Fiqh of Money & Transactions (Pure Paisa)

5/24/2018 Fiqh of Money & Transactions (Pure Paisa)

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Qabeelat Hosna Pure PaisaNovember 2012 Shaykh Yaser Birjas

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If you dont know the background of the ahkam and rulings of halal and haram, you willwonder why something is right or wrong. We have to learn the structure of the fiqh offinances. The first weekend will lay the foundation for the second weekend.

When it comes to the issue of money and wealth, we need to know the concept ofmoney and wealth.

The Concept of Wealth in Islam

Why is it important for the average Muslim to study this topic? Why are we required tolearn the basics of Islamic finances?

1. We believe as human beings that Allah created us with an inclination to love moneyand wealth.

Allah (subhanahu wata'ala) says, And you love wealth with passionate love. Thismeans we love it more than anything else in this life. How many people do youknow who are willing to lose their lives rather than give their car for free? Howmany people are willing to lose their lives for a horse, land, a house.

Because of this love, we always love to see our wealth going up and panic when itgoes down. Allah says, Indeed, insaan are terrified creatures. When he is afflictedby a trial, he starts panicking, but when they are given so much of the blessings ofAllah, they hold back. Few amongst My servants are grateful. We get anxiouseasily. Those who are thankful are the least.

2. We dont realize that maal belongs to Allah (subhanahu wata'ala). Allah says, Givethem from the money of Allah, which He has given you. You were smart enoughto find the right and proper way to get there, but it is because Allah (subhanahuwata'ala) made it easy for you.

3. Since it is the money of Allah, Allah says we are entrusted with it. We are thetrustees. Allah says, Believe in Allah. Believe in the messengers. Give in charityfrom what Allah made you a trustee. This money is a trust and Allah will see howwe deal with it. Are we going to be grateful or ungrateful?

4. Money is considered rizq. Allah promised that no one will die until he fulfills hisprovision and lifetime. When you die, your provision came to an end. The Prophet(sal Allahu alayhi wa sallam) said, The ruh came to me and inspired that no soulwill die until he fulfills his rizq (provision) and term. When they die, they diewhen their term is over and their provision came to an end.

5. Why are people of different classes? There is upper class, upper middle class, lowerclass. Is it acceptable to classify people according to classes? Allah said, He is the


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One who made you generation after generation on earth. And He raised you inranks and stations and classes one above the other to try you and test you for whatHe has given you.

6. Why did Allah choose us to become lower middle class instead of upper middleclass? Why was I born in a family that has nothing? We always want more andmore. Some people may be born in massive wealth but were unhappy. When itcomes to the distribution of wealth, Allah says, It is they who distribute therahmah of Allah among themselves? It is He who distributes their rizq andprovision in this life and this world. Allah makes the distribution. Allah says, Wemade them classes / levels / degrees one above the other so that they might employone another. Imagine if everyone is a millionaire what would life look like?Would that even be possible? No, it would be impossible. Who would be your maidwith low wage income? If everyone was poor, who will lead the world and theummah to progress and improve in this life? It would be very difficult.

This doesnt mean to enslave, but it means to employ use their talents and skillsand services and both benefit. Allah says, And the Mercy of Allah is truly betterthan whatever they are hoarding and collecting.

7. Allah demands of us that if He blesses us with a nima, we share it with others.What do we mean by sharing? 2.5% is given to the poor this is zakah. It ispurification of the heart and of the wealth and money. Allah wants us to share withthe poor. And those who know that they have in their money a very determined /measured portion / haqq for the beggar and destitute. Zakah is due when you ownthe nisaab. If Allah blesses you with wealth, and you own the nisaab and an entireyear passes by and your wealth never goes below the nisaab, then you are obligated

to pay 2.5% of whatever you have at the end of the year to the poor. It does notmatter if you forget the money becomes due! You need to calculate it and give itaway to the poor or an agency to deliver it on your behalf. The zakah is haqq, andyou have to give it away to the poor.

What is a dua to make in order to increase wealth? Allah (subhanahu wata'ala) gave usin the Quran and Sunnah many halal sources of income, and these sources of incomeare very simple and dont require much effort. They require a lot of ikhlaas sincerityin the heart and it will put a lot of barakah.

Five sources of income:

1. Taqwa (piety and righteousness)Fear Allah (subhanahu wata'ala) and Allah will give you. Allah (subhanahuwata'ala) said, Whoever fears Allah, Allah will give them an exit out of everydifficulty and shall provide from them from sources they cant even imagine. Howmany of you have received money from a random source they dont even expect?Do your part and Allah will give back to you.

2. Istighfar (seek forgiveness from Allah)


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Nuh (AS) said to his people: Seek forgiveness from Allah. He is Oft-Forgiving. As aresult of your seeking His Forgiveness, He will send rain in abundance. Rain forthem meant a good season and good money because it was an agricultural society.

The Prophet (sal Allahu alayhi wa sallam) would seek forgiveness from Allah more

than 70 times a day. The number 70 in Arabic means a lot and not just 70.

If you seek forgiveness more, Allah will give back to you. Say astaghfirullah allthe time and so much rizq will come.

3. Shukr. Gratitude and being thankful to Allah.People argued over who is better with Allah: the rich who is grateful or the poorwho is patient? Someone who is rich and grateful is something extraordinary.Shaykh al-Islam Ibn Taymiyyah said, The best is the most righteous. It doesntmatter if you are rich or poor, the one with more piety is the best. In Islam, is itbetter to be poor or rich? The best is to be pious and righteous.

Can a poor person try to get out of poverty? Yes, you are obligated to try to get outof poverty. Poverty in Islam is not a virtue.

4. Al-infaaq. Giving away in charity.This seems like a paradox. How can you get more by giving away? That is thebeauty of it. Allah says, Whatever you give away, We shall give it back to you andHe is the best of those who provide. When you deal with the Most Generous,imagine what you get back for every dollar you pay. Sometimes you get the nimainstantly!

5. Tawakkul in Allah.Have your full trust in Allah. The Prophet (sal Allahu alayhi wa sallam) said, If youtruly put your trust in Allah (subhanahu wata'ala), He will provide for you the wayHe provides for the birds. They always leave with an empty stomach in themorning and come back full. Birds only have the skill of flying and looking andcoming back home. Allah can provide for you in the same fashion and you just haveto put your trust in Him.

If you maintain these five sources of income, your wealth will increase. What if youdont see your bank account balance increasing? You are not going to see it instantly.Allah works in mysterious ways. How many of you wanted to buy something and you

find it on sale for 25% off? How many of you had something that needs to be repairedand when you are trying to repair it you find someone to fix it for less? What does thismean? This is how Allah (subhanahu wata'ala) is saving you money. Sometimes themoney doesnt have to increase in terms of zeros, but it doesnt go rapidly down fromspending.

You have to put your trust in Allah and give for the sake of Allah and be grateful. SeekHis forgiveness. Have piety and righteousness and Allah will give you back more.


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Part One: Transaction of WealthChapter 1: Your Real Financial WorldIntroduction What did you do to attend this class?

1. You registered and paid using:a. Credit cardb. Cashc. Scholarshipd. Gift carde. VIP passf.

IlmRush cardg. Money transferYou have already engaged in a financial transaction. Have you asked yourself ifit is halal or haram?

2. To whom did you pay your tuition?a. The registration volunteerb. Paypal accountc. AlMaghrib websited. A friend or a family membere. A phantomDoes this make the transaction halal? If you pay online, does a confirmationpage conclude the sale?

3. Where did you get the money from?a. Pay checkb. Family memberc. Bank accountd. Paypale. Account credit

4. What did you pay for? Was it measurable?a.

The knowledgeb. The service

c. The convenienced. The materiale. The experiencef. The !m"nRush momentSome transactions are haram because you are paying for nothing. Example:betting on horses.


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Your daily interaction with the world of finances:

Loans (Contracts of Charity) An arrangement in which a lender gives money or property to a borrower, and theborrower agrees to return the property or repay the money, usually along withinterest, at some future point(s) in time. Usually there is a predetermined time forrepaying a loan, and generally the lender has to bear the risk that the borrower maynot repay a loan.

Islamically, a loan is considered a contract of charity.

1. Student loans

a. SubsidizedA subsidized student loan is one in which the government actually pays the

interest while a student remains enrolled in a qualified college or university. Thismeans that any interest that would have been added to a subsidized loan balanceis essentially erased by the government.

b. UnsubsidizedAn unsubsidized student loan has interest added to the balance even while astudent is still enrolled in school. This means that a student's balance will likelybe significantly more than what they initially borrowed by the time he or shegraduates.

2. Home loansa. Conventional mortgageA loan to finance the purchase of real estate, usually with specified paymentperiods and interest rates. The borrower (mortgagor) gives the lender (mortgagee)a lien on the property as collateral for the loan. The mortgagor's lien on theproperty expires when the mortgage is paid off in full.

b. Rent to ownThe process of paying monthly rent for a piece of property (house, apartment, orcondo) with the option to eventually own it. This type of option is determinedbefore the initial rental period begins. A portion or all of the previous rentalpayments are applied to the total cost for the property. Rent to own is commonlyused with the purchase of homes.

3. Bank electronic cardsa. Credit cards

Revolving credit cardAn electronic card issued by a financial company giving the holder an option toborrow funds, usually at point of sale. Credit cards charge interest and are


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primarily used for short-term financing. Interest usually begins one month aftera purchase is made and borrowing limits are pre-set according to theindividual's credit rating.

Charge card

An electronic card that charges no interest but requires the user to pay his/herbalance in full upon receipt of the statement, usually on a monthly basis. Whileit is similar to a credit card, the major benefit offered by a charge card is thatit has much higher, often unlimited, spending limits.

b. Debit cardsAn electronic card issued by a bank, which allows bank clients access to theiraccount to withdraw cash or pay for goods and services.

Investment and banking (Contracts of Investment)These are different from charity because with charity, you dont take anything inreturn. In a contract of investment, there is no guarantee for profit, but there isexpectation for profit. If there is guaranteed profit, then Islamically it is not a contractof investment.

To use money in the hope of making more money.

And what is money? Any money declared by a government to be legal tender.

1. 401KA qualified plan established by employers to which eligible employees may make salary

deferral (salary reduction) contributions on a post-tax and/or pre-tax basis. Employersoffering a 401(K) plan may make matching or non-elective contributions to the plan onbehalf of eligible employees and may also add a profit-sharing feature to the plan.Earnings accrue on a tax-deferred basis.

2. Stock marketThe market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areasof a market economy as it provides companies with access to capital and investors witha slice of ownership in the company and the potential of gains based on thecompany's future performance.

3. Saving bank accountYou keep your money in a bond and are not allowed to withdraw anything until theterm is over. It is expected to benefit but may lose.

A deposit account at a bank or savings and loan which pays interest but cannot bewithdrawn by check writing.


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4. Partnerships

Partnership is one of the most recommended acts of investment in Islamic Finance. Theprinciple is to maximize capital and keep circulating small capitals in the market.

What if the mahr was Rs. 10,000 decades ago and the husband didnt pay it to his wife?

Does he pay the amount written in the contract or account for inflation? The strongestopinion of the ulema: it depends on the rate of inflation. If the currency died outcompletely or inflation is so great that the money is useless, then it needs to becompared to a point of reference at that time such as gold or silver. If the inflation isreasonable (and they dont give a percentage but it is agreed upon with a judge througharbitration), then they need to accept it at is.

A business organization in which two or more individuals manage and operate thebusiness. Both owners are equally and personally liable for the debts from the business.

1) al-Mu#"rabah(passive partnership)2) Groupon3) Timeshare

Sale and Trade (Contracts of Exchange)An exchange of goods, services, or other property for money.

Goods for goods is considered barter.

1. Online sales2. On site auctions3. eBay and online auctions4. Money exchange5. Check cashing6. Catalogue orders7. Vending machines

What if you pay $1 and 6 bottles come out? They are responsible to keep itrunning, so it is their fault if this happens just as it is their fault if somethinggets stuck when you pay for it.

Games and Chances (Contracts of Exchange)1. Lottery and scratch cards2. Draw prizes3. Priceline deals4. Raffle

One way to make the raffle halal is that everyone has to get into the rafflewithout paying for tickets. Give all the volunteers free tickets too.

5. SMS gamesThis is like gambling. You are charged for sending the text and it is the same


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concept of gambling and lottery.6. Gaming

Insurance (Contracts of Security)Sometimes in order to encourage people to buy your products and services, you wantto give them a sense of safety and security such as a warranty.

A promise of compensation for specific potential future losses in exchange for aperiodic payment. Insurance is designed to protect the financial well-being of anindividual, company or other entity in the case of unexpected loss. Some forms ofinsurance are required by law, while others are optional. Agreeing to the terms of aninsurance policy creates a contract between the insured and the insurer. In exchangefor payments from the insured (called premiums), the insurer agrees to pay the policyholder a sum of money upon the occurrence of a specific event. In most cases, thepolicy holder pays part of the loss (called the deductible), and the insurer pays the rest.

If the insurance is coming from the retailer or maker of the product, then it is okay. Ifit is coming from a third party, then it is questionable. If you buy an iPhone from BestBuy, they ask you if you want to purchase an extended warranty for additional cost.This is a warranty that applies after the manufacturers warranty finishes or if themanufacturers warranty doesnt cover it. This is permissible. The reason is becausethey have interest in saving their investment with you because they are the retailer. Ifthe actual provider of the warranty is a third party, then it becomes questionable andthen becomes like gambling so if it is a third party, then you should not purchase it.The third party doesnt have any interest other than betting on you so it is like agamble.

Examples of insurance contracts:1. Health insurance2. Car insurance3. Life insurance4. Home insurance5. Warranties

Example of a contract of charity: student loans, mortgage, subsidized loansExample of a contract of warranty: car insuranceExample of a contract of exchange: online sales, vending machines, eBay, buying from

a catalogExample of a contract of investment: 401K, partnershipExample of a contract of security: house insurance

Chapter 2: The Financial Ethics of a Muslim InvestorIf you want to get involved in business, what ethics and akhlaq do you need to have?Ethics is the same in every area.


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On the authority of Abu Hurayrah (ra#yAll"hu anhu) who said, I heard the Messengerof All!h ($allall"hu alayhi wa sallam) say:Truly All!h is pure and accepts only that which is pure. All!h has commanded thebelievers to do that which He has commanded the Messengers, for He, Most High, said:

O Messengers! Eat of the good things and do right, for I am aware of what you do.(23:51)

And He, Most High, said:O you who believe! Eat of the good things that We have provided for you. (2:172)

Then he (the Prophet) mentioned a man who after a long journey is disheveled andcovered in dust who stretches his hands out towards the sky and says, O Lord! O Lord!while his food is unlawful, his drink is unlawful, his clothing is unlawful. Indeed he hasbeen nourished by the unlawful, so how will he be responded to?[Narrated by Muslim]

A Muslim investor, man or woman, is a t"jir or merchant. He or she should observethe following rules and etiquette in his or her dealings:

1. Having good intentions.We are required to have a good intention in everything. Have the intention to earnhalal and seek halal. If you want to open a business, keep in mind the good intention.This does not mean that you do not have the intention to profit. Have the intention tobenefit yourself, your family, the ummah, participate in the economy.

2. Maintaining good manners.

The Prophet (sal Allahu alayhi wa sallam) said to have good manners when you buy andsell. We have to have good manners and akhlaq as a merchant and as a customer.Sometimes we take advantage of the customer is always right.

Fun Fact: The good manners of Muslim businessmen had great impact on peoplearound the globe and brought many nations to Islam. Example: Todays Indonesia andNigeria.

3. Knowing that poverty is not a virtue.

The Prophet ($allall"hu alayhi wa sallam) would supplicate, three times at sunrise and

three times at sunset, O All!h! I seek your refuge from disbelief (kufr), poverty, and Iseek your refuge from the punishment of the grave. There is no deity worthy ofworship except You. (Abu D!w"d) He would also close the day by making thefollowing du"before going to sleep, O All!h...Pay off our debts, and make us rich frompoverty. (Muslim)

The Prophet (sal Allahu alayhi wa sallam) equated kufr and poverty in a statement,showing how serious it is. Some people thing poverty is a virtue so they dress very


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humble. Being poor is not a virtue, but if Allah tests you with poverty, then you need tobe patient. Some ulema chose asceticism, and there is nothing wrong with that.

The Sunnah of the Prophet (sal Allahu alayhi wa sallam): he had great followers whowere very rich people such as Abdul-Rahman b. Awf. When he moved to Madinah,

Abdul-Rahman asked for the marketplace and within a week he dressed nicely andsmelled of perfume. He got married and the Prophet (sal Allahu alayhi wa sallam)asked him what he gave in mahr, and he said the weight of a date stone in gold. Some ofthe sahabah had a lot of barakah in their wealth. They said about Abdul-Rahman thathe was such a clever businessman that he would sell you the sand of the desert. Eventhough he was one of the wealthiest merchants, he was one of the six people Umarchose to be on the panel of the people to become khalifah after him.

Poverty is not a virtue and you should try to get out of poverty through all halal means.

4. Dealing with %al"lproducts and services.

Whenever you trade, make sure that you are offering a halal service.

5. To have the knowledge of the %al"l and %ar"min business.It does not become obligatory upon you to study the details of Hajj until you decide togo that season. If someone doesnt plan to get into business, he doesnt need to knowthe details. Once he starts dealing in business, he has to know the basics of what he isdoing.

6. Observing the financial rights of others.When some merchants were satisfied with a certain amount, they would tell the buyerto buy from others because they wanted to share. They knew the success of the market

depends on everyone so they would support one another.

7. Not consuming peoples wealth by falsehood.

Do not cheat, deceive people, have false marketing. What is the ruling on the fine printon coupons? You cannot advertise with falsehood and need to do it in a halal way.

The Prophet ($allall"hu alayhi wa sallam) stated, This money is green and luscious (likeripe fruits), so he who takes it properly will be blessed in it! [Muslim]

8. To avoid ribaand all contracts that lead to it.Riba is the biggest problem in the global economy.

9. Following the laws of the land and regulations regarding business in the shade ofwhat All!h permits.If it is illegal, then you have to abide by the law of the land.

10. Not to transgress in dealings or cause harm to others.Do not cause damage in the process of doing something halal. Example: You want toestablish a paper factory. Can you start cutting trees in the Amazon and bribe people?


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No. Allah (subhanahu wata'ala) says, Corruption, damage, harm has become dominantin the land and the sea because of what the hands of man earn so that they mightreflect.

Overconsumption and overprocessing of resources is also considered wrong.

11. Supporting one another to succeed in businesses.As Muslims, we are responsible for the entire economy and community. It is not justabout you being a success story. Allah commanded inheritance and wealth to bedistributed and made it very clear: so that wealth does not become a monopoly inthe hands of those around you. This doesnt mean that you cannot compete.

YouTube: The High Cost for Low Price

Chapter 3: Definition WealthThe word wealth is tharwahin the Arabic language. M"lmeans money and includes allkinds of money like gold, silver, currency, products (anything with value).

Wealth or !"# (m"l): Anything to which people have an inclination and is permitted inthe Shar&ahand can be stored to use later.

According to Im!m al-Sh!fii (ra%imahull"h), wealth (m"l) is defined as follows:That which has intrinsic value, which it is sold for, which can lose value even if onlyby little, which will not be discarded without care by the people as is done to aworthless coin or something similar to that. (al-Suy"#i: al-Ashb"h wal-Na'"ir, 327).This is just one classical definition of wealth.

There are three rights involving any permissible wealth:

1. The right of the ownera. To take it away from him only with his consent.

No one has the right to take anything you own without your permission orconsent. This includes any means of taking something such as borrowing orexchanging.

b. It is protected under the law of theft.If it is found in the possession of someone else without your consent, then it isassumed that it has been stolen.

2. The right of All!h

and give them from the wealth of All!h which He has given you. (al-N(r, 33)

a. To earn it in a %al"lmanner.Whatever you possess must be halal.


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All!h (azza wa jall) in )(ratl-Qa$a$, "yah 73 says: In His mercy He has given younight and day so that you may rest and seek His bounty and be grateful.

b. To earn it responsibly.

In many verses in the Qur!n, All!h commands the believers to enjoy the materialblessings, which He has provided for them. All!h states: Eat and drink of thatwhich All!h has provided and do not act corruptly, making mischief on the earth.(al-Baqarah, 60)

The Prophet ($allall"hu alayhi wa sallam) stated, This money is green and luscious(like ripe fruits), so he who takes it properly will be blessed in it! (Muslim)

c. To payzak"t to the poor.

All!h (azza wa jall) in )(ratl-Qa$a$, "yah 77 says: And seek the abode of the

Hereafter by means of what All!h has granted you, but do not neglect your rightfulshare in this world. Do good to others as All!h has done to you, and do not seek tospread corruption in the land. All!h does not love those who do this.

3. The right of the communityTo consider the greater benefit of the community a priority over the individual benefit.

If your personal rights or needs collide with the rights or needs of the community, thecommunity takes precedence. If you own land that is in the way of a highwayexpansion, the government has the right to take it from you and pay you faircompensation. The meaning of fair compensation: if the land is word $1 million and

the closest land you can find nearby similar to it is $2 million, then they must pay you$2 million.

Types of WealthNature of Wealth

1. Price or money !"# (thaman)

It is also called the value of commodities. Because commodities are usually exchangedin reference to their values comparing to these items.

It is the item you use to value other products such as gold or silver. We now use dollarbills and riyals (paper currency).

This is of three types:1) Gold.2) Silver.3) And its replacement. (Ex: Paper currency)


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2. The item that is priced or valued !"#$(muthmin)This is of two types:

1) Transferable (or movable) commodity (other than properties) !"#$%(manq(l)Example: a book, buying a car, clothes (anything that can be moved from oneplace to another)

2) Non-transferable (or non-movable) commodity (properties and estates) !"#$(aq"r)Example: houses, land, estate

There is another category today: is a mobile home transferable or non-transferable?Based on that classification, you will define the concept of transfer of ownership.Transfer of ownership for a transferable commodity must be done from hand to hand.It is not executed until you receive the product. It is transferable until the house isfixed on the ground. What if you buy it and decide to move it with you?

Owned and Un-owned Wealth

Ownership can be acquired through one of three means:1) Putting a hand on free property or commodity

Examples: capturing a deer or taking a free book2) Valid contract that allows transfer of ownership.

Examples: Gift or buying a car3) Inheritance

1. Public properties that cannot be privately owned such as public roads, seas andsunlight. !"#$%!"#$ (mulkiyah "mmah)

Example: public park, bridge2. Public properties that can be owned under Shar&ahapproval such as an endowment

estate for the benefit of the poor or mas"jid. !"#$%(awq"f)These are privately owned given for public service or benefit. This is exclusive for acategory or group. Example: orphans. As an individual, you dont have a right toown it, but it can be owned by an entity such as an orphanage.

3. Private properties that can be owned and susceptible to transfer of ownership toothers.Example: commodities that do not fit into the previous two types. !"#$%!"#$ (mulkiyah kh"$$ah)Some are transferable and some are non-transferable.

Specific and Unspecific Wealth

1. Fungible (ayn ormithl&) !"#$!"!"#$ A fungible item is one that is specific and can be substituted by others of its kind.Example: one iPad 2 for another iPad 2 with the same specifications.

2. Non-fungible (dayn or q&m&) !"#!"!"#$


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A non-fungible item is one that is not specific and cannot be substituted by another ofits kind.Example: One rare painting cannot be substituted by another rare painting. A booksigned by the author.

Valued and Non-Valued WealthThe value of a commodity in terms of the permissibility to benefit from it is consideredso by reasons of Shariahnot by human preference. Therefore, even though marijuanawas made legal commodity in the state of California, for a Muslim it is still a non-valuedcommodity.

1. Valued !"#!"#$% (m"l mutabar)Commodity that is pure and has value in reason of Shar&ahand is permitted to benefitfrom.Examples: cars, clothes, gold and livestock.

2. Non-valued !"#!"#$%!&' (m"l ghayr mutabar)Commodity that is not pure or has no value in reason of Shar&ahand it is not permittedto benefit from.Examples: wine, statues and stolen goods.In America, wine is a big industry, but Islamically it is not valuable. In an ideal Islamicenvironment, if you find a Muslim with wine and break the bottle, you are notresponsible to pay or compensate for that bottle.

Durable and Consumable Wealth

1. Durable !"#$(muddakhar)

These are commodities you can save for later (at least one full season).Properties or commodities that is sustainable such as buildings and books or can bestored for a long time such as beans. Example: honey.

2. Consumable !"#$!%&(ghayr muddakhar)Commodities that are perishable and cannot be stored for a long time such asvegetables or fire. Examples: fruit, produce, dairy products, meat.

Class ActivityWhat is the financial priority in this community?

Sisters:

- Islamic banking- Scholarship fund (student loans, education)- Publicly owned Islamic schools- Gym for women- Halal student loans- Maintaining the masajid- Create jobs for marriage and family counselors. Masajids need to expand

their vision.


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- Community centers- Housing.Brothers:- Halal loans- Awqaf (revenue generating endowments)- Home loans- Car loans- Insurance- Funds for masajid- Halal mortgage

In every community, the number one is student loans. Home mortgages tends to comesecond or third. There are many organizations providing home loans.

A think tank of investors, lawyers, activists, imams leaders has been created: OneMillion Dollar Project. Imagine one million Muslims giving one dollar per month. You

are collecting around $10 million a year. The best minimum amount to charge people amonth is $3.

Part Two | ContractsChapter 4 | DefinitionsIn any book of fiqh, Islamic dealings are divided into two categories: Mu"mal"t andIb"d"t. Usually the first half of the book is on Ib"d"t and the second half is onMu"mal"t. The most important act of ibadah is salah, and to make salah you need

wudu and use water, so books of fiqh start on water.

1. Mu"mal"t!"#$%#

Root verb of ta"mala, i.e. to cooperate or work with one another or do business withone another. This involves dealings between people.

Ib"d"t!"#$%&deals with the relationship between man and the Creator while the laws ofmu"mal"taddress the relationship between man and man.

Permissibility of Mu"mal"tand Contracts:

From the Qur!nO you who believe, fulfill all your contractual obligations (al-M"idah, 1)

But All!h has allowed trade and forbidden usury (al-Baqarah, 275)

O you who believe, do not wrongfully consume each others wealth but trade bymutual consent (al-Nis", 29)


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From the Sunnah

Verily, All!h, the Most High, has prescribed the obligatory deeds, so do not neglectthem. He had set the limits, so do not go beyond them. He has forbidden some things,so do not violate them. And He has been silent about some things, out of mercy upon

you and not out of forgetfulness, so do not go looking for them.(al-D"raqu*ni, %asan)This was at the time of legislation during the time of the Prophet (sal Allahu alayhi wasallam). Now we have to look into what is halal and haram.

The ulema concluded: In terms of ibadat, the default ruling is that they are prohibitedunless there is an evidence to show otherwise. The default ruling on muamallat is thatthey are considered legal until there is an evidence to suggest otherwise.

Based on this, the transaction is supposed to be halal unless there is an evidence toshow that it is not. Is it permissible to sell items in vending machines? Yes. Is it halal

to open a store online? Yes.

2. A contract (aqd) !"#

Aqd, (plural uq(d), literally means to bind and in the modern sense it refers to acontract. The root word means to tie.

A contract is an agreement entered into voluntarily by two parties or more with theintention of creating a legal obligation, which may have elements in writing or can bemade orally.

The purposes of aqdor a contract are as follows:

Type ofContract

Purpose Some Examples

Contracts ofexchange

Permanent exchange of ownership of thecountervalues.

Sale of goods (bay)Rental (Ij"rah)

Contracts ofinvestment

To make a profit for the partners; thisrequires an input of capital or labor bypartners with a sharing of the resultingyield in a permissible way.

Partnership (Mush"rakah)Silent partnership (Mu#"rabah)Sharecropping (Muz"raah)

Contracts ofcharity

To give without countervalue for the sake ofAll!h. It is a unilateral transfer of wealth

with no conditions upon the recipient (incontrast to a reward where conditions exist,for example I will give you a prize if youpass your exams). Gifts are not binding solong as the recipient does not suffer damagein event of the donors revocation.

Gift (!iba)Donation (tabarru)

Loan (qar#)

Note: you do not expectanything in return (if you do,then it is no longer a contractof charity). For example: ifyou expect loyalty later.


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Contracts ofsecurity

To secure a pre-existing or defined liabilityin favor of a creditor, or to improve trustand confidence in a commercialrelationship. This involves the creation ofsome kind of right over an asset that is in

the ownership of the debtor, but no benefitis taken by the creditor unless maintenanceis involved (e.g. if a creditor feeds a pawnedgoat, he may take the goats milk).

Pawning (rahn)Guarantee (kaf"lah)

Other formsof contract

To improve the ease and efficiency ofcommercial and other dealings.

Agency (wak"lah)Trust (am"nah)Bill of exchange (%aw"lah)

You are allowed to transfer itto someone else with theirconsent.

Wak"lah: You can hiresomeone to do it for you. Youcan charge people for thewak"lahand some ulemaconsider credit card fees aswak"lah.

Any loan that generates profit or benefit is riba. Even giving a ride to someone who hasgiven you a loan could be considered riba. (i.e. the person may not give you a ride ifyou did not give them the loan). If you give someone a loan and when they return the

loan back they give you a gift card because they were so happy, then this is allowedbecause you didnt ask them for it and it wasnt conditional.

It is permissible to sell a product that you own in installments for a higher price (it isthe difference between paying cash and paying in installments).

Chapter 5: Types of contractsContracts in consideration of their rulings in Shar&ah !"!"#!"#$%!"#$%&'( (min %aythul-%ukml-takl&fi).

1. ObligatoryExample: Marriage if one has the means and fears falling into the %ar"m. Zakah,inheritance.

2. RecommendedExamples: Lending, endowment and charity. Gifts.

3. Permissible


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Examples: Sale and trade and renting.

4. DislikedExample: Selling grapes to someone who might make wine out of it. Selling items thatare halal for someone who might use it for something wrong. Some ulema say that it is

haram because of blocking the means to evil (saddl-dhariyyah).

5. ForbiddenExamples: Riba, selling dead meat or pork, or life insurance.

How can we classify the different contracts?! Contracts in consideration of the commodity being exchanged !"#$%&'()!*)+,(-.#

(min %aythul-m"liyyah wa adamah")

1. Money from both parties.Example: Money exchange

2. Money from one party and a movable commodity from the other.Example: Selling ajilb"bonline, buying food

3. Money from one party and a non-movable commodity from the other.Example: Buying a house

4. Money from one party and a benefit or work from the other.Example: Renting a car, car wash, hotel room, flight

5. Non-money based contract from both parties.

Example: Guarantee contract or truce, barter (i.e. exchanging books), advertising(i.e. both putting up a banner for each others websites)

This is the strongest of all contracts because it is cannot be revoked except in casepermanence of contract is no longer possible.

6. Money based commodity from a party and non-money based commodity fromthe other.Example: al-khulin a marriage contract.

! Contracts in consideration of the binding or non-binding status after the contracthas already been established!"#$%&%'()*+,-."(min %aythu al-luz(mu wa adamih)1.Aqd l"zimor a binding contract on both parties. In this contract, no party has the

right to revoke the contract without the consent of the other party.Example: Renting an apartment for a 6-month contract.

2.Aqd ghayr l"zimor non-binding contract on both parties. In this case, any partyhas the right to withdraw from the contract after taking reasonablearrangement.


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Example: A partner decides to discontinue his partnership with other contractingparties or lending someone $500.

3.Aqd l"zimon one party and aqd ghayr l"zimon the other.Examples: In pawn objects or a guarantee contract.

A charity or gift is not binding. You are not obligated to accept a gift; however,once you give a gift, you have no right to ask for the gift back. The Prophet (salAllahu alayhi wa sallam) said, A person who takes his gift back is like a dog whovomited and is licking it. You are not obligated to take charity, but if someonegives it, it is binding on their part.

! Contracts in consideration for taking possession (taking hold) of the commodityexchanged !"#$%&%'()%*+,-.!"#$% (min %aythu ishtir"*l-qab#wa adamih)1. Contracts in which taking possession of commodity is not obligatory at time ofthe contract.

Examples: Sale, marriage, guarantee. Cash is paid in advance and item is deliveredlater (bayl-salam)

2. Contracts in which taking possession of commodity is obligatory at the time ofcontract.

a. Affecting the transfer of ownership. Example: Giving giftsb. Affecting the validity of the contract itself. Example: Money exchangec. Affecting the effectiveness of the contract. Example: Giving gifts and in

pawn itemsGold, silver, and currency exchange must be immediate at the time of the contractin order for it to be halal.

! Contracts in consideration of the compensation resulting from the exchange incontract!"#$%&'()*+',%-./0"(min %aythu wuj(dl-iwa#wa adamih)1. Al-Mu"wa#ah!"#$%&'((compensatory)A compensatory contract in which each of the contracting parties receives acompensation as a result of the exchange of commodities in the contract.Examples: Sale and trade, rent and lease

2. Al-Tabarru!"#$%&or Ghayr al-Mu"wa#ah(non-compensatory)A non-compensatory contract in which one of the contracting parties receives a

valued commodity as a result of the exchange in the contract.Examples: Gifts, bequests and fiduciary deposits

If you take anything in exchange, then it is no longer a charity contract. It is theessence of the contract that matters and not the title of it.

! Contracts in consideration of their validity or invalidity in reason of the Shar&ah!"!"#!"#$%!!"#$%& (min %aythul-$a%%ah wal-fas"d)


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1. Valid contracts !"#!"#$ (aqd$a%&%)A valid contract fulfills all the legal requirements and conditions in essence anddescription of the contract, becoming binding and immediately effective.Examples: Buying a new car cash money.

2. Invalid contracts !"#!"#$!"!"#$ (aqd f"sid aw b"*il)An invalid contract does not fulfill all the legal requirements or conditions inessence or in description of the contract. It is not recognized by Shar&ah, and it isnot binding or effective until it is rectified.

T!jir says: The $anafi school makes difference in effectiveness of !"#$ (f"sid)contract from a !"#$ (b"*il) contract. While a !"#$ (b"*il) contract is null and void,a!"#$(f"sid) contract can still have some degree of effectiveness.Examples: Buying a house from a minor, taking a ribabased loan, or giving awayyour laptop under compulsion

Some ulema said that aqd f"sid is a third category. It is a pending contract. Thedifference is that a pending contract is suspended because there is a condition thatneeds to be rectified or removed or fixed for the contract to be fully valid. It is baatil ifthe error or mistake is in the essence of the contract itself. For example: someone sellsyou something that is pork or has riba in it, so this is baatil. If you buy a red car and itis supposed to be delivered a few days later and when it arrives it is blue, it is an invalidcontract but it is pending: if you like the blue car, you can approve it. The car wasntmatching the description that you paid for.

Examples:Binding on one side and non-binding on the other: a gift is binding on the giver and

non-binding on the recipient.Non-money exchange on both ends: exchanging booksMoney versus money: gold for silver, dollar for euroContract for which you dont have to have the possession of the commodity at the timeof conclusion: pre-ordering an itemCompensatory contract: cell phone serviceNon-compensatory contract: charityAqd faasid: you order something and it came in the wrong colorInvalid (baatil) contract: selling pork

Faasid: the mistake is not in the essence or core of the contract but in the conditions or

description of the contract.


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Chapter 6: The Pil lars of a ContractPillars of a contract are three:1. The two (or more) contracting parties (al-muta"qidayn)!"#$%&'"2. The commodity upon which the contract is being done (al-maq(d alayh) !"#$%&'()*+3. The spoken word of the exchange (al-$&ghah) !"#$%&

(the actual wording of the contract verbal or written)

The Two (or More) Contracting Parties al-Mutaqidayn !"#$%&'"Conditions:

1. Mutual consent from both parties al-tar"#&!"#$%Both parties exchange the commodity, etc. with good heart. The meaning isthat both people are doing it willingly. There is no pressure. There is nocoercion to do the transaction.

2. To have trading competence based on !"#$%!"#$%& (ahliyyatl-ta$arruf), which isthe acquisition of rights that qualifies them to have the capacity to contract andto dispose financial affairs without the need of legal guardianship.The person needs to be legally qualified to dispose of his financial affairs.

Trading competence is identified by two qualities:1. PubertyThe maximum age to reach puberty is 15 years. Any child, boy or girl who does notshow any physical sign of puberty is declared so at age 15 in the lunar calendar.

2. Financial MaturityThe age of majority is the threshold of adulthood as it is conceptualized (andrecognized or declared) in law. It is the chronological moment when minors ceaseto legally be considered children and assume control over their persons, actions,and decisions, thereby terminating the legal control and legal responsibilities oftheir parents or guardian over and for them. The vast majority of countries setmaturity at 18, but ages as low as 15 and as high as 21 also exist.

And test the orphans when they have attained the age of puberty; if you find themmature, then give them their wealth. [al-Nis", 6] This maturity is considered thefinancial maturity. What is financial maturity? The person understands the value of

money and how to deal with it. The minimum is puberty.

Although laws have declared 15-21 years old to be the age of maturity, the Shariahremained silent on deciding a decisive age for it because it is different from one personto another.

Previously, puberty and financial maturity would coincide, but today, they may be atdifferent times. You know if they are financially responsible if when you give them


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money they know what to do with it. The level of maturity is being pushed further andfurther.

How do you monitor the financial maturity? The ulema have put together thefollowing to show that you are qualified.

The acquisition of rights to have the capacity to contract and trade is based on theacquisition of following items:

1. al-dhimmah!"#$% % the eligibility to bear liabilityIf someone breaks something, are they liable to fix it? If not, then they are notliable. For example, a child who breaks a window. The guardian would bear theliability.

2. al-aql!"#$%or reason % qualifies the individual to understand verbalcommunicationA two or three year old child can buy bubblegum from the machine with a coin.

3. al-takl&f!"#$%&'or Accountability % it is identified by reaching the age of pubertyand developing a sound mind. Accountability qualifies the individual to assumeresponsibility.

4. al-wil"yah!"#$%& % the authority to have over oneself or over the property inpossession

The age of tamyiz is when they can recognize and you can reason with them. Thismeans they can tell and realize.

If there were two bags and you sell your friends bag by mistake, are you obligated topay you the money for it or not? You are obligated because you have no authority tosell it. The sin is removed because it was done by mistake, but the liability is still there.

If he is selling his bag for $10 and you are selling yours for $8 and you sell his bag bymistake, you have to still give him the difference too since you sold his for a lower cost.You would give him $10.

Exceptions from the rule of trading competence:1. A child who has reached the faculty of discernment (al-$ab&y al-mumayyiz) !"#$%

!"##$%For example: they can tell the difference between $10 and a quarter. But youcannot give them $50 to go and buy the groceries.

2. Women, in two cases:a. Marriage contract.

According to the majority of thefuqah" a woman cannot have her nik"%donewithout her walis approval. According to Imam Abu Hanifah, she is allowed tomarry without the consent of her wali.


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b. The limitation for giving donation to one-third of her wealth without the needfor her husbands permission.

Thats according to Im!m M!lik (ra%imahull"h). The majority offuqah"do not setany limit on her.

3. Facing incidental causes for the removal of legal capacity!"#$%&'()*+(aw"ri#l-ahliyyah)These causes can happen because of one of the following two reasons:1) Pre-decreed reasons, Examples: Madness, mental challenge and coma.

These things come from Allah (subhanahu wata'ala).2) Acquired reasons, Examples: Bankruptcy, drunkenness and immaturity.

These are things that are in your hand.

At the time of the Prophet (sal Allahu alayhi wa sallam), he forbade us from selling thefuture breed before it is born. Buying the value based on future prediction is not

permissible. Speculation is not allowed. The Prophet (sal Allahu alayhi wa sallam)forbade selling that which we dont own and that which doesnt exist.

The Commodity al-maq(d alayh !"#$%&'()*+Transferring of ownership depends on the kind of commodity or service traded. Forexample, transferring ownership of the house is when the title is issued. Transferringthe ownership of a movable commodity is when the seller hands it over to the buyer orwhen the online purchase is delivered.

Conditions:

1. The commodity must be permissible to use in other than times of need.Examples of impermissible commodities: Alcohol, dead animal and stolen items. Justbecause we are allowed to consume it at times of need, it doesnt make it permissible tosell as a commodity in regular times.

2. The commodity must be sold by the owner or one who represents him.Examples of representatives: Agent, father of a minor.

3. Ownership of the commodity can be transferred to the buyer.

Examples of non-transferable ownership: Selling what you dont own, selling the fishin the sea.

What if you cant transfer the ownership? For example: some Palestinians own land inIsraeli territory. Can they sell the land with the deeds without being able to transferthe ownership to them? No, (the Israeli government wont recognize the contract).You are not able to transfer the ownership. Technically you cannot transfer theownership of the commodity.For example: you own a share in a troubled company. Someone wants to get out of thecompany because it is in trouble so they sell their shares to you. When you try toassume your right of partnership, they tell you that you cannot do it. You have the


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power of going back to him and taking your money back.

4. The commodity must be identifiable whether actually, if it was specific, or bydescription if it was unspecific.Examples of a specific commodity: An actual land, book, %ij"bor a car off the internet.

Examples of an unspecific commodity: Buying from a catalogue, buying a duplicate of amodel.If it is unspecific, then you have to give as vivid of a description as you can. The best isto take a picture and show it to them. The contract is suspended until you see it.

The Spoken Word (or what substitutes for it) al-$ &ghah !"#$%&What substitutes for it includes, but is not limited to, sign language such as in auctions,and written agreements.

Articles of the spoken word:

1. !j"b or offer2. Qab(l or acceptance

Usually the merchant is the one who is offering. Does the ijab and qabul have to be bywords? No. What is the standard of the language? The sign language that is used inthat market. You have to deal with people in the language of their market. Thelanguage must be understood by both contracting parties. The spoken word has tomatch the language of the market.

If someone from al-Shaam goes to Egypt to buy laban, they will send you milk. In al-Shaam, laban means yogurt. Whose fault is it? It is your fault because they send you

the product based on the market language. You need to understand the language of themarket and what they mean.

Conditions:1. To be exchanged during the same contract session (majlisl-aqd). i.e. the contract

session should be whole.Example: There should be no interruption between the offer and acceptance, andtime should not lapse long (or expire) between filling out an online contract andsigning it.

2. The acceptance of the trade should be in respect to the actual offer.Example: If the offer was for a red car, you cannot give acceptance for the blue onewithout the consent of the seller.

If you order online a shirt size M and you receive size L, the sale would not be binding.

Chapter 7: Adding Conditions to a Contract


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Can you stipulate things on the merchant? Some conditions are not acceptable andothers are valid. Some conditions are obligatory. Some conditions are implied such asmaking sure that the product is halal.

General ruling is permissibility:

1. Qur!nO you who believe! Honor your contracts. (al-M"idah, 1)If you stipulate something, we assume you should honor your contract.

2. SunnahThe Muslims are upon their conditions, except a condition that makes a prohibitedpermissible or a permissible prohibited. (Abu Daw"d)Any condition that does not make halal to haram or haram to halal should be followed.

Aspects of a legitimate and legally accepted contract:

In order for a contract to be seen as an aqd$a%&%(a legitimate contract) in Shar&ah, itmust be:1. ConcludedIf the contract is not properly concluded, then it is void.

2. ValidIf the contract violated one or more of the conditions of the contract, then it is invalid.Example: selling alcohol.

3. ExecutedExecution refers to the implementation of the terms of a contract; hence a contract

that has been concluded may not have been executed.If the contract is not executed (for example, the seller has not come into possession ofthe object of a previously concluded bayl-salamcontract), then the contract is regardedas being suspended until such time as it is executed.

4. BindingIf a contract is not binding (in other words, if options have been specified), then thecontract may be voided or made binding at the choice of the option holder.Once it is executed and you walk out of the door, it is binding unless there is acondition that gives you an option of return.

If there is a sign saying all sales are final, are you allowed to bring the item back?Legally, the moment you walk out of the door and then come back, they have the rightto refuse you. If you are still in the store itself, then that is a different story.

Types of conditions in a contract:

1. Valid conditions1) Conditions that are part of the essence of the contract.


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Example: To stipulate the transfer of ownership.Can you include or stipulate a condition that is already implied in an Islamiccontract? Yes, but what is the point? The stipulation is to enforce the concept.(i.e. a reminder to keep it halal).

2) Conditions that are for the benefit of the contract.Example: To stipulate the price be paid in US dollars.3) Conditions that stipulate a particular benefit for either the buyer or seller and

does not run contrary to the essence of the contract nor to its benefit.Example: The seller of the house stipulates to live in it for the next month ortwo.This is something the buyer or seller stipulates for their own benefit. If a sellersays he wants to stay a few months, then this condition is not permissiblebecause the term is not identified.For a rental, is it permissible to lease the house and say they cannot use the

kitchen? Technically, it is not a valid rental condition because when you leasethe house, you expect to have utility of the entire space unless something isconsidered extra. If both agree, then it is okay.

4) Stipulating penal conditions in order to ensure fulfillment of the contract.Example: If you cancel a banquet hall booking within less than 30 days from theevent date, you are obligated to pay 30% of the total booking fees.

Stipulating cash penalties on late payments is not permissible because its riba.You can stipulate penalties except for late payment fees.

Bay al-urbun: some ulema say it is not permissible because you are consuming

someones wealth with nothing in return. Other ulema say it is on a case by casebasis. Some say they are entitled to the full price of the contract if thecancellation was less than 24 hours before.

If you sign a lease contract that says if you break off the lease then you areresponsible for payment of the full lease, the majority say that this is notacceptable. Others make a compromise that you are responsible to pay for thenumber of months the place remains vacant.

Shaykh Yaser Birjass opinion: you can ask for a deposit and if there is acancellation then you lose it.

2. Invalid conditions1) To stipulate a second contract in exchange for the first one

You dont execute one contract unless you have another one. Example: havinga lease contract with a purchase contract. In many Islamic financinginstitutions, they sign a contract with you to partner with them or to have alease to own contract, but before they do that, they make you sign a contract ofa promise to purchase. Before they partner with you, they make you sign


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another contract which is a promise to purchase, and if you dont sign it, thenthey will not partner for you. They want to make sure that you dont back outof buying the house. This is two contracts in one and you dont know if you arebuying, renting, or partnering with them. The Prophet (sal Allahu alayhi wasallam) forbade having two contracts in one.

Example: I sell you my car only if you sell me your laptop.

2) To stipulate conditions that go against the essence of the contract.Example: I sell you my house if you agree not to change the original paint. Theessence of a sale contract is the transfer of ownership.

Example of software: there is a stipulation that you are only allowed to install iton two computers. Can you install it on ten computers? For this answer, youneed to ask a committee because there are many factors involved. Theprogrammers have the right to own the software, but when you buy it, you have

the right of utility. It is their problem to protect their license by the codes theygive you. (there is a difference between personal use and distributing it toeveryone you know).

3) To stipulate a foreign condition as a base for concluding a contractExample: If it rains tomorrow, then I will sell you the car. This condition is notallowed.Example: I sell you the house when the value goes up 5%.

What is the ruling on:- Buying a house from a minor:

It is okay if he is selling a dollhouse! What do we learn from this? Look at thelanguage of the market. What kind of house is it? You need to investigate.

- A contract that stipulates payments of riba in exchange for a loan.This is an invalid contract. What about credit cards? When you sign up withthem, you have signed a contract saying you will pay riba. When you buyfurniture, the contract may say you have 18 months interest free and if it is notpaid off in that time, then they will charge you riba. Generally speaking: in anideal Islamic society, these contracts would be invalid. Ulema argue over thepermissibility based on the hadith of Barirah. Aisha (radhi Allahu 'anha) wantedto purchase Barirah and free her. The original owners said, If you buy her andever free her, we will take her wala (loyalty). At that time, if a slave was freed,

the loyalty goes to the owner who freed them which means that if they leavemoney, then the money goes to them. Aisha (radhi Allahu 'anha) said, YaRasulullah, I am trying to purchase and free Barirah, and they are giving me thiscondition. The Prophet (sal Allahu alayhi wa sallam) said, Give them thatcondition because wala automatically goes to the person who frees the slave.If Aisha frees the slave, then the condition is null and invalid. The ulema saythat if a person is in need of taking a credit card out of pressing need, these areconcessions from the general rule of prohibition. These circumstances and


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contracts go case by case.

If someone just wants a credit card to be cool or flashy, then it would not beallowed.

- What if someone comes to your house and forces you to sign a sale contract?If it was done by the state or for public benefit and there is fair compensation, itcould be justified.

- What is the ruling on buying a car from an intoxicated person?It is invalid. He doesnt have the financial maturity due to lack of faculty ofreason at that moment. However, be aware that the level of intoxicationmatters. The ulema divide the level of intoxication into two degrees: primarystages of intoxication (being buzzed) and in this state it would be acceptableto buy from them. Once they pass this level and become wasted, then itwouldnt be acceptable.

- What is the ruling on leasing a car and using it for cargo?It would not be acceptable. When you are leasing the car, it is understood youare using it for passengers and personal use. If the contract is not specific andyou use the small car for cargo, then it is not allowed. There is a sense ofunderstanding that even it is not in the contract, the car is to be used in thenormal way. As long as you bring the car in the same condition and notseriously damaged, then it would be fine.

- What if the language of the market is not clear to you? Go by the urf andcustom of the market.

- What if someone buys a house and the seller puts a condition that you dontopen the attic.Even if you give your consent, the contract is invalid because it contrary to theessence of the contract. It could be faasid until it is rectified or fixed.

- What if you lease a car on the condition that you dont turn the AC on? What ifit is in Houston in July? The contract is valid.


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Chapter 8: Adding an Option !"#$ (khiyr) in a Contract1. Option of Meeting !"#$%&'()*(khiyr l-majlisThe choice of continuing or invalidating the contract after it had been concluded whilethe buyer and seller are still in the place of the contract.

The place of the contract differs depending on the site where the meeting for thecontract took place. A payment webpage or confirmation page on an online sale isconsidered a virtual meeting site.

!"#$%&'!"#$%"&!"!"!"#$%& (al-bayyi"n bil-khiy"r m"lam yatafarraqa)Ibn Umar narrated the Messenger of All!h ($allall"hu alayhi wa sallam) said: Theparties to sale have an option as long as they have not parted, except in sale with anoption. [Bukh!ri and Muslim]

Example: Leaving a store after concluding the transaction nullifies the option of

meeting. Requesting to revoke a contract after it had been concluded and becamebinding is called iq"laand its not binding on either the seller or the buyer.

Example: Placing a return policy of 90 days money-back guaranteed with no questionsasked.

As long as you are still together in the sale session, you can still make the deal on theprice agreed to. The moment you leave the sale session, everything discussed could beinvalidated. For example, you go into a store and ask how much an item is. They say$50. You say that you will pay $25 and they dont agree. You then offer $30 and then$35 and keep negotiating. He says $40 is the final price. You say that you are going to

think about it. You then say, Ill get back to you. If you leave to go somewhere elseand then come back, he is not obligated to give it to you for $40. If he says, If you leavethe door, then I wont give you this price, then he is cancelling the khiy"rl-majlis.

If you find it for a lower price later, he is not obligated to refund you. How long can asale meeting be? A few hours or days? How long can the khiy"rbe extended? Incontemporary terminology, this is the return policy.

If you buy a hammer from Home Depot and use it and then take it back to Home Depot,is that permissible? If they said not used, then you cannot return it. What if itdoesnt say? They are giving you 90 days to return the product with no questions asked

is it permissible? Ethically, it is cheating. Legally it is okay. Walmart is using themoney already in the market and their sales go up. Is the contract of return consideredvalid? Shaykh Yaser cannot say that it is invalid. Legally it is a legal contract. You canreturn something back after using it. This is their policy, and if it hurts the store, thenthey will change their policy. The market will regulate itself.

Some practices are a safety hazard. Some people use the same amount of money toupgrade from one baby seat to another.


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In an online world, how do you create khiy"rl-majlis? It is the purchase session. Beforecharging you credit card, they ask you to review. It is the sale session online.

2. Option of condition !"#$%&'()(khiyr l-shar *)Making the condition that either of the two contracting parties, the buyer or the seller,has the choice to invalidate the contract within a specific amount of time.

!"#!"#$%!"#!!"#$ (idh"b"ya ta fa qul l"khil"bah)The companion $abb!n b. Munqidh used to be constantly fooled in business dealings sothe Prophet ($allall"hu alayhi wa sallam) told him: If you trade, then say no cajole.[Bukh!ri and Muslim] $abb!n b. Munqidh was very nave and people fooled him in themarket.

Some conditions are valid and others are invalid. As a merchant or customer, you need

to be careful. If you go to a store and find an item for $50 and he guarantees you wontfind it elsewhere for less so you buy it and then find something at a discounted rate,Islamically and legally you are allowed to revoke this deal (you need witnesses for it). Amerchant can tailor the return policy in the way to benefit them.

3. Option of viewing !"#$%&'()*(khiy"rl-ruyah)The right of the contracting parties to invalidate the contract upon viewing acommodity that was not seen prior to the concluding of the contract.

Example: To buy a car over the phone based on a description given to the buyer.

Valid if two conditions are met:1) The commodity has to be specific2) The commodity was not available for viewing at the time of the contract.

Sometimes you make a deal and dont see the actual product. The merchant may saythey will ship it to you and if you dont like it, you can ship it back. In this case, it isconsidered khiy"rl-ruyah. If you want someone to build you a house and it is not whatyou ask for, you have the right to reject it.

4. Option of identification !""#$%&'(")(khiy"rl-tay&n)This form of option is greatly disputed among Muslim jurists because it does not makethe commodity clear, hence running contrary to one of the main conditions of acontract.

The right of the seller or buyer to identify one of multiple items (3 and under) ofdifferent values in a contract as the specific commodity to be exchanged.

Example: The buyer says, Im buying a laptop - this Dell or this Mac or this HP while


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the prices are mentioned. The sale has been concluded and is only waiting forexecution by selecting one of the three items.

This is if you buy something out of a pool of options. The question is: what exactly areyou buying? You are buying something and one of the items, but what you are buying

has not been identified.

If you ask for one item that they have and tell them any one, is this permissible? Yes,but after they send it to you, do you have the right to return it? If they have a returnpolicy then yes. If they do not, then you cannot.

Some fuqaha say it is not acceptable because you need to identify what you are buying.Other fuqaha say that they gave you the option and you waived it, so it is like thepower of attorney.

An example: When you pay entry fee into a flea market or a carnival. It is left open for

you to choose what ride to go on.

5. Option of defect !"#$%&'"((khiy"rl-ayb)The right to invalidate the contract upon finding a defect in the traded commodity thatwas not made explicit prior to the sale.

If you buy a defective product or service that did not match the description, are youallowed to return it? Yes even if there is no return policy because of this khiy"r unlessthey say sold as is. There is a difference between a scratch being on the screen andbeing on the back. On the back, it is cosmetic and not a big deal. If they say mint

condition then it is like new but if they say good condition then you need to expectsome scratches.

Valid if three conditions are met:1) The defect decreases the value of the commodity.2) The defect was present prior to the conclusion of the sale.3) The buyer was oblivious to the defect prior to the conclusion of the sale.

You go to a car dealer and see a car and ask if there is anything wrong with thecar and the dealer says no. You take a test drive and like the car. You pay the

money and leave. After one week, the lubricant is wearing out and the enginesmokes. You call the car dealer and he knows about the problem. Are youallowed to void the contract? Islamically and legally, yes. However, if you askthe dealer if there is anything wrong and they give you the option to take it to amechanic who tells you that nothing is wrong and then the transmission breaksa week later, then it is your fault because you were given the option to take it toa mechanic. If they stipulate as is and then add a lubricant to make it good atthe time, then this is not allowed.


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Some farmers used to tie udders of cows and goats so that baby goats would nottake it and the udders would be full of milk. Buyers would come and think thatthey are healthy and then after a few days they would go back to normal. TheProphet (sal Allahu alayhi wa sallam) said in this case it is up to you to take it

back if you want. You can get the price difference.

If there was something wrong with the transmission, you can go back to seller.You can make a deal to pay to fix for the transmission.

Example of khiyar of identification: Naming your price for Priceline (you put your cardinformation and give them information to find a good deal like the zip code of a 4 starhotel and they search on your behalf and if they find a match, they will purchase itwithout getting back to you first).Example of khiyar of sale meeting: a sale session on the internet, return policies

As a customer, you check products on the shelf and they look fine. As you move aproduct, you drop one and break it. What do you do? You are obligated to pay if thestore obligates you. If the store has a policy that its okay and they will take care of it,then it is okay. If the cashier breaks an item as they put it in your bag, they areresponsible.

Chapter 9: Defects in Contracts1. Coercion !"#$%"

Al-ikr"h(coercion) occurs where force (of whatever nature) is used to produce aphysical or legal action. It can be complete (causing threat to life or limb) or partial

(causing inconvenience).Example: To force someone at gunpoint to sign a contract of sale against his free will tosell a property they would otherwise not sell.

This is one reason to nullify a contract at inception. Ikrah has two categories:excessive and non-excessive. Excessive ikrah is if something was life threatening orcausing serious injury (i.e. someone threatening you or someone else with a gun). Thisinvalidates the contract. What if it is emotional ikrah? For example, a husband tells hiswife, I dont know why you need this. The mahr was so much Finally, she says,Take it. Is this transfer of gift halal? He put pressure on her until she gave in. Allahsaid, If they give it out of good heart and willingness, then you can consume it. If she

is giving it like this, we dont know if it is out of good will or for her husband to get offher back. If it was for him to get off her back, it wouldnt be allowed, but if it is goodwill, then it is.

2. Mistake and error !"#$%(al-ghala*)Example: To give someone a diamond for a crystal he purchased.

You should return it. Are you allowed to sue them if they dont accept? Yes. You are


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allowed to revoke the contract. If you shop online and they send you XL instead of L,then you are allowed to ask them to change it. What if they offer you to keep that oneand they will send you another? It is okay to do it.

3. Fraud and deception !"#$%&'"#$(al-ghabnu wal-ghish)Example: To buy a commodity extremely overpriced.

Sometimes they have one price for locals and one price for tourists.

The Prophet (sal Allahu alayhi wa sallam) saw a pile of fresh wheat. He put his handinto it and felt moisture. He asked what it is, and the merchant said it is from the rain.The Prophet (sal Allahu alayhi wa sallam) said, Shouldnt you put it on the top forpeople to see?

If you know you are deceived, you are allowed to bring it back. For example, if whenyou open the rice it is very old, you are allowed to take it back to the store.

4. Unforeseen circumstances !"#$%&!"#$%&' (al-'ur(fl-*"riah)Example: Getting into war or losing a job after concluding a contract.

You want to buy a house so you sign a contract. Then the next day you lose your joband can no longer afford the house. Are you allowed to ask to cancel the contract?Islamically and legally, you are allowed to do that provided that it happens at thebeginning.

Chapter 10: Sales and TransactionsHow do we decide on the price? Is there a margin for profit that needs to be observed?Are you allowed to profit more than 50%?

Definition of sale !"#$%(al-bay)

The permissibility of sale is clear in the Qur!n, Sunnahand ijm" of Muslim mujtahids.

!"#$%&!"#!"#!"#$%&'(& (mub"dalah m"l bi m"l bil-tar"#i)A contract for the exchange of commodities based upon mutual consent.orThe exchange of a specified form of property or permissible service for its like or for adebt to be paid, entailing the change of future ownership, not based on usury, and not aloan.

The classical fuqaha gave a simple definition: the exchange of two types of wealthbased on mutual consent.

Allah said, And Allah made sale halal. Allah said, Allah made riba haram. Everyform of sale is halal unless there is an evidence to suggest otherwise.


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Understanding the sale contract:1. Its a compensatory contract.

You get compensation in return. If you give money, you get a service orcommodity. If you give money and expect nothing except the reward from Allah,then this is charity. If you get money when someone dies, this is inheritance.

2. The contract has to be legally acceptedIf there is anything in the contract that makes it illegal, it invalidates it.

3. Involving at least two contracting parties who are legally competent to carry outbusiness dealings.There are two or more contracting parties and have conditions. (Discussed inprevious section).

4. Commodities come in different types. They can also be services provided.Types of Sales and Transactions1. Considering the nature of the commodity

1) Money for an item of value !"#!"#$ (bayun mu*laq)Giving cash and getting something in return. This is the first thing thatcomes to mind when saying the word sale.

2) Money for Money !"#!"#$% (bayl-$arf)This is money exchange.

3) Item of value for another item of value !"#!"#$%&'( (bayl-muq"ya#ah)This is barter.

Are you allowed to exchange an item for an item? Yes. You can exchange food forclothes or books for clothes, etc. Money for money has its own rulings.

Islamically, the government should not set prices in the market and should let themarket regulate itself. In times of specific need, it is compulsory and important thatthe government regulates essential commodities. Essential commodities are requiredfor the survival of the people like food. The government has the right to regulate theprice of wheat because it is the main ingredient in bread. In other cultures, rice is moreimportant than bread.

2. Considering the nature of way of deciding a sales priceProfiting from a business transaction has no limits and is permissible. Sources ofprohibited profit in contracts are:

1) Trading %ar"mitems2) Cheating and lying3) Extreme deceit4) Monopoly


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! Negotiating the sales price without disclosing the cost price !"#!"#$%&'( (bayl-mus"wamah)

Fact: Do you know that government has the right to do tas&r!"#$%orsetting a price limit during difficult time for the greater benefit of thepeople?

There is no set price. It is just negotiating the price. This is absolutelyacceptable.

! Negotiating the sales price after disclosing the cost price to determine themargin of profit or loss !"#!"#$%& (bayl-am"nah)For example: you tell the buyer that you paid X amount for the product. Areyou allowed to disclose the cost price to the customer? Yes, it is your choice.

This comes in four forms:1. Bayl-Mur"ba%ah !"#!"#$%&'$ is a sale where the seller names the profit mark-

up that he is applying to the cost price of goods that he is selling and agrees

on a sale price with the seller on that basis. The seller should name his coststruthfully.This is when you say the mark-up after disclosing the cost price. This ispermissible.

2. Bayl-Wa#&ah !"#!"#$%&' is a sale where the seller names the loss mark-upthat he is applying to the cost price of goods that he is selling and agrees ona sale price with the seller on that basis. The seller should name his coststruthfully.This is when the seller marks the price down. For example, the seller tellsyou that it is $10 but will give it to you for $7. This is permissible.

3. Bayl-Tawliyah !"#!"#$%#& is a sale where the seller names the cost price ofgoods that he is selling and agrees on it as a sale price with the seller on thatbasis. The seller should name his costs truthfully.This is when the seller asks only for cost price for an item no profit and noloss. This is permissible.

4. Bayl-Muz"yadah !"#$%&'()!" or auctioning is a process of selling goods orservices by offering them up for bid, taking bids, and then selling the item tothe highest bidder.This is when you have one item and multiple customers who want to buy it.This is permissible. Question: arent you trying to compete for the sameitem? If the auction is open, anyone can come an interfere. It is illegal orharam to do it when you lock the price and promise someone for thatpurchase. If you say it is sold and then someone at the end comes to you andoffers more, you are not allowed to sell to them because the price has beenlocked and the auction is over.

Iqaalah is permissible. The Prophet (sal Allahu alayhi wa sallam) said, If someone


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comes to you with iqaalah, accept it. What if the buyer said, Ill give it to you but sellit back to you for $50 more. If they accept, that is fine. They dont have to accept theiqaalah and can sell it back to you. Iqaalah falls under a contract of charity you aredoing the person a favor.

3. Considering the nature or way payment is given1) Payment paid and commodity is delivered !"#$%!"#$%&'()#*$% (al-bayl-munjaz aw al-

naqd)This is what is usually done at retail stores when paying cash.

2) Payment deferred and commodity is delivered !"#!"#$%&' (bayl-nas&ah)When using a credit card, when paying in installments

3) Payment paid and commodity is deferred !"#!"#$% (bayl-salam)When putting a down payment and the commodity is delivered later such as anonline purchase.

4) Both payment and commodity are deferred !"#!"#$%!"#$%& (bay al-dayn bil-dayn)Paying the delivery person for pizza you pay when the pizza arrives. Pre-ordering an item (i.e. you give your payment information and they charge youonce it is shipped to you)

All of these formats are considered legal and acceptable; however, some transactionsdont qualify for deferred payments. Overall, you are allowed to use these formats forpayment.

Note: Islamically, government participation is between socialist and capitalist.Islamically, we do believe that at some point the government steps in to save themarket. There is some sense of regulation.


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Chapter 11: Prohibited SalesProhibited sales are considered illegal for few reasons:

1. The contract did not fulfill its conditions and legal requirementsExample: One of the two contracting parties is legally incompetent

If something is wrong in the initiation of the contract, it is considered void.

2. The contract involves illegal financial commoditiesExample: Such as riba(usury) orgharar(uncertainty), gambling

3. The contract is causing damage outside the contracts limitExample: Monopoly of specific essential commodities

4. The contract is concluded contrary to some other circumstantial laws of Shar&ahExample: Trading on Friday duringJumuah$al"t.Allah (subhanahu wata'ala) says in Suratll-Jumuah: On Friday, you need to

leave all kinds of sales and come to salatl-jumuah. What about for women?The prohibition is for the sanctity of the time itself, so women are not allowedto go shopping during that time. It doesnt matter if you are on your menses orif you are buying from a non-Muslim. The time is for an average length ofkhu#bah (i.e. it starts at 1:30 and ends at 2:15). The time refers to the firstofficial khu#bah (the official khu#bah of the imam). If a brother is going to thesecond khu#bah, he shouldnt sell and trade during the first main khu#bah.

What about online sessions? Should we stop trade and sale online? There is nolimit for the online market because time zones are different. When it is time foryour jumuah, then you should avoid it.

Types of Prohibited Sales1. Selling a debt for a debt !"#$%&!"#$'()&(bay al-dayn bil-dayn)Example: You owe Ahmad $100 and Ali owes you $110, so you sell Alis debt to Ahmadwith the extra amount included to remove your liability for his debt.

One common scenario of contemporary transactions is the practice of speculation inwhich merchants trade contracts they own for a deferred payment while thecommodity is still in the hand of the first seller. A famous example of this is the oilcrisis in the 2010.

Debt for debt means money for money. You cannot sell money for money except inspecific circumstances. Collection agencies buy debts. This is an open gate for riba,which is why it is prohibited.

2. A conditioned sale !"#!!"# (bayun wa shar*)Example: I sell you this phone with a condition that you dont jailbreak it.If the condition is running contrary to the essence of the contract or sale, then it isharam.


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3. Two contracts in one sale !"#$%&!"!"#$ (bayat"ni f&bayah)Example: I sell you this book for $100 deferred until the end of the month. When itbecomes due, the buyer asks for extra time. After the sale has already been concluded,the seller sells the book again for a higher price.

This is the main criticism of the Islamic mortgage system. They force you into gettinginto a first contract which is a promise to purchase before purchasing it on your behalf.Or they get into a form of diminishing partnership with you (like Guidance). These aretwo contracts in one sale and you dont know if you are partners or not.

4. Selling upon the sale of another person !"#!"#$%!"#!"#!"#$ (bay al-rajuli al"bayiakh&hi)

Example: Aisha agrees to buy a purse from Fatima for $100. After the sale has beenconcluded, Safiyyah offers Fatima $110 to give her the purse, or Hafsa offers Aisha theexact same purse for $90.

Auctions are exempt from this prohibition because the sale has not been concluded yetuntil the final bid.The problem is when the sale is concluded and then someone comes to interfere.

5. The resident acting as a broker for the visitor !"#!"#$%&!"#$%& (bay al-%"#ir lil-b"di)Example: Fahad came from overseas to the US with good commodities. Khalid is a localmerchant. He tells Fahad not to go to the marketplace, and he will sell the products forhim. Fahad does not go to the marketplace and never knew the exact value of hiscommodities in the market.

A local merchant is allowed to broker for a visiting merchant if the visiting merchantwas familiar with the local market and was familiar wit

Fiqh of Money & Transactions (Pure Paisa)

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