You are on page 1of 14

Msc Program



Semester September 2015










Islamic finance is controlled by Sharia, the legal framework of Islam and its Quranic
interpretation, along with the teachings of Sunna. This framework provides guidelines for
people to follow the principles of the Holy Quran and the Sunna in their decision-making
in all aspects of life. Financial transactions are one of the more important dealings
controlled by Sharia, to ensure the more equitable distribution of income and wealth
among Muslims in Islamic economies.
The general principles are as follows: (i) the prohibition of Riba (usury or excessive
interest) and the removal of debt-based financing from the economy; (ii) the prohibition
of Gharar, encompassing the full disclosure of information and removal of any
asymmetrical information in a contract; (iii) the exclusion of financing and dealing in
sinful and socially irresponsible activities and commodities such as gambling and the
production of alcohol

Riba technically means 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 belongs to the same genus and are governed by the same efficient cause.
There are two types of Riba, Riba al-nasiah, excess due to delay in payment and Riba alfadl. Riba al-nasiah is any unjustified increment in borrowing or lending money whether
in kind or cash over and above the principal amount as a condition stipulated or agreed
between the parties. Riba al-fadl occurs from trading or exchange transactions in which a
commodity is exchanged for the same commodity from the rabawi commodities in
unequel amount and/or delay for the delivery of one of the commodities.
For example for Riba al nasi'ah occur when the X Party Y lend a given amount of money
(say $ 1,000) for a certain period of time (say three months), provided that the parties
return to the party Y X in addition to the US $ 100 to it. An example of riba al fadl result
of the exchange where the X received a kilogram of high quality dates from the party Y in
return for 2 kilograms of low quality dates will be handed over to the Y.

Based on hadith: 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 being
made on the spot. If the species differ, sell as you wish provided that payment is made on
the spot". Hadith: Muslim
The basic principle in this regard is that Allah has forbidden us in His Book to eat up one
anothers property unjustly. And do not consume one another's wealth unjustly or send it
[in bribery] to the rulers in order that [they might aid] you [to] consume a portion of the
wealth of the people in sin, while you know [it is unlawful]. [2:188]
The prohibition on usury, which is the opposite of charity, is mentioned at the end of
Surah al-Baqarah, Surah Al Imraan and ar-Room. The Jews are condemned for it in
Surah an-Nisa, and the prohibition on gambling is mentioned in Surah al-Maaidah.
As for usury, the prohibition on it in the Quran is more emphatic. Hence Allah, may He
be exalted, says (interpretation of the meaning):
O you who believe! Be afraid of Allah and give up what remains (due to you) from
Riba (usury) (from now onward), if you are (really) believers.
And if you do not do it, then take a notice of war from Allah and His Messenger [alBaqarah 2:278-279]
The Prophet (blessings and peace of Allah be upon him) included it among the major
sins, as was narrated in as-Saheehayn from Abu Hurayrah (may Allah be pleased with
him). Allah stated that some good things that had been permitted to the Jews became
forbidden to them because of their wrongdoing, their preventing people from following
the path of Allah, and their consuming peoples wealth unlawfully. And He, may He be
glorified and exalted, said that He will destroy riba (usury) as He gives increase for
charity [2:276]. Both matters are tried, tested and true in peoples experience.


The differences between Islamic and conventional credit cards:

Credit cards are a form of the backup statements (statement of evidence) which is
recognized, provided by the manufacturer to any person or party who is recognized
through a contract between the two parties, it allows the holder to purchase goods or
services of all those who recognize credit card before, without having to make cash
payments, because it contains a payment guarantee from the manufacturer.
No money lending
Since the transaction of credit card is based on trade (Bai'), the element of usury will be
eliminated from the loan transaction that is applied in the conventional money lending
Non-compounding of profits
Profit margin for the cardholders is fixed for the whole period (between 35 and 60
months) and the profit is charged based on the remaining balance. The profit is calculated
on a monthly basis, based on an outstanding due or monthly total transactions
Currency Conversion (Money Exchange or 'As-Sarf') With Credit Card.
Haram, this is due to lapse bank receives feedback from the card holder, for the exchange
of their activities. The law is due to take place is Riba Jabal '. However illegally excluded
from the state of emergency and the need is overwhelming.
Penalties Penalties For Late settlement of bill payer for the 'Credit Card.
Contained in the terms of contract for 'credit card, the cardholder will be liable to a fine
for the delay must settle the bill at a minimum the license period (30 days). Haram, there
are elements of Riba An-Nasiah which is prohibited in Islam because there is an element
of cruelty to other human beings and devour a man without haq. It has been the consensus
of the Muslim scholars throughout the prohibition of interest. However there are different
results of the conference of Islamic Economics Al-Barakah in 1996, which decided that
the amount of the fine must be used for charitable donation purposes. He allowed by the
weakness of religious understanding and intent in passing the bill even able to settle.
Likewise, schools of Maliki and Sheikh Prof. Mustafa Ahmad Az-Zarqa. The stronger
outlook is very.

Withdrawal by credit card

It is considered the cardholder makes a loan to the bank card issuer directly through the
'Auto Teller Machine' issuing bank or its branches or through ATMs other banks
(considered as representative).
Prohibited if bank producer requires benefit or interest yield loans as it is Riba al-qurudh.
Unless the bank loan costs only takes little and equipment, processing revenue service
only made.
If the holder no sufficient amount in his account (overdraft occurred) or no account to
avoid any harm. The production is then considered a loan to the bank and all legal loan
(al-Qardh) in Islam is applicable at the time. As the method: Every loan that requires no
benefit for the lender is riba.

Technically gharar refers to a sale contract which is attractive to the purchaser in its form
but unknown and ambiguous in its substance. The parties or one of them may not know
what could be achieved from the contract.
Gharar refers to any transaction of probable items whose existence or characteristics are
not certain, due to lack of information, ignorance of essential elements in the transaction
to either party, or uncertainty of the ability of one party to honor the contract.
Gharar can be related to risks arising from lack of knowledge about the contract (object,
price, time of delivery), uncertainty about the existence and delivery of the object, or
uncertainty of the outcome. Kamali explains that Gharar occurs in a contract when one
of the parties takes what is due to him but the other does not receive his entitlement. If his
right continues to be unfulfilled, the first becomes guilty of the wrongful devouring of the
property (akl al-mal bil-batil) of his counterpart in the transaction, and a gharar sale of
this kind engages in gambling and punting (al-qimar wal maysir), which the Shariah has

The Quran prohibits all those dealings where the intention is to deceive one of the parties
in a contract. The Quran states that Muslims should not do not consume one another's
wealth unjustly [4:29]
The Sunnah of the Prophet (s.a.w) has specifically prohibited transactions which involved
elements of gharar. These include transactions determined by throwing stones, by mere
touching without proper inspection, or by chance.
The Prophet (s.a.w) has forbidden the purchase of the unborn animal in the mothers
womb, the sale of the milk in the udder without measurement, the purchase of spoils of
war prior to distribution, the purchase of charities prior to their receipt, and the purchase
of the catch of a diver.
All jurists agree that gharar should be avoided in commercial exchange contracts. Islamic
Sharia forbids gharar in any transaction to protect the two parties from deceit, ignorance
and uncertainty.
For example, paying a diver to go into the river is permissible while paying to purchase
anything a diver catches is prohibited since it is not know for certain what he will catch or
if he will even catch anything at all.
In contemporary financial transactions, the two areas where gharar most profoundly
affects common practice are insurance and financial derivatives.
Jurists often argue against the financial insurance contract, where premium is paid
regularly to the insurance company, and the insured receives compensation for any
insured losses in the event of a loss. In this case, the jurists argue that the insured may
collect a large sum of money after paying only one monthly premium. On the other hand,
the insured may also make many monthly payments without ever collecting any money
from the insurance company. Since insurance itself cannot be considered an object of
sale, this contract is rendered invalid because of the forbidden gharar.

The other set of relevant contracts which are rendered invalid because of gharar are
forwards, futures, options, and other derivative securities. Forwards and futures involve
gharar since the object of the sale may not exist at the time the trade is to be executed. In
finance, gharar is usually observed within derivative transactions, such as forwards,
futures and options where rates are predetermined by interest differentials and there is
uncertainty as to whether the option will be exercised. In Islamic finance, most derivative
contracts are forbidden and considered invalid because of the uncertainty involved in the
future delivery of the underlying asset. This is to guarantee full approval and pleasure of
the parties in a contract and to prevent poorly anticipated losses and dispute that may
arise due to difference of the result from the anticipated. All parties must have full
knowledge of what is being transacted and the end result of the transaction.

The word for gambling in Arabic, (Maysir, maisir; or Qimar), as a game to spend money
and expect larger outcomes comes from the word yasira, which means to be easy and
yassara, which means lucky chance or easy success at getting something of value without
earning it (Kamali).
Maysir or Qimar literally means a way of obtaining something too easily. The term
Maysir includes all kinds of gambling. It applies to all activities when risk is taken and
which are based on chance. In gambling the winner has not earned that which he has
won, and the loser loses on the mere chance (ittifaq). Gambling risks entail loss and gain
where the hope of gain motivates the choice towards risk.
Maysir refers to the easy acquisition of wealth by chance, whether or not it deprives the
others right. Qimar means the game of chance in which one gains at the cost of others.
The Quran prohibited gambling alongside alcoholics in Sura Al Baqarah

They ask you about wine and gambling. Say, "In them is great sin and [yet, some]

benefit for people. But their sin is greater than their benefit." (Al-Quran 2:219)

The term Maysir was originally applied to a pre-Islamic game of arrows in which seven
participants gambled for shares of an allotted prize. O you who have believed, indeed,
intoxicants, gambling, [sacrificing on] stone alters [to other than Allah ], and divining
arrows are but defilement from the work of Satan, so avoid it that you may be
successful. (5:90).

Satan only wants to cause between you animosity and hatred through intoxicants

and gambling and to avert you from the remembrance of Allah and from prayer. So will
you not desist? (5:90-91)

Abdullah-bin-Amr reported that the messenger of Allah prohibited intoxicants,

games of chance, card playing and Gobairah..- (Abu Daud)


Abdullah-bin-Amr told that the Prophet (PBUH) forbade wine (Khamr), game of

chance (Maisir), drum (Kubah) and wine made from millet (Ghubairah) saying: Every
intoxicant is forbidden.- (Abu Daud)
According to Ibn Taymiyyah, gharar also leads to maysir and consequently to hatred and
enmity allows one of the parties to consume others property unlawfully and unjustly.
Maysir involved in contracts where the ownership of the goods depends on the
occurrence of a predetermined, uncertain event in the future. Maysir or gambling is
prohibited in Islam because it breeds hostility and hatred and also involves consuming
property bi-al-batil, which is a kind of oppression.
Gambling differs from trade as what one receives is the others loss, it is a zero sum while
trade exchange generates typically a win-win situation.
Maysir is regarded by most Islamic scholars as gambling or any games of chance
(including lotteries, lotto, casino-type games and betting on the outcomes of animal
Some elements of speculative stock market transactions are similar to gambling. In some
types of gambling such elements are sometimes present and in others, only some of these

elements arise. Some are easily recognizable as gambling when others cannot be
distinguished from a business transaction.
The Elements of Hope and Luck
Hope and luck arises when there is a speculative consideration in any business transaction
and Islam explicitly considers both as things that do not contradict with the teachings.
However, Islam has a very clear position that the hope and luck must relate to work hard
before the decision is implemented.
There are some verse in al-Quran [3:159; 4:81; 11:123; 33:3] that clearly states that God
not only urges people to tawakkal, but He also loves those who put their trust in him
after submission of work done tirelessly. Therefore, it is definitely present, but it is
addressed to God by Him all the luck (the benefit) belong. Therefore, Islam is not
consistent with the idea of al-trust more less burdensome works as understood by most
Moreover, as the implementation of these elements should provide to the teachings and
spirit of Islam, more precisely their involvement in speculative judgment, because the
elements in any business (including stock exchanges), is basically unacceptable. This
position remains valid as long as the understanding and the spirit of Islam on both
correctly valued; especially because a better perspective defined business transaction
does not include the elements of a more serious is forbidden by Islam, that is, bet, or
more precisely, gambling.

The Elements of Betting

An accepted speculative transactions must be free of betting or gambling. In Islam, the
validity of any business transaction must be free of gambling. Any transaction is not
based on the management objectives of the organization or the government as long as it
does not involve an element of risk without doing any work, Islam forbids it.

Prohibition of gambling is clearly stated in the Quran and stands immutable [Quran 2:
219; 5: 90-1]. The ban on gambling is not only limited to the acquisition of money but it
can also be used for the 'game-of-chance or gambling for entertainment and recreation
(Qaradawi, 1985). Similar restrictions became more understandable in cases of gambling
for profit at the expense of others. Hence, the use of this extended position, therefore, also
to a process to make any consideration of whether the speculative stock market
Therefore, when examining speculative transactions in the stock market, the 'betting' is
clearly written in the transaction in its current form. When speculators inject surplus
revenue in the market based on factors such as imaginative rumours and price trends, the
prohibited elements clearly exist. Investors bought shares based on valuation analysis of
authentic economic fundamentals of the company, but speculators buy shares based on
market sentiment and at the same time, isolated from economic reality the company's
position in community.
The Element of Taking the Advantage
In reality, professional speculators take advantage of the market. They do not adhere to
the doctrine of Islam because Islam is not economically justify cheating and taking
advantage of other people's property by deception. Taking advantage of the weakness of
speculators and investors condemned by Islam.
From today stock exchange, professional speculator managing profits at the expense of
small, new and unprofessional speculators.
They are greedy and selfish at the expense of many people in the market are lacking in
knowledge or the ability to make basic predictions.
In addition, this professional manipulation causes prevailing inefficiencies in the market
that permit even further plunder. This in turn leads to unnecessary interference in price
volatility in an otherwise free market. As such, the price and market instability. The
disruption of the free market economy contradicts with the teaching of Islam as price
manipulation on the part of speculators (Qaradawi, 1985). Therefore, interference in the

free market price is prohibited to protect the public interest and not the interests of a
small group of speculators (Qaradawi, 1985).

The main principle in Islamic finance is the prohibition of Riba, gharar and maysir. If the
financial institution does not comply with Islamic sharia teachings, it is no different from
conventional institutions. One of the goals to know the principles in Islamic Finance is to
enhance the appreciation of practioners for the importance of Shariah compliance and its
significance for consumers.

Retrieved from Islamic Finance, Islamic Finance Principles, Islamic Financial
Instruments and almost everything regarding Islamic Finance:
Abdullah, A. H. (2013). The Elements of Qimar (wagering) and Gharar
(uncertainty) in the Contract of Insurance Revisited. Journal of Islamic
Economics, Banking and Finance,, 89-102.


Al Falah Consulting. (2011, May 15). Retrieved from
Ali, L., Ali, A., & Khwaja, H. (2013). Comparison of Islamic and Conventional
Banking on the Basis of Riba and Services. International Review of
Management and Business Research, 837-846.
Al-Saati, A. R. (2003). The Permissible Gharar (Risk) in Classical Islamic
Al-Suwailem, S. (2000). Towards An Objective Measure Of Gharar In
Exchange. Islamic Economic Studies, 61.
Alwosabi, D. M. (n.d.). The Prohibition of Gharar.
Alwosabi, D. M. (n.d.). The Prohibition of Riba.
Association of Islamic Charitable Project. (n.d.). Retrieved from The Prohibited
Games And Depicting That Which Has A Soul:, M. A., & Al-Hakim, S. (2013). Reinterpreting the Ratio legis of the
Prohibition of Usury. Middle-East Journal of Scientific Research 14,
Bafra, E. (2014). Prohibition of Riba Over against Time Value of Money in
Islamic Banking. Izmir Review of Social Sciences, 75-87.
Chapra, M. U. (2006). The Nature Of Riba In Islam. The Journal of Islamic
Economics and Finance (Bangladesh), 7 -25.
Dusuki, A. W., & Abozaid, A. (2008). Fiqh Issues in Short Selling as
Implemented in the Islamic Capital Market in Malaysia.
El-Gamal, M. A. (2001). An Economic Explication of the Prohibition of Gharar
in Classical Islamic Jurisprudence.
Gait, A. H., & Worthington, A. C. (2007). A Primer on Islamic Finance:
Definitions, Sources, Principles and Methods.
Haron, R. (2014). Derivatives, Pricing Efficiency and Gharar: Evidence on
Embedded Options in Malaysia. Journal of Islamic Finance, 39-48.
Kamali, M. H. (n.d.). Principles of Islamic Jurisprudence.


Lambak, S. (2013). Shariah Juristical Effect Of Gharar In Predetermining

Takaful Contribution. International Journal of Education and Research.
Mansor, F. (2004). Produk Kad Kredit Islam dan Aplikasinya di Bank Islam
Malaysia Berhad (BIMB). Jurnal Syariah, 111-124.
Obaidullah, M., El-Gamal, M. A., Al-Suwailem, S., & Afdawaiza. (2005). Gharar.
Paldi, C. (n.d.). Retrieved from Understanding Riba And Gharar In Islamic
Phull, C. (2011). The Concept of Riba in Islamic Banking Law: An Introduction.
Razi, M. (2008). Riba in Islam Fiqh of Contemporary Issues.
Salamon, H., Ebrahimi, M., & Yusoff, K. (2015). Speculation: The Islamic
Perspective; A Study on Al-Maisir (Gambling). Mediterranean Journal of
Social Sciences, 371-378.
Swartz, N. P., Itumeleng, O. O., Wanki, Jeelabdeen, A., & Kumar, R. (2013). The
Riba Conundrum: The Ethical Appeal of Islamic Banking. Journal of
Management and Sustainability;, 184-194.
Talaqqi al-Rukban. (n.d.). Retrieved from Investment and Finance:
Ubaidullah, M. (n.d.). Games of Change (Al-Qimar & Al-Maisir) .
Visser, H. (2012). Islamic finance: Aims, Claims and the Realities of the
Market Place.