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Lecture for 3rd year Medical Students on 4th November 2000 by Professor Omar Hasan Kasule, Sr.
A.BUYING and SELLING, buyu'u
GOODS AND SERVICES
Halaal, haraam, & mutashabih: What is permitted, halaal, and what is prohibited, haraam, are clear but there are grey areas between them, mutashabihaat (MB 985-988). Extra care has to be taken when dealing with the grey areas lest one falls into the prohibited. Doubtful matters are better avoided. Some general principles guide us in matters of halaal and haraam. The original or default position is permissibility, al asl fi al umuur al ibaahat. Thus all transactions are permitted unless there is specific text on prohibition. Only Allah decrees what is halaal and what is haraam. Prohibiting halaal and permitting haram is the same as shirk.. What is halaal is sufficient and what is haraam is superfluous. Prohibited things are impure and harmful. Whatever is conducive to haraam is itself haraam. It is prohibited to represent haraam as halaal. Good intentions do not make haraam acceptable. Haraam is prohibited to all people with no exceptions. Necessity dictates exceptions in some prohibited things.
Individual and community property: Individual ownership of property is a basic human right in Islam. The Law specified fire, water, and pasture are considered community property (BG 784). Air could be added to this list because it is the most precious community resource endangered by industrial pollution. Fire stands for energy resources and pasture stands for agricultural resources. If an individual expends effort in developing community property, he or she acquires rights of private ownership to it. Government property is in a special category with special considerations. It is neither individual property nor is it community property that any citizen can use at will. The concept of legal personality, dhimmat, could be extended to include government and joint stock companies thus giving them the same rights of ownership as individuals. Lost or unclaimed property does not automatically become the individual property of the finder. If property is lost it must be announced for a year (BG 801, BG 802).
Trade goods/articles: All articles are halaal for commercial transactions unless specifically prohibited. The following articles cannot be bought or sold in normal commercial transactions. Intoxicants, khamr, considered filth, najasat, should not be exchanged in transactions (BG 649). Also prohibited from transitions materials that will be used to make intoxicants (BG 684). The prohibition of transactions involving picturesIdols (MB 1047, BG 649) is based on their misuses for worship. The prohibition does not cover pictures for beneficial purposes such as passport photographs. Free humans cannot be sold or bought (MB 1046, BG 772). Humans can voluntarily sell their labour and not their person, dhimmat. The prohibition includes minor children who cannot be sold for any reason. Sale of brides is also prohibited. Marital transactions are valid only on payment of mahr, which becomes the property of the wife. The wife in marriage retains her full legal personality, dhimmat, and her full civil rights and is not property of anyone. Dead animalsdog cannot be sold or bought (MB 1048, BG 651). This restriction applies when the dog is going to be kept as a pet. The hunting dog (BG 656) is excepted from the prohibition. Also excepted are dogs that perform police work or that lead the blind. The pig is considered filth and can therefore not be sold (BG 649). The semen of animals cannot be sold for purposes of fertilising other animals (BG 690). Stolen property cannot be sold or bought. (MB 1045) and are considered filth and so cannot be bought or sold (MB 1047, BG 649). The fat of dead animals cannot be sold (BG 649). A
Intellectual property: Knowledge cannot be sold. However an author and publisher sell the labor and material involved in manufacturing a book. The purchaser of the book has full rights to the use of the knowledge including teaching it to others for a fee. It is however illegal to reproduce and resell the book.
Professional services: Professional services are performed in return for a fee. Halaal services can be sought and can be offered. It is prohibited to seek, pay for, or offer haram services. The Law mentioned the following services as halaal: cupping, hijaam (MB 1004 and MB 1005), ruqyat (MB 1058), teaching Qur'an (BG 773), and tailoring (MB 1001). By extension we can say that all services that do not involve handling prohibited material or violation of morals are halaal. The Law specified the following services as haraam: prostitution (MB 1048, BG 651) and soothsaying (MB 1048, BG 649). By extension all services that involve prohibited articles or involve infraction of the law, violation of public morals, or exploitation of other humans are haraam.
Rights: Rights are a form of intangible property. As the economy becomes more sophisticated, the number of rights also increases. Some rights can be acquired and can be sold. Debts for example are considered rights than can be sold or transferred. It is prohibited to sell the right of inheritance (MB 663).
Scales and measures: The Law prescribes measures to ensure fair play and prevent cheating in business transactions. Thus scales and measures are needed to make sure that the amounts of goods exchanged in a transaction are specified so that the buyer and the seller know what they are giving and are taking. Measuring is recommended (MB 1015). The seller is responsible for measuring (MB 1014). The buyer has a right to check the measuring before they separate.
Price controls: The Law does not interfere in the operations of the free market unless there is exploitation or immoral effects are feared. Thus price control is not legislated. The prophet refused to fix prices in Madina (BG 679). Action should however be taken to ensure that unfair practices of hoarding and monopoly do not arise.
CONDITIONS OF A VALID TRANSACTION
Witnesses: Business transactions should preferably be witnessed. This will be of benefit later if disputes arise and a court of law has to adjudicate in the matter. The witness chosen must be one who can understand the transaction. The evidence of women not involved or familiar with commercial transactions is less valuable than that of men and women who are conversant with such transactions.
Written contract: A written contract is a permanent reference that can be referred to in case of disputes. A written contract is preferred to witnesses. It is best to have a written contract that is witnessed. No condition repugnant to the Law is permitted in the contract (BG 657)
Transfer of ownership: Ownership must be transferred as soon as possible. Ownership can be transferred without taking physical possession (MB 1077). In case of food, the buyer must take physical possession before selling the food to someone else (MB 1017, 1018, 1019).
TYPES OF TRANSACTIONS
Permitted transactions: In advance payment for goods, salam, the buyer pays for goods and services that will be delivered at a future date. The price, weight, and other specifying particulars of the goods must be mentioned (MB 1049). It is not a condition that the seller has physical possession of the goods at the time of the payment (MB 1050, MB 1051). In case of fruits and crops, advance sale is permitted only after they have passed the stage of failure (BG 714, BG 715, BG 716). Purchase on credit, nasiiat, is allowed MB 992). However any form of usurious exploitation is forbidden. The buyer cannot be made to pay interest. Increasing the price for deferred payment is considered riba. In auction, muzayadat, goods can be bought at the price of the highest bidder. Sale of an absent article, ghararat, is permitted (MB 1022). Its nature, quantity and other specifications must be included in the sale contract to prevent cheating and later disputes. It is permitted to sell on commission. The commission agent sells goods of an owner on the understanding that he will get a fixed proportion of the price. The commission agent works for the seller and not the buyer. Araaya is a type of transaction in which the yield of a date tree is computed in the form of dry dates as the basis for pricing although the dates are received and are eaten fresh (BG 712, GB 713).
Forbidden transactions: Transactions are based on mutual satisfaction, taraadhi (p. 227 4:29). Even in such a situation there could be unfairness because one of the transactees may not have full information or the transaction may be innately loaded against him or her. The Law therefore imposes restrictions on the free conduct of transactions to make sure that there is fair play. In general, forbidden transactions are those that have uncertainty or a potential for cheating (BG 664). Mujalafat….. Mukhadharat: is sale of agricultural produce before its maturity (MB 1040, BG 672, BG 689). It is discouraged because it leads to disputes (MB 1035, MB 1036, MB 1037, MB 1038, MB 1137). Mulamasat is paying a pre-fixed price for goods chosen when blinded (BG 673). Munabadhat: is a type of sale in which the eyes of the persons involved in the transaction are closed. They throw goods at one another with the transaction being accepted whatever goods one manages to catch (BG 673). Munajashat, used illegally in auctions by pre-arrangement between the auctioneer and the ‘buyer’, is offering a price with no intention of buying in order to raise auction price (MB 1020). This is sometimes pre-fixed in order to deceive. Munajashat could be used illegally in auctions. Muzabanat is sale of dried dates or grapes for fresh ones on the tree (MB 1033, BG 710, BG 672, BG 709). Muhaqalat is sale of wheat in ears (unharvested wheat in the field) for pure wheat (harvested wheat) (MB 1033, BG 672). Thunya is selling agricultural produce still on the trees with the understanding that the seller will keep an unspecified amount at the time of harvesting (BG 672). Riba al fadhl is sale of good quality dates for poor quality ones. What is permitted is to first sell the good quality dates for cash and then the cash buy the poor quality ones (MB 1039). Other forbidden transactions are: selling fur while still on the animal (BG 689); selling sadaqat before it is received (BG 688); buying an animal while it is still in utero, habalat (BG 662, BG 690, BG 687); selling milk in udders (BG 687, BG 689); selling fish while still in water (BG 688); combining 2 transactions in one transaction (BG 666); selling what is not in your possession (BG 667); combining a loan and a sale (BG 667); non-refundable deposit, urban (BG 668); buying and selling on the spot before taking possession of the goods (BG 69); selling debt for debt (BG 711); and riba transactions (2:278-279). The giver, the taker, and the writer of riba are all guilty.
Use of currency in trade: It is permitted to quote the price of goods in one currency and receive payment in another currency provided payment is immediate and in full (BG 670).
CANCELLATION AND DISPUTES
Any transaction can be cancelled before separation (MB 996, BG 692, BG 693). The buyer has the right to return defective goods (MB 1008). It is forbidden to urge a buyer to return sold goods (MB 1020). Guidelines on return of defective merchandise can be gleaned from the story of Ibn Omar and the purchase of a defective camel (MB 1003). Any gain or loss is the responsibility of the buyer during the period when goods can be returned (BG 685). In case of disputes that cannot be resolved and there are no witnesses, the seller's word is final (BG 650). Disputing when you know you are in error (MB 1123)
ETIQUETTE OF THE MARKET
All transactions must be suspended for salat as soon as adhan is sounded and can be resumed immediately after the prayer (p. 216 62:9-11). Written transactions provide evidence in later disputes (p 215 2:282). A written contract is not necessary where there is immediate exchange of money for goods but if possible witnessed transactions are preferred. Traders should give full measure (83:1-6, 6:152, 17:35, 26:181-183). Cheating in measurement is prohibited and has severe penalties. Generosity in recommended in bargains (MB 994). The transaction is better concluded in a friendly rather than a hostile way. It is better to conclude a transaction with sufficient good will for future transactions. Leniency is recommended in debt collection (MB 995). The wealthy could even consider forgiving debts of the poor. The Law requires Full disclosure by both the buyer and the seller (MB 996) and any form of deception is forbidden. The seller should not try to hide any defects in the goods. He should honestly point out the good and the bad. For example a seller may keep a cow unmilked for several days before its sale (MB 1023, BG 681). It is forbidden to cover defective goods with good ones (BG 683). Frequent swearing is forbidden. Raising the voice is offensive in the market (MB 1013). Hoarding is forbidden (BG 680). Brokerage and middlemen are allowed because they are a necessity in trade. Middlemen who make quick profits without effort are discouraged (MB 1026 and 1027) because this will lead to unnecessary inflation of the cost of business and rise of prices. It is forbidden to meet trade caravans outside before they enter the city. This is a type of black market in which the caravaneers are cheated because they sell their goods before they know the pravailing market prices (BG 674, BG 675). Town-folk should not be brokers for rural folk because they can cheat them (BG 674). Custom or precedence, ‘urf, is respected (MB 1041) and is legally binding.
B. PERSONAL LOANS, quruudh
CONDITIONS
Debts must be written and witnessed (p. 436 2:282-283). If it is not possible to write, a collateral can be taken (p 515 2:283). A debtor is obliged to pay back (BG 751, BG 752). Delay of debt payment by those with ability to pay is a punishable offence (BG 728). The property of the debtor can be seized to settle outstanding claims (BG 730)
COLLATERAL
A collateral ensures that the debtor will endeavour to pay back. It is taken if the debtor fails to pay. A collateral is needed especially if the debt is not written down in an agreement.
GUARANTEE
A debtor could get another person who can vouchsafe for his honesty and ability to pay to act as guarantor. The guarantor of a debt is liable to pay (BG 734) if the original debtor fails to fulfil his obligations.
TRANSFER OF DEBTS, hawala
It is permitted for a debtor to transfer the responsibility of paying the debt to another person. Transfer of a debt to a rich person is irrevocable (MB 1060, MB 1061, BG 738). Transfer to a poor person may be cancelled and the liability of the original debtor is maintained. Transfer of a deceased's debt is irrevocable (MB 1060 and 1061). It is also possible for the creditor to transfer the right of collecting the debt to someone else.
BANKRUPTCHY
A debtor becomes bankrupt when his assets are less than the liabilities. Creditors can take back property from a bankrupt debtor (BG 727). They take whatever they find of the debtor's property (BG 729)
C. INVESTMENTS
INVESTMENT IN PROPERTY
Partnership, sharikat, is in general allowed (BG 742, BG 744). People can jointly own and use articles such as food (MB 1131). They can buy property such as a house jointly and sell it later for profit. The partner in a joint property has the right of pre-emption, shuf'at (MB 1042, BG 760, BG 761, BG 762, BG 763, BG 764) and must be informed before any sale of the joint property is done (MB 1052).
INVESTMENT IN TRADE
Murabahat is pooling of capital that is invested. The partners agree to a fixed proportion of profits or losses. It is illegal to fix a certain amount as the profit due to a partner because that would constitute riba. Mudharabat is co-operation between the owner of capital, the worker and the manager. There is a pre-fixed proportion of sharing losses and profits. In case of loss, outstanding liabilities are deducted from the remaining capital and the worker just suffers loss of time.
INVESTMENT IN AGRICULTURE
The owner of the land may work it himself. He can use hired labour who are paid wages and have no share in the produce. The landowner may let a farmer cultivate unused land for free or in return for a fixed rental. The farmer is entitled to all the produce of the land. The Law allows sharecropping, muzara'at (MB 1079, 1080, and 1083). The landowner and the farmer agree to share the produce according to agreed formula. The formula must state a proportion of the produce. It is haraam to fix each partner's share by weight. The landowner may contribute agricultural inputs like seeds and fertilizers. Sharecropping was agreed between the prophet and the Jews at Khaybar (BG 767, BG 768). Mukhabarat, a form of gambling that is letting a farmer use land in return for the produce of a delineated portion of the land, is forbidden because it will be a source of dispute when the delineated plot does not produce well (BG 672).
DEPOSITS & TRUSTS, wadii'at
The trustee does not pay if the trust is destroyed accidentally. He pays for depreciation due to his use of the property (BG 823). The concept of wadii'at has been employed in modern Islamic banking schemes.
INSURANCE
Insurance is accepted if presented in the form of a joint investment. Islamic financial institutions have developed an Islamically-acceptable insurance scheme called takaful.
D. OTHER TRANSACTIONS
WAKALAH
Appointing an attorney or an agent is permitted (BG 746, BG 747, BG 748, BG 749). The prophet had an agent in Khaybar (BG 745). The agent can take measures to prevent property under his care from getting spoiled or getting lost (MB 1065). The agent can pay debts on behalf of the owner (MB 1060). Illegal transactions by the agent are not binding on the owner (MB 1069).
WAGE EMPLOYMENT, ijarah
Ijarah is employment in return for wages. Living on earnings of one's labor is honor MB 993. Agreed wages should be paid in full. Early payment of wages is required (BG 774). If the employer invests unclaimed wages, he will have to pay the employee the profits earned. Non-payment of wages is a serious crime (BG 772).
LENDING, i'arah
Iarat is when you lend someone an animal to benefit from the milk and he returns the animal after that (MB 1173).
ENDOWMENTS, waqf
Waqf is continuous charity (BG 785, BG 786). The endowment consists normally of fixed property whose income is used for a fixed purpose. The income is used and the endowed property is never sold. Sometimes the endowment may be a building or a well that is used directly by the needy.
COMPETITIONS, sibaaq
The following sports and those like them are allowed: foot racing, wrestling, archery, spear play, camel racing, and horse racing. Prizes for winners are allowed (BG 1130, BG 1131, BG 1132). Any form of gambling associated with sports is forbidden (BG 1133).
GIFTS, hibaat
Gifts express mutual love (BG 795, BG 796, BG 797). Gifts can be accepted and something is given in return (MB 1160). A gift can be witnessed (MB 1161) especially if future disputes are anticipated. It is an offence to ask for return of a gift (MB 1162, BG 789, BG 790). The recipient of a gift has the right to give it away (MB 1167) without getting permission from the gift giver. Life tenancy, umri, is a type of gift (BG 793). Gifts to officials are discouraged (BG 791, BG 792) because they may encourage bribery and corruption.
E. MODERN CHALLENGES
Stock exchange: Stocks bought in a company are an infusion of capital. The buyer of the stock benefits when the company profits thus raising the value of the stock. The stock can also fall in value if the company performs poorly. Stocks can be sold and bought from others at any time. Stock transactions involve al element of speculation but unlike riba transactions they do not guarantee any profit, both profit and loss are likely. The consensus of scholars is that stock transactions are permitted unless the company involved is trading in forbidden goods or is undertaking prohibited activities.
Commodity exchange: This is a highly speculative activity involving buying and selling commodities like oil and crops that are not yet produced. There are special exchanges where commodity contracts can be sold or bought with loss or profit.
Currency trading: Currency exchange is allowed of no delay in involved (MB 989 and MB 1028). Exchange of the same amount of currency must be done at once (MB 1029). Gold can be sold for silver in any way you like (MB 1029 and MB 1030). A dinar can be exchanged for a dinar if the transaction is carried out on the spot (MB 1031). Gold cannot be sold for silver on credit MB 1032.
Public debt: Government expenditure can by design or unpredictably exceed the revenues necessitating borrowing to cover the deficit. The citizens, including those not yet born, will be responsible for paying this debt in the form of taxes.
Free trade: Freedom of exchange of halaal goods and services within the country is highly desirable because it produces an efficient economic system. Free trade at the international level may not serve national or ummatic interests in some cases and care must be taken.