MUAMALAT

Md. Mokhter Ahmad Associate Professor IIUC-Dhaka Campus

Md. Mokhter Ahmad, Associate Professor, IIUC-DC

Topics to be covered in the lecture:

Definition of Muamalah Scope of Muamalah Principles of Muamalah in Islam Fundamental issues of Muamalah and their details:

Family Life
Relations between husbands and wives Relations between parents and children Relation between siblings Relation between relatives

Social Life Political Life National and International Life Professional Life
Business Working in agriculture Working in the professional areas

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Games, Recreation and Culture

(2) Where were we?

(B) Some Muslim Contributions in science and technology:

There are hundreds of thousands of Islamic manuscripts in the worlds libraries, dealing with scientific works of Muslim countries of the earlier period. There are still 70,000 scientific manuscripts which are not translated yet:
The foundation of modern science has been laid by the Muslims: In Medicine-Ibn Sina and Al-Razi, in physical science- Al-Beruni, in mathematics-Al-Khuwarizmi, in Astronomy-Al-Zarkali and Ulugh Beg, in navigation- Ibn Batuta. The Arabs studied and developed Algebra, Calculus, Optical Geometry, Navigation, Medical Sciencewell ahead of European scientists. The Muslims discovered America 477 years before Columbus, Arabs and Moors traded with the American Continent; and a Muslim was a guide of Columbus. Students from France, England, Portugal, Italy and Germany came to Grenada, Cordova, Madrid..of Muslim Spain to study Astronomy, Medical Science, Chemistry, Physics, and Mathematicsand brought Protestant, Reformation, Industrial and Renaissance Movement to Europe Roger Bacon, the father of modern science was a student in Muslim Universities, Copernicus, the great Astronomer, borrowed many ideas from Muslim astronomers, Newton read the book of Muhammad bin Musa on motion of celestial bodies and force of attraction..Great Emperor Charlemagne sent his son to Muslim Cordova Many centers for translating Islamic books into Latin and other native European languages were there.including many dictionaries to facilitate translation.. The Muslims first established Laboratories and Observations whereas Aristotle, Pythagoras, Galen, and Aristocrats did not possess any laboratory for observation ..

(2) Where we are now?

(A) Status of science and technology in OIC/IDB member countries

Despite being

The contribution of OIC countries towards world income is only 8 per cent. 39 per cent of population lives below the poverty level 22 of the 50 least developed countries in the world are OIC Member States. It is sad to admit to the fact that gross national product of the Islamic countries collectively was about US$1,200 billion, less than one quarter the figure for Japan with no natural resources, and only just higher than the GDP of Germany.

22 per cent of the world population having 70 per cent of energy resources 40 per cent natural resources

The 57 predominantly Muslim countries have about 23 % of the world's total population but
Less than 1% of its scientists who generate less than 5 % of its science and make barely 0.1 % of the world's original research discoveries each year. The Islamic countries have a negligible percentage of patent registrations in US, Europe and Japan. The Research and Development manpower of Muslim countries is only 1.18% of the total science and technology manpower. Only two scientists from Islamic states have won Nobel Prizes, Abdus Salam, a Pakistani (Physics, 1979) and Ahmed Zewail, an Egyptian (Chemistry, 1999). Both carried out their research outside Islamic countries. Today's Muslim societies have generated few scientists of international repute. Islamic countries, as a whole, have approximately 275 researchers per million population against 850 per million in the developed West.

 The entire Muslim world constituting onefifth of humanity, contributes barely 1000 research articles out of 100,000 science books and 2,000,000 research articles published annually. While the West has an average of 3000 science PhDs per million of its inhabitants, the number in OIC/IDB member countries is so dismally small that not even the statistics are available. Countries that are predominantly Muslim are characterized by low spending on Science, small scientific communities, and poorquality universities. Whereas Japan, the United States, Germany, and other Western countries spend 2 % - 4% of their gross domestic product (GDP) annually on research; no Muslim country spends more than 0.5% of its (much lower) GDP on research. The OIC countries have about 1000 universities in total compared to 1,000 in Japan, including 120 in Tokyo alone.

Even among the Muslim countries, there are regional imbalances. The ratio works out to:
Only 100 researchers per million African Muslims 445 for one million Arab populations For Asians it is 569 researchers per million people. The disparity between the Third World and Muslim nations in the number of scientists and engineers is quite striking. Despite similar levels of development, there are more than twice as many scientists and engineers in the Third World as in the Muslim countries, and almost eleven times as many in the industrialized nations.

 Western Civilization: A direct Offspring of Islamic Science

al-Banna al-Marrakushi's form of the numerals. He gave this

form of the numerals in his practical arithmetic book written around the beginning of the fourteenth century. He lived most of his life in Morocco which was in close contact with alAndalus, or Andalusia, which was the Arab controlled region in the south of Spain.

Definition & Scope of Muamalah

Muamalah refers to the principles governing the everyday life of the Muslims. It is meant to address the relationship between the creation of Allah, between man and man and between man and nature. It is beyond the Faith and faith-based pure formalistic rituals of the Muslims. Muamalah incorporates everything relating our daily life (personal, family, social, economic, political, recreational/cultural, and international life.)
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Islam

Tawhid/ Aqidah (Belief in Oneness of Allah)

Islamic Law
Ibadat (Pure Rituals and Religious Performances)

Muamalah (Code of Conduct for an Islamic Way of Life)

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(Al-Munakahat) Rulings related to Islamic family life

(Al-Iktisaad) Rulings related to economic transaction

DISCIPLINES UNDER MUAMALAT

(Al-Jinayat) Rulings related to crimes

(Al-Siyasat wa al-Mujtama) Rulings related to Social & Political Life

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Islams Five Objectives

Islam works for the protection and preservation of five basic objectives which are essential for human existence on earth: 1.Preservation and Protection of Religion 2.Preservation of life and its sanctification 3.Safeguarding the intellect 4.Protection of lineage 5.Safeguarding of wealth

 Islam allows one to own and earn property as it is intrinsic to anyone, for the fulfillment of the following three requirements: 1. Daruriyyat: It refers to bare necessities comprising all activities and
tangible or non-tangible things that are essential to the preservation of the above-mentioned five foundations of life (Religion, Life, Mind, Offspring, and Wealth)
1. Examples: Prohibition of wine and all intoxicants; institution of marriage and prohibition of fornication

Owning Property in Islam

2. Haajiyyat: These are convenience which remove hardship and

difficulties, but are not bare necessities.
1. Examples: Free-mixing between male-female, nutritious foods

3. Tahsiniyyat: These are embellishments or luxuries including

activities and things that are beyond bare necessities and convenience, but give brilliance and shine.
1. Examples: Plush carpets, good quality furniture, eating of sweets after meal

1. All things created by Allah S.W.T are halal, with few exceptions 2. To make halal or haram is the right of Allah alone 3. Prohibiting what is halal and permitting what is haram is similar to ascribing partners to Allah 4. The basic reasons for the prohibition of things are due to impurity and harmfulness 5. What is halal is sufficient and what is haram is superfluous. 6. Whatever is conducive to the haram is in itself is haram 7. Falsely representing haram as halal is prohibited 8. Good intention do not make the haram acceptable. Islam does not allow employing haram means to achieve praiseworthy ends. 9. Doubtful things should be avoided 10.Haram things are prohibited to everyone alike 11.Necessity dictates exception

Principles of Halal & Haram

Islamic Procedure for Economic Pursuit

The following is the Islamic procedure for any economic pursuit 1. Legality of Trade 2. Mutual Consent
1. 2. 3. Devoid of coercion Devoid of fraud Devoid of Lying

3.

Justice/Equity 1. The Imperatives:

a) b) c) d) e) f) g) Fulfillment of the promises, pacts and contracts Exactness in weights and measures Work, Wages, and Payments Truthfulness, Sincerity, and Honesty Efficiency and Competence Selection on merit Investigation and verification

2.

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4.

The Safeguards: a) Writing of a contract b) Witnessing c) Rahn d) The Principle of Individual Responsibilty Islamic Modes of Economic pursuit:

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Prohibitions & Permissions of Muamalah

1. One is allowed to earn and obtain wealth and property for the above-mentioned purposes and in according with the abovementioned principles in the following three ways: 1. Business 2. Agricultural Sector 3. Professional and Industrial Sector

Halal Earnings
Business:
The Prophet was asked about the best earning. He transformed a beggar into a great businessman The Prophet including Four rightly-guided Caliphs were businessmen The Quran talked about business galore.

Work in Agriculture:
In the holy Qurn, hundreds of verses refer to the virtue of agriculture and farming, and its process There is none among the Muslims who plants a tree or sows seeds, and then a bird, or a person or an animal eats from it, but is regarded as a charity gift for him. (Anas ibn Malik, Sahih al-Bukhari, 3:513)

Work in Industry & Professional Areas:

Muslims are encouraged, as a Fard Kifayah, to engage and develop proficiency in professional areas which are instrumental to the survival and betterment of the community.
Imam Ghazali says: Sciences whose knowledge is deemed fard Kifayah comprise every area which is indispensable for the welfare of this world.

All sorts of professions are dignified by Islam. Prophet Musa worked as a hired hand for eight years. The Prophet Muhammad (saas) also worked as a shepherd for several years:
There is no prophet who has not herded sheep, and someone asked, You as well, 17 Messenger of Allah? He said, Myself as well.

Prohibition in Muamalah
In Muamalah there are two basic prohibitions:

Gharar Riba
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Gharar and its Explanation

Gharar: The Arabic word Gharar ( ) means 'risk', 'uncertainty', and hazard. Gharar is also defined by some scholars as 'any bargain in which the result of it is hidden'. Unlike Riba, Gharar is not precisely defined by Shari'ah. Gharar is also considered to be of lesser significance than Riba; The prohibition of Riba is absolute but some degree of Gharar or uncertainty is acceptable in Shari'ah. Normal Gharar (that does not lead to conflict) is acceptable. Also Gharar is acceptable in some social contracts; Gharar has two ways. First, Gharar implies uncertainty. Second, it implies deceit. Shari'ah has forbidden all business transactions, which cause injustice in any form to any of the parties; Gharar may be in the form of hazard or peril leading to uncertainty in any business, or deceit or fraud or undue advantage;

Gharar and its Explanation

Gharar: Gharar can arise in the form of uncertainty in the terms of a contract, or as uncertainty surrounding the existence, ownership, deliverability, availability, or nature of the object of a contract.
An example of the first form: it is not permissible for A to agree to sell his car to B for a price of 100,0000/ BDT if it rains tomorrow due to uncertainty in contract execution. A classical example of the second kind of Gharar is that one may not agree to sell the unborn fetus in a camel, since in this case there is uncertainty as to the nature of the object of sale (it may be healthy or unhealthy, weak or strong, male or female Some further examples of transactions prohibited on account of this second form of gharar are:
Sale of a runaway camel Sale of uncaught fish in the river Sale of milk in lactating glands Sale of whatever fish will be caught in a specified net Sales of fruits on the tree by estimated quantity Sale of any one of the animals from the herd Sale of unripned fruit

Issues of Uncertainty in Gharar

Gharar is measured quantitative method: through qualitative and
To provide a quantitative measure, Sami Suwailem said, a gharar transaction is equivalent to a zero-sum game with uncertain payoffs. I zero-sum game A loses what B gains. An example from Muattah Imam Malik is a man loses a camel worth fifty dinars, then he sells his lost camel for twenty dinars. Here the buyer and the seller may lose ultimately (the seller 30 dinars, the buyer 20 dinars) Excessive gharar is prohibited and minor gharar is permitteda taxi driver is permitted to charge on the basis of time or mile of a journey.

Issues of Uncertainty in Gharar

Gharar is based on the following things:
1. Uncertainty over the existence of the subject-matter 2. Uncertainty over the possession of the subject-matter 3. Uncertainty over the availability of the subjectmatter 4. Price 5. Delivery 6. Suspended and Future Sales 7. Legal Tricks

Issues of Uncertainty in Gharar

Gharar is based on the following things:
1. Uncertainty over the existence of the subject-matter
A farmer cannot agree to contract to sell whatever crop grows in the field this year as the quality and quantity of the product is unknown and thus this is gharar. But the farmer may sell one ton of top quality rice for delivery in six months time in a contract of bay al-salam as here the price, amount and delivery are fixed Sales of this kind may be divided into three groups:
The object of sale does exist now but will change in nature by the delivery date (sale of un-ripened fruit..) The object does not exist today but will be in existence on the delivery date Uncertainty shrouds the existence of the object of sale on the delivery date..

Issues of Uncertainty in Gharar

2. Uncertainty over the possession of the subject-matter:
Possession or construction possession of the object of sale is a pre-requisite for making any sale contract.
The Prophet said in the case of Hakim ibn Hajam: Oh Prophet of Allah! A man comes to me and asks me to sell him what is not with me, so I sell him and buy the goods for him in the market (and deliver). The Prophet said, sell not what is not with you Constructive possession is the legal possession of a object, though not physical possession. Like when one purchases a car but has not picked it up yet from the parking plot, has got a constructive possession.

3. Uncertainty over the availability of the subject-matter:

Any commodity of sale must be seen prior to sale or be described with respect to its material attributes.

4. Price:
The price is to be stated at the beginning of or prior to any sale in clear-cut terms.

5. Delivery:
In most of the types of contracts, the contracting parties may agree to delay either the payment of the price (thaman) or delivery of the object (mabi) to a later date.
The sale of Jabirs (r) camel to the Prophet Muhammad, the Prophet allowed Jabir to deliver the sold camel after reaching Madinah.

6. Suspended and Future Sales:

A legal trick is a device that employs contractual techniques that are permitted under Shariah in such a way as to defeat a specific ruling of Sharaiah. It has three dimensions: A. The first is the imposition of any condition that defeats the purpose of a contract :
A contract of exchange in which a condition is imposed that requires the return of the sold item after a period of time. It defeats the sales purpose of permanently transferring the ownership of a object of sale. A second example: a clause requiring one partner in an investment project to buy the others share at the issue price on a future date.

B. A second common trick is the combination of valid contract forms to produce prohibited outcomes.
A usury-free loan, a promise, and a gift are each accepted legal forms in shariah. However, if they are combined in a way that the borrower promises to give lender a gift upon repayment of the loan, then the effect of the combination of contracts is to produce a usurious loan.

C. A third form is the application of contract forms beyond their intended scope.
Short selling of equity shares.

Al-Riba: Its Definition

Nabil Salihs: An unlawful gain derived from the quantitative inequality of the counter values in any transaction purporting to affect the exchange of two or more species which belong to the same genus and are governed by the same legal cause. Deferred completion of the exchange of such species, or even of species which belong to different genera but are governed by the same cillah (legal cause), is also riba, whether or not the deferment is accompanied by an increase in any one of the exchanged counter values.

Al-Riba: Its Definition

Riba:
Deferment in the time of exchange (riba al-nasiah) Quantity of one of the counter values (riba al-fadhl)
al-Riba

Time Factor Ribawi items

Quantity Factor

Prohibition of Riba
Riba has been prohibited in Islamic Shariah on the basis of the Quranic Revelation in three stages:
First stage: al-Rum, 39 Second stage: al-Nisa, 161 Third stage: Ali cImran, 130 Fourth stage: al-Baqarah, 275-281

Prohibition of Riba
First stage: al-Rum, 39:
That which you give as Riba (interest) the peoples wealth increases not with God; but that which you give in Charity, seeking the goodwill of God, multiplies manifold. [ 30 : 39]

Second stage: al-Nisa, 161:

And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other peoples property, We have prepared those among them who reject faith a greivous punishment. [4: 161]

Third stage: Ali cImran, 130:

o believers, take not doubled and redoubled interest, and fear God so that you prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy [3: 130-2]

Fourth stage: al-Baqarah, 275-281:

Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil; that is because they say: Trade is like interest while God has permitted trade and forbidden interest. [2: 275]

Prohibition of Riba in the Hadith

From Jabir: The Prophet (pbuh) cursed the receiver, the payer of interest, the one who records it and the two witnesses of the transaction and said: They are all alike (in guilt) [Reported by Muslim, Tirmidhi and Ahmad] Jabir b. Abdallah said: The Prophet (pbuh) said, All of the riba of Jahiliyah is annulled. The first riba that I annul is our riba, that accruing to Abbas b. Abd al Muttalib; it is being cancelled completely. [ Reported by Muslim and Ahmad : Last Sermon of the Prophet (Pbuh)]

Classification of Riba
al-Riba Al-Duyun / Al-Jaliyy Al-Quran / Al-Jahiliyyah / Al-Nasiah*(excess is charged for deferment)

Al-Buyuc / Al-Khafiyy / Al-Sunnah

al-Fadl

al-Nasiah* (deferment of one of the counter values)

Rules of Exchange of Ribawi Materials

Exchanges Rules
1) Ribawi Materials of the same kind of the 1. Materials must be of the same same basis: weight, measure or number of (5 grams of 916 gold for 5 grams of 750 gold; units. 10 grams of Bashmoti Rice for 10 grams of A1 Rice) 2. Payment must be on cast terms 2) Ribawi Materials of different kinds of the 1. Difference in weights, same basis: measurements or number of (5 grams of gold for BDT 4000/; units allowed. BDT 70,000/ for USD 1000/; 10 kgs of rice for 15 kgs of wheat; 2. Payment must still be on cast 1 tonne of palm oil for two tonnes of sugar) terms 3) Ribawi Materials of different kinds of different bases: 10 kgs of dates for 1 gram of gold; 30 kgs of wheat for 10 USD; 1 tonne of palm oil for 30,000/ BDT 1. No Rules are imposed (Difference in weights, measurements or number of units are allowed).

Types of Modern Day Interest

The modern forms of interest of two types: Interest on loans:

This is main type of interest which is clear and easy to understand for everyone; Lending and borrowing on interest is simple example of it like Banking interest; Under this way cash is advanced to a borrower for receiving interest from him;

Interest on debts:
Debt originates with a loan and also with a sale and other transactions wherever the payment of money is deferred to a future date. The Quranic prohibition of Riba in debt, no increment is permissible when the debt is repaid or settled; The settlement of debt sometimes involved its replacement with a new increased debt and this has been condemned as the worst form of Riba or Riba al-jahiliyya;

Basic Difference between Islamic and Conventional Modes of Finance Conventional

money Bank money + money (interest) Client

Specific case of Haram Earnings

In Business:
Trading in Alcohol Drug Dealing and Trading Sculptors & Artists Production & Sale of Haram Goods Prostitution Al-Gharar
Use of Incorrect weights & measures Hoarding and Price Manipulation Adulterated & Spoiled Products Swearing to support a sale Purchase of stolen property Prohibition of Interest or Riba

Prohibited Form of Sharecropping

Mukhabarah is disallowed

Others: Bribery, Theft, Beggary,

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Major Principles of Islamic Business

1. Both buyers and sellers are of sound mind. 2. Both buyers and sellers willingly and knowingly undertake the Allah owns and controls all transaction. His creations. Muslim 3. Sellers to give correct and businessmen are allowed to accurate measure and weight. utilize all these as long as 4. Goods must as much as possible they obey His commands. be traded in an open market. All mens actions are 5. Not to withhold from people things accountable to Allah who has that are their due. promised that even the 6. To be contended with reasonable smallest good deed will be and fair monetary profit. 7. Commodities sold and money recognized and rewarded. paid to be lawfully acquired. Based on these, Islam lays down the 8. Goods not to be sold before following business principles: obtaining their possession. 9. Good & services to be transacted are not prohibited by Islam. 10.Goods & services to be transacted are beneficial to 4/30/2012 36 @Mokhter_Ahmad, IIUC-DC consumers. Muslim businessmen should be always aware of two basic tenets of Islam:

Minor Principles of Islamic Business

1. Encouragement to have proper contracts in business dealings. 2. Settlement of disputes through arbitration. 3. To agree on specifics when making payment in advance. 4. Goods sold are suitable for consumption. 5. Obligation to repay loans. 6. The necessity of business knowledge. 7. To provide courteous service.
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ISLAMIC MODES OF FINANCING

Islamic mode of financing:

Islamic modes of financing mean the way of supplying funds that is acceptable to Islam; As we have learned Islamic mode of financing could not be based on lending of money as lending of money is not a remunerative way of financing; Prohibition of interest does not allow utilization of loan/lending as mode of earning; Therefore, there must be a way of funding that does not contain element of interest; There are three type of financing available under Islamic concept of funds supply: Trade-based modes of financing; Rental-based mode of financing; and Participation-based of financing;

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PRODUCT TREE OF ISLAMIC FINANCE

Islamic Modes of Finance

Partnership Based Modes

Trade Based Modes

Rental Based Modes

Musharaka Mudaraba
Partnership

Profit-Sharing

Murabaha Musawama Salam Istisna

Ijarah Diminishing Musharaka

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Financial activities
Capital provisioning
Exchange of goods or services
Ijarah (services rendering)

Murabahah (cost disclosed sale) Musawamah (simple bargain sale) Salam (future sale) Istisnaa' (Manufacturing Sale)

Nonremunerative Loan Gift

Remunerative (partnership based financing) Partnership

Permanent

Temprory
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TRADE-BASED MODE OF FINANCING

Trade-based mode of Financing means a way of financing in which Islamic banks provide financing through sale and purchase of commodities and assets; Trade-based modes are secure modes because they create debt and payables upon debtors/customers; Islamic banks buy a commodity/asset (directly or through its agent) from the market and sells it to customers on deferred payment basis (instalments); The agent may be a an employee on Islamic bank, a third party or the customer himself as well; All conditions should be observed carefully in sale financing.

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TRADE-BASED MODE OF FINANCING

There are four kinds of Trade-based modes of financing which are very common:
MURABAHAHA; Cost+profit transaction in which both are disclosed to the buyer; MUSAWAMAH; A simple sale transaction in which a price is quoted to customer without any disclosure to the buyer; SALAM; A kind of sale in which price is paid in advance for a specific commodity to be delivered in future; ISTISNAA'; A sale transaction for assets that require manufacturing. 42

RENTAL-BASED MODE OF FINANCING

There are four kinds of Trade-based modes of financing which are very common:
IJARAH;

Ijara is based on a wage paid for the delivery of a service, use of equipment, use of real property The assets remain the property of the Islamic bank to put them up for rent every time the lease period terminates so as not to remain utilized for long periods of time The bank benefits from the returns from leasing The lessee benefits by covering immediate demand without bearing large capital cost

Areas of application:
High cost expensive assets (Aircrafts & Ships)

Industrial equipment, agricultural machinery, and transportation

DIMINISHING MUSHARAKAH;

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PARTICIPATION-BASED MODE OF FINANCING

There are two kinds of participatory modes of financing which are very common:
MUSHARAKAH;
All parties share in the capital All parties share profits as well as losses Profits are distributed as per agreed ratio Loss is borne by the parties as per capital ratio Every partner is agent of other;

MUDARABAH;
One partner (Rab al Mal) contributes capital and the other (Mudarib) contributes his skills or services to the venture Venture may for a fixed period or purpose Both share profit in pre-agreed ratio Loss is borne by Rab al Mal only, Mudarib loses his services;

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MUSHARAKAH
PROFIT Rs. 100 May be in any agreed ratio Rs. 40

Rs. 60

Rs.1000

Rs.1000

PARTNER A

VENTURE

PARTNER B

Rs. 50 LOSS Rs.100

Rs. 50

Must be according to capital ratio

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MUDARABAH
PROFIT 60 % 40 %

CAPITAL

SERVICES

RABBUL MAL

VENTURE

MUDARIB

ALL MONETORY LOSS LOSS

LOSS OF SERVICES

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Takaful and its Different Models

Many models of Takaful are practiced the world over; Pure Mudarabah model:

The participant and the operator enter into a Mudarabah contract from the beginning of the relation, for indemnification and share of the underwriting results;

Wakalah Model (hybrid of Wakalah & Mudarabah): An agency agreement is made between an individual willing to participate in the fund and the operator working as the manager of the fund; The operator earns an upfront deductible fee and shares the profit of investments, it does not share the results of underwriting; Wakalah based on Waqf (trust): The share-holders create a Waqf fund to extend the help to those who want cover against financial losses; The participants donate to the fund and the operator manages the fund. All underwriting results belong to the fund which itself has a legal entity;

WALLAHU ALAM

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