CHAPTER A1

INTRODUCTION TO ISLAMIC MUAMALAT

LEARNING OUTCOMES

At the end of the chapter, the candidate will be able to:

 Understand the concept of Islam, the objectives (maqasid) and sources of shariah.
 Understand the prohibitions in muamalat.
 Understand and explain the rules of muamalat contracts.

A1.1 INTRODUCTION

The Arabic word 'Islam' simply means 'submission', and derived from the word meaning
'peace'. In a religious context it means complete submission to the will of Allah (SWT)
Islam is not mere religion but a “deen”, meaning „the way of life‟. It touches upon the
material as well as spiritual dimensions of human existence.

Allah (SWT) emphasized the completeness of Islam in the following Quranic verse;

Meaning:

“This day I have perfected your religion for you, complete My blessing on you and
approve Islam as the way of life for you”

(al-Maidah: 3)

1.1.1 The Concept of Islam

Broken down to its bare elements, Islam comprises of aqidah (a set of beliefs), shariah (a
set of laws) and akhlaq (a code of moralities).

The concept of the shariah is not only to govern man in the conduct of his life in order to
realize Divine will, but covers all behavior; spiritual, mental as well as physical. Thus,
the shariah principles are more than law, covering the total way of life that includes faith
(iman) and practices (amal), personal behavior, legal and social transaction.

As such, Islam is also known as shariah al- kubra that encompasses the way of life as
ordained by Allah (SWT).

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Islam can be classified into the following:

Aqidah Aqidah is defined as the firm belief without any wavering or doubt
in Allah (SWT), His Prophets and Angels, the Hereafter, Holy Book
and predestination. It is the main foundation in Islam and a starting
point in order to be a good Muslim. It is reflected by the activities
done by him. The Prophet Muhammad (saw) described Islam as a
building where its foundation is aqidah. The foundation of aqidah in
Islam is the six pillars of faith (arkan al-iman).
Akhlaq Practice of virtue, morality, and manners in Islamic theology and
philosophy. It consists of relationship between man and Allah
(SWT), man and man and man and other creatures.
Shariah Shariah is the set of rules derived from both the Quran and the
authentic traditions (sunnah) of the Prophet Muhammad (saw) and
the scholarly opinions (ijtihad) based on Quran and Sunnah. The
shariah contains categories and subjects of Islamic law called the
branches of fiqh (Islamic jurisprudence).
Fiqh Ibadat The purification ruling that governs the relationship between man
and Allah (SWT) such as prayer, fasting, zakat, jihad and some
other forms of worship are dealt under this heading.
Fiqh Munakahat The ruling related to family law. This area deals with marriage,
divorce, inheritance, guardianship and other related matters.

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 Fiqh Jinayat It is known as criminal law of Islam. This area deals with major
offences like illicit sex (zina), theft (sariqah), murder, etc.
Fiqh Muamalat The rulings governing commercial transactions between the parties
involved.

1.1.2 Objective of Shariah (Maqasid al Shariah)

Maqasid is the Arabic word for goals or purposes. In Islamic context, it can refer to the
purposes of Islamic faith.

According to Imam al-Ghazali “ the objective of the shariah is to promote the well-being
of all mankind, which is safeguarding their faith (deen), their self (nafs), their intellect
(a‟qal), their posterity (nasl) and their wealth (mal). Whatever ensures the safeguard of
these five principles serves public interest and is therefore desirable.

There are five maqasid (objectives) as follows:-

The preservation of Description/Remarks

Religion The preservation and protection of deen (religion) under all

circumstances.

Example:
Defending the Islamic faith particularly if it attacked by the
enemies of Islam.
Life The preservation and protection of life under all
circumstances.

Example:
In order to protect life is enacting a severe punishment for
those who kill another.
Lineage The preservation and protection of descendants and honor
under all circumstances.

Example:
Islam prohibit it followers in committing adultery or other
immoral behaviors.

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 Intellect The preservation and protection of intellect and mind under all
circumstances. Protection of mind requires safeguarding it
from anything that might harm the ability and functions of the
brain.

Example:
The consumption of liquor or similar substances that will
affect the functions of the brain.
Property The preservation and protection of property under all
circumstances.

Example:
The pro-active initiatives and planning in safe guarding ones
property against misfortunes or disasters.

1.1.3 Classification of Benefits of the Objectives of the Shariah

The Muslims scholars have classified the entire range of masalih – cum – maqasid into
three categories in a descending order of importance:

Less
Important

More
Important

1.1.4 Sources of Shariah

In general, the source of shariah is divided into two i.e. resources are agreed upon by
scholars (adillah muttafaq „alaih) and the resources are not agreed upon by scholars.
Resources are agreed upon by scholars is the source used by scholars to issue the rule on
a matter or problems that occur. These sources are accepted by scholars without any
disagreement among them in terms of sequence or usability.

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 There are four sources of law agreed by the majority of scholars are as follow:

Source Description/Remarks

Quran The Quran is the word of Allah (SWT) revealed to Prophet

Muhammad (saw) in Arabic conveyed by angel Jibril (as) The Quran is
the main primary sources of shariah. It is mu‟jizat (meaning which
may not be understood by someone) and is immutable and preserved
by Allah (SWT).
Sunnah According to muhaddithun or scholar of science of hadith, sunnah refer
anything which came from the Prophet Muhammad (saw) including his
acts, sayings, tacit approval as well as physical attribute.

It can be divided into three categories1:

a. Sunnah Qawliyyah (Sunnah by Words)

Example: when Prophet Muhammad (saw) explicitly said,

“Pray as you see me pray”

b. Sunnah Fi‟liyyah (Sunnah by Action)

This type of sunnah consists of the Prophet‟s deeds and actual

instruction, such as the way he performed the prayer, the
fasting, the ritual of hajj, or the transaction he concluded such
as sale and other financial transaction.

c. Sunnah Taqririyyah (Sunnah by Agreement)

The tacitly approved sunnah consist of the acts and sayings of

the companions in the Prophet‟s presence or which came to his
knowledge and on which he remained silent. The tacit approval
of the Prophet Muhammad (saw) may be inferred from his
silence, indicating the permissibility of the acts as the Prophet
Muhammad (saw) would never keep silent on prohibited things.
Ijma‟ Ijma‟ is an Arabic term referring to the unanimous agreement amongst
the mujtahidun after the demise of Prophet Muhammad (saw).2
Qiyas Qiyas refers to the application of an original ruling (hukm) that has
been established in the earlier case on the current issue on which the
law is silent.3

1
Aznan Hasan, Fundamentals of Shariah in Islamic Finance, pp. 29
2
Aznan Hasan, Fundamentals of Shariah in Islamic Finance, pp. 39
3
Aznan Hasan, Fundamentals of Shariah in Islamic Finance, pp. 43

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1.1.5 Mandatory Law (Hukum Taklifi)

Mandatory law (hukum taklifi) law is the law that describes the commands, prohibitions
and the option to run or leave an activity / job. According to Islamic terminology, the acts
of a Muslim must be guided by these five commandments (al-ahkam al-khamsah)
classified as follows:

Classification of Description
Commandment
Wajib (obligatory) The term wajib means an act the performance of which is
obligatory for the subject. Example: performing of prayer
(solat) and fasting in month of Ramadhan. In its technical
sense, it is an act whose commission is demanded by Allah
(SWT) in certain and binding terms.
Mandub (recommended) Mandub is defined as a demand by Allah (SWT). for the
commission of an act without making it binding and without
assigning any blame for its omission. The rule for mandub is
that for doing so there is reward (thawab) for the doer, while
omitting it entails no penalty such as giving charity to the
others.
Haram (prohibited / Haram is defined as one which omission is required by Allah
unlawful) (SWT) in binding and certain terms. An example of prohibited
act (haram) is the misappropriation of another‟s wealth.
Makruh (reprehensible Makruh is defined as one which omission is demanded by
or disapproved) Allah (SWT) in non-binding terms. An example of
reprehensible act (makruh) such as debt which is not
documented (unrecorded).
Mubah (permissible) Mubah or permissible act is one in which Allah (SWT) has
granted a choice of commission and omission, without blame
or praise for omission or commission. According to this
principle, all contracts and transactions are permissible, unless
there is evidence indicating otherwise.

A1.2 BASIC MUAMALAT

1.2.1 Introduction to Muamalat

The literal meaning of the term “muamalat” (plural of muamalah) is „the transactions‟
while its technical idea is any form of mutual dealings held between men to solve their
everyday needs, especially in matters relating to trade and commerce. Muamalat is a
social relationship which consists of various economic and non-economic activities.

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 Basic principles that have a role in forming shariah rulings in muamalat are:4

Basic Principles Description

Permissibility as a The status of all matters other than rituals is permissible until
General Rule evidence is given that a certain matter is prohibited.
Conclusion of Contract Mutual consent means that the contract entered into by the
by Mutual Consent parties shall be free from any elements of coercion, fraud,
misrepresentation or other illegal means.
Conformity of Contract The transaction or contract entered by individuals shall be
with the Maqasid al accordance with the maqasid al shariah.
Shariah
The Principle of Wide Wealth and property should be circulated among the general
Circulation of Wealth public and actively transferred from one hand to another in the
form of expenditures and investment.
The Principle of All financial transactions must be conducted in such a manner
Transparency in that all the parties are clear about all the important facts
Commercial Dealing including the terms and conditions of their dealings.
Justice and Fair Dealing Justice is the general principle of shariah that needs to be
observed in all Islamic transactions and contract.

1.2.2 General Prohibition in Muamalat

All economic activities are legally permissible as long as these activities do not transgress
any of the tenets of shariah. In line with this maxim, it is the unanimous opinion of all
four major Islamic shariah School of thought (Hanafi, Maliki, Shafii and Hanbali) that
all forms of business transactions that transgress any of the tenets of shariah are
considered invalid.

General Principles

1. No contract should be made for selling or buying forbidden products such as

alcohol or any other forbidden substances.

The Prophet Muhammad (saw) said,

Meaning:

"Surely, Allah and His Messenger have prohibited the sale of wine, the flesh of
dead animals, swine and idols,"

(Reported by Bukhari and Muslim)

4
Aznan Hasan, Fundamentals of Shariah in Islamic Finance, pp. 193 - 199

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 2. Likewise, no contract should be made for any financial deal on the basis of usury
(riba).

Meaning:

“Allah has permitted trade and forbidden usury”

(al-Baqarah: 275)

3. Contract involves in gambling (maisir) is forbidden in Islam.

Meaning:

“They will ask you concerning wine and gambling. Say: “in them is great sin, and
some benefit, for men; but the sin is greater than the benefit.

(al-Baqarah: 219)

4. Contract that involves major uncertainty (gharar fahish) is also forbidden and
may make the contract voidable.

Meaning:

“O ye who believe! Eat not up your property among yourselves in vanities, but let
there be amongst you traffic and trade by mutual good-will, nor kill (or destroy)
yourselves, for verily Allah hath been to you Most Merciful.”

(an-Nisaa‟: 29)

Prohibited Elements

1. Riba (Usury)

Al-Jassas defines riba as a loan given for a stipulated period with stipulated
increase on the principal payable by the loan-taker. Riba also defined as “an
increase that has no corresponding consideration in an exchange of property for
property.5

The prohibition of riba is deduced from the following verse:

Meaning:

5
Aznan Hasan, Fundamentals of Shariah in Islamic Finance, pp. 199

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 Those who devour usury will not stand except as stand one whom the evil one by
his touch hath driven to madness. That is because they say: "Trade is like usury,"
but Allah hath permitted trade and forbidden usury. Those who after receiving
direction from their Lord, desist, shall be pardoned for the past; their case is for
Allah (to judge); but those who repeat (the offence) are companions of the fire:
They will abide therein (forever).

(al-Baqarah: 275)

It would appear that the prohibition regarding riba has two dimensions. The first
one prohibits increases arising from debts/loans (duyun), known as riba duyun,
while in barter trades (buyu‟), unequal exchange of ribawi item of same kind and
same basis in is known as riba buyu‟.

This can be summarized as follows:6

a. Riba Duyun

Unjustified increment in money lent whether in kind or cash over and

above the principal amount.

Type Description
Riba Qard Increase (interest) on the principal sum of the
loan is agreed upon at the point of contract
Riba Jahiliyyah Increase levied on the borrower for late
repayment or failure to repay the financial loan

6
Aznan Hasan, Fundamentals of Shariah in Islamic Finance, pp. 33 - 34

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b. Riba Buyu‟

Occurs in trading and exchange transactions, in which unequal exchange

of ribawi commodities of same kind and same basis.

Type Description
Riba Fadhl Due to unequal amount/quantity
Riba Nasi‟ah Due to extension of time of delivery

Prophet Muhammad (saw) said,

Meaning:

„Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by

barley, dates by dates, and salt by salt - like for like, equal for equal,
payment being made on the spot. If the species differ, sell as you wish
provided that payment is made on the spot'.
(Reported by Muslim)

From the above hadith, gold and silver represent money while wheat,
barley, dates and salts represent staple food. These items are known as
ribawi item.

Currency Staple Food

Type
Gold Silver MYR SGD Wheat Barley Dates Salt
Gold
Silver
Currency
MYR
SGD
Wheat
Barley
Staple Food
Dates
Salt

On spot and at par

On spot only

No condition

Based on the above table:

i. Exchange between ribawi materials of the same kind (and of the

same basis) must be with equal weight, measurement or number
and payment delivery must be made at the same time.

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  If payment and delivery are made at the same time but the
weights, measurements or numbers of the materials
exchanged are not equal, then riba fadhl occurs.

 If payment and delivery are not made at the same time but
the weights, measurements or numbers of the materials
exchanged are equal, then riba nasiah occurs.

ii. Payment and delivery between ribawi materials of different kinds

and of the same basis must be made at the same time, though they
may be made at different prices. Equal weights, measurements or
numbers of the materials exchanged are not required to be
observed here.

 If payment and delivery are not made at the same time (on
spot), then riba nasiah occurs

2. Gharar (Uncertainty)

Gharar or uncertainty makes a transaction un-Islamic as it will result in an unjust

or unfair outcome for the parties involved. It is where the quantity and the quality
involve in the transaction is not predetermined and known which may makes the
contract void or voidable.

The prohibition of gharar can be deduced from the following verse:

Meaning:

“O ye who believe! Eat not up your property among yourselves in vanities, but let
there be amongst you traffic and trade by mutual good-will, nor kill (or destroy)
yourselves, for verily Allah hath been to you Most Merciful.”

(an-Nisaa‟: 29)

Prohibition of gharar transaction is reaffirmed by the following hadith:

Meaning:

Abu Hurairah ra reported that Prophet Muhammad (saw) forbade a transaction

determined by throwing stones, and the type which involves some uncertainty.

(Reported by Muslim)

Gharar can be categorized as follow:

a. Minor (Yasir) Gharar

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 Minor gharar does not render a sale contract defective because it does not
affect the principal components (arkan or essential elements) of the
contract and necessary conditions of the essential elements (e.g.
requirements relating to asset, price, language of the contract etc.)

b. Major (Fahish) Gharar

In general terms, major gharar is

 an uncertainty which is so great that it becomes unacceptable; or

 It is so vague that there is no means of quantifying it.

Major gharar causes a contract to be invalid.

3. Maisir (Gambling)

The word maisir means getting something too easily or getting a profit without
working for it. Islam forbids all forms of business in which the monetary gain
comes from mere chance or speculation and not from work. Unlike gharar which
is tolerated to a certain degree, maisir is not accepted at all.

Meaning:

“O Believers! Intoxicants and gambling - and divining arrows are an

abomination of Satan‟s handiwork. Leave it aside in order that you may prosper.”

(al-Maidah: 90)

1.2.3 Concept of Contract in Muamalat

The literal meaning of “aqad” is “join” or “tie”. It can be translated as “contract”.

Barbati defined “aqad” in his kitab “Inayah „ala Fath al-Qadri”as:

“Legal relationship created by the conjunction of two declarations, from which flow legal
consequences with regard to the subject matter”.

The essential elements of an aqad:

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Essential Elements Description
Sighah a. Ijab (offer)

Article 101 of Majallah al Ahkam al Adliyyah defined ijab

as the word first spoken – for the making a disposition
of property and the disposition are proved by it.

b. Qabul (acceptance)

Article 102 of Majallah Majallah al Ahkam al Adliyyah

defined qabul as the spoken words by the second party
when forming the disposition of property and with it, the
agreement becomes complete.
Aqidan (parties to the It is a condition of a valid contract that the parties possess
contract) capacity. Capacity is a quality which makes a person qualified
for acquiring rights and undertaking duties and
responsibilities.

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Ma‟aqud Alaih a. Subject Matter

They are conditions to be taken into consideration

according to Islamic jurisprudence for subject of contract:

 Should exist at the time of contract.

 Must be legally owned.
 Should bring benefit or significant result for the
contracting parties.
 Should have commercial value in the light of
shariah principles.

b. Price/Consideration

Defined as value promised to another when making a

contract

Conditions for valid consideration:

 In existence (mawjud)
 Permissible (halal)
 Valid (sahih)
 Valuable (mutaqawwim)

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