lecture dltc'12

8/2/2019 Lecture DLTC'12

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MUAMALAT

Md. Mokhter Ahmad, Associate Professor, IIUC-DC

Md. Mokhter Ahmad

Associate Professor

IIUC-Dhaka Campus


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4/30/2012 2

Topics to be covered in the lecture:

Definition of Muamalah

Scope of Muamalah

Principles of Muamalah in Islam Fundamental issues of Muamalah and their details:

Family Life Relations between husbands and wives

Relations between parents and children

Relation between siblings

Relation between relatives

Social Life

Political Life

National and International Life Professional Life

Business

Working in agriculture

Working in the professional areas

Games, Recreation and Culture


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(2) Where we are now?

Despite being 22 per cent of the world population having 70 per cent of energy resources 40 per cent natural resources

The contribution of OIC countries towards world income

is only 8 per cent. 39 per cent of population lives below the poverty level 22 of the 50 least developed countries in the world are

OIC Member States. It is sad to admit to the fact that gross national product of

the Islamic countries collectively was about US$1,200billion, less than one quarter the figure for Japan with nonatural resources, and only just higher than the GDP ofGermany.

(A) Status of science and technology in OIC/IDB member countries


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The 57 predominantly Muslim countries have about 23

% of the world's total population but

Less than 1% of its scientists who generate less than 5 % of its

science and make barely 0.1 % of the world's original researchdiscoveries each year.

The Islamic countries have a negligible percentage of patentregistrations in US, Europe and Japan.

The Research and Development manpower of Muslim countries

is only 1.18% of the total science and technology manpower. Only two scientists from Islamic states have won Nobel Prizes,

Abdus Salam, a Pakistani (Physics, 1979) and Ahmed Zewail, anEgyptian (Chemistry, 1999). Both carried out their researchoutside Islamic countries. Today's Muslim societies have

generated few scientists of international repute. Islamic countries, as a whole, have approximately 275researchers per million population against 850 per million in thedeveloped West.


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The entire Muslim world constituting onefifth of humanity,contributes barely 1000 research articles out of 100,000 sciencebooks and 2,000,000 research articles published annually.

While the West has an average of 3000 science PhDs per millionof its inhabitants, the number in OIC/IDB member countries is sodismally small that not even the statistics are available.

Countries that are predominantly Muslim are characterized bylow spending on Science, small scientific communities, and

poorquality universities.

Whereas Japan, the United States, Germany, and other Westerncountries spend 2 % - 4% of their gross domestic product (GDP)annually on research; no Muslim country spends more than 0.5%

of its (much lower) GDP on research. The OIC countries have about 1000 universities in total

compared to 1,000 in Japan, including 120 in Tokyo alone.


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Even among the Muslim countries, there are regional

imbalances. The ratio works out to:

Only 100 researchers per million African Muslims 445 for one million Arab populations

For Asians it is 569 researchers per million people.

The disparity between the Third World and Muslim nations in

the number of scientists and engineers is quite striking.

Despite similar levels of development, there are more than

twice as many scientists and engineers in the Third World as in

the Muslim countries, and almost eleven times as many in the

industrialized nations.


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Western Civilization: A direct Offspring

of Islamic Science

al-Banna al-Marrakushi's form

of the numerals. He gave thisform of the numerals in his practical

arithmetic book written around the

beginning of the fourteenth century.He lived most of his life in Morocco

which was in close contact with al-

Andalus, or Andalusia, which was

the Arab controlled region in the

south of Spain.


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Definition & Scope ofMuamalah

Muamalah refers to the principles governing the

everyday life of the Muslims. It is meant to address

the relationship between the creation of Allah,

between man and man and between man and nature.

It is beyond the Faith and faith-based pure formalistic

rituals of the Muslims.

Muamalah incorporates everything relating our dailylife (personal, family, social, economic, political,

recreational/cultural, and international life.)

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4/30/2012 10

Islam

Islamic LawTawhid/Aqidah(Belief in

Oneness of

Allah)

Muamalah(Code of Conduct for an

Islamic Way of Life)

Ibadat

(Pure Ritualsand ReligiousPerformances)


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4/30/2012 11

(Al-Munakahat)Rulings related

to Islamic family life

(Al-Iktisaad)

Rulings related toeconomictransaction

(Al-Siyasat wa al-Mujtama)Rulings related to

Social & Political Life

(Al-Jinayat)

Rulings related tocrimes

DISCIPLINES UNDERMUAMALAT


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Objectives

Islam works for the protection and

preservation of five basic objectives which

are essential for human existence on earth:1.Preservation and Protection of Religion

2.Preservation of life and its sanctification

3.Safeguarding the intellect4.Protection of lineage

5.Safeguarding of wealth


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Islam

Islam allows one to own and earn property as it is intrinsic toanyone, for the fulfillment of the following three requirements:

1. Daruriyyat: It refers to bare necessities comprising all activities andtangible or non-tangible things that are essential to the preservation of

the above-mentioned five foundations of life (Religion, Life, Mind,Offspring, and Wealth)1. Examples: Prohibition of wine and all intoxicants; institution of marriage

and prohibition of fornication

2. Haajiyyat: These are convenience which remove hardship and

difficulties, but are not bare necessities.1. Examples: Free-mixing between male-female, nutritious foods

3. Tahsiniyyat: These are embellishments or luxuries includingactivities and things that are beyond bare necessities and convenience,

but give brilliance and shine.

1. Examples: Plush carpets, good quality furniture, eating of sweets aftermeal


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& Haram

1. All things created by Allah S.W.T are halal, with few exceptions2. To make halal or haram is the right of Allah alone

3. Prohibiting what is halal and permitting what is haram is similar

to ascribing partners to Allah

4. The basic reasons for the prohibition of things are due toimpurity and harmfulness

5. What is halal is sufficient and what is haram is superfluous.

6. Whatever is conducive to the haram is in itself is haram

7. Falsely representing haram as halal is prohibited

8. Good intention do not make the haram acceptable. Islam does

not allow employing haram means to achieve praiseworthy ends.

9. Doubtful things should be avoided

10.Haram things are prohibited to everyone alike

11.Necessity dictates exception


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Islamic Procedure for Economic Pursuit

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The following is the Islamic procedure for any economic pursuit

1. Legality of Trade

2. Mutual Consent

1. Devoid of coercion

2. Devoid of fraud

3. Devoid of Lying

3. Justice/Equity

1. The Imperatives:

a) Fulfillment of the promises, pacts and contractsb) Exactness in weights and measures

c) Work, Wages, and Payments

d) Truthfulness, Sincerity, and Honesty

e) Efficiency and Competence

f) Selection on merit

g) Investigation and verification2. TheSafeguards:

a) Writing of a contract

b) Witnessing

c) Rahn

d) The Principle of Individual Responsibilty

4. Islamic Modes of Economic pursuit:

P hibiti & P i i


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Prohibitions & Permissionsof Muamalah

1. One is allowed to earn and obtain wealth

and property for the above-mentioned

purposes and in according with the above-mentioned principles in the following three

ways:

1. Business

2. Agricultural Sector

3. Professional and Industrial Sector

H l l E i


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Halal Earnings Business:

The Prophet was asked about the best earning.

He transformed a beggar into a great businessman

The Prophet including Four rightly-guided Caliphs were businessmen

The Quran talked about business galore.

Work in Agriculture: In the holy Qurn, hundreds of verses refer to the virtue of agriculture and

farming, and its process

There is none among the Muslims who plants a tree or sows seeds, and then abird, or a person or an animal eats from it, but is regarded as a charity gift for him.(Anas ibn Malik, Sahih al-Bukhari, 3:513)

Work in Industry & Professional Areas: Muslims are encouraged, as a Fard Kifayah, to engage and develop proficiency in

professional areas which are instrumental to the survival and betterment of the

community. Imam Ghazali says: Sciences whose knowledge is deemed fard Kifayah comprise

every area which is indispensable for the welfare of this world.

All sorts of professions are dignified by Islam. Prophet Musa worked as a hired

hand for eight years. The Prophet Muhammad (saas) also worked as a shepherd for

several years:

There is no prophet who has not herded sheep, and someone asked, You as well,Messenger ofAllah? He said, Myself as well.

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Prohibition in Muamalah

In Muamalah there are two

basic prohibitions:

Gharar

Riba

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Gharar and its Explanation Gharar:

The Arabic word Gharar ( ) means 'risk', 'uncertainty', and

hazard. Gharar is also defined by some scholars as 'any bargainin which the result of it is hidden'. Unlike Riba, Gharar is notprecisely defined by Shari'ah. Gharar is also considered to be oflesser significance than Riba;

The prohibition of Riba is absolute but some degree of Gharar

or uncertainty is acceptable in Shari'ah. Normal Gharar (thatdoes not lead to conflict) is acceptable. Also Gharar isacceptable in some social contracts;

Gharar has two ways. First, Gharar implies uncertainty.Second, it implies deceit. Shari'ah has forbidden all business

transactions, which cause injustice in any form to any of theparties;

Gharar may be in the form of hazard or peril leading touncertainty in any business, or deceit or fraud or undueadvantage;


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Gharar and its Explanation Gharar:

Gharar can arise in the form of uncertainty in the terms of a

contract, or as uncertainty surrounding the existence,ownership, deliverability, availability, or nature of the object ofa contract. An example of the first form: it is not permissible for A to agree to sell

his car to B for a price of 100,0000/ BDT ifit rains tomorrow due touncertainty in contract execution.

A classical example of the second kind of Gharar is that one may notagree to sell the unborn fetus in a camel, since in this case there isuncertainty as to the nature of the object of sale (it may be healthy orunhealthy, weak or strong, male or female

Some further examples of transactions prohibited on account of thissecond form ofghararare:

Sale of a runaway camel

Sale of uncaught fish in the river

Sale of milk in lactating glands

Sale of whatever fish will be caught in a specified net

Sales of fruits on the tree by estimated quantity

Sale of any one of the animals from the herd

Sale of unripned fruit


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Issues of Uncertainty in Gharar

Gharar is measured through qualitative and

quantitative method:

To provide a quantitative measure, Sami Suwailem said, a

gharar transaction is equivalent to a zero-sum game with

uncertainpayoffs. I zero-sum game A loses what B gains.

An example from Muattah Imam Malik is a man loses acamel worth fifty dinars, then he sells his lost camel for

twenty dinars. Here the buyer and the seller may lose

ultimately (the seller 30 dinars, the buyer 20 dinars)

Excessive gharar is prohibited and minor gharar ispermitteda taxi driver is permitted to charge on the basis

of time or mile of a journey.


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Gharar is based on the following things:1. Uncertainty over the existence of the subject-matter

2. Uncertainty over the possession of the subject-matter

3. Uncertainty over the availability of the subject-matter

4. Price

5. Delivery

6. Suspended and Future Sales

7. Legal Tricks


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Gharar is based on the following things:

1. Uncertainty over the existence of the subject-matter A farmer cannot agree to contract to sell whatever crop

grows in the field this year as the quality and quantity of the

product is unknown and thus this is gharar.

But the farmer may sell one ton of top quality rice fordelivery in six monthstime in a contract ofbay al-salam as

here the price, amount and delivery are fixed

Sales of this kind may be divided into three groups:

The object of sale does exist now but will change in nature by the

delivery date (sale of un-ripened fruit..)

The object does not exist today but will be in existence on the

delivery date

Uncertainty shrouds the existence of the object of sale on the delivery

date..


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2. Uncertainty over the possession of the subject-matter:

Possession or construction possession of the object of sale is

a pre-requisite for making any sale contract. The Prophet said in the case of Hakim ibn Hajam: Oh Prophet of Allah!

A man comes to me and asks me to sell him what is not with me, so I

sell him and buy the goods for him in the market (and deliver). The

Prophet said, sell not what is not with you

Constructive possession is the legal possession of a object, though notphysical possession. Like when one purchases a car but has not picked

it up yet from the parking plot, has got a constructive possession.

3. Uncertainty over the availability of the subject-matter:

Any commodity of sale must be seen prior to sale or be

described with respect to its material attributes.

4. Price:

The price is to be stated at the beginning of or prior to any

sale in clear-cut terms.

5 Delivery:


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5. Delivery: In most of the types of contracts, the contracting parties may agree to delay either

the payment of the price (thaman) or delivery of the object (mabi) to a later date.

The sale ofJabirs (r) camel to the Prophet Muhammad, the Prophet allowed Jabir todeliver the sold camel after reaching Madinah.

6. Suspended and Future Sales: A legal trick is a device that employs contractual techniques that are permitted

under Shariah in such a way as to defeat a specific ruling ofSharaiah. It has threedimensions:

A. The first is the imposition of any condition that defeats the purpose of a contract :

A contract of exchange in which a condition is imposed that requires the return ofthe sold item after a period of time. It defeats the sales purpose of permanentlytransferring the ownership of a object of sale.

A second example: a clause requiring one partner in an investment project to buythe others share at the issue price on a future date.

B. A second common trick is the combination of valid contract forms to produceprohibited outcomes.

A usury-free loan, a promise, and a gift are each accepted legal forms in shariah.However, if they are combined in a way that the borrower promises to give lender agift upon repayment of the loan, then the effect of the combination of contracts is toproduce a usurious loan.

C. A third form is the application of contract forms beyond their intended scope.

Short selling of equity shares.


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Al-Riba: Its Definition

Nabil Salihs:

An unlawful gain derived from the quantitative

inequality of the counter values in any transaction

purporting to affect the exchange of two or more

species which belong to the same genus and aregoverned by the same legal cause.

Deferred completion of the exchange of such species, or

even of species which belong to different genera but

are governed by the same cillah (legal cause), isalso riba, whether or not the deferment is

accompanied by an increase in any one of the

exchanged counter values.


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Al-Riba: Its Definition

Riba:

Deferment in the time of exchange (riba al-nasiah)

Quantity of one of the counter values (riba al-fadhl)

al-Riba

Time Factor Quantity Factor

Ribawi items


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Prohibition of Riba

Riba has been prohibited in Islamic Shariah on

the basis of the Quranic Revelation in three

stages:

First stage: al-Rum, 39

Second stage: al-Nisa, 161

Third stage: Ali cImran, 130

Fourth stage: al-Baqarah, 275-281

hibi i f ib


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Prohibition of Riba First stage: al-Rum, 39:

That which you give as Riba (interest) the peoples wealth increases not with

God; but that which you give in Charity, seeking the goodwill of God,multiplies manifold. [ 30 : 39]

Second stage: al-Nisa, 161:And for their taking interest even though it was forbidden for them, and their

wrongful appropriation of other peoples property, We have prepared thoseamong them who reject faith a greivous punishment. [4: 161]

Third stage: Ali cImran, 130:o believers, take not doubled and redoubled interest, and fear God so that you

prosper. Fear the fire which has been prepared for those who reject faith, and

obey God and the Prophet so that you may receive mercy [3: 130-2]

Fourth stage: al-Baqarah, 275-281:Those who benefit from interest shall be raised like those who have been driven

to madness by the touch of the Devil; that is because they say: Trade is like

interest while God has permitted trade and forbidden interest. [2: 275]

P hibi i f Rib i h H di h


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Prohibition of Riba in the Hadith

From Jabir: The Prophet (pbuh) cursed the receiver,

the payer of interest, the one who records it and thetwo witnesses of the transaction and said: They are

all alike (in guilt) [Reported by Muslim, Tirmidhi and

Ahmad]

Jabir b. Abdallah said: The Prophet (pbuh) said, All

of the riba of Jahiliyah is annulled. The first riba that

I annul is our riba, that accruing to Abbas b. Abd al

Muttalib; it is being cancelled completely. [ Reportedby Muslim and Ahmad : Last Sermon of the Prophet

(Pbuh)]


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al-Riba

Al-Buyuc/

Al-Khafiyy /Al-Sunnah

Al-Duyun /

Al-Jaliyy

Al-Quran /Al-Jahiliyyah /

Al-Nasiah*(excess

is charged

for deferment)

al-Nasiah*

(deferment of one of the

counter values)

al-Fadl

Classification of Riba

Rules of Exchange of Ribawi


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Rules of Exchange of Ribawi

Materials

Exchanges Rules1) Ribawi Materials of the same kind of the

same basis:

(5 grams of 916 gold for 5 grams of 750 gold;

10 grams of Bashmoti Rice for 10 grams of A1

Rice)

1. Materials must be of the same

weight, measure or number of

units.

2. Payment must be on cast terms

2) Ribawi Materials of different kinds of the

same basis:

(5 grams of gold for BDT 4000/;

BDT 70,000/ for USD 1000/;

10 kgs of rice for 15 kgs of wheat;

1 tonne of palm oil for two tonnes of sugar)

1. Difference in weights,

measurements or number of

units allowed.

2. Payment must still be on castterms

3) Ribawi Materials of different kinds of

different bases:

10 kgs of dates for 1 gram of gold;

30 kgs of wheat for 10 USD;

1 tonne of palm oil for 30,000/ BDT

1. No Rules are imposed

(Difference in weights,

measurements or number of

units are allowed).


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Types of Modern Day Interest

The modern forms of interest of two types:

Interest on loans: This is main type of interest which is clear and easy to understand for

everyone;

Lending and borrowing on interest is simple example of it likeBanking interest;

Under this way cash is advanced to a borrower for receiving interestfrom him;

Interest on debts: Debt originates with a loan and also with a sale and other transactions

wherever the payment of money is deferred to a future date. TheQuranic prohibition of Riba in debt, no increment is permissible whenthe debt is repaid or settled;

The settlement of debt sometimes involved its replacement with a newincreased debt and this has been condemned as the worst form of Riba

or Riba al-jahiliyya;


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Basic Difference between Islamic and

Conventional Modes of Finance

Conventional

Bank Client

money

money + money (interest)

S ifi f H E i


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Specific case of Haram Earnings

In Business:

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Trading in Alcohol

Drug Dealing and Trading

Sculptors & Artists

Production & Sale of Haram Goods

Prostitution

Al-Gharar Use of Incorrect weights & measures

Hoarding and Price Manipulation

Adulterated & Spoiled Products

Swearing to support a sale

Purchase of stolen property

Prohibition of Interest or Riba

Prohibited Form of Sharecropping Mukhabarah is disallowed

Others: Bribery, Theft, Beggary,

M j P i i l f I l i B i


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Muslim businessmen should bealways aware of two basic tenets ofIslam:

Allah owns and controls allHis creations. Muslimbusinessmen are allowed toutilize all these as long asthey obey His commands.

All mens actions areaccountable to Allah who haspromised that even thesmallest good deed will berecognized and rewarded.

Based on these, Islam lays down thefollowing business principles:

Major Principles of Islamic Business

@Mokhter_Ahmad, IIUC-DC

1. Both buyers and sellers are ofsound mind.

2. Both buyers and sellers willingly

and knowingly undertake thetransaction.

3. Sellers to give correct andaccurate measure and weight.

4. Goods must as much as possiblebe traded in an open market.

5. Not to withhold from people thingsthat are their due.

6. To be contended with reasonableand fair monetary profit.

7. Commodities sold and moneypaid to be lawfully acquired.

8. Goods not to be sold beforeobtaining their possession.

9. Good & services to be transactedare not prohibited by Islam.

10.Goods & services to be

transacted are beneficial toconsumers.4/30/2012


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1. Encouragement to have proper contracts inbusiness dealings.

2. Settlement of disputes through arbitration.

3. To agree on specifics when making payment

in advance.

4. Goods sold are suitable for consumption.

5. Obligation to repay loans.

6. The necessity of business knowledge.7. To provide courteous service.

Minor Principles of Islamic Business

@Mokhter_Ahmad, IIUC-DC4/30/2012


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ISLAMIC MODES OF FINANCING Islamic mode of financing:

Islamic modes of financing mean the way of supplying funds that isacceptable to Islam;

As we have learned Islamic mode of financing could not be based onlending of money as lending of money is not a remunerative way offinancing;

Prohibition of interest does not allow utilization of loan/lending as modeof earning;

Therefore, there must be a way of funding that does not contain elementof interest;

There are three type of financing available under Islamic concept of

funds supply:Trade-based modes of financing;

Rental-based mode of financing; and

Participation-based of financing;

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PRODUCT TREE OF ISLAMIC FINANCE

Islamic Modes of Finance

Trade Based

Modes

Partnership Based

Modes

Rental Based

Modes

MusharakaMudaraba

Murabaha

Musawama

Salam

Istisna

Ijarah

Diminishing

Musharaka

39

Partnership

Profit-Sharing

Financial acti ities


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Financial activities

Exchange of goods orservices

Murabahah (cost

disclosed sale)

Musawamah (simple

bargain sale)

Salam (future sale)

Istisnaa'

(Manufacturing Sale)

Ijarah (servicesrendering)

PartnershipGiftLoan

Capital provisioning

TemproryPermanent

Remunerative (partnership

based financing)

Non-

remunerative

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TRADE-BASED MODE OF FINANCING

Trade-based mode of Financing means a way of

financing in which Islamic banks provide financingthrough sale and purchase of commodities and assets;

Trade-based modes are secure modes because theycreate debt and payables upon debtors/customers;

Islamic banks buy a commodity/asset (directly orthrough its agent) from the market and sells it tocustomers on deferred payment basis (instalments);

The agent may be a an employee on Islamic bank, athird party or the customer himself as well;

All conditions should be observed carefully in salefinancing.

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TRADE BASED MODE OF FINANCING


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TRADE-BASED MODE OF FINANCING

There are four kinds of Trade-based modes of financingwhich are very common: MURABAHAHA;

Cost+profit transaction in which both are disclosed to thebuyer;

MUSAWAMAH;

A simple sale transaction in which a price is quoted tocustomer without any disclosure to the buyer;

SALAM;

A kind of sale in which price is paid in advance for a specific

commodity to be delivered in future; ISTISNAA';

A sale transaction for assets that require manufacturing.

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RENTAL BASED MODE OF FINANCING


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RENTAL-BASED MODE OF FINANCING

There are four kinds of Trade-based modes of financing

which are very common: IJARAH; Ijara is based on a wage paid for the delivery of a service, use of equipment, use of

real property

The assets remain the property of the Islamic bank to put them up for rent every time

the lease period terminates so as not to remain utilized for long periods of time The bank benefits from the returns from leasing

The lessee benefits by covering immediate demand without bearing large capital cost

Areas of application:

High cost expensive assets (Aircrafts & Ships)

Industrial equipment, agricultural machinery, and transportation

DIMINISHING MUSHARAKAH;

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PARTICIPATION-BASED MODE OF


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PARTICIPATION BASED MODE OFFINANCING

There are two kinds of participatory modes of financing

which are very common: MUSHARAKAH;

All parties share in the capital

All parties share profits as well as losses

Profits are distributed as per agreed ratio Loss is borne by the parties as per capital ratio

Every partner is agent of other;

MUDARABAH;

One partner (Rab al Mal) contributes capital and the other (Mudarib)contributes his skills or services to the venture

Venture may for a fixed period or purpose

Both share profit in pre-agreed ratio

Loss is borne by Rab al Mal only, Mudarib loses his services;

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MUSHARAKAH

PARTNER A PARTNER BVENTURE

Rs.1000 Rs.1000

PROFITRs. 100

LOSSRs.100

Rs. 60 Rs. 40

Rs. 50 Rs. 50

May be in anyagreed ratio

Must be according to

capital ratio 45


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MUDARABAH

RABBUL MAL MUDARIBVENTURESERVICESCAPITAL

PROFIT

LOSS

40 %60 %

ALL MONETORY LOSS LOSS OF SERVICES

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T k f l d it Diff t M d l


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Takaful and its Different Models

Many models of Takaful are practiced the world over;

Pure Mudarabah model: The participant and the operator enter into a Mudarabah contract from the

beginning of the relation, for indemnification and share of theunderwriting results;

Wakalah Model (hybrid of Wakalah & Mudarabah):

An agency agreement is made between an individual willing to participatein the fund and the operator working as the manager of the fund;

The operator earns an upfront deductible fee and shares the profit ofinvestments, it does not share the results of underwriting;

Wakalah based on Waqf (trust): The share-holders create a Waqf fund to extend the help to those who

want cover against financial losses;

The participants donate to the fund and the operator manages the fund.All underwriting results belong to the fund which itself has a legal entity;


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WALLAHU ALAM

lecture dltc'12

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