Islam frees its followers to engage in any business and financial transaction. It’s because financial transaction is very crucial to our life. Nowadays we do at least one financial transaction per day. Not to mention the long term transaction that we have to commit for a long time. However, as a Muslim we have the Qur’an and the Sunnah as our main resources and guideline. Therefore we have to make sure that everything we done shouldn’t be across with what stated in both the Qur’an and the Sunnah. And that’s including the business and financial transaction we are engaged with.
Those rules and guideline made to keep the objective of Shari’ah. While the objective of Shari’ah made to keep the public interest. Muslim have to follow all the rules in order to keep the life be in harmony, and to get the blessing from Allah. Because after all, Allah’s blessing is the most important thing that all Muslim want. There are three main elements that have to be avoided by all Muslim in any financial transaction they made. They are Riba, Gharar, and Maisir. Sadly these three elements are still practiced in most modern conventional transaction.
In fact some Muslim still enjoy engaging with them for certain reason. Some of them don’t understand that what they’re doing is wrong. For example, they heard about Riba, but they don’t get the concept of Riba or why is it prohibited. But some people, they know that they are doing the wrong thing, but simply ignore and make excuses just because they can’t let it go. The following pages are the elaboration of the prohibited elements. It includes the definition, the source of the prohibition, and some other related explanation.
It is hoped that by reading this, people can get more knowledge about what they are engaged with. And furthermore start to become aware and avoiding the elements. The Main Prohibited Elements 1. The element of Riba 1. Definition of Riba According to Sheikh Shady Alsuleiman, Riba means usury or interest. In Arabic, the word Riba (???? ) means increase, whether in good or bad thing. While in Shari’ah terminology (Islamic law), Riba can be defined as: – An increase of one of two items in transaction, or – An increase in a return of a debt
Riba is considered as one of the seven major sins (Al-Saba al-Mubiqat) which are: believing in gods other than Allah; magic; murder; riba/usury; unlawfully taking orphans’ money; fleeing from the battlefield; and accusing chaste, pious women. 2. Prohibition of Riba in the Qur’an and the Sunnah There are numbers of verse in the Qur’an that consist the prohibition of Riba. They came in text revealed on stages. Below are those verses in the order of their revelation, as cited by Muhammad Ayub: • Surah al-Rum, verse 39 That which you give as Riba to increase the people’s wealth increases not with God; but what which you give in charity, seeking the goodwill of God, multiples manifold. ”
From Anas ibn Malik (Gbpwh): “ The Prophet said: ‘ When one of you grants a loan and the borrower offers him a dish, he should not accept it; and if the borrower offers a ride on an animal, he should not ride, unless the two of them have been previously accustomed to exchanging such favors mutually’. ” 3. Zaid B. Aslam reported that interest in pagan times was of this nature: “ When a person owed money to another man for a certain period and the period expired, the creditor would ask: ‘ you pay me the amount or you pay the extra’.
If he paid the amount, it was well and good, otherwise the creditor increased the loan amount and extended the period for payment again. ” 4. The holy Prophet (pbuh) announced the prohibition of Riba in express terms at the occasion of his last Hajj, which was the most attended gathering of his Companions. The Prophet said: “ Every form of Riba is cancelled; capital indeed is yours which you shall have; wrong not and you shall not be wronged. Allah has given His Commandment totally prohibiting Riba. I start with the amount of Riba which people owe to my uncle Abbas and declare it all cancelled”.
He then, on behalf of his uncle, cancelled the total amount of Riba due on his loan capital from his debtors. 5. The holy Prophet (pbuh) said, “ Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates and salt for salt – like for like, equal for equal, and hand to hand; if the commodities differ, then you may sell as you wish, provided that the exchange is hand to hand”. 6. Bilal (Gbpwh) once visited the Messenger of Allah (pbuh) with some high quality dates, the Prophet (pbuh) inquired about their source.
Bilal explained that he traded two volumes of lower quality dates for one volume of that of the higher quality. The Prophet (pbuh) said: “ This is precisely the forbidden Riba! Do not do this. Instead, sell the first type of dates, and use the proceeds to buy the others. ” 7. A man deputed by the holy Prophet (pbuh) for the collection of Zakat/Ushr from Khyber brought for him dates of very fine quality. Upon the Prophet’s asking him whether all the dates of Khyber were such, the man replied that this was not the case and added that he exchanged a Sa’a (measure) of this kind for two or three (of the other kind).
The holy Prophet replied: “ Do not do so. Sell (the lower quality dates) for dirhams and then use the dirhams to buy better quality dates. (When dates are exchanged against dates) they should be equal in weight. ” 3. Kind of Riba From the definition and the prohibition, we can see that Riba can occur in both Loan/Debts and Sale/Exchange Transaction. How it is happen and what’s the different between these two kinds of Riba, we’ll see in the following explanation: 1. Riba in Loan/Debts (Riba Al-Nasiah)
Kuwait Finance House stated that Riba Al-Nasiah, or they call it as deferred usury, is related to extension of the repayment period for additional payment of money. It occurs when someone lend money to another person, giving certain period for the borrower to repay the money but with a condition that he has to repay it back with additional amount, whether it is fixed amount or in percentage of the money lent. Furthermore Sheikh Shady Alsuleiman said that the condition that the creditor given is not necessary in the form of money, but it also can be in the form of benefit.
For example, someone lend money to another person, giving certain period for the borrower to repay the money but with a condition that he has to sell his asset to the creditor. The idea of loan in Islam is as a charity, to help needy people. So the creditor shouldn’t take any advantages from that. 2. Riba in Sale/Exchange Transaction (Riba Al-Fadl) The definition of Riba Al-Fadl according to Kuwait Finance House is the excess which is taken in exchange of specific homogenous commodities whereby one has more weight than the other.
This is actually link to the fifth Hadith that stated earlier. The commodities, that Kuwait Finance House stated are refer to the 6 Ribawi items, which categorized under two groups: Money (Gold and Silver) and Staple Food (Wheat, Barley, Dates, and Salt). The trades or exchanges of these items have to be done according to the ruling, which are: • Exchange the goods of the same group and kind, must be equal and on the spot I. e. Gold for Gold, Wheat for Wheat • Exchange the goods of the same group but different in kind, must be on the spot I. . Gold for Silver, Wheat for Barley • Exchange the goods of different groups and kinds – not subject to equality or promptness (on the spot) I. e. Gold for Dates, Silver for Salt 4. Prohibition of Riba in other revealed religions The prohibition of Riba is not only occurs in Islam, but also in other revealed religions, although with different ruling or practice. The following are some verses in Bible and Torah that consist of the prohibition of Riba, as stated by La Riba Bank: 1. Riba in the Bible • Deuteronomy, verse 19-20
You shall not lend upon interest to your brother, interest on money, interest on victuals, interest on anything that is lent for interest. To a foreigner you may lend upon interest, but to your brother you shall not lend upon interest; that the Lord your God may bless you in all that you undertake in the land which you are entering to take possession it. (23: 19-20) • Proverbs, verse 8 He who augments his wealth by interest and increase gathers it for him who is kind to the poor. (28: 8) 2. Riba in the Torah • Exodus, verse 24-26 “ When you lend money to any of My people, to the poor among you, you shall not be to him as a creditor, nor shall you impose upon him any interest. (24) – If you take your neighbor’s [night] garment as a pledge (collateral), you shall return it to him by nightfall. (25) – For that is his only covering; it is his garment for his skin. In what shall he sleep? And it shall come to pass, that if he cries out unto Me, I will hear it, for I am compassionate. ” (26) 2. Element of Gharar 1. Definitions of Gharar Etymologically, in Arabic language the word gharar comes from the root word gharra.
Gharra means fraudulent or deceptive. This word has the same meaning to khada’a. In this case, the meaning of gharar that we are referring to is risk, uncertainty, and hazard. In other word, Gharar is the sale of probable items whose existence or characteristics are not certain, due to the risky nature that might lead to destruction or loss which makes trade similar to gambling. According to the technical term of gharar it means uncertainty and/or ignorance of one or both parties in a contract over the substance or attributes of the object of sale, or doubt over its existence and availability at the time of contract.
Unlike ribaa, gharar is not precisely defined. Even though gharar is prohibited in Islamic framework, some degree of gharar or uncertainty is still acceptable. It is based on how significant it is in the transaction. However, the excessive condition of gharar in the transaction is absolutely prohibited in Islamic framework. Gharar can be divided into three types or categories. The first category is gharar yasir which refer to small gharar. This type of gharar is acceptable in Islamic law as it does not bring a significant effect to the transaction and it contains minor risk.
The second category is gharar mutawassit (moderate) which falls between the other two categories. The third category is gharar fahish. These categories of gharar have been derived by scholar that if it is found in a trading transaction or investment, it will affect the validity of the contract from the Syariah perspective.  The conditions of gharar can change based on the change in environment, custom and also technology. There are some conditions that may lead gharar to occur. First, gharar can occur when there is uncertainty in type, shape, quantity, weight and sum of the material in the transaction.
Second, it happens due to the time of delivery of the material. Third, gharar can occur due to the uncertainty in the aspect of price value and also the payment method. The last condition is gharar can occur due to ambiguity in ownership and the capacity of asset owner. 1. 2. 1. 2. 2. Prohibition of Gharar in the Qur’an and Sunnah There is no specific verse in Al Quran that tells about the prohibition of gharar. However, there are numerous hadith that said about the prohibition of gharar. 1. Based on Al Quran:
This is one of the verse in Al Quran that we can relate it with the prohibition of gharar. “ O ye who believe! When ye deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to writing. Let a scribe write down faithfully as between the parties” (The Holy Qur’an 2: 282) 2. Based on hadith: “ Allah forbid trading with the presence of uncertainty (Al-gharar)” [rumored by Imam Muslim] “ The Prophet forbade the selling of goods (by throwing a stone) and the sale of a lack of explanation (al-gharar)” [rumored by Imam Bayhaqi] . Existence of Gharar in the contract 1. Gharar in the term and essence of the contract An insurance contract contains gharar because, when a claim is not made, one party (insurance company) may acquire all the profits (premium) gained whereas the other party (participant) may not obtain any profit whatsoever. Ibn Taimiyah, a leading Muslim scholar, further reasoned “ Gharar found in the contract exists because one party acquired profit while the other party did not”. The prohibition on gharar would require all investment ains and losses to eventually be apportioned in order to avoid excessive uncertainty with respect to a return on the policyholder’s investment. However, gharar in the term and essence of the contract also include the two sale in one transaction, the down payment (‘ Arbun) sale and also “ pebble”, “ touch” and “ toss” sale. This is referring to the lot of cloth upon which the stone thrown will fall (Bai’ al Hasat) or clothes with unspecified in the aspects of quality, size and design of the clothes. It is also including the suspended (Mu’allaq ) sale and also future sale.  2.
Gharar in the object of the contract According to Islamic jurisprudence, the element of gharar will lead to the invalidities of a contract if it is incorporated in a financial contract, or its contractual impact is very large and substantial and there is no genuine need for such contract to be made. If the insurance cover is genuinely required to safeguard insured’s interests, it can avoid the invalidity due to gharar condition. However, such protection cannot be provided other than through insurance. This can avoids uncertainty through contract of takaful based on cooperative principles. harar in the object of the contract includes the ignorance about the genus, species, attributes, the quantity of the object, the specific identity of the object, the time payment in deferred sales. It is also including the explicit or probable inability to deliver the object, contracting the nonexistent object and also not seeing the object.  4. Example of Gharar Based on the article that has been written by one of the Islamic economist expert in Malaysia, Zaharuddin Abdul Rahman, these are a few example of gharar: ) Sale of an item that is yet to be owned and is difficult to be acquired by the seller, such as selling a horse that has escaped, or a lost car that is yet to be retrieved.
Sale of an item that is not described properly. c) Sale of an item where the price has not been finalized. d) Sale of an item where the price is dependent on circumstances. e) Sale of an item without a proper description that can avoid dispute, eg. Selling a garment in a plastic packaging without allowing customers to inspect it. f) Sale of an item that is attached with conditions which are ambiguous, eg. f my friend arrives or if the price goes up etc.  5. The rationale for the prohibition of Gharar There are many rationales for the prohibition of gharar. First, it is intend to ensure full consent and satisfaction of the parties in a contract as in the citation of Al Quran: O you who believe, do not consume each others’ properties illicitly – only mutually acceptable transactions are permitted. You shall not kill yourselves. GOD is Merciful towards you. [4: 29] Without full consent by all the parties included in a contract, the contract may not be valid.
Furthermore, full consent can only be achieved through a certainty, full knowledge, full disclosure and transparency about every single thing that are included in the transaction. Second, the presence of gharar in a commercial contract may lead to injustice, exploitation and also enmity among the contracting parties. 6. How to avoid Gharar In order to avoid gharar, first we have to make sure that both the subject and prices of the sale are existing and that parties are able to deliver the subject matter.
Besides that, the characteristics and the amount of the counter values of the subject matter also must be specified precisely. The quantity, quality and date of future delivery must be define at first as it will affect the agreement from the party to carry on the contract or discontinued the contract. On the other hand, the purchaser should not undertake anything or any act regarding the contract blindly without a full concern or risk oneself in adventure without aware the outcomes and the consequences from the action. 3. Element of Maisir/Qimar 1. Definition of Maisir
The word Maisir (game of chance) is derived from the four root which is the first, yasara means to become gentle to draw lots by arrows; or yasar means affluence because maisir brings about profit; or yusr means convenience or ease because it is a means of earning without toil and exertion; or yasr means that dividing a thing into a number of shares and distributing them among themselves. All the above connotations are vividly found in the word maisir. Imam Malik (Gbwh) says that gambling is of two categories: a game of chance that is partaken in with a view of sport (fun) and the game of chance which involves gambling.
Gambling means all dealings in which people are required to make a bet and every deal which involves some aspect of gambling is maisir. Maisir and qimar are two Arabic words that bring the same meaning which is gambling. Ibn Kathir states that maisir said in Surah Al-Ma’ida: 90, has the same meaning as qimar (gambling). Gambling is the game that contains elements of a bet (property/material) in which the winning party takes the property/material from the losing party. 1. 2. 1. 2. 3. 1. 2. Prohibition of Maisir in the Qur’an and Sunnah
In Al Qur’an, there are many verses that said about the prohibition of gambling or maisir. There are a few of the verse. • “ They ask thee (O’ Prophet) about Khamr(intoxicants) and games of chance (gambling). Say: In both of them there is great harm although there is some advantage as well in them for men, but their harm is much greater than their advantages. ” (4: 219) • “ O’ ye who believe, verily wine and games of chance (ungodly) shrines, and divining devices are abomination of Satan’s work. Avoid them that ye may prosper.
Only would Satan sow hatred and strife among you, by wine, and games of chance, and turn you aside from the remembrance of Allah, and from Prayer: Will you not, therefore, abstain from them? ” (5: 90, 91) Based on the verses above, we can see that the game of chance or maisir entail a great sin and promises a petty benefit and this is an abominable act of Satan. Satan sows in our hearts the seeds of enmity and hatred against one another and turns us aside from the remembrance of Allah and His worship by means of games of chance.
Therefore, the prohibition of maisir has been declared obligatory. Furthermore, there a few hadith that said about the prohibition of maisir. The Holy Prophet (peace and blessings of Allah be upon him) said: “ Whosoever says to his Companion: Come let us play a game of haphazard, should give alms (as atonement). ” (Bukhari and Muslim) This shows that a mere invitation to gambling is such a serious sin as to warrant atonement thereof by charity. Hence, the position of a man who indulges in gambling is absolutely prohibited and is more serious sin.
The Holy Prophet (peace and blessings of Allah be upon him) further said: “ Whosoever plays backgammon is as if he dyes his hands with the flesh of swine and its blood. ” (Muslim) 3. Connection between Maisir and Gharar Maisir and qimar has been clearly prohibited in Al Quran and also hadith. It has two basic elements which cause it to be prohibited. One of the elements is gharar. As we know, gambling has risk in outcome or consequence. Thus, the presence of gharar has makes qimar, speculation, gambling to be prohibited as the gambler is ignorant of the result of the gamble.
A person will put his money at stake wherein the amount being risked might bring a huge sum of money or it might be lost or damaged. This is the uncertainty of the outcomes. 4. Example of Maisir One of the examples of maisir is playing a lottery. There are no arguments in between Islamic scholar that it is not. Nevertheless, there has been arguments and legal opinions (fatwa) that insurance, forward trading and financial derivatives are gambling. When a person pays something of value in order to get chance to win a prize, it is included as gambling.
Usually it includes three things when someone gambles which are prize, consideration and pure chance. Prize is anything that has value such as money, physical items or reward. Consideration is the fee or what must be paid to enter the gambling. Pure chance is something that is opposite to the pure skill which means that the probability for someone to win. Such as example, chess requires pure skill and slot machine require pure chance. It seems apparent that the chance factor is the dividing line between gambling and non-gambling functions with a consideration. As playing a lottery, the person has no role in determining the outcome.
He just acts as a spectator and relies on pure chance to win the lottery. Thus, it is includes as an example of gambling. 5. The rationale for the prohibition of Maisir The major rationale for the prohibition of maisir is money should be earned by working hard and put an effort such as by knowledge and not just by a pure chance. When earning money by virtue of pure chance, it brings two meaning which are living life under depression or living live under recklessness. Living life under desperation means an illusion that one will eventually win the lottery prize although by the law of large numbers, it is highly nlikely he will ever win it. This is the problem of the desperate poor. And life under recklessness refers to the attitude of a risk-lover who is willing to put his money at risk knowing that the rewards are not commendable enough. Nevertheless, gambling will cause someone to gain something while the other lose only depend on the game of chance or only through a speculation. A material loss or gain in such way is prohibited in Islam. However, general speculations in business or trade are not prohibited as we are doing some effort not same as gambling where we do not make any effort in it.
Other Elements Other elements that are also prohibited in any financial transaction are Dharar, Khalabah, and Najash (as stated by Muhammad Ayub) 4. Dharar/Detriment Dharar/detriment means harm. The transaction done have to be free from any harm to any parties involved. Example in the contract of mudharabah, where the capital owner doesn’t have any background related with the business they’re doing. When the entrepreneur shows him any data or information, he faces a disadvantage situation since he doesn’t know how to analyze that. This thing can lead him to make a wrong investment decision.
And that’s lead him to harm. To avoid this element, the state should prepare general information regarding the business activity, and also help to guide the capital owner (the investor) to protect him from the disadvantages situation that can lead to harm. 5. Khalabah/Misleading Marketing The Holy Prophet (pbuh) said, “ Refrain from swearing much while selling or doing business, for it may increase business (in the beginning) but brings destruction (ultimately). ” (reported by Imam Muslim in his Sahih) Khalabah or Misleading Marketing happen when the seller, when market his product, do it excessively.
For example if the actual quality of the product is A, the seller do the marketing as the quality is AA or AAA. This is related to dishonesty and manipulation. 6. Najash Najash happen when someone bidding up the price without an intention to take delivery of the commodity. For example if the someone is doing an auction his asset, and then ask his friends to help him manipulate the auction by act as they have intention to get the asset and therefore they bidding up the price. And later other people will bid more and finally the asset will be sold in high price. This is very unethical and can cause harm to the public.
The Prophet (pbuh) said, “ If anyone interferes in a market to create a rise in price, God has rights to cast him face down in the Hell. ” (reported by Hakim in his Sahih) Conclucion In order to be complaints with Shari’ah, there are some elements that have to be avoided by any Muslim when doing any financial transaction. The main prohibitions are the prohibition of Riba, Gharah, and Maisir. Riba or usury or interest means addition or increase. It can be addition in the repayment of the loan (Riba Al Nasiah), or addition in one of two ribawi items that been exchanged (Riba Al Fadl).
Riba is not only prohibited in Islam, but also in other revealed religions, named Christian and Judaism. Gharar is the sale of probable items whose existence or characteristics are not certain, due to the risky nature that might lead to destruction or loss which makes trade similar to gambling. It can be occurs in the term and essence of the contract or in the object of the contract. Maisir is the worst form of Gharar where the contract is like a game of chance (gambling). Apart from those main prohibitions, Islam also prohibits the element of Dharar, Khalabah, and Najash. Dharar is harm that happens to one of the arties involved in transaction, due to the disadvantages situation. Khalabah is situation when the seller doing an excessive marketing about his product. While Najash happen when someone is interfere in the market without any intention to buy the product but to cause increase in the price. The prohibition of those elements is clearly stated in the Qur’an and the Sunnah. Therefore in order to be compliant with Shari’ah, all Muslims have to make sure that all of their financial transaction is free from those elements. By following all the rules and guideline in the Qur’an and the Sunnah, Allah will bless our life and anything we gain in life.
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