Islamic Commercial Law

"This book, written by a member of the new generation of competent and informed Islamic Shari′ah scholars, is one of the clearest expositions of the intricacies of Islamic commercial law. The central focus of the book is the crucial condition that the litmus test of Islamic legitimacy of any commercial contract is its organic relationship with real assets, therefore, with the real sector of the economy. It is a valuable contribution to efforts at demystifying Islamic finance; it is well worth reading."
Abbas Mirakhor, Holder of INCEIF Chair in Islamic Finance

"The book no doubt is a valuable addition to the Islamic commercial transaction subject as it discusses the different types of contracts in Islamic commercial law. In addition to the discussion on the fundamental and theoretical aspects of Islamic commercial contracts, the writer also explains briefly the application of those contracts in Islamic finance world today. One of the salient features of this textbook format is that the writer has provided true–or–false questions at the end of each topic as well as a short essay–type question on the type of contract discussed."
Mohamad Akram Laldin, International Shari′ah Research Academy for Islamic Finance (ISRA)

"Prof. Saleem′s book on Islamic commercial law coherently covers all the major contracts as applied in the contemporary Islamic finance industry. The book explains lucidly some of the difficult concepts and principles governing Islamic finance transactions. The learning outcomes at the beginning of each chapter serve as a useful guide for students, while the questions at the end of each chapter assist the students in their comprehension of the subject matter. This book is highly recommended for beginners in Islamic finance."
Rafe Haneef, CEO, HSBC Amanah Malaysia Bhd

"Shari′ah compliance in commercial, business, and banking activities is necessary for Muslims. This necessitates a demand for a book that would introduce all the essential contracts associated with Islamic commerce, banking, and finance. Islamic Commercial Law by Dr. Saleem has combined the theory with the practice and is a timely and welcome addition to the existing literature in English. The book is part of the rich teaching experience at the Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia. The beneficiaries will be university students and practitioners in Islamic financial institutions."
Khaliq Ahmad, Dean, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia

"The emergence of Islamic banking and finance has refocused attention on Islamic transactions and commercial laws. Islamic Commercial Law is a timely and welcome addition to the growing literature on the subject. It is the first book in English to introduce all the essential contracts on Islamic commerce and finance in one volume. The author also incorporates diagrams, examples, and questions that offer a better understanding of the various commercial and financial transactions. This makes the book an important text and essential reading for the undergraduate and postgraduate students and for all those who work in Islamic financial institutions. I congratulate Dr. Saleem for providing students and practitioners with a useful resource that combines the theory with the practice."
Moha Asri Abdullah, Head, Department of Economics, International Islamic University Malaysia

Preface xi

List of Abbreviations xiii

Acknowledgments xv

Introduction: An Overview of Prohibited Elements 1

Usury (Riba) 2

Ambiguities in a Contract (Gharar) 3

Gambling (Maysir) 4

Prohibited (Haram) Properties 5

1 The Contract of Sale (Bay ) 7

Introduction 8

The Pillars of a Sale Contract 9

Prohibited Sales and Practices 14

Contentious Sales 19

Chapter Questions 29

Notes 30

2 Types and Classifications of Sales 33

Introduction 34

Trust Sales (Buyu al–amanah) 35

Deferred Payment Sale (Bay Bi–thaman Aajil) 36

Islamic Banks and a Sale Contract 37

Future Commodity Sale (Bay al–Salam) 39

Manufacturing Sale (Bay al–Istisna ) 43

Currency Exchange (Bay al–Sarf) 47

Chapter Questions 49

Notes 50

3 The Contracts of Employment and Lease (Ijarah),

Borrowing (I arah), and Reward (Ja alah) 51

Introduction 52

The Pillars of the Ijarah Contract 53

The Contract of Borrowing Things (al–I arah) 60

The Contract of Reward for Service (al–Ja alah) 61

Chapter Questions 64

Notes 65

4 The Contract of Agency (Wakalah) 67

Introduction 68

The Pillars of an Agency (Wakalah) Contract 69

The Types of Agency 70

Agency in Sale 71

Agency in Purchase 73

The Effects and the Rights and Liabilities of the Contracting Parties 74

An Agent Appointing Another Agent 75

Unauthorised Agency (al–Fadhalah) 76

Termination of an Agency 76

Chapter Questions 77

Notes 78

5 The Contract of Loan (al–Qard ) 79

Introduction 80

Loan (Qard), Debt (Dayn), and Borrowing Things (I arah) 81

A Loan That Provides Conditional Benefi t to the Lender 82

Waiting or Giving Time to a Borrower Is a Commendable Act 84

Chapter Questions 84

Notes 86

6 The Contract of Safekeeping (al–Wadi ah) 87

Introduction 88

The Pillars of Wadi ah Contracts 89

Relationship Between the Parties 89

When Is the Depository Held Liable? 90

Using Deposited Money for Investment 91

Wadi ah and Islamic Banks 92

Termination of Wadi ah 92

The Differences Between the Contracts of Wadi ah and Qard 93

Chapter Questions 93

Notes 94

7 Partnership (al–Sharikat) 95

Introduction 96

Division of al–Sharikat 96

Capital Partnerships (Sharikat al–Amwal) 98

Management of Partnership (Sharikat al– Inan) 101

Partnership of Services (Sharikat al–a mal) 101

Partnership of Reputation or Creditworthiness (Sharikat al–Wujuh) 102

Partnership (Sharikat al– Inan/Musharakah) and Islamic Banks 104

Dissolution of Partnership 106

Chapter Questions 107

Notes 109

8 Silent Partnership (Mudarabah/Qirad ) 111

Introduction 112

Pillars of Mudarabah Contract 113

The Status of Sahib al–mal and Mudarib 114

Distribution of Profit and Treatment of Losses 114

Types of Mudarabah 115

Personal Expenses of the Mudarib 116

What the Mudarib Cannot Do 117

Void Mudarabah 117

Termination of Mudarabah 118

The Differences Between Musharakah and Mudarabah 119

Chapter Questions 119

Notes 121

9 Pledge, Mortgage, or Pawn (al–Rahn) 123

Introduction 124

The Pillars of Pledge (Rahn) 125

The Use of the Pledge by the Pledgee 126

Forfeiture of the Pledged Property 127

Chapter Questions 128

Notes 128

10 Guarantee (al–Kafalah) 129

Introduction 130

Pillars of Kafalah 131

The Effects of Kafalah 132

Immediate, Conditional, and Suspended Kafalah 132

Types of Kafalah 132

Charging a Fee for the Service of Guarantee 133

Letter of Guarantee 134

Termination of Kafalah 134

Chapter Questions 135

Notes 136

11 Transfer of Debt (al–Hawalah) 137

Introduction 138

Pillars of Hawalah 140

Types of Hawalah 140

Transfer of Right (Hawalat al–Haqq) 141

Bill of Exchange (Suftaja) 141

Termination of Hawalah 142

The Differences Between Hawalah and Kafalah 142

The Difference Between Hawalah and the Sale of Debt (Bay al–Dayn) 143

Chapter Questions 143

Notes 144

12 The Contracts of Absolution (al–Ibra) and Set–Off (al–Muqassah) 145

Introduction 146

The Subject–Matter of Ibra 146

The Pillars of Ibra 147

Types of Ibra 149

The Effect of an Ibra 149

The Differences Between Absolution (Ibra) and Gift (Hibah) 150

The Contract of Set–Off (al–Muqassah) 150

Classification of Muqassah 150

Chapter Questions 152

Notes 153

Answers to True/False Questions 155

Bibliography 161

About the Author 165

Index 167