But Allah has permitted trade and forbidden usury )2:275(.

The Hadith says:

The Contract of Sale (Bay') Literally means mubadalah or exchange Technically it refers to an exchange of one property for another (item for money, item for item...) Legality: The Quran says: } {

The best earning is where a person earns through his own efforts and all sale transactions that are free from deception and cheating (Ahmad). The effect of a sale contract is to transfer the ownership of the property from one to another (seller and buyer).

1) Conditions for the conclusion of Sale - Conditions related to contracting parties: 1) Legal capacity 2) Should be more than one person except in case of guardian or a judge selling his own property. - Conditions related to the expression2) Unity of session: 1) Acceptance must correspond with the proposal - Conditions related to the counter-values: 1) Must valuable properties 2) Subject matter must be in existence 3) Deliverability 4) Specification (prescription or sight) 5) The price and type of currency should be known

2) Conditions for the Execution of Sale

1) Complete ownership. But a contract concluded by fudhuli (unauthorized agent): - Hanafis and Malikis: depends on approval of the owner. - Shafiis and Hanbalis: not valid. 2) None other than a seller has right in the sold item If a sold item found to be pledged at the time of contract: - Majority of Schools: not valid. - Hanafis: Mowquf (dependant) on permission of the pledgee

1) 2) 3)
4)

5)

3) Conditions for the Validity of Sale No time limit for a sale (ex: for one year) Both subject matter and price should be specified A sale should be free from coercion (ikrah), mistake, and fraud. A sale should be free from vitiating (spoiling) or invalidating conditions. In sales on credit, the terms of payment should be known, otherwise it is invalid.

4) Condition to render a sale binding

In the absence of options a contract of sale is made obligatory.

 Conditions that may be put by the parties

- According to Hanafis, Malikis and Shafiis conditions are either valid or invalid: - Categories of valid conditions: a) Conditions which are harmonious with a contract (ex: down payment; the item should be delivered by seller..) b) Conditions the particular effects of which agree with the purpose of the sale contract (ex: a seller may require pledge or a guarantor if the price to be paid later) c) Customarily accepted conditions (ex: stipulating a guarantee period for the sold item). - Hanafis allowed it on basis of Istihsan - Shafiis and Malikis find it as a matter of principle.

Prohibited Sales
They contain uncertainty (gharar): quarrel, conflict, litigation.. A) Bay al Hasat (ilqa al-hajar) = throwing pebbles on items, clothes, camels, sheep... B) Bay al-Mulamasah: sale of folded cloth by mere touching without inspection C) Bay al Munabadhah: throwing folded clothes to each other without inspection and saying: This is for that

Prohibited Sales
A) Bay al-Muwasafah: by mere description without inspection and delivered later. B) Bay al-Muzabanah: exchange of the unknown amount of unripe fruits for specific amount of ripe fruits (in bulk) C) Bay al-Mukhabarah: selling unripe fruits. Hadith says: Do not purchase fruits till their quality is evident.

H) Bay al-Haml: sale of foetus of extent she-camel or future foetus of the extent foetus of she-camel I) Two sales in one sale: sale of the same property to one person and then to another. Or: If you pay after one month: RM 50 and if after two months: RM 100..: I will see whether I can pay after one month or two... J) Concealing Defects and Cheating:

K) Sale of Things which are not Owned: resale of things is not allowed until they are possessed L) Najash or Fraudulent Overbidding: usually it is pre-arranged between the seller and the 3rd party. M) Talqi al- Rukban: taking advantage of sellers ignorance

Classification of Sale A)
1) Immediate exchange of subject matter and payment 2) Subject matter with deferred payment 3) Immediate payment with deferred subject matter (salam)

B)
1) Bargain sale (musawamah): seller and buyer agree upon a price without any reference to the cost, because a seller is not obliged to reveal it. 2) Trust sale (amanah): it is when the cost is revealed. - There are three types of trust sales (buyu al-amanah): 1) Murabahah 2) Tawliyah 3) wadiah .

1) Murabahah
Literally: Profit, which comes from a root word: Technically: Murabahah is the resale of a thing at some profit added on the original cost. Ex: wholesaler and retailer (in bulk): original price + cost of maintaining + storage + transportation... - 10% is considered as a relative profit - Murabahah is a trust transaction, therefore, if a buyer is cheated he has right to cancel the contract. - So, in case of sale on credit the seller should inform a purchaser about the fact that the price is necessarily higher than the cash price - Murabahah is a short term contract (no instalments)

1) 2) 3)

4)

Conditions for Murabahah The purchaser has to know the original price. The purchaser should know the amount of the profit (ex: fixed amount or a percentage of the cost price). The first sale contract must be valid. (Ex: if the first seller was bankrupt or sold a pledged property the murabahah sale is void). A seller should inform a buyer about defects, however, he also should not betray his buyer. Otherwise he can ask for a compensation or a cancellation of the sale.

2) Tawliyah or Non-profit sale

- Tawliyah means appointment as a Wali or delegation as the seller is delegating ownership to the buyer. It refers to non profit sale or resale at cost price without any addition. - In case of deception, the purchaser may deduct the amount from the price.

3) Al-Wadiah
- Wadiah refers to a sale with some loss to the seller

Sale for Deferred Payment

(Bay Bi-thaman Al-Ajil) = BBA - BBA is defined as an instalment sale (ex: the commodity is delivered immediately and the price is paid by instalments or paid by deferred payment) - The seller in BBA is not obliged to reveal the cost price - The longer deferment is asked the higher price is paid.. - So, Murabahah is used for short-term transactions while BBA is used for longer term transactions. Two views about BBA: -Opponents: it resembles riba, therefore, it is Haram. -Proponents: there is no clear evidence to prohibit it, besides, the principle in transactions is permissibility, so it is Halal.