Table Of ContentIslamic Financial Contracts
Islam encourages business and financial transactions as a way of securing the basic needs for
all human beings, but these need to be conducted in accordance with the principles contained
in the Qur’ān and Sunnah. However, these legal concepts are not classified subject-wise,
and the verses on commercial law, like all other topics, are scattered throughout the Qur’ān,
making it difficult for readers to gain a full understanding of the topic. This, therefore, is the
first comprehensive book to demystify Islamic contract law and specifically Islamic financial
contracts, and to examine its roots and history.
The book is written in a clear style to allow for a greater understanding of the more
challenging and misunderstood areas pertaining to Islamic business and financial contracts.
It also contributes a series of chapters which address the market niche and need, concerning
Shariah compliance for Islamic financial products and services. The book is divided into 16
chapters in order to provide a holistic and thorough overview of Islamic law of contract. It
covers the objections and misconceptions surrounding Islamic business and financial contracts.
It also includes the key features and guiding principles of Islamic law of contract and offers
technical know-how, illustrating the concept of formation of a contract, as well as the essential
elements of a valid contract. The authors also offer a discussion on the system of options under
Islamic business and financial contracts and potential solutions to breach of contracts.
The book will serve as a handy reference for scholars and students of Islamic business and
finance and Islamic commercial law and will also be beneficial for practitioners as well as legal
and judicial officers. It will open new doors for further research in the field of Islamic financial
contracts.
Hussain Mohi-ud-Din Qadri, PhD, is a Deputy Chairman of the Board of Governors of Minhaj
University Lahore and an Associate Professor at the School of Economics and Finance at MUL.
He is also the President of Minhaj-ul-Quran International; Chairman of the Minhaj Education
Society (running 650 schools and colleges all over Pakistan); Chairman of Aghosh Orphan Care
Homes; Chairman of Al-Mawakhat Microfinance; and Chairman of Minhaj Halal Certification.
He has also been affiliated with the University of Melbourne Australia as Senior Fellow for
many years. Dr. Qadri is an author of thirty books, writer of over 50 research articles and a
reputed international speaker.
Nasir Iqbal is a senior Advocate High Court. He is Legal Advisor of Minhaj University, Lahore,
Minhaj Halal Certification and Al-Mawakhat Microfinance. He is also managing partner in law
firms “ABNAQ & Co. Advocates/Solicitors/I. P Attorneys” and “Nadeem Saeed & Co.” dealing
in civil law and commercial law. He is also a visiting lecturer for commercial and business law
in Minhaj University. He has more than 20 years’ experience in the field of law and is an expert
in the area of business and financial contracts/commercial law and intellectual property laws,
particularly in trademark and copyright laws.
Islamic Business and Finance Series
Series Editor: Ishaq Bhatti
There is an increasing need for western politicians, financiers, bankers, and indeed
the western business community in general to have access to high quality and
authoritative texts on Islamic financial and business practices. Drawing on exper-
tise from across the Islamic world, this new series will provide carefully chosen
and focused monographs and collections, each authored/edited by an expert in
their respective field all over the world.
The series will be pitched at a level to appeal to middle and senior manage-
ment in both the western and the Islamic business communities. For the manager
with a western background the series will provide detailed and up-to-date brief-
ings on important topics; for the academics, postgraduates, business communities,
manager with western and an Islamic background the series will provide a guide
to best practice in business in Islamic communities around the world, including
Muslim minorities in the west and majorities in the rest of the world.
Islamic Monetary Economics
Finance and Banking in Contemporary Muslim Economies
Edited by Taha Eğri and Zeyneb Hafsa Orhan
COVID-19 and Islamic Social Finance
Edited by M. Kabir Hassan, Aishath Muneeza and Adel M. Sarea
Islamic Fintech
Edited by Sara Sánchez Fernández
Islamic Financial Contracts
A Research Companion
Hussain Mohi-ud-Din Qadri and Nasir Iqbal
Benchmarking Islamic Finance
A Framework for Evaluating Financial Products and Services
Edited by Mohd Ma'Sum Billah
For more information about this series, please visit: www .routledge .com /Islamic
-Business -and -Finance -Series /book -series /ISLAMICFINANCE
Islamic Financial Contracts
A Research Companion
Hussain Mohi-ud-Din Qadri
and Nasir Iqbal
First published 2021
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2021 Hussain Mohi-ud-Din Qadri and Nasir Iqbal
The right of Hussain Mohi-ud-Din Qadri and Nasir Iqbal to be identified as
authors of this work has been asserted by them in accordance with sections
77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Qādrī, Ḥusain Muḥīuddīn, author. | Iqbal, Nasir, author.
Title: Islamic financial contracts: a research companion/Hussain
Mohi-ud-Din Qadri and Nasir Iqbal.
Description: Milton Park, Abingdon, Oxon; New York, NY: Routledge,
2021.|
Series: Islamic business and finance series | Includes bibliographical
references and index.
Identifiers: LCCN 2021001015 (print) | LCCN 2021001016 (ebook)
Subjects: LCSH: Finance (Islamic law) | Finance—Law and legislation. |
Finance—Religious aspects—Islam. | Contracts (Islamic law)
Classification: LCC KBP940.2 .Q23 2021 (print) | LCC KBP940.2 (ebook) |
DDC 346/.08—dc23
LC record available at https://lccn. loc .gov /2021001015
LC ebook record available at https://lccn. loc .gov /2021001016
ISBN: 978-1-032-00506-5 (hbk)
ISBN: 978-1-032-00509-6 (pbk)
ISBN: 978-1-003-17447-9 (ebk)
Typeset in Times New Roman
by Deanta Global Publishing Services, Chennai, India
Contents
Introduction xii
1 Some basic legal terminologies and concepts 1
1.1 Concept of Islamic law 1
1.2 Shariah 1
1.3 Qur’ānic basis of Shariah 2
1.4 Fiqh 2
1.5 Qur’ānic and Sunnah basis of fiqh 3
1.6 Islamic jurisprudence 5
1.7 Islamic concept of law 6
1.8 The significance of trade and commerce in Islam 7
1.9 Underlying philosophy of commercial transaction in Islam 9
Notes 11
2 Historical evolution of contracts and codification of Islamic
law of contract 14
2.1 Historical evolution of contracts 14
2.2 Pre-Islamic era 14
2.3 Post-Islamic era 15
2.4 The historical origin of the English law of contract 17
2.5 Codification of Islamic law of contract 19
2.6 Definition of code and codification 19
2.7 Shariah and other legal systems 20
2.8 Reasons for no codifications till the date 20
2.9 Origin is different 20
2.10 Nature is different 21
2.11 Sources of law are different 21
2.12 Territoriality aspect is different 21
2.13 Two views about codification 22
vi Contents
2.14 Efforts of codifications 23
2.15 Efforts in the sub-continent 24
2.16 Efforts in Java, Indonesia 24
2.17 Efforts by the Ottoman Empire 25
2.18 Efforts in Egypt 26
2.19 Efforts in Saudi Arabia 26
2.20 Malaysia and other countries who adopted
English law of contract 27
Notes 27
3 General Theory, nominate contract, freedom of contract and
the juristic person 30
3.1 Nominate contracts 30
3.2 The general theory of contract 32
3.3 Freedom of contract 35
3.4 The juristic person 40
Notes 43
4 Key features of business and guiding principles of
Islamic contract law 46
4.1 Key features of business 46
4.2 Earning a living 46
4.3 Moderation in earning 48
4.4 Freedom to work 49
4.5 Creation of wealth 49
4.6 Sharing personal resources 50
4.7 Timely payment of wages 50
4.8 Social welfare 51
4.9 Justice and benevolence 52
4.10 Guiding principles of Islamic contract law 54
4.11 God-made laws 54
4.12 Mutual consent is necessary 55
4.13 Sanctity of contracts 55
4.14 Awareness of rights and duties 55
4.15 Principle of general permissibility 56
4.16 Justice, equity and equality 56
4.17 Prevention of violence and excessive gains 57
4.18 Removal of difficulty 57
4.19 The prohibition of riba (interest) 58
Contents vii
4.20 The prohibition of gharar (risk) 59
4.21 The prohibition of Maysir (gambling) 59
4.22 The prohibition of fraud and cheating 59
4.23 The prohibition of two mutually inconsistent contracts 59
4.24 A contract should not be contrary to Maqasid al-Shariah 59
4.25 The prohibition of dealing in certain forbidden
commodities 60
4.26 Prohibition of trickery in contracts 60
4.27 Encourage and development of business 61
4.28 Principle of profits and loss sharing 61
4.29 Public welfare and no exploitation 61
Notes 62
5 Meaning and definition of contract in Islamic law 65
5.1 Literal and lexiconic meaning 65
5.2 Legal and juristic meaning 66
5.3 Technical and jurisprudential definition of aqd 66
5.4 “Contract” as defined in different codes of Islamic
countries 68
5.5 Some similar terms to aqd 69
5.6 Distinction between contracts and some other terms 70
5.7 Sunnah basis of contract 75
5.8 Purposes of the Shariah doctrines of contract 77
Notes 79
6 Constitution or formation of a valid contract 83
6.1 Essential elements of a contract 83
Notes 97
7 Parties and their legal capacities 100
7.1 Introduction 100
7.2 Classification of Ahliyyah or different aspects of Ahliyyah 100
7.3 Ahliyyah al-Wujub 101
7.4 Types of Ahliyyah al-Wajub 101
7.5 Ahliyyah al-Ada’ 101
7.6 Types of Ahliyyah al-Ada 102
7.7 The stages of capacity under Islamic law 103
7.8 How to determine the capacity 104
viii Contents
7.9 Division of capacity for the purpose of transactions 105
7.10 Circumstances or factors which prevent the legal
capacity of a person 106
Notes 109
8 Subject matter 110
8.1 Conditions for a valid subject matter 110
8.2 Subject matter should be fit for transaction 110
8.3 It should be a “property” or “usufruct” 111
8.4 It should have some value 111
8.5 It should be ownable 111
8.6 No charge should be attached 111
8.7 Existence of subject matter 112
8.8 Possession and deliverability of subject matter 113
8.9 Knowledge of the subject matter 114
8.10 By inspection or examining 114
8.11 By description 115
8.12 Legality or suitability of subject matter 115
8.13 The object of a contract 115
Notes 116
9 Mutual consent and intention to create legal relationship 117
9.1 Free mutual consent 117
9.2 Literal meanings 117
9.3 Definition 118
9.4 Consent under Islamic law of contract 118
9.5 Qur’ānic and Sunnah basis of mutual consent 118
9.6 Ways/modes to express the consent 119
9.7 Factors which vitiate the mutual consent 121
9.8 Intention to create legal relation 122
9.9 Offer and acceptance 124
9.10 Free will (iradah) 124
9.11 Choice (khiyar) 124
Notes 125
10 Vitiating factors 127
10.1 Mistakes 127
10.2 Literal meaning 127
10.3 Definitions of mistake 128
10.4 Qur’ānic and Sunnah basis of mistake 128
Contents ix
10.5 Classification of mistake 128
10.6 Legal effects of the contractual mistake 128
10.7 Rendering the contract void 128
10.8 Rendering the contract voidable 129
10.9 Misrepresentation 130
10.10 Qur’ānic verses regarding misrepresentation 130
10.11 Kinds of misrepresentation 130
10.12 Legal effect of misrepresentation 131
10.13 Coercion (ikrah) 131
10.14 Literal meaning 131
10.15 Definitions 132
10.16 Qur’ānic verses regarding coercion 132
10.17 Ahadith regarding coercion 133
10.18 Conditions for the presence of coercion in a contract 133
10.19 Kinds of ikrah 134
10.20 Effects of a contract under coercion 134
Notes 135
11 Forbidden elements 137
11.1 Introduction 137
11.2 The relation between purposes and prohibitions in Islamic
law of contract 137
11.3 Usury/riba 138
11.4 Gharar 146
11.5 Qimar and maysir (gambling) 151
11.6 Fraud and cheating 154
11.7 The contracts contrary to maqasid al-Shariah 166
11.8 Two mutually inconsistent contracts or contingent
contracts 167
Notes 170
12 Classification of contract 175
12.1 Classifications of the contract according to its nature 175
12.2 Unilateral contract (‘aqd infiradi) 175
12.3 Bilateral contract (‘aqd thuna’i) 176
12.4 Multilateral contracts 177
12.5 Quasi-contract (shibh al-‘aqd) 178
12.6 Classification of a contract according to its legal
consequences 178
12.7 Classification of contracts about the time of completion 182
