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Commercial Law in Islam

Part 3/7

Mudhàrabah Investment Sharàkat Partnership Qardh Loans Kifàlat Guaranty

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Translated from "Islàmî Fiqh" by Maulànà Mujîbullàh Nadwîby Abd ur Rahmàn O'Beirne

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correction progress - complete

hyperlinks – completed

numbers in brackets in text e.g. ( 607) refer to page numbers of original Urdû text

FIRST PUBLISHED 1998/1419 AH Publication No A92

© 1998 (outside Republic of South Africa only)Abd ur Rahmàn O'Beirne

ByMADRASAH ARABIA ISLAMIAP.O. BOX 9786AZAADVILLE1750SOUTH AFRICA

TEL: {011} 413 2786FAX: {011} 413 2638

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Part ThreeCONTENTS:

CHAPTER 5 MUDHÀRABAH or INVESTMENT 3

One Party's Effort, Another Party's Capital 3The Meaning Of Mudhàrabah 4Important Technical Terms 5Definition Of Mudhàrabah 5Types Of Mudhàrabah 5

Muqayyad or Conditional 5Mutlaq or Unconditional 5

Option To Cancel The Agreement 5Conditions For Validity Of Mudhàrabah 6Factors that Invalidate Mudhàrabah 7Rights and Options of Each Party 7Rabb.ul.Màl 7Mudhàrib 8Meaning Of Liability For Losses 9Banking On A Mudhàrabah Basis 10

CHAPTER 6 SHARÀKAT or PARTNERSHIPS 11

The Status Of Partners In A Partnership 12Types Of Partnership 12

Shirkat ul AmlàkShirkat ul ‘Uqùd

The Definition Of Shirkat.ul.Amlàk i.e. Joint Ownership 13Shirkat bi'l JabrShirkat bi’l Ikhtiyàr

The Rule Of Shirkat ul Amlàk 13Shirkat ul ‘Uqùd - Contracted Partnership 14Definition Of Shirkat ul ’Uqùd 14When Can Agreement Be Cancelled ? 14Types Of Shirkat ul ‘Uqùd 14

Majlis ul Intidhàm - Management Committee 15Shirkat ul Mufàwazah 15Shirkat ul ‘Inàn 16The Definition of Shirkat ul ‘Inàn 16Shirkat uI A’màl or Shirkat Sanà’î 19Shirkat ul Wujùh 21Note 22Shirkat ul ’Ilàj wal Mu’àlajah - ( Medical Partnerships ) 22Ta’lîmî Shirkat - (Teaching Partnerships ) 22Shirkat e Zarà’at - ( Farming Partnerships and Co-Operatives )

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CHAPTER 7 QARZ or LOANS 23

The Instructions Of The Sharî’ah Of Islam 25Condemnation Of Taking Loans Without Necessity 26The Responsibilities Of An Islamic Government Concerning Loans

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The Meaning And Definition Of Qarz 28Loan And Credit Transactions Should Be Written 29Instructions To The Lender 29Instructions To The Borrower 32What Things Can Be Given Or Taken As A Loan? 32What Things cannot Be Given Or Taken As A Loan? 33Important Instructions 34

CHAPTER 8. KIFALAT or GUARANTY 37

The Definition And Literal Meaning Of Kifàlat 37Kifàlat bi'n Nafs Or BailKifàlat bi'd Dayn Or GuarantyKifàlat bi’l ‘Ayn Or Safe-KeepingTechnical Terms 37The Procedure For Kifàlat 38

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Conditions For Validity Of Kifàlat 38The Responsibilities Of The Kafîl 39The Responsibilities Of The Kafîl In Kifàlat For Money Or Goods 39Other Cases Of Kifàlat 41The Railways Are Dhàmin And Kafîl 41The Post Office Is Also Kafîl 41Freight Insurance 41Kifàlat For A Deceased Person 42

GLOSSARY OF TERMS – See separate file

CHAPTER 5

MUDHÂRABAH or

INVESTMENT

ONE PARTY'S EFFORT, ANOTHER PARTY'S CAPITAL

Everyone in the world is not the same, and nor will they ever be the same. Along with differences in natural abilities, people are also not equal in terms of the means of livelihood available to them. How many people there are who have wealth, but whose ability to work and make a living is limited, or because of other important work, they do not have the opportunity to put their money to work, and make some profit out of it. And how many people have ability and time available to start some enterprise but do not have the necessary funds. So the Sharî’ah of Islàm, in addition to individual business as described above, has provided other arrangements by means of which people can organise their livelihood, and a poor man who does not have money of his own is not left without any alternative to leaving his home town and knocking on some mill-owner's door to look for a job, but can independently arrange his own means of support.

Islam thus permits and encourages people to give money to the poor in ways that will both enable them to do some useful work and provide both parties with an income. This can be in the form of Mudhàrabah or Sharàkat.

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The business of using or lending money on interest that was previously done by individual money-lenders has now been taken over by the present Banking System. In the same way that money-lenders used to lend people money on interest for business or for personal necessities, now the Banks do this on a vastly larger scale. But in this system the burden of interest becomes so heavy that if the borrower does his business in a straight and honest way it will very likely fail - so he then tries to do his business in a way that will both pay off the interest to the bank and give him an income. As a result, the whole business community of a country becomes involved in dubious dealings, and all the evils of modern business are basically the result of this.

If, instead of this, Banking was done on the basis of Mudhàrabah then all these evils could be remedied. The writings of Doctor Najàtullàh Siddîqî on this subject are worth reading.

THE MEANING OF MUDHÀRABAH

The word Mudhàrabah is derived from ‘ Dharb ’ meaning basically to strike or hit; and if used with a preposition then it means to walk; go about; or strike out, and one meaning is to strike out and work to earn a living.

The derived form signifies this being done together or reciprocally. So here one man is putting in his effort and work and the other is assisting him by putting in his money, so it is called Mudhàrabah. It comes in the Holy Qur’àn

Striking out in the earthin search of the generosity of Allah

The Nabî sallallàhu alaihi wa sallam used to do business with the capital of Hadhrat Khadîjah radhiyallàhu anhà in this way. And the Sahàbah radhiyallàhu anhum used to make a practice of giving and taking money from each other in this way, and in this way benefit themselves and benefit each other. In the Hadîth the words Muqàradhah and Qaràdh are also used to mean the same thing.

It is reported about Hakîm bin Jazzàm radhiyallàhu anhu that

"At the time of giving money for Muqàradhah he used to make a condition that it should not be used in any risky business such as shipping, buying and selling of animals, etc. or in an area subject to flooding, and that if you do this, then you will be liable for my money."

The word Muqàradhah is derived from Qardh, which basically means cutting. In Mudhàrabah a man cuts a piece from his capital and gives it to another to do business with. Therefore it is called Qaràdh and Muqàradhah. So the two words Mudhàrabah and Qaràdh virtually in themselves make clear what Mudhàrabah is.

Ruwaifî' bin Thàbit radhiyallàhu anhu reports

"In the time of The Messenger sallallàhu alaihi wa sallam one of us would take arrows from his brother

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for hunting on the condition that half the meat would be for one and half for the other."

In the light of this Hadîth the author of Hidàyah writes:

That is to say that at the time that The Messenger sallallàhu alaihi wa sallam was sent people used to practice Mudhàrabah. So The Messenger sallallàhu alaihi wa sallam approved of it, and the Sahàbah radhiyallàhu anhum used to make a practice of it.

IMPORTANT TECHNICAL TERMS

The person who invests his money is called the Rabb.ul.màl. and the person who does the work is called the Mudhàrib and the money that is invested is called the Ra’s.ul.Màl. At one time Muslims used to do large scale business right around the world on this basis.

DEFINITION OF MUDHÀRABAH

In the same way as Tijàrat, Mudhàrabah is a contract or agreement between two persons, one in which one person gives his money and the other agrees to work. The two parties come to an agreement that out of whatever profit is made from this combination of the money of the one and the effort of the other, say, one half or one quarter will go to the one who invested the money, and one half or three quarters will go to the one making the effort, or whatever proportions they agree on. All the Imàms are agreed on

Mudhàrabah being valid, but there is some disagreement on some of its details.

TYPES OF MUDHÀRABAH

There are two types of Mudhàrabah

a) Muqayyad or Conditional

b) Mutlaq or Unconditional

Muqayyad means Mudhàrabah in which the Rabb.ul.Màl specifies that the money is to be used in a particular place or for a fixed time or for some specified enterprise.

(397)Mutlaq means Mudhàrabah in which no such conditions are made, and everything is left to the discretion of the Mudhàrib.

OPTION TO CANCEL THE AGREEMENT

If an agreement has been made but the enterprise has not been started, then both parties have the option of cancellation. On this all the Imàms are agreed.

There is difference of opinion among the Imàms concerning the position once the enterprise has been started.

According to Imàm Màlik rahimahullàh in this case neither party has the right of cancellation. And if the Mudhàrib

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dies, then his sons have the option of continuing with the enterprise or of cancellation.

The basis of this is that cancellation will put the Mudhàrib in difficulty and his effort will have gone to waste.

But according to Imàm Abù Hanîfah and Imàm Shàfi’î rahmatullàhi alaihimà the right of cancellation belongs to each party at all times. If the agreement is cancelled then the Mudhàrib is entitled to payment for his time and effort. The amount of the payment should be the amount that normally is, or should be paid for that much of that kind of work.( C.f. Ujrat e Mithlî under Ch 17 : Ajîr Khàs)

And according to the latter two Imàms, in the event of the death of the Mudhàrib or the Rabb.ul.màl, the agreement becomes cancelled, but notice of cancellation is necessary.

And as with any agreement made for a specified time, on expiry of that time both parties have the option of cancellation.

CONDITIONS FOR VALIDITY OF MUDHÀRABAH

1. Both the Mudhàrib and the Rabb.ul.màl must be ‘àqil, that is they must possess sound understanding in the sense of understanding transactions and profit

and loss. It is not necessary that they be of mature age (bàligh)

2. The Rabb.ul.màl must hand over the money to be invested to the Mudhàrib immediately at the time of agreement. A promise is not sufficient.

3. The amount of money that is to be spent immediately to start the enterprise must be specified at the time of agreement. If it is left unspecified then the agreement will not be valid.

4. The share of the profit of each party must be specified at the time of agreement. If the Rabb.ul.màl merely says that we will share the profit, then this will be taken to mean 50-50 or half each. If he says we will share it in a suitable manner then the agreement becomes invalid because there is danger in dispute in this.

5. It is better that both parties should write out the conditions of agreement and keep copies so that these should be no dispute afterwards. If this can be ensured in some other way than writing down the agreement then there is no objection to this.

6. In an Unconditional (Mutlaq) Mudhàrabah both parties should agree as to after what period or at what intervals they will add up the accounts and distribute the profits - one month, two months, one year, two years or whatever.

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FACTORS THAT INVALIDATE MUDHÀRABAH

1. If either party specifies that he should be paid a fixed amount and then the remainder shared between them, the agreement becomes invalidated. In terms of this regulation it is not permissible for the Mudhàrib to be paid a salary and then the remaining profit distributed between himself and the other share holders.

This is in the case where he has not invested his own money. If he has invested his own money, then this is not Mudhàrabah but is Sharàkat, and comes under its own heading further on.

2. Imàm Abù Hanîfah rahmatullàhi alaihi regards Mudhàrabah as being valid only in money. But Imàm Màlik rahmatullàhi alaihi regards it as being valid in goods as well. In other words, if one party gives the other party goods to sell, and says that we will share the profit, then, in the opinion of Imàm Abù Hanîfah, it will not be valid, as there can be dispute about the value of the goods.

If the agreement is that you sell these goods and then use the money from the sale, and then we share the profit, then it will be valid. And if there is no room for dispute, then Imàm Abù Hanîfah rahmatullàhi alaihi also regards it as valid

3. If the Rabb.ul.màl says that so-and-so owes me this sum. Collect it from him and use it; we will share the

profit; then this is valid. But if he says that the money that you owe me, use it in business and we share the profit; this is not allowed, because he is taking benefit from a loan, which is not allowed.

It is also not allowed for the Mudhàrib to start business before he is in possession of the full amount agreed on.

4 The Rabb.ul.màl must deliver the money he is into the control of the Mudhàrib and leave him alone. He is not allowed to make a condition that he takes part in the running of the business or that he put his agent there, because this interference is likely to cause harm to the work, and the burden of this will fall on the Mudhàrib as well, and cause his effort to go to waste. If the Mudhàrib wishes to, he may himself take on staff.

RIGHTS AND OPTIONS OF EACH PARTY

RABB.UL.MÀL

1. The Rabb.ul.màl may specify the type of enterprise for which the money is to be used. If the Mudhàrib goes against this condition and there is a loss, he will be liable for it.

2. He may also specify the where the enterprise is to be conducted

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3. He may also specify the period of time for which the business is to be done e.g. one month, six months, one year. (401)

4. Whatever sum the Mudhàrib has spent on administration or travelling expenses will be deducted from the main sum, and the remainder divided as profit according to the agreement.

5. It is necessary that both the Mudhàrib and the Rabb.ul.màl be present at the time of calculation and division of profits.

6. If the Rabb.ul.màl makes a condition that both parties should bear any losses then the agreement becomes invalid. He has no right to do this, and this condition is automatically invalid as well.

MUDHÀRIB

1. The Mudhàrib is both Amîn (trustee) of the funds in his charge, and he is also Wakîl (agent) of the Rabb.ul.màl in respect of these funds. As Amîn he has to look after these funds with full and proper care. If however, by some accident they are lost then he is not liable for the loss, unless gross negligence or deliberate wastage is proved.

Also as trustee or Amîn of these funds he must use them according to the agreement made. If he goes against the conditions agreed on then he becomes

liable for losses. The regulations concerning Amànat and Wakàlat should be consulted separately.

2. As Wakîl (agent) of the Rabb.ul.màl he has full

powers within the limits of the agreement to operate the enterprise and put the funds to use according to his discretion. In other words this agreement constitutes a Power of Attorney over these funds. But he must stay within the limits stipulated in the agreement.

3. If the investor (Rabb.ul.Màl.) has not made particular stipulations about the kind of business for which his money is to be used, then the Mudhàrib is free to buy and sell for cash or credit, or to employ people to help him on a salary or daily wage basis. The investor does not have any right to interfere in this. But if the Mudhàrib allows himself to be defrauded because of gullibility or carelessness then he will be liable for the loss.

He does not have the right to lend the funds in his charge or to take loans, or to give presents, out of them without the express permission of the Rabb.ul.màl. If he lends money without this permission and does not get it back or suffers a loss as a result of the loan, then he will be liable for the loss.

4. He is at liberty to take securities, to keep Amànats (safe deposits) and to make Hawàlahs (transfers of

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debt - e.g. money transfers) If in the course of this he suffers some loss then he will not be liable for it. The regulations governing these things should be consulted separately.

5. If the Mudhàrib is working in his own home area then he may not take food & living expenses. However, if it is a large town then he may take travelling expenses if it is necessary to take a bus or taxi to work, or to travel some distance to the station to collect goods etc.

If he has to travel away from home for the work, then he may take food, laundry, travel etc. expenses. According to Imàm Abù Hanîfah rahmatullàhi alaihi he may also take medical expenses, as his health is essential for him to be able to do the work. If he is unable to do some work alone, he may employ someone to help him. But in the matter of expenses he must observe the principle that he spend only as much on his expenses as he would if he was travelling privately and at his own expense - not that he normally travels second class but for business trips he travels first class, or at home he eats vegetables but on business trips he has chicken.

6. Any losses incurred in the merchandise will be set off against profits before distribution. If losses are greater than the total profit, then the balance of the loss will be borne by the Rabb.ul.màl.

e.g. Value of merchandise at cost $ 1 000 Stock losses $ 200 ______

Value of remaining merchandise $ 800 Income from sale of stock $ 900 ______

Profit on sales $ 100 Losses B/F $ 200

______Net loss $ 100

This net loss will be borne by the Rabb.ul.màl. provided that the Mudhàrib has exercised due caution.

If the loss was a result of carelessness or inadequate storage arrangements resulting in damage to the goods, or failing to check up on the market price before purchasing goods resulting in trading losses, then the Mudhàrib will be liable for the loss.

MEANING OF LIABILITY FOR LOSSES

Liability means that he will have to pay the Rabb.ul.màl the amount of the loss, either out of his own share, or if that is not sufficient, then out of his own personal property. The amount of the loss is to be determined by disinterested parties who are in the same line of business.

7. Expenses are to be set out in the same way e.g.

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Cost price of stock $ 1 000Income from sales $ 1 400

______Gross profit $ 400Travelling and other expenses $ 100

______Net profit $ 300

So, $300 will be distributed between the two parties.

8. If for any reason the agreement is cancelled, the Mudhàrib will be paid for the work he has done on a time basis, provided that this wage does not come to more than the amount of profits that have been earned to date. If there has been no profit to date then he will not get any payment

If the Rabb.ul.màl wants to cancel the agreement he must notify the Mudhàrib. And whatever work is half-done the Mudhàrib can then complete it before handing back.

BANKING ON A MUDHÀRABAH BASIS

Refer to chapters on Amànat and WakàlatReferences:Interest - Free Banking(Markaz Tahqîq - Dayàl Singh Trust Library - Lahore)and books by Najàtullàh Siddîqî

(Translator's Note: To arrive at any meaningful understanding of issues relating to the Banking System it is not sufficient to simply read material by Muslim writers on Islamic Finance. It is also

necessary to read work by serious and critical non-Muslim economists who are examining the issue systemically. I would recommend writings of the late JK Galbraith, James Galbraith, Michael Hudson and others writing on Modern Monetary Theory, the New Economic Foundation, and Positive Money, This in turn requires some basic reading in Economics. “Mainstream” or neo-classical economics, which forms the foundation of what is taught in almost all officially recognised institutions, is not a good starting-point, as its whole approach is fundamentally unsound. It starts off from simplistic and fundamentally unreal assumptions, develops all kinds of quasi-mathematical models, and projects these things onto the real world, and proceeds to treat them as real. It also studiously avoids any suggestion that considerations of morality, power, social institutions, and so on, have any relevance to the world it claims to be studying. It was this mentality that, to give just one example, was happy for millions of Irish poor in the 1840s to die of starvation rather than have the government “interfere in the free working of the Market” by providing any kind of relief. It is also unbelievably boring.

It is far better to start with writing by economists who are also human beings, actually care about whether people live or die, and also address their readers on that basis.. A good introductory book is The Worldly Philosophers by Robert Heilbroner.)

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CHAPTER 6

SHARÀKATor

PARTNERSHIPS

In addition to Mudhàrabah, the Sharî’ah has also provided other forms of business relationships by means of which not only can progress be made in manufacturing and commerce, and also those people who have little money or none at all can also retain their honour and respect and make independent arrangements for their livelihood. One of these is Business Partnerships or Sharàkat.

Partnerships can be entered into in commerce and manufacturing, in agriculture, and in other trades, and also in teaching work. Any number of people from two upwards can make a partnership or Shirkat. At the present time business partnership is practised on a very substantial scale, and very large commercial and manufacturing enterprises are running on this basis. But the partnerships of today - i.e. Companies, are mostly a means of benefit and progress for those who have money. Those who invest small sums of money get no significant return. At the most they get a couple of hundred rupees a year in profits, while the vast bulk of the profits goes into the pockets of the organisers - the directors and managers of the company, or into the pockets of the big investors. What is happening is that the organisers of companies make hundreds of thousands of people shareholders and collect money from them. Then they fix their own salaries.

Then they set aside some money for administration expenses. Some they spend on buildings and machinery.

The result is that once the business gets going, the ordinary shareholders only get out of the profits what is left over after all these other expenses and priorities. Then when any shareholder, seeing that he is getting no benefit, wants to withdraw, all he gets is the few rupees that he put in as a share. Apart from this he has no right to anything. And in fact some companies do not even return this money. They make it a condition that he must sell his shares to some other shareholder. So in this way those people who set up the company gradually get complete control over the whole enterprise.

But if the conditions that have been set in Islàm for business partnerships are observed, then the largest of partnerships can still operate and all the shareholders benefit from it, and the commerce and industry of a country can develop and through it thousands of deprived people can find a means of livelihood. By means of these conditions all this injustice, oppression, and dishonesty which have become characteristic of these kinds of businesses would come to an end. If any self-seeking individual wanted to indulge in dishonest and unjust behaviour, then both in moral terms and in Sharî’ah he would be classed as a criminal. It is reported from Hadhrat Abù Hurairah radhiyallàhu anhu that Allah Ta’àlà’ says that "When two partners work together to do some work, then as long as neither cheats or is dishonest with the other, I am with them, that is to say I will keep on helping them,

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and giving to them. But if one of them starts to be dishonest, then I stop helping them.” THE STATUS OF PARTNERS IN A PARTNERSHIP

In general, people tend to form partnerships purely for material and selfish motives. Moral values and considerations do not play any great part. So, each shareholder gives priority to his own purposes and benefit. But the Sharî’ah, in addition to considerations of material returns, has given each partner or shareholder the legal and moral status of a trustee of the property and work of the partnership, and also that of a Wakîl or agent of the partnership.

As a trustee, in the same way as any trustee has to look after the thing he is entrusted with, so each partner has to look after the property of the partnership. And if by mistake some damage does occur, then he will not be penalised. And he is an agent in that no partner should use the property or business of the partnership for his own personal benefit, but should pay full regard to the rights of all. No-one should have cause to complain that so-and-so has taken all the benefit for himself, and put everyone else into loss.

In this way the Sahàbah radhiyallàhu anhum in the light of the guidance of the Nabî sallallàhu alaihi wa sallam whenever they had any joint dealings with not only Muslims, but with non-Muslims also, showed an example of fairness that history remembers.

It was agreed with the Jews of Khaibar that they would work in the fields of the Muslims on the basis of a half share in the crop to each party. So, Abdullàh bin Rawàhah, as the representative of the Nabî Sallallàhu alaihi wa sallam came to collect the grain. First, he asked the workers whether they would divide it themselves or whether he should do so. They said that he should do so.

Abdullàh bin Rawàhah radhiyallàhu anhu divided the crop into two parts, and then said to them: Take whichever part you wish. When they saw this fairness, the Jews said

“It is because of this that the heavens and the earth remain "(i.e. otherwise Qiyàmat would come.)

In the light of numerous Hadîth and the lives of the Sahàbah radhiyallàhu anhum, the Fuqahàa have derived countless masà’il on this question.

TYPES OF SHIRKAT

Shirkat falls into two categories

1) Shirkat ul Amlàk

2) Shirkat ul ‘Uqùd

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THE DEFINITION OF SHIRKAT UL AMLÀK I.E. JOINT OWNERSHIP

Shirkat ul Amlàk or joint ownership occurs when a number of people together inherit some property or , or are given some property or money, or jointly buy some property. So, all of them share in the ownership of this property. In this there is no agreement, that is to say, no offer and acceptance. They are either intentionally or unintentionally shareholders in something. So again, this falls into two categories

Shirkat bi'l Jabr Shirkat bi'l Ikhtiyàr

Shirkat bi'l Jabr means that they become shareholders in something not by their own will - for example they jointly inherit something. Shirkat bi'l Ikhtiyàr means that they have put their property together or jointly purchased some property.

THE RULE OF SHIRKAT UL AMLÀK

The rule of Shirkat ul amlàk is that no one of the shareholders may make use of the joint property or money without the permission of all the other shareholders. For example someone leaves one thousand rupees or four houses in his estate, then no one of the persons sharing in the estate, regardless of whether his share is large or small, may invest or make any use of the money, or sell or

rent out one of the houses, without the agreement of each one of the other shareholders, nor can they be divided up between them without all the shareholders being present.

Similarly, where two or several persons have combined together to buy some grain, cloth, or a garden, or some fruit, or other goods, then there are two possibilities.

1. One is that the goods are of a type where there is no difference between one part and another such as barley, wheat, or other grain, or several rolls of one type of cloth . In this case, the goods may be divided in the absence of other shareholders i.e. one shareholder takes his share and puts aside the other parties' shares. But if, before the other shareholders arrive to claim those shares, they get lost, then they have a right to take proportionate shares from his share.

2. The other is that the goods are of a nature where one part is not the same as another, for example ten or twenty rolls of different kinds of cloth, or different fruit or animals. So, because these things are not the same, some cloth is of better quality than another, some fruits are large same small, some animals are lively, some lazy – therefore, if they are divided in the absence of any of the shareholders, there is a danger of dispute. Therefore they cannot be divided or used without the presence of all the shareholders.

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SHIRKAT UL ‘UQÙD - CONTRACTED PARTNERSHIP

‘Uqùd is the plural of ‘Aqd which means tying or binding. This form of partnership is so called because the shareholders by means of their agreement become tied to each other, and are bound by its conditions.

D EFINITION OF SHIRKAT UL ‘UQÙD

Just as in Mudhàrabah and in Tijàrat, similarly in Shirkat mutual contract and agreement is necessary. That is to say that Shirkat.ul ‘Uqùd is entered into by two or more persons each contributing some amount of capital and making an agreement between themselves that they will collectively use this money for some stated work, and will divide the profits among themselves on an agreed percentage basis. Or they can agree that they will all work together to complete some job and divide the proceeds among themselves in an agreed proportion. This agreement may be verbal or written. Imàm Sarkhasî, who is regarded as one of the Imàms of Hanafî Fiqh, has laid great stress on the value of making agreements in writing, and in the present, times this is particularly necessary.

WHEN CAN THE AGREEMENT BE CANCELLED ?

Every shareholder has the right to cancel his agreement and withdraw from the partnership whenever he wishes. But this cancellation will not affect the other parties agreements. However, he must give them notice of his

withdrawal. If any of the shareholders dies, then his agreement is automatically cancelled. However, if his heirs wish to, they can renew it.

TYPES OF SHIRKAT UL ‘UQÙD

Shirkat ul ‘Uqùd falls into three types. This Shirkat can be either be in money and property, or in physical effort, or in reputation and credit. And each of these will be of two types - Shirkat ul Mufàwazah or Shirkat ul ’Inàn. So, this makes six categories altogether, and each has separate regulations. But some points apply to all of them:

1. The Shirkat must be entered into by clear agreement, be it verbal or written.

2. The way in which profits will be divided must be clearly specified - who will get how much. This has been explained under Mudhàrabah.

3. Each one of the partners will be a Amîn or trustee of the property of the partnership and a Wakîl or agent of the partnership. As trustee he is obliged to take full care of the property of the partnership, and as its agent each one is free to make arrangements and do business according to his discretion.

4. Even if the partners have contributed equal capital and are doing equal work, there is still no objection to making an agreement that some will get a larger share and some will get a smaller share.

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5. It is necessary that each of the partners or his

representative take part in the work of the partnership. However, if for some reason he does not take part, then he is still entitled to his share of the profits because if there was a loss he would still share in the loss. In short, if he has a share in either money or work or liability, then he is entitled to a share in the profits. And in Shirkat these three elements are necessary : money, work, liability.

6. But if any shareholder makes it a condition of his

participation that he will not take part in the work, then his agreement becomes invalid (Fàsid).

MAJLIS UL INTIZÂM - MANAGEMENT COMMITTEE

For the purpose of operating on a large scale and maintaining effective control and administration, if the need is felt, the partners may appoint one or some of their number, or some outside person to take responsibility for the management of the enterprise.

If they appoint someone from among themselves, then because he is spending more time and effort, or because of his abilities, he may be given a larger share in the profits. But it is not permissible for him to be given a fixed salary and also receive a share in the profits.

Similarly, if they appoint some outside person as a manager, then he may be paid either of two ways. One is that he may be given a stipulated share of the profits. In this case he has the status of a Mudhàrib and therefore will only be entitled to a share. Alternatively, he may be paid on a salary basis, in which case he will have the status of Ajîr-i-Khàs or employee, and cannot be paid a share of profits.

The point is that in Mudhàrabah and Shirkat no Mudhàrib or Sharîk (partner) may be paid a fixed salary or given any other fixed benefit. That is to say, he may not receive both a fixed sum on the one hand and an variable profit on the other.

Now all the different kinds of Shirkat and their regulations will be described.

SHIRKAT UL MUFÀWADHAH

The word Mufàwadhah means putting into each other's care. Shirkat ul Mufàwadhah is so called because each partner puts his property into the others care. In this partnership it is necessary that the partners’ capital be equal and that their share in the profits also be equal. Imàm Shàf’î rahmatullàhi alaihi does not regard this type of partnership as being valid. Apart from him, the other Imàms do regard Shirkat ul Mufàwadhah as valid. For this partnership the following conditions are necessary.

1. From beginning to end the capital of both or all partners must be equal

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2. Both or all must receive equal shares of the profits

3. Each partner has the discretion to buy, sell, and spend, and to give loans.

4. If any one of the partners buys something for his own personal needs, the other partners do not have the right to say anything. If the item is bought on credit the seller may demand payment from the other partners.

5. In Shirkat ul Mufàwadhah each of the partners is the Amîn or trustee of the others, and their Wakîl or agent, and their Kafîl or guarantor as well.

6. This partnership can only be between adult Muslims, because a non-Muslim cannot observe the conditions that are necessary for this. This is the view of Imàm Abù Hanîfah rahmatul.làhi alaihi. Imàm Abù Yùsuf and Imàm Muhammad rahimahumallàh regard it as valid both for a Muslim and a non-Muslim.

SHIRKAT UL ‘INÂN

The best known form of Shirkat is Shirkat ul ‘Inàn. It is this form of partnership that is generally practised in the world. In this form neither is equality of capital nor equality of share in the profits a condition. All the Imàms are agreed on its validity

THE DEFINITION OF SHIRKAT UL ‘INÂN

The literal meaning of ‘Inàn is to become apparent to. From this there is an expression "yajriyàni fil ’inàn" which is used when two persons are equal in achievement and ability and other things . Its conditions are as follows:

1. In Shirkat ul ‘Inàn anyone can be a partner whether he be Muslim or non-Muslim. In Shirkat ul Mufàwadhah each person is both the Wakîl and the Kafîl of the others. But in Shirkatul ‘Inàn he is not Kafîl (guarantor). He is only Wakîl (agent). However, if Kifàlat is specified in the agreement it will be valid. Being Wakîl means that each one has the power to buy and sell. And Kafîl means that each one is responsible for debts incurred by the others. Therefore, no child may be a member of a partnership involving Kifàlat, because a child cannot be a Kafîl.

2. Whereas in Mufàwadhah it is a condition that all partners’ share-holdings be equal, in ‘Inàn it is not necessary, and their share-holdings may greater or less. For example, one partner might have put in five thousand rupees and the other two thousand and they willingly agree between themselves that they will both get an equal share in the profits. This they can do, because profit is not related only to capital, but effort, running around, and mental ability

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and thought and planning are also necessary.

So, it may be that the person with the more capital has less practical and intellectual ability, and the one with less capital has more practical and intellectual ability. So, he can make up in this way for his lesser share in the capital, because the success of an enterprise depends more on effort and managerial ability than on capital. And from the point of view of the person with more capital, if his abilities are less, then rather than having his money lying idle it is better that he give a man with ability a higher share of the profits in proportion to his capital and to get some return on it. But in any case the basis of the matter is mutual agreement. No pressure may be put on anyone.

3. If all the shareholders’ capital is equal but different-sized shares in the profits are agreed on, and the general shareholders are not ready to take part in the work but put the whole responsibility on to one or two persons, then if the person on to whom the responsibility is put is the person who is getting the largest share, then this condition is acceptable. But if it is the person who is getting the lesser share, then this condition is not permissible, and he will get a share in proportion to his capital.

The reason is that the person who is getting the larger share would be getting a return both for his capital and for his effort. But the person whose share was lesser would be losing, because he has

put in the same amount of capital, plus his effort and then he is getting a smaller share. Similarly, if someone has put in a larger share of the capital and his share of the profits is less, and he is left to manage and run the enterprise alone, then the condition that he get a lesser share will be disregarded, and he will be entitled to a share in proportion to his capital, because in this case he has put in both capital and effort, so for him to get a lesser share in exploitation, which can never be regarded as lawful in the Sharî’ah .

4. The division of profits must be set on a proportional

or on a percentage basis i.e. 1/2, 1/4, 1/5 or 10%, 20%, 70% or equal shares for all. If a fixed amount, say one thousand rupees is set for one partner, and the remainder to be divided among the others, this is not valid, because it might happen that the whole profit might only come to that amount, and then the other shareholders will lose.

5. If there is any loss in the business it will be made up out of the capital, not out of earnings. This applies where the loss is not deliberate but arises by itself. If any shareholder deliberately incurs a loss, or causes a loss through gross negligence, then he will be personally liable for it, and it will be taken out of his capital and earnings. This has been explained under Mudhàrabah.

6. All partners will be regarded as shareholders in both profit and loss. If anyone makes a condition that I

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am not responsible for losses, and profits will be divided between us, then this partnership is not permissible.

7. If for any reason the partnership becomes invalid (Fàsid), or the agreement itself is cancelled, then the profits will be divided up in proportion to each shareholder's capital. For example, if one shareholder put in one thousand rupees, and the other shareholder put in two thousand rupees, then the first will get one third (1/3) and the second will get two thirds (2/3); This will be done even if the original agreement specified different shares. In the case of the partnership becoming invalid or being dissolved this condition will have no status.

(416) 8. Each partner has an equal right to spend and use

the money of the partnership for the purposes for which the partnerships was formed. For example if two persons put together two thousand rupees to trade with; then each one has the right to order goods, release goods, sell goods on credit, or buy on credit. If either of them suffer a loss both parties will be regarded as responsible for it. However, if one partner has prohibited the other from buying some item, but he still gives ahead and buys it, and then suffers a loss, then he will be responsible for it alone. Similarly, if in buying or selling he allows himself to be grossly deceived, then the liability falls on him alone. The other party's capital will be regarded as protected.

9. It is not permissible to mix the money of the Shirkat with one’s own money, or the business of the Shirkat with ones own business without the permission of all the other partners. Similarly, no new person may be brought into the partnership without the permission of all the partners.

10. If during the time he is in a partnership any partner starts to do the same line of business on his own as the money of the partnership is invested in, then this private business will be regarded as belonging to the partnership, even if he gives full proof that this is his own private business. For example, a number of persons open a dress material shop together. Then for one of the partners, using his own money, to open another dress material shop, is not permissible. However if he opens some different line of business, for example a shoe shop, on his own, then there is no objection. The reason for this condition is so that no partner should harm the business of the partnerships by competing against it, or by misusing its assets for his own benefit.

11. No partner may give any other person a loan out of

the joint property of the partnership without the permission of all the other partners.

12. If two or more persons take money on loan and then form a partnership, then this is permissible provided that the loan is not on interest.

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13. Travelling expenses, rent of premises, building of premises, or purchase of machinery, and similar costs relating to the business of the partnership, will be taken from the capital of the partnership

14. If the other partner or partners of a partnership tell one of the partners that you take charge of the capital, and use it in whatever kind of enterprise you see fit, then he has the option of doing whatever kind of business he wishes in whatever way he wishes. But if he deliberately wastes the money, or spends it on useless things, or on his own enjoyment, then he will be held liable for it. That is to say, all the partners make take damages from his share of the capital. (418)

15. If one or several of the partners say to the other or others that it is better if we do our business in this town, but the others invest the capital in another town and there is a loss, then the loss will fall only on those in accordance with whose opinion this was done. And if these is a profit, then all will share in it according to the agreement. The point is that the willing agreement of each partner is necessary.

SHIRKAT UL A’MÂL OR SHIRKAT SANÂ’Î

Another form of Shirkat ul ‘Uqûd is Shirkat ul A’màl or Shirkat Sanà’î that is to say partnership in which, without investing any capital, two people of the same trade or two

labourers make a contract that we will do some specified work together, and we will divide our earnings between us. For example, two porters agree to work together at the station, and to divide their earnings between them, either equally or not. Or two or more people agree to take on a contract together to build a house, or a motor car, or an aeroplane, and to divide the proceeds. Or two goldsmiths or two shoemakers agree that whatever work is brought to either one, he will accept it, and both will either separately or together complete it, and both will share in the proceeds of the work. All these agreements are permissible.

This is called Shirkat ul A’màl or Shirkat Sanà’î because here it is not capital that is shared, but work (‘Aml) and trade skill (San’at). And is also called Shirkat ut Taqabbul because two people together accept work from people. In the time of the Rasûl of Allah sallallàhu alaihi wa sallam the Sahàbah radhiyallàhu anhum used to work together in this way. It comes also in Hadîth that Hadhrat Abù ‘Ubaidah, Hadhrat Sa'ad bin Waqqàs, and Hadhrat ‘Ammàr made an agreement at the Battle of Badr that whatever Màl ul Ghanîmat they might get, they would share between them; even if only one of them should happen to get anything.

For this kind of partnership to be valid there are some conditions:

1. As in Shirkat ul ’Inàn, it is not necessary that each partner do an equal amount of work, or that they should get equal shares in their earnings. Suppose for example, a group of labourers take on a contract

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to dig an irrigation channel. So, it is not necessary that each man do the same amount of work as the other, and get the same size share. Every man's strength and ability is different. A young man can do more labour than an old man. So obviously he has a right to a share in proportion to the work he does, because in this partnership the basic capital in effort and ability.

So also, two tailors can make an agreement that whatever clothes are brought to us for sewing will be for both of us to do, and we will share the money earned. So, it is not necessary that both should bring in the same amount of work, and get the same amount of payment. It may be that the one works harder but the other one is more expert at cutting patterns, and therefore because of him more people bring clothes to be sewn. Or one has a more fine and delicate hand, and the other can only do basic work. So, clearly there can also be a difference in the amounts of money they get. But it is necessary that this should be by mutual agreement.

2. The person who has given work to be done can demand it from either one of them regardless of whether one is getting more or less in payment.

3. Whichever of the partners accepts an order will be regarded as accepting it on behalf of the partnership. All will be responsible for it. If one goldsmith in a partnership takes an order to make up some jewellery, then this order will be regarded as being

taken on behalf of the partnership. Therefore, other partners do not have the right to say that my partner took this order. It has nothing to do with me.

4. Any one of the partners can ask the customer for the whole payment that is due. And if the customer has paid any one of the partners, then the other partners cannot say anything to him. For example in the case of a group digging an irrigation channel, if any one of the partners has been paid for the job then it is paid for. However the labourers can specify if that payment should be made to a particular one of their partners then the owner may not pay the money to another one of them.

5. If one of the partners does the work, and another partner does not, then the customer does not have any right to complain about this. But if in the beginning he specifies that a certain partner is to do the work, then it must be done by him. For example, two artisans take a contract to build a house. Then if only one of them works on the job, the client does not have any right to object. But if at the time of giving the contract he specifies that both partners should physically work together, then they will have to do so.

6. If because of force of circumstances such as sickness, one of the partners is not able to work, he is still entitled to his share of the income.

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7. If there is some loss, then all the partners will be responsible for it. For example a number of men take a contract to build a bridge, and they lose on the contract. Then each partner will have to bear a share in the loss in proportion to his share in the profits. For example if someone’s share of the profits was 1/3, then he will have to bear 1/3 of the loss. And if another person's share was 2/3, then he will have to bear 2/3 of the loss.

8. If two tradesmen make an agreement that one will

contribute premises, and the other one tools or work, then this partnership is also valid.

9. If two men have two trucks, and they make an agreement that whatever goods are brought to us for transport, one of us will carry them, and whatever fares we get we will divide, then this is permissible. They should divide the money equally. But if an agreement is made that whatever each one of us earns (i.e. operating independently) we will pool and divide between us this is not permissible. It is necessary that the partnerships be in both work and earnings, not in earnings only.

10. If a householder is doing some work, and his womenfolk and children also take part in the work, their participation will not be regarded legally as partnership, but they will be regarded as his helpers. They will not get any separate share.

For example, someone takes in some sewing work, and the women and children of his house take part in the sewing. Then they cannot be given any separate payment. However, if they stay separate from him, then they will get separate payment.

SHIRKAT UL WUJÛH

A third form of Shirkat ul ‘Uqùd is Shirkat ul Wujûh, that is to say that two or more persons do not put together any capital, nor do they share in any work or trade, but, on the basis of their reputation and honour, they make an agreement together to get goods from traders on credit, and sell them, and then after paying the price of the goods to the traders, to divide the profits. This is called Shirkat ul Wujùh because it is on the basis of their honour and reputation that they can get credit. If they did not have any honour or reputation they would not be given credit.

1. The same conditions apply to this partnership as to Shirkat Sanà’î - that is to say that whatever share of the profit is agreed on, that is what each will get, and in the event of a loss, each will bear the losses in the same proportion. However, these is one further condition. Whoever, because of his honour and repute, brings in more goods and takes on more responsibility is entitled to a larger share of the profits. And if a condition is made that, regardless of whether either or any of the partners brings in equal or larger or smaller amounts of goods, all will get the same size share, then this condition will be

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disregarded. Whoever brings in a greater amount, his share in the profit will be proportionately greater.

And if any party makes a condition that he will be responsible for half the losses, but will get a larger share of the profit, then this will also be disregarded and each will get a half share in the profits.

2. If there is any loss, then the partners will bear the loss in amounts proportional to their share of the profits, that is to say, in proportion the amount of goods each has obtained, and the amount of liability he has undertaken. So, if one party has brought in 1/3 of the goods, and the other party has brought in 2/3, then their share of the profits will be in that proportion, and also their liability for losses.

3. It is also permissible to make a condition of Shirkat-ul-Mufàwadhah, that both must bring in equal amounts of goods and get equal shares. In this case each partner is both Wakîl and Kafîl of the other. However if Shirkat-u-Mufàwadhah is not specifically stated, then contract will be in the form of Shirkat ul ‘Inàn.

NOTE

The meaning of responsibility or liability is that the persons stands guarantor for that amount of money. If there is a loss he is liable to pay, and it can be taken from him. And the distribution of profit is in proportion to the degree of liability of each partner.

Three of the Imàms of Fiqh - Imàm Abù Hanîfah, Imàm Màlik and Imàm Ahmad bin Hanbal rahmatullàhi alaihim accept all these forms as permissible - But Imàm Shàfi’î rahmatullàhi alaihi does not regard any form of Shirkat other than Shirkat ul ‘Inàn (in capital only) as being permissible.

Every kind of joint business can be done according to these forms of association that have been described. And there is leeway for them in the maslaks of all four Imàms.

Imàm Màlik rahmatullàhi alaihi has given some detail on this point.

SHIRKAT UL ’ILÂJ WA MU’ÂLAJAH - MEDICAL PARTNERSHIPS

Two or more doctors or Hakîms can open a joint surgery, and either put capital together, or else on a Shirkat ul Wujùh basis order medicine from companies, and work together and divide whatever they earn on a basis of equal shares or agreed proportions.

T A’LÎMÎ SHIRKAT - TEACHING PARTNERSHIPS

In the same way as doctors, two or more teachers on a Shirkat ul Wujùh basis can open classes for the teaching and training of children, and earn their living through fees. And on the basis of the importance of the subjects they

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teach or their qualifications, they can agree on a distribution of earnings.

SHIRKAT-I-ZARÂ’AT FARMING PARTNERSHIPS OR CO-OPERATIVES

Co-operative systems were generally the rule in communist countries, and in some democratic countries, such as here in India, experiments are also being tried. But for these to succeed some changes in outlook are needed. If people do not have high moral standards in regard to work, then these kind of systems produce a great many corruptions. And also private ownership, which is a part of human nature, should not be forcibly suppressed. But if these things are taken into account, farming co-operatives can be of benefit, and they are allowed for in Sharî’ah. Muzàra’at will be described further on under the heading of Zarà’at (Agriculture). But in relation to Shirkat a few points on collective farming are given:

(424)If people out of joint funds or on a Shirkat ul Wujùh basis purchase animals, agricultural implements, seeds, equipment etc. and then, each retaining ownership over his own land, they all work together, this is permissible. Similarly, collective enterprises can be formed for mining or transportation.

I have not seen these matters mentioned specifically by the other three Imàms, but on the basis of the principles that have been set out in this chapter, at least in Hanafî and Hanbalî Fiqh there is room for all these partnerships.

CHAPTER 7

QARDH or

LOANS

There are very few people in this world who do not at one time or another experience the need to take a loan or take credit. This necessity is not limited to poor, destitute, or handicapped people, but very rich people and governments can also find themselves in need. A man may have hundreds of thousands of rupees at home. But on a journey he may find himself in a situation where he has a pressing need for some small sum. A man may be earning thousands of rupees per month and his wife and children may be living in the greatest ease and comfort. But it may happen that he dies suddenly, leaving his wife and children to stretch out their hands for their most basic necessities. Powerful governments, who themselves lend to other governments, in times of war borrow money even from ordinary small individuals.

Thus, a loan is a refuge to which people can turn to in times of individual, collective, economic, and political necessity. But a man should only take to this refuge as a last resort, when he is under the most extreme economic, social, or political pressure, or when his life or honour are in danger, or some serious religious need comes up. Otherwise, in normal circumstances he should regard a loan as a calamity from which to stay as far away as possible. This calamity once it visits a man's house, or

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catches hold of him, does not leave him, and follows him even after his death. All over the world there are countless individuals, and even governments, who have fallen victim to it and in our times the number increases day by day. Being in debt is a misfortune in itself. But another affliction almost always comes wrapped up inside it, that is to say interest and exploitation.

When those people to whom Allàh Ta’àlà’ has given ease and wealth give a loan to some person who is in difficulties, they very seldom have the feeling in their hearts that to do so is a human duty which they have fulfilled, but on the contrary, selfishness and cupidity create in their hearts a feeling that when the borrower of their money is using it for his needs, or getting some benefit out of it, then why should they not also get some material or other benefit out of it? This cupidity then leads them to demand interest on the loan. So then, if the lender sees a likelihood of a shortfall in the interest, or he fears that he may not get paid it, at all, he becomes as concerned about getting the interest as he does about the actual money he loaned, and in many cases is quite ready to destroy the borrower's honour and respect to get it. And if, because of some moral or social or legal pressure, he refrains from taking interest, and does not undermine the borrowers honour and respect, then at least he wants the borrower to keep showing his gratitude until such time as the loan is paid. And sometimes the borrower for his whole life is unable to escape from the burden of humbly expressing his gratitude to this noble benefactor.

The lender becomes so blind in this cupidity that not for an instant does he think where a person who is not able to pay back the actual sum loaned is going to get the money to pay the interest. Nor does it cross his mind that maybe sometime in his life he himself might be in a situation where he might have to ask others for help.

And this delinquent mentality is not limited to individuals. Governments have the same attitude. Whenever they give any of the people of their country a loan for the purpose of social and economic development, then for the next ten or twenty years they continue to collect interest along with the basic sum, and the borrower ends up paying one and a half or more times as much as he borrowed. Similarly, if one government lends to another, then the debtor government has to pay interest along with repayment, and together with the interest also has to give some trade or political concessions, as a result of which the debtor government eventually ends up becoming merely an appendage of the creditor government. To see examples of this, look at the Middle East and India and Pakistan, and see the mountain of debts to America and Russia, which has put these countries in chains.

However another factor that must be considered is that if someone gives a loan, it is by no means certain that he will get his money back. Therefore, the lender has to take all kinds of precautions to protect his money. But even then, at times his loan is not repaid. For this reason many people who do have some human sympathy in their hearts and do not take interest from people, are generally afraid

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to give loans because of the danger of losing their money altogether. The same also applies to governments.

T HE INSTRUCTIONS OF THE SHARÎ’AH OF ISLÀM

Because loans are a shelter in times of unavoidable necessity or bad times, the Sharî’ah of Islam has allowed recourse to loans in times of serious need. At the same time, it has put certain moral and legal restrictions on both the borrower and the lender, which if they are observed in practice, will allow a person to get a loan easily at the time of need, and at the same time be saved from the curses of interest and expression of gratitude to the lender, and will protect both the lender and the borrower from all the material and moral loss and harm that usually results from giving or taking loans. It comes in the Holy Qur’àn concerning loans:

"You are not to oppress anyone nor are you to be oppressed" (Sarah Baqarah)

And in Hadîth"Do not accept harm to yourselves or cause harm to others"

The Sharî’ah of Islam encourages people who are well-off to first of all themselves keep the economic needs of the poor and needy and destitute in mind, and, if they ask for help, then to help them without looking for any material

return. And if, out of shame and embarrassment, they are not able to ask for help, then to oneself go and find out their needs and arrange for their fulfilment. And if someone is not able to help in this way, then if anyone who is in difficulty asks them for a loan, at least to give him a loan. It comes in the Holy Qur’àn:

"Who is there who will lend Allàh a friendly loan which he will double many times over"

That is to say that Allàh Ta’àlà is describing a person lending money to another person who is in need, as lending to Allàh. From here the value of doing this can be gauged. The Nabî sallallàhu alaihi wa sallam has said,

"If a Muslim gives another Muslim a loan twice, then he gets the same reward as giving (that amount in) Sadaqah once."

That is to say, that the actual responsibility of a Muslim who is well-off is that he should see to the needs of a needy Muslim without his having to come back twice. This is called Sadaqah. But if he is not able to do this, then at least he should give him a loan without any interest. In doing so he will to some extent have fulfilled his responsibility of Sadaqah; therefore he is also entitled to reward for doing so. And if he does this repeatedly, then bit by bit he will accumulate the same reward as for giving in Sadaqah. So there is reward in giving a loan, but less

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than that of Sadaqah. And to give a debtor extra time to pay or if he is really needy, to let him off, is an action whose reward in the next life comes in the form of forgiveness. It comes in the Holy Qur’àn:

"And if he is in difficulty then he should be given deferment to make it easy for him And if you let him off that is to your benefit"

The Nabî sallallàhu alaihi wa sallam has told a story of a time before him.

"There was a man among those before you. When the angel went to seize his soul he asked him: "Have you done any good?" He answered "I do not know of any." He was told: "Look closely" He said: “I do not know of anything except that I used to sell to people on credit and I used to give them time to pay, and if they could not I would let them off.” So Allàh Ta’àlà put him in,Jannat.

In another riwàyat, the Nabî sallallàhu alaihi wa sallam has said:

"If anyone would like to be saved from the agonies of the day of Qiyàmat, he should give respite to a debtor who is in difficulty, or remove the burden (of the debt) from him completely"

CONDEMNATION OF TAKING LOANS WITHOUT NECESSITY

The permission that the Sharî’ah has given for taking a loan in the case of severe financial difficulty, or for the sake of saving ones honour and reputation, is like the permission for a man who is desperate to eat carrion, so that he may somehow keep body and soul together. But if he eats more than is absolutely necessary, then this in Sharî’ah is Haràm, and legally he can be punished for it. In exactly the same way, the permission for taking a loan is on the grounds of duress. Therefore, if anyone takes a loan for the purpose of luxury, extravagance, public reputation, or to maintain an artificial standard of living, or if he takes a loan out of necessity, and does not worry about repaying it, or, despite having the means to repay, he makes excuses and avoids paying, then he is culpable in both moral and legal terms. That is to say that he will be taken to task in the Àkhirat, and can be prosecuted in the world as well. The Nabî sallallàhu alaihi wa sallam had the most extreme dislike for anyone taking out a loan without necessity or for not repaying a loan. Whenever any Janàzah was brought before him he would ask whether the deceased had left any debts behind him. If he had left debts and nothing to pay them with in his estate, then he would not himself perform his Janàzah Salàt. Once the Janàzah of a Sahàbî was brought before him. He asked the people "Did he leave any debts?" They answered "Yes, he left a debt of two dinars." The Nabî sallallàhu alaihi wa sallam said "You people perform his Janàzah. "Hadhrat Abù Qatà’dah radhiyallàhu anhu spoke and said" Yà Rasûlallàh, I take responsibility for the two Dinàr".

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Then the Nabî sallallàhu alaihi wa sallam performed his Janàzah."

Hudhùr sallallàhu alaihi wa sallam considered a loan to be such a reprehensible and undesirable thing that at the time of going to sleep, and after the five Salàts, he would ask for protection from this together with sins.

"I ask your protection from sin and from the burden of debt"

Once Hudhùr sallallàhu alaihi wa sallam prayed asking for protection from Kufr and from debt. One Sahàbî asked: "Yà Rasûlallàh! Do you regard Kufr and debt as comparable?" He answered "Yes."

(Perhaps because a Kàfir takes everything that Allàh Ta’àlà gives him in the world but does not even ask what he owes in return i.e. he does not pay his moral debt to his Creator, or because a Kàfir avoids even the mention of Allàh in the same way that a debtor avoids meeting his creditor. Perhaps it is because a man who is deeply in debt may do all kinds of evil to get the money to satisfy his creditors, and give the demands of his creditors absolute priority over the commandments of his Creator. And Allàh knows better. ) (Trans.)

Islam does not like to see a Muslim put into disgrace under any circumstance. And debt is an affliction that puts a man into disgrace. The Nabî sallallàhu alaihi wa sallam has said that when Allàh Ta’àlà wants to disgrace a man, he puts him into debt." The position of a debtor is like that of a prisoner. Just as a prisoner, instead of rank, honour and respect, develops feelings of inferiority, disgrace and

servility, in the same way these feelings develop in a debtor. It comes in Hadîth:

"A debtor is the prisoner of his debt"

Once the Nabî sallallàhu alaihi wa sallam gave someone some advice in the course of which he said:

"Avoid taking loans. Live as a free man."

And he used to teach the Sahàbah radhiyallàhu ‘anhum to pray for their debts to be met. He taught Hadhrat ‘Alî radhiyallàhu ‘anhu this du’à:

O Allàh. Protect me with Halàl livelihood from Haràm livelihood and from your generosity make me independent of anyone other than yourself."

Hudhùr sallallàhu alaihi wa sallam taught us to pray for protection sleeping, waking, after Salàt and at other times for protection from debt and for the repayment of debts for several reasons. One is that a man in debt constantly has the worry of its repayment uppermost in his mind. Also a man should not rely only on the strength of his own hands, but should keep on asking Almighty Allàh for favourable circumstances and opportunities, otherwise even though he might keep trying to pay it off, he still might not succeed in doing so.

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THE RESPONSIBILITIES OF AN ISLAMIC GOVERNMENT CONCERNING LOANS

An Islamic government also has a responsibility to help needy persons with loans out of the Bait-ul-Màl (government treasury) and if they are not able to pay back, to let them off as well.

It should be noted that an Islàmic government would not consist of a huge centralised bureaucracy like the governments of today nor, contrary to popular opinion and the unfortunate example of later centuries, of Kings and Sultàns up to their knees in gold and diamonds who would never be able to come to know a poor man’s name. On the contrary, it would be a highly decentralised system resting on a base of strong local autonomy and individual responsibility under one universal Law. ( Trans.)

In the beginning of Islam when the Muhàjirùn and Ansàr were poor, and the government treasury was empty, Hudhùr sallallàhu alaihi wa sallam used to refuse to himself read the Janàzah of a person who died in debt, so that his relatives and the wealthier members of the community would come forward and take the responsibility for repayment. But when some income began to come into the treasury, then Hudhùr sallallàhu alaihi wa sallam, as Nabî, took responsibility on behalf of the government for the debts of poor Muslims. Hadhrat Jàbir radhiyallàhu ‘anhu reports that

"In the early days Hudhùr sallallàhu alaihi wa sallam would put off reading the Janàzah of a man who died in debt until someone paid the debt, but when Allàh Ta’àlà gave victories to his Rasûl sallallàhu alaihi wa sallam, then he said that I (i.e. the government)

have more care and responsibility for every Muslim than he has for himself, so whoever dies leaving a debt, it is on me, and whoever leaves wealth, it is for his heirs.

The government also has the responsibility that if someone is in debt and despite having the means to pay, avoids payment, then it should forcibly collect the debt on behalf of the creditor.

That is to say the government will not itself deprive anyone of his rights, not as far as is possible will they allow anyone else to do so.

This responsibility of the government was not limited to the time of the Nabî sallallàhu alaihi wa sallam, but both in the time of the Khulafàa-i-Ràshidîn and afterwards this practice was followed. And it is the result of this teaching that even today in no society is there such an established custom of giving loans free of interest as there is in Muslim society.

THE MEANING AND DEFINITION OF QARDH

There are two words that are used in Arabic for loan or credit or debt. One is Qardh, the other is Dayn. The literal meaning of Dayn is recompense. So this word itself carries the implication that when he gives a loan, a man may take back only the same amount, not less and not more. The meaning of Qardh is cutting or severing. So in Arabic scissors are called miqràdh. The person who gives someone credit or a loan is cutting of a part of his income

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or savings. And perhaps this meaning is also implicit that if the lender and the borrower do not stay within the limits of Sharî’ah, this thing will result in their relationship being severed. Thus it has become a proverb that:

Al qardhu miqràdh ul muhabbah A loan is a scissors to love.

The word Dayn is more general, and Qardh particular. Qardh refers specifically to money or goods that are given on condition that they be returned, and Dayn refers to any kind of outstanding obligation. For example, someone buys something and has still to pay for it. This not called Qardh. It is Dayn. Similarly if someone has taken the money for some goods but has not yet delivered them these goods are a Dayn on him. It would not be called Qardh. So every Qardh is Dayn, but not every Dayn is Qardh.

(So, Dayn would correspond more or less to the English word Credit, and Diyaanat to Credit-worthness.) (Trans.)

The moral responsibilities of and moral instructions to lenders and borrowers of loans have been outlined above. Now their legal responsibilities will be described.

LOAN AND CREDIT TRANSACTIONS SHOULD BE WRITTEN

It has been stressed in both the Holy Qur’àn and in the Hadîth that loans and credit transactions should be set down in writing. However, not writing it down is not a sin, because this emphasis has been put for the purpose of

both parties' peace of mind. If this can be achieved without writing, then it is not needed. The longest Àyat in the whole of the Holy Qur’àn was revealed concerning this:

"O you who have pledged your faith When you make any transaction

on credit for a stipulated time then write it down......"

(Surah Baqarah v. )

This Ayat has been quoted in full in Chapter 2, under Bai’ Salam. In it is an order to write down credit and loan transactions, and also orders concerning Bai’ Salam. Further on the manner of writing down and witnessing and other matters are set out. And it is ordered that nothing should be left out, so that there should be no distrust and unease between the parties to the transaction. It was after the revelation of this Ayat that Hudhùr sallallàhu alaihi wa sallam said:

"Whoever makes a transaction on credit it must be in terms of a fixed weight or measure and a fixed time period"

INSTRUCTIONS TO THE LENDER

1. From the explanation of the virtue of giving a loan, and of an Islamic Government's responsibility in this matter, it is clear that for individuals to give loans is a kindness and a favour. If any person, despite having the means to do so does not give any help or even a

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loan to someone who is in real need, then morally and religiously, he is culpable. But he cannot be legally compelled to do so. However, the collective responsibility of which the government is the representative requires that it should help destitute persons, whether it be by means of gifts or Sadaqah, or by a loans.

(In practice, governments of Muslim states have proved themselves thoroughly corrupt and incapable of discharging any such responsibility. However, this does not mean that people can just throw up their hands and say “What can I do?”. The responsibility devolves back on the community, which must then look for other ways to discharge it. This problem is not new. Historically, Muslim governments have seldom been of use in these matters, and the welfare system was in the form of Awqaaf (charitable foundations), not of government departments. Many of these awqaaf were centuries old, and their number was immense. When the post-colonial states of recent times were established, all these awqaaf were swallowed up by a Ministry of Awqaaf, and their assets then disappeared down the bottomless hole of corruption.)

2. The lender, be it an individual or a government, is not allowed to take any interest on the loan. Interest means any fixed sum that a person gives in exchange for any money or thing, and for which he gets nothing. The definition of interest has been given earlier on. It is not permissible for any person or any institution, to give such a sum, be it in return for giving a loan, or in return to making a profit out of loan, to any company or bank or insurance company or any person or institution. The principle of Sharî’ah in this matter is:

Whenever any loan has a fixed benefit to the lenderattached to it, that is interest.

3. Some ways in which fixed advantage can be taken

of a loan have been described earlier, and there are many others. Any kind of material or other benefit that is taken because of a loan is included under interest. For example if a lender tries to make his debtors servile towards him, or looks for presents from them, or looks for concessions in business and other agreements, these are all forms of interest and are all Haràm. It has been said earlier that any trade in which advantage is taken of a debtor is Makrûh or Bàtil.

In the Holy Qur’àn Qardh-i-Hasanah has been praised - that is to say a loan on which there is no interest and no set time for repayment, nor any display of generosity. And also in the Holy Qur’àn, to help someone, or to fulfil someone's need and then make a display of generosity, has been compared to a little soil that collects on a rock and is then washed away in the rain.

Also in a Hadîth the Nabî Sallallàhu alaihi wa sallam has said:

"If one person gives another a loan, and the borrower sends him a present, or lets him ride his animal, then he should neither use the animal nor accept the present unless that

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person was in the habit of doing so before the loan was given"

The Muhaddithîn have not classified this Hadîth under "Loans" but under "Interest". In effect the debtors gift is a form of interest.

4. If the lender has set a period of time for repayment,

then, even before that time has passed, he can demand his money, although morally he should not do so. But legally he has the right, because it is possible that he might have severe need of his money. If the borrower is not able to pay then, if the lender does not want to give him an extension of time, he has the right to demand repayment harshly, although morally, if a person is not able to pay, he should be given extra time. But again, legally the lender is not under obligation to do so. Once the Nabî sallallàhu alaihi wa sallam himself borrowed an animal from someone. The time for repayment passed and the man began to demand repayment somewhat harshly. The Sahàbah radhiyallàhu ‘anhum were annoyed at his rough behaviour but Hudhùr sallallàhu alaihi wa sallam said

"Leave him. He who has a right has a right to speak out."

Then he instructed them to buy a better animal than the one he had borrowed, and give it to him. So, this was done.

5. If the debtor is able to repay, and despite this does not do so, then about him Hudhùr sallallàhu alaihi wa sallam has said:

" Stretching of credit by a rich man is exploitation"

and

"Prevarication over payment by someone who has the means make his honour and his punishment Halàl"

That is to say the creditor may speak to him abùsively, can treat him harshly, can make his behaviour known publicly, and can charge him in court and have him punished. Hadhrat Abdullàh bin Mubàrak explains this Hadîth in there words:

"He may be spoken to rudely and he can be imprisoned"

So the Fuqahàa have written that a person who is in poverty or distress cannot be punished, but if a person who has the means to pay deliberately avoids doing so, then he can even be imprisoned. On this question Imàm Abù Hanîfah rahmatullàhi ‘alaihi says that this applies both to rich and poor, both can be punished. But the other Imàms do not permit imprisonment of a poor man, but specify this punishment only for a man with the means to pay. On the surface this opinion seems closer to the Hadîth - unless a poor man is making a profession of

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gulping down loans. In this case, Imàm Sahib’s opinion would seem to apply, and he will be punished.

INSTRUCTIONS TO THE BORROWER

1. Loans should only be taken in case of some serious force of circumstances or severe economic necessity. If anyone wants to take a loan without some serious need, or for the sake of some extravagance or luxury then neither individuals of the society nor the government should give him a loan. In fact the government can punish such a person, because a high-living and extravagant individual is very unlikely to repay his debts and in this way many peoples money and rights would be usurped.

2. As soon as the borrower is able to repay his loan he should immediately do so. It has come in the Hadîth above that whoever is able to repay and does not do so is an exploiter, and he can legally be insulted and dishonoured.

3. If the lender himself gets into difficulties, then the borrower should even sell some of his possessions or household property and repay him. Hadhrat Ma'az Tab’àn radhiyallàhu ‘anhu was a very generous man. If any money came to him he spent it. Consequently he became sunk in debt. From all sides his creditors started pressing him. Presumably, he asked them for relief but they

refused. The matter then came before the Nabî sallallàhu alaihi wa sallam. So Hudhùr sallallàhu alaihi wa sallam sold off whatever Hadhrat Ma'az radhiyallàhu ‘anhu owned and paid off the debts, and he was left with nothing.

4. If necessary a creditor can be repaid by making a

collection in the community. Once Hudhùr sallallàhu alaihi wa sallam had the debt of one Sahàbî paid off though the assistance of the Sahàbah radhiyallàhu ‘anhum. This applies to circumstances where there is no collective organisation or government to take on this responsibility. And this is appropriate when the debtor does not have means to pay, and the creditor is in severe need of his money, and there is no other means.

5. It is also the responsibility of the wealthier members of society that if a poverty stricken debtor, to save himself from his creditors, asks them to give a guarantee, then they should do so. This is explained in detail further on under Kifàlat .

WHAT THINGS CAN BE GIVEN OR TAKEN AS A LOAN

It is a condition of giving and taking a loan that whatever was lent, as far as possible, the same amount of the same thing should be returned. Therefore, everything that can easily be replaced by an equal number, measure, or weight of the same thing can be given or taken as a loan. For example, the same number of rupees as was

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borrowed can easily be returned; or if someone has an unexpected guest and borrows some oil or flour from his neighbour, then he can easily return the same weight or measure of these things, so this is permissible.

And it is also permissible to pay back its price. If someone takes 20 kg of flour or 10 metres of cloth on credit, then he can return 20 kg of flour or 10 metres of the same type of cloth, or he can pay the price of these things. But if it is a kind of cloth which is difficult to find in the market, then it cannot be taken as a loan. In short only those things that can easily be found in the market and whose price can easily be established can be taken as a loan.

WHAT THINGS CANNOT BE GIVEN OR TAKEN AS A LOAN? Imàm Abù Hanîfah rahmatullàhi ‘alaihi does not allow loans in fruits or animals. And the other Imàms say that anything whose price can be fixed can be given or taken as a loan.

In the opinion of the writer the view of the three Imàms seems to have to more force to it.

The reason why the Hanafî Ulamàa do not allow loans in these things is that it is difficult to guarantee their replacement in an equal amount and it is difficult to repay in an equal amount. The writer of Durr-i-Mukhtàr in explaining what is Mithlî writes:

Whatever can be taken in equal amount as compensation in case of loss.

and further on he writes:

"but it is not permitted in the case of things sold by price such as animals, firewood and so on."

From this passage two things are evident. The first is that the thing being lent should, in the event of its loss, be replaceable in equal amount, like money is spent and replaced by money in the same amount. And secondly, it should not be something that is sold only by price, and which is difficult to replace with something that is the same.

Now a quotation follows from the commentary by Ibn Abidîn on this. First he writes that Mithlî items are those things that can be measured, or weighed or counted out; then he writes:

"In conclusion, the meaning of Mithlî is that there is not sufficient difference between the parts of the whole amount to affect the price. For example, there is only a slight difference between one guava and another. Therefore guavas can be given as a loan. And it is stated in Bahr-ul-Rà’iq that loans in things that are not Mithlî are not valid, because the obligation of the debtor cannot be defined in enforceable terms.

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From this passage these conclusions can be drawn:

1. Loans should be limited to those things whose exact replacement is not difficult.

2. If there is some slight difference that does not affect the price of some item, then it can be given and taken as a loan; such as, for example, guavas or eggs.

3. Because the thing taken as a loan is spent or used, it cannot itself be given back. Therefore the borrower necessarily has the obligation of giving back something that is the same as it.

So, if we think over these arguments, then it is evident that the reason for not allowing animals, cloth and firewood to be taken as a loan is that is not possible to replace them with a replacement that is the same. So I submit that if meat is taken as a loan or eggs or fruit, then in their repayment some slight difference can be overlooked. Therefore, in the case of animals, if the breed remains the same, then why can some small differences not be tolerated? And firewood can be sold by weight. And cloth can be included under things sold by measure. And these days animals are also weighed on scales and sold.

(From the point of view of the writer of the books of Fiqh perhaps these considerations would apply

a) Animals: among pastoral peoples there is a fine appreciation of quality of individual animals. They do not have our society's view of animals as so many kilograms of meat on

four legs. Therefore in the question of replacement dispute could easily arise.

b) Cloth: In those days cloth was woven by hand in sheets. There could be substantial difference of quality between the work of one weaver and another and between one yarn and another.

c) Firewood: Firewood is crooked, so to measure it by volume is difficult and different timbers have different densities and burning qualities. And the weight of a certain amount of firewood will vary with its dryness. Therefore to measure the quantity by either number of sticks or weight or volume is not possible. Then again the kind of wood can vary. So disputes can easily arise). (Trans.)

In brief with changes in circumstances the classification of things can change. Something that used to be sold by weight may be sold by number or by measure and so on. So the actual circumstances of the times and place must be taken into consideration.

(In one place someone may borrow a goat for slaughter and replace it with another of the same weight, and no-one has any objection. But in another place the owner might say that my goat was well behaved and yours isn't. Or my goat was fit and lively and yours is tired and lazy. Industrially woven cloth is standardised so the previous objection falls away and it can be and is sold by measure. Firewood would depend on the attitude of people. If there is an accepted standard then dispute can be avoided. If there is not then there is a danger) [Trans.].

IMPORTANT INSTRUCTIONS

In this matter the following points need to be kept in mind :

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1. If the market price of an article that has been taken as a loan rises or falls, this will not affect the loan. For example, if someone borrows 5 kg of sugar at a time when sugar is cheap, and then when he pays it back the price of sugar has risen, then he will still have to pay back 5 kg. And if the lender agrees, he can pay the price in cash instead. In this case he will pay the price current at the time of repayment.

2. If someone borrows 100 rupees in one-rupee notes or in small change, then it is not necessary for him to pay it back in the same denominations. He has to pay back the same amount in rupees, be it in the form of large notes or small notes or coins. If the lender lends old tattered notes and says that he must be repaid in new notes this is not permissible. But if he lends new notes and says that he must be repaid in new notes this is permissible.

3. The amount of a loan should be set according to the way the item borrowed is sold or exchanged in that area - be it by number or measure or weight, and repaid on that basis. Whatever is sold by number like, for example oranges or eggs , should be repaid in number. Whatever is sold by weight like, say, flour or oil, should be repaid by weight. And whatever is sold by measure like, say, cloth, should be repaid by measure.

4. If some item is sold in two ways, then on whatever

basis it was borrowed, it should be repaid on the same basis. If someone buys paper as so many

sheets, then he should repay that number of sheets. And if he borrows it as a ream weighing so many kilograms, then he should repay by weight.

5. If someone lends a borrower some money at one place, he can still take repayment at some other place. If someone borrows money in Lucknow, and his creditor asks for repayment while they are in Bombay, then he must either pay him there, or give him a security against payment when he returns to Lucknow. This applies to a loan of money. But if the loan is some form of goods then the borrower is not under obligation to repay them in kind at some other place, but he can repay in the form of money if he wishes to. So if the lender wants he can take the price. This is because it would be very difficult to repay something in kind at some other place. But if the borrower wants to repay in kind in Lucknow, then he will have to give a security pending his return to Lucknow and paying the debt. And if he pays its price, then he will pay its price in Lucknow. The price in Bombay does not affect the matter. For example he borrows 50 kg of wheat in Lucknow, and is asked to repay when he is in Bombay. Then, if he pays the price, he will pay the price of 50 kg of wheat in Lucknow, not its price in Bombay.

6. If the item borrowed is no longer available in the

market, then, if there is hope of it being available after a few days, the creditor should either wait a few days or take repayment in cash. Otherwise, if both

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parties are happy for repayment to be made in cash, then it should be repaid in cash.

7. If someone takes something as a loan, then he becomes its owner. Therefore, if he wants he can sell it to the lender or to anyone else, because he is the owner of the thing he is selling. But if the lender wants to sell the thing he has given as a loan, he cannot do so because he is not its owner. So also, the borrower can make use of it in any other way.

(It is necessary to distinguish between Qardh i.e. taking as a loan and 'Àriyah - taking on loan. In the first case the borrower becomes the owner. In the second the lender remains the owner. It is a defect of the English language that no clear distinction is made between the two transactions) [Trans.]

8. To attach any condition to a loan is a sin, and the

conditions will be disregarded. For example, if someone makes a condition that I am lending you this money on condition that you give me this item, or that you sell me that item, or that you repay me at a certain place - all these conditions will be void and the borrower is not bound by any of them.

9. If the borrower gives something better, or something less, than what he borrowed, it is up to the lender to accept it or not as he pleases.

10. If a borrower, despite having the means to do so, does not pay, then the lender can, without his permission, take what he is owed. For example, if

someone borrowed some money, or some flour, and is not paying it back, and then somehow some of his money or flour comes into the lenders hands, then he can take the money or flour in repayment without asking permission of the borrower. But if it is something of a better quality, or of a different kind, then he cannot take it. For example, he cannot take some cloth in place of flour, or flour in place of money. The permission for this is given in Hadîth.

11. A woman's Mahr stands as a Qardh on her husband until it is paid.

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CHAPTER 8.

K I F Â L A Tor

G U A R A N T Y

At times it happens that a person needs to take a loan of money, or to take something on credit. He takes it, but when the time comes to pay he is not able to do so and his creditor is pressing him.

He then asks some third party to stand guarantee for him, and this person agrees that if the borrower fails to pay, then he himself will pay the debt. Now the lender has peace of mind that his money will not be lost, and the borrower has a respite.

Or a person may be sued in court, and the courts want to keep him in prison until such time as the case is investigated. He therefore asks some person to stand surety for him, and the court accepts this and allows the accused to remain at liberty on the understanding that when called on to do so, this person will bring the accused to court. He is then free for the while.

Or a person may take responsibility for some stranded individual's expenses.

In all these cases the person taking the responsibility is called a Kafîl, and this taking of responsibility is called Kifàlat. Kifàlat is also called Dhimân as it necessarily involves Dhamânat or security.

Kifàlat is mentioned in both the Holy Qur’àn and in Hadîth. It has been mentioned in the previous chapter that Hadhrat Qatâdah radhiyallàhu ‘anhu took responsibility for the debt of a deceased Sahàbî, and then the Nabî sallallàhu ‘alaihi wa sallam read his Janàzah Salàt. But then later, when means became available, Hudhûr sallallàhu ‘alaihi wa sallam announced that the Bait-ul-Mâl is Kafîl for every poor debtor.

THE DEFINITION AND LITERAL MEANING OF KIFÀLAT

The literal meaning of Kifàlat is joining or sticking together. Technically it is defined as "to take on the responsibility for the payment of expenses of a debt or for a person’s appearance in court".

There are 3 forms of KifàlatKifàlat bi'n Nafs ~ Bail, surety for a personKifàlat bi'd Dayn ~ Guaranty, surety for debtKifàlat bi'l ‘Ayn ~ Surety for Goods

TECHNICAL TERMS

1. The person who takes on the responsibility or Dhamànat is called a Kafîl (Guarantor).

2. The person who is indebted and makes someone his Kafîl is called Asîl or Makfùl ‘anhu.

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3. The person to whom the debt guaranteed is owing is called Makfùl lahu.

THE PROCEDURE FOR KIFÀLAT

The procedure for Kifàlat is that the Kafîl, that is to say, the person undertaking the responsibility, should say to the Makfùl lahu, that is to say, the person whose goods or money is outstanding, that I am responsible for the money or goods that this person owes you, or that I am responsible for this accused person. So now he has become responsible.

Now, if the Asîl, that is to say the debtor, does not pay, then the responsibility for payment will be on the Kafîl.

If two persons do some transaction in partnership, then each one of them is Kafîl of the goods and money of the partnership.

The point is that offer and acceptance between the Kafîl and the Makfùl lahu is necessary. This can take various forms.

1. One is that the Kafîl without qualification states that he will pay. In this case the creditor may claim from either the Kafîl or the Asîl as he pleases. Both are within his right.

2. The second is that he says that if the Asîl does not pay, then he will pay. In this case the Makfùl lahu or

creditor must first claim from the Asîl. If he does not pay then he can ask the Kafîl

3. The third is that the Makfùl lahu has given the Asîl a month in which to pay, or has given the loan on the basis of a promise to repay after one year. In this case for one month or for one year he cannot claim from the Kafîl. Once this period is over, then he can claim from the Kafîl.

CONDITIONS FOR VALIDITY OF KIFÀLAT

1. Kifàlat will only be valid is the Kafîl and the Asîl are both adult (bâligh) and of sound mind

2. If the Makfùl bihi is a person, then his full name and address must be properly established. But if it is money or goods, then it is not necessary that its amount be known. It is sufficient to say that I am responsible for this person's debt or for those goods.

3. The Makfùl bihi, that is to say the goods, must be something for which the Asîl can himself be held responsible.

Now, if any item is kept as a Rihn (security or mortgage) or any item is taken as ‘Âriyah (borrowed property) then Kifàlat for this will not be valid, because a Murtahin (the one who is keeping a security) or a Musta'ir (borrower of an item) is not ordinarily liable in case of loss of the item. The person who gives over a security or lends his

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property must himself think carefully before he does so. It is not valid to make anyone Kafîl of it. Similarly, there is no Kifàlat in Amânat and Wadî’at (trust or safe-keeping).

THE RESPONSIBILITIES OF THE KAFÎL

1. If the Kafîl has taken responsibility for some person, then, at the appointed time, he must bring him forward. If he does not do so, then he can be imprisoned until such time as he does bring him forward.

This is the view as Imàm Shâfi’î. And the view of Imàm Abù Hanîfah rahmatullàhi ‘alaihi is that if he does not bring him forward, then he cannot be punished, but some money can be taken from him as a penalty.

2. If the Kafîl or the Asîl dies, then responsibility of Kifàlat finishes, because either the person taking the responsibility, or the person giving the responsibility, no longer remains present.

3. But if the Makfùl lahu or plaintiff, that is to say the person bringing the case against him, dies, then the Kifàlat does not finish.

4. In matters of Hudùd punishments and Qisàs representation or Kifàlat is not valid. That is to say

the Qàzî cannot compel the accused to produce a Kafîl. However, in the matter of Qisàs Imàm Abù Yûsuf and Imàm Muhammad regard Kifàlat as necessary as here the rights of individual persons (Huqùq-ul-’Ibàd) are involved.

However, Kifàlat may be made for the payment of Diyat (blood money) etc.

THE RESPONSIBILITIES OF THE KAFÎL IN KIFÀLAT FOR MONEY OR GOODS

1. The Kafîl is liable for the money or goods for which Kifàlat has been made. If the Asîl does not pay, then he will have to pay.

2. The creditor, that is to say the Makfùl lahu, can claim from either the Asîl or the Kafîl, or both as he wishes. By claiming from one he does not lose the right to claim from the other.

(446)3. If several people take a loan together, and one of

them takes responsibility, then the debt may still be claimed from all of them, not only from the one who has taken responsibility, and the whole sum can be claimed from any one of them - because certainly one person has taken responsibility, but he has taken responsibility on behalf of all of the others, not only for himself.

4. If instead of one person, a number of persons become someone's Kafîl, then this can take two forms. One is that two or three persons separately

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say that we are his Kafîl. In this case the Makfùl lahu can claim the full amount from any one as them.

The other is that they take the responsibility collectively; in this case the debt will be divided among them, and the Makfùl lahu can claim from each as much as falls within his share. For example, Ahmad owes Khâlid one thousand rupees. Four friends of Ahmad separately tell Khâlid that if Ahmad doesn’t manage to pay then we are responsible.

In this case Khâlid can claim the full one thousand rupees from any one of them. But if these four friends come together to Khâlid, and tell him that we will take responsibility for the one thousand rupees, then each one is now Kafîl for 250 rupees. Khâlid can claim 250 rupees from each one. He cannot claim 1000 rupees from any one among them.

5 If the Kafîl has not undertaken to pay out of his own money but has said that he has some funds belonging to the debtor in his safe-keeping - If he fails to pay you, the I will pay you out of these funds - then he has become Kafîl, and he is obliged to pay the creditor out of these funds if it becomes necessary. And if these funds happen to get stolen from him or lost, then the Kafîl does not remain responsible. But if, after undertaking Kifàlat, he returns the funds to their owner, then he will become liable out of his own funds

6. If the Kafîl has taken responsibility to bring some person forward before the court, and that person owes something to the court, then if he is not brought forward on time, the Kafîl will be responsible for this amount.

(447)7. Whatever debt is due for payment, its Kifàlat also

falls due. And whatever debt is deferred, for a month, or a year, its Kifàlat is also deferred for a month or a year. In other words, whatever conditions are attached to the debt, the same conditions apply to its Kifàlat.

8. If the Makfùl lahu or creditor has given the Asîl a certain period of time in which to pay, and someone has made Kifàlat for the debt, but before the debt has been paid, the Asîl wants to leave the country and go somewhere abroad, and his time of return is not fixed, then if the creditor puts a request to the government that he should be paid, the Kafîl can legally compel the debtor to pay before he leaves the country.

9. Whatever the Kafîl pays in Kifàlat, he is entitled to claim that back from the Asîl. And if he pays the Makfùl lahu with something better than what he made Kifàlat of, then he is only entitled to claim what he undertook. For example if he undertook responsibility for 50 kg of brown flour, and paid with 50 kg of white flour, then he can only claim 50 kg of brown flour from the Asîl. His giving of 50 kg of white flour is not the responsibility of the Asîl.

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And in the opposite case, where he pays with some thing of lower quality and the creditor accepts it, he is still entitled to claim from the Asîl the quality that he originally undertook responsibility for.

10. In Kifàlat of goods or money, the death of either the

Kafîl or the Asîl or the creditor does not affect the Kifàlat. The Kafîl remains under obligation, and in the case of his death, the debt will be taken from his estate.

11. If the Kafîl withdraws his responsibility, the responsibility of the Asîl does not end. But if the Asîl pays the debt off, then the responsibility of the Kafîl is at an end.

OTHER CASES OF KIFÀLAT

1. Just as Kifàlat for the bringing of some person to court or for payment of some sum is valid, so also Kifàlat in transport and carriage is valid.

The Railways are Dhàmin and Kafîl (448)

2. The railways are responsible for bringing their passengers and their goods to the place to which they have purchased a ticket or booked their goods. Therefore, if an accident occurs and passengers suffer loss and injury, or they lose their tickets in the accident, the railways are responsible for compensation for loss and injury, and must also take

them to their destination without a ticket. If they do not give compensation, then they may be sued in court. However, if it is established that a certain passenger was travelling without a ticket, then the railways have no responsibility to take him to his destination.

3. Similarly, the Railways are responsible for the goods that traders send or order through them.

If they get lost or broken then the railways are liable for compensation. If they do not pay then the sender of the goods can sue them. This is described in Shariah as: Al kifàlat bi't tasliym – Kifaalat entails giving assurance.

THE POST OFFICE IS ALSO KAFÎL

4. Similarly the Post Office is Kafîl of the letters, registered mail, money orders and parcels sent through them. That is to say ,if their loss is proved, then the Post Office is liable for compensation. By taking payment they have undertaken an obligation to bring the goods to the person they are sent to, who is in this case the Makfùl lahu.

FREIGHT INSURANCE

If a shipping company or insurance company undertakes responsibility to take some goods to some specified place, in return for a fee, and undertakes that if the goods get lost they will be responsible for compensation, then this is

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permissible. The shipping or insurance company will be liable.

However there is a difference between the status of a shipping company and an insurance company. The shipping company in some cases will be Ajîr Mushtarak (Chapter 17) and in other cases Amîn bi’l Ujrat (Chapter 11). And the Insurance company is in all cases Kafîl.

Important Note

However in this connection two points must be borne in mind:

1. The goods consigned must be listed honestly and correctly. If anyone lists more than there actually is, then this is a sin.

2. Present-day Life and Property Insurance should not be confused with this. These things are in reality gambling and interest transactions, as has been explained in connection with Interest in Chapter 4.

KIFÀLAT FOR A DECEASED PERSON

If a person dies in debt, and after his death some person takes responsibility for his debt, then is payment obligatory on this person or not?

Imàm Abù Hanîfah rahmatullàhi alaihi says that if he has left something in his estate, then the Kifàlat is valid, and if he has not left anything, then this Kifàlat is not valid, that is

to say, the Kafîl will not be under obligations to pay. But the other Imàms say that Kifàlat for deceased persons is also permissible. In support of this, they quote those Hadith in which some Sahâbîs radhiyallahu anhum took responsibility for the debts of a deceased Sahâbî, and Hudhûr sallallàhu ‘alaihi wa sallam had them pay, despite the fact that the deceased had left nothing. And another argument in favour of its permissibility is that it comes in Hadîth concerning a person who dies in debt that “ ...until his debt is paid, he is kept confined like a prisoner.” In this situation it would be appropriate that some Muslim could release him by paying his debt .

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