Group Members

 Muhammad Farooq
 M. Usman Yasir
 M. Khalil Hussain
 Zubair Abdullah Khan
 Muhammad Ali
 Islamic
Business
Transactions
 Contents
Takaful
Rahn
Mudarabah
Musharikah
Ijarah
Murabahah
Salam
Istasna
 Takaful
(An Islamic Alternative to Insurance)
Takaful refers to the agreement
among the group of people called
participants to guarantee jointly
that, should any of them suffer a
catastrophe, he would receive
certain sum of money to meet the
loss or damage.
Thus it is a method of mutual
The contribution in takaful
business is invested on the
basis of mudarabah
business. It is also known
as Solidarity Mudarabah.
The profits are shared
among the takaful
company and the
participants according to
A participant, while entering into the
takaful Business, concludes two
contracts, i.e.
II. Contract of Tabarru or Donation
III.Contract of Mudarabah
Two Types of Takaful Business:
Life Takaful
General Takaful
 Contract of Rahn
Definition:
According to the Mujallah
“Rahn is the security that can
be lawfully employed for
satisfaction of a claim in
respect of a debt.”
According to Lane, “Rahn
means to pledge or lodge a
real or corporal property of
material value in accordance
 Legitimacy of Rahn
From Quran:
“If You are on journey and can not find
a person to write (your debt) then
pledge in hand (shall suffice).”
From Sunnah:
Hadrat Qatadh narrated that Anas
(r.a.t.a) went to the prophet (s.a.w.s)
with barley bread with some dissolved
fat on it and he (s.a.w.s) had mortgaged
his armor to a jew in Madinah and took
from him barley for his family
Hadrat Aisha narrated that the prophet
(s.a.w.s) bought some foodstuff on
credit from a jew for a limited period
and mortgaged him armor for it.
Legal Status of Pledged Property
 Conditions to the Pledged Property
It should be a thing having some monetary worth
as well legal value.
It should be in accordance with the shariah
standards.
It should be existent at the time of the contract.
It should be delivered
It should be precisely determined with regard to its
essence, quality and value.
Any article conjoined can not be pledged
separately.
It is not allowed to pledge the usufruct of the thing.
It should be handed over to the pledgee.
It should entail sufficient value to cover the debt.
Maintenance of the Pledged Property
born by the Pledger/Owner:

Holy Prophet (s.a.w.s) has

said that ”To the Pledger
return its profits and he is
held responsible for its
losses.”
Types of Expenses on Pledge:
Expenses on Subsistence
Expenses on its conservation and Safe
Keeping
Benefits from Pledged Property
By Pledger
By Pledgee
Benefits under Bay-al-
Wafa
Legal Consequences of Pledge
Pledgee has the right to keep the possession
until redemption of the pledge
Sale of Pledged Property by the Pledgee with
the Permission of the Pledger.
Pledger can not sell pledge without consent
of Pledgee
Pledgee as an attorney for the sale of pledge
on behalf of Pledger
Return of surplus money after sale if any
Heirs right on pledge after the death of the
Pledger
 SALAM
CONTRACT
 What is Salam contract
 In Arabic the word Salam means to
advance .This is a contract whereby
the purchaser pays the price in
advance and the delivery of the
subject matter is postponed
/deferred for a specific future time.
 Some journalists says that the legality of
Salam is derivable from the Quranic Verse.
"O you who believe when you
contract a debt for a fixed term
 CONDITIONS OF VALID SALAM:

 Paid the price

 Should be defined by description
 Fungible things.
 Period of delivery
DIFFERENCE BETWEEN SALAM
AND ORDINARY SALE

 Fix a Period
 Identical Goods.
 Payment Mode.
 REVOCATION OF SALAM
CONTRACT:
 A seller is bound to deliver the good as
stipulated. There may however the situation
when it is not possible for him to honor his
commitment
 Death Of The Buyer
 Damage To The Good
ISTISNA:

 Istisna consist in ordering an manufacturer to

make certain goods answering a given
description. By Istisna one may engage.
CONDITIONS OF ISTISNA:

 Precisely Mentioned
 Work Involved
 Time Of Completion
 Price Consideration
DIFFERENCE BETWEEN ISTISNA
AND SALAM :
 Subject Matter
 Price Consideration
 Time Of The Delivery
 Revocation
Time of Delivery

 As pointed out earlier, it is not necessary in

Istisna that the time of delivery is fixed.
However, the purchaser may fix a maximum
time for delivery that means that if the
manufacturer delays the delivery after the
appointed time, he will not be bound to
accept the goods and pay the price.
 Murabahah ‫المرابحة‬
 Murabahah is derived from the root word ‫ربح‬
which literally means profit. Murabahah sale is
defined as selling a commodity for its purchase
price plus a specified mark-up or profit agreed
upon.
Condition of Murabahah:

 Disclosure of original price

 Fixation of Profit
 Ascertainment of price
 Validity of first contract
 Modern Applications of Murabahah
Islamic bank use this technique to finance project.
In Islamic banks murabahah is practiced in the
following way.
 The client approaches the bank with the request to
purchase for him certain goods.
 Bank asks the client to give undertaking to purchase the
goods with a stated profit margin.
 Bank makes purchase of required goods.
 Bank enters into a murabahah contract with its client.
 Bank may ask the buyer to furnish a security in the form of
mortgage.
 Murabahah Practice in Pakistan:

 In Pakistan Murabahah is used as credit vehicle. It

enables a buyer to finance his purchase with deferred
payment as against accepting a mark-up on the
market price of the commodity.

 The Muslims scholars look at Murabahah as practiced

in Pakistan with suspicion.
Modes of Murabahah
 First Mode:
Purchase of goods by Banks and their sale to clients at
appropriate markup in price on deferred payment basis.
Shariah Appraisal:
 The mode mentioned above is,infact, combination of

bay’ al-murabahah and bay’ al-muajjal, because the

bank charge an increase over and above the original
price which is payable in future.
 It is bay’ al muajjal also because the payment is made

on specified dates in future.

The objections raised by the Muslim
scholars are as follow
1. The bank does not purchase the commodity needed
by the client. It only provides him finance for its
purchase.
2. The bank charges a predetermined increase over the
amount of finance.
3. It does not bear any risk.
4. the bank is not concerned with the purchase of
commodity.
5. Murabahah financing represent sale of a thing, which
is not owned by the seller.
Second Mode:
Purchase of moveable and immoveable property by
the banks from their clients with buy-back
agreement:

Purchase of Property:
4. The customers negotiate the purchase of property
from its owner
5. The customer sells the said property for a known
sum paid immediately
6. The customer simultaneously buys back the same
from the bank for a sum greater then the sum at
which he is sold to the bank. The amount is paid on
monthly installments
4. The customer declares that he has examined the said
property and assures the bank that the property cost is
fair and reasonable and the said property is free from
any structural or other defects
5. The customer obtains possession of the said property
from the seller on or before registration of
conveyance.
 Construction of Property:
The procedure for obtaining finance for the purpose
of construction of property is as follow:
2. Customer approaches the bank and submits a building
plan.
2. The parties fix the property cost.
3. The bank buys from the customer all building materials
required for constructing.
4. Bank’s investment ranges between 30% to 60% of the
value of the said property.
5. Customer buy back the building material for the sum
that is higher than the price at which bank purchased
building material from the customer.
Shariah Appraisal
The buy-back practice has been a target of grave
criticism by the religious scholars.
 In buy-back arrangement no real sale takes place.
 They consider it a deception to avoid the prohibition
of “Riba”.
 It is a fictitious deal that ensures a predetermined
profit to the bank without actually dealing in goods or
sharing any real risk
 Contract of Ijarah (leasing)
The word Ijarah means 'to give something on rent'.
The definition of Ijarah according to Hanfi school
“It is contract on usufructs for a known consideration.”

The term 'Ijarah' is used for two different situations.

• It means 'to employ the services of a person on wages
given to him as a consideration for his hired services." The
employer is called 'musta’jir' while the employee is called
'ajir'.
• The second type of Ijarah relates to the usufructs of assets
and properties, and not to the services of human beings.
Definition and salient Feature of Ijarah
(By Meezan Bank)
 Ijarah is an Islamic alternative of Leasing.
 “Ijarah is a contract whereby the owner of an
asset, other than consumable, transfers its usufruct
to another person for an agreed period at an
agreed consideration.”
Process of Ijarah

. .
VENDOR ISLAMIC BANK Agreeme CUSTOMER
nt-1

 The customer approaches the Bank with the

request for Ijarah financing and enters into a
promise to lease agreement.
 The Bank purchases the item required for
leasing and receives title of ownership from the
vendor
 The Bank makes payment to the vendor
Process of Ijarah

. .
VENDOR ISLAMIC BANK Agreeme CUSTOMER
nt-2

 The Bank leases the asset to the customer after

execution of lease agreement.
 The customer makes periodic payments as per
the contract.
 At the end of the tenure customer can purchase
the asset from the bank with the help of
separate Sale agreement.
Legitimacy of Ijarah:
Quran:
 Allah Says: “And if they suckle your (offspring) give them
their ‘recompense’”
 “Said one of the (damsels): “O my father: engage him on
wages. Truly the best of men for thee to employ is the man
who is strong and trusty.”
Sunnah:
 Said the Holy Prophet (s.a.w.s). “Give wages of the person
hired before his sweat dries up.”
 “If someone hires a person, let him inform him about the
wages he is to receive.
Ijma:
 All the companions of the Holy Prophet (s.a.w.s) unanimously
held that Ijarah is a lawful contract.
Kinds of Ijarah:
There are two main kinds of Ijarah, namely ijarat al-
ashya and ijarat al-ashya.
1. Ijarat al-ashya refers to hiring of things such as houses
shops, lands, animals and beasts etc. this is also known
as ijarat al-ayn.
2. Ijarat al-ashkhas refers to hiring of service, such as to
hire a painter to paint a house. This kind is also called
ijarat al-dhimmah.
Ijarah in Islamic Banks:
 Ijarah wa Iqtina (Hire Purchase)
It is a combination of leasing movable or immovable
property with granting the lessee an option of eventually
acquiring the object of the lease.
 Direct Leasing:
This is a mode whereby the Islamic banks allow the
customer to use the capital assets owned by the banks for a
limited period of time.
MUSHARAKAH
 DEFINITIONS:

The Muslims jurists have offered various

definitions of partnerships with regard to its
important features.
1: MALIKI DEFINITION:
2: HANBALI DEFINITION:
3: SHAFI DEFINITION:
4: HANAFI DEFINITION:
 CONDITIONS FOR
CONTRACTUAL PARTNERSHIP

 Offer And Acceptance

 Competences Of Parties
 Subject Matter
 SHARIKAT AL_AMWAL:

 Definition:
 It is an agreement between two or parties to
invest a sum of money in a business and share
its profits according to agreement
KINDS OF SHARIKAT AL_AMWAL:
 INAN SHARIKAT AL_AMWAL

 It is a contract between two or more persons

to work in any particular trade with
determined capital and to share profit and loss
with determined rates.
 MUFAWADHAH SHARIKAT AL
AMWAL
 Mufawadhah literally mean the participation
in each thing with equality
 Equality in wealth, profit and loss.
 Equality in contractual capacity and religion.
 Each partner is an agent of other partner s
 responsible
 CONDITIONS OF MUFAWADAH
PARTNERSHIP

 EQUALITY IN CAPITAL
 INCLUSION OF CASH CAPITAL
INJOINT INVESTMENT
 EQUALITY IN PROFIT AND LOSS
 EQUALITY IN RELIGION
 SHARIKAT AL A MAL WORK
PARTNERSHIP
 It is partnership in which the partners
contribute investment in the form of labor and
shills it is also called sharikat abdan.
 The work partnership can take the form of
limited partnership or unlimited partnership
namely “
 Inan work partnership
 Mufawadah work partnership
CONDITIONS FOR ACCEPTANCE
AND PERFORMANCE OF WORK:

 RIGHT OF ACCEPTANCE WORK AND

PERFORMING IT
 RIGHT TO DELIGATE WORK
ACCEPTED
 MUDARABAH
CONTRACT

The word mudarabah is derived from the phrase “ Al

Darb Fil ard” which means to make journey . We say
because worker strive in the mudarabah .
The word Qirad and mudarabah are derived from the
Qirada that means to “cut off” because the investor the
sum of moony to the agent
 Definition of different school of thought

 Hanafi.
“It is a partnership for participation profit in which a capital
is provided from one side and labour or skill is provided from
other side”
 Shafi.

“ It is an agreement whereby the owner of the capital hand over

the capital to worker a who trade with it and profit is share
among them”
 Modern definition of mudarabah

Ali al Khafif
“ contract of sharing profit of business in which one party
contributes with capital and other with his skills”
 Legitimacy of mudarabah

 Quran
 Sunnah
 Ijma
 Quran.

“ And other who journey through the earth seeking the bounty ”

Sunnah.
“The Holy Prophet ( SAW) reported to have said “ There is great
blessing in three things credit sale , mudarabah and mixing the
wheat and barley for domestic consumption”
Ijma.
Mudarabah practice is also proved from the consensus opinion of
Muslims jurists. Hazrat Umar ( r a t a) use to invest orphans
property of the basis of mudarabah.
 Element of mudarabah

According to shafi.
 Parties to mudarabah contract

 Work/ labour

 Profit

 Capital

 The form( offer and acceptance)

 Conditions of mudarabah

 Condition relating to the contracting parties

 Condition relating to capital
 Condition relating to profit.
 Types of the mudarabah.

 Restricted mudarabah.

Unrestricted mudarabah.
 Dissolution of mudarabah.

 Unilateral termination.
 By the expiry of time period.
 By death of any of the partner.
 By insanity of any of the partner.
 By destruction of capital.
 By disregard of express direction.
Questionnaire
Session

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Thanks For Participation