INTRODUCTION TO

ISLAMIC
MU’AMALAT
INS510
 “This day I have perfected your religion for you, complete My blessing on you
and approve Islam as the way of life for you”.
Al-quran, 5:3
SHARI’AH

 Shari’ah is the entire body of Islamic law.

 The main objective of the Shari’ah is to ensure that human life is based on ma’ruf
(good) and to cleanse if of munkar (evils).
 The term ma’ruf denotes all the qualities that have always been guided as ‘good’
by the Shari’ah and conversey the word munkar denotes all the qualities hat have
always been condemned by the Shari’ah as ‘evil’
The Concept of Deen (Shari’ah)

ISLAM

AKHLAQ –
AQIDAH – SHARI’AH –
code of
set of beliefs fiqh
morality

Fiqh Fiqh
Fiqh ‘Ibadat Fiqh Jinayat
Mu’amalat Munakahat
Fiqh
 Deals with the observance of rituals, morals and social legislation in Islam.
 Branches of fiqh – Ibadat, Mu’amalat, Munakahat & Jinayat

Fiqh Munakahat /
Fiqh Ibadat Fiqh Mu’amalat Fiqh Jinayat
Usrah
• Rules deals with • Deals with • Deals with • deals with major
the rights owed to property, marriage, offences like
Allah s.w.t contracts, divorce, zina, theft &
• i.e prayer, business guardianship. robbery.
pilgrimage, organization, • Known as • Known as hudud
fasting & zakat waqfs personal law. laws
Mandatory Law (Hukm Taklif)

Wajib (Obligatory)

Mandub (Recommended)

Haram (Prohibited / Unlawful)

Makruh (Reprehensible / Disapproved)

Mubah (Permissible)
Taklifi Law (Explanation)
Taklifi law is the law that describes the commands, prohibitions & the opinion to run or leave an activity /
job.
 Wajib – an act of which the performance of it is obligatory for the subject for example performing solat
and fasting. It is an act whose commission is demanded by the Lawgiver in certain and binding terms.
 Mandub – a demand by the Lawgiver for the commission of an act without making it binding and
without assigning any blame for its omission. The rule for mandub is that for doing so there is a reward
(thawab) for the doer, while omitting it entails no penalty such as giving charity to the others.
 Haram – as one which omission is required by the Lawgiver in binding and certain terms. i.e
misappropriation of another’s wealth.
 Makruh is defined as one which omission is demanded by the Lawgiver in non-binding terms. For
instance debt which is not documented or unrecorded.
 Mubah – known as permissible act is one in which the Lawgiver has granted a choice of commission
and omission, without blame or praise for omission or commission. According to this principle all
contracts and transactions are permissible unless there is evidence indicating otherwise.
Sources of Shari’ah

• The very word of Allah s.w.t revealed to the Holy Prophet

s.a.w for the benefit of all mankind.

Al-Quran
• The Quran is a comprehensive and indivisible guide and must
be accepted and implemented in its entirely.

Al-
• The Sunnah literally means ‘Method’ that includes all that is
from the Holy Prophet s.a.w comprises what the Prophet s.a.w
said (qawl), did/action (fi’l) and agreed (Taqrir)
• The word sunnah should be distinguished from the term

Sunnah
Hadith, which means sayings or speeches of Prophet
Muhammad s.a.w
SECONDARY SOURCES
No Secondary Sources Description

1. Ijma’ Juristic consensus of opinion of the imams mujtahid among Muslims in a particular time after the
death of Prophet Muhammad s.a.w regarding the legal position of a matter or problem. In its
application, Ijma’ is an agreement of Muslims jurist in the event the ruling being sought is not found in
the Quran or Sunnah
2. Qiyas Qiyas means to equate the legal position of a matter that has no ruling from the Quran or Sunnah to
one that has due to the ‘Illah (underlying cause or reason) of ruling. It is the extension of a Shari’ah
value from the original case to a new case, because the new case has the same effective cause as the
original case.
3. Maslahah Is the concept in traditional Islamic law, invoked to prohibit or permit something on the basis of
whether or not it serves the public’s benefit or welfare. The meaning of maslahah is consideration of
public interest.
4. ‘Urf Refers to the custom or knowledge of a given society, leading to change in the fiqh. ‘Urf can also
specify something generally established in Quran and Sunnah.
5. Istishab Presumption of existence or non-existence of facts. It can be used in the absence of other proofs
(dalil). Istishab relates to the sense that the past accompanies the preset without any interruption or
change.
6. Istihsan Jurisdic ‘preference’. Muslims scholars may use it to express their preference for particular
judgements in Islamic law over other possibilities. One of the principles of legal thoughts underlying
personal interpretation or Ijtihad.
Objectives of Shari’ah (Maqasid al-
Shari’ah)
Maqasid is the Arabic word for goals or purposes. In terms of Shari’ah there are 5
maqasid: -
BASIC MU’AMALAT
Basic Principles of Mu’amalat
 Freedom of Contract
Muslim are free to act at will to put conditions in their agreements except that which
prohibits something which is permissible or permits something which is prohibited.
 Permissibility as Original Status of Matters
The status of all matters other than rituals is permissible until evidence is given that a
certain matter is prohibited.
 Custom is of Force
An Islamic legal maxim states that “Custom is of force”. In many Shari’ah
commercial contracts, many things may become permissible following customs.
Prohibition in Mu’amalat
 All economic activities are legally permissible as long as these activities do not transgress
any of the tenets of Shari’ah.
 In line with this maxim, it is the unanimous opinion of all 4 major Islamic School of
Thought (Hanafi, Maliki, Shafi’I & Hanbali) that all forms of business transactions that
transgress any of the tenets of Shari’ah are considered invalid.
 General Principles:
 No contract should be made for selling or buying forbidden products such as alcohol.
 No contract should be made for any financial deal on the basis of usury (riba).
 Contact involves in gambling (maysir) is forbidden in Islam.
 Contract that involves major uncertainty (gharar) is also forbidden as Gharar that may make the
contract voidable.
Riba (Usury)
 In Arabic it means ‘increase in’ or ‘addition to’.
 “O you who believe, devour not usury doubling and quadrupling, the sum lent. Fear
Allah and observe your duty to Him, that you may really prospe” (Al-Quran, 3:130)
 Prophet Muhammad saw said: “Gold is to be paid for by gold, silver by silver, wheat
by wheat, barley by barley, dates by dates and salt by salt, like for like, equal for
equal, payment made on the spot. If the species differ, sell as you wish provided that
payment is made on the spot” (Reported by Muslim).
 The above hadith, gold and silver represent money, while wheat, barley, dates and salt
represents fungible items or food stuffs. These items are known as ribawi items.
Dimensions of Riba

Riba

Riba Al- Riba Al-

Duyun Buyu’
Riba Al Duyun
 Riba Al-Duyun is formed through financial loan.

Riba Al - Duyun

Riba Al-Qard Riba Al-Jahilliyah

Where the increase (interest) on the Refers to the increase levied on the
principal sum of the loan is agreed borrower for late repayment or failure
upon at the point of contract. to repay the financial loan.
Riba Al-Buyu’
 Is formed through exchange contract in barter trade.

Riba Al - Duyun

Riba Al-Fadl Riba Al-Nasi’ah

Happen in unequal exchange of its Due to the extension of time of
counterpart. delivery.
Riba Al-Buyu’
 The following rules of exchange apply in deciding whether the said transactions
fall under Riba Al-Fadl or Al-Nasi’ah.
 Rule 1
Exchange between ribawi materials of the same kind & of the same basis must be equal
weight, measurement or number and payment delivery must be made at the same time.
 If payment and delivery are made at the same time but the weights, measurements or
numbers of the materials exchanged are not equal, then Riba Al-Fadl occurs.
 If payment and delivery are not made at the same time but the weights, measurements
or numbers of the materials exchanged are equal, then Riba Al-Nasi’ah occurs.
Riba Al-Buyu’
 Rule 2
Payment and delivery between ribawi materials of different kinds and of the
same basis must be made at the same time, though they may be made at different
prices. Equal weights, measurements or numbers of the materials exchanged are
required to observe there.
 If payment and delivery are not made at the same time or on the spot, then Riba Al-Nasi’ah
occurs.
Maysir (Gambling)
 Any transaction or activity relating to games of chance or gambling. A contract
that involves element of maysir is batil or void.
 Maysir can be concluded as betting or charging something that will be forfeited if
one fails to obtain the greater gani that hopes for.
 Allah swt says:
“ they will ask thee about intoxicants and games of chance. Say: in both there is
great evil as well as some benefit for man: but the evil which they cause is greater
than the benefit which they bring”
(Al-Quran2:219)
Gharar (Uncertainty)

 Gharar or uncertainty makes a transaction or activity un-Islamic as it will result

into an unjust or unfair outcome for the parties involved.
 It is where the quantity and quality involve in the transaction is not predetermined
and known
 Gharar means hazard, chance, stake or risk.
 Gharar occurs when there is element of uncertainty in a transaction whose
existence characteristics are not definite, due to the risky nature which may makes
the contract void or voidable.
 The Prophet Muhammad saw prohibits the sale of gharar renders such a sale
defective. Al-Baji Al-Andalusi
Gharar (Uncertainty)
 Gharar is divided into Minor Gharar and Major Gharar
 Minor (Yasir) Gharar
Minor gharar is forgiven as it does not render a sale contract defective. It is a
gharar which does not affect the principal components of the contract and necessary
conditions of the essential elements. For example requirements relating to asset,
price, language of the contract.
 Major Gharar
The gharar that causes a contract to be invalid is major (excessive) gharar.
 An uncertainty which is so great that it becomes unacceptable or
 It is so vague that there is no means of quantifying it.
The Concept of Contract in Mu’amalat

Elements of ‘Aqd Descriptions

Aqidain (the parties to the  It is a condition of a valid contract that the parties possess capacity.
contract)  Capacity is a quality which makes a person qualified for acquiring
rights and undertaking duties and responsilities.
Sighah  Sighah is the form of the contract of ijab and qabul (offer and
acceptance).
 The offer made by the first party to the contract is called ijab because it
gives & confirms the freedom of acceptance to the second party
Ma’qyd alayh  The subject matter and price.
 They are conditions to be taken into consideration according to Islamic
jurisprudence for subject of contract has to be legal in, existent and
identified.
Application of Shari’ah Contract
Commonly Used in Takaful Business
No Underlying Contract Example
1 Kafalah o In takaful business, the participant
A contract of guarantee whereby a contributes to the Takaful fund by a mutual
person adds to himself a responsibility agreement that the Takaful Operator (TO)is
or liability on behalf of another person entrusted to undertake in managing the
Takaful fund prudently and to pay the
Takaful benefits to the participants in the
event of a misfortune.
o The Kafalah contract is prevailing in the
Takaful operational system in Malaysia.
Application of Shari’ah Contract
Commonly Used in Takaful Business
No Underlying Contract Example
2. Tabarru’ o In Takaful business, the participants
Means gift or donation which is given mutually agree to contribute to the Takaful
by one in favor of someone without fund based on the contract of Tabarru’
seeking any consideration. o Tabarru’contract is core element in Takaful
business and is not only practiced in
Malaysia but also worldwide
Application of Shari’ah Contract
Commonly Used in Takaful Business
No Underlying Contract Example
3. Wakalah o In Takaful business, the participants
 A contract of agency in which a appoint the TO as their wakil and to
person (muwakkil) delegates his manage their Takaful coverage and the
business to another and substitutes Takaful fund.
the other in his place. The person o The Wakalah contract is practiced by all
delegated is called Wakil. TO in Malaysia while most of the TO
 Both the principal and the wakil are worldwide operate under the Wakalah
equally bound by each other under model
contract of Wakalah.
Application of Shari’ah Contract
Commonly Used in Takaful Business
No Underlying Contract Example
4. Ju’alah o In Takaful business, the participants
A contract of hiring for services, in contribute a sum of money to the Takaful
which one party undertakes to pay a fund. The TO is entrusted to manage the
specified amount of money for services Takaful fund prudently in terms of
rendered in accordance with the terms investment and pay out Takaful benegits to
negotiated between them. the eligible participants in the event of a
misfortune.
o The Ju’alah contract practices by all TO in
Malaysia while most of the TO worldwide
operate under the Wakalah model.
Application of Shari’ah Contract
Commonly Used in Takaful Business
No Underlying Contract Example
5. Mudharabah o In Takaful business, the participants
The nature of Mudharabah (profit contribute a sum of money to the Takaful
sharing) practices that it is a financial fund in which the participants act as Rabb
contract whereby one party Rabb al-Mal al-Mal, while the TO act as Mudarib who
provides fund to the other party agrees to manage the fund in view of
Mudharib who undertakes to manage the making profit in which both, the
fund through investment or trade and participants and also the Operator share the
generates profits, in which bot the Rabb profit proportionately.
al-Mal and the Mudarib share in the o Syarikat Takaful Malaysia practiced
profit in a preagreed proportion. Mudharabah contract and for some TO in
Malaysia is practicing Mudharabah on
certain products.
Application of Shari’ah Contract
Commonly Used in Takaful Business
No Underlying Contract Example
5. Mudharabah o In Takaful business, the participants
The nature of Mudharabah (profit contribute a sum of money to the Takaful
sharing) practices that it is a financial fund in which the participants act as Rabb
contract whereby one party Rabb al-Mal al-Mal, while the TO act as Mudarib who
provides fund to the other party agrees to manage the fund in view of
Mudharib who undertakes to manage the making profit in which both, the
fund through investment or trade and participants and also the Operator share the
generates profits, in which bot the Rabb profit proportionately.
al-Mal and the Mudarib share in the o Syarikat Takaful Malaysia practiced
profit in a preagreed proportion. Mudharabah contract and for some TO in
Malaysia is practicing Mudharabah on
certain products.
Application of Shari’ah Contract
Commonly Used in Takaful Business
No Underlying Contract Example
6. Musharakah o In Takaful business, the respective
 The contact of Shirkah (partnership). shareholders mutually agree to contribute a
 Musharakah is an agreement between sum of money to initiate the Takaful
two or more parties to operate a business. This mutual agreement among
particular business in which all the shareholders is called musharakah.
parties contribute to the capital in o Musharakah contract is practiced among all
view of profit. the shareholders of all TO in Malaysia.
 In Musharakah dealing, the parties
involved herein share the liability,
profit and also loss accord to their
agreement.