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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
Sources of Islamic Law & Applied principles 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
Sources of Islamic Law & Applied principles 2014
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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
Sources of Islamic Law & Applied principles 2014
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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).
Sources of Islamic Law & Applied principles 2014
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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.”*
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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
Sources of Islamic Law & Applied principles 2014
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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
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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: `Ulum 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
(`ilm 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.
Sources of Islamic Law & Applied principles 2014
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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".
Sources of Islamic Law & Applied principles 2014
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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
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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"
Sources of Islamic Law & Applied principles 2014
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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.”
Sources of Islamic Law & Applied principles 2014
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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).
Sources of Islamic Law & Applied principles 2014
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8. Preventing evil in the family and society (nahi `anil 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:
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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)
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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
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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)
Sources of Islamic Law & Applied principles 2014
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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.
Sources of Islamic Law & Applied principles 2014
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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
Sources of Islamic Law & Applied principles 2014
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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 Mas`ud, 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.
Sources of Islamic Law & Applied principles 2014
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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
Sources of Islamic Law & Applied principles 2014
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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
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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)
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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.
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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”
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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.
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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
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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.”
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Comments & Remarks.
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