PREVIEW This chapter presents the second half of the discu: contracts for Islamic financial instr ments. In the previous chay discussion focused primarily on the basic description of the contract and its elements, characteristics and various ¢ The chapter also elaborated on exchange-based contrac the ale-based and the lease-based contracts. Other contracts and principles in the Shari'ah that are used Islamic financial instruments are discussed in thi contracts are divided into several categories based on their nat partnership contracts which include mudarabah and mushdrakah: security contracts such as kafalah and rahn; charitable contracts like hibah and wadiah; and agency contracts or wakalah. This chai highlights some supporting Shari‘ah principles that are significant in structuring those products, for instance hiwdlah, ibra’, muqdssah and wa'd, As in the preceding discussion in Chapter 6, the deliberation f these contracts and supporting principles will cover different aspects ranging from definition, evidence of legitimacy, basic rules and conditions. Atthe end of this chapter, you should be able to; the Shari'ah, which has become the basis for product structuring in the IFls. Describe the salient features of a partnership contract, a security contract, a charitable contract, an agency contract and some supporting Shari'ah principles. Understand the general concept of basic contracts in + Discuss important rules and conditions related to each contract. Where issues arise, the reader will be able to compare different views of Muslim scholars Analyse and relate the contracts under discussion with their modern application in Islamic banking and finance. Scanned with CamScanneras 268 PARTNERSHIP CONTRACTS IN ISLAMIC FINANCE Musharakah Definition of Musharakah ive from the root Wor csharaka wc literally ‘Te Arabicword mushdrohah isa deriva erence means sharing and mixing shares oto oF OTe partners on both capital ‘The Yana scholars define mushrakoh as’ contrac between porters 09 POW CAPA ind proBt.-The MAA scholars define i as permission to transact where each oft Screues permits the oer to transact withthe partnership property while 3t the Ente time retaining his own right to transact with the same property (al-Dardin ny $3348), The Shaft scholars define partnership asa confirmation of the rights of «wo ‘or more people over a common proper” (al Sharbii, 1992, 3221) According tothe Hanbal scholars eis the amalgamation of rights orthe freedom tous (on Qudamah, 1968.53). fons that mushdrakah s aterm used by some Maslin scholars such as the Shaft and the Hanball scholars to indicate its broad ‘reaming that includes both sharhah al-mik (partnership In ownership) and sharikah ‘lagd (contractual partnership) For others, suchas the Hanaffan the Malik scholars, {heir defintons inline towards the later type of mushérakah (namely, the contractual pertnership). The AAOIFI in SharTah Standard No. 12 (Item 2/1) defines sharkah ‘i2ad (contractual partnership) as ‘an agreement between two oF more parties to combine thei assets labour or iablts forthe purpose of making profs canbe observed from the above deft “Therefore, generally musharakah refers toa partnership between two and more parties through contractual relationship aga) ot by operation of Islamic law, in which all, partners will share the profit and bear loss from the partnership (BNM, 2015) Legality of Musharakah ‘Thelegalty of mushdrakahs confirmed inthe Qu?n, the Sunnah an ja’ (consensus ‘of scholars}. Inthe Qur‘n, Alla (SWT) mentions the concept of musharakah in the verse related tothe distribution of inheritance ‘Bat if more than two, then they shall share in one-third (of the inheritance) (Quran, 4:12) Even though the verse specially supports the validy of joint ownership in inherttance the permissbilityof sharing properties can also ‘contractual partnership. beextended tothe case of those who elev and work deeds of ripeouent see nee Inone bath he Prophet (SAW) eo the Mos ig saya hr pre to two partners as long as one of them does not betray i wm betray the other if they betray each ave then (Abi Dawid haath no. 3383) Inanother hadith he Prophet (SAW) sai ‘Alas Hand is withthe two partners olongas one does not betray the other Daragute, hadith no, 2933). en ea 1m addition to the evidences from the Qur‘in and the Sunnah there is consensus among Muslim scholars onthe legality of harika in general Differences of opinions lmiong them are on some technical maters. ‘Types of Musharakah ‘The types of mshrtah are ented in gure 7 Figure 74. Types of Musharakah 249) rr Scanned with CamScannerThe oowing sub-section wl hl Partnership in Ownership (Shariah afk) ws a Thebastfet nemo 1 sharikah abt fe res bsed on the 22 fhe ‘ a gander ort became new owners fast 2. Sharikah abjobr sponsible for his share only, and h In sh Contractual Partnership (Sharikah al-Aqd) Shortoh olagd is a partnership affected by a mutual contrac which can be translated as a ‘contrteualparinershp™ or olnt commercial enterprise’ cn agreement between to ot more persons to combine their assets, labour abies for the purpose of making a prof. All contracting parties willingly fenterInto'a contractual agreement for Joint investment and the sharing of prof nthe perspectives of capital anders ofthe partners, thls type of partnership can be further divided into four categories: 1 Sharikah al-amwal (partwership in capital) in thie ype of sharia, all partners contribute capital into the business. It (@)__Sharikah o-Inan (general partnership) The AAOIFl Shara Standard No.12 (Item 3/1) defines shaikah a-indn 435 a partnership between two or more parties whereby each partnet contributes speci aout of money na manner tat ves each one a right to deal the asset ofthe stseship, on condition that the profit Is lstributed according tothe partnership mane are borne in accordance with the contribution of tach sects tthe tion of each partner to the aptal. Equality not required in pro "uted in protic-sharing. capital contribution OF ee among al sani urs. seems tobe neareretie oo ce deans arts Kseems tobe earth mer one fa (0) Sharikah abmujewadah (equal partners Mufowadoh tray meas mutwah (ena) Sho to form of partnership, in which the responsibility and debt liabi share spt, work, mutual ity are equally shared by each partner There are diferences of opinions among Muslim scholars on the permissiblity of this form of parmership In general ts allowed by the Hana and Mal Scholars. Thre are other scholars who, based on different re ‘view that this form of partnership is not p Se Sharikah al“amal (partnership n services/labour) This form of partnership Is an agreement between two or more parties to provide a service jointly and share the profit from the work accorting to an agreed upon ratio. The partnership doesnot require contribution in th ‘monetary capital It isalso known as shartkaha-abdan. This form of partnership Is permissible nthe views ofthe Hanaf the Mall and the Hanbal scholars On ‘he contrary, isnot allowed by the Sha scholars, Sharikah al-wujah (partnership in goodwill) This is a form of partnership in goodwill or creditworthiness (partnership of lability. fi a bilateral agreement between two oF more partes to conclude ‘a partnership to buy assets on credit on the basls oftheir reputation forthe purpose of making prot, whereby they undertake to full their obligations according tothe percentages determined by the partes, The parties should determine for each partner the percentage of profit-sharing and oflablty-sharing, This Partnership does not require monetary cpt n of Sharitah al-wujah Is permissible in the views of the Hanafi and the Hanball scholars. On the other hand, itis not allowed by the Malik and the Shaft scholars ‘Shartkah at-mudérabah (partnership in profit) Technically, mudérabah 16 2 partnership in prof whereby one party (rabb ab-mal) provides capital fad the other party (mudarb) provides labour Some ‘Of the jurists such asthe Hanaf and the Hanbal use the term mudarabah while the Malik and the SBA tse the term gir. In this typeof partnership, the Scanned with CamScanner282 Basic Rules and Conditions of Sharikah alAqd (Contractual Partnership) vein condone fed. some ofthese cota es while some others are disputed oa re emer conditions shared For each typeof musharokoh there conditions are agreed upon by the Muslim 52 among them Her, the discussion wil concent ball types of shart aagd (contractual partnership) sharkoh capital {nprincple the capita of sharia shouldbe contebutedin the form of monetary sisets Nevertheless. itis permissible, with the agreement ofall partners, to provide tangible asses (commodities) 2 the capital of sharikah. The monetary “alues ofthese assets are determined and expressed in currency in order to know the share contributed by each partner, 3 Thebusiness carried out by partners shouldbe permissible and in compliance from the perspective ofthe Sarah. Th purpose ofthe business mus also not belilegtimateor prohibited in slam. Application of Mushdrakah in Contemporary Islamic Finance tn the contemporary application of mushtofah, this contact may take the form of ‘lh iesinent or mhrch Sonn Mara say sed {he underyng contrac for a project acne ang aynleated anc orn cepelfraning, rade fancing contact ancng ad ukok Mushdratah Iutndgeh dinning parsers) sent the nox common appcaton nthe smi ene nt Miche mutual of ener in eh ‘Promises to buy the equity share ofthe other partner gradually nti the tle ofthe eg ity Is co teth the formation ofa partner pletely transferred to him, This transaction start buying and selingo the equ ke Figure 7.2. provides an iustration of ee f mushirakah mutandqiah structure for Figure 7.2. Mushdrakah Mutondesa Structure fr Home Franc Salient Shariah Issues in the Contemporary Application of Musharakah Contracts of Musharakah and /jarah in One Document “Musharakah mutandgisah involves two contracts, namely, mushdrokh and (Krahn ‘which both contracts must be executed separately. tis common in curren financial practices that both contract documents are put together in one single document However, this practice ralses a Sharh fsue as it may mean that the separation of contract execution isnot acleved. The SAC-BNM has been referred to fora resolution to this Issue, The SAC-BNM has resolved that the collective usage of ushdrakah and IYarah in one legal document is permitted 3s long as itis lear that both are executed Separately and independently es necessary that the legal practitioner in preparing the Tegal document of mushdrakak mutandgisak shal ensure that the separation between Scanned with CamScannerveut cn de cone none FOTUMEN SAG iemade clear though BNM, 2010, Resolution No.30} ‘Method for Profit Distribution a nat seante dasfod at gros prt and net Prof Gros Profits froma mushérotah fund can ee pre eerie ater ecg at I om te ost oe a Dros drt afer the oT PETS aa the customers cael Ses rated ncn a TTY Seo he My ft sere cet 2 poe hen ‘ot profits can be made elter at goss proBt level or at et Pro Ive SiGe ‘contract allows the contracting parties to choose any one of the two methods (SAC- ‘BNM, 2010, Resolution No. 119). Mudarabah ‘one to make 3 journey. Some jurists suchas the Hanafi and the Hanball scholars used the term. ‘muddrabah while the Maid and the Sha scholars used the term gird. “Another term used by classical scholars that caries the same meaning of ‘mudérabah ie mugéradah. Both grid and mugiradah are derived from the word garaga which means to cutoff (o-gat)- Tis is simply because the capital provider (rabb alma) cuts of some of his money tobe utilised by the muddrib in business activities. From another angle, ti from the phrase‘aldarb ft al-ard (cut off ‘on the earth) which means to make ajourney (al-Zamalhshari, nd, 3:187). Technically mudrabosa partnership conractbetwen rab mal (capital provide) and mai (entepreneur.nwhichthe mir wil manage the capil provided oY {herb am fora purpose ofinvestnent Any derived profs wil be shared between shemata mutual seed petting nce anon eran at nll a inancial The mudérib wil ose in terms of efforts and he is not lia Socal rem aa (tagsr or breach of specitied terms (mutha el hurd) ; Legitimacy of Mudarabah Scholars ofall known figh schools are ofthe vi ew that the mudéraboh is a valid legal contract. This view s based om evidences peek iter rom, among others, the Qur‘an, the Sunnah “There are several verses ofthe Quran She Quran that indicate the lgaity of muddrabah, namely 1 Landeau ba one then sci he ay ot Ah ue, 2 btwn he paps ended ype Allah's grace...(Qur’an, 62:10), a “ahaa (asd. eon Ccornerpettacecilaeatan Pras coon haces address the legality of mudérabah, they have ‘travel for the purpose of trading and seeking ‘A dearer proof on the legality of the mudarabah from the Sunnah isthe act of the Prophet (SAW) himself who used to work as a muddrib for Khajah before they got Iarrie, Another proof fm the Summa the tac approval ofthe Prophet (AN) n the following case Ton ‘Abbas reported that whenever his father al“ABbse fbn ‘Abd al-Mutalib gave money for mudarabah, he stipulated some conditions thatthe mudarib will not take is money across the sea, into any valley or buy any animal with 2 softbelly Ifthe mudérib does any ofthese things then hei lable. The Prophet (SAW) heard ofthis practice and permite it (al-Bayhagl, hadith no. 11611) eas also reported by Ibn Majah thatthe Prophet (SAW) sald “There is blessing in three transactions: credit sales, muddrabah and mixing wheat with barley for home consumption, not for trading (Ibm Maja. path no, 2268). Another proof on the legitimacy ofthe muddrabah isthe practice of companions on ‘mudarabah that constituted a consensus among them. It was narrated by Zayd fbn Aslam from his father that: “Abdullah and ‘Ubaydullah, the two sons of ‘Umar, while traveling with the army of raq visited Abi Masi al-ASK'ar, the Governor of Basra, He welcomed ‘them and offered to help them. His offer wasto give them some public money to be delivered to the bat al-mal (treasury) they could trade with it They could keep the profit and submit the capital (original sum of money) tothe Caliph. They did ashe suggested. When they reached Madinah and informed the Caliph, he was upset He asked them if AbG Md had given similar capital to all other soldiers. As their reply was inthe negative, "Umar got angry and “argued that AO Ms gave them the money simply because they were the Sons ofthe Caliph. ‘Ubaydullih argued thatthe agreement was that, ifthe money perished, they would have to guarantee it. However, ‘Umar insisted that the money (profit) mustbe surrendered tothe bay a-mal and they were not allowed to keep it. When 'Ubaydullh reiterated his argument, one of the Companions said: ‘0 Caliph, petkaps you can make it as qi. And ‘Umar Scanned with CamScannerand half ofthe te pine m oF hared between oto iti presence of the companions of the “Tis practice has been sept UHE Se an heefore consti the ovided an analogy to establish the arshave PO sree partershi by which the owner tte total yield ofthe trees (not the yield es mb portion of ied po od zs are needed by human Deng Types of Mudarabah sa dept Figure 73 rom the perpectie ofthe madris work the mudarabah toneractca be died nto cates categories ot ‘Magoraboh 1. Mugérabah mutlagah (unrestricted mudaraboh) Itisa contractin which the capital provider permis the muddribto administer a ‘mudarabah fund without restrictions onthe typeof work that Isto be done, the location, the time, method of payment, et, Under this category of mudérabah, the mudarib has a wide range of trade or business freedom on the basis of trust and the business expertise he has acquire, Although the nature of this category of mdaraboh is unrestricted, there are Aiferences of opinions among Musim scholarson some ats ofthe muddrib such 3 loantaking or lending. Some scholars from the Shand Herbal cehools {are ofthe opinion thatthe mudérib can ony evn Ss sae ican only enter into this kindof act with the Basic Rules and Conditions of Muddrabah ‘Ammudlarabah contract needs to meet certain requirements and conditions for tobe ‘deemed valid. These include oe i condi ie a Mudarabah mugayyadah Inthe restricted madre te conse) aie has the determination of type and period of nvestment oat comming finds or any ether soto ac se atimal eensiders appropriate, but not in a manner that would unduly sr Ee the muddrib in his operation, seo er es Ral Conditions related to mudarabah capital ‘The majority of Muslim scholars are ofthe opinion thatthe muddrabah capita must be in the form of cash. Immovable or movable assets cannot serve as ‘the capital of mudaraboh due tothe fac that there is gharar (uncertainty) it ‘their Value that will consequently Iead to uncertainty in the calculation of profit and loss. This might then lead to a dispute between the contracting parties, While some other scholars such as Ibm Abi Layla and al-Awaa’t are of the opposite opinion, thats the capital need not be in terms of cash only. The value of the property, however. must be determined and agreed upon on the day the contract is concluded. In addition, the capital must be present during ‘the conclusion of the contract. n other words, debt (even owed by the mudarib to the capital provider) or receivables cannat serve as capital for muddrabah. “The capital must also be determined in terms ofits value and be delivered to the mudarb Conditions related to mudarabak profit Itisa requirement thatthe mechanism for distributing the profit mustbe clearly known ina manner that eliminates uncertainty and any possibilty of dispute ‘The distribution of profit must be on the basis of an agreed percentage ofthe profit and not on the basis ofa lump sum or percentage of capital. The parties Should agree on the ratio of profit distribution when the contracts concluded. iistmporta ono erethataltough teat prot msthe aedupfant ean huge o sacred on diferent tesa ong ss done ahh tel sr thm and ohn tee aaah camara por et fhe sca prot hal oe contig a estab rob eal or viewer asad that rare reed nf ston For eal ea See enemas ios tadetn wha oui SOper cet be a youl hve 3 por cent ote pro Sia Scanned with CamScanner 257sn, you wil be entitled t0 30 per b a yma rman vn ca SS cet of the treo teinanciher tOW0.) ent ofthe prof and ifyou do na gre that he PIs below x tf the prof The contacting Pat fro, and ifthe profit is above X ‘mount then the profit-sharing forexample 5 part from the agreed or sarah andar 13(tem 8/2) ‘The ACHR Shar a aed bare menos A Ea john wr remuneration for the work done by him, er er nga a ero, Inept of mars cas prt he odéabth operations, proportion ofthe profits ‘aim any periodial salary a a foe a business activity that Termination of a Mudérabah Contract See efor the tart of mudéraboh work th contrac - ee eaten) andere ican be terminated Pre rite partes by ving tothe ther Par. weve oct the muah wor has tre Musi scholars have pee tl on etethe conte cnbe erated by ne party sera ie toncen of he be pur The mj of Muslim scholars sraneih Son that conc canbe ermnated based n he fact Seem een ndng cone On te oe and, Im Mae of the view ta can en eteminated with he mut consent of he pote aced In the contest of present circumstances, most commercial enterprises today need time to bring plan to futon. It wil also demand constant and complex efforts Therefore, it may be disastrous to the projet, fone ofthe partis terminates the contract once It has started. In this light, mam Males view may be more practical for application, Another option to avoid future dificult for the partes to agree that when entering into the muddrabah contract, no party shall terminate fe during 4 speaied period, except In specifld circumstances. This kind of condition does not violate any principles of the Sharah and i sim line withthe famous hadith, sohich states Allthe conditions agreed upon by the Muslins are upheld xcept a condition ‘which allows what Is prohibited or probibits whats lawful (al.Tirmid, ‘adith no. 1352} (Other instances where a muddrabah contact canbe liquidated areas follows 1 Onthe date of maturity if the two partes had earlier agreed to seta time limit 2 When the funds of the mudérabah contract have heey suffered losses. been exhausted oF have 3 Thedeath ofthe muda, oF the ligudation of 4 taseniy of any othe ane atom othe ston acing as mur es tothe mudarabah contac. ain the actual profit an be Application of Mudarabah Contract in Contemporary Islamic Finance -Mudarabohs commonly wliseas the underlying contractor he restricted muddrabah investment account, unrestricted muddrabah investment account corporate financing working capital financing and securitisation based product such as mudarabah suk tis also used in interbank money market products, Some tok operators have also developed their business model based on the muddrabah principle of investing the parsicipants' investment fund, igure 74 illustrates the mods operand ofan unrestricted muciraboh investment son Salient SharFah Issues in the Contemporary Application of Mudarabah igure 748 MugrabobStture for Unvascted Investment Account tananOean i Slee Hae aU ince —— 4) Ea cao we ps sent —<$£$___—$_—_—_— Scanned with CamScanner260 Profit Equaisation Reserve (PER) aes ris pure de to ts ray turn may affect customers intrest eh vm the framework of return to ‘ux in income, the competitiveness of te Flin the ong run. mari etd AOI Shah Sad N13 (te 9/9) sts ha The md Faas tect te operations of mudirabeh have ed SSasescassuorers poe Honee is entemen on asta suet {Senos a merino he preetnoecapal n aon. the ADIL Seen e ears ejeapty mens tat sale permissible seeetetncyacenauraotpatactoen reserve or ara reserve fr tecinglon apa reson eee ose enslave Third Party Guarantee Mudirabah is a type of trust or fiduciary-based contract not a guarantee-based, contract. Thus, any clause which stipulates that the investment manager guarantees the capital or the proft is unlawful, However, there i a question of whether a third pary’s guarantee on a mudérabah venture takes simalar ruling In this regard the IP (IC in its Resolution No, 30 (5/4 and the SAC-BNM in its Resolution No. 25 resolved ‘hat guarantee given by a third partyin mudrabah contract is permissible. Administration Cost in a Mudérabah Investment Account. AGENCY CONTRACT Wakalah Definition of Wakalah Tesh. wlohe to onc in wich maa (ical autores 2 part is (enw pero sons beac pe oy corer ine task autonsed him walatry own heimpontos ree sce the AAOII Shaeah Sundar NH (en 21/1), no stot eo Seieguing tether acon sbehalfnhat abe sauces aceon ‘Wakalah is basically a non-binding contrat, whereby the principal or the agent may withdraw at any time by a mutual agreement, untateral termination, discharging the obligation, destruction of the subject mater, and the death a loss of legal capacity of the contracting partis. Legality of Wakalah Wakalah (agency) contract ae legally approved based on evidences from the Qu’, the Sunnah and jing Inthe Quran, Allah (SW) says: ‘Now send one of you with this money to the town; let him find out which s the best fod and bring some to you’ (18:19) He (SWT) als ‘mentions: ‘Commission two arbiters, oe (representative) from his family and one (representative) from hers’ (4:35). n another verse, Allah (SW) say: ‘Alms are forthe poor and the needy and those employed to administer the funds.’ (9:60). In general these verses specify several types of agencies including appointing an agent to buy food, an agent tobe the arbiter and an agent to collect for charity (2akah). {rom the Sunnah, there are several hadith indicating the lewaiy such asthe authentic hadith that the Prophet (SAW) delegated 1 -Bulehar, hadith no 3642) Teas narrated ‘Urwah to purchase a sheep on his behalf (a-Bukhar, hadith no. 364% ; that he Prope (SAW) sent ‘Ara Ibe Umayyah Dans as an agent kor he hand of Un Habibah bint Abu Syn in marrage (a-ak, badlth no. 6772). Regarding the proofs of the agency contrat Scanned with CamScanner 261Muslim scholarshave come to aconse ‘This is due tothe peoples dire need of as ve permsioyorthe waka contract susan the Perm hing certain tasks that they are incapable of doing on their ow Basic Rules and Conditions of ‘Thebasic rules and conditions of waklah 1 a Wakalah Contract contract are st out below agony based on his ree will without any The rnp shal commie i ered i pressure from others. In the same M ‘conducting the tasks delegated tim. sent, either by name oF his physical ‘The principal should know the 3 epee appearance. Likewise, the agent should identify is his characteristic. “The ights and responsibilities ofthe transaction entered nto bythe agent shall lie with the agent, such a taking possesion and delivery ofthe purchased asset However ifthe agent attributes the transaction tothe principal, the rights and responsibilities ofthe transaction shale with the principal ‘The agent as trustee shall not be liable in th event of oss or damage ofthe asset except sch loss or damage i caured by hs misconduct, negligence or breach of specified terms. Ifthe agents gven a remuneration for the provided servic, the SharT'ah rulings of arah shall apply Atiogh general price aoh contacts hata perso direct. Peformance maps hin ahora {hot peron pero thy py and dependupon anther party to doit forhin there srsone cxeptns wise nani (0) Theableofen sgn ona sol beng he pincpl Ths, e ‘should have the right of disposal ee ae (0) ‘Theobject ofan agen contract shouldbe eligible for eal authorisation suchas incase of anc mates. sich waa impermissible 8 pa a of worship such prayer fastngoath-taking and testimowy : of worship that have a financial element such a5 % sAcrifcal animals, wakdlah is allowed bY (9. Theadjecto ‘the SharFah @ © Mee ee A scholars, the objectof ee an agency contract must be iduncertanty (gharar) However minor uncertainty (gharar asi) hat oesnotresultin dispute -amongthe cntractingparties isallowed ‘The Hanaff scholars view that. iw thatthe objet ofan agency contract cannot be ‘the utilisation of pubic properties ae Properties such asthe collection of wood from Types of Wakalah Contract ‘The walla contac can be ded nt see mo see eateries. able 71 ight te categories based on the nature of the contract. oo Table 7.1_itferent Categories of Wokdlah Contract ‘The above mentioned categories of wakdloh are discussed below. a Scope of the agency ‘The contract can either be: @ O) General/comprehensve wakilah, where the principal says to the agent ‘buy me a house! without specifying any condition. Specific/rstricted wakdlah, where the principal identifies certain requirements, such as price features, mode of payment, ete For instance, the principal says, buy me a bungalow which costs about MYR milion via instalment payments: “The Hanaff and the Mali jurists view a general or comprehensive wakdlah tbe permissible, whereas the: Aa general agency may lead to Vand the Hanbal scholars rule chatitsinvalidas excessive uncertainty (gharar)Alljursts, however, ‘agree on the permisibllity of specific wakdlah Payment tothe agent In an agency contract the principal can ether pay Bis 2 permissibilty of paid agency performance of useful work remuneration. When the age©Y The non gent or not. The is attributed to the fact that the agency Is the for which the agent has the right to ask for spats ruling falls under the rulings of rah sd agency is also allowed since it 1s rgurded as a form of charitable act. Scanned with CamScannernh the principal ana the age s, namely etbining i srinstanc, the owner ofa income Wee rcens es en cabecibn of ix enntloments ta 82 Sat eae pp be withdrawn without causing (© When the agent starts a task that acy thm the Fr aent promises not to revoke the contract Whee the principal or the agent specie’ period Orton eS ett fr an apne contrac 10 be deemed vali a vex scholars rule that an agency contract can Sa eee based on the agreement of both parties. also be restricted to 2 certain period Application of Wakélah in Islamic Finance in the contemporary application a wok contract is widely used in structuring socs Islamic banking products (such a6 investment account, private banking, ‘Sresanentleter of credit and interbank money market products), akiful fee-based ‘products and capital market products (Such s sul, Watdiah is also commonly used fp facinate commodity mardbabah transactions. The agent is normally entitled toa ‘management fe, 2s agreed between the principal and the agent. A basi structure ofa {ceased wokloh bi alsstihmar contracts iustratedin Figure 75. figure 75 (contioued) Based on the illustration, the bank asa waki? needs to give back the principal amount invested as well asthe expected return to the investor In the case of 1 nom profitable investment, only the principal amounts returned tothe investor Hence itis important to implement a wakilah contract prudenty in order to aoid the SharTah issue of guaranteeing investment return bythe agent. Salient Shari'ah Issues in the Contemporary Application of Wakdlah ‘The wakdloh contract is used to facltate commodity muribahol financing in which 4s customer appoints the IF as his wo to sel the commodity to the market n order to obtain cash, Some scholars view that this practice does not affect the valaity of ‘the murabohah contrac. However, some scholars are opposed to the arrangement if ‘the same IFI from whom the customer purchased the asset is appointed asthe wakil ‘The reason is that this appointment reflects the intention of the customer and his ‘unwillingness to own the asset from the beginning: is seen asa legal trick wo get ‘ash, In this regard, the AAOIFI has resolved thatthe customer should not appoint the same institution that sold the commodity tothe customer as his agent to resell the commodity toa third party However ina situation whereby the regulations do not allow the customer to sell the commodity except through the same institution then it is permissible to delegate that particular institution to perform the sale transaction. CHARITABLE CONTRACTS Hibah Definition of Hibah iecan be observed that ven though Num scholars use diferent wordings in efining an bs observed hat epee whch Avon coat a ea bah hy ae on er btnen ning nil (he ah 198 33593), Scanned with CamScanner 265Legality of Hibah as acorn path of Alla (SWWT) €€0 on spending sions inthe sprit of ifs but if ad om ae ee een vonage terenG weeny Ket Pleasure and good cher (Quin 44) sctordaves orphans the needy the and ive wea inspite of ve ft ; = * ig slaves... (Qur'an, 2:177). those who ask fo help, and for rein ‘Te giving and accepting ofits are also recommended by the Prophet (SAW) based on the following narrations 1 Aba Hurayrah narrated thatthe Prophet (SAW) sad: “0 Muslim women! None of you should look down upon the gift sen by her she-neighbour Coven fit were the totes ofthe sheep (Desbless pat of legs) (al Bukhar sith no. 2565). 2. Aba Hurayrah also narated: Whenever a meal was brought to Allah's ‘apostle, he would ask whether it was a gitor sadagah (something given in curity). fhe was tld that twas sadoqah he wouldtell his companions to ‘etit but fit asa it be woud hurry to share it with them’ (al-Bulchart, hadith no.2576) “The above verses of the Quran and traditions ofthe Prophet (SAW) indicate clearly the legitimacy of giving its as wellas accepting them, Basic Rules and Conditions of a Hibah Contract ‘There are afew conditions thats hibah contract has oli 4. Conditions related to git object Generally, he conditions rte gh object can be described by algal maxim wich tes tha ‘ety eet whch Isley tradable rom the Sharh perspire coniered eal be pen aay asa i (a Sarin, 19922 carne mace he al bok the rantr of ownership of tangible ‘much similar ta a sale an have enumerated several condition parse contro The Ha condition to be metby an item being given as hiba (2) The object must bein existe (0) The git must be 2 valu fe! alae propery: A valuable property sa proper) whlch seared ax able and perme by tne Shrtah ono be compensated in cae of damage (Wit Aga 192) Therefor 2 Property suchas wine or pork cannot be given as iba (©) The it objet must be separable There Shar ah issu pertaining to the validity of giving commonly shared propery as hibah Te different opinions among the jurists (9) The Hanaf scholars rule that iis not valid to give a share in a divisible commonly shared property suchas an apartment bulding 1s a gift They consider such a gift contract as defective, because ‘unidentified shares in common property cannot be delivered. Since the goal of qabd (delivery) is permitting the owner to have full ‘command ofthe property, therefore having such 2 share denies his ight to dealin that share onthe whole. However they rule that t Is permissible to give a share in 2 non-divsible common property such asa car as agit (Nzdm etal, 1310 AH) (11) The majority of scholars from the Mlk, the Shaf'T and the Hanbali schools of thought rule that giving an unidentified share in a common shared property is permissible, in analogy to the permissibility of sling such a share. Conditions related to qabd (taking possession) Jurists disagree on whether gab isarequirementin completing hibah contract {In other words is the expression of afer and acceptance (ab and qabdl alone sufficient in transferring the ownership of hibah object from the donor tothe ddonce, ors ie only transferable afte the donee takes the possession ofthe hibah object? There are three views pertaining to this issue ahibahcontractto be legally binding. The contract (2) Qabdis theconditionf ernst binding unless qabd happens. According to this view, the hibah ‘object before “yah s stil legally owned by the donor asthe ownership ‘completed. Ths isthe view ofthe majority of scholars, scholars, Ibrihim al-Nakhs, Sun either acoaion required oval a oh contra ort cn acaba Be it is a condition for the full effect of the hibah sake it binding, rth Scanned with CamScanner 267ateneownersipofthe hibah object The donee by a mer aeepanceaf the sing Therefore, if the donor : the donee, he can be f fuses to delve the proper) € {the opinion ofthe Malik scholars sy weightand volume. This ods measured er bah objects measurable Tywelgtand roar pe the donee's property except through soe more is per (lon Qudimah, 1994, 3597-8). Revocation of a Hibah Contract bah sa gratuitous contrat (abarr in which its general legal elect isthe establishment ofa donee's ownership of the hibah abject However, jurists have diferent opinions regarding the Tegality ofthe donor recaling his gitfter qabi has been made. ‘The Hanafi scholars rule thatthe establishment of ownership for the donee isnot binding thus permitting the donor to recall the sift and revoke the contract as lng as there isn legal restriction forbidding the evocation. However this actis considered makrah, and the donee asthe right to refuse to return the git. Therefore, ‘returning the gift may only be effected though a mutual consent, cory judge's order ‘This rullg is based on the hadith: "The donor is more worthy of his gift as long as he recelved no compensation fori (Ibn Maj, hadith no, 2387), This hadith clearly {plies thatthe donor has morerighto the giteven after qa has taken place, s lon ashe has received no compensation frit According to custom (ur), th f ustom (ur), the purpose of a hubah contractis not 'o be compensated (a-Laknawl nd, 6.256). Mean the MAG scholars who view ht nership ofthe it established By ‘mere offer and acceptance and becomes binding through gabd ruled that tls not permissible forthe donor to revoke the git ater ged is ma Ismade forthe case of gabd is made. However an exception his son n which he may rescind the gf a stipulating Compensation in a Hibah Contract ‘The majority of jurists held thatthe hibah a gratuitous contract (tabera’ in which issgeneral legal effects the establishment ofthe donee’ ownership inthe hah abject without any compensation to the donor. TE e : for his gift (al-Kasan,2005)-this is also the view ofthe Hanbai scholars (a-ajw rad) and most of the Shffs scholars (al Mawar, 1999). On the other hand, the Mall scholars ruled thatthe gifts relent shuld compensate the it theres any indication that the donor may be expecting compensation (Ibn Rushd, 2008) 1 that gift contract contains & condition requiring the recipient to compensate the donor for his gift, the majority of scholars agree that the hibah is valid and tha che ‘condition is also valid (bn Rush, 2004). However they diferin thelr characterisation ‘ofthat valid contract whether it ea sle contract fom the beginning or it sa hiboh contract which is established to bea sale contrat, As far as the hiboh with compensation i concerned, which Is tantamount to sale ‘contract, the Sha jurist rule that Ifthe compensation is unknown, both the hibah and condition are considered invalid; but ifthe compensation is known, the more prominent opinion says that they are valid (al Maward, 3999), However, in cases when the recipent ofa gift voluntarily compensates the donor for his gif, but the compensation was delayed, the majority of jurists are of the opinion that the unconditional hibah does not demand compensation and that such delayed compensation is considered separate and new git. Therefore, this new hiboh takes all the conditions of avai hibah a8 well as the conditions preventing the rescinding oft (al-Kasani, 2005), Application of Hibah in Contemporary Islamic Finance ‘As a token of appreciation some IFs grant unconditional Nah ro the depositors by crediting some amount int tel account. There ae lo instances where the Fae ares to ther customers of AITAB financing who make the monthly inoalnents ceeding tothe preseribed schedule Inthe fly tok produc, bah seaee eb ueerey the oka aripants assign lr ominees 8 recipients of ‘the Aiba that i, the caine Scanned with CamScanneri oral Salient Shari'ah Issues in the Contemporary Application of Hibah o ‘nin Mudérabah Interbank Investment Account ae acount, sme scan only offer returns that tank vesenent or ery oe the Fs wil have dficutes We cial institutions To enable the product vnore appealing to the investing financlal rasa consolation gift to those who are fering hb is antamount Promise of Hibé Ina mudarabah inte are lower than the market a. in obtaining funding from the invest toyed compete markt returns a Be institutions, there is a proposal give Nh 0 tiling to avest. this regard theSAC-BNM has ruled that ease ictng pat oma mudiraohinvestment and the practices contradictory Haag rrtpe madarabah, which Is profit and risksharing: hence, i is not permissible (BNM, 2010, Resolution No.7) Qard Definition of Qard ‘ard iteally means cutting of part of someone's asset. This signifies thatthe lender is cutting off part of his asset and extending it as lan tothe borrower: Technically, the Hanbali jurists define gard (loan) as payment of money given to someone to benefit from it and he Isto ensure the repayment of the equivalent amount (al-Buhdtt, 1983) The Hana and Shf jurists define gad.asa transfer of ownership ofa fungible asset from alenderta a borrowerin exchange fora payment ofthe original amount payablein the future (bn ‘Abidin, 1992; a-Ram, 1984). ardimplies thatthe lender transfers the ‘ownership ofthe fngible ase (such a money) tothe borrower, which subsequently entitles him to utlse and consume the lent asset. The borrower shall repay the loan to the lender in the same and exact form, amount or value of the loan Since gard is ‘sratultous and benevolent n nature, which requires the borrowing party to pay not more than the orginal loan amount, any erm tit stipulates that the borrower Pays ‘more than the principal amount in whatever terms sucha ‘intrest reward’ ot profit, Isstretl prohibited Legality of Qard “The egy of gard contacts sated bythe ‘he ur, lah (SW) sprestnen te revarsin the wo an three a (Quranic verses the Sunnah and md’. In tend benevolent loan by promising them (SWT) declares 1 Verily for those who given char Denut ae (eet. men and women, and loan Al a he cause of lla) it shall be increased (Quran, S71) ‘mese I you Toan to Allah, 2 beau and He will grant you org (cer ful loan, He will double ta your (credit) eness: for Allah's most ready to appreciate ce) Most Forbearing (Qur, 6417) 920 app verses signify the fundamental ignify the fundamental spirit and purpose of gard, whichis to help others without expecting any return from anyone excep from Allah (SW) (Hasan, 2011). ‘The prophetic traditions have encouraged ex the noble prac of giving oxt oans to the needy. The Prophet (SAW) said: ome Whoever relieves a believer's distress of the dstressful aspects ofthis world, Allah will rescue him from a difficulty of the dfiulties of the Hereafter: Whoever alleviates [the situation of] one in die strats who cannot repay his debt, Allah wil alleviate his lat n both thie word and Jn the Hereafter, Whoever conceals (the faults of] Muslim, Allah wil conceal {his faults} in this ile and the Heresfe. Allah i helping the servant as long as the servant is helping his brother. (Muslim, hadith no, 2699). Inthe night of journey, 1saw on the gate of the Heaven written reward for sadagah stn times and reward fr gard eighteen ties. So, lasked the angel how itis possible. The angel replied, Because a beggar who asked had already had something but a borrower didnot ask for loan unless he was in nee (Ibn Maja, hadlth no, 2431), Basic Rules and Conditions of Qard ‘The specific rules and conditions ofa gard contract are described here. 1 otferand acceptance ‘heoerandcepancea admins dearly Bowens the contracting pares is ot compulsory eae le tan gard ln Rather 5 sufcient that he viprcon signs te meaning fg ands understood bythe contracting parties No stipulation of repayment more than the principal Ioan amount aan s response fr repaying ony the oral Toe bor iy prohited to neue any condo an i ja egies the borrowing pay 10 Pay 8 ae i interest above the actual loan amount. Any ‘kind Prem montane omoneay rm at i eed or mae bales ve contracting parties, even if by mutual consent, is endtoned aon eds hing a gerdor rb oh 0h Seto is deemed king Scanned with CamScannermm. wg contracts ee vom executing @ gard contract that fs fis unlawful the lender stipulates ftom him el something to lm or a ee mapa alk batho 2426; ab-Byhag Bad no. 10922) 4 Writing down the contract Some rises opine that he practic of writing ownaqardcontractis compulsory, ‘This lew s deduced froma Qurénic verse that states You who believe, when you contract a debt fora stated term, put it down in writing: have a serie write it down justly between you. No Scribe should refuse to write: let him write as God has taught him, let the debtor dictate, and let him ear Go, his Lord, and not diminish the debra all (Qurin, 2.282), ‘On the other hand the majority of jurist are ofthe view that the practice is not obligatory. Rather, the verse serves a a strong recommendation to implement it The reason and wisdom behind the cll to avoid ay possible dispute inthe future I the contracting parties agree not to write the gard contract, then they are allowed todo so (Hasan, 2011), 5 Having witnesses ost Musi thls eth he practice o having witnesses in the gor areentisrongyreeminnded The winestescoulbe wo malelndvals Or combinaton eer ale ad fomles The need for esses ie agrestis ese mig sy date between he contain pate tht may aise inthe far. The ites may cored the omacting partes on the agreed terms and condos and Become the rence nthe tenet tepe Application of Qard in Contemporary Islamic Finance ard contrat is commonly used in Islamic banking products: the current deposit instruments are used to receive deposit Principle of wadFah, but the modified {ard Hence, the bank receives the deposit 38 terms and conditions that stipulate that the bank ‘scrount nd saving deposit account. These two from the customers. Some Ilaic banks set structure transforms the contrat into ‘or withdrawals such a5 the cheque ‘withdrawal fact, and to impose 4 Salient Shari'ah Issues in the Contemy Application of Qarg Hibah on Qard-based Deposits Under the current ri IF sontines ge hohe postr of gar saving a nts. This practice becomes contentious as some scholars are of the view that this practice shouldbe avoided as it may lead to 80 The SAC-BNM has resolved that the practice of giving hboh na contract based on gars permissible provided that its not made conditional. tt must be well noted that such practice shall be solely at the discretion ofthe IF and stall not become a norm. This iso avoid the practice from becoming a customary practice that may make the hibah conditional and consequenty tantamount to rikd (BNM, 2010, Resolution No.7). An IF shall not give any verbal or non-verbal promise or expres ts intention of giving hibah ots ‘ustomers, Banks inthe Middle Eas strictly donot practise the giving of hibah to avoid the potential issue of ibd porary Wadiah Definition of WadTah The term wadTah is derived from the verb wade’, which means to leave lodge or deposit, Legally, the Hanafi scholars define it as authorising someone explicitly or implicitly to keepin his possesion the owner's property. Whereas, according to the Shaft and the Maliki scholars, wad"ah isa representation to Keep possession of respectable private goods in a specific way. The Hanball scholars add the element of charity when they define wodFah as represemation to keep (other's aset) and iti done (by the Keeper) asa charity (bn Muh, 2003) In summary, wodT oh refers toa contract, by which the owner o his representative places an asset with another party for custody or safekeeping In islamic banking, wadTah refers to acceptance of sums of ‘money for safekeeping na SharTak-compllat framework Legality of Wadrah = Woda (deposits among the permissible contact and dealings in lam egalty renee pth garth Sanna and jn Aa (ST) a9: then let hin whois trusted flit his trust and let is Sustainer (Quran, 2:283), to render trast to whom they are due and eto judge with justice (Quran. 4:58) 1 you trust one anothen him be conscious of God 2 Indeed, allah commands You when you judge between ev Scanned with CamScannersth savingot the Prophet (SAW) Pe ae spoentrustedyouand donot betray 5), An perfor the Sunnah all Muslin scholars asain to te evidences Fm ah Tbn Guaara, 1960)- his Ki af tranimaen agree onthe peemss and and as such shouldbe a the ma (depositor). The person eaten) andthe deposited assets the e masta (ust in himself to take the wadah tg eyisk nerused with ts kon raged for anyone Wh Types of Wadrah Wedrah can be lassifed into {v0 (YPES 2 Wadrahyaddamanah guaranteed sae custody) ifthe cstodan guaratees the return of the property entrusted to hin, and also agrees to return the item upon request, the contac is regarded as yod af-damanah (al Maar 1995) Tis typ of wad ah combines two contracts namely safe keeping (adh) and guarantee (damn) ‘The jurists cited instances whereby the custodian willbe regarded as qin, FOr fxample, if the custodian takes from the trust and returns it later or utilises It for business, or if he destroys the property deliberately or mixes it with another property in whichit could notbe diferentted, the ane bese ote: ‘the hand ofthe trustee willbe regarded Basic Rules and Conditions of Wadrah J Een ie a cet 1 >) | Se eee Conditions of wadrah yad amanan (2) The custodian sha ee cate of his own A85t He has the duty to pr lost or damaged according to custom responsible for any damage tothe ac ‘due to his misconduct negligence or otect the property fom being FY practice. The custodian is not set 25 long as the age was not reach of specified terms (©) The custodian shall ot entrust the wadohassetto a third the consent of the depositor Otherwise, the custodian "responsible for any occurrence ofloss or damage to the ass party without shal be fly (0) The custodian isnot entitled to any profits gained fom the contract (he 's atthe same time not liable for undertaking the contrat). Any pris oF benefits accrue from the wad'ah asset belong tothe owner (@) Anything otherthana safekeeping arrangement. such as hiring orlending ofthe wadrah asset shouldbe done with the permission ofthe owner (©) The custodian must return the wadah aset tothe owner at anytime upon the request of the depositor (0 The custodian and the owner of the waiFah asset may agsee to pay some charges in consideration fr the wah service In consequence, the custodian shall be responsible for any occurrence of loss or damage unless the custoian proves tat such spor damage sn caused by is misconduct, negligence or breach of specied tras Condition of wadrah yad damanah (@)__Thecustodian s entitled to se the wudah asset for trading o any other purposes. Inthe event that the asset isa fungyble asset (mal mic) such ‘as money, the wodah contract shal be construed as gard (©) Thecustodlan ha arightto any income derived from the utilisation ofthe wadrah asset and atthe same time he is able for any damage o los. (©) The custodian at his awn discretion may give some portion of his income asa gift hia) to the depositor. The git cannot be inthe form ofa pre Saree arrangement Ths s simply because tis type ofwodh's simular toa pan and therefore the pre-agreed benefit wil Be fegarded as riba (a Tre custodian must return the WadTah ase to the owners a any Une ‘upon the request ofthe depositor Scanned with CamScanner; rary Application of Wadi'ah in Contemp jic Finance eae seems that be warah yodamanah aTangerent ring anil pred ers pes and ects cha hen Siesta mer Rend ah asset, Woda yd damdnah on cl nnn et pb al fee a EY ee bank af custodian will utilise the depos{t placed the savings and currents ros investment ports i which by depoator to gv nancing oro ve ST aon ata Sane prof generated belong tthe bank The an a OW ao er etna tat the ging of bh stall ote promised upfront and not bea customary practice SECURITY CONTRACTS Kafalah Definition of Kafélah “The view of the majority of Muslim scholars [s tht the terms damdn and kafaloh {any the same meaning, However, some scholars confine the definition of damn to 4 “guarantee of property’ while the term hfolah refers to a guarantee of ‘al-naf’ oF ‘oneself. Clasical jurists defined kftlah asa conjoinng of the guarantors lability to the liability of the guaranteed! (al-Sharbin, 1992). It may also be defined as a contract which combines one’s Habilty with another persons Viability. Legally, in kafdlah a third party becomes surety forthe payment of debt unpaid by the person originally lable. The degree of scope of suretyship should be known and should not come with preconditions. It is a guarantee given toa creditor thatthe debtor will etl the debt, Including any penalty or other Habilties Legality of Kafalah The scholars have debated at length on the permissbilty of the guarantee contract relying on the sources of Sharfah: the Quin, the Sunnah and jd! ‘The permissbilty of kafdlah can be derived from the provisions of the Qur'an For instance, Allah (SWT) says [Some ofthe ministers) replied, we have missed the royal bowl and for him who produces its «camel Io (Quran. 1272) oad, {will be bound by it Prophet (SAW, lease cond the nee ory rn 0 es oh corpse He se, me 7 rele. Nothing The he seas he eh any debts They rep eu tre dnt Penne ‘The lender can demand some security t which he to which he may have recourse inthe event of failure by the borrower to full his obligation, The Prophet (SAW) himself borrowed from a Jew against the security ofan iron breastplate which was with the Jow a the time of his demise (al-Bukhart, haath no. 2916), {slams laid down broad principles inthis regard aswell Allah (SWT) say: 'I'you are ‘ona journey and cannot finda scribe a pledge wth posession may serve the purpose’ (Qur'an, 2:283) This sa convincing prof ofthe fact hata pledge is permissible, and it ‘makes no difference whether a person is ona journey or at home, Transactions of this ‘ature can take place even between a Muslim anda non-Muslim, ‘According tothe AAOIFI SharTah Standard No.5, contract of guarantee is permissible in contracts of exchange such as sales and contracts of right such as right of intellectual property, Such a guarantee contract does nt affect the vallcty ofthe original contract in hich its required. tn fac, theres no objection in the SharVahto include a number of guarantees in one contrac, uch sincorporatinga personal guarante together with a pledge of security in the same contrac. Types of Kafélah The ype ktahare tuned nigh telow Generally kafalah may be divided ito two types: 1 Raf at nae nme ofl ab maybe arr tivided into thre main categories Figure 7 {Types of Kfaloh Scanned with CamScanner amment of another party's jor te rep bigaion ty @ * sum sa guarantee of payment fOr an te Nattgn chp ben Ar ae ng vo every the delivery of the aor agree the sel falls to honour his «ere quatantor Will be responsible mie agreement at an aset 16 fee fom any “Barnes efor tansations tha involve aces. This ust ensures that an asset Fee from any er eso ams ands able to prove thatthe tem cecumbrances Fee en wl be the guarantor’ esponsibility to rs ‘the value of his purchase which has been paid to the transfer of es or right ees bas Ketek bi alnafs Fc Ha a og wmcone 0 a spec ator, sucha the diary, SESE poamtr tt response oma sure the presence ofthe person, TEESE ESinout tthe the uot sot responsible to sete SLTEERARact ce tena rte ured the guaranteed dies, the Srosstris so sesponsle fo the debt bene the guarantee was Co make Sirota presence ote setethe debt bon s the typeof fib that applicable in most transactions today. ere wil focus on thi typeof hala pose Hence, the discs Basic Rules and Conditions of Kafalah bi al-Dayn “The basicrules and conditions of flak bial daym are as follows 1 Gearantor ‘The guarantor must be a qualifed person under the law (having complete legal ‘apaciy). which means that he must be of sound mind and is eligible to make voluntary contributions. He must give consent and agre to the contrac. 2 Debtor Wnt cesta der shoud hae rele cpa Heay bea mint insane or a bankrupt person. According ies “ Somme abe 0 the majority of scholars i valid fora pire ure te bis of bankrp deceased nal TH * Rartor mu: know the debuor whose debts BE er Sharan Contracts forte Fnac instruments Part? \/ 279) (cate ete: OF hts had che syonger ew osnashar oh 4 Creditor According to the Hanaf scholars, the creditor aust be known (al-Kasini 2005), The Mallet and. Hanh scholars, hovwever, Permitted guaranteeing debts for ‘unnamed creditors (Ibn Quddmah, 1968) a in he cae when someone says, I guarantee the debts of Zayd that he ‘owes other people 4 Guaranteed object/asset ‘According to the Hana scholars, the objector asst of a guarantee «ontractmustbe an established lability (ungble, non-ungible a person (or an action) (a-Kasint, 2005). The maorty of jurists ruled thatthe object of financial guarantee must be possible to collect from the guarantor otherwise the contract would not be of ary benefit. A guaranteed financial debe must be valid and binding abil. It must bea valuable asset that can be awfully owned and sold Rules Related to a Personal Guarantee for a Financial Obligation Some basic rules ofa personal guarantee fra financial obligation areas follows 1. Rspermissble to have more than one guarantor to secure the debt 2 Personal guarantees are divided into two types: One type i guarantee where ‘the guarantor has aright of recourse tothe debtor. and tis guarantees offered atthe requestor withthe consent ofthe debtor The other type is anon-recourse ‘guarantee, which is offered voluntarily by 2 third pary without the debtors ‘equest or consent (voluntary guarantee) 3 Itispermissible to ithe duration of a personal guarantee orn set ceiling on the amount tobe guaranteed. Iti also permissible fora personal guarantee to be restricted by, o be contingent upon a condition ora future event. 4 Ieisnotpermissbleto take any remuneration for providing personal uarantee ‘or to pay a commission for obtaining such a guarantee. The guarantor s only fentiied to elaim actual expenses incurred during the period of personal guarantee, Nonetheless, some contemporary scholars permit charging a fee for the guarantee on top ofthe actual expenses incurred with specific parameters and conditions * SA Scanned with CamScanner