the process of qiyas is based on the understanding that every legal

injunction guarantees a beneficial and welfare satisfying objective. Thus, if the cause of an

injunction can be deduced from the primary sources, then analogical deduction can be applied

to cases with similar causes. For example, wine is prohibited in Islam because of its

intoxicating property. Thus qiyas leads to the conclusion that all intoxicants are forbidden.

In order to respond suitably to emerging problems, he based his judgments, like other jurists, on

the explicit meanings of primary texts (the Qur'an and Sunnah). But, he also considered the

"spirit" of Islamic teachings, as well as the whether the ruling would be in the interest of the

objectives of Islam. Such rulings were based on public interest and the welfare of the Muslim

community.

http://en.wikipedia.org/wiki/Medina

http://en.wikipedia.org/wiki/Islam_and_alcohol

http://en.wikipedia.org/wiki/Intoxicant


14

Ijtihad

Jurists maintain that if a solution to a problem cannot be found from the primary sources, then

aql or reason should be given free rein to deduce a proper response from the primary sources.

The process, whereby rational efforts are made by the jurist to arrive at an appropriate ruling,

when applied is called ijtihad (literally meaning "exerting oneself").

There are many justifications, found in the Qur'an and Sunnah, for the use of Ijtihad. For

example, during a conversation with Mu'ādh ibn Jabal, Muhammad asked the former how he

would give judgments. Mu'ādh replied that he would refer first to the Qur'an, then to the

Sunnah and finally commit to Ijtihad to make his own judgment. Muhammad approved of this.

A lawyer who is qualified to use this source is called a mujtahid. The founders of the Sunni

madhabs (schools of law) were considered such lawyers. All mujtahid exercise at the same time

the powers of a mufti and can give fatwa. Some mujtahid have claimed to be muj̲addid, or

"renewer of religion." Such persons are thought to appear in every century. In Shi'ite Islam they

are regarded as the spokespersons of the hidden Imam.

http://en.wikipedia.org/wiki/Ijtihad

http://en.wikipedia.org/wiki/Madhab

http://en.wikipedia.org/wiki/Mufti

http://en.wikipedia.org/wiki/Fatwa


15

Urf

The term Urf, meaning "to know", refers to the customs and practices of a given society.

Although this was not formally included in Islamic law, the sharia recognizes customs that

prevailed at the time of Muhammad but were not abrogated by the Qur'an or the tradition

(called "Divine silence"). Practices later innovated are also justified, since Islamic tradition

says what the people, in general, consider good is also considered as such by God. According

to some sources, Urf holds as much authority as Ijma (consensus), and more than Qiyas

(analogical deduction). Urf is the Islamic equivalent of "common law"

http://en.wikipedia.org/wiki/Urf

http://en.wikipedia.org/wiki/Allah

http://en.wikipedia.org/wiki/Common_law


16

3. More About Sharia

Islam

Aqidah

(Faith & Belief)

Sharia

(Practices & Activities)

Akhlaq

(Morality & Ethics) Ibadat

(Man to God Worship)

Muamalat

(Man to Man Activities)

Political Activities

Economic Activities

Social Activities

Banking & Financial Activities

OVERVIEW OF ISLAM AND SHARIAH LAW

The purpose of human life in this world is to successfully go through the trials and tribulations

in order to achieve salvation in the hereafter. In the hereafter, life will have no end. God did not

leave us without any means of guidance.

He sent prophets, messengers and books to guide mankind towards the right path. The last

prophet and messenger was the Prophet of Islam, and the final revelation was the Qur'an. Islam

is the ultimate means of guidance for mankind through the tests and trials of this world. The

Prophet was sent “to convey the revelation; to purify spiritually and to teach the Qur’ãn and

wisdom.”


17

Islam seeks to guide its followers by the legal system known as “sharí‘a”. No aspect of our

life is outside the jurisdiction of the sharí‘a: legal and moral, personal and social, economic and

politics, all issues are directly or indirectly covered by the sharí‘a.

The Roots & Branches of Religion

To differentiate between the matters of belief and the laws of sharí‘a, the Shi‘a scholars

have coined two interesting terms: The matter of beliefs (monotheism, justice of God, prophet

hood, imãmat and resurrection) are described as “the Roots of Religion — Usũl ad-Dīn”

because they form the foundation of our faith. The Shi‘a scholars have also coined the term

“the Branches of Religion — Furũ‘ad-Dīn” for the sharí‘a laws.

These terminologies actually reflect the connection between “belief” and “practice”. If the

roots are strong, they will generate healthy branches, green leaves, colourful flowers and

delicious fruits; but if the roots are weak, the tree will be considered useless. Similarly, if a

Muslim’s beliefs are strong, then it should show in the practical life of that person. A non-

practicing Muslim betrays the weakness in his religious roots which are in need of further

nurturing through intellectual stimulation and spiritual guidance.

The items normally listed as “the Branches of Religion” or “Ibadat” are as follows:

1. Prayers (salât).

2. Fasting in Ramadhan (sawm).

3. Pilgrimage to Mecca (hajj).

4. Tax on Wealth (zakât).

5. Tax on Money (khums).

6. Spiritual as well as Physical Struggle for sake of Allãh (jihâd)

7. Promoting good in the family and society (amr bil ma`ruf).


18

8. Preventing evil in the family and society (nahi ànil munkar).

9. Loving and following the Prophet & his family (tawalla).

10. Disassociating from the enemies of the Prophet & his family (tabarra).

These ten teachings reflect the main framework of the Islamic sharía otherwise, the entire

corpus of Islamic sharia falls under the term ‘branches of religion’

a. The Classification of Sharía Laws

All the issues covered by the sharia are traditionally classified into four main groups.

1. ‘Ibãdãt — the Acts of Worship like prayers, fasting, hajj, etc.

2. ‘Uqũd — Mutual Contracts like business transaction, partnership, trusts, power of

attorney issues, and marriage.

3. Iyqã‘ãt — Unilateral Instigations like divorce, confessions in legal matters, vows, etc.

4. Ahkâm — Miscellaneous: anything which does not fit in the three groups above like rules

of eating and drinking, agriculture, arbitration, testimony, etc.

Here I would like to present a modern classification of sharía issues divides the sharía laws into

four groups but his classification makes the issues more clear for the modern man unused to

classical texts.

1. ‘Ibãdãt — the Acts of Worship like prayers, fasting and hajj.

2. Financial Laws:

(a) On Social Level: issues like Islamic taxes of various kinds.

(b) On Individual Level:


19

i. the laws pertaining to the means of possessions.

ii. the laws pertaining to the utilization of one's possessions.

3. Personal Laws: issues like marriage and divorce, eating and drinking, vows and oaths,

hunting and slaughtering, bidding good and forbidding evil, etc.

4. Social Laws: issues like the political system, judiciary, penal code, jihad, etc.

b. The Scheme of Sharia Law

All Islamic injunctions fall within the five main categories of laws: wãjib, mustahab, jã’iz,

makrũh, and harãm. There are other sub-divisions within these five decrees.

1. Wãjib: means obligatory, necessary, incumbent. An act which must be performed. One will

be punished for neglecting a wajib act, e.g., the daily prayers.

Wâjib is also divided into two: ‘ayni and kifã’i:

Wãjib ‘ayni means an obligation which is imposed on individual Muslims, e.g., the daily

prayers. No one can do this duty for someone else.

Whereas wãjib kifã’i means an obligation which is imposed on the Muslim community as a

whole; and if it is fulfilled by one or more individuals, then the rest of the community is no

longer required to do that. For example, a dead Muslim must be buried in the proper Islamic

way. This is a duty imposed on the Muslim community collectively; if some people do that,

then others are not responsible; but if no one does that, then the entire community is answerable

to God.

2. Mustahab, also known as sunnat, means recommended, desirable, better. It refers to the acts

which are recommended but not wajib. If one neglects them, he will not be punished; however,

if one performs them, he will be rewarded.


20

3. Jã’iz means permitted, allowed, lawful. An act which is permitted and lawful; there is no

reward for performing it nor any punishment for neglecting it, e.g., drinking tea.

Halãl & Mubãh: There are other words which reflect the same meaning as jã’iz but with a

different connotation: “Halãl” also means permissible acts or things, but it is used mostly for

permissible things rather than actions. For example, the term “halãl meat” is used for the meat

whose consumption is permissible in Islam. Similarly, “mubãh” means permissible, but it is

exclusively used for things which are lawfully yours or under your control as opposed to

“ghasbi — usurped”.

4. Makrũh means reprehensible, disliked, discouraged. An act which is disliked by Islam but

not haram. If one does a makrûh act, he will not be punished; however, if he refrains from it,

then he will be rewarded.

5. Harãm means forbidden, prohibited. An act from which one must abstain. If someone

performs a haram act, he will be punished either by the Islamic court or in the hereafter or both.


21

4. Applications of Sharia in Commercial contracts

The Whole idea of having a contract is to satisfy the consent of both parties to a contract and it

seems, not only in Islamic legal system but also in other legal system, contract is the best

available means to reflect the intention an accordingly the consent of the parties.

In the Quran, there are forty verses on a dozen types of commercial contracts.

Apart from one important verse on performing contract that is Quran 5:1 which enjoins

believers to “keep faith Contracts” (awfu bi al-uqud),

There are three verses with a common theme of “keeping promise”, nonetheless, there are few

verse which reveal a relatively advances stage of commercial contracts, such as sale and hire,

personal guarantee as security fiduciary contracts such as deposit and the like.

a. Classifications of Financial Transactions in Islamic Commercial Law

There are so many ways in which Islamic contracts are classified by looking at the perspective

of payment, these contracts can be divided into three kinds of contracts.

Immediately enforceable contract (al-‘aqd al-munjaz)

Contract that will become effective at a particular future time (al-aqd al-mudaf ila al

mustaqbal)

Contingent contract (al aqd al mu’allaq)


22

Classifications of the contracts

Contracts based on its purposes will be classified in to six categories.

Contracts of Exchange

Contracts of Security

Contracts of Partnership

Contracts of Safe Security

Contracts pertaining to the utilization of usufruct

Contracts pertaining to do a work


23

5. Islamic Commercial Law

Classification of financial transactions in Islamic Commercial Law

Classification

Sale –

based

principles

Profit-

sharing

principles

Lease-

based

principles

Fee-

based

principles

Free –

of charge

principles

Supporting

Contract

a. Principles of Islamic banking

Riba – (Interest \ Usury)

Gharar – (Uncertainty \ Speculation)

Maysir – (Gambling)

Zakat – (Islamic tax)

Haram Activities – All economic activities which are harmful for the society and to the

environment.


24

Riba (Interest)

Riba means excess, increase or addition

Riba in other words is effortless gain or the profit which is received without giving anything in

exchange.

Riba in Banking terms means receiving or paying an increase amount over the principle amount

of the loan as condition of contract.

Prohibition of Riba in the Holy Quran

First Revelation about Riba

“That which you give as interest to increase the peoples' wealth increases not with God;

but that which you give in charity, seeking the goodwill of God, multiplies manifold.”

(Surah Rome, Verse 39)

Second Revelation

"“And for their taking interest even though it was forbidden for them, and their wrongful

appropriation of other peoples' property. We have prepared for those among them who

reject faith a grievous punishment” (Surah al-Nisa', verse 161)


25

Third Revelation

“Believers! Do not swallow Riba, doubled and redoubled, and be mindful of Allah so that

you may attain true success” (Al Imran, Ayat 130)

Fourth Revelation

Those who spend their wealth night and day, secretly and openly, they have their reward with

their Lord, and there is no fear for them, nor shall they grieve.

Those who take Riba (usury or interest) will not stand but as stands the one whom the demon

has driven crazy by his touch.


26

That is because they have said: Trading is but like Riba. So, whoever receives an advice from

his Lord and stops, he is allowed what has passed, and his matter is up to Allah. And the ones

who revert back, those are the people of Fire. There they remain forever.

Allah destroys Riba and nourishes charities. And Allah does not like any sinful disbeliever.

Surely, those who believe and do good deeds, establish Salah and Zakah have their reward with

their Lord, and there is no fear for them, nor shall they grieve.

O those who believe, fear Allah and give up what still remains of the Riba if you are believers.

But if you don not, then listen to the declaration of war from Allah and His Messenger. And if

you repent, yours is your principal. Neither you wrong, nor be wronged.

And if there be one in misery, then deferment till ease. And that you leave it as alms is far

better for you, if you really know. And be fearful of a day when you shall be returned to Allah,

then everybody shall be paid, in full, what he has earned. And they shall not be wronged.

(Verses of Surah Al Baqarah: 274-281)

Prohibition of Riba In the Hadith

Hazrat Jabir Ibn-e-Abdullah has reported the Prophet (]) to have cursed those who charge

interest, those who pay it, those who write documents pertaining thereto, those who keep the

accounts of such matters and those who sign as witness. He (]) said that they are all equal in

this crime.

“A dirham of riba which a man receives knowingly

is worse than committing adultery thirty six times.”

(Sources: Abdallah ibn Hanzalah. Mishkat al-Masabih.Bayqahi


27

The Prophet said: “Riba has seventy segments, the least serious being equivalent to a man

committing adultery with his own mother.”

(Sources: Aby Hurayrah, Ibn Majah)

The Holy Prophet said: “Even when interest is much, it is bound to end up in paltriness.”

(Sources: Ibn Masùd, Ibn Majah, Musnad Ahmad)

Purpose of Prohibition of Riba

A cause of Injustice.

A cause of distortions in real investment.

Economic instability & Ecological destruction.

Encourages living beyond the personal capacity.

Types of Riba

1. Riba-al-Nasiah or Riba-al-Jahiliya

2. Riba-al-Fadl or Riba-al-Bai

Riba-al-Nasiah or Riba-al-Jahiliya

The term Nasiah is “Delay, postponement or Waiting”.

Riba-al-Nasiah means to increase demanded as a reward for giving time for repayment

for Loans or Debts.

Real and primary form of Riba.

Premium paid to the lender in return for his waiting.

Giving or taking of every excess amount in exchange of a loan at an agreed rate

irrespective of whether it is low or high.


28

Riba-al-Fadl

“Excess in sale or exchange over the counter value of specific commodities which are

homogeneous”

Homogenous commodities which are prohibited under Riba-al-Fadl,

• Gold

• Silver

• Dates

• Wheat

• Salt

• Barley

Laws of Riba Al - Fadl

First law

Exchange of any of the six commodities within the homogenous for the same quality is allowed

with three conditions.

1. On the spot sale / exchange

2. Equal in the volume / weight

3. Taking over the possession of the goods before separation


29

Second law

Exchange of any of the six commodities with itself for different quality is allowed with two

conditions.

1) On the spot sale / exchange

2) Taking over the possession of the goods before separation

The volume / weight of the commodities can differ.

Third law

Sale / Exchange of the six commodities with any other commodities are allowed without any

conditions.

Classification of Riba

Riba Al Nasiah is classified in two types:

• Sood-e-Mufrad (Simple Interest)

– interest calculated only on the initial investment

• Sood-e-Murakkab (Compound Interest)

– reinvestment of each interest payment on money invested to earn

more interest

– Tijarti Sood (Commercial interest)

• interest paid on loan taken for productive and profitable purpose

– Sarfi Sood (Usury)

• interest paid on loan taken for personal need and expenses


30

Maysir (Gambling)

• Maysir means gambling

• It refers to all games of chances where a person gains at the cost of others.

• The amount of money at risk might bring huge sums of money or might be lost.

• Islamic economics encourages profit and risk sharing.

• Risk can be divided into two categories,

– Part of everyday life

– Unnecessary Risk

Prohibition of Maysir in the Quran

• They ask you about intoxicants and games of chances. Say: in both of them there is a

great sin …” (2:219)

• “O’ you who believe! Intoxicants and games of chance and divining by arrows are only

uncleanness, the Shaitan’s work; shun it therefore that you may be successful.” (5:90)


31

Gharar (Uncertainty)

• Gharar means a risky or hazardous sale, where details concerning the subject matter are

unknown or uncertain.

• In other words, Gharar is where only one party benefits out of the transaction.

• Uncertainty cannot be avoided all together in a business.

• Excessive uncertainty and Nominal Uncertainty.

Examples of Gharar are,

01) Sale of a good over which the seller has no control.

02) Making a contract conditional on an unknown event.

03) Any sale in which the subject matter is not clear.

Purpose of Prohibition of Gharar

• Gharar causes injustice.

• May lead to dishonesty & fraudulent activities.


32

Zakat (Islamic Tax)

• Zakat literally means grow (in goodness) or 'increase', 'purifying' or 'making pure'.

• So the act of giving Zakat means purifying one's wealth to gain Allah's blessing to make

it grow in goodness.

Zakat from the perspective of the Islamic law

• The 3rd from the 5 pillars in Islam

• Zakat is an obligatory tax on Muslim who possesses a certain level of wealth.

• Its importance is no different from the other obligations

• Mentioned in the Holy Al-Quran in 84 places

What does the Holy Quran says about Zakat

• “Take from their wealth a portion for charity, in order to clean them thereby, and

sanctify them.”

• “And perform As-Salat (Iqamat-as-Salath) and give Zakat, and Ikra’, (i.e bow down or

submit yourself with obedience to Allah) along with Ar-Raki-un”


33

Types of Zakat

Two main types of zakat:

Zakat fitr

Zakat on mal

People Eligible to pay Zakat

Muslim

Independent

Absolute ownership

Nisab

Haul (Year)

People Entitle to Receive Zakat

Fakir- Income is less than 50 percent of daily needs

Miskin - Just sufficient to finance basic needs

Amil - The one with authority to collect zakat

Muallaf - Individual convert to Islam

Fisabilillah - Individual involve with activities to defend and strengthen Islam

Ibnu Sabil - Refugees, homeless, Orphanage Muslim

Gharmin - Suffered many debt and unable to settle them

Riqab – Slave, after release from the owner.


34

Zakat should be paid on

Zakat on business

Zakat on employment income

Zakat on saving

Zakat on gold/Silver/Money

Zakat on self/ fitrah

Zakat on crops

Zakat on Farm Animals


35

CONCLUSION

Shariah is based on wisdom and achieving people's welfare in this life and

the afterlife.

Shariah is all about justice, mercy, wisdom, and good. Ibn al- Qayyim a

Muslim scholar says;

“Any ruling that replaces justice with injustice, mercy with its opposite, common

good with mischief, or wisdom with nonsense, is a ruling that does not belong to

the Shariah, even if it is claimed to be so according to some interpretations.”


36

Comments & Remarks.


37


38


39


40

Documents

Master file. back up