Fiqh of Money & Transactions (Pure Paisa)

Qabeelat Hosna Pure Paisa
November 2012 Shaykh Yaser Birjas

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If you dont know the background of the ahkam and rulings of halal and haram, you will
wonder why something is right or wrong. We have to learn the structure of the fiqh of
finances. The first weekend will lay the foundation for the second weekend.

When it comes to the issue of money and wealth, we need to know the concept of
money and wealth.

The Concept of Wealth in Islam

Why is it important for the average Muslim to study this topic? Why are we required to
learn the basics of Islamic finances?

1. We believe as human beings that Allah created us with an inclination to love money
and wealth.

Allah (subhanahu wata'ala) says, And you love wealth with passionate love. This
means we love it more than anything else in this life. How many people do you
know who are willing to lose their lives rather than give their car for free? How
many people are willing to lose their lives for a horse, land, a house.

Because of this love, we always love to see our wealth going up and panic when it
goes down. Allah says, Indeed, insaan are terrified creatures. When he is afflicted
by a trial, he starts panicking, but when they are given so much of the blessings of
Allah, they hold back. Few amongst My servants are grateful. We get anxious
easily. Those who are thankful are the least.

2. We dont realize that maal belongs to Allah (subhanahu wata'ala). Allah says, Give
them from the money of Allah, which He has given you. You were smart enough
to find the right and proper way to get there, but it is because Allah (subhanahu
wata'ala) made it easy for you.

3. Since it is the money of Allah, Allah says we are entrusted with it. We are the
trustees. Allah says, Believe in Allah. Believe in the messengers. Give in charity
from what Allah made you a trustee. This money is a trust and Allah will see how
we deal with it. Are we going to be grateful or ungrateful?

4. Money is considered rizq. Allah promised that no one will die until he fulfills his
provision and lifetime. When you die, your provision came to an end. The Prophet
(sal Allahu alayhi wa sallam) said, The ruh came to me and inspired that no soul
will die until he fulfills his rizq (provision) and term. When they die, they die
when their term is over and their provision came to an end.

5. Why are people of different classes? There is upper class, upper middle class, lower
class. Is it acceptable to classify people according to classes? Allah said, He is the
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One who made you generation after generation on earth. And He raised you in
ranks and stations and classes one above the other to try you and test you for what
He has given you.

6. Why did Allah choose us to become lower middle class instead of upper middle
class? Why was I born in a family that has nothing? We always want more and
more. Some people may be born in massive wealth but were unhappy. When it
comes to the distribution of wealth, Allah says, It is they who distribute the
rahmah of Allah among themselves? It is He who distributes their rizq and
provision in this life and this world. Allah makes the distribution. Allah says, We
made them classes / levels / degrees one above the other so that they might employ
one another. Imagine if everyone is a millionaire what would life look like?
Would that even be possible? No, it would be impossible. Who would be your maid
with low wage income? If everyone was poor, who will lead the world and the
ummah to progress and improve in this life? It would be very difficult.

This doesnt mean to enslave, but it means to employ use their talents and skills
and services and both benefit. Allah says, And the Mercy of Allah is truly better
than whatever they are hoarding and collecting.

7. Allah demands of us that if He blesses us with a nima, we share it with others.
What do we mean by sharing? 2.5% is given to the poor this is zakah. It is
purification of the heart and of the wealth and money. Allah wants us to share with
the poor. And those who know that they have in their money a very determined /
measured portion / haqq for the beggar and destitute. Zakah is due when you own
the nisaab. If Allah blesses you with wealth, and you own the nisaab and an entire
year passes by and your wealth never goes below the nisaab, then you are obligated
to pay 2.5% of whatever you have at the end of the year to the poor. It does not
matter if you forget the money becomes due! You need to calculate it and give it
away to the poor or an agency to deliver it on your behalf. The zakah is haqq, and
you have to give it away to the poor.

What is a dua to make in order to increase wealth? Allah (subhanahu wata'ala) gave us
in the Quran and Sunnah many halal sources of income, and these sources of income
are very simple and dont require much effort. They require a lot of ikhlaas sincerity
in the heart and it will put a lot of barakah.

Five sources of income:
1. Taqwa (piety and righteousness)
Fear Allah (subhanahu wata'ala) and Allah will give you. Allah (subhanahu
wata'ala) said, Whoever fears Allah, Allah will give them an exit out of every
difficulty and shall provide from them from sources they cant even imagine. How
many of you have received money from a random source they dont even expect?
Do your part and Allah will give back to you.

2. Istighfar (seek forgiveness from Allah)
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Nuh (AS) said to his people: Seek forgiveness from Allah. He is Oft-Forgiving. As a
result of your seeking His Forgiveness, He will send rain in abundance. Rain for
them meant a good season and good money because it was an agricultural society.

The Prophet (sal Allahu alayhi wa sallam) would seek forgiveness from Allah more
than 70 times a day. The number 70 in Arabic means a lot and not just 70.

If you seek forgiveness more, Allah will give back to you. Say astaghfirullah all
the time and so much rizq will come.

3. Shukr. Gratitude and being thankful to Allah.
People argued over who is better with Allah: the rich who is grateful or the poor
who is patient? Someone who is rich and grateful is something extraordinary.
Shaykh al-Islam Ibn Taymiyyah said, The best is the most righteous. It doesnt
matter if you are rich or poor, the one with more piety is the best. In Islam, is it
better to be poor or rich? The best is to be pious and righteous.

Can a poor person try to get out of poverty? Yes, you are obligated to try to get out
of poverty. Poverty in Islam is not a virtue.

4. Al-infaaq. Giving away in charity.
This seems like a paradox. How can you get more by giving away? That is the
beauty of it. Allah says, Whatever you give away, We shall give it back to you and
He is the best of those who provide. When you deal with the Most Generous,
imagine what you get back for every dollar you pay. Sometimes you get the nima
instantly!

5. Tawakkul in Allah.
Have your full trust in Allah. The Prophet (sal Allahu alayhi wa sallam) said, If you
truly put your trust in Allah (subhanahu wata'ala), He will provide for you the way
He provides for the birds. They always leave with an empty stomach in the
morning and come back full. Birds only have the skill of flying and looking and
coming back home. Allah can provide for you in the same fashion and you just have
to put your trust in Him.

If you maintain these five sources of income, your wealth will increase. What if you
dont see your bank account balance increasing? You are not going to see it instantly.
Allah works in mysterious ways. How many of you wanted to buy something and you
find it on sale for 25% off? How many of you had something that needs to be repaired
and when you are trying to repair it you find someone to fix it for less? What does this
mean? This is how Allah (subhanahu wata'ala) is saving you money. Sometimes the
money doesnt have to increase in terms of zeros, but it doesnt go rapidly down from
spending.

You have to put your trust in Allah and give for the sake of Allah and be grateful. Seek
His forgiveness. Have piety and righteousness and Allah will give you back more.
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Part One: Transacti on of Weal th

Chapter 1: Your Real Fi nanci al Worl d

Introducti on

What did you do to attend this class?

1. You registered and paid using:
a. Credit card
b. Cash
c. Scholarship
d. Gift card
e. VIP pass
f. IlmRush card
g. Money transfer
You have already engaged in a financial transaction. Have you asked yourself if
it is halal or haram?

2. To whom did you pay your tuition?
a. The registration volunteer
b. Paypal account
c. AlMaghrib website
d. A friend or a family member
e. A phantom
Does this make the transaction halal? If you pay online, does a confirmation
page conclude the sale?

3. Where did you get the money from?
a. Pay check
b. Family member
c. Bank account
d. Paypal
e. Account credit

4. What did you pay for? Was it measurable?
a. The knowledge
b. The service
c. The convenience
d. The material
e. The experience
f. The !m"n Rush moment
Some transactions are haram because you are paying for nothing. Example:
betting on horses.
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Your daily interaction with the world of finances:

Loans (Contracts of Chari ty)

An arrangement in which a lender gives money or property to a borrower, and the
borrower agrees to return the property or repay the money, usually along with
interest, at some future point(s) in time. Usually there is a predetermined time for
repaying a loan, and generally the lender has to bear the risk that the borrower may
not repay a loan.

Islamically, a loan is considered a contract of charity.

1. Student loans

a. Subsidized
A subsidized student loan is one in which the government actually pays the
interest while a student remains enrolled in a qualified college or university. This
means that any interest that would have been added to a subsidized loan balance
is essentially erased by the government.

b. Unsubsidized
An unsubsidized student loan has interest added to the balance even while a
student is still enrolled in school. This means that a student's balance will likely
be significantly more than what they initially borrowed by the time he or she
graduates.

2. Home loans
a. Conventional mortgage
A loan to finance the purchase of real estate, usually with specified payment
periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee)
a lien on the property as collateral for the loan. The mortgagor's lien on the
property expires when the mortgage is paid off in full.

b. Rent to own
The process of paying monthly rent for a piece of property (house, apartment, or
condo) with the option to eventually own it. This type of option is determined
before the initial rental period begins. A portion or all of the previous rental
payments are applied to the total cost for the property. Rent to own is commonly
used with the purchase of homes.

3. Bank electronic cards
a. Credit cards

Revolving credit card
An electronic card issued by a financial company giving the holder an option to
borrow funds, usually at point of sale. Credit cards charge interest and are
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primarily used for short-term financing. Interest usually begins one month after
a purchase is made and borrowing limits are pre-set according to the
individual's credit rating.

Charge card
An electronic card that charges no interest but requires the user to pay his/her
balance in full upon receipt of the statement, usually on a monthly basis. While
it is similar to a credit card, the major benefit offered by a charge card is that
it has much higher, often unlimited, spending limits.

b. Debit cards
An electronic card issued by a bank, which allows bank clients access to their
account to withdraw cash or pay for goods and services.

Investment and banki ng (Contracts of Investment)

These are different from charity because with charity, you dont take anything in
return. In a contract of investment, there is no guarantee for profit, but there is
expectation for profit. If there is guaranteed profit, then Islamically it is not a contract
of investment.

To use money in the hope of making more money.

And what is money? Any money declared by a government to be legal tender.

1. 401K
A qualified plan established by employers to which eligible employees may make salary
deferral (salary reduction) contributions on a post-tax and/or pre-tax basis. Employers
offering a 401(K) plan may make matching or non-elective contributions to the plan on
behalf of eligible employees and may also add a profit-sharing feature to the plan.
Earnings accrue on a tax-deferred basis.

2. Stock market
The market in which shares are issued and traded either through exchanges or over-
the-counter markets. Also known as the equity market, it is one of the most vital areas
of a market economy as it provides companies with access to capital and investors with
a slice of ownership in the company and the potential of gains based on the
company's future performance.

3. Saving bank account
You keep your money in a bond and are not allowed to withdraw anything until the
term is over. It is expected to benefit but may lose.

A deposit account at a bank or savings and loan which pays interest but cannot be
withdrawn by check writing.

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4. Partnerships

Partnership is one of the most recommended acts of investment in Islamic Finance. The
principle is to maximize capital and keep circulating small capitals in the market.

What if the mahr was Rs. 10,000 decades ago and the husband didnt pay it to his wife?
Does he pay the amount written in the contract or account for inflation? The strongest
opinion of the ulema: it depends on the rate of inflation. If the currency died out
completely or inflation is so great that the money is useless, then it needs to be
compared to a point of reference at that time such as gold or silver. If the inflation is
reasonable (and they dont give a percentage but it is agreed upon with a judge through
arbitration), then they need to accept it at is.

A business organization in which two or more individuals manage and operate the
business. Both owners are equally and personally liable for the debts from the business.

1) al-Mu#"rabah (passive partnership)
2) Groupon
3) Timeshare

Sal e and Trade (Contracts of Exchange)

An exchange of goods, services, or other property for money.

Goods for goods is considered barter.

1. Online sales
2. On site auctions
3. eBay and online auctions
4. Money exchange
5. Check cashing
6. Catalogue orders
7. Vending machines
What if you pay $1 and 6 bottles come out? They are responsible to keep it
running, so it is their fault if this happens just as it is their fault if something
gets stuck when you pay for it.

Games and Chances (Contracts of Exchange)

1. Lottery and scratch cards
2. Draw prizes
3. Priceline deals
4. Raffle
One way to make the raffle halal is that everyone has to get into the raffle
without paying for tickets. Give all the volunteers free tickets too.
5. SMS games
This is like gambling. You are charged for sending the text and it is the same
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concept of gambling and lottery.
6. Gaming

Insurance (Contracts of Securi ty)

Sometimes in order to encourage people to buy your products and services, you want
to give them a sense of safety and security such as a warranty.

A promise of compensation for specific potential future losses in exchange for a
periodic payment. Insurance is designed to protect the financial well-being of an
individual, company or other entity in the case of unexpected loss. Some forms of
insurance are required by law, while others are optional. Agreeing to the terms of an
insurance policy creates a contract between the insured and the insurer. In exchange
for payments from the insured (called premiums), the insurer agrees to pay the policy
holder a sum of money upon the occurrence of a specific event. In most cases, the
policy holder pays part of the loss (called the deductible), and the insurer pays the rest.

If the insurance is coming from the retailer or maker of the product, then it is okay. If
it is coming from a third party, then it is questionable. If you buy an iPhone from Best
Buy, they ask you if you want to purchase an extended warranty for additional cost.
This is a warranty that applies after the manufacturers warranty finishes or if the
manufacturers warranty doesnt cover it. This is permissible. The reason is because
they have interest in saving their investment with you because they are the retailer. If
the actual provider of the warranty is a third party, then it becomes questionable and
then becomes like gambling so if it is a third party, then you should not purchase it.
The third party doesnt have any interest other than betting on you so it is like a
gamble.

Examples of insurance contracts:
1. Health insurance
2. Car insurance
3. Life insurance
4. Home insurance
5. Warranties

Example of a contract of charity: student loans, mortgage, subsidized loans
Example of a contract of warranty: car insurance
Example of a contract of exchange: online sales, vending machines, eBay, buying from
a catalog
Example of a contract of investment: 401K, partnership
Example of a contract of security: house insurance

Chapter 2: The Fi nanci al Ethi cs of a Musl i m Investor

If you want to get involved in business, what ethics and akhlaq do you need to have?
Ethics is the same in every area.
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On the authority of Abu Hurayrah (ra#yAll"hu anhu) who said, I heard the Messenger
of All!h ($allall"hu alayhi wa sallam) say:
Truly All!h is pure and accepts only that which is pure. All!h has commanded the
believers to do that which He has commanded the Messengers, for He, Most High, said:
O Messengers! Eat of the good things and do right, for I am aware of what you do.
(23:51)

And He, Most High, said:
O you who believe! Eat of the good things that We have provided for you. (2:172)

Then he (the Prophet) mentioned a man who after a long journey is disheveled and
covered in dust who stretches his hands out towards the sky and says, O Lord! O Lord!
while his food is unlawful, his drink is unlawful, his clothing is unlawful. Indeed he has
been nourished by the unlawful, so how will he be responded to?
[Narrated by Muslim]

A Muslim investor, man or woman, is a t"jir or merchant. He or she should observe
the following rules and etiquette in his or her dealings:

1. Having good intentions.
We are required to have a good intention in everything. Have the intention to earn
halal and seek halal. If you want to open a business, keep in mind the good intention.
This does not mean that you do not have the intention to profit. Have the intention to
benefit yourself, your family, the ummah, participate in the economy.

2. Maintaining good manners.

The Prophet (sal Allahu alayhi wa sallam) said to have good manners when you buy and
sell. We have to have good manners and akhlaq as a merchant and as a customer.
Sometimes we take advantage of the customer is always right.

Fun Fact: The good manners of Muslim businessmen had great impact on people
around the globe and brought many nations to Islam. Example: Todays Indonesia and
Nigeria.

3. Knowing that poverty is not a virtue.

The Prophet ($allall"hu alayhi wa sallam) would supplicate, three times at sunrise and
three times at sunset, O All!h! I seek your refuge from disbelief (kufr), poverty, and I
seek your refuge from the punishment of the grave. There is no deity worthy of
worship except You. (Abu D!w"d) He would also close the day by making the
following du" before going to sleep, O All!h...Pay off our debts, and make us rich from
poverty. (Muslim)

The Prophet (sal Allahu alayhi wa sallam) equated kufr and poverty in a statement,
showing how serious it is. Some people thing poverty is a virtue so they dress very
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humble. Being poor is not a virtue, but if Allah tests you with poverty, then you need to
be patient. Some ulema chose asceticism, and there is nothing wrong with that.

The Sunnah of the Prophet (sal Allahu alayhi wa sallam): he had great followers who
were very rich people such as Abdul-Rahman b. Awf. When he moved to Madinah,
Abdul-Rahman asked for the marketplace and within a week he dressed nicely and
smelled of perfume. He got married and the Prophet (sal Allahu alayhi wa sallam)
asked him what he gave in mahr, and he said the weight of a date stone in gold. Some of
the sahabah had a lot of barakah in their wealth. They said about Abdul-Rahman that
he was such a clever businessman that he would sell you the sand of the desert. Even
though he was one of the wealthiest merchants, he was one of the six people Umar
chose to be on the panel of the people to become khalifah after him.

Poverty is not a virtue and you should try to get out of poverty through all halal means.

4. Dealing with %al"l products and services.
Whenever you trade, make sure that you are offering a halal service.

5. To have the knowledge of the %al"l and %ar"m in business.
It does not become obligatory upon you to study the details of Hajj until you decide to
go that season. If someone doesnt plan to get into business, he doesnt need to know
the details. Once he starts dealing in business, he has to know the basics of what he is
doing.

6. Observing the financial rights of others.
When some merchants were satisfied with a certain amount, they would tell the buyer
to buy from others because they wanted to share. They knew the success of the market
depends on everyone so they would support one another.

7. Not consuming peoples wealth by falsehood.

Do not cheat, deceive people, have false marketing. What is the ruling on the fine print
on coupons? You cannot advertise with falsehood and need to do it in a halal way.

The Prophet ($allall"hu alayhi wa sallam) stated, This money is green and luscious (like
ripe fruits), so he who takes it properly will be blessed in it! [Muslim]

8. To avoid riba and all contracts that lead to it.
Riba is the biggest problem in the global economy.

9. Following the laws of the land and regulations regarding business in the shade of
what All!h permits.
If it is illegal, then you have to abide by the law of the land.

10. Not to transgress in dealings or cause harm to others.
Do not cause damage in the process of doing something halal. Example: You want to
establish a paper factory. Can you start cutting trees in the Amazon and bribe people?
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No. Allah (subhanahu wata'ala) says, Corruption, damage, harm has become dominant
in the land and the sea because of what the hands of man earn so that they might
reflect.

Overconsumption and overprocessing of resources is also considered wrong.

11. Supporting one another to succeed in businesses.
As Muslims, we are responsible for the entire economy and community. It is not just
about you being a success story. Allah commanded inheritance and wealth to be
distributed and made it very clear: so that wealth does not become a monopoly in
the hands of those around you. This doesnt mean that you cannot compete.

YouTube: The High Cost for Low Price

Chapter 3: Defi ni ti on Weal th

The word wealth is tharwah in the Arabic language. M"l means money and includes all
kinds of money like gold, silver, currency, products (anything with value).

Wealth or !"# (m"l): Anything to which people have an inclination and is permitted in
the Shar&ah and can be stored to use later.

According to Im!m al-Sh!fii (ra%imahull"h), wealth (m"l) is defined as follows:
That which has intrinsic value, which it is sold for, which can lose value even if only
by little, which will not be discarded without care by the people as is done to a
worthless coin or something similar to that. (al-Suy"#i: al-Ashb"h wal-Na'"ir, 327).
This is just one classical definition of wealth.

There are three rights involving any permissible wealth:

1. The right of the owner
a. To take it away from him only with his consent.
No one has the right to take anything you own without your permission or
consent. This includes any means of taking something such as borrowing or
exchanging.
b. It is protected under the law of theft.
If it is found in the possession of someone else without your consent, then it is
assumed that it has been stolen.

2. The right of All!h

and give them from the wealth of All!h which He has given you. (al-N(r, 33)

a. To earn it in a %al"l manner.
Whatever you possess must be halal.

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All!h (azza wa jall) in )(ratl-Qa$a$, "yah 73 says: In His mercy He has given you
night and day so that you may rest and seek His bounty and be grateful.

b. To earn it responsibly.

In many verses in the Qur!n, All!h commands the believers to enjoy the material
blessings, which He has provided for them. All!h states: Eat and drink of that
which All!h has provided and do not act corruptly, making mischief on the earth.
(al-Baqarah, 60)

The Prophet ($allall"hu alayhi wa sallam) stated, This money is green and luscious
(like ripe fruits), so he who takes it properly will be blessed in it! (Muslim)

c. To pay zak"t to the poor.

All!h (azza wa jall) in )(ratl-Qa$a$, "yah 77 says: And seek the abode of the
Hereafter by means of what All!h has granted you, but do not neglect your rightful
share in this world. Do good to others as All!h has done to you, and do not seek to
spread corruption in the land. All!h does not love those who do this.

3. The right of the community
To consider the greater benefit of the community a priority over the individual benefit.

If your personal rights or needs collide with the rights or needs of the community, the
community takes precedence. If you own land that is in the way of a highway
expansion, the government has the right to take it from you and pay you fair
compensation. The meaning of fair compensation: if the land is word $1 million and
the closest land you can find nearby similar to it is $2 million, then they must pay you
$2 million.

Types of Weal th

Nature of Wealth

1. Price or money !"# (thaman)

It is also called the value of commodities. Because commodities are usually exchanged
in reference to their values comparing to these items.

It is the item you use to value other products such as gold or silver. We now use dollar
bills and riyals (paper currency).

This is of three types:
1) Gold.
2) Silver.
3) And its replacement. (Ex: Paper currency)
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2. The item that is priced or valued !"#$ (muthmin)
This is of two types:
1) Transferable (or movable) commodity (other than properties) !"#$% (manq(l)
Example: a book, buying a car, clothes (anything that can be moved from one
place to another)
2) Non-transferable (or non-movable) commodity (properties and estates) !"#$
(aq"r)
Example: houses, land, estate

There is another category today: is a mobile home transferable or non-transferable?
Based on that classification, you will define the concept of transfer of ownership.
Transfer of ownership for a transferable commodity must be done from hand to hand.
It is not executed until you receive the product. It is transferable until the house is
fixed on the ground. What if you buy it and decide to move it with you?

Owned and Un-owned Wealth

Ownership can be acquired through one of three means:
1) Putting a hand on free property or commodity
Examples: capturing a deer or taking a free book
2) Valid contract that allows transfer of ownership.
Examples: Gift or buying a car
3) Inheritance

1. Public properties that cannot be privately owned such as public roads, seas and
sunlight. !"#$% !"#$ (mulkiyah "mmah)
Example: public park, bridge
2. Public properties that can be owned under Shar&ah approval such as an endowment
estate for the benefit of the poor or mas"jid. !"#$% (awq"f)
These are privately owned given for public service or benefit. This is exclusive for a
category or group. Example: orphans. As an individual, you dont have a right to
own it, but it can be owned by an entity such as an orphanage.
3. Private properties that can be owned and susceptible to transfer of ownership to
others.
Example: commodities that do not fit into the previous two types. !"#$% !"#$
(mulkiyah kh"$$ah)
Some are transferable and some are non-transferable.

Specific and Unspecific Wealth

1. Fungible (ayn or mithl&) !"#$ !" !"#$
A fungible item is one that is specific and can be substituted by others of its kind.
Example: one iPad 2 for another iPad 2 with the same specifications.

2. Non-fungible (dayn or q&m&) !"# !" !"#$
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A non-fungible item is one that is not specific and cannot be substituted by another of
its kind.
Example: One rare painting cannot be substituted by another rare painting. A book
signed by the author.

Valued and Non-Valued Wealth

The value of a commodity in terms of the permissibility to benefit from it is considered
so by reasons of Shariah not by human preference. Therefore, even though marijuana
was made legal commodity in the state of California, for a Muslim it is still a non-valued
commodity.

1. Valued !"# !"#$% (m"l mutabar)
Commodity that is pure and has value in reason of Shar&ah and is permitted to benefit
from.
Examples: cars, clothes, gold and livestock.

2. Non-valued !"# !"#$%!&' (m"l ghayr mutabar)
Commodity that is not pure or has no value in reason of Shar&ah and it is not permitted
to benefit from.
Examples: wine, statues and stolen goods.
In America, wine is a big industry, but Islamically it is not valuable. In an ideal Islamic
environment, if you find a Muslim with wine and break the bottle, you are not
responsible to pay or compensate for that bottle.

Durable and Consumable Wealth

1. Durable !"#$ (muddakhar)
These are commodities you can save for later (at least one full season).
Properties or commodities that is sustainable such as buildings and books or can be
stored for a long time such as beans. Example: honey.

2. Consumable !"#$!%& (ghayr muddakhar)
Commodities that are perishable and cannot be stored for a long time such as
vegetables or fire. Examples: fruit, produce, dairy products, meat.

Cl ass Acti vi ty
What is the financial priority in this community?
Sisters:
- Islamic banking
- Scholarship fund (student loans, education)
- Publicly owned Islamic schools
- Gym for women
- Halal student loans
- Maintaining the masajid
- Create jobs for marriage and family counselors. Masajids need to expand
their vision.
15

- Community centers
- Housing.
Brothers:
- Halal loans
- Awqaf (revenue generating endowments)
- Home loans
- Car loans
- Insurance
- Funds for masajid
- Halal mortgage

In every community, the number one is student loans. Home mortgages tends to come
second or third. There are many organizations providing home loans.

A think tank of investors, lawyers, activists, imams leaders has been created: One
Million Dollar Project. Imagine one million Muslims giving one dollar per month. You
are collecting around $10 million a year. The best minimum amount to charge people a
month is $3.

Part Two | Contracts

Chapter 4 | Defi ni ti ons

In any book of fiqh, Islamic dealings are divided into two categories: Mu"mal"t and
Ib"d"t. Usually the first half of the book is on Ib"d"t and the second half is on
Mu"mal"t. The most important act of ibadah is salah, and to make salah you need
wudu and use water, so books of fiqh start on water.

1. Mu"mal"t !"#$%#
Root verb of ta"mala, i.e. to cooperate or work with one another or do business with
one another. This involves dealings between people.

Ib"d"t !"#$%& deals with the relationship between man and the Creator while the laws of
mu"mal"t address the relationship between man and man.

Permissibility of Mu"mal"t and Contracts:

From the Qur!n
O you who believe, fulfill all your contractual obligations (al-M"idah, 1)

But All!h has allowed trade and forbidden usury (al-Baqarah, 275)

O you who believe, do not wrongfully consume each others wealth but trade by
mutual consent (al-Nis", 29)

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From the Sunnah

Verily, All!h, the Most High, has prescribed the obligatory deeds, so do not neglect
them. He had set the limits, so do not go beyond them. He has forbidden some things,
so do not violate them. And He has been silent about some things, out of mercy upon
you and not out of forgetfulness, so do not go looking for them.
(al-D"raqu*ni, %asan)
This was at the time of legislation during the time of the Prophet (sal Allahu alayhi wa
sallam). Now we have to look into what is halal and haram.

The ulema concluded: In terms of ibadat, the default ruling is that they are prohibited
unless there is an evidence to show otherwise. The default ruling on muamallat is that
they are considered legal until there is an evidence to suggest otherwise.

Based on this, the transaction is supposed to be halal unless there is an evidence to
show that it is not. Is it permissible to sell items in vending machines? Yes. Is it halal
to open a store online? Yes.

2. A contract (aqd) !"#
Aqd, (plural uq(d), literally means to bind and in the modern sense it refers to a
contract. The root word means to tie.

A contract is an agreement entered into voluntarily by two parties or more with the
intention of creating a legal obligation, which may have elements in writing or can be
made orally.

The purposes of aqd or a contract are as follows:

Type of
Contract
Purpose Some Examples
Contracts of
exchange
Permanent exchange of ownership of the
countervalues.
Sale of goods (bay)
Rental (Ij"rah)
Contracts of
investment
To make a profit for the partners; this
requires an input of capital or labor by
partners with a sharing of the resulting
yield in a permissible way.
Partnership (Mush"rakah)
Silent partnership (Mu#"rabah)
Sharecropping (Muz"raah)
Contracts of
charity
To give without countervalue for the sake of
All!h. It is a unilateral transfer of wealth
with no conditions upon the recipient (in
contrast to a reward where conditions exist,
for example I will give you a prize if you
pass your exams). Gifts are not binding so
long as the recipient does not suffer damage
in event of the donors revocation.
Gift (!iba)
Donation (tabarru)
Loan (qar#)

Note: you do not expect
anything in return (if you do,
then it is no longer a contract
of charity). For example: if
you expect loyalty later.
17

Contracts of
security
To secure a pre-existing or defined liability
in favor of a creditor, or to improve trust
and confidence in a commercial
relationship. This involves the creation of
some kind of right over an asset that is in
the ownership of the debtor, but no benefit
is taken by the creditor unless maintenance
is involved (e.g. if a creditor feeds a pawned
goat, he may take the goats milk).
Pawning (rahn)
Guarantee (kaf"lah)
Other forms
of contract
To improve the ease and efficiency of
commercial and other dealings.
Agency (wak"lah)
Trust (am"nah)
Bill of exchange (%aw"lah)

You are allowed to transfer it
to someone else with their
consent.

Wak"lah: You can hire
someone to do it for you. You
can charge people for the
wak"lah and some ulema
consider credit card fees as
wak"lah.

Any loan that generates profit or benefit is riba. Even giving a ride to someone who has
given you a loan could be considered riba. (i.e. the person may not give you a ride if
you did not give them the loan). If you give someone a loan and when they return the
loan back they give you a gift card because they were so happy, then this is allowed
because you didnt ask them for it and it wasnt conditional.

It is permissible to sell a product that you own in installments for a higher price (it is
the difference between paying cash and paying in installments).

Chapter 5: Types of contracts

Contracts in consideration of their rulings in Shar&ah !" !"# !"#$% !"#$%&'( (min %aythul-
%ukml-takl&fi).

1. Obligatory
Example: Marriage if one has the means and fears falling into the %ar"m. Zakah,
inheritance.

2. Recommended
Examples: Lending, endowment and charity. Gifts.

3. Permissible
18

Examples: Sale and trade and renting.

4. Disliked
Example: Selling grapes to someone who might make wine out of it. Selling items that
are halal for someone who might use it for something wrong. Some ulema say that it is
haram because of blocking the means to evil (saddl-dhariyyah).

5. Forbidden
Examples: Riba, selling dead meat or pork, or life insurance.

How can we classify the different contracts?
! Contracts in consideration of the commodity being exchanged !"#$%& '()!*)+ ,(- .#
(min %aythul-m"liyyah wa adamah")

1. Money from both parties.
Example: Money exchange

2. Money from one party and a movable commodity from the other.
Example: Selling a jilb"b online, buying food

3. Money from one party and a non-movable commodity from the other.
Example: Buying a house

4. Money from one party and a benefit or work from the other.
Example: Renting a car, car wash, hotel room, flight

5. Non-money based contract from both parties.
Example: Guarantee contract or truce, barter (i.e. exchanging books), advertising
(i.e. both putting up a banner for each others websites)

This is the strongest of all contracts because it is cannot be revoked except in case
permanence of contract is no longer possible.

6. Money based commodity from a party and non-money based commodity from
the other.
Example: al-khul in a marriage contract.

! Contracts in consideration of the binding or non-binding status after the contract
has already been established !"#$% &%'()* +,- ." (min %aythu al-luz(mu wa adamih)

1. Aqd l"zim or a binding contract on both parties. In this contract, no party has the
right to revoke the contract without the consent of the other party.
Example: Renting an apartment for a 6-month contract.

2. Aqd ghayr l"zim or non-binding contract on both parties. In this case, any party
has the right to withdraw from the contract after taking reasonable
arrangement.
19

Example: A partner decides to discontinue his partnership with other contracting
parties or lending someone $500.

3. Aqd l"zim on one party and aqd ghayr l"zim on the other.
Examples: In pawn objects or a guarantee contract.
A charity or gift is not binding. You are not obligated to accept a gift; however,
once you give a gift, you have no right to ask for the gift back. The Prophet (sal
Allahu alayhi wa sallam) said, A person who takes his gift back is like a dog who
vomited and is licking it. You are not obligated to take charity, but if someone
gives it, it is binding on their part.

! Contracts in consideration for taking possession (taking hold) of the commodity
exchanged !"#$% &%'()% *+, -. !"#$% (min %aythu ishtir"*l-qab# wa adamih)

1. Contracts in which taking possession of commodity is not obligatory at time of
the contract.
Examples: Sale, marriage, guarantee. Cash is paid in advance and item is delivered
later (bayl-salam)

2. Contracts in which taking possession of commodity is obligatory at the time of
contract.
a. Affecting the transfer of ownership. Example: Giving gifts
b. Affecting the validity of the contract itself. Example: Money exchange
c. Affecting the effectiveness of the contract. Example: Giving gifts and in
pawn items
Gold, silver, and currency exchange must be immediate at the time of the contract
in order for it to be halal.

! Contracts in consideration of the compensation resulting from the exchange in
contract !"#$ % &'()* +',% -./ 0" (min %aythu wuj(dl-iwa# wa adamih)

1. Al-Mu"wa#ah !"#$%&'( (compensatory)
A compensatory contract in which each of the contracting parties receives a
compensation as a result of the exchange of commodities in the contract.
Examples: Sale and trade, rent and lease

2. Al-Tabarru !"#$%& or Ghayr al-Mu"wa#ah (non-compensatory)
A non-compensatory contract in which one of the contracting parties receives a
valued commodity as a result of the exchange in the contract.
Examples: Gifts, bequests and fiduciary deposits

If you take anything in exchange, then it is no longer a charity contract. It is the
essence of the contract that matters and not the title of it.

! Contracts in consideration of their validity or invalidity in reason of the Shar&ah
!" !"# !"#$% ! !"#$%& (min %aythul-$a%%ah wal-fas"d)
20

1. Valid contracts !"# !"#$ (aqd $a%&%)
A valid contract fulfills all the legal requirements and conditions in essence and
description of the contract, becoming binding and immediately effective.
Examples: Buying a new car cash money.

2. Invalid contracts !"# !"#$ !" !"#$ (aqd f"sid aw b"*il)
An invalid contract does not fulfill all the legal requirements or conditions in
essence or in description of the contract. It is not recognized by Shar&ah, and it is
not binding or effective until it is rectified.

T!jir says: The $anafi school makes difference in effectiveness of !"#$ (f"sid)
contract from a !"#$ (b"*il) contract. While a !"#$ (b"*il) contract is null and void,
a !"#$ (f"sid) contract can still have some degree of effectiveness.
Examples: Buying a house from a minor, taking a riba based loan, or giving away
your laptop under compulsion

Some ulema said that aqd f"sid is a third category. It is a pending contract. The
difference is that a pending contract is suspended because there is a condition that
needs to be rectified or removed or fixed for the contract to be fully valid. It is baatil if
the error or mistake is in the essence of the contract itself. For example: someone sells
you something that is pork or has riba in it, so this is baatil. If you buy a red car and it
is supposed to be delivered a few days later and when it arrives it is blue, it is an invalid
contract but it is pending: if you like the blue car, you can approve it. The car wasnt
matching the description that you paid for.

Examples:
Binding on one side and non-binding on the other: a gift is binding on the giver and
non-binding on the recipient.
Non-money exchange on both ends: exchanging books
Money versus money: gold for silver, dollar for euro
Contract for which you dont have to have the possession of the commodity at the time
of conclusion: pre-ordering an item
Compensatory contract: cell phone service
Non-compensatory contract: charity
Aqd faasid: you order something and it came in the wrong color
Invalid (baatil) contract: selling pork

Faasid: the mistake is not in the essence or core of the contract but in the conditions or
description of the contract.

21

Chapter 6: The Pi l l ars of a Contract

Pillars of a contract are three:
1. The two (or more) contracting parties (al-muta"qidayn)!"#$%&'"
2. The commodity upon which the contract is being done (al-maq(d alayh) !"#$%&'()*+
3. The spoken word of the exchange (al-$&ghah) !"#$%&
(the actual wording of the contract verbal or written)

The Two (or More) Contracti ng Parti es % al -Muta "qi dayn !"#$%&'"

Conditions:
1. Mutual consent from both parties al-tar"#& !"#$%&#
Both parties exchange the commodity, etc. with good heart. The meaning is
that both people are doing it willingly. There is no pressure. There is no
coercion to do the transaction.

2. To have trading competence based on !"#$% !"#$%& (ahliyyatl-ta$arruf), which is
the acquisition of rights that qualifies them to have the capacity to contract and
to dispose financial affairs without the need of legal guardianship.
The person needs to be legally qualified to dispose of his financial affairs.

Trading competence is identified by two qualities:
1. Puberty
The maximum age to reach puberty is 15 years. Any child, boy or girl who does not
show any physical sign of puberty is declared so at age 15 in the lunar calendar.

2. Financial Maturity
The age of majority is the threshold of adulthood as it is conceptualized (and
recognized or declared) in law. It is the chronological moment when minors cease
to legally be considered children and assume control over their persons, actions,
and decisions, thereby terminating the legal control and legal responsibilities of
their parents or guardian over and for them. The vast majority of countries set
maturity at 18, but ages as low as 15 and as high as 21 also exist.

And test the orphans when they have attained the age of puberty; if you find them
mature, then give them their wealth. [al-Nis", 6] This maturity is considered the
financial maturity. What is financial maturity? The person understands the value of
money and how to deal with it. The minimum is puberty.

Although laws have declared 15-21 years old to be the age of maturity, the Shariah
remained silent on deciding a decisive age for it because it is different from one person
to another.

Previously, puberty and financial maturity would coincide, but today, they may be at
different times. You know if they are financially responsible if when you give them
22

money they know what to do with it. The level of maturity is being pushed further and
further.

How do you monitor the financial maturity? The ulema have put together the
following to show that you are qualified.
The acquisition of rights to have the capacity to contract and trade is based on the
acquisition of following items:

1. al-dhimmah !"#$% % the eligibility to bear liability
If someone breaks something, are they liable to fix it? If not, then they are not
liable. For example, a child who breaks a window. The guardian would bear the
liability.

2. al-aql !"#$% or reason % qualifies the individual to understand verbal
communication
A two or three year old child can buy bubblegum from the machine with a coin.

3. al-takl&f !"#$%&' or Accountability % it is identified by reaching the age of puberty
and developing a sound mind. Accountability qualifies the individual to assume
responsibility.

4. al-wil"yah !"#$%& % the authority to have over oneself or over the property in
possession

The age of tamyiz is when they can recognize and you can reason with them. This
means they can tell and realize.

If there were two bags and you sell your friends bag by mistake, are you obligated to
pay you the money for it or not? You are obligated because you have no authority to
sell it. The sin is removed because it was done by mistake, but the liability is still there.

If he is selling his bag for $10 and you are selling yours for $8 and you sell his bag by
mistake, you have to still give him the difference too since you sold his for a lower cost.
You would give him $10.

Exceptions from the rule of trading competence:
1. A child who has reached the faculty of discernment (al-$ab&y al-mumayyiz) !"#$%
!"##$%
For example: they can tell the difference between $10 and a quarter. But you
cannot give them $50 to go and buy the groceries.

2. Women, in two cases:
a. Marriage contract.

According to the majority of the fuqah" a woman cannot have her nik"% done
without her walis approval. According to Imam Abu Hanifah, she is allowed to
marry without the consent of her wali.
23

b. The limitation for giving donation to one-third of her wealth without the need
for her husbands permission.

Thats according to Im!m M!lik (ra%imahull"h). The majority of fuqah" do not set
any limit on her.

3. Facing incidental causes for the removal of legal capacity !"#$%&'()*+ (aw"ri#l-
ahliyyah)
These causes can happen because of one of the following two reasons:
1) Pre-decreed reasons, Examples: Madness, mental challenge and coma.
These things come from Allah (subhanahu wata'ala).
2) Acquired reasons, Examples: Bankruptcy, drunkenness and immaturity.
These are things that are in your hand.

At the time of the Prophet (sal Allahu alayhi wa sallam), he forbade us from selling the
future breed before it is born. Buying the value based on future prediction is not
permissible. Speculation is not allowed. The Prophet (sal Allahu alayhi wa sallam)
forbade selling that which we dont own and that which doesnt exist.

The Commodi ty % al -ma q(d al ayh !"#$%&'()*+

Transferring of ownership depends on the kind of commodity or service traded. For
example, transferring ownership of the house is when the title is issued. Transferring
the ownership of a movable commodity is when the seller hands it over to the buyer or
when the online purchase is delivered.

Conditions:
1. The commodity must be permissible to use in other than times of need.
Examples of impermissible commodities: Alcohol, dead animal and stolen items. Just
because we are allowed to consume it at times of need, it doesnt make it permissible to
sell as a commodity in regular times.

2. The commodity must be sold by the owner or one who represents him.
Examples of representatives: Agent, father of a minor.

3. Ownership of the commodity can be transferred to the buyer.

Examples of non-transferable ownership: Selling what you dont own, selling the fish
in the sea.
What if you cant transfer the ownership? For example: some Palestinians own land in
Israeli territory. Can they sell the land with the deeds without being able to transfer
the ownership to them? No, (the Israeli government wont recognize the contract).
You are not able to transfer the ownership. Technically you cannot transfer the
ownership of the commodity.
For example: you own a share in a troubled company. Someone wants to get out of the
company because it is in trouble so they sell their shares to you. When you try to
assume your right of partnership, they tell you that you cannot do it. You have the
24

power of going back to him and taking your money back.

4. The commodity must be identifiable whether actually, if it was specific, or by
description if it was unspecific.
Examples of a specific commodity: An actual land, book, %ij"b or a car off the internet.
Examples of an unspecific commodity: Buying from a catalogue, buying a duplicate of a
model.
If it is unspecific, then you have to give as vivid of a description as you can. The best is
to take a picture and show it to them. The contract is suspended until you see it.

The Spoken Word (or what substi tutes for i t) % al -$& ghah !"#$%&

What substitutes for it includes, but is not limited to, sign language such as in auctions,
and written agreements.

Articles of the spoken word:
1. !j"b or offer
2. Qab(l or acceptance

Usually the merchant is the one who is offering. Does the ijab and qabul have to be by
words? No. What is the standard of the language? The sign language that is used in
that market. You have to deal with people in the language of their market. The
language must be understood by both contracting parties. The spoken word has to
match the language of the market.

If someone from al-Shaam goes to Egypt to buy laban, they will send you milk. In al-
Shaam, laban means yogurt. Whose fault is it? It is your fault because they send you
the product based on the market language. You need to understand the language of the
market and what they mean.

Conditions:
1. To be exchanged during the same contract session (majlisl-aqd). i.e. the contract
session should be whole.
Example: There should be no interruption between the offer and acceptance, and
time should not lapse long (or expire) between filling out an online contract and
signing it.

2. The acceptance of the trade should be in respect to the actual offer.
Example: If the offer was for a red car, you cannot give acceptance for the blue one
without the consent of the seller.

If you order online a shirt size M and you receive size L, the sale would not be binding.

Chapter 7: Addi ng Condi ti ons to a Contract

25

Can you stipulate things on the merchant? Some conditions are not acceptable and
others are valid. Some conditions are obligatory. Some conditions are implied such as
making sure that the product is halal.

General ruling is permissibility:

1. Qur!n
O you who believe! Honor your contracts. (al-M"idah, 1)
If you stipulate something, we assume you should honor your contract.

2. Sunnah
The Muslims are upon their conditions, except a condition that makes a prohibited
permissible or a permissible prohibited. (Abu Daw"d)
Any condition that does not make halal to haram or haram to halal should be followed.

Aspects of a legitimate and legally accepted contract:
In order for a contract to be seen as an aqd $a%&% (a legitimate contract) in Shar&ah, it
must be:
1. Concluded
If the contract is not properly concluded, then it is void.

2. Valid
If the contract violated one or more of the conditions of the contract, then it is invalid.
Example: selling alcohol.

3. Executed
Execution refers to the implementation of the terms of a contract; hence a contract
that has been concluded may not have been executed.
If the contract is not executed (for example, the seller has not come into possession of
the object of a previously concluded bayl-salam contract), then the contract is regarded
as being suspended until such time as it is executed.

4. Binding
If a contract is not binding (in other words, if options have been specified), then the
contract may be voided or made binding at the choice of the option holder.
Once it is executed and you walk out of the door, it is binding unless there is a
condition that gives you an option of return.

If there is a sign saying all sales are final, are you allowed to bring the item back?
Legally, the moment you walk out of the door and then come back, they have the right
to refuse you. If you are still in the store itself, then that is a different story.

Types of conditions in a contract:

1. Valid conditions
1) Conditions that are part of the essence of the contract.
26

Example: To stipulate the transfer of ownership.
Can you include or stipulate a condition that is already implied in an Islamic
contract? Yes, but what is the point? The stipulation is to enforce the concept.
(i.e. a reminder to keep it halal).

2) Conditions that are for the benefit of the contract.
Example: To stipulate the price be paid in US dollars.

3) Conditions that stipulate a particular benefit for either the buyer or seller and
does not run contrary to the essence of the contract nor to its benefit.
Example: The seller of the house stipulates to live in it for the next month or
two.
This is something the buyer or seller stipulates for their own benefit. If a seller
says he wants to stay a few months, then this condition is not permissible
because the term is not identified.
For a rental, is it permissible to lease the house and say they cannot use the
kitchen? Technically, it is not a valid rental condition because when you lease
the house, you expect to have utility of the entire space unless something is
considered extra. If both agree, then it is okay.

4) Stipulating penal conditions in order to ensure fulfillment of the contract.
Example: If you cancel a banquet hall booking within less than 30 days from the
event date, you are obligated to pay 30% of the total booking fees.

Stipulating cash penalties on late payments is not permissible because its riba.
You can stipulate penalties except for late payment fees.

Bay al-urbun: some ulema say it is not permissible because you are consuming
someones wealth with nothing in return. Other ulema say it is on a case by case
basis. Some say they are entitled to the full price of the contract if the
cancellation was less than 24 hours before.

If you sign a lease contract that says if you break off the lease then you are
responsible for payment of the full lease, the majority say that this is not
acceptable. Others make a compromise that you are responsible to pay for the
number of months the place remains vacant.

Shaykh Yaser Birjass opinion: you can ask for a deposit and if there is a
cancellation then you lose it.

2. Invalid conditions
1) To stipulate a second contract in exchange for the first one
You dont execute one contract unless you have another one. Example: having
a lease contract with a purchase contract. In many Islamic financing
institutions, they sign a contract with you to partner with them or to have a
lease to own contract, but before they do that, they make you sign a contract of
a promise to purchase. Before they partner with you, they make you sign
27

another contract which is a promise to purchase, and if you dont sign it, then
they will not partner for you. They want to make sure that you dont back out
of buying the house. This is two contracts in one and you dont know if you are
buying, renting, or partnering with them. The Prophet (sal Allahu alayhi wa
sallam) forbade having two contracts in one.

Example: I sell you my car only if you sell me your laptop.

2) To stipulate conditions that go against the essence of the contract.
Example: I sell you my house if you agree not to change the original paint. The
essence of a sale contract is the transfer of ownership.

Example of software: there is a stipulation that you are only allowed to install it
on two computers. Can you install it on ten computers? For this answer, you
need to ask a committee because there are many factors involved. The
programmers have the right to own the software, but when you buy it, you have
the right of utility. It is their problem to protect their license by the codes they
give you. (there is a difference between personal use and distributing it to
everyone you know).

3) To stipulate a foreign condition as a base for concluding a contract
Example: If it rains tomorrow, then I will sell you the car. This condition is not
allowed.
Example: I sell you the house when the value goes up 5%.

What is the ruling on:
- Buying a house from a minor:
It is okay if he is selling a dollhouse! What do we learn from this? Look at the
language of the market. What kind of house is it? You need to investigate.
- A contract that stipulates payments of riba in exchange for a loan.
This is an invalid contract. What about credit cards? When you sign up with
them, you have signed a contract saying you will pay riba. When you buy
furniture, the contract may say you have 18 months interest free and if it is not
paid off in that time, then they will charge you riba. Generally speaking: in an
ideal Islamic society, these contracts would be invalid. Ulema argue over the
permissibility based on the hadith of Barirah. Aisha (radhi Allahu 'anha) wanted
to purchase Barirah and free her. The original owners said, If you buy her and
ever free her, we will take her wala (loyalty). At that time, if a slave was freed,
the loyalty goes to the owner who freed them which means that if they leave
money, then the money goes to them. Aisha (radhi Allahu 'anha) said, Ya
Rasulullah, I am trying to purchase and free Barirah, and they are giving me this
condition. The Prophet (sal Allahu alayhi wa sallam) said, Give them that
condition because wala automatically goes to the person who frees the slave.
If Aisha frees the slave, then the condition is null and invalid. The ulema say
that if a person is in need of taking a credit card out of pressing need, these are
concessions from the general rule of prohibition. These circumstances and
28

contracts go case by case.

If someone just wants a credit card to be cool or flashy, then it would not be
allowed.

- What if someone comes to your house and forces you to sign a sale contract?
If it was done by the state or for public benefit and there is fair compensation, it
could be justified.

- What is the ruling on buying a car from an intoxicated person?
It is invalid. He doesnt have the financial maturity due to lack of faculty of
reason at that moment. However, be aware that the level of intoxication
matters. The ulema divide the level of intoxication into two degrees: primary
stages of intoxication (being buzzed) and in this state it would be acceptable
to buy from them. Once they pass this level and become wasted, then it
wouldnt be acceptable.

- What is the ruling on leasing a car and using it for cargo?
It would not be acceptable. When you are leasing the car, it is understood you
are using it for passengers and personal use. If the contract is not specific and
you use the small car for cargo, then it is not allowed. There is a sense of
understanding that even it is not in the contract, the car is to be used in the
normal way. As long as you bring the car in the same condition and not
seriously damaged, then it would be fine.

- What if the language of the market is not clear to you? Go by the urf and
custom of the market.

- What if someone buys a house and the seller puts a condition that you dont
open the attic.
Even if you give your consent, the contract is invalid because it contrary to the
essence of the contract. It could be faasid until it is rectified or fixed.

- What if you lease a car on the condition that you dont turn the AC on? What if
it is in Houston in July? The contract is valid.

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Chapter 8: Addi ng an Opti on !"#$ (khi y"r) i n a Contract

1. Opti on of Meeti ng !"#$%&'()* (khi y"r l -maj l i s)
The choice of continuing or invalidating the contract after it had been concluded while
the buyer and seller are still in the place of the contract.

The place of the contract differs depending on the site where the meeting for the
contract took place. A payment webpage or confirmation page on an online sale is
considered a virtual meeting site.

!"#$%&' !"#$%"& !" !" !"#$%& (al-bayyi"n bil-khiy"r m" lam yatafarraqa)
Ibn Umar narrated the Messenger of All!h ($allall"hu alayhi wa sallam) said: The
parties to sale have an option as long as they have not parted, except in sale with an
option. [Bukh!ri and Muslim]

Example: Leaving a store after concluding the transaction nullifies the option of
meeting. Requesting to revoke a contract after it had been concluded and became
binding is called iq"la and its not binding on either the seller or the buyer.

Example: Placing a return policy of 90 days money-back guaranteed with no questions
asked.

As long as you are still together in the sale session, you can still make the deal on the
price agreed to. The moment you leave the sale session, everything discussed could be
invalidated. For example, you go into a store and ask how much an item is. They say
$50. You say that you will pay $25 and they dont agree. You then offer $30 and then
$35 and keep negotiating. He says $40 is the final price. You say that you are going to
think about it. You then say, Ill get back to you. If you leave to go somewhere else
and then come back, he is not obligated to give it to you for $40. If he says, If you leave
the door, then I wont give you this price, then he is cancelling the khiy"rl-majlis.

If you find it for a lower price later, he is not obligated to refund you. How long can a
sale meeting be? A few hours or days? How long can the khiy"r be extended? In
contemporary terminology, this is the return policy.

If you buy a hammer from Home Depot and use it and then take it back to Home Depot,
is that permissible? If they said not used, then you cannot return it. What if it
doesnt say? They are giving you 90 days to return the product with no questions asked
is it permissible? Ethically, it is cheating. Legally it is okay. Walmart is using the
money already in the market and their sales go up. Is the contract of return considered
valid? Shaykh Yaser cannot say that it is invalid. Legally it is a legal contract. You can
return something back after using it. This is their policy, and if it hurts the store, then
they will change their policy. The market will regulate itself.

Some practices are a safety hazard. Some people use the same amount of money to
upgrade from one baby seat to another.
30

In an online world, how do you create khiy"rl-majlis? It is the purchase session. Before
charging you credit card, they ask you to review. It is the sale session online.

2. Opti on of condi ti on !"#$%&'() (khi y"r l -shar*)

Making the condition that either of the two contracting parties, the buyer or the seller,
has the choice to invalidate the contract within a specific amount of time.

!"# !"#$% !"# ! !"#$ (idh" b"ya ta fa qul l" khil"bah)
The companion $abb!n b. Munqidh used to be constantly fooled in business dealings so
the Prophet ($allall"hu alayhi wa sallam) told him: If you trade, then say no cajole.
[Bukh!ri and Muslim] $abb!n b. Munqidh was very nave and people fooled him in the
market.

Some conditions are valid and others are invalid. As a merchant or customer, you need
to be careful. If you go to a store and find an item for $50 and he guarantees you wont
find it elsewhere for less so you buy it and then find something at a discounted rate,
Islamically and legally you are allowed to revoke this deal (you need witnesses for it). A
merchant can tailor the return policy in the way to benefit them.

3. Option of viewing !"#$%&'()* (khiy"rl-ruyah)

The right of the contracting parties to invalidate the contract upon viewing a
commodity that was not seen prior to the concluding of the contract.

Example: To buy a car over the phone based on a description given to the buyer.

Valid if two conditions are met:
1) The commodity has to be specific
2) The commodity was not available for viewing at the time of the contract.

Sometimes you make a deal and dont see the actual product. The merchant may say
they will ship it to you and if you dont like it, you can ship it back. In this case, it is
considered khiy"rl-ruyah. If you want someone to build you a house and it is not what
you ask for, you have the right to reject it.

4. Option of identification !""#$%&'(") (khiy"rl-tay&n)
This form of option is greatly disputed among Muslim jurists because it does not make
the commodity clear, hence running contrary to one of the main conditions of a
contract.

The right of the seller or buyer to identify one of multiple items (3 and under) of
different values in a contract as the specific commodity to be exchanged.

Example: The buyer says, Im buying a laptop - this Dell or this Mac or this HP while
31

the prices are mentioned. The sale has been concluded and is only waiting for
execution by selecting one of the three items.

This is if you buy something out of a pool of options. The question is: what exactly are
you buying? You are buying something and one of the items, but what you are buying
has not been identified.

If you ask for one item that they have and tell them any one, is this permissible? Yes,
but after they send it to you, do you have the right to return it? If they have a return
policy then yes. If they do not, then you cannot.

Some fuqaha say it is not acceptable because you need to identify what you are buying.
Other fuqaha say that they gave you the option and you waived it, so it is like the
power of attorney.

An example: When you pay entry fee into a flea market or a carnival. It is left open for
you to choose what ride to go on.

5. Option of defect !"#$%&'"( (khiy"rl-ayb)

The right to invalidate the contract upon finding a defect in the traded commodity that
was not made explicit prior to the sale.

If you buy a defective product or service that did not match the description, are you
allowed to return it? Yes even if there is no return policy because of this khiy"r unless
they say sold as is. There is a difference between a scratch being on the screen and
being on the back. On the back, it is cosmetic and not a big deal. If they say mint
condition then it is like new but if they say good condition then you need to expect
some scratches.

Valid if three conditions are met:
1) The defect decreases the value of the commodity.

2) The defect was present prior to the conclusion of the sale.

3) The buyer was oblivious to the defect prior to the conclusion of the sale.
You go to a car dealer and see a car and ask if there is anything wrong with the
car and the dealer says no. You take a test drive and like the car. You pay the
money and leave. After one week, the lubricant is wearing out and the engine
smokes. You call the car dealer and he knows about the problem. Are you
allowed to void the contract? Islamically and legally, yes. However, if you ask
the dealer if there is anything wrong and they give you the option to take it to a
mechanic who tells you that nothing is wrong and then the transmission breaks
a week later, then it is your fault because you were given the option to take it to
a mechanic. If they stipulate as is and then add a lubricant to make it good at
the time, then this is not allowed.
32

Some farmers used to tie udders of cows and goats so that baby goats would not
take it and the udders would be full of milk. Buyers would come and think that
they are healthy and then after a few days they would go back to normal. The
Prophet (sal Allahu alayhi wa sallam) said in this case it is up to you to take it
back if you want. You can get the price difference.

If there was something wrong with the transmission, you can go back to seller.
You can make a deal to pay to fix for the transmission.

Example of khiyar of identification: Naming your price for Priceline (you put your card
information and give them information to find a good deal like the zip code of a 4 star
hotel and they search on your behalf and if they find a match, they will purchase it
without getting back to you first).
Example of khiyar of sale meeting: a sale session on the internet, return policies

As a customer, you check products on the shelf and they look fine. As you move a
product, you drop one and break it. What do you do? You are obligated to pay if the
store obligates you. If the store has a policy that its okay and they will take care of it,
then it is okay. If the cashier breaks an item as they put it in your bag, they are
responsible.

Chapter 9: Defects i n Contracts

1. Coercion !"#$%"
Al-ikr"h (coercion) occurs where force (of whatever nature) is used to produce a
physical or legal action. It can be complete (causing threat to life or limb) or partial
(causing inconvenience).
Example: To force someone at gunpoint to sign a contract of sale against his free will to
sell a property they would otherwise not sell.

This is one reason to nullify a contract at inception. Ikrah has two categories:
excessive and non-excessive. Excessive ikrah is if something was life threatening or
causing serious injury (i.e. someone threatening you or someone else with a gun). This
invalidates the contract. What if it is emotional ikrah? For example, a husband tells his
wife, I dont know why you need this. The mahr was so much Finally, she says,
Take it. Is this transfer of gift halal? He put pressure on her until she gave in. Allah
said, If they give it out of good heart and willingness, then you can consume it. If she
is giving it like this, we dont know if it is out of good will or for her husband to get off
her back. If it was for him to get off her back, it wouldnt be allowed, but if it is good
will, then it is.

2. Mistake and error !"#$% (al-ghala*)
Example: To give someone a diamond for a crystal he purchased.

You should return it. Are you allowed to sue them if they dont accept? Yes. You are
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allowed to revoke the contract. If you shop online and they send you XL instead of L,
then you are allowed to ask them to change it. What if they offer you to keep that one
and they will send you another? It is okay to do it.

3. Fraud and deception !"#$%&'"#$ (al-ghabnu wal-ghish)
Example: To buy a commodity extremely overpriced.

Sometimes they have one price for locals and one price for tourists.

The Prophet (sal Allahu alayhi wa sallam) saw a pile of fresh wheat. He put his hand
into it and felt moisture. He asked what it is, and the merchant said it is from the rain.
The Prophet (sal Allahu alayhi wa sallam) said, Shouldnt you put it on the top for
people to see?

If you know you are deceived, you are allowed to bring it back. For example, if when
you open the rice it is very old, you are allowed to take it back to the store.

4. Unforeseen circumstances !"#$%& !"#$%&' (al-'ur(fl-*"riah)
Example: Getting into war or losing a job after concluding a contract.

You want to buy a house so you sign a contract. Then the next day you lose your job
and can no longer afford the house. Are you allowed to ask to cancel the contract?
Islamically and legally, you are allowed to do that provided that it happens at the
beginning.

Chapter 10: Sal es and Transacti ons

How do we decide on the price? Is there a margin for profit that needs to be observed?
Are you allowed to profit more than 50%?

Definition of sale !"#$% (al-bay)

The permissibility of sale is clear in the Qur!n, Sunnah and ijm" of Muslim mujtahids.

!"#$%& !"# !"# !"#$%&'(& (mub"dalah m"l bi m"l bil-tar"#i)
A contract for the exchange of commodities based upon mutual consent.
or
The exchange of a specified form of property or permissible service for its like or for a
debt to be paid, entailing the change of future ownership, not based on usury, and not a
loan.

The classical fuqaha gave a simple definition: the exchange of two types of wealth
based on mutual consent.

Allah said, And Allah made sale halal. Allah said, Allah made riba haram. Every
form of sale is halal unless there is an evidence to suggest otherwise.

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Understanding the sale contract:
1. Its a compensatory contract.
You get compensation in return. If you give money, you get a service or
commodity. If you give money and expect nothing except the reward from Allah,
then this is charity. If you get money when someone dies, this is inheritance.

2. The contract has to be legally accepted
If there is anything in the contract that makes it illegal, it invalidates it.

3. Involving at least two contracting parties who are legally competent to carry out
business dealings.
There are two or more contracting parties and have conditions. (Discussed in
previous section).

4. Commodities come in different types. They can also be services provided.

Types of Sal es and Transacti ons

1. Considering the nature of the commodity

1) Money for an item of value !"# !"#$ (bayun mu*laq)
Giving cash and getting something in return. This is the first thing that
comes to mind when saying the word sale.
2) Money for Money !"# !"#$% (bayl-$arf)
This is money exchange.
3) Item of value for another item of value !"# !"#$%&'( (bayl-muq"ya#ah)
This is barter.

Are you allowed to exchange an item for an item? Yes. You can exchange food for
clothes or books for clothes, etc. Money for money has its own rulings.

Islamically, the government should not set prices in the market and should let the
market regulate itself. In times of specific need, it is compulsory and important that
the government regulates essential commodities. Essential commodities are required
for the survival of the people like food. The government has the right to regulate the
price of wheat because it is the main ingredient in bread. In other cultures, rice is more
important than bread.

2. Considering the nature of way of deciding a sales price
Profiting from a business transaction has no limits and is permissible. Sources of
prohibited profit in contracts are:
1) Trading %ar"m items
2) Cheating and lying
3) Extreme deceit
4) Monopoly

35

! Negotiating the sales price without disclosing the cost price !"# !"#$%&'( (bayl-
mus"wamah)
Fact: Do you know that government has the right to do tas&r !"#$% or
setting a price limit during difficult time for the greater benefit of the
people?
There is no set price. It is just negotiating the price. This is absolutely
acceptable.

! Negotiating the sales price after disclosing the cost price to determine the
margin of profit or loss !"# !"#$%& (bayl-am"nah)
For example: you tell the buyer that you paid X amount for the product. Are
you allowed to disclose the cost price to the customer? Yes, it is your choice.

This comes in four forms:
1. Bayl-Mur"ba%ah !"# !"#$%&'$ is a sale where the seller names the profit mark-
up that he is applying to the cost price of goods that he is selling and agrees
on a sale price with the seller on that basis. The seller should name his costs
truthfully.
This is when you say the mark-up after disclosing the cost price. This is
permissible.

2. Bayl-Wa#&ah !"# !"#$%&' is a sale where the seller names the loss mark-up
that he is applying to the cost price of goods that he is selling and agrees on
a sale price with the seller on that basis. The seller should name his costs
truthfully.
This is when the seller marks the price down. For example, the seller tells
you that it is $10 but will give it to you for $7. This is permissible.

3. Bayl-Tawliyah !"# !"#$%#& is a sale where the seller names the cost price of
goods that he is selling and agrees on it as a sale price with the seller on that
basis. The seller should name his costs truthfully.
This is when the seller asks only for cost price for an item no profit and no
loss. This is permissible.

4. Bayl-Muz"yadah !"#$%&'() !" or auctioning is a process of selling goods or
services by offering them up for bid, taking bids, and then selling the item to
the highest bidder.
This is when you have one item and multiple customers who want to buy it.
This is permissible. Question: arent you trying to compete for the same
item? If the auction is open, anyone can come an interfere. It is illegal or
haram to do it when you lock the price and promise someone for that
purchase. If you say it is sold and then someone at the end comes to you and
offers more, you are not allowed to sell to them because the price has been
locked and the auction is over.

Iqaalah is permissible. The Prophet (sal Allahu alayhi wa sallam) said, If someone
36

comes to you with iqaalah, accept it. What if the buyer said, Ill give it to you but sell
it back to you for $50 more. If they accept, that is fine. They dont have to accept the
iqaalah and can sell it back to you. Iqaalah falls under a contract of charity you are
doing the person a favor.

3. Considering the nature or way payment is given

1) Payment paid and commodity is delivered !"#$% !"#$%&'()#*$% (al-bayl-munjaz aw al-
naqd)
This is what is usually done at retail stores when paying cash.
2) Payment deferred and commodity is delivered !"# !"#$%&' (bayl-nas&ah)
When using a credit card, when paying in installments
3) Payment paid and commodity is deferred !"# !"#$% (bayl-salam)
When putting a down payment and the commodity is delivered later such as an
online purchase.
4) Both payment and commodity are deferred !"# !"#$% !"#$%& (bay al-dayn bil-dayn)
Paying the delivery person for pizza you pay when the pizza arrives. Pre-
ordering an item (i.e. you give your payment information and they charge you
once it is shipped to you)

All of these formats are considered legal and acceptable; however, some transactions
dont qualify for deferred payments. Overall, you are allowed to use these formats for
payment.

Note: Islamically, government participation is between socialist and capitalist.
Islamically, we do believe that at some point the government steps in to save the
market. There is some sense of regulation.

37

Chapter 11: Prohi bi ted Sal es

Prohibited sales are considered illegal for few reasons:
1. The contract did not fulfill its conditions and legal requirements
Example: One of the two contracting parties is legally incompetent
If something is wrong in the initiation of the contract, it is considered void.

2. The contract involves illegal financial commodities
Example: Such as riba (usury) or gharar (uncertainty), gambling

3. The contract is causing damage outside the contracts limit
Example: Monopoly of specific essential commodities

4. The contract is concluded contrary to some other circumstantial laws of Shar&ah
Example: Trading on Friday during Jumuah $al"t.
Allah (subhanahu wata'ala) says in Suratll-Jumuah: On Friday, you need to
leave all kinds of sales and come to salatl-jumuah. What about for women?
The prohibition is for the sanctity of the time itself, so women are not allowed
to go shopping during that time. It doesnt matter if you are on your menses or
if you are buying from a non-Muslim. The time is for an average length of
khu#bah (i.e. it starts at 1:30 and ends at 2:15). The time refers to the first
official khu#bah (the official khu#bah of the imam). If a brother is going to the
second khu#bah, he shouldnt sell and trade during the first main khu#bah.

What about online sessions? Should we stop trade and sale online? There is no
limit for the online market because time zones are different. When it is time for
your jumuah, then you should avoid it.

Types of Prohi bi ted Sal es

1. Selling a debt for a debt !"#$%& !"#$' ()& (bay al-dayn bil-dayn)
Example: You owe Ahmad $100 and Ali owes you $110, so you sell Alis debt to Ahmad
with the extra amount included to remove your liability for his debt.

One common scenario of contemporary transactions is the practice of speculation in
which merchants trade contracts they own for a deferred payment while the
commodity is still in the hand of the first seller. A famous example of this is the oil
crisis in the 2010.

Debt for debt means money for money. You cannot sell money for money except in
specific circumstances. Collection agencies buy debts. This is an open gate for riba,
which is why it is prohibited.

2. A conditioned sale !"# ! !"# (bayun wa shar*)
Example: I sell you this phone with a condition that you dont jailbreak it.
If the condition is running contrary to the essence of the contract or sale, then it is
haram.
38

3. Two contracts in one sale !"#$%& !" !"#$ (bayat"ni f& bayah)
Example: I sell you this book for $100 deferred until the end of the month. When it
becomes due, the buyer asks for extra time. After the sale has already been concluded,
the seller sells the book again for a higher price.

This is the main criticism of the Islamic mortgage system. They force you into getting
into a first contract which is a promise to purchase before purchasing it on your behalf.
Or they get into a form of diminishing partnership with you (like Guidance). These are
two contracts in one sale and you dont know if you are partners or not.

4. Selling upon the sale of another person !"# !"#$% !"# !"# !"#$ (bay al-rajuli al" bayi
akh&hi)
Example: Aisha agrees to buy a purse from Fatima for $100. After the sale has been
concluded, Safiyyah offers Fatima $110 to give her the purse, or Hafsa offers Aisha the
exact same purse for $90.

Auctions are exempt from this prohibition because the sale has not been concluded yet
until the final bid.
The problem is when the sale is concluded and then someone comes to interfere.

5. The resident acting as a broker for the visitor !"# !"#$%& !"#$%& (bay al-%"#ir lil-b"di)
Example: Fahad came from overseas to the US with good commodities. Khalid is a local
merchant. He tells Fahad not to go to the marketplace, and he will sell the products for
him. Fahad does not go to the marketplace and never knew the exact value of his
commodities in the market.

A local merchant is allowed to broker for a visiting merchant if the visiting merchant
was familiar with the local market and was familiar with the value of his commodities
and agrees to the service of the local merchant.

Classical example: The Prophet (sal Allahu alayhi wa sallam) forbade the resident
merchants of Madinah to go and receive the visiting merchants in the suburbs until
they hit the marketplace. Why? There is a chance they could deceive them. When
they come to the city, they dont know how much things cost so could be happy with
much less. When they hit the marketplace, they know the actual value.

Modern example: in order to have a healthy market, you have to engage in fair trade
policy.

6. Selling forbidden commodities or services !"# !"#$%&'( (bayl-mu%arram"t)
Examples: Selling pet dogs or offering fortune-telling services
The Prophet (sal Allahu alayhi wa sallam) said The halal is clear and the haram is
clear. You cannot sell wine to someone because it is haram.

7. Selling after adh"n of Jumuah !"#$% !"# !"#$ !"#$%& (al-bay inda adh"nl-Jumuah)
Example: An adult who is obligated to attend Jumuah, staying in the car in the masjids
parking lot buying online using his iPad after the first Jumuah in that masjid was called
39

for.

8. Selling the unknown or trading uncertainty !"# !"#$% (bayl-gharar)
This includes insurance, gambling, lottery.

9. Dealing with riba !"#$%&' !"#$%& (al-ta"mull-ribawi)

Example of selling a debt for a debt: collection agency
Example of two contracts in one sale: Islamic mortgage, lease to own with a condition
that you need to promise to take it after
Example of selling prohibited items: selling wine, pork

Review: You may think of something as having value but the Shariah disregards it
such as wine. How do people use wealth? There are different types of transactions. If
you exchange one item for another, it is barter trade. If you trade money for money, it
is money exchange. Some exchanges are permanent and some are not permanent. If
you give someone something, it could be laazim (permanent and binding on one side
and non-binding on another side). What is an example of an exchange binding on one
side and not on the other? Charity. Example of a contract binding on both parties: a
final sale. If someone asks how they can get out of a binding sale, what would you tell
them? You ask for iqaalah. Iqaalah is not binding, meaning a person does not have to
accept iqaalah after the sale was finalized.

There are different categories of wealth. There are three pillars for a contract: two or
more contracting parties, the commodity / service being exchanged, wording of the
contract (verbal or written).

What if someone objects to an auction because it allows people interjecting in a sale
and the Prophet (sal Allahu alayhi wa sallam) said, You are not allowed to make a sale
over your brother or sisterss sale?? Answer: The sale is not yet final. Once the sale is
final, no one can interject.

In general, the government should not be involved in setting prices, but in special
circumstances, the state or government should interfere by setting prices for essential
commodities like staple foods and the basic needs of people.

Part Three | Modern Fi nanci al Transacti ons

! Four Main Defects in Contemporary Sales:

1. The contract involves a legally prohibited commodity
Example: Selling pork-product based cosmetics

2. The contract involves the exchange of riba
Example: Buying furniture with 5% interest for 48 months
40

3. The contract contains gharar (or extreme uncertainty)
Example: Buying a sealed container off eBay

4. The contract stipulates conditions leading to a legally prohibited practice.
Example: Signing a contract of sale that includes deferred payments and stipulates
charging for late payment fees

41

Chapter 12: Expl ai ni ng Ri ba and Gharar

In the global market today in the capitalist system, these are the two most common
problems in the global economy. Many transactions involve riba in one way or another
or al-gharar.

Riba is the only sin against which Allah (subhanahu wata'ala) waged war. People take
riba lightly and dont view it as murder or rape. Allah (subhanahu wata'ala) said it is
the only crime in which Allah wages war against the perpetrators.

In any common trade or sale, you will face riba or gharar.

Deal i ng wi th ri ba !" !"#$%& '()*+ (al-ta"mull-ribawi)

Definition of Riba:
A literal meaning of riba in Arabic is excess or growth. This makes for an
interesting comparison with the word zak"h which can also mean growth. We use
the word growth in a positive sense such as for zak"h. When it increases
negatively, we call it excess and use this for riba.

Categories:
A riba transaction features one or both of the following characteristics:
There are two kinds of riba
1. A surplus (al-fa#l) !"# !"#$% in the amount of one countervalue over the other in
barter transactions of specific commodities.
This was prohibited in the Sunnah of the Prophet (sal Allahu alayhi wa sallam).
2. A delay (al-nas" or al-nas&ah) !"# !"#$%&' in the settlement of one or both
countervalues.
This kind of riba was mentioned clearly in the Quran. This type of riba comes
in loans.

The Si n of Ri ba

The seriousness of the sin of riba and its grievous consequences are indicated in the
Qur!n and %ad&th as follows:

O you who believe! Be afraid of All!h and give up what remains due to you from riba if
you are really believers, and if you do not, then take notice of war from All!h and His
Messenger, but if you repent, you shall have your capital sums. Deal not unjustly and
you shall not be dealt with unjustly. (al-Baqarah, 278-279)

Why was the word war mentioned here? When you go through some cities like
Detroit, you see destroyed buildings and people on the streets. It is a site of war. Wars
cause people, cities, states to lose their sovereignty. In 2008 / 2009, Iceland declared
bankruptcy. This means they are willing to submit the country to a financial invader.
42

Greece is currently fighting to not fall into bankruptcy. Allah warns us over and over
again that riba is very dangerous.

Ibn Mas"d (ra#yAll"hu anhu) reported that the Prophet ($allall"hu alayhi wa sallam) said:
Even when riba is much, it always leads to utter poverty. (Sunan Ibn M!jah, 2270,
)a%&%)

On the authority of Ibn Mas"d (ra#yAll"hu anhu) that the Prophet ($allall"hu alayhi wa
sallam) said, ...cursed the one who takes riba, the one who gives it, the two witnesses to
it and the one who writes it. (Sunan Ibn M!jah, 2268, )a%&%)
In modern day times, who are these people? Banks, clerks, notary, IT people. Some
ulema say that if you do any type of job in a bank (including janitorial work), then you
are participating in this.

Riba was prohibited in all previous revelations. All!h says about the people of the book:
That they took usury, though they were forbidden; and that they devoured men's
substance wrongfully; We have prepared for those among them who reject faith a
grievous punishment. (al-Nis", 4:161)

Ri ba i n Arabi a i n the ti me pre-dati ng Isl am:

It was practiced in two forms:

1. Riba in sale and trade
2. Riba in loans

Ri ba i n Sal e and Trade

The Ri b"wi Items

The items to which the riba prohibition applies are termed the rib"wi items. These are
defined in the %ad&th reported by Abu Sa&d al-Khudri that the Prophet (sallall"hu alayhi
wa sallam) said:

Gold is to be paid for by gold, silver for silver, wheat by wheat, barley by barley, dates
by dates, and salt by salt, like for like and equal for equal, payment made hand to hand.
He who makes an addition to it or asks for an addition deals in riba. The receiver and
the giver are equally guilty. ()a%&% Muslim, 2971)
This hadith covers riba al-fa#l.

Six rib"wi items are defined here. They include monetary items (gold and silver) and
non-monetary fungible items (the remainder), although it should be noted that all six
items have the capacity to be used as money. For example, salt has been used as a form
of money in Egypt, Ethiopia and Rome, while barley fulfilled this function in ancient
Sumeria.

43

The majority say that we should not extend it beyond these six items.

Categori es and Speci es of Ri b"wi Items

Category 1: Monetary Items
Species: Gold, Silver (and what replaces them of paper money and currency)

The reason for riba: Monetary purpose
!"#$ !"#$%&' (mu*laql-thamaniyah)

Why are gold and silver ribawi items which we cant exchange with excess? They are
considered a medium of exchange = currency = values of commodity. Why is the excess
of exchange considered haram? In order to avoid exploitation of the needs of other
people and also to avoid destabilizing the market. If gold is like a commodity, then it is
disastrous for the market.

What about currency? The vast majority of Muslim scholars say currencies do
substitute for gold and silver; therefore, you should apply the rules of zakah and rules
of riba to them. This means that you cannot exchange dollar for dollar with excess.
Other scholars say that it does not apply, but this opinion is not favored in books of
fiqh.

Some ulema differentiate between dollar bills and coins like Shaykh Uthaymin. Based
on his opinion, if you want to exchange a five dollar for $5.50 in coins, it is allowed.

Category 2: Food Items
Species: Wheat, Barley, Salt, Dates

Why were these items made ribawi items? Some ulema said that they were once used
as currency because it was the most common product at that time. They would use
them as a point of reference. Based on this, do you extend the prohibition to other food
items or limit it to these four items only? Those who say it is a price or currency, then
you do not extend it. Other fuqaha say you can extend it based on the culture. Dates
was a currency for the Arabs because it was the most common.

The most popular opinion is it is because they were a staple food.

The reason for riba:
1. Food item !"#$ (*a"m)
2. Sold in weight or volume !"#$ !" !"#$% (mik&l aw mawz(n)
3. Staple food !"# !"#$ (q(t muddakhar)

Abdullah b. Abbas had an issue with the hadith and did not consider exchanging these
items as riba. He said there is no such thing as riba al-nas&ah. He thought that it was a
temporary prohibition.

44

Rul es of Exchangi ng Ri bawi Items

Money: Food:
Gold Dates Wheat
Silver Salt Barley

Case One: Same category and same species.
Rule:
1. Same quantity for same quantity
2. At the same sale meeting
3. Hand in hand (transaction needs to be instant and immediate)

First scenario is same category and same species: gold with gold, silver with silver,
wheat with wheat, dates with dates. In this case, you have to keep the quantity equal,
meaning a handful of one kind of dates for a handful of another kind of dates. The
number of dates may be different because the size of the dates is different. It is 1 oz of
gold for 1 oz of gold. It is sold by the weight and not the craft.

It is a problem if you buy gold online and get it a few days later. The gold price will
have fluctuated in this time.

Example 1: Gold for gold
1. 10 oz. of gold bracelet for 10 oz. of gold rings.
2. The exchange should not be delayed from the sale-concluding meeting (i.e. after
finalizing the sale, the seller and buyer cannot agree on next day for delivery).
3. The exchange should be immediate between the contracting parties at the same
time.

Example 2: Dates for dates
1. One cup of Medjool California dates for one cup Ajwah of Mad&nah dates.
2. The exchange should not be delayed from the contract session.
time.

Case Two: Same category and different species.
Rule:
1. Quantity may vary
2. At the same sale meeting
3. Hand in hand

Example 1: Gold for silver
1. 10 oz. of gold bracelet for 30 oz. of silver necklace
2. The exchange should not be delayed from the sale-concluding meeting (i.e. after
finalizing the sale, the seller and buyer cannot agree on next day for delivery).
time.
45

You can fluctuate the quantity. The quantity does not have to be equal. The exchange
must be immediate. If the exchange is deferred then it becomes riba.

Example 2: Wheat for dates
1. Two tons of wheat for one ton Ajwah of Mad&nah dates.
2. The exchange should not be delayed from the contract session.
time.

The exchange must be immediate.

Case Three: Different categories and different species
Rule:
1. Quantity may vary.
2. Sale may be conducted at different sale meetings. (the sale can be made over the
phone)
3. Exchange of one or both items may be deferred.

Example: Gold for Dates
1. 10 oz. of gold bracelet for a ton of dates.
2. The exchange may be delayed from the sale-concluding meeting (i.e. after finalizing
the sale, the seller and buyer can agree on a different day for delivery).
3. The exchange does not have to be immediate between the contracting parties.

Bilal brought the Prophet (sal Allahu alayhi wa sallam) fancy dates from Khaybar. He
asked the Prophet (sal Allahu alayhi wa sallam) if he wants to try them, and he told him
that he got them from Khaybar. The Prophet (sal Allahu alayhi wa sallam) said, Do all
the dates of Khaybar look like this? He said, We gave two or three handfuls of other
dates for one handful of this. The Prophet (sal Allahu alayhi wa sallam) said, This is
riba! They said, How do we go about this? He (sal Allahu alayhi wa sallam) said, If
you want, sell your dates for money and then buy the other dates with money.

Ri ba i n Loans
This is the most common riba today. If there is any benefit or profit from giving a loan,
it is considered riba.

Scenario 1: Riba on mature loans
When the loan is given with a final due date. The Arabs used to say: Give me some
more time and I will increase your return.

Example: a friend borrows $500 from you and it was supposed to be paid off at the end
of the month. At the end of the month, he tells you that he doesnt have it and asks for
another week. You agree but tell him that for every week it is late he has to pay an
additional $20. This was common during the time of the Prophet (sal Allahu alayhi wa
sallam). They charged money for more time.
46

Scenario 2: Riba on deferred loans, practiced in two ways:
1. Loans whose principal and interest are postponed for a specified period of time. In
this case, there is a condition of increase right at the time of concluding the loan
contract.
They may set the interest rate from the beginning. They delay the riba until after a
set amount of time. From the beginning, you know that you are paying interest.

2. Loans whose principal is delayed for a specified period of time, usually the end of
the term, and the interest installments are paid monthly.
Bayul &nah is said to take place when a commodity is sold to the buyer with the
money to be paid in the future and then the exact same commodity is repurchased
from the buyer with a lesser amount of money paid immediately.
You are paying the interest from the beginning and divided over a period of time.

Late fees on books are okay because it is not money on money. Late fees are not
permissible when it is money on money (i.e. on bills you have to pay).

Recogni zi ng Ri ba i n Loans

It is widely reported from the earlier Im!ms and most authentically from Ali b. Abi
'!lib (ra#yAll"hu anhu) that he said:

Every loan which brings some kind of benefit is riba.

While any benefit contracted in favor of the lender at the time a loan is made is
regarded as being usurious in Islam, even where that benefit is small in amount, the
payment to the lender of a benefit after the loan has been contracted is discouraged or
prohibited.

Anas b. M!lik (ra#yAll"hu anhu) reported that the Prophet Mu(ammad ($allall"hu alayhi
wa sallam) said, When one of you grants a loan and the borrower offers 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 accustomed to previously exchanging such favors
mutually.

47

Common Mi sconcepti ons about Ri ba

Misconception Clarification
The Prophet (sallall"hu alayhi wa
sallam) did not live long enough to
interpret the verses which prohibit
riba. The verses are therefore
mutash"bih"t (unclear) and cannot
be the basis of a ban.
The reality is that the ban on riba was revealed in 2
AH, at around the time of the Battle of U(ud.
Sufficient time existed between then and the
Prophets death to fully explain the implications of
it. The verses in S(ratl-Baqarah reiterate the ban on
interest and enforce a retrospective ban on all
previous loans and any interest due at that time.

Response: The revelation of the ayat on riba came
early and he had almost 8 years to explain the
meaning of ayat. If this same rule was applied to
other issues, it would include almost everything.
When Allah (subhanahu wata'ala) took His prophet
back: Today I have perfected my nima upon you
and completed your religion.
Riba refers only to usurious loans
on which excessive interest is
charged. Modern banking loans do
not fall within this definition.
This argument relates to the verse in S(rat "le-
Imr"n which states, O you who believe, do not
consume riba, doubled and redoubled. And have
taqw" of All!h so that you may be successful. ("le-
Imr"n, 130) However, the rules of tafs&r do not
permit us to interpret the verse as confining riba to
occasions in which principal is doubled or
redoubled. Rather, the verse highlights a
consequence of riba. The position that any benefit
to the lender is indeed a form of riba is confirmed
in S(ratl-Baqarah, where All!h states that but if
you repent you shall have your capital sums.

In the Arabic language, whenever they use these
expressions, they are not meant literally. It is
meant to contain a sense of exaggeration. Riba is
riba whether small or little.
48

The Qur!n only bans riba on
consumption loans, not on loans
for commercial purposes.
The ban in the Qur!n is an absolute ban on riba.
No distinction is made between consumption and
production loans. Neither does the Sunnah of
Mu(ammad (sallall"hu alayhi wa sallam) make any
such distinction. Proponents of this idea have
argued that commercial loans were not in
existence during the time of the Prophet (sallall"hu
alayhi wa sallam), hence they are not covered by
the ban. However, commerce and the financing of
commerce were both common in Arabia at that
time, and commercial loans would not therefore
have been alien to the Arabs.

There is no such thing as differentiating and those
who are trying to differentiate need to provide the
evidence that the ayat talk about two different
types of loans.
Only ribal-j"hiliyyah was banned by
the Qur!n, and not interest
present in todays commercial
transactions.
Ribal-j"hiliyyah relates to a practice whereby a loan
was advanced, or a trade debt was created, for a
certain period with no riba charged. If, at the end
of the period, the capital had not been repaid, then
the loan would be rolled over for a further period
and riba would be applied. Those arguing this
position believe that because modern commercial
loans specify interest rates from the outset of a
transaction, they do not fall within the ambit of
ribal-j"hiliyyah. However, the ban in S(ratl-Baqarah
does not specify any such exception and none is
evident elsewhere in the Qur!n or Sunnah.

Riba is riba.

Sel l i ng the Unknown or Tradi ng Uncertai nty !"# !"#$% (bay l -
gharar)

In Arabic, the root of the word gharar variously appears with the meaning of fraud,
deception, delusiveness, peril, uncertainty and fallaciousness.

As All!h says in )(ratl-+ad&d, 20: The life of this world is only a deceptive pleasure.
We learn from this that the word ghuroor has something to do with deception.

The Prophet ($allall"hu alayhi wa sallam) forbade against the sale by the stone and from
the sale based on uncertainty. [Reported by Muslim]
What does sale by the stone mean? Back then it was a form of gambling. You pay
and give a stone or rock and throw it. If you get it in, then you get something, and if
49

you dont get it in, then you get nothing. Alternatively, you throw the stone, and
whatever commodity it lands on you get. This is similar to carnivals. The prohibition is
based on al-gharar because you dont know what you are paying for and what you are
getting out of the transaction.

In its financial application, it is sometimes defined as deceptive uncertainty,
indicating that the one who practices gharar deceives or defrauds through the use of
uncertainty, although it is more commonly rendered as uncertainty only. It is also
known as speculative transaction.

Kamali summarizes the general position on gharar in sales contracts as follows:

In a contract of sale, the word gharar often refers to uncertainty, and the ignorance of
one or both parties of the substance or attributes of the object of sale, or of doubt over
this objects existence at the time of sale. Gharar is, however, a broad concept, and may
carry different shades of meanings in different kinds of transactions.
(Kamali, Mohammad H., Islamic Commercial Law, 2000, p. 84.)

The Essence of Gharar:

Gharar sales are of three kinds:

1. That which does not exist
(Which involves uncertainty over the existence or uncertainty over possession of the
subject matter)
Some relates to that which does not exist such as the second or third generation
offspring of a horse. This is gharar.
For example: you make a contract on buying the crops of land for ten years. You make
a contract that if you dont provide anything in one year, then there is a penalty. There
may be a drought resulting in no crops. This is prohibited because there is gharar: you
are selling and trading that which does not exist.

If there is an Arabian horse you want to breed in the market. You cannot buy the third
generation offspring of the horse because it doesnt exist yet.

What about buying apartments or houses when they are not yet built? You pay the
money and get the title and know which apartment you will get but for a few years
there will only be land there. If they show you the design and you know the size and
have an image (you have the detailed description) and they give you the title that you
own it, it is permissible. It is istisna. This is similar to customizing a laptop online and
buying it. It is permissible.

However, is the following allowed: you to buy the apartment for $10K and it will be
delivered in two or three years and within those two or three years the prices go up to
$18K and then you want to sell it for $18K. Are you allowed to sell it for $18K? In the
first scenario, you received the title from the original owner. It is not permissible
50

because you are selling something that doesnt exist. In the first transaction, you
bought it from someone who has the ability and capacity to deliver. In the second
transaction, you would be buying from the middle person who doesnt have the ability
to deliver and is only giving a promise based on the contract. It is not permissible. It
cannot be sold because if you do, then you are selling something that does not exist
from someone who has no ability to deliver. When you buy from the contractor, they
show you the land and design and have the ability to deliver. It is like going to a tailor
to get clothes made they have the ability to deliver.

Based on this, some ulema say that if you go as an investor to Turkey and contract ten
containers of hijabs and abayas and then come back to the US, you can market what
you have because you went there and purchased it and put it in your possession and it
is being shipped to you. If you are a second person buying the contract from the
person who went to Turkey, then you cannot sell it until the product is delivered to
you.

Once the gharar is removed, the contract is justified and permissible. Once you receive
the keys, you can sell the apartment.

Possession takes two distinct forms:
1. Physical possession is evident where the seller physically possesses the object of
sale.
2. Constructive possession exists where an individual does not hold an asset in his
physical possession but does legally own it and is therefore responsible for the
risks pertaining to that asset.
Possession of an asset is normally determined by custom.

Examples:
1. Multi-year contracts on crop sales.
2. Buying horse breeds before they are even born.
3. Selling commodities online while it is still on the ship in the sea.

2. Undeliverable commodity
(Which involves uncertainty over availability of the subject matter)
Examples:
1. Selling the fish in the sea.
2. Selling crude oil while still in the earth.
3. The birds in the air.

Are fisherman allowed to sell the fish before they fish? No. They need to go fishing and
catch the fish first. You can contract: whatever you get, I will buy from you. They set a
market price. In the oil industry, they buy oil at specific prices for many years. Once
the fish are in the net and on deck of the fishing boat, you can then start marketing this
to another vendor. If you distribute, if the contract is brokered, that is one thing and if
selling, then it is another.

51

3. The unknown
Examples:
1. The seller says, I sell you one of my cars.
2. Playing carnival games to win a mystery prize.

This is the greatest uncertainty / deception. For example: a mystery commodity. On
Ebay they may have containers from China and you have no idea what is in the
containers when you buy them.

Categori es and Rul i ngs of Gharar:

1. Extreme gharar: is that which overwhelms a contract so that it becomes a dominant
feature.
Prohibited unanimously.
Gambling, lottery and similar games are prohibited due to the extreme gharar
they involve.

Examples:
1) Selling fish in the sea and the bird in the air.
2) Selling a house before it is even built.
3) Raffle games.

2. Minor gharar: is that which is outweighed by a greater benefit.
Permissible unanimously

Examples:
1) The exact weight in food boxes.
2) The stuffing in furniture.
3) The ketchup on your burger.
4) When you go to eat, the amount is supposed to be specific on the plate, but the
amount of rice is different.

For example: you go to a flea market and see a pile of t-shirts and they are a certain
price each and you offer to pay $10 for the whole pile. This is permissible. You dont
know the exact amount, but it is tolerated because it is minor gharar.

When you buy a box or can of food, they say that there is a specific weight. In reality,
when you weigh it, it is not exact and may be a little more or less. This is permissible.
It is minor gharar.

3. Medium gharar: Disputable, and measuring gharar is based on custom.
Examples:
1) Buying crops before they show sign of maturity.
The dispute here is over the meaning of maturity of the crop. What determines the
maturity of corn crops? Once the sign is seen the sale can take place. It is not
allowed to sell crops while theyre still blossoming.
52

2) Priceline?!
3) All you can eat deals
The gharar: you are paying $10 at the door and sometimes you may eat for only
$5 and sometimes you may eat for much more. Is this forgiven or not? This is
the argument amongst the ulema. Some say not to eat there. Others say it is
tolerated because you wont eat more than your stomach can tolerate.
Dont eat more than you can fill your stomach and dont take things that you
want to try but not eat. Teach this to your children.

How do we classify medium gharar? What is the limit when determining if something
is minor or medium or major? There is no specific limit, so it is debatable.

Insurance and warranties involve gharar.

Some disputable sales due to gharar:
1. Bay al-juz"f or the sale of a certain amount of quantity without being measured.
Example of paying a general price for a pile of clothes at a flea market. This is
permissible for insignificant items. You cannot do this when buying houses /
apartments.
2. Bay al-urb(n or the down-payment sale.
For example: renting a wedding hall and canceling within the last 24 hours. Some
ulema said they are allowed to even enforce the entire contract. If it was one week
or a month, they are allowed to take the down payment.
3. Bay m" l" yumlak or selling what you dont own.
Example: drop shipping. You see something on eBay and market it on your own
website even though you dont own it yet. They order from you and then you buy it
from eBay.
There is a difference between being a broker. When you are a broker, you have a
contract. For example you have a contract from Best Buy online for a commission.
If it is not commission and there is no contract, then it may be selling that which
you dont own.
4. Bay m" lam yuqba# or selling what did not fully come into the possession of the
seller.

53

Part 4: Partnershi p Contracts

Chapter 13: Partnershi p (Mush"rakah) !"#$%& '( !")*$+%&

As individuals, it is not as easy as we think it may happen. The natural suggestion is to
go and partner with people.

Sharikah comes from partnership. Shirk is associating partners with Allah (subhanahu
wata'ala). Al-sharikah or shirkah is partnering with other people.

Partnership comes in two forms:
1. Contractual partnership (sharikatl-aqd) !"#$ !"#$%

2. Ownership partnership (sharikatl-mulk) !"#$ !"#$% which is sometimes also called
co-ownership.
Sometimes it is being forced on you and you have no choice on it. In
inheritance, a father may pass away leaving land, and all of a sudden the
children become partners with each other because they own the land. They
may not have distributed the land in their lifetime until they had children. Now
the land is owned by the grandchildren (the cousins). They legally and
Islamically own the land.

Islamically and legally, no one has the right to share his or her share without
consulting the co-owners. If five brothers co-own land and one wants to sell
and the other brothers say that he cannot, then Islamically he is allowed to sell
his share of the land but needs to consult with his brothers.

Islamically, if a co-owner shares his share without consulting with his partners
and they found out within a reasonable time, then they have the right to revoke
the contract by al-shufah (pre-emption). It is the right of the partners to
revoke a contract done outside of their partnership. How does it work? If you
have a house and go to your friend and he offers to buy a share from you, and
you sell it. The co-owners receive a letter letting them know that there is a new
partner in the partnership. They need to immediately report it and recall the
share by the law of al-shufah before it is too late. If a few months pass, then it
is too late.

General Defi ni ti ons of Partnershi p

Mush"rakah is derived from the Arabic root verb sh"raka !"#$ which means to jointly
participate.

Partners can pool together the following assets:

1. Money capital (all scholars agree on this).
54

Example: Ten people partner together and pay $5K each.
2. Credit worthiness (termed sharikatl-wuj(h), accepted by some scholars.
Examples: franchise system, marketing endorsements. Wuj(h in Arabic means
status.
3. Labor (termed sharikatl-abd"n), accepted by most scholars.
Some friends start a landscaping business. They work together and whatever
they collect at the end of the day, they split amongst themselves. Is it
permissible? What if one of them doesnt do any work? How is the profit going
to be divided? It wont be 100% fair because people wont put in the same
amount of power and hours. Some ulema argue over the permissibility of this
contract, but the majority say that it is permissible.

General Condi ti ons i n Partnershi p Contracts

1. Property in the possession of any one partner is considered a trust, hence he or she
is not responsible for the destruction of such property except by negligence or
breach of contract.
If the partnership gives something like a car, it is a trust. Can you sell it to upgrade
it? No, not without getting permission from the partnership. If they give you a
phone, you cannot upgrade it without seeking permission from the partnership.

2. Property in capital partnerships is to be mixed, hence contribution of two houses to
a partnership for the purpose of renting is not permissible.
All of the money needs to be put into one pool.

3. The contribution of partnerships capital in monetary form is acceptable to all
jurists and obligatory according to the $anbalis.
Are we allowed to start a partnership using assets? For example: one person brings
the fridges, one person brings the shelves, etc. Yes, it is acceptable.

4. The partnership capital must be present at the time of trading (but not necessarily
at the time of contracting the partnership), hence each partner can agree to
contribute $1000 tomorrow morning.
Each person agrees to participate by giving $5K. One person asks to give the money
next month. Nine people start the business with $45 and get some profit at the end
of the money. Does the tenth person get any of the profit at the end of the month?
If he works, then he gets payments as a salary. In terms of profit, he does not
deserve any profit. His money did not work towards that profit. The partnership
capital must be present at the time of trading.

5. Profit-sharing ratios are to be defined precisely as a proportion of profit, but
specification of a fixed or minimum amount of profit for one or more partners is
prohibited since this would contravene the riba prohibition.
You cannot set profit as a fixed number or fixed figure. It needs to be in a
percentage amount.

55

Ulema argue over whether the ratio should be distributed according to the share in the
capital or different. If each person put in $5K, then each person owns x%. Can one
person say that he deserves more because he is a celebrity or known to be a name for
the company? It is permissible because they can agree on the profit margins as they
wish. For those afraid of conflict, to be on the safe side, there is nothing better than
keeping the loss and profit at the same ratio as the partnership. Every partner has to
agree.

- Im!m M!lik and Im!m Sh!fii state that the return received by the partners in a
Mush"rakah must reflect their capital inputs, so a partner who has contributed
20% of the partnership capital must receive 20% of the profits made by the
partnership.
- Im!m A(med believes that the ratio of profit-sharing can differ from the capital
invested with no restriction.
- Abu $an&fah appears to take a middle view, namely that the ratio of the profits
may differ as per the agreement of the partners; however, a sleeping partner
cannot receive a percentage of profits in excess of the percentage of capital
invested. All schools agree that losses must be shared pro-rata to capital
invested.

6. The partnership terminates when any one partner withdraws, dies, becomes insane
or apostates, but, in a ruling that greatly facilitates modern day partnership
activities, the $anbalis allow the continuation of a partnership by the remaining
partners in the event of the withdrawal of one among them.
These statements are found in classical works of fiqh, but today it doesnt work this
way. If someone dies, it goes in inheritance and the original partner tries to buy the
children out to get ownership back.

7. The majority of jurists see partnership as a non-binding contract, hence any
partner can notify others of his or her intention to withdraw and then do so.
After the company starts operating and one person wants to withdraw, then you
buy out the persons share. The option to buy is given to the partners first. You
dont have right to sell your share of the partnership until you tell them first. It is
supposed to be sold at market value.

8. Upon termination, if the assets of the partnership are entirely liquid capital, it is
simply distributed pro-rata to the capital account of the withdrawing partner.

Di fferent Forms of Partnershi p

1. Sharikatl-In"n !"#$ !"#$%&

In"n is an Arabic word that implies control in the same sense that reins control a horse.
Its use in the term sharikatl-in"n signifies the fact that control of a partnership is
exercised by all of its partners, so limitations exist on the activities of partners when
they act as agents of the partnership.
56

Sharikatl-in"n is therefore often translated into English as a limited partnership, but
the term restricted partnership is perhaps better.
The word in"n means reign, meaning limited liability. It is the LLC partnership
(limited liability). This has its own rules. Each partner works as a representative of the
partnership, but at the same time, they cannot speak for everyone.

2. Sharikatl-Muf"wa#ah !"#$ !"#$%&'(

Yufawwi#uhu means to delegate (to another or others). Everyone speaks on behalf of
everyone. It is more open and everyone is an equal partner. The word muf"wa#ah
means negotiation or delegation.

In muf"wa#ah partnerships, each partner is a guarantor for all of the others and is
therefore personally liable for all debts incurred by the others in the course of their
work for the partnership. However, partners are not responsible for the transgressions
of other partners towards a third party, or transgressions committed by them outside
the partnership.

3. Sharikatl-Wuj(h !"#$ !"#"$%

In sharikatl-wuj(h, two or more partners use their credit-worthiness as a basis for
engaging in business. Example: franchise system.

4. Sharikatl-Abd"n !"#$ !"#$%"

In sharikatl-abd"n, two or more individuals agree to work together in a trade or
business and share profits and losses according to the contractual agreement.
Example: labor partnership.

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Chapter 14 | Al -mu#"rabah !"#$%&'(

A partnership may be effected as a mu#"rabah also known as qir"# !"#$ or silent
partnership between a rabbl-m"l (the investor as silent partner), and a mu#"rib (the
entrepreneur as the executive partner) who together share profits in a pre-defined
ratio.

A silent partnership is usually contracting on a temporary basis or a cycle of contracts.
It involves at least two parties, and one is the investor as a silent partner who
participates with his/her capital. The second partner is the worker or the
entrepreneur. The essence of it is that there are so many wealthy people, and they are
not motivated to participate in business out of fear that they may lose it. They try as
much as possible to keep the money with them. Mu#"rabah motivates people to put
the money back into the market. If there is no money circulating then there is a
recession and there are no jobs. Allah (subhanahu wata'ala) motivates the people to
circulate the money and wealth. In Suratl-Hashr, Allah (subhanahu wata'ala) says,
Allah forced the distribution of wealth among the community and banned monopoly
of capital so that the money is not only circulated amongst the rich.

Inheritance also kills that kind of monopoly. Inheritance breaks down big capitals to
get it distributed amongst more people. If someone dies with $100 million and leaves
only one daughter, she gets $50 million and then the rest gets distributed among his
family and if he has no one, then it gets given to charity.

The rich offer the money to smart people.

The investor is seen as contributing capital, while the entrepreneur contributes labor
and has full agency rights over the capital. The term mu#"rabah indicates a sharing of
profit.

The rabbl-mal is the investor. The mudarib is the labor. Rabbl-mal invests only
money. The other party invests all of the work. This is the clear and pure madarabah.
One gives money and the other one does the job. This is the concept of the stock
market.

How does it work? As an investor, you see some smart people in the community and
talk to them about starting a business. They agree but say they will do it part-time in
the beginning. A specific schedule is agreed upon.

General Condi ti ons i n Mu#"rabah Contracts

1. The rabbl-m"l is regarded as initiating an agency in which the mu#"rib acts as an
agent.
This is an agency contract. Each worker is like an agent.

2. It is not required that both parties be Muslim.
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You can partner with a non-Muslim. You can partner with the opposite gender as
long as everything is kept halal and professional.

3. For some jurists, the mu#"rabah can be restricted (mu#"rabah muqayyadah) if the
rabbl-m"l wishes (so that limitations are placed upon the activities of the mu#"rib),
but this arrangement is not accepted by the M!liki or Sh!fii schools.
Shaykh Yaser follows the opinion that you are not allowed to put restrictions on the
partner unless the partnership goes outside of the field of expertise. Also, you can
put restrictions for ethical and Islamic reasons. If the partner is non-Muslim, then
you can put conditions on not working on haram things.

4. The mu#"rabah can alternatively be unrestricted (al-mu#"rabatl-mu*laqah) and here
the mu#"rib can trade with the capital of the mu#"rabah in any way that he or she
desires.

5. The capital of the mu#"rabah is seen as a trust in the possession of the mu#"rib and
is for the mu#"rib to work with, hence it must be delivered to the mu#"rib.
(However, the $anbalis allow the capital to remain in the possession of the rabbl-
m"l, and M!lik allows multiple deliveries of capital through time.)
Personal expenses are allowed if it is involved in the business such as travel, but
keep it reasonable. If they misuse the money, they are responsible to pay it back. If
the loss happened as a natural dealing and the business did not go well, then rabbl-
mal loses his/her money and the mu#"rib loses his/her work.

6. According to the $anafis, the mu#"rib can use the capital of the mu#"rabah in a
second partnership with the permission of the rabbl-m"l.
For example, you get the money to start an online business. You ask permission to
do mu#"rabah with people overseas and then split the money with the rabbl-mal.
Other fuqaha say that you cannot do mu#"rabah within mu#"rabah. What can you
do then? Hire them and pay them salary.

7. If there is more than one mu#"rib, these work as a labor partnership within the
mu#"rabah, following the rules of such a partnership.

8. If there is more than one rabbl-m"l, these are seen as partners in capital ownership.

9. All jurists agree that the profit-sharing ratio is to be specified in the mu#"rabah
contract and, furthermore, specified as a proportion (for example, 60% for the
rabbl-m"l and 40% for the mu#"rib) not fixed in monetary amount.
The money collected may be more or less than what is anticipated, so with a ratio, it
will be divided.

10. The Shar&ah has laid down no instructions on what these percentages should be,
and they are therefore at the commercial discretion of the partners. It is
permissible to agree to different percentages of profit payable on different types of
activity (for instance, a 70:30 profit share in the hardware store and a 50:50 profit
59

share in the grocery store). A ceiling on the monetary amount of compensation
for one partner is allowed according to the $anafis.

11. The mu#"rib must not receive a salary from his work, as the essence of mu#"rabah is
a sharing of profits not a hiring of the mu#"ribs labour.
If a salary is given, then there is no incentive for profit. In order to motivate the
person, he cannot take salary. This makes him takes more risks. Business
flourishes when risks are taken. If a salary is paid, it will consume the capital of the
mu#"rabah.

12. The profit-share becomes due to the mu#"rib after the return of the original capital
amount to the rabbl-m"l at the end of the mu#"rabah. This ensures that the mu#"rib
does not receive part of the capital itself, but only a share of the profit made with
the capital.

13. Mu#"rabah is not binding (according to $anafi, Sh!fii and $anbali jurists) so long as
due notice is given of termination (since the contract is one of agency and the
performance of agency can be terminated at any time under Shar&ah). Hence also,
the mu#"rabah contract is not inherited after death.

14. However, once the mu#"rib begins work, the contract is binding according to M!lik
since early termination could lead to losses for the mu#"rib or rabbl-m"l. For
example, the mu#"rib may not have spent sufficient time on the project in order to
realize the full fruits of his labor, or a loss of capital may result from a premature
forced sale of project assets.

15. If the mu#"rabah contract is judged to be defective for some reason, then the
contract may be seen as an ij"rah of hired labor in which case the rabbl-m"l will be
required to pay the mu#"rib a market wage for his work.

16. According to M!lik, basic expenses incurred by the mu#"rib in the fulfillment of his
work (for food, clothing and travel for example) may be deducted from the capital if
the work removes the mu#"rib from his normal sources of sustenance. Im!m al-
Sh!fii does not allow such a deduction. Im!m A(med states that only daily food
expenses can be withdrawn from the mu#"rabah if permission is granted in the
contract. Im!m Abu $an&fah goes further and restricts even the withdrawal of daily
food expenses to those occasions when the mu#"rib is working out of town.

Di fferences between Mu#"rabah and Mush"rakah

Topic Mu#"rabah Other forms of Mush"rakah
Source of
investment capital
From rabbl-m"l only. All partners must invest in
the venture.
Management Mu#"rib makes management decisions
within restrictions agreed in the
All partners have a right to
partake in the management
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mu#"rabah contract; rabbl-m"l is a silent
partner and cannot make management
decisions.
process.
Losses Rabbl-m"l bears the entire loss unless
mu#"rib has been negligent, in which
case mu#"rib makes good to the extent
of his or her negligence.
Partners share loss pro-rata
to ratios of capital invested.
Liability The liability of the rabbl-m"l is limited
to the amount of his original investment
unless a debt is contracted by the
mu#"rib with the permission of the
rabbl-m"l (in which case repayment of
the debt also rests with the rabbl-m"l).
In unlimited partnerships,
liability extends beyond the
capital contribution to
include personal assets also.
In limited mush"rakahs,
liability may be limited as
with mu#"rabah.

If the rabbl-mal invests time and effort and labor, then it is no longer the mudarabah
but another form of partnership. If the mudarib invests money also, then it is a capital
partnership. Mudarabah is a short-term investment like contracting. The returns are
high.

Chapter 15 | Other Contracts

Whenever you invest, you want to secure your investment, and this is legitimate. You
want to make sure that your money is very well secured. You dont have the time to do
everything yourself.

Securi ty Contracts

Rahn This is to hold an item as security for a liability that can be met from the
disposal of that item, and it is therefore a means of granting assurance. The term rahn is
commonly translated as pawn, pledge or mortgage in English.

Allah says that if someone is traveling and wants to take a loan and there is no one to
write down the loan, you are allowed to take rahn. The most popular word used for
this is mortgage, but when you say mortgage, a house comes to mind. If someone
wants to take a $10K loan from you and he is not at the level of being able to bring it
back in one year, you ask how you know you will get it back and you need something to
secure the investment. Can you ask for the title of the his car? Yes.

If the due date arrives and you dont get the money back, you have two options. You
can give them more time. Allah says that if someone is in trouble, give them more time
until they are in an easier time. Or you can sell what they have given you to hold (i.e.
car title, gold) to get part of the money back. The remaining balance still needs to be
given back.

How can this be used in the market? For example, someone wants to borrow $200K
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from you to buy a house. How will you secure the money being lent? You will put a
rahn (lean) on the same house that is being bought. When the last payment is done, the
lean is off and the house is 100% that persons house.

Kaf "l ah In Arabic, kaf&l means guarantor and kaf"lah means guarantee. A guarantee
provides assurance of the performance of an obligation to the one to whom the
obligation is owed (for example, repayment of debt or a personal presence in a court)
and encourages agreements to proceed between parties who might otherwise not
accept one anothers credit or promises.

The closest translation in contemporary transactions is co-signing. Al-kafalah is a
contract of charity. This means that you cannot charge money for kafalah. Dont
volunteer to do kafalah to someone you dont trust.

The Prophet (sal Allahu alayhi wa sallam) was about to pray janazah on someone and
then asked if he left any debt. Someone said he left 2 dinars. He said find someone to
pray on him. Abu Qatadah said, Ya Rasulullah, pray on him and I guarantee that this
money will be paid. The Prophet (sal Allahu alayhi wa sallam) would see Abu Qatadah
and ask about this money until he paid it off. Abu Qatadah should not be asking for
anything in return for this. If you open any business which requires you to be a
guarantor, you should not be charging money for that service.

Shuf ah means pre-emption. Here, specifically, it is the right of first refusal on the
purchase of a jointly owned property. Shufah allows a joint owner to buy the un-owned
part of a jointly owned property for himself or for a close relative rather than see it
sold to a co-owner that he does not know or wish to live with in close proximity. The
right of pre-emption arises once the property is sold to the party who may then be pre-
empted. Shufah can be viewed as a contract of exchange but is included here under
contracts of security on account of the protection that it affords to the interests of the
pre-empting party.

The shufah amount is the exact same amount paid for the contract. If someone sold
his share for $5K and the partners realize it, they have the right to spread the share
among themselves collectively or one or two can partner together to get the share back
from the outsider.

If you live in a house, your immediate neighbors have a right of shufah on you. Some
ulema say it applies as far as the seventh neighbor in all directions. If you own a store
and want to sell it, you need to consult your neighbors. If you sell it without consulting
them, they have the right to revoke the sale by paying you money and taking the
contract.

How do you do that now? Put a sign outside saying For Sale. This means that you are
informing everyone in your neighborhood that you are selling it. if they dont do
anything when you have put up the sign, they have forfeited their right of buying it
first.
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If you want $200K for the house and the house is appraised for $100K but you have
someone who will buy it for $200K, then the neighbors need to match the $200K. if
they can match the highest bid, then they have the right to get it first.

Wak"l ah The word wak&l is used in the Qur!n to mean protector or preserver
and tawakkal ala All"h means to put ones trust in All!h. More generally, a wak&l is one
who is delegated to do something, in other words, an agent. In commercial usage,
wak"lah means agency.

They deserve money for this. You are hiring them. Wakalah is a contract of
partnership. Partnerships are of different levels. You are allowed to charge for this.
You can get a monthly salary or commissioning. If you go on cuts and commission,
then this is brokering. If it is specific pay, then it is agency.

Some ulema classify credit cards as wakalah.

+aw"l ah This means change or transfer. In mu"mal"t it is defined by all schools
of thought as the transfer of liability for a debt owed to a creditor, such transfer being
from the debtor (the transferor or mu%&l) to the person named in the %aw"lah
contract (the transferee or mu%"l alayh). The transferee can seek recompense from
the transferor after paying the transferors debt. +aw"lah allows creditors to collect
debts more speedily and allows cross-holdings of debt obligations to clear more easily,
especially where creditors and debtors are separated geographically.

The Prophet (sal Allahu alayhi wa sallam) said, If someone was referred to someone
who was wealthier, accept the referral.

This works in many different ways. Someone borrows $1K from you and then you call
them for the money but they dont have it. They tell you their dad is coming from
overseas, so he suggests asking him. It is okay as long as the father agrees. This is
collection.

When someone refers you to someone else to pick up the money, you consider it a
contract of charity. You are not allowed to charge people for that.

If you call your friend X and he says that he can give you the $1K but he will have to
take a leave from his job which will cost some money and he will have to stand in line
and withdraw the money and then come back so it costs gas or train ticket. This will
cost $50. Are you allowed to charge the $50 over the $1K loan? Yes. This is what credit
cards do. They charge money for processing fees.

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Contracts of Chari ty

1. Qar#

The exchange of a property for a liability of the same amount on the borrowing party
where only the borrower benefits.

Qard hasan means goodly loan and you dont take anything for the service.

2. Hibah

The gift contract is one which results in a voluntary transfer of ownership of an item
without receipt of a countervalue by the donor. It is therefore a unilateral contract.

If you ever give the masjid a donation, dont ever expect anything in return, not even a
letter of appreciation.

3. Waqf

A religious endowment, i.e. a voluntary and irrevocable dedication of one's wealth or a
portion of it - in cash or kind (such as a house or a garden), and its disbursement for
Shar&ah compliant projects (such as mas"jid.)

The gift is given to a specific entity. Imagine the Muslim ummah brings back this
concept of awqaf. The Islamic society used to flourish so much on this and there was
no need for government interference and government interference was limited in the
market. For example: Islamic schools and universities, masajid. The society flourished
and it was all charity. When the colonial era started in the Muslim land, the awqaf
were stripped from its owners. The Islamic environment suffered so much because of
that and there was no income coming in anymore.

If you ever want to serve your community for the future, do something that will go as a
waqf. Another suggestion: if you are ever offered something such as life insurance for
free without putting anything from your pocket, but a masjid or Islamic school as a
beneficiary.

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Part 5 | The Fi qh of Modern Events !"# !"#$%&# (Fi qh al -
N"w"zi l )

Chapter 16 | Introducti on

1. Definition

Linguistic: al-n"zilah !"#$%"& (pl: naw"zil !"#$%), what comes down and befalls
It befalls the people and covers everything.

Technical: It is a new contemporary issue that requires a fiqh opinion based on ijtih"d
(reasoning).
If it is covered by the texts, then it does not need ijtih"d.

What is the hukm of drinking wine? Haram. Why? Allah says in the Quran.
What is the ruling of drinking beer? Haram. From the texts: Whatever intoxicates in
large amounts, the minimum is haram as well. Every intoxicant counts as khamr.
What is the ruling on drinking Budweiser? Haram.
This does not qualify as a nazilah because it is clear.

What are examples of something requiring nazilah? Cigarettes, marijuana.

What are the aspects of n"zi l ah?

! It should be real and present at the time of discussion.
If you ever travel to Mars, which direction would you pray in? Answer: Well talk
about it when we get there.
What direction do you pray in from the space station? The fuqaha said in the
direction of the earth.

! It should be new and not necessarily covered by the text. (Some naw"zil might
partially be covered by the text).
Example: Shocking the animal with electric shock is covered by the text that
prohibits eating the dead animal regardless of the method of killing it.

! It should be a severe matter or at least has become very common and definitely
demands a fiqh decision.
Example: Individual cases, non-severe matters like using copper in pennies for
instance do not count as naw"zil.

! It could be an issue of fiqh or a non-fiqh issue like discovering a new disease. In the
case of non-fiqh naw"zil, it might not require a fiqh opinion at all, unless religious
consequences appear as a result of this issue.
Example 1: HIV patients and the case of separation between the two spouses,
breastfeeding and child custody.
65

Example 2: Inflation and currency prices and the effect of it on settling debts and
financial responsibilities.

What i s the f i qh procedure i n deal i ng wi th the naw"zi l ?

! To do ta$w&r !"#$% of the issue which means to have a very good understanding of it
by putting together all its aspects to create a clear mental picture. This can be done
by taking the following steps:
- To identify the area of confusion and the essence of the issue (i.e. financial,
medical, riba, deceit and etc...)
- To research the history of the issue and gather all possible information and
techniques related to it.
- To study the issue or what is similar to it as covered in previous studies to keep
your knowledge up to date.
- To consult people of expertise whom the n"zilah is relevant to them.

This is simply to create a mental picture. You need to visualize it. How do you do that?
By asking many questions. Trusting the person is not sufficient to visualize the
magnitude of the situation.

If someone comes to the masjid and says there was a huge accident outside, would you
believe them? You would ask them questions about it. Would the inquiries give you
the real essence of it? You would search on your cell phone for a picture so you have
certainty of sight. When you go outside of the masjid, you see something completely
different and have haqql-yaqeen, the essence of truth. The more questions you ask,
the more you are able to construct a mental image of the issue.

Example of smoking: ~250 years ago, cigarettes were first introduced in fiqh. A scholar
gave a fiqh opinion that it was makruh. They visualized it based ono what they saw and
smelled.

! To do taky&f !""#$ by understanding the likeness of the issue to a subject of fiqh
through drawing the best analogy and create the bet resemblance between the
n"zilah and what has already been covered in books of fiqh.

Bear in mind that it might be a very sophisticated issue that requires the comparison to
more than one principle in fiqh. These principles can be found in:
1) The text of the Qur!n and Sunnah.
2) Ijm" of the previous generations of fuqaha.
3) A fiqh opinion covering a previous n"zilah that is similar to the one under study.
4) A fatwa given by a renowned scholar.
5) A q"idah fiqhiyyah !"#$% !"#$% or one of the maxims that cover Islamic law.

What is the closest thing to it that you can draw masallah from? You try to fit it in to
the already existing masallah. The word kayfa means how. What is the parallel
issue we have already in the fiqh that we can compare to?
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Example of smoking: If you dont know what you know today about smoking and
tobacco, the closest thing for the fuqaha at that time 250 years ago was leaving bad
smell. They said it was not hashish, so there was no harm to that level. For them, the
closest thing to them was garlic and onion because they left a bad smell. If you eat
fresh garlic and onion, you shouldnt come to the masjid because it leaves bad smell.
The ruling on coming to the masjid after eating fresh garlic or onion is makruh and
based on that smoking is also makruh.

This is all based on ijtihaad and mental processing. The ijtihaad has to be contained
within the evidences available.

Later on, they realized that smoking is much worse than leaving a bad smell and can
cause diseases and addiction, and in the past 30-40 years, many ulema are vocal against
cigarettes as haram. How can they revoke a fatwa of the previous generation? The
rules revolve around the illah (effecting cause) positively and negatively. If the initial
illah established by ijtihaad is wrong to begin with, then you have to adjust the hukm.

! To draw a fiqh ruling that is suitable to the issue and apply it to the n"zilah. This
ruling should achieve the higher objectives of the law (maq"$idl-shar&ah !"#$%&'()*+,)
by bringing the benefit to the ummah and preventing and removing any possible
hardships caused by this n"zilah.

The fiqh ruling drawn should be supported by the evidences approved by the law of
Shar&ah.

Drawing a fiqh opinion on an issue of naw"zil requires keeping a good balance between
the application of maq"$id and the utilization of the na$$ !" , i.e. the religious text.

In summary: What is required of the fuqaha in regard to dealing with naw"zil is to find
out two things:
1) To try to find out the proper ruling to the issue, which Allah will be pleased
with, to best of their judgment.
2) To make sure it is applied properly amongst the people who are governed by
this law.

Example: Your son finished high school and wants to join the school football team.
They won the primary games and are going to the playoffs. His team decided they will
make a Mohawk hairstyle and dye it yellow. Is this nazilah? Nazilah has to be
something present at the time of discussion. It is not something common faced every
single day, so it doesnt require a fatwa of the ummah.

How do you qualify an event as a nazilah? It is becoming a trend and not a one-time
event. It has to be widespread. It has to be something that requires a religious fiqh
opinion. It is unprecedented meaning it is not covered by the texts.

67

Part of the texts we discuss are not just Quran and Sunnah but also fiqh opinions.
What is the hukm of salah on a plane? Is this a nazilah? Yes. Was it covered by the
texts? Yes. The scholars asked: which direction do you pray on a swing? They say that
if you ever fly on Aladdins flying carpet Some things are covered by the texts
because the ulema did consider it.

The ulema of fiqh ask: if the head of the iman turned into a loaf of bread and you
prayed behind him while hungry would you eat or finish salah first? They know this
is nonsense but they are trying to sharpen the skills of the fuqaha.

Chapter 17: The Basi c Di fference between the Capi tal i st and
Isl ami c Economi c Systems

1. In secular capitalism, the profit motive or private ownership are given unbridled
power to make every changing economic decision, without control by any divine
injunctions.

The Islamic system is a hybrid of the capitalist and socialist systems. We believe in
a free market and also believe that the system has to be monitored to make sure
everything stays fair and is done properly. We believe in fair trade. Generally
speaking the market will regulate itself.

In the capitalist system, there is no such thing as halal and haram. The only halal
and haram is what the market presents to you. Meaning: what if they wanted to
make the riba ratio higher? Yes, if the market allows it. When they do their
calculation and find it would destroy the market, then they keep it lower.

2. One of the most important characteristics of Islamic financing is that it is an asset-
backed financing.

The banking system is all about lending money. They borrow money and lend it out
to investors with interest. If the Islamic system makes vaults (you rent space
where you put money), they are allowed to charge you for that. You are renting
space from them.

3. The conventional/capitalist concept of financing is that the banks and financial
institutions mostly deal in money and monetary papers.

4. Islam does not recognize money as a subject matter of trade, except in some special
cases.
Example: foreign exchange and money exchange. You cannot take money as the
subject of trade as banks do.

68

5. Capitalist theory: the capital and entrepreneur are two separate factors of
production. The former gets interest while the latter is entitled to profit.

6. Islamic theory: does not recognize capital and entrepreneur as two separate factors
of production. Every person who contributes capital (in the form of money) to a
commercial enterprise assumes the risk of loss and therefore is entitled to a
proportionate share in the actual profit. In this manner capital has an intrinsic
element of entrepreneurship, so far as the risk of the business is concerned.

If you lend someone money, you earn your interest. They emphasize on the
interest to be secured as well. For the entrepreneur, they only secure profit for you
if it exists. In the Islamic system, we dont see a difference. They both have to
share risk and profit. In the conventional banking system, they only take interest.
The Islamic system encourages partnership.
In the Islamic system we dont consider money as a commodity to trade. You have to
take risk as much as participating in taking profit. In the capitalist system, they only
share the interest and are not willing to participate in the loss.

In Malaysia, they are ahead of the time. They have a model for Hajj. You can open an
account with the Hajj ministry to save for Hajj. They offer Hajj packages and you invest
with them. You can invest or they can just save it for you. Once you reach the quota
that qualifies you for Hajj, they contact you.

Chapter 18: The Doctri ne of Necessi ty

Some people say buying a $400K house was a necessity. People say they buy a luxury
car with a loan because of necessity. People say they are taking loans with interest to
go to medical school. Is this valid or not? Not everything can be justified. When can
we use necessity as an excuse to commit something haram like taking riba?

The following guidelines for deciding what exactly a necessity is or isnt:

1. The state of extreme necessity should:
a. exist in reality and be practically experienced and the relaxation of the
prohibition should most likely change this status;
It is not something imagined ten years down the road. It has to exist at the time
when you are looking for a solution.

Or

b. the condition should be about to come into existence, not merely claimed to be
so, and the relaxation of the prohibition will most likely prevent that
occurrence. In other words, when adherence to the prohibition threatens one or
more of the five foundations of life for the individual or group in question, then
a relaxation of the prohibition should be observed until the threat departs.

69

Example: A family has two adults and six children. Is there an apartment
complex that will allow six children? No. If they find out, then they will evict
them. Most apartment complexes have three bedrooms. If there are three
bedrooms, then there is a maximum of six occupants. If they are about to be
evicted and cannot find a house for rent, a mortgage may be lower than renting
a house. In this case, we tell them to go and buy a house unless they find a
rental house that is cheaper. Safety also needs to be taken into account. In
areas where houses are cheaper, they may not be safe.

Example: A father lost his job and had seven children. It came to the point
where they were about to be evicted. The mother and seven children were
living in a van for over a week in a parking lot of an apartment complex during
the winter in Chicago. After the father tried so much, he almost lost his mind
and disappeared. Imagine a father of seven children and he is unable to provide
for his family. Allah describes people like them in the Quran: they dont want
to ask people out of shyness. The mother had never worked before. They had
a fundraiser for them.

2. The individual or the group should face two options:
a. To commit what is %ar"m (either by acting on what was prohibited or leaving
that which is obliged);
They need to buy the cheapest they can afford.

or

b. Risk one or more of the above-mentioned foundations. If a %al"l course of action
is available then the case of extreme necessity is not attained and hence that
which is %ar"m may not be practiced under any circumstances.

3. That which is permitted out of necessity does not become established as a norm or
as a principle. Instead, it is a temporary exception, which terminates when the
condition of extreme necessity is removed. Hence the people of knowledge have
implied the maxim necessities allow the forbidden. A complementary maxim
states, What is allowed out of necessity is determined according to the situation.
These maxims are derived from the saying of the Exalted:

Whoever is compelled out of necessity, without transgression or overstepping, there is
no sin upon him. (al-Baqarah, 173)

4. We must draw a distinction between a national state of extreme necessity, and one
that applies to a single individual. The former is of course a greater necessity than
the latter.

The concept of necessity is a case by case scenario. You cannot establish a fiqh ruling
based on necessity unless it is a concession. The Prophet (sal Allahu alayhi wa sallam)
allowed us to eat maytah in times of necessity, which was life-threatening.
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Creativity is the solution. The word check comes from Arabic Saq. They used to
use it instead of carrying all the gold and silver. Merchants deposited gold with a local
merchant and would take with them a Saq. They traveled to different cities. At each
station, they cashed the check and took the money and traded and before they left the
city they would deposit the money and take the check.

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Part 6 | Case Studi es

Chapter 19 | Credi t Cards !"#"$% !"#$%&' !" !"#"$% !"#$%" (bi*"q"tl-itim"n aw
bi*"q"tl-iqr"#)

There are different types of credit cards:
Debit cards: you have money in your bank and it takes from your account
Checking card / cash card: When you slide it, it has the effect of cash

Tasweer: how do you visualize the concept of the credit card?
A credit card is a loan. Someone is paying your bills on your behalf. When someone
does this for you, you become liable to pay that person. You are in debt. When you are
in debt, it means you have taken a loan. There are no surprises in the credit card
system because you sign a contract with them when you sign up. When you sign the
contract, it says that you will pay riba if you dont pay off the credit card in full. There
is a limit on credit cards (revolving credit it goes up as your credit score improves).

From the merchants perspective, if you allow customers to use credit cards in your
store, they charge you a percentage on the merchandise. The question is: what is this
percentage? Is this percentage permissible or not? It is 2%. They call it a processing
fee. It is a percentage and not a flat rate. Is that interest?

There are three relationships in any transaction:

The credit card is issued by the bank. If you dont pay in full, you pay an extra charge
every month. Every time you go to a merchant and use the credit card, you sign a piece
of paper and then walk out. Can your relationship with the merchant be hawalah or
something else?
The merchant goes to the bank and asks for the money. They are collecting their debts.
The bank tells them that because they did this for them, they need a cut. If it was
hawalah (a contract of charity), nothing should be charged. Therefore, it is not
hawalah.
How can we justify the percentage the bank takes as a cut? Is the bank acting as an
agency and are therefore allowed to charge? If you consider the bank as an agency or
brokerage, an agency is allowed to charge money. An agency is not a contract of
charity. A broker is allowed to take commission and a cut.

How can you be a broker? Using the logo of Visa or Mastercard can justify the concept
"#$%&'()
*()+,-.% /-.0
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of being a broker. You know that you dont have cash money and want to buy from a
particular store over another. You choose it because of the logo they accept certain
cards. The credit cards act like brokers. Sams Club accepts Discover and Mastercard,
but they dont accept Visa. If you have Visa, you will not be able to buy from Sams
Club. There is a marketing technique. They are providing some services.

Credit card and customer:
The credit card gives you a loan. You need to pay it back. You are obligated to pay it
off completely and there is no riba involved. If you leave it and let riba accumulate,
then it is a problem. If you sign a contract and even if you plan to pay it off every single
month, you accept a contract that you are willing to pay riba on the card. The idea of
doing this is a problem. The contract is a problem between the credit card carrier and
the issuer (bank).

Credit card and merchant:
You sign a piece of paper and leave with merchandise. To justify this relationship, we
consider it referral (hawalah). When you do hawalah, you are not supposed to charge
the person who offered the service. There is no payment between credit card carrier
and bank for referring merchant to bank.

Merchant and bank:
The merchant will be charged money directly from the bank because they are
marketing the customers for them by offering their machine and their logo and telling
customers to come to their store.

The main principle of the credit system:
- The assumption of a financial trustworthiness of the borrower (debtor) !"#$%
!"#$%&' (am"natl-muqtari#)
This is why credit card companies give it to people once they reach a certain
age. They trust that they will then be able to pay it back.
- The ability of the debtor to pay the debt back in a timely manner !"#$ %&'()* +),-(.
(al-waf"u bil-dayn muajjala)

The system is like giving a loan. The takyif: the closest thing is the loan system.

Al-takhr&jl-fiqhi !"#$%&' !"#$%& (the juristic understanding) of the credit card system:
The nature of the different contracts resulting from getting different parties involved
in using a credit card:

Between the source of the card or the issuer (ex: a bank, Visa Card) and the carrier
(example: the customer whether an individual or an entity)
Contemporary issues will remain under discussion for one or two generations. When
the opinion is settled, then it becomes like another ijma or another source of
difference of opinions amongst the fuqaha. Some ulema consider it as:

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- Kaf"la !"#$% (suretyship).
This means the bank is co-signing for you. When you slide the card, the credit
card companies are telling the merchant that they trust the customer. Money is
not charged for this because it is a contract of charity. However, sometimes
credit cards charge annual fees, which are a flat rate. Can we consider this as a
payment towards offering a kafalah? If so, it nullifies the contract of charity.
Others say the annual fee is optional if you want to be enrolled in their other
services such as their reward points, the cash back, etc. This means that if you
dont pay, you dont get enrolled, but if you pay the annual fee, then you get
enrolled. The annual fee is for the other services offered by the credit card.
Reward points are permissible because the bank is paying you back, so it is not
interest. Interest is when you take a loan and you pay it off plus. The rewards
are when they are paying you back. The dilemma is accepting annual fees.
Ulema who say it is payment towards kafalah say it is haram money and you
cannot pay it. Others say it is for enrolling in the optional service, and in this
case it is permissible.

- Wak"la !"#$% (agency, representation)
They represent you with the merchant. The bank says they represent the guy
and if he comes to the merchant, then the merchant can come to them to get
the money. Alternatively, other fuqaha say the customer represents the bank.

- Qar# !"# (loaning) % Between the source of the card and the merchant
(example: department store)
Therefore, any extra charges are considered prohibited whether a percentage or
flat rate.

- Samsarah !"#$% (brokerage) % Between the carrier of the card and the
merchant.
The bank becomes like a broker on your behalf and negotiates with merchants
to accept presence with the customer.

- +aw"lah or %iw"lah !"#$% (transfer of a claim)
You slide the card and tell the merchant to go to the bank to get the money.
There should be no charge because it is a contract of charity.

- Bay (sale) or ij"rah (hiring or rent)
You are hiring someone to pay for you. You hire the bank to pay your loans. If
this is the case, they are allowed to charge you money. When you go to an ATM
and they charge you, you rented convenience. It is considered like hiring, so
they are allowed to charge you the fee.

Signing a contract that stipulates riba as part of the transaction. Two opinions:
All of the ulema agree that this contract if it was in a normal Islamic environment
would be nullified because it insists on haram (riba). Why do they allow it in these
times?
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1) It is absolutely prohibited because the condition included entails the approval of
%ar"m, and any contract that is based on %ar"m is null.

2) It is permissible because it alleviates a pressing need !"#$ (%"jah) or necessity
!"#$% (#ar(rah). It is permissible with the condition that in order to avoid riba,
monthly payments should paid in full.
For some people it is a need to carry a credit card and not a necessity. Some
fuqaha qualify a pressing need to be raised to the level of necessity. Sometimes
a pressing need can tantamount to the level of necessity. People who travel a
lot or have a business or work online or have a PayPal account need a credit
card. If you really dont need it, financial advisors will even tell you not to use a
credit card. For people who spend more than they earn should cut up their
credit cards and just use cash.
It is permissible as long as you pay off the credit card in full. This means that
you cannot charge your credit card than what you can really pay.

This comes from hadith Barirah. Barirah was a female slave and Aisha wanted to buy
her to free her. When a person freed a slave, they got a sense of allegiance which also
involved financial obligations. If a former slave died with no relatives, the wealth goes
to the family who freed him first. If an ex-slave master died with no relatives, the
money goes to the ex-slave. The masters of Barirah made a condition on Aisha. They
said they agreed if that when she freed Barirah the wala belonged to them. She told
the Prophet (sal Allahu alayhi wa sallam) about this, and he (sal Allahu alayhi wa
sallam) said, Give them that condition. Al-wala automatically goes to the person who
frees. This means that even if you put a condition like that, if the condition does not
apply to the actual circumstances, it is considered null. They say that even if they put a
condition on you to pay riba, it is not 100% the same scenario, but this is waived with
the condition that you make sure to pay on time as part of the necessity of the
situation.

What if someone delays the payment and is charged riba? Call the credit card company
immediately and ask them to waive the charges. If you are a loyal customer, they will
accept.

! The percentage deducted by the bank from the merchants account, for the
convenience of using the credit card machines:
- Um(lah !"#$%, (commission). They brought customers because they are carrying
their logo, so this justifies the charge.
- Ujrah !"#$, (fees or charges) in return of services. They are hiring them to collect
the money from these people.
- Mu$"la%ah !"#$%&, (preventive conciliation) with the creditor. The merchants
borrow from the bank and collect money on behalf of the bank from the
customers. They consolidate the debts and take services for that.
It is not riba to begin with because riba entails growth, and this percentage is
deduction.

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! Penalties and Late Fees
By unanimous agreement these late fees are the pure riba. All ulema regard late fees as
pure riba. This is the essence of traditional riba when people could not pay on time.
How to avoid the issue of charging late fees?
- Offering a grace period to pay. For those renting houses and apartments, this
may be too much.
- Cancelation of membership and collecting fund through litigation.
- Reporting the debtor to the national credit system and considering the credit
score as a measure of financial trustworthiness.
Late payment fees on bills are also considered riba.

Are overdraft fees riba? For example, you only have $500 in your account and you
withdraw $600, so they charge you $25. They charge you money for the loan, so this is
riba.

A man owed Ubayy b. Kab some money. When it was due, they were arguing in the
masjid of the Prophet (sal Allahu alayhi wa sallam) and the Prophet (sal Allahu alayhi
wa sallam) heard it from his house. He (sal Allahu alayhi wa sallam) said, Ya Ubayy!
He (sal Allahu alayhi wa sallam) waived his hand to Ubayy meaning to cut the debt and
give him concession. The Prophet (sal Allahu alayhi wa sallam) told the man to pay
him in full what he could.

Is it permissible to use a credit card to buy gold or silver?
Gold and silver transactions must always be performed mun!jazah !"#$%& (full payment
and exchange of commodities at the time of the transaction). This sale is called !arf.
Can you use a credit card or check to buy gold or silver in a store? If they slide a check
in a machine, it immediately takes it from a checking account and acts like cash. The
payment was given immediately. When using credit cards, the payment is deferred. It
may be processed for 24 hours. If you take the gold and they take the payment at a
later time, it violates one of the rules. Ulema who dont consider currency as a
substitute for gold and silver say it does not matter. Shaykh Yaser follows the
conservative opinion on this issue. Some ulema say that as long as you do the exchange
immediately and give them a signed receipt, then it should qualify as full payment.

Something gold plated does not take the same ruling as pure gold. The Prophet (sal
Allahu alayhi wa sallam) allowed people to eat from plates with gold plating filling
cracks.

Using a credit card to pay for a sale made with a different currency (!arf).
Example: buying commodities at a foreign airport.

The credit card reward system
Example: Airline mileage

Chapter 20 | The Loani ng System

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What justifies taking a loan?

Buying a house using a conventional mortgage. Two opinions:
* How does the mortgage system work?

1) The default ruling is prohibition because it is based on pure riba.
2) It is permissible to buy the first house on mortgage, out of necessity !"#$% (#ar(rah)
or pressing need !"#$ (%"jah) for the following reasons:

[Some contemporary ulema like Shaykh Yusuf al-Qardawis fatwa is that if you live in
the West is that it is permissible if it is your first house or first car to use a conventional
mortgage, but it cannot be done for commercial purposes.]

Abu $an&fahs opinion on the permissibility of charging al-%arbi !"#$%& (with whom the
state is at war with his/her land) as long as it is done in their land.

Abu Hanifahs opinion is that it is permissible for a Muslim who goes to the land of the
non-Muslims to trade with them and charge them interest. The meaning of bi aman is
entering on a visa. He said it is okay because the rules of Muslims do not apply to them,
so whichever way you take their money with their mutual consent should be okay.

The Hanafi scholar Mustafah al-Zurqah said it is okay to take a loan from a bank with
interest with the intention of buying a house. As a result theyll own the house at the
end of the contract. One condition: pay attention to the entire loan with the interest
as you take it. the mortgage payment should always be less than the amount of rental
if you were to rent the house. If it saves them money, it is permissible as long as it is
agreed upon and there is no deception and no cheating.

The Muslims ought to establish themselves in the land where they reside, and they
should not allow their wealth be consumed by rent or lease.
It is based on necessity, the principle of removal of hardship and the need to alleviate
the suffering of the people.

What is the objection to this opinion?

Al-takhr&jl-fiqhi to this issue:
- The careful look into the opinion of Imam Abu $an&fah ra%&mahullah. (Who is
earning the money?)
Who is a faqih who will say that we live in darl-harb publicly? No one will say that
in public.

- The controversial dichotomy of the land of war !"#$%&%' (d"rl-%arb) and the land of
peace !"#$%&%' (d"rl-isl"m). (Does any one dare openly call the land where they live
d"rl-%arb?)
This is a classical definition made by ulema in a previous time. Before the Arab
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spring, some of the Muslim Arab countries were even worse in terms of religiosity.
For example, in Tunisia, Muslim women were not allowed to wear hijab in official
buildings for 40-50 years. In Tunisia, at one point some masajid gave IDs to people
who would go to the masjid and you had to scan it to go in and out.
The boundaries between darl-harb and darl-islam are so fluid now.

- Applying the rule of saddl-dhar"i !"#$% !"#$ (blocking the means to evil).
Imagine allowing Muslims to do this for the first house. When you apply a
condition, people dont stop.

- Explaining the legal definition of necessity and pressing need.

Permissible alternatives:
Some people need loans for a small business or for schooling.

- Creating a voluntary pool of money offered by local buyers to share the
expenses of buying houses, and they take turns by drawing lots to determine
who collects the money for the particular year.
The most important part of these projects is leadership. The people need to
have someone they trust leading the project.

- Using the collective financial power in the community, by bringing interested
buyers together and striking deals with a local bank to buy foreclosed houses or
stipulate a Shar&ah compliant contract.
Imagine the community assisting one another.
- Building homes with !"#$ %&' (bayl-ajal) deferred payments.
House:

You buy a car for $2K and if you want it deferred, you pay $7K. If you want it for
5 years, it is $6K, if it is seven years then $7K. You pick an option and lock in the
price and it doesnt fluctuate.

- Buying a house on installments from the original owner, even if it was the bank,
after locking the final price.

Go to a local bank with smaller purchase power. Try to buy some houses from them.
You need to go as a community (i.e. 20-25 people). Negotiate with them.

Other form of loans:
- Student loans
Suzie Orman was asked about student loans. There is an entire video on student
loans. Some people co-sign for student loans, and if a student dies, then the
person co-signing is responsible for paying it off.

What is the solution? There is the One Million Dollar Project. Look for
scholarships and grants. One brother did not borrow $1 as a loan to go to
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medical school. He applied for every scholarship and grant as he could get.

- Business loans
Example: starting a new business or expanding an existing one.

- Personal loans
Example: buying a car, appliances or buying furniture with interest or with
interest free contract.
- Rent to own contract

Chapter 21 | Rent (or Lease) to Own Contract !"#$%&'()*+,' !"#$%&'( (al-
&j"rl-muntahi bil-taml&k)

Rent to Own: This is the base of La Riba and other organizations. You shop for yourself
and find the house you want. You go to them and tell them about the house. Lets say
the house is $200K. You will rent the house from the partnership. They make their
calculations that whatever you pay is towards paying the loan. They charge you $1500
every month so you are paying towards the lease. Once you fulfill the term of the lease
(25 or 30 years), then you buy the house from them for $1. (Others say for nothing).
During this process, you are responsible for everything: the insurance, the
maintenance, etc. even though the contract is supposed to be a rental. They dont buy
the house for you until you sign a contract of lease.

Diminishing Partnership: In essence, even though it sounds different, it is almost the
same. They come with you openly in a partnership contract. You buy the house
together. During the 25 years of the loan term, you are buying their share. How do you
buy their share? By investing in renting the property from them. You live there. If
someone else rents the house, you both split the profit based on how much you both
own. Every month, your share increases a bit and their decreases a bit. Within 25
years, you will get to 50-50 and then finally it is yours at the end of the loan. You both
own the house. However, in order to secure that you will be taking the house from
them, before getting into the partnership you have to sign a promise to go into the deal
with them afterwards. According to Imam Malik, the promise is binding. According to
Imam Abu Hanifah, if the promise involves money and expenses, you are liable to pay.
This is like a conventional mortgage except with a loophole.

These models seem to be okay, but when you look into the details, you find some issues.
You dont know what type of contract it is: loan, promise, purchase. It is forbidden to
have two sales in one contract or two contracts for one sale because it leads to riba. It
is confusing because if you ask them about the diminishing partnership, both people
should be responsible for the insurance and maintenance and property tax but only
you pay for it. It doesnt look like a real partnership or real rent to own.

If you decide to sell the house, what happens? If the market goes down, you lose (not
both partners). Once you secure the contract and then start giving your first payment,
they sell your loan to another company. The essence is selling the entire contract and
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not just a collection agency. They do this to be compliant with the real estate market in
America.

If they buy the house with the risk of owning it themselves, then it is halal. If Devon
Bank takes the risk, then it is allowable.

Definition:
An arrangement between a consumer and a seller that allows the consumer to rent
homes, furniture, appliances and other goods for a defined period of time. The
consumer is only responsible for paying the periodic rental fee, which is usually above
the market value, for that defined time, which can be as short as a week or month,
but may be continued if the consumer chooses to renew it. However, a condition or a
promise in the rental agreement provides the consumer with an opportunity to
purchase the rented goods by continuing to pay the rental fee for a length of time or by
paying a lump sum payment.

How does it work with real estate?
In a lease option, you rent a property at a cost slightly above market rate. Prior to
moving in, you agree with the seller on a potential purchase date and purchase price
for the home (which could be as low as zero, i.e. receiving it as a gift). You may buy the
property at any point during the rental period up until the lease option expires. The
lease option period can be any length of time that you and the seller agree to, ranging
from several months to several years.

If you do purchase the property, the seller will credit part of your rent back to you,
usually more than the portion of your rent that was above market rate. You can put
this money toward a down payment and closing costs, or keep it. The purpose of the
above-market rent is to give the seller an incentive to complete the transaction. If you
do not purchase the property, all of the rent you paid remains with the seller, giving
the seller an incentive for taking the property off the market during the time you were
renting it.

There are two opinions in regard to the permissibility of this contract:
1. The first opinion: It is prohibited, for the following reasons:
Giving a promise to purchase !"#$ ! !"#$%&' (al-wadu bil-shir") agreement the power of a
legally binding contract (by mandating legal ramification in case the consumer backs
off) is not acceptable.
In fiqh, a promise is only binding on moral basis not on juridical or legal basis.

Setting the sale contract, at the end of the lease term, as a condition to permit the lease
contract makes it an invalid condition. A condition of that nature is actually invalid in a
lease contract.
Setting two contradictory contracts on the same item at the same time violates the
%ad&th of the Messenger of All!h who forbade two sales in one contract bayatayn f&
bayah (Reported by A(mad, Tirmidhi, al-Nas!i)

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The first contract is a lease contract which gives the consumer (lessee) !"#$%&'( (al-
mustajir) the right to use the property while it is still under the ownership of the seller
(Lessor) !"#$%& (al-muajjir). While the second contract is a deferred sale contract on that
exact same property which entails the transfer of ownership of the property to the
buyer (lessee in this case) but the transfer of ownership does not take place until the
lease agreement ends first. This makes the contract unclear as to what exactly the type
of transaction taking place.

In a lease contract the lessor is the guarantor !"#$ (#"min) and responsible for the
overall insurance, maintenance and condition of the property against any damage
except for what is customary known to be the lessees responsibility. But in this
contract, the lessor stipulates this responsibility be carried out by the lessee because he
is considered the actual owner of the property at the end of this contract.
In the rent to own contract, the lessor does not own the property which he rents out to
the lessee until the lessee submits his request to the lessor to buy it first and then rent
it out to him. In this case the sale is a form of selling or renting that which the lessor
does not own.

2. The second opinion: It is permissible for the following reasons:
The promise is considered binding if it was initiated as a stipulation, this is according to
Imam Abu $an&fah.
Example: The lessor says, I promise to sell you the house if you fulfill all the lease
installments. In this case, if the lessee fulfills all the payments, the promise then
becomes binding if the lessee desires to purchase the property.

The promise becomes also legally binding according to Imam M!lik if it results in
bearing financial responsibility by one of the contracting parties based on that promise.
And in this case the lessee has accepted the overpriced rent, which he wouldnt accept
otherwise, for the purpose of fulfilling the promise to purchase the property at the end
of the lease agreement.

The issue of two sales in one contract does not apply to this contract because the two
contracts take place at two different times. The lease is at the beginning of the lease
agreement and the sale is deferred to the end with only an advanced promise to fulfill
the second agreement.

The controversy over who is the guarantor against damage can be solved buy adding
the extra amount (example: insurance) to the rent and then the lessor takes care of it.
Or the lessor deducts the amount from the original rent and considers the lessee as an
agent on behalf of the lessors in regard to the maintenance and insurance of the house.
In regard to the case of renting that which you dont own, if the lessee promises to
enter the lease contract, then the lessor, independently (without the lessee being part
of the purchase deal) buys the property, the lessor now owns its title, the lease contract
then becomes biding on the lessee, because of the promise given prior to that purchase.
This is according to what was explained in the opinion of Imam Abu $an&fah and Imam
M!lik in regard to the ruling of a promise that results in a financial obligation.
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Chapter 22 | Deal i ng wi th the Stock Market

View the stock market as a source of investment. It is a huge pool of investors getting
together. They put money together and it makes billions of dollars. People exchange
the money and goods on the market without moving from their desk. The exchange is
real. As the market grows big, instead of keeping the assets huge, they break it down
into smaller segments and sell portfolios. It is a mixture of assets from different sectors
to balance your investment.

What is similar to this from what we have learned? This is the concept of sharikah
(partnership).

Investments Three Rules:

There are three principle rules, which need to be adhered to when analyzing an
investment from the standpoint of Shar&ah permissibility:

1. The absence of riba in the investment.
Make sure that there is no riba involved.
2. The potential for unethical concerns such as gambling or tobacco in the
investment mix.
The kind of transaction must be halal (i.e. if gold or silver must be instant and
immediate).
3. The nature of the contract between the parties involved and whether any
substantial omissions exist which can result in a dispute between the parties.

When you go to a flea market, you find actual goods such as bread, tools, etc. Here,
they have shares.

There are two types of stocks (ashum !"#$) i n the market:

1. Common Stocks or Ordinary Stocks !"# !"#$ (sahm "di)
A security that represents ownership in a corporation. Holders of common stock
exercise control by electing a board of directors and voting on corporate policy.
Common stockholders are on the bottom of the priority ladder for ownership structure.
In the event of liquidation, common shareholders have rights to a company's assets
only after bondholders, preferred shareholders and other debt holders have been paid
in full. Common Stocks give holders direct equity in the company and the right to a
share of the profits.

This is a share for everyone and it is equal. Everyone who buys it has an equal share in
the company.

2. Preferred Stocks ! !" !"#$ (sahm mumayyaz)
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A class of ownership in a corporation that has a higher claim on the assets and earnings
than common stock. Preferred stock generally has a dividend that must be paid out
before dividends to common stockholders and the shares usually do not have voting
rights.

This is given to a particular class. Some may be higher rated than others. Some
investors are given preference.

The precise details as to the structure of preferred stock is specific to each corporation.
However, the best way to think of preferred stock is as a financial instrument that
has characteristics of both debt (fixed dividends) and equity (potential appreciation).
Also known as "preferred shares". In summary, Preferred Stocks is class of ownership
in a corporation with a stated dividend that must be paid before dividends to common
shareholders.

Bonds (Sanad"t !"#$%)

Bonds are offered by the public sector, usually the governments. Governments invest
in the stock market to fund public projects such as airports and bridges. The Dubai
Islamic Bank has a huge investment with the government. They use bonds and put it
into the market to invest in the airport. They expect the airport to be one of the
busiest in the world.

Stocks and bonds are the same in terms of using it as a commodity in the market. The
difference is that bonds are public and the government is involved. Some ulema allow
participating in the government in this sense. They say public money is different from
the private money.

A debt investment in which an investor loans money to an entity (corporate or
governmental) that borrows the funds for a defined period of time at a fixed interest
rate. Bonds are used by companies, municipalities, states and U.S. and foreign
governments to finance a variety of projects and activities. Bonds are commonly
referred to as fixed-income securities and are one of the three main asset classes along
with stocks and cash equivalents.

Interest on bonds is usually paid every six months (semi-annually). The main categories
of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and
bills, which are collectively referred to as simply "Treasuries".

Two features of a bond - credit quality and duration - are the principal determinants of
a bond's interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year
government bond. Corporate and municipals are typically in the three to 10-year range.

Buying and selling shares (common stocks) for the purpose of profiting in an existing
and already operating company is permissible, as long as the company is %al"l, because
the share in this instance represents a financial ownership in the capital of a
83

partnership.
Generally speaking, buying stocks in the stock market is considered permissible as long
as the company is already operating and that the commodity is halal and ethical and
the practice is legal. If anything is missing from this, then it is illegal.

Selling shares, for the purpose of profiting, in a new company (was just chartered and
before it starts operating) is not permissible, because the sale in this case represents
cash for cash.
Example: you hear about a new company that is not yet operating but when it is
announced that this business is opening up next week, prices are raised. Can you sell
it? No, you cannot because the company is not yet operating and you are making
money off of money (speculation). If it is a start-up company, you cannot buy and sell
the share before it starts operating. Once it starts operating, then you can sell.

It is not permissible to deal with a company that is based on %ar"m as a source of capital
or profit. (ex: banks, insurance company).
You cannot invest in a bank. What if the bundle includes banks or other things? Then
it depends on the ratio and how much haram is involved. Depending on the ratio, that
is how much haram is in your investment.

Although the default ruling is prohibition, dealing with companies that mix %al"l and
%ar"m dealing is based on the ratio of the %ar"m involved and type of it. (Example: 15%
alcohol in a grocery store or riba in an construction company vs. 45% of selling pork or
gelatin in another).
Ulema did not give any specific minimum or maximum ratio. It depends on the quality
and the quantity. For example, 10% riba vs. 30% pork is not the same. The 10% riba is
more dangerous because the prohibition for riba is greater.

Blind trade (trading shares of companies with !"#$% jah"lah, i.e. without knowing what
type of business it runs) is not permissible.
This is when you are sitting behind the screen and clicking on things but have no idea
what you are trading. You just see numbers going up and down. When the numbers go
up, you sell, and when the numbers go down, you buy. This is not permissible. One of
the principles of sale and trade is that you have to know what you are buying.

Guaranteeing profit in stock market dealings results in the prohibition of that
particular transaction or stocks.
This is not allowed unless it gives you non-monetary privileges such as voting power.

Preferred stocks are different types. If the stock entails guaranteed profit, or priority in
dividing profits (before the holders of common stocks), or extra value for profits (over
what the common stocks holders receive) or priority of assets distribution upon
liquidation then it is not permissible because it contradicts with one of the main
principles of partnership which is equality in the rights of ownership in the equity.

Preferred stocks that provide voting or administrational power without guaranteeing
84

profit or priority upon liquidation is permissible, because it is still carrying the same
equal right or ownership in the equity of the business.

Preferred stocks become permissible if the shareholder participates in the business
with his labor or expertise. In this case the extra profit is calculated for him based on
the extra work they provided towards benefiting the corporation.
If they use your expertise, you are allowed to take a commission for it.

Bonds are considered another form of interest-based loans which is risk-free (of loss)
and therefore are considered prohibited. If the bond involves investing in a business on
the base of risk-taking principle then it is permissible.
They are risk-free because the government guarantees for you. There is one way to use
it in a halal way: if the private sector wants to start a project, then in order to secure
investment, the government secures bonds for them. The people buy the bonds. The
government gets involved to provide security to the project (i.e. if there is any loss, it
will be minimum). Be careful because bonds are interest-based.

Al ternati ve: Investment bonds !"#$% !"#$%&'( !" !"#$%&'( : (sanad"tl-mu#"rabah aw
al-muq"ra#ah)

The business involving investment bonds is based on !"#$%& mu#"rabah (sleeping
partnership) in which the capital and the profit percentage is clearly stated.

The investors buy the bonds to finance the business and in return they wait until the
distribution of profit due date (maturity) comes around.

The owner of these bonds can trade them in the stock market after the business has
started, not before that.

A third party, the government for instance, can guarantee the capital for the investors
in case of loss in order to encourage growth in businesses. Provided that the third party
is not part of the initial business itself.

Preferred bonds are not permissible in this scenario because it violates the rule of
equality in partnership, unless the bondholders contributing to the corporation
through labor or expertise.

Amaanah: by law, for 401K plans they have to offer five portfolios and each one is made
up of particular companies and investments. As a Shariah-compliant agency, they try
their best to provide customers with three halal options and two conventional. Do they
guarantee 100% halal investment? Br. Monem said there is no such thing as 100% halal.
However, they are trying to minimize the damage and provide a service with the least
haram.

Zak"t !"#$ on Stocks

85

The corporation should calculate and pay the annual zak"t on behalf of the
shareholders. Because the company, in this regard, is one entity and acts as an agent
for the shareholders.

If the corporation did not pay the zak"t on behalf of the shareholders, then each
investor is responsible to calculate his/her zak"t as follows:

If the stocks were using for quick profit by buying and holding them for a short period
of time and then selling them again, then they would be treated as a commodity. The
zak"t in this case, after the passing of one year, is 2.5% of the market value of the stocks.

If the stocks were used for a long-term investment (Example: a permanent shareholder
of a particular corporation) or as investment bonds, then the zak"t would be 2.5% on
the profit only after the passing of one whole year from earning this profit.

Do you pay zakah on the money you invested or on the money in the account? They
dont have access to this money and if you take the money before the maturity date,
then you are denied money invested for you and you go back to what you initially
invested.

There are three opinions:
1) Short-term stock which you keep buying and selling.
This is treated like inventory. At the end of the year, you value everything and
pay 2.5%.
2) Annual investment (you see profit at end of the year).
Pay 2.5% on the outcome.
3) 401K Plans:
- Some ulema say you pay 2.5% every on the entire amount in your 401K.
- Another opinion is that you only pay zakat when you cash it because while still
in the investment, you dont have access to it. Based on that, you dont pay
zakah until it is materialized when you cash it. (Some say you then pay zakah
backwards but Shaykh Yaser is against that opinion).
- This is Shaykh Yasers opinion: you pay zakah on the actual money you invest
until you cash it. If you put in $7,000 so far, then you pay zakah on that. When
you cash it, you pay zakah on the entire amount you got.

Other Forms of Deal i ng wi th the Stock Market

Mutual Funds
An investment vehicle that is made up of a pool of funds collected from many investors
for the purpose of investing in securities such as stocks, bonds, money market
instruments and similar assets. Mutual funds are operated by money mangers, who
invest the fund's capital and attempt to produce capital gains and income for the fund's
investors. A mutual fund's portfolio is structured and maintained to match the
investment objectives stated in its prospectus.

86

Hedge Funds
An aggressively managed portfolio of investment that uses advanced investment
strategies such as leveraged, long, short and derivative positions in both domestic and
international markets with the goal of generating high returns (either in an absolute
sense or over a specified market benchmark).

Legally, hedge funds are most often set up as private investment partnerships that
are open to a limited number of investors and require a very large initial minimum
investment. Investments in hedge funds are illiquid, as they often require investors
keep their money in the fund for at least one year.

For the most part, hedge funds (unlike mutual funds) are unregulated because they
cater to sophisticated investors. In the U.S., laws require that the majority of investors
in the fund be accredited. That is, they must earn a minimum amount of
money annually and have a net worth of more than $1 million, along with a significant
amount of investment knowledge. You can think of hedge funds as mutual funds for the
super rich. They are similar to mutual funds in that investments are pooled and
professionally managed, but differ in that the fund has far more flexibility in its
investment strategies.

Income and Growth Fund
Income Fund: A type of mutual fund that emphasizes current income, either on a
monthly or quarterly basis, as opposed to capital appreciation. Such funds hold a
variety of government, municipal and corporate debt obligations, preferred stock,
money market instruments, and dividend-paying stocks.

Growth Fund: A diversified portfolio of stocks that has capital appreciation as its
primary goal, with little or no payouts. Portfolio companies would mainly consist of
companies with above-average growth in earnings that reinvest their earnings into
expansion, acquisitions, and/or research and development. Investing in growth funds
requires a tolerance for risk and a holding period with a time horizon of five to 10
years.

401K Plans
A qualified plan established by employers to which eligible employees may make salary
deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers
offering a 401(K) plan may make matching or non-elective contributions to the plan on
behalf of eligible employees and may also add a profit-sharing feature to the plan.
Earnings accrue on a tax-deferred basis.

Caps placed by the plan and/or IRS regulations usually limit the percentage of salary
deferral contributions. There are also restrictions on how and when employees can
withdraw these assets, and penalties may apply if the amount is withdrawn while an
employee is under the retirement age as defined by the plan. Plans that allow
participants to direct their own investments provide a core group of investment
products from which participants may choose. Otherwise, professionals hired by the
87

employer direct and manage the employees' investments.

If you have the option to move your 401K to a more halal company, then do it. if you
cant, then it is an issue of wara. If you feel guilty and want to keep your money from it,
then it is up to you.

Chapter 23 | Defi ci ent Contracts

We have shown all the important contract details that need to be considered above but
in summary, we can say contemporary contracts typically fall foul of Shar&ah principles
in four key areas as follows:

1. Penalty clauses (as in contracts for the supply of gas/water/electricity etc) which
require the householder to pay interest charges if they default on payment.
Contemporary scholars have permitted Muslims to accept such contracts for
essential services and goods on the basis of necessity.

2. Seller not having possession of goods.

3. Contracts must be devoid of excessive uncertainty (gharar).

4. Finally, contracts must not be interlinked so as to form a contract within a contract.

Part 7 | Concl usi on

Chapter 24 | Bri ngi ng Back the Barakah!

How to increase our wealth?

1. Thanking All!h

All!h jalla wa al" states in His magnificent Book:

Remember when your Lord promised, If you are thankful, I will give you more, but if
you are thankless, My punishment is terrible indeed. (Ibr"h&m, 7)

We need to be grateful to Allah and show the gratitude for whatever we have. If you
are truly grateful to Allah (subhanahu wata'ala), Allah will give more. If you are
satisfied and content with what you have in your hand, then you dont need anything
else. This is thana. If you have a heart that is content, then you and the one who
possesses everything in this world is equal. If you have the least, you will say
alhamdulillah and are happy with it and are satisfied.

2. Seeking Forgiveness and Repentance

88

Seek Allahs forgiveness that you are not doing enough. All!h states that Sayyidina N"(
alayhil-sal"m said to his people:

I said: Ask forgiveness of your Lord: He is ever forgiving. He will send down abundant
rain from the sky for you; He will give you wealth and sons; He will provide you with
gardens and rivers. (N(%, 10-12)

This concept is also mentioned in another verse in the Qur!n. All!h states,

Ask your Lord for forgiveness, then turn back to Him. He will grant you wholesome
enjoyment until an appointed time and give His grace to everyone who has merit, but if
you turn away, I fear you will have torment on a terrible Day. (H(d, 3)

How often do you seek Allahs forgiveness? Keep your mistakes between you and Allah
and always say astagfirullah. The Prophet (sal Allahu alayhi wa sallam) would seek
Allahs forgiveness more than 70 times a day and he is the one whose sins are forgiven.

If you repent to Allah regularly, He will provide for you good life in this dunya and you
will have your reward in the akhirah.

3. Tawakkul in All!h

Sayyidina Umar (ra#yAll"hu anhu) reported that the Prophet ($allall"hu alayhi wa sallam)
said,

If you were to put your trust in All!h the way that He deserves, you would be provided
for as the birds are; they leave at the beginning of the day famished, and they return at
the end of the day full.

We live in a corporate world these days. For those who work the field, they leave in the
morning and are happy with whatever they collect that day. Put your trust in Allah
after doing your part, and Allah will give back in abundance.

4. Constantly Worshipping All!h

Some people make their worship conditional and say, If Allah is good to me You
dont put conditions on Allah.

Abu Hurayrah (ra#yAll"hu anhu) stated that the Prophet ($allall"hu alayhi wa sallam)
said, All!h says, O Son of )dam! Take time out to constantly worship me, I will fill
your chest with richness, and remove your poverty. And if you do not do so, I will make
busy your hands and will not remove your poverty.

Dont abandon work in this dunya. Consider every aspect of your life as worship of
Allah even if it is going to work or studying.

89

5. Taqwa

If you have trust in Allah, He will provide from you from sources that you cannot even
think of.

All!h will find a way out for those who are mindful of Him and will provide for them
from an unexpected source; All!h will be enough for those who put their trust in Him.
All!h achieves His purpose; All!h has set a due measure for everything.
(al-,al"q, 2-3)

6. Establishing the Ties of Kinship

Abu Hurayrah (ra#yAll"hu anhu) reported that the Prophet ($allall"hu alayhi wa sallam)
said, Whoever is pleased with the fact that his rizq be increased and his life-span be
extended, then let him establish the ties of kinship.

Allah knows what you would do and has planned.

7. Spending in the way of All!h

Whatever you spend for Allahs sake, Allah will replace it, and Allah is the Best of those
who provide.

All!h azza wa jall says in the Qur!n: Say: My Lord gives in abundance to whichever of
His servants He will, and sparingly to whichever He will; He will replace whatever you
give in alms. He is the Best of providers. (Saba, 39)

The Prophet ($allall"hu alayhi wa sallam) said, All!h has said: O son of )dam! Spend, I
will spend on you!

When you give in charity and put your trust in Allah, Allah will provide for you.

8. Marriage

All!h azza wa jall says in His Book: Marry off the single among you and those righteous
ones from your male and female slaves. If they are poor, All!h will provide for them
from His bounty: All!hs bounty is infinite and He is all knowing. (N(r, 32)

Put your trust in Allah and Allah will provide for you.

9. Supporting Students of Knowledge

Anas b. M!lik (ra#yAll"hu anhu) narrates, There were two brothers (that lived) at the
time of the Prophet ($allall"hu alayhi wa sallam). One of them would come to the Prophet
($allall"hu alayhi wa sallam) whereas the other one would seek his sustenance (by
working). The one who used to seek his sustenance complained to the Prophet
90

($allall"hu alayhi wa sallam) about his brother. The Prophet ($allall"hu alayhi wa sallam)
replied,

!
"
!
#
$
% & ' ( )
$
*& +
,
- & .
&
/ (laallaka turzaqu bihi)
It is possible that you are provided your rizq because of him!

Allah may give you rizq because you supported someone else.

10. Making the Hereafter Ones Key Objective

Some people just focus on getting wealthier and wealthier and lost sight of the akhirah.
Imagine if your plan is to have three or four sales that can give you $200K and the rest
of the year you do what you love to do. Do your best and dont lost the focus.

Seek Allahs Pleasure and the akhirah. In the process, dont forget about your share in
this world.

On the authority of Anas b. M!lik (ra#yAll"hu anhu) who said that the Prophet
($allall"hu alayhi wa sallam) said:

Whoever made the Hereafter his goal, All!h will place His richness in his heart, gather
his affairs for him, and the world will come to him defeated. But whoever puts this
world as his goal, then All!h will place poverty right before his very eyes, divide his
affairs for him, and nothing will come to him of this world except that which was
already written for him.

Abu Umamah reported the Prophet ($allall"hu alayhi wa sallam) said:
O Mankind! Jibr&l has whispered in my soul that no person shall die until his time be
complete, and his sustenance be finished. So have taqwa of All!h, and seek your
sustenance in a beautiful manner. And let not any of you when his sustenance
appears to be delayed in arriving try to seek it through disobeying All!h! For verily,
what All!h has (with Him) can never be obtained except through obedience to Him.
Abu Nuaym

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