ELEMENT OF CONTRACT :

CONTRACTING PARTIES
AND SUBJECT MATTER

POLITEKNIK SEBERANG PERAI

CHAPTER 07
 Contracting in contract with emphasis
on the capacity of execution, the
acquisition of rights, deficient capacity
for execution and the natural causes of
impediments, the conditions of subject
matter, legality and the existence of
subject matter, certainty of delivery
and the legality of objects as well as
the underlying causes.
7.1 EXPLAIN CONTRACTING PARTIES
7.1.1 Define the capacity of execution (ahliyah)
7.1.2 Describe the capacity for acquisition of
rights (ahliyyah al-wujub) and deficient capacity
for execution (ahliyyah al-ada al-Naqisah)
7.1.3 Identify the natural causes of Impediments

a. Sighar (Minority)
b. Junun (Insanity)
c. Atah (Partial insanity)
d. Forgetfulness
e. Safah (Folly)
f. Murad al Maut (Death-illness)
g. Intoxication
h. Ikrah (Duress)

7.2 DESCRIBE THE SUBJECT MATTER IN A CONTRACT

7.2.1 Describe the conditions of subject matter
7.2.2 Relate legality to the existence of subject matter
7.2.3 Explain deferred contract (Salam) and contract of
manufacturing (Istisna)
AHLIYYAH
• DEFINITION OF AHLIYYAH
Literally means capacity or competence.
Technically, it has been defined by Muslim jurists as “The
eligibility of a person to establish right for and
obligation upon himself”.
• A person may not have the requisite legal capacity to conclude
transactions but he may still receive rights and obligations. A
child or a lunatic person, for instance, cannot conclude
contracts but are entitled to receive their share of inheritance
and are obliged to pay for the necessities bought for them
through their guardians.
• Muslim jurists have therefore recognized two types of
capacities:
1- Ahliyyah al-wujub or Receptive (passive)capacity
2- Ahliyyah al-ada’or Active Capacity
• Ahliyyah al-wujub: “it refers to the capacity of a person to receive rights and
obligations”.
It is possessed by all living human beings (Humanity or life)
• Active (legal) Capacity (Ahliyyah al-ada)
It refers to: “The ability of a person to manage his wealth and exercise his
rights and undertake obligations in a manner recognized by the Shari’ah”.
- the principal elements for the capacity of performance (ahliyyah al-ada)
are:
- The puberty and
- The intellectual standard that a person has attained. This enables him to
distinguish between useful and harmful, profitable and unprofitable things
or transactions.
Ahliyyah al-Wujub (capacity for
acquisition of rights)
Ahliyyah al-Wujub al-Kamilah
Ahliyyah al-Wujub al-Kamilah, or complete capacity for acquisition,
is found in a human being AFTER HIS BIRTH AND BEFORE THE AGE OF
PUBERTY. This makes one eligible for the acquisition of all kinds of
rights and obligations. In other words, a child possess complete
capacity for acquisition of rights and obligation but until a child
attains the age of legal puberty, he lacks the capacity for
execution. Though he cannot meet them personally due to the
absence of the capacity for execution, the lawgiver allows his
guardian (Wali) to stand in his place and represent him. The child is
also liable for any damage caused to other’s property.
• The example of this is Children:
They receive rights and obligations as the guardians are acting
on their behalf. They can enter into the contracts of sale, or
gift through their guardians.
They are also under obligations to pay zakat, zakat fitr or to
pay for the damage which they inflicted on others properties.
• A child who has obtained a complete capacity to receive rights
and obligation still cannot undertake contractual obligations
except through his guardian. And if he does the ‘aqd is void.
• He is not also obliged to pray , fast or go to haj.
Ahliyyah al-Wujub al-Naqisah
It is established for a fetus (Janin). Deficient capacity implies
that only some rights are established FOR THE FETUS and no
obligations are imposed on it. The reason is that fetus is
considered part of the mother in some respect.
By virtue of this deficient capacity, the fetus acquires
certain rights; freedom from slavery, inheritance, bequest
and parentage. On the other hand, the fetus cannot be
held liable for the satisfaction of rights owed to others. Thus,
obligations and duties are not established against fetus,
because there is no question of its performance.
• Fetus is part of the mother as it does not have an
independent personality.
• Fetus: is entitled to certain essential, beneficial rights: There
are 4 rights granted:
1- A fetus has the right to be attributed to his parents.
2- He is also entitled to receive his share of inheritance .
3- He is also entitled to receive his share in a will
(wasiyyah) .
4- He is also entitled to receive his share in waqf.
• But a fetus is entitled to these rights only when it is born
alive.
Ahliyyah al-Ada’ (capacity for
execution of rights)
Ahliyyah al-Ada’ al-Kamilah
Complete capacity is established for a human being when he/she attains full mental
development and acquires the ability to judge. This state is associated with the
EXTERNAL STANDARD OF PUBERTY. The physical signs indicating the attainment of
puberty are the commencement of wet-dreams in a male, and menstruation in a
female. In the absence of this sign, puberty is presumed at the age of fifteen in both
male and female according to Abu Hanifah.

In addition to puberty, the possession of Rushd (discretion, maturity of

action) is stipulated as well. The Qur’anic sanction, to this effect, is as follows:

“Make trial of orphans until they reach the age of marriage; if then you find
sound judgment in them, release their property to them; but consume it not wastefully.”
(4:6)
• The principal elements for the complete active capacity are
the puberty and the intellectual standard that a person has
attained. This enables him to distinguish between useful and
harmful, profitable and unprofitable things or transactions.
• Signs of puberty and prudence:
-Puberty and Prudence is a hidden phenomena.
-The scholars, therefore, rely on age as a determining,factor,
which could establish them:
:According to the Hanafis, the age of majority is 18 for
males and 17 for females.
:Other scholars , it is 15 for both male and female. Every
person who has reached the age of majority may enter
into contracts of sale and purchase, rent, wakalah,
partnership....
Ahliyyah al-Ada’ al-Naqisah
Ahliyyah al-Ada al-Naqisah is assigned to a child who possess
some discretion or to a Ma’tuh who has attained puberty,
but yet LACKS COMPLETE MENTAL DEVELOPMENT. The person
who possesses deficient capacity cannot be held criminally
liable.
HANAFI SCHOOL OF LAW CATEGORIES DEFICIENT CAPACITY FOR
EXECUTION INTO THREE CATEGORIES;
1.Purely beneficial transactions
•The transactions falling under this category are the acceptance of a
gift of Sadaqah (charity). These are allowed for a person who has
attained puberty but who can discriminate and has been permitted by
his guardian (Wali) to exercise such acceptance.
2.Purely harmful transactions
•The granting of divorce, manummising (‘Itq), charity (Sadaqah), loan
(Qard) and gift (Hibah) as well as making a trust (Waqf) and bequest
(Wasiyyah) are considered transactions resulting in pure financial loss.
3.Transaction vacillating between profit and loss
•Sale, hire partnership and other such commercial transactions are
considered valid provided that the transactions are ratified by the
guardian and also produce a significant result for the parties
concerned.
• Incomplete active capacity: a child between the age of
eight and the age of puberty (age of puberty is 15
according to majority)
- He has a incomplete capacity to attain rights and responsibility.
- A child in this age group is called sabi al-mumaiyz or a child who
could distinguish between good and bad.
• According to the Shafie and Hanbali a distinguishing child
does not have the requisite capacity and therefore, he cannot
enter into any contract with or without the permission of his
guardian. His guardian instead may conclude contracts on his
behalf.
 Samawiyyah (Natural causes of
impediments)

a. Sighar (Minority)
b. Junun (Insanity)
c. Atah (Partial insanity)
d. Forgetfulness
e. Safah (Folly)
f. Murad al Maut (Death-illness)
g. Intoxication
h. Ikrah (Duress)
 Obstacles to Capacity:

• There are some factors that may prevent a person from

dealing with his own property.
• These factors disqualify a person from concluding a
contract, it could be beyond his power, or within his
power.
• Obstacles to capacity refer to “a situation where a
person is restrained from dealing with his property”.
 A
Minority (Sighar)
•It is the stage of a human being after the birth and before
the age of puberty. A minor follows his parents or one of
them in the matters of Islam. Islamic jurists maintain that a
minor is liable for compensation for property destroyed by
him, for goods and services bought, for maintenance of
relatives and also for zakat according to some.
•Hanafi School of Thought makes an exception in the case
of a Sabi Mumayyiz and it is a matter of controversy
whether the Khitab of Targhih or recommendations is
addressed to him. He is not liable for punishments, but
financial transactions undertaken by him are valid in
certain cases.
 B
Insanity (Junun)
•Junun has no effect on Ahliyyah al Wujub, because rights
and obligation are established for and against an insane
person, who is deemed liable for Itlaf (destruction of
property), payment of Diyyah and the like.
•The rationale (Manat) for attribution of such capacity is
humanity (Insaniyyah) and the insane is a human being.
•Insanity, however, completely negates the Ahliyyah al-Ada
because of lack of reason and intellect. An insane person,
therefore, has no liability for worship, or punishment, and
all his transactions are void.
Idiocy (‘Atah) C
•It is a condition in which a person at times speaks like a sane and
normal person while at others he is like a mad man. It is also
described as a state in which a grown-up has the mind of a child.
The capacity of an idiot is deemed equivalent to that of a Sabi
Mumayyiz who can be permitted by his guardian to undertake
some transactions.
•Where a person is inconsistent in his decisions and behaviours,
which may change from time to time.
•His status is the status of a child who could distinguish between
good and bad.
•He may perform contracts, which are in his interest, without
seeking permission from his guardian.
•He could not enter into contracts that are harmful. He may enter
into contracts that fall between these two extremes with the
permission of his guardian.
Forgetfulness D
•A person is not very careful about things though he has
full knowledge of them, as distinguished from sleep and
fainting fits in which such knowledge is lacking.
Forgetfulness does not affect Ahliyyah al-Wujub nor does it
affect the capacity for execution.
•The legal communication (Khitab), however, becomes
operative as soon as the person remembers. Transactions
undertaken by such a person are valid and enforceable
against him.
 E
Safah (Folly)
•Safah refers to a situation where a person’s financial decisions or
activities run contrary to the guidelines of Shariah and reason.
•A safeh is a person who is wasting or spending his wealth improperly.
The opposite of safah is rushd which refers to the maturity of mind.
Rushd is a person who has the ability to manage his wealth properly
and is not involved in extravagance.
•Only a court has the power to ascertain that a certain person is
a safeh , and once a person is declared a safeh by a court the
judge would become his guardian. The father or grandfather of a
spendthrift person has no right of guardianship over him.
•Any commercial transaction made by a safeh could not be
executed unless the judge is satisfied that the transaction is in
his favour and approves it.
• THERE ARE TWO TYPES OF SAFAH;
Those who have become adult but are still safeh. He is not allowed
to interfere with his property. He would be under the supervision
of a guardian.
:-According to Imam Abu Hanifah, after a safeh reaches the
age of 25 years his property should be returned to him.
:-Reason: because when a person reaches this age he
would attain maturity of mind.
:-According to The majority of the Fiqh Schools the
prevention may continue until such an age at which a
person may attain maturity of mind.
Those who after attaining maturity of mind becomes safeh.
:-Imam Abu Hanifa :no prevention could be imposed on
such persons.
:-The majority of the Fiqh Schools and Abu Hanifah’s own
disciples Imam Abu Yusuf and Imam Muhammad Al-
Shaibani: he may still be declared sefih even if he has
attained maturity of mind; if it is proven that he
misappropriates his property or spends it in ways that are
unlawful or improper.
Death Illness (Marad al-Maut) F
•Maradul Maut has no effect on the capacity for acquisition or on
the capacity for execution and it is, in fact, a condition of Taklif,
because it is the capacity to perform and act that is affected here
and not the capacity to understand it.
•Refers to an illness which will lead a person to strong probability
of death. This usually happens when the disease gets worse from
day to day until death ensues.
•Also includes situations in which people fear death, although they
may not be sick, as when a person is sentenced to death.
•A person who suffers from Marad al-Maut may make certain
contracts: waqf , charity, or make gift of his property to some of
his heirs or non-heirs.
• Some of his dispositions may cause injustice to his legal heirs
and the creditors.
• In order to protect the interests of his legal heirs and creditors
Islamic law, applying the rule of wasiyyah, has limited his
dispositions to one-third of his wealth.
• For example, a person who suffers from mortal sickness may
give a part of his wealth as a gift to one of his heirs. After his
death if the other heirs do not agree, the gift is not valid. A gift
to a non-heir is valid and does not need the approval of the
heirs provided the gift should not exceed one-third of the
asset.
 G
Intoxication
•Intoxication prevents a person from distinguishing what is good
and bad or beneficial and harmful.
•Intoxication could either be caused voluntarily (person choice
and within his control) or involuntarily (beyond one’s control).
Voluntary intoxication could be caused by wilfully taking
intoxicants.
Involuntary intoxication, could be caused by consuming
certain medicines or taking anaesthetic or when a person is
forced to take intoxicants.
• There are two views on the validity of a contract entered into
by a person who intentionally takes intoxicants:
1- The Malikis and Ibn Taymiyyah and Ibn Qayyim argue that
all contracts entered into by such a person are not valid.
Reason: intoxication whether voluntarily or involuntarily
takes away a person’s rational power to make a proper
decision.
2- The majority of the Fiqh Schools argues that contracts
entered into by a person intoxicated involuntarily are not
valid.
But if intoxication is caused wilfully, the contracts entered into are
valid.
Reason: this could serve as a sort of punishment to a
person who voluntarily weakened his rational power.
 H
Duress
•It refers to a situation where a person is forced against his consent to
enter into a contract which if left alone, he would not have entered into.
•For example: when a person is threatened with death, or the
deprivation of his limbs, or severe beating, which may result in his death.
•This type of coercion destroys consent and invalidates a person’s choice.
Duress does not destroy the capacity of a person but destroys his
consent.
•Conditions:
1-The one who uses force is capable of implementing his threats.
2-The person forced is certain that the one who uses force would
implement his threat.
3-The nature of threat is such that it really endangers life.
4-The threat is immediate.
5-The force is used for an unlawful purpose.
•To the majority the contract is void
7.2.1 Describe the conditions of subject
matter
7.2.2 Relate legality to the existence of
subject matter
7.2.3 Explain deferred contract (Salam)
and contract of manufacturing (Istisna)

7.2 DESCRIBE THE SUBJECT

MATTER IN A CONTRACT
 Pillars of
Hanafi contract ijab
qabul

Sighah ijab
Pillars of
Majority contract qabul
Contracting Parties

Subject Matter
 MAAQUDALAIH (AL-MABI’)-
SUBJECT MATTER
Subject matter known as mahal al
aqad or al-mabi’.
According to Islamic Jurisprudence,
the subject matter of a contract
could be corporeal property, as in
granting, sale and mortgage,
privilege or benefit, as in rent or a
human being as in the marriage
contract which has as its subject the
woman herself.
THE CONDITIONS FOR THE
SUBJECT MATTER
RELATE
LEGALITY TO
THE EXISTENCE
OF SUBJECT
MATTER
1.The subject matter must exist
 Islamic law requires that subject matter must be in
existence at the time when an ‘aqd is concluded.
Otherwise an ‘aqd is void, even if the subject matter
would exist in the future.
 The wisdom behind this prohibition is the
possibility of gharar or risk that is associated with
the sale of the subject, which is not in existence.
 Therefore the sale of the animal fetus yet to be born
while it is still in the mother’s womb is void if the
mother is not part of the sale.
 Exception is given to bay al-salam (forwarding
contract) , bay al-istisna (contract of manufacture),
ijarah (contract of hire) based on necessity and
customs.
2. The subject matter can be delivered.
 Islamic law requires that subject matter must be
able to be delivered to the contracting parties.
Otherwise an ‘aqd is void.
 Hence, it is void to sell a bird on the sky, fish in
the sea or runaway horse.
3. The subject matter should be precisely
determined
 Islamic law requires that subject matter must be
precisely determined and known to contracting
parties. Sufficient knowledge about the subject
matter is necessary to avoid future disputes.
For instance: The genus, species, quality, and
quantity should be clearly described.
 If the seller describes goods to be sold as being of
a certain quality, and the goods upon inspection
proves to be of inferior quality or value, the law
allows the purchaser an option whether to cancel
the sale under the “option of misrepresentation”
or to accept the goods.
4. The subject matter must be legal.
 Islamic law requires that subject matter must be
of commercial value, otherwise an ‘aqd is void.
 Therefore the sale of the wine, blood, pork is void
even if these articles are of value to others or
according to civil law.
 Similarly, the sale of items that can not be
secured or possessed, such as fish in the sea, bird
in the air, etc, But once possessed, it can become
the subject matter of transaction.
SHORT SUMMARY OF RELATED
LEGALITY TO SUBJECT MATTER
1)The subject matter of sale must exist at the time of the
transaction.
2)The Subject matter should be in the ownership of the seller at
the time of the transaction.
3)The subject matter must be in the actual or constructive
possession of the seller at the time of the transaction.
Constructive possession is where the risk and reward is
transferred to the seller.
4)The subject matter should be a property having value.
5)The subject of sale should not be a thing used for an un-Islamic
purpose.
6)The subject of sale must be specifically known and identified by
the buyer.
7) The delivery of the subject matter to the buyer must be
certain.
8)The certainty of price is a necessary condition for the validity of
the sale.
9)The sale must be unconditional.
 Exception is given to bay al-salam (forwarding
contract), bay al-istisna (contract of manufacture) for
the legality of subject matter.

What is Al-Salam and Al-Istisna’?

 Al-Salam

• Literally: ‘giving (`ita`), advance (taslif) and leaving.

• Technically: ‘It is a sale contract whereby the seller
undertakes to sell some specific commodities to the
buyer at an agreed future date in exchange for a price
fully paid in advance on spot basis’.
• Meaning to say: The selling of goods which normally does
not exist with the buyer during the time of contract such
as wheat, cotton or bean with the condition that the
delivery must be completed at the time of yield which the
harvesting season.
Legal Evidence
• Ibn Abbas commented that: ‘I bear the witness that al-Salaf
(al-Salam) stipulated for a stated term had been made legal
by Allah in His Holy Book and His permission is in it’, he then
recites ‘O you who believe! Whenever you give or take credit
for a stated term, set it down in writing’.
• Narrated by Ibn Abbas: ‘The Messenger of Allah came to
Medina and the society used to pay in advance the price of
fruits to be delivered within one or two years. The Prophet
said: ‘Whoever pays money in advance for dates (to be
delivered later) should pay it for known specified weight and
measure (of the dates).
• Ijma`: Jurists are consensus with regard to the permissibility
of ‘bay` al-salam’; since one of counter-values present in the
contract.
• The need of it; agriculture.
 BAY` AL-MA`DUM is illegal as in hadith: Do
not sell anything which is not with you’.

1) Bay` al-Salam is an exception (Some scholars).

2) (Some other scholars) said: The above hadith

implies that the seller is not permitted to make
any transaction if he is not sure of being able to
deliver the goods, because such a sale is gharar.
(Hassan, 1986).
 45

Objectives of Bay` al-Salam

1) Farmers do not have enough capital & no one
could loan out based on Islamic law.
Alternatively, ‘Bay` al-Salam’.
2) Helping producers in stimulating them in
production and to fulfill the instant needs by
producers/sellers. If the price is not paid in full,
the basic purpose of the transaction will be
defeated.
3) Helping purchasers in the sense that at a
discounted price.
 46

Condition of al-Salam
1) The jurists from various schools of thought agreed that al-
Salam is permissible as long as it observes (4Ps + 2Qs):
- Product: Types of goods are clearly stated
- Period: The duration is clearly stated
- Price: The amount of capital/price is clearly stated
- Place: The delivery place is clearly stated
- Quality: The characteristics/specifications are clearly
stated
- Quantity: is clearly stated

The things whose quality or quantity is not determined

by specification cannot be sold through salam. For example –
precious stones cannot be sold based on salam, because every
piece of precious stones is normally different in terms of
quality, size or weight and their specification is not generally
possible.
 47

2) The majority of jurists (Hanafie / Shafie / Hambali) agreed

upon the precise date of delivery is obligatory. No vague time
period (winter/summer). Except Maliki.

3) Fully paid in advance. The seller must take possession of the

price in full before departing one another; otherwise it will be
tantamount to the sale of debt for a debt. However, Imam Malik
– Sellers may give a concession of 2 or 3 days to the buyers (Taqi
Usmani, 2005).

4) The price of Salam is normally lower than the cash & deferred
payment. The jurists agreed upon full payment by the purchaser,
so he should be given a discount price.

5) The product must not be attributed to a certain location. If the

location is easily affected by diseases or natural disaster, it is not
permissible to deal with Salam.
 48

6) Must not involve ribawi items from the same category (Currency with Gold /
sugar with salt). These items must be effected on the spot basis. Paper money can
be used only in payment of a price, it cannot serve as a commodity to be sold.

7) Availability of commodity –
Hanafi: The commodity remains available in the market right from the
day of contract up to the date of delivery. Unavailable commodity – salam cannot
be effected though it is expected will be available at the date of delivery.
Others: Availability is not a condition for the validity of salam. What is
necessary, should be available at the time of delivery.

8)Time of delivery –
Hanafi/Hanbali: The time of delivery is, at least, 1 month from
the date of agreement. Earlier than 1 month, salam is not effected. Argument:
Salam is allowed for the needs of farmers/traders, then should be given enough
opportunity to acquire the commodity; less than 1 month does not normally effect
the lower price than the price in spot sales.
Imam Malik: Should not be less than 15 days – because the rates
of the market may change within a fortnight.
Imam Shafie: The Prophet has not specified a minimum period
for the validity of salam. The expediency may differ from time to time and from
place to place. (Taqi Usmani, 2005).
 49

9) Ensuring the delivery – The buyer/financier can ask him to

furnish the security, in form of a guarantee (kafalah) or
mortgage/pledge (rahn). The guarantor may be asked to deliver
the commodity. Or the buyer/financier can sell the mortgaged
property and the proceeds can be used to realize the
commodity from the market. Imam al-Bukhari has captioned 2
chapters ‘Kafil Fi Al-Salam’ and ‘Al-Rahn Fi Al-Salam’ and
reported the Prophet borrowing grain from a Jew against the
pledge of an iron armour. Ibn Hajar explained: Imam Al-
Bukhari intended to describe the permissibility of guarantee in
Salam by co-permitting Rahn and Kafil. (Ayyub, 2007). Al-
Shafie: the armour also amounts to a surety in a salam
transaction. (Hassan, 1986).

10) Parallel salam has 2 separate contracts – Each one must be

independent of the other. They cannot be tied up in a manner
that the rights and obligations of one contract are dependent on
the rights and obligations of the parallel contract. Each contract
should have its own force and its performance should not be
contingent on the other.
 50

11) Parallel salam is allowed with a third party only – The

seller in the 1st contract cannot be made purchaser in
the parallel contract of salam, because it will be a buy-
back contract. (Taqi Usmani, 2005).

12) Option (Khiyar) in Salam – Jurists disallow ‘option of

condition’ (Khiyar al-Shart) in salam because it
disturbs or delays the seller’s right of ownership over
the price. – The buyer does not have the ‘option of
seeing’ (Khiyar al-Ru`yah), but after taking delivery, he
has the ‘option of defect’ (Khiyar al-`Aib) and the
option of specified quality. If it not has the quality as
agreed, the buyer can rescind the sale; amount of price
can be recovered without any increase.
 Al-Istisna’

 Literally: “Asking or requesting for something to be

manufactured”.
 Technically: “Requesting a manufacturer to make a
particular goods to a particular specifications (subject
matter); or in a particular way (skill); or a contract
with a manufacturer to work on a particular thing
(subject matter) which is under his obligation”.
 ‫‪52‬‬

‫‪Legal Evidence‬‬
‫‪A) Quran:‬‬
‫‪1) “Allah has permitted trade and forbidden‬‬
‫‪interest”. (Al-Baqarah, 2: 275).‬‬
‫نم ‬‫طنا ُ‬ ‫شاَطْي ناَ‬
‫ط ُهم ال َّ‬
‫مم اَّلي يِذ يم ناَيناَتخناََّب ُ‬ ‫منام ناَي ُقمو ُ‬ ‫نم إ ي يَِّلم ناَك ناَ‬ ‫نم الَبِّرناَبنام ناَلم ناَي ُقمو ُممو ناَ‬ ‫نم ناَياَطْأ ُك ُلمو ناَ‬
‫اَّلي يِذي ناَ‬
‫عم ‬
‫لم الَّلُهـ ُهم ااَطْلناَباَطْي ناَ‬
‫ح َّ‬ ‫لم الَبِّرناَبناو‪ ‬و‪ۗ  ‬ناَوأناَ ناَ‬
‫عم ي يِماَطْث ُ‬
‫منام ااَطْلناَباَطْي ُ‬ ‫مم ناَقنا ُلموام إي يَِّن ناَ‬
‫كم ي يِبناَأَّن ُه اَطْ‬
‫ِسو‪ ‬و‪َ ‬ذ‪ۚ ‬ناََٰذي يِل ناَ‬
‫م َبّ‬ ‫نم ااَطْل ناَ‬ ‫ي يِم ناَ‬
‫مم الَبِّرناَبناو‪َ ‬ذ‪ۚ ‬‬ ‫حَِّر ناَ‬ ‫ناَو ناَ‬

‫‪2) “When you are dealing with a future/debt‬‬

‫‪obligation, put it down in writing”. (Al- Baqarah, 2:‬‬
‫)‪282‬‬
‫هو‪َ ‬ذ‪ۚ ‬‬
‫مف ىم ناَفنااَطْك ُت ُبمو ُ‬
‫س ىًّ‬
‫لم ُّم ناَ‬ ‫ف ىم أناَ ناَ‬
‫ج م ٍ‬ ‫نم إ ي يِناَل ٰ‬ ‫ناَينام أناَُّيناَهنام اَّلي يِذي ناَ‬
‫نم آناَم ُتنموام إي يِناََذام ناَتناَداناَيتن ُتمم ي يِبناَداَطْي م ٍ‬
 53

B) Hadith:
1) Jabir bin Abdullah reported that a woman
had said: “O Rasulullah! Would you like me to make
something for you to sit on it (during the khutbah)
since I have a slave who is a carpenter. The Prophet
replied: You can if you want. So the woman made the
rostrum (minbar) for Him”.
‫عنم جنابِرم بنم عبدم ام أنم امِرأةم قنالتم ينام رسمولم‬
‫ام ألم أجعلم لكم شيئنام تقعدم عليهم فناءنم ليم‬
‫غلمنام نجنارام قنالم انم شئتم فعملتم المتنبِر‬
 54

2) “Reported by Nafi’, Abdullah told him: that

Rasulullah SAW has ordered a golden ring. When he
put on the ring, he will turn its stone towards the
palm of his hand. Later, there were a lot of people
who also ordered manufactured golden ring for
themselves. Then Rasulullah SAW stepped on the
mimbar and praised Allah SWT and said: “I had once
ordered a manufactured golden ring but now I am
not wearing it anymore”, then he threw the ring and
followed by the people.”
 55

Majallah al-Ahkam al-`Adliyyah also provides that

istisna` is permissible (article 389) provided that
the descriptions and features of the ordered subject
matter have been mutually agreed upon (article
390). Article 391 of the Majallah states that istisna`
payments need not be made at the time of the
contract. Istisna` and istisna` muwazi have also
been allowed by the AAOIFI as long as the relevant
principles are being followed accordingly. (AAOIFI,
Al-Ma`ayir al-Syar`iyyah, Standard no. 11 (Al-
Istisna` wa al-Istisna` al-Muwazi), paragraph 2
and 7.)
 56

The Potential of istisna`

• Financing the construction industry – apartment
building, hospitals, schools and universities.
• Development of residential/commercial areas and
housing finance schemes.
• Financing high technology industries such as
aircraft industry, locomotive and ship-building
industries. (Ayyub, 2007)
 57

Conditions of Istisna`
1) Detailed specifications: Category, quantity and
characteristics of products. To avoid ignorance
(jahalah).

2) The products are to be manufactured. It is

invalid on items which cannot be manufactured
such as fruits and fresh meat. These 2 items are
under salam.
 58

3) The raw materials are provided by the manufacturer.

4) Place of delivery must be specified.

5) Payment: In advance @ deposit @ installment –

Istisna’ deals with production in stages all of which
require capital injection. Whereas, in salam the lump-
sum payment is parallel with the nature of agriculture
production, when most activities took place in the
planting stage. It is important to release all capital during
this critical stage, after which less capital is required.
 Salam vs Istisna’

Istisna` and Salam involve the selling

of something that does not exist
(bay` al-ma`dum) at the time of
contract (only the raw materials
exist).
 Istisna`
Motive The need of the buyer.
Manufacturing Product that needs to be
manufactured.
Termination It is not a mandatory
contract which allows its
cancellation by either one
of parties before the
manufacturer starts the
work. But according to
Abu Yusuf, it is
mandatory.
Payment Full payment is not
mandatory (more
flexible). It is valid to pay
the deposit (urbun).
Salam
The need of the seller for
cash to support his
agricultural production.
No matter whether it
needs manufacturing or
not.
It is a mandatory contract
(aqd lazim). Cannot be
terminated by either one
of parties once it has been
effected.
Full payment in advance is
mandatory.
 Istisna`
Subject matter 1) Specific product that is
manufactured based
on detailed
description.
2) No need to have
similar product in the
market.
Penalty Penalty in the form of a
reduction in price on
account of a delay in
delivery will reflect the
income of the purchaser
(the principle of Shart al-
Jazai approved by jurists).
Salam
1) Fungible product as in
the market. So that if
the seller is not able to
produce the goods by
himself, he can get the
same from the market.
Penalty for late delivery
shall go to charity
managed by the financier.
(Since the price already
pre-agreed paid lump-sum
at the beginning of
transaction. If it is
modified towards the end
of maturity date would
lead to gharar)
 Istisna`
Materials The materials for
production are provided by
the manufacturer.
Asset risk Asset risk is transferred to
the purchaser soon after
delivery of the item to him
and he has to pay the price
irrespective of what
happens to the asset.
Ijarah
The materials are provided
by the customer.
Asset risk remains with the
owner (lessor) and the
lessee has to give rental
only if the asset is capable
of being used as per normal
market practice.
 ‫والحمد ل رب العالمين‬

‫جزاكم ا خيِر‬
‫الجزاء‬
‫‪THANK YOU‬‬