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Muhammad Farooq M. Usman Yasir M. Khalil Hussain Zubair Abdullah Khan Muhammad Ali
Islamic Business Transactions
Takaful Rahn Mudarabah Musharikah Ijarah Murabahah Salam Istasna
(An Islamic Alternative to Insurance)
Takaful refers to the agreement among the group of people called participants to guarantee jointly that, should any of them suffer a catastrophe, he would receive certain sum of money to meet the loss or damage. Thus it is a method of mutual
The contribution in takaful business is invested on the basis of mudarabah business. It is also known as Solidarity Mudarabah. The profits are shared among the takaful company and the participants according to
A participant, while entering into the takaful Business, concludes two contracts, i.e. II. Contract of Tabarru or Donation III.Contract of Mudarabah
Two Types of Takaful Business: Life Takaful General Takaful
Contract of Rahn
According to the Mujallah “Rahn is the security that can be lawfully employed for satisfaction of a claim in respect of a debt.” According to Lane, “Rahn means to pledge or lodge a real or corporal property of material value in accordance
Legitimacy of Rahn From Quran: “If You are on journey and can not find a person to write (your debt) then pledge in hand (shall suffice).” From Sunnah: Hadrat Qatadh narrated that Anas (r.a.t.a) went to the prophet (s.a.w.s) with barley bread with some dissolved fat on it and he (s.a.w.s) had mortgaged his armor to a jew in Madinah and took from him barley for his family Hadrat Aisha narrated that the prophet (s.a.w.s) bought some foodstuff on credit from a jew for a limited period and mortgaged him armor for it. Legal Status of Pledged Property
Conditions to the Pledged Property
It should be a thing having some monetary worth as well legal value. It should be in accordance with the shariah standards. It should be existent at the time of the contract. It should be delivered It should be precisely determined with regard to its essence, quality and value. Any article conjoined can not be pledged separately. It is not allowed to pledge the usufruct of the thing. It should be handed over to the pledgee. It should entail sufficient value to cover the debt.
Maintenance of the Pledged Property born by the Pledger/Owner:
Holy Prophet (s.a.w.s) has said that ”To the Pledger return its profits and he is held responsible for its losses.”
Types of Expenses on Pledge: Expenses on Subsistence Expenses on its conservation and Safe Keeping
Benefits from Pledged Property
By Pledger By Pledgee Benefits under Bay-alWafa
Legal Consequences of Pledge
Pledgee has the right to keep the possession until redemption of the pledge Sale of Pledged Property by the Pledgee with the Permission of the Pledger. Pledger can not sell pledge without consent of Pledgee Pledgee as an attorney for the sale of pledge on behalf of Pledger Return of surplus money after sale if any Heirs right on pledge after the death of the Pledger
What is Salam contract
In Arabic the word Salam means to advance .This is a contract whereby the purchaser pays the price in advance and the delivery of the subject matter is postponed /deferred for a specific future time.
Some journalists says that the legality of Salam is derivable from the Quranic Verse.
"O you who believe when you contract a debt for a fixed term
CONDITIONS OF VALID SALAM:
Paid the price Should be defined by description Fungible things. Period of delivery
DIFFERENCE BETWEEN SALAM AND ORDINARY SALE
Fix a Period Identical Goods. Payment Mode.
REVOCATION OF SALAM CONTRACT:
A seller is bound to deliver the good as stipulated. There may however the situation when it is not possible for him to honor his commitment Death Of The Buyer Damage To The Good
Istisna consist in ordering an manufacturer to make certain goods answering a given description. By Istisna one may engage.
CONDITIONS OF ISTISNA:
Precisely Mentioned Work Involved Time Of Completion Price Consideration
DIFFERENCE BETWEEN ISTISNA AND SALAM :
Subject Matter Price Consideration Time Of The Delivery Revocation
Time of Delivery
As pointed out earlier, it is not necessary in Istisna that the time of delivery is fixed. However, the purchaser may fix a maximum time for delivery that means that if the manufacturer delays the delivery after the appointed time, he will not be bound to accept the goods and pay the price.
Murabahah is derived from the root word ربح which literally means profit. Murabahah sale is defined as selling a commodity for its purchase price plus a specified mark-up or profit agreed upon.
Condition of Murabahah:
Disclosure of original price Fixation of Profit Ascertainment of price Validity of first contract
Modern Applications of Murabahah
Islamic bank use this technique to finance project. In Islamic banks murabahah is practiced in the following way.
The client approaches the bank with the request to purchase for him certain goods. Bank asks the client to give undertaking to purchase the goods with a stated profit margin. Bank makes purchase of required goods. Bank enters into a murabahah contract with its client. Bank may ask the buyer to furnish a security in the form of mortgage.
Murabahah Practice in Pakistan:
In Pakistan Murabahah is used as credit vehicle. It enables a buyer to finance his purchase with deferred payment as against accepting a mark-up on the market price of the commodity. The Muslims scholars look at Murabahah as practiced in Pakistan with suspicion.
Modes of Murabahah
First Mode: Purchase of goods by Banks and their sale to clients at appropriate markup in price on deferred payment basis. Shariah Appraisal: The mode mentioned above is,infact, combination of bay’ al-murabahah and bay’ al-muajjal, because the bank charge an increase over and above the original price which is payable in future. It is bay’ al muajjal also because the payment is made on specified dates in future.
The objections raised by the Muslim scholars are as follow
The bank does not purchase the commodity needed by the client. It only provides him finance for its purchase. The bank charges a predetermined increase over the amount of finance. It does not bear any risk. the bank is not concerned with the purchase of commodity. Murabahah financing represent sale of a thing, which is not owned by the seller.
Purchase of moveable and immoveable property by the banks from their clients with buy-back agreement:
Purchase of Property:
4. 5. 6.
The customers negotiate the purchase of property from its owner The customer sells the said property for a known sum paid immediately The customer simultaneously buys back the same from the bank for a sum greater then the sum at which he is sold to the bank. The amount is paid on monthly installments
4. The customer declares that he has examined the said property and assures the bank that the property cost is fair and reasonable and the said property is free from any structural or other defects 5. The customer obtains possession of the said property from the seller on or before registration of conveyance.
Construction of Property:
2. 3. 4. 5.
The procedure for obtaining finance for the purpose of construction of property is as follow: Customer approaches the bank and submits a building plan. The parties fix the property cost. The bank buys from the customer all building materials required for constructing. Bank’s investment ranges between 30% to 60% of the value of the said property. Customer buy back the building material for the sum that is higher than the price at which bank purchased building material from the customer.
The buy-back practice has been a target of grave criticism by the religious scholars. In buy-back arrangement no real sale takes place. They consider it a deception to avoid the prohibition of “Riba”. It is a fictitious deal that ensures a predetermined profit to the bank without actually dealing in goods or sharing any real risk
Contract of Ijarah (leasing)
The word Ijarah means 'to give something on rent'. The definition of Ijarah according to Hanfi school “It is contract on usufructs for a known consideration.” The term 'Ijarah' is used for two different situations. • It means 'to employ the services of a person on wages given to him as a consideration for his hired services." The employer is called 'musta’jir' while the employee is called 'ajir'. • The second type of Ijarah relates to the usufructs of assets and properties, and not to the services of human beings.
Definition and salient Feature of Ijarah (By Meezan Bank)
Ijarah is an Islamic alternative of Leasing.
“Ijarah is a contract whereby the owner of an asset, other than consumable, transfers its usufruct to another person for an agreed period at an agreed consideration.”
Process of Ijarah .
The customer approaches the Bank with the request for Ijarah financing and enters into a promise to lease agreement. The Bank purchases the item required for leasing and receives title of ownership from the vendor The Bank makes payment to the vendor
Process of Ijarah
VENDOR ISLAMIC BANK
The Bank leases the asset to the customer after execution of lease agreement. The customer makes periodic payments as per the contract. At the end of the tenure customer can purchase the asset from the bank with the help of separate Sale agreement.
Legitimacy of Ijarah:
Allah Says: “And if they suckle your (offspring) give them their ‘recompense’” “Said one of the (damsels): “O my father: engage him on wages. Truly the best of men for thee to employ is the man who is strong and trusty.” Said the Holy Prophet (s.a.w.s). “Give wages of the person hired before his sweat dries up.” “If someone hires a person, let him inform him about the wages he is to receive. All the companions of the Holy Prophet (s.a.w.s) unanimously held that Ijarah is a lawful contract.
Kinds of Ijarah:
There are two main kinds of Ijarah, namely ijarat alashya and ijarat al-ashya. 1. Ijarat al-ashya refers to hiring of things such as houses shops, lands, animals and beasts etc. this is also known as ijarat al-ayn. 2. Ijarat al-ashkhas refers to hiring of service, such as to hire a painter to paint a house. This kind is also called ijarat al-dhimmah.
Ijarah in Islamic Banks:
Ijarah wa Iqtina (Hire Purchase)
It is a combination of leasing movable or immovable property with granting the lessee an option of eventually acquiring the object of the lease.
This is a mode whereby the Islamic banks allow the customer to use the capital assets owned by the banks for a limited period of time.
The Muslims jurists have offered various definitions of partnerships with regard to its important features. 1: MALIKI DEFINITION: 2: HANBALI DEFINITION: 3: SHAFI DEFINITION: 4: HANAFI DEFINITION:
CONDITIONS FOR CONTRACTUAL PARTNERSHIP
Offer And Acceptance Competences Of Parties Subject Matter
Definition: It is an agreement between two or parties to invest a sum of money in a business and share its profits according to agreement
KINDS OF SHARIKAT AL_AMWAL:
INAN SHARIKAT AL_AMWAL It is a contract between two or more persons to work in any particular trade with determined capital and to share profit and loss with determined rates.
MUFAWADHAH SHARIKAT AL AMWAL
Mufawadhah literally mean the participation in each thing with equality Equality in wealth, profit and loss. Equality in contractual capacity and religion. Each partner is an agent of other partner s responsible
CONDITIONS OF MUFAWADAH PARTNERSHIP
EQUALITY IN CAPITAL INCLUSION OF CASH CAPITAL INJOINT INVESTMENT EQUALITY IN PROFIT AND LOSS EQUALITY IN RELIGION
SHARIKAT AL A MAL WORK PARTNERSHIP
It is partnership in which the partners contribute investment in the form of labor and shills it is also called sharikat abdan. The work partnership can take the form of limited partnership or unlimited partnership namely “ Inan work partnership Mufawadah work partnership
CONDITIONS FOR ACCEPTANCE AND PERFORMANCE OF WORK:
RIGHT OF ACCEPTANCE WORK AND PERFORMING IT RIGHT TO DELIGATE WORK ACCEPTED
The word mudarabah is derived from the phrase “ Al Darb Fil ard” which means to make journey . We say because worker strive in the mudarabah . The word Qirad and mudarabah are derived from the Qirada that means to “cut off” because the investor the sum of moony to the agent
Definition of different school of thought
Hanafi. “It is a partnership for participation profit in which a capital is provided from one side and labour or skill is provided from other side” Shafi. “ It is an agreement whereby the owner of the capital hand over the capital to worker a who trade with it and profit is share among them”
Modern definition of mudarabah
Ali al Khafif “ contract of sharing profit of business in which one party contributes with capital and other with his skills”
Legitimacy of mudarabah
Quran Sunnah Ijma
“ And other who journey through the earth seeking the bounty ”
“The Holy Prophet ( SAW) reported to have said “ There is great blessing in three things credit sale , mudarabah and mixing the wheat and barley for domestic consumption”
Mudarabah practice is also proved from the consensus opinion of Muslims jurists. Hazrat Umar ( r a t a) use to invest orphans property of the basis of mudarabah.
Element of mudarabah
According to shafi. Parties to mudarabah contract Work/ labour Profit Capital The form( offer and acceptance)
Conditions of mudarabah
Condition relating to the contracting parties Condition relating to capital Condition relating to profit.
Types of the mudarabah.
Restricted mudarabah. Unrestricted mudarabah.
Dissolution of mudarabah.
Unilateral termination. By the expiry of time period. By death of any of the partner. By insanity of any of the partner. By destruction of capital. By disregard of express direction.
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