In our daily lives, Islam permits its followers to participate in various business and financial transactions, acknowledging their importance. We engage in these transactions regularly and also make long-term commitments. As Muslims, we adhere to the teachings of the Qur'an and the Sunnah as our primary sources and principles. It is essential to ensure that our actions in business and finance align with these teachings.
The rules and guidelines are established to uphold the objective of Shari’ah, which is aimed at maintaining the public interest. Muslims must adhere to these rules to maintain a harmonious life and seek Allah’s blessings. These rules entail avoiding three main elements in any financial transaction: Riba, Gharar, and Maisir. Unfortunately, these elements continue to exist in many modern conventional transactions.
Despite the fact that some Musl
...ims still engage in prohibited activities, such as dealing with Riba, there are various reasons why they persist. Some individuals may lack a full understanding of the concept and prohibition of Riba. Meanwhile, others are aware of its wrongfulness but choose to disregard it and make excuses due to their reluctance to let go. The subsequent pages offer a comprehensive explanation of these forbidden elements, including their definition, origins of the prohibition, and further relevant explanations.
By reading this, people can gain more knowledge about their engagements, become more aware, and start avoiding certain elements. The Main Prohibited Elements: 1. The element of Riba - Definition of Riba: According to Sheikh Shady Alsuleiman[1], Riba refers to usury or interest. In Arabic, the word Riba (???? ) means increase, whether in a good or bad thing. In Shari’ah terminology (Islamic law), Riba can b
defined as an increase in either one of two items in a transaction or an increase in the return of a debt.
Riba is one of the seven major sins (Al-Saba al-Mubiqat) which include believing in gods other than Allah, magic, murder, riba/usury, unlawfully taking orphans’ money, fleeing from the battlefield, and accusing chaste, pious women. The prohibition of Riba can be found in the Qur’an and the Sunnah through multiple verses revealed on stages. One of these verses is Surah al-Rum, verse 39, which states that giving Riba does not increase wealth with God, but charitable giving seeking the goodwill of God multiplies manifold.
The Prophet advised that when someone lends money and the borrower offers a dish or ride on an animal as a way to repay, the lender should decline unless they both have a history of exchanging such favors. In the past, during pagan times, if someone owed money and the deadline passed, the creditor would demand payment of either the original amount or an additional fee.
If the payment was made, it was considered acceptable. However, if not, the lender would increase the loan amount and extend the repayment period once again. During his final Hajj, which attracted a large gathering of his Companions, the holy Prophet (pbuh) explicitly announced the prohibition of Riba. The Prophet proclaimed: "All forms of Riba are eliminated; you truly possess the capital that is rightfully yours; do not unjustly harm others and you will not be harmed in return. Allah has issued His complete command to prohibit Riba. I commence by nullifying all outstanding amounts owed to my uncle Abbas as a result of
Riba."
He then, on behalf of his uncle, forgave the entire amount of interest due on his loan capital from his debtors. 5. The holy Prophet (pbuh) stated, "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt - like for like, equal for equal, and hand to hand; if the commodities differ, then you may sell as you wish, provided that the exchange is done in person." 6. Bilal (Gbpwh) once brought some high quality dates to the Messenger of Allah (pbuh), and the Prophet (pbuh) asked about their origin.
Bilal explained that he traded two volumes of lower quality dates for one volume of higher quality dates. The Prophet (pbuh) warned against this practice, saying it is a form of forbidden Riba. Instead, he advised selling the first type of dates and using the money to buy the higher quality ones. A man sent by the holy Prophet (pbuh) to collect Zakat/Ushr from Khyber brought exceptionally good dates. When the Prophet asked if all the dates from Khyber were equally good, the man replied that they were not and mentioned swapping a Sa’a (measure) of fine quality dates for two or three of the other kind.
The holy Prophet advised against exchanging lower quality dates for better ones, instead suggesting selling the lower quality dates for dirhams and using the dirhams to purchase higher quality dates. The weights of the dates exchanged should be equal. Riba can occur in both loan/debts and sale/exchange transactions. We will explore how this happens and the differences between these two types of Riba in the following explanation. Riba
Al-Nasiah refers to Riba in loan/debts.
Riba Al-Nasiah, also referred to as deferred usury, is defined by Kuwait Finance House[3] as the act of prolonging the repayment period in exchange for an extra payment of money. This occurs when one person lends money to another, allowing a specific timeframe for repayment but with the requirement that an additional amount must be paid back as well. This additional amount can either be a fixed sum or a percentage of the original loaned amount. Furthermore, Sheikh Shady Alsuleiman explains that the condition set by the lender does not necessarily have to be in monetary form; it can also take the form of a benefit.
In Islam, it is considered a charitable act to lend money to someone and give them time to repay. However, the borrower may be required to sell their asset to the lender. It is important for the lender not to take advantage of this situation. Another concept in Islamic finance is Riba Al-Fadl, which involves taking excessive amounts in exchange for commodities with varying weights, as defined by Kuwait Finance House [4].
This is a link to the fifth Hadith mentioned earlier. The commodities referred to by Kuwait Finance House are the 6 Ribawi items, which are divided into two groups: Money (Gold and Silver) and Staple Food (Wheat, Barley, Dates, and Salt). According to the ruling, the trading or exchanging of these items must adhere to the following guidelines:
- Goods of the same group and kind must be exchanged equally and immediately (e.g. Gold for Gold, Wheat for Wheat).
- Goods of the same group but different in kind must be exchanged immediately
(e.g. Gold for Silver, Wheat for Barley).
- Goods of different groups and kinds are not subject to equality or promptness (e.g. Gold for Dates, Silver for Salt).
The prohibition of Riba (interest) is not exclusive to Islam; it is also present in other revealed religions, albeit with varying rules or practices. La Riba Bank cites some verses in the Bible and Torah that contain prohibitions against Riba:
1. Riba in the Bible[5]:
- Deuteronomy, verses 19-20.The text emphasizes the prohibition on lending money at interest to one's brother, as expressed in the Torah. It states that lending with interest is allowed for foreigners but not for brethren, and that by abiding by this rule, the Lord will bless one in all endeavors in the promised land. Similarly, it highlights a verse from Proverbs which talks about accumulating wealth through interest, favoring those who are kind to the poor. The text proceeds to mention another instance from Exodus where lending to the poor among God's people without charging interest is mandated. Additionally, it mentions the requirement of returning a neighbor's garment taken as collateral by nightfall and emphasizes compassion towards the needy. Lastly, it introduces the concept of Gharar, explaining that its Arabic root word is "gharra".
Gharra, also known as khada’a, refers to fraudulent or deceptive practices. In this context, gharar is associated with the concepts of risk, uncertainty, and hazard. Essentially, gharar involves the sale of items that are likely to have uncertain existence or characteristics. This risky nature can lead to possible destruction or loss, thus making such trade resemble gambling. The technical definition of gharar involves the uncertainty and/or ignorance of one or both parties
in a contract regarding the substance or attributes of the object being sold, as well as doubts about its existence and availability at the time of the contract.
Gharar, unlike ribaa, lacks a precise definition in Islamic framework. Although gharar is forbidden, a certain degree of uncertainty is still allowed, depending on its significance in the transaction. However, excessive gharar is completely prohibited. Gharar is categorized into three types - gharar yasir representing small gharar, which is acceptable in Islamic law due to its minor risk and insignificant impact on the transaction.
The text explains the three categories of gharar - gharar yasir (minor), gharar mutawassit (moderate), and gharar fahish - which have been defined by scholars. These categories determine the impact of gharar on the validity of a contract in terms of Syariah perspective. The conditions of gharar can vary based on factors such as the environment, customs, and technology. One condition that can lead to gharar is uncertainty regarding the type, shape, quantity, weight, and sum of the material involved in a transaction.
There are several reasons why gharar can occur, including the time of delivery of the material, uncertainty in price value and payment method, as well as ambiguity in ownership and asset owner capacity. Despite the absence of a specific verse in the Quran regarding the prohibition of gharar, various hadiths mention its prohibition.
In Al Quran, it is stated that when engaging in transactions with future obligations in a fixed period of time, it is necessary to reduce them to writing so that both parties are clear on the terms (The Holy Qur'an 2:282). This verse can be related
to the prohibition of gharar. According to a hadith, Allah forbids trading with uncertainty (Al-gharar) (rumored by Imam Muslim). The Prophet also prohibited the sale of goods without proper explanation (al-gharar) (rumored by Imam Bayhaqi). Gharar exists in contracts, particularly in insurance contracts, where one party may acquire all the profits while the other party may not obtain any profit at all. This imbalance is considered gharar. Leading Muslim scholar Ibn Taimiyah reasoned that gharar exists in contracts because one party gains profit while the other does not. To avoid uncertainty, the prohibition on gharar suggests that investment gains and losses should be apportioned fairly. Besides insurance contracts, gharar can also be present in two sales in one transaction, down payment (‘Arbun) sales, as well as sales involving "pebble," "touch," and "toss."
This passage discusses a variety of cloth items, including those that will receive a thrown stone (Bai' al Hasat), as well as clothes with unspecified qualities, sizes, and designs. It also mentions the suspended sale (Mu'allaq) and future sale. [8]
According to Islamic jurisprudence, the presence of gharar in a financial contract can render it invalid. Gharar refers to uncertainty or ambiguity in the contract. If the contract involves a substantial amount of gharar and there is no genuine need for it, it will be deemed invalid. However, if the insurance is necessary for safeguarding the insured's interests, it can still be considered valid despite the presence of gharar. Takaful, a cooperative-based insurance contract, can offer protection while avoiding uncertainty. The elements of gharar in a contract include lack of knowledge about the object's characteristics, quantity, specific identity, or deferred payment terms. It
also encompasses situations where the object cannot be delivered, contracts involving nonexistent objects, and instances where the object is not seen. An example of gharar is the sale of an item that the seller does not yet own and is difficult to acquire, like a horse that has escaped or a lost car that has not been found yet.
A. Sale of an item that lacks proper description.
B. Sale of an item with an undetermined price.
C. Sale of an item with a price dependent on circumstances.
D. Sale of an improperly described item that may lead to disputes (e.g., selling a garment in sealed packaging without allowing inspection).
E. Sale of an item with ambiguous conditions (e.g., conditional on a friend's arrival or price increase).
[10] 5. The reasons behind the prohibition of Gharar are numerous. First, it aims to ensure complete consent and satisfaction of all parties involved in a contract, as stated in the following Quranic verse: "O you who believe! Do not consume one another's goods unjustly unless it is a trade conducted with your mutual consent" [4:29]. Without the full consent of all parties, a contract may be considered invalid.
Furthermore, complete consent can only be attained through certainty, comprehensive understanding, complete disclosure, and transparency regarding all aspects included in the transaction. Additionally, the inclusion of gharar in a commercial contract may result in unfairness, exploitation, and hostility among the parties involved. To prevent gharar, it is essential to verify the existence of both the subject and prices of the sale and ensure that the parties are capable of delivering the subject matter.
Additionally, it is important to specify the precise characteristics and amount
of the subject matter's counter values. The agreement from both parties to continue or terminate the contract is influenced by the quantity, quality, and delivery date of future goods. Conversely, the purchaser should not blindly undertake any actions or obligations related to the contract without fully understanding the potential risks and consequences. Furthermore, this section discusses the definition of Maisir/Qimar element.
The term Maisir, which refers to the game of chance, originates from four different roots. The first root, yasara, signifies drawing lots by arrows and becoming gentle. Alternatively, yasar means affluence, as Maisir brings about profit. Additionally, yusr means convenience or ease, as it allows for earning without exertion. Lastly, yasr means dividing a thing into shares and distributing them. All these connotations can be observed in the word maisir. Imam Malik (Gbwh) distinguishes two categories of gambling: a game of chance played for fun and a game of chance involving gambling.
Gambling refers to any activity that involves making a bet, and every activity related to gambling is called maisir. Maisir and qimar are Arabic words that have the same meaning, which is gambling. Ibn Kathir explains that in Surah Al-Ma'ida: 90, maisir has the same meaning as qimar (gambling)[11]. Gambling is a game in which participants bet property or material possessions, and the winner takes the property or material from the loser. The prohibition of maisir is mentioned in the Qur’an and Sunnah.
In Al Qur’an, there are multiple verses that discuss the prohibition of gambling or maisir. Among these verses is one that states, "They ask thee (O’ Prophet) about Khamr(intoxicants) and games of chance (gambling). Say: In both of them
there is great harm although there is some advantage as well in them for men, but their harm is much greater than their advantages." (4:219) Another verse instructs the believers, "O’ ye who believe, verily wine and games of chance (ungodly) shrines, and divining devices are abomination of Satan’s work. Avoid them that ye may prosper."
The verses (5:90, 91) warn against Satan's actions of sowing hatred and strife among people through wine and games of chance, driving them away from the remembrance of Allah and prayer. It is advised to abstain from such activities as they carry sinful consequences and only offer insignificant benefits. This manipulation by Satan to incite enmity and animosity within hearts and divert attention from Allah's remembrance is a reprehensible act.
The prohibition of maisir has been declared obligatory. Additionally, there are several hadith that emphasize its prohibition. The Holy Prophet (peace and blessings of Allah be upon him) stated: "Whosoever says to his Companion: Come let us play a game of haphazard, should give alms (as atonement)." (Bukhari and Muslim) This illustrates that even inviting someone to gamble is considered a serious sin that requires charitable atonement. Therefore, participating in gambling is strictly prohibited and considered an even greater sin.
The Holy Prophet (peace and blessings of Allah be upon him) stated that playing backgammon is equivalent to dyeing one's hands with the flesh and blood of swine (Muslim). There is a clear connection between Maisir and Gharar, both of which are prohibited in Al Quran and hadith. Gambling involves risk, known as gharar, as the outcome is uncertain. Therefore, gambling is prohibited as the gambler is unaware of
the results.
A person may risk their money in the hopes of gaining a large sum or risk losing it altogether, resulting in uncertainty about the outcome. One example of maisir, a form of gambling, is playing the lottery. Islamic scholars universally agree on its classification as gambling. However, there have been debates and legal opinions (fatwa) suggesting that insurance, forward trading, and financial derivatives also fall under the category of gambling. These activities involve paying something valuable for a chance to win a prize.
The three fundamental components of gambling are prize, consideration, and pure chance. Prize encompasses valuable items such as money, physical objects, or rewards. Consideration refers to the payment needed to participate in the gambling activity. Pure chance signifies the likelihood of winning and contrasts with pure skill. Games like chess rely on skill while slot machines rely on chance. The main distinction between gambling and activities that involve consideration but not gambling is the presence of pure chance. In a lottery, individuals have no control over the outcome.
He acts as a mere spectator, relying on pure chance to win the lottery, which is considered an example of gambling. The main reason for the prohibition of maisir is that money should be earned through hard work and effort, such as acquiring knowledge, rather than relying solely on chance. Earning money purely by chance can lead to a life filled with despair, as one may falsely believe they will eventually win the lottery despite the extremely low odds. This is a problem faced by those who are desperately poor. Additionally, it can lead to a reckless attitude towards risk, as individuals
may be willing to gamble their money despite the inadequate rewards. However, gambling involves one person gaining something while another person loses solely based on chance or speculation. Material gains or losses in this manner are prohibited in Islam. On the other hand, general business or trade speculations are not prohibited since they require effort and are not purely based on chance like gambling.
According to Muhammad Ayub, it is forbidden to include Dharar, Khalabah, and Najash in any financial transaction. Dharar, which means harm or detriment, must be avoided in order for all parties involved to stay protected. For instance, in mudharabah contracts, if the capital owner lacks knowledge or experience in the business they are investing in, they may find themselves at a disadvantage when presented with data or information. This lack of understanding can result in making incorrect investment decisions.
To avoid harm, the state should provide general information about business activity and guide investors to protect them from potential disadvantages. Misleading marketing, as warned by the Holy Prophet (pbuh), can lead to destruction in the long run. Therefore, sellers should refrain from excessive swearing or exaggeration while promoting their products.
The act of dishonesty and manipulation can be observed when a seller falsely promotes a product as having a higher quality than its actual worth. This deceptive practice occurs when the true quality of the product is A, but the seller markets it as AA or AAA. Another unethical behavior, known as Najash Najash, involves artificially inflating the price of a commodity without any intention to purchase it. For instance, in an auction setting, an individual may employ their acquaintances to
manipulate the bidding process by feigning interest in acquiring the asset, thereby driving up its price. As a result, other bidders may offer even higher amounts, leading to the sale of the asset at an exorbitant price. Such practices inflict harm upon society and are highly unethical.
The Prophet (pbuh) warned that those who manipulate prices in the market will face punishment from God and be sent to Hell. Hence, it is essential for Muslims to adhere to Shari'ah law and avoid specific aspects of financial transactions. The main forbidden practices include Riba, Gharar, and Maisir. Riba refers to usury or interest, which involves an increase in loan repayment (Riba Al Nasiah) or exchanging ribawi items with additional value (Riba Al Fadl).
Riba is forbidden not only in Islam, but also in Christianity and Judaism. Gharar refers to the sale of uncertain items that may lead to loss or destruction, resembling gambling. This can occur in both the terms and essence of the contract or the object of the contract. Maisir is considered the most severe form of Gharar, resembling a game of chance or gambling. In addition to these main prohibitions, Islam also prohibits Dharar, Khalabah, and Najash. Dharar refers to harm that may occur to one of the parties involved in a transaction due to unfavorable circumstances. Khalabah occurs when a seller excessively promotes their product. Najash occurs when someone interferes in the market without any intention to buy, solely to drive up prices. The Qur’an and the Sunnah clearly state the prohibition of these elements. To comply with Shari’ah, Muslims must ensure that their financial transactions are free from these elements. By adhering
to the rules and guidelines outlined in the Qur’an and the Sunnah, Allah will bless our lives and any gains we obtain.
