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ISLAMIC BUSINESS TRANSACTION

Presentation · November 2020

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ISLAMIC BUSINESS MADAM FARIHANA BINTI
ABDUL RAZAK

TRANSACTION
DEPARTMENT OF LAW, UITM PERAK
BRANCH, TAPAH CAMPUS
SOURCES OF ISLAMIC LAW

Quran Sunnah Ijma’ Qiyas

Ijtihad Istihsan istislah

PRINCIPLES OF
A VALID
CONTRACT IN
ISLAMIC
BUSINESS
TRANSACTION
CONDITIONS FOR A
VALID CONTACT UNDER
SHARI’AH
 TYPES OF
SHARI’AH
CONTRACTS
MUSYARAKAH
Musyarakah refers to a
partnership or a joint business
venture to make profit
•There are two types of
Musyarakah which are:
Shirkah al-Mufawadah
•The partners in the partnership
must be an adult.
•It is unlimited investment
partnership.
•Each partner enjoys full and
equal authority to transact with
the partnership capital or
property.
•Each partner act as an agent
of the partnership.
•The partners can be made
jointly and severally responsible
for the liabilities of their
partnership business.
•They have full authority to act
on behalf of the others.
Shirkah Al-Inan
•The partners need not be an
adult.
•It is a limited investment.
•Each partner may only
transact with the partnership
capital according to the terms
of the partnership agreement
and to extent of the joint
capital.
•The partners act as an agent
but not sureties of the
colleague.
•The liabilities are several which
is not a joint liability.
•The partner is not equally
responsible for the
management of the business.
MUDHARABAH
It is a form of partnership
where one party provides
It is not allowed that a mudarib should take his share of the profit without informing the owner of
the funds while the other
the capital. There are two types of Mudharabah which are:
(mudarib) provides expertise
and management.

It is unlimited mandate mudharabah where the owner authorized the worker to act completely at
Mutlaqah
his discretion in all business matters.

It is a limited mandate mudharabah where the owner makes certain limitations to the activities be
Muqayyadah
conducted by the workers with regards to the capital given.

Involves the selling of the goods at a price
which includes a profit margin agreed by
both parties. The seller must let the buyer
know the actual cost for the assets in terms
of purchase price, selling price and other
costs incurred, and the profit margin must
be clearly stated at the time of the sale
agreement.
MURABAHAH
The condition of Murabahah as below:
•The financial institution purchases the goods from the
seller and sells them to the buyer, usually on a deferred
settlement basis.
•Depending on acceptability, the financial institution
may either purchase the goods before receiving a
promise from the buyer to purchase.
•Goods should exist at the time of sale to the buyer.
•The financial institution’s mark-up is agreed and
disclosed to the buyer.
•The financial institution is usually not permitted to earn
any additional charges arising solely from delays in
payment by the buyer.
AL WAKALAH (AGENCY)
Wakalah refers to a contract where
a legally competent person
authorizes another to do a certain
well-defined permissible action, on
his behalf.
The main purpose of wakalah is to facilitate economic dealings between a
principal and third party when the principal is unable to do it personally or he is not
willing to perform by himself. Both the principal and the agent may withdraw from
the contract of agency at any time.

Types Unrestricted a principal delegates full authority to an agent to perform a series of transactions on his behalf.
of Al Wakalah
Wakala
h are:

Restricted a principal authorizes an agent to do a specific task on behalf of him.

Wakalah

Absolute It includes an unrestricted power given to the agent by the principal. Absolute agency, however, is
Wakalah generally bound by urf (usual practices) and the principal's interest.

Particular The principal shall specify a certain condition(s) for the acts of the agent so that, if he fails to comply with the
wakalah main order, his activities shall not bind the principal. If the agent acts in contravention of the permission of the
principal, but only in good faith, then, according to some schools of thought, his acts will not be considered in
violation of the contract of the agency.
BAY’ BITHAMAN AJIL (DEFERRED PAYMENT SALE)- BBA

This type of contract which the selling of goods on a deferred payment basis at a price which
includes a profit margin agreed by both parties.

BBA has been the most prevalent home finance mode in Malaysia since the establishment of
Islamic banking in 1983. By the application of a discount rate, an Islamic bank can collect the
market rate of interest.

The conditions to be fulfil under BBA are:

Seller Buyer Goods Price Ijab and Qabul

 Salam is a transaction in which the price is paid immediately for goods which are to be delivered later but are
specified in the contract

The objects of this sale are goods and cannot be gold, silver or currencies. Six conditions of Salam are: -

Salam can be Salam cannot be

The transaction is
effected in those effected on a It is also necessary Salam cannot be
considered Salam if
commodities only particular that the quantity of effected in respect The quality of the
the buyer has paid
the quality and commodity or on a the commodity is of things which commodity is fully
the purchases price
quantity of which product of a agreed upon in must be delivered specified.
to the seller in full at
can be specified particular field or unequivocal terms. at spot.
the time of sale.
exactly. farm.

BAY SALAM (DEFERRED DELIVERY SALE)

BAY ISTISNA (MANUFACTURING SALE)

Bay Istisna known as a contract with a

manufacturer provides both raw
Bay Istisna can be categorized into
materials and labour to produce and
two types which are:
deliver a specific product at a
specified price.

Classical Istisna Parallel Istisna

The buyer approaches

the seller to construct After the completion The parallel istisna contract involves three
a specified asset for The customer pays the of manufacturing parties and it consists of two separate
him. They agree on price to manufacture process, the contracts. The first contract is between the
specifications of the in cash or installments manufacturer delivers ultimate purchaser and the seller, where the
asset, the price and according to their the completed asset seller is responsible to deliver the asset to
the date of delivery at agreement. to customer on customer according to given specifications.
the time of contract delivery date. The second istisna contract is between the
execution. seller (as buyer) and the manufacturer of
the asset.
 There are two contracts involved in this concept and
both these contracts are undertaken one after the other.

AL IJARAH •The first contract is the leasing or renting contract or (ijarah).

THUMMA •The second is the purchasing contract (bay). Ijarah Thumma Bay is
normally used in financing consumer goods especially motor vehicles.

AL BAY A customer enters into the first contract and leases the
(HIRE car from the owner (bank) at an agreed rental over a
specified period.

PURCHASE)
At the end of the leasing period, the second contract
comes into effect when the bank sells the car to the
customer at the agreed sale price. In this situation, the
customer has the option to purchase the goods from the
owner (financial institution).
 Section 2 of the Takaful Act 1984 defines
Takaful as “a scheme based on brotherhood,
solidarity and mutual assistance which
provides for mutual financial aid and
assistance to the participants in case of need
whereby the participants mutually agree to
contribute for that purpose.”
TAKAFUL Takaful is a Shari’ah – compliant version of
financial protection and other risks protection
under general and life which a system based
on the principle of ta’awun and tabarru’
where the risk is shared collectively and
voluntarily by a group of participants.
 A loan is extended on a goodwill
basis. The terms for an interest-free
loan in the Islamic religion, which
QARDUL forbids loaning or borrowing money
to earn interest.
HASSAN
(BENEVOLENT
LOAN OR
INTEREST FREE Under this arrangement, a loan is
LOAN) given for a fixed period on a
goodwill basis and the borrower is
only required to repay the amount
borrowed. However, the borrower
may, if he so wishes at his discretion,
pay an extra amount (without
promising) as a token of
appreciation and way to thank the
lender.
 NO ISLAMIC BANKING
1 The functions and operating modes of Islamic
Banks are based on Shari’ah Laws.
2 It promotes risk sharing between provider of
capital (investor) and the user of funds
(entrepreneur).
3 In the modern Islamic banking system, it has
become one of the service-oriented functions
of the Islamic banks to be a Zakat Collection
ISLAMIC Centre and they also pay out their Zakat.
CONVENTIONAL BANKING
The functions and operating modes of
conventional banks are based on fully
manmade principles.
The investor/lender is guaranteed of a
predetermined rate of interest or returns.
It does not deal with Zakat

BANKING 4 Islamic banks have no provision to charge any

extra money from the defaulters except for
It can charge additional money (penalty and
compounded interest) in case of defaulters.
VS. compensation (typically such proceeds are
given to charity). Rebates early settlement at
the Bank's discretion.
CONVENTIONAL 5 For the Islamic banks, it must be based on a For interest-based commercial banks,
BANKING Shari’ah approved underlying transaction. borrowing from the money market is relatively
easier.
6 The status of Islamic bank in relation to its Relationship is often defined as that of
clients is that of partners, investors and trader, creditor-debtor.
buyer and seller.
7 Islamic bank can only guarantee deposits for A conventional bank must guarantee all its
deposit account, which is based on the deposits.
principle of al-wadiah, thus the depositors are
guaranteed repayment of their funds,
however if the account is based on the
mudharabah concept, client must share in a
loss position.
8 It also maximizing profit but subject to Shariah It aims at maximizing profit without any
restirctions. restrictions.
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