Al-Ijarah (rent/lease/hire) contract has a number of terms and conditions in addition to the common terms and conditions that apply to all contracts. Al-Ijarah contract is more widely used nowadays than ever before, primarily due to the creation of large commercial enterprises since the dawn of the industrial revolution. As such, these terms and conditions should be common knowledge to all Muslims.

  1. The property rented or leased must be in a useable condition (i.e., the lessee should be able to use the property for its intended purpose). Similarly, in a hire contract, the employee must be able to perform the job required of him or her.
  2. Ijarah has to be for inconsumable goods.
  3. The lessee or the employee is not permitted to use the subject in a manner contrary to what is permitted by the contract. Specifically, the lessee or the employee is not allowed to inflict any harm on the subject of the contract.
  4. Ijarah contract cannot be made for a task that is a religious obligation. For example, it is prohibited to enter into an employment contract for leading the prayer of making the azaan. Ijarah is valid, however, for teaching the Qur’an or religious sciences, as well as secular subjects because these are not religious obligations.
  5.  If the two parties disagree on the value of the reimbursement or the rent/lease on the property, after the contract commences, the word of the lessor/employer is accepted under oath upto the time of disagreement. At that point the contract is then invalidated.
  6. The majority of the scholars say that the Ijarah contract does not end by the death of one of the two parties, as long as both parties can fulfill their end of the contract. The Hanafis, to the contrary, deem the contract invalidated with the death of one party.

Source: Abdelhaleem, 11-12.

Though there are various definitions of Al-Ijarah given by the scholars of jurisprudence, they all agree that this contract is a contract on using the benefits or services in return for compensation. In our context, Al-Ijarah refers to a contract to hire, rent or lease. We see the evidence of hire in the story of Musa (Al-Qasas: 26-27) where Musa was hired by his father-in-law to provide a service.

There are two main types of subjects in an Ijarah contract:

  1. Tasks, where the compensation is for effort expended of skill used (by an employee or a contractor), and
  2. Property, where the compensation is for the use of a property (such as a car or a house).

An Ijarah contract cannot be cancelled unless both parties agree to it or if one of the parties fails to deliver.

The pillars of an Ijarah contract are:

  1. Presence of two parties
  2. Offer and acceptance
  3. Reimbursement or compensation
  4. Specified usage

Without any of the above the contract is not valid. A point to note here is the necessity to specify the reimbursement and the usage. If these are missing, the contract is valid only if the two parties agree on them later.

There are a number of conditions attached to an Ijarah contract that will be discussed next.


Kharofa, 146-147
Abdelhaleem, 11

Selling Islamically legal goods for illegal ones

Like selling something halal for wine, pork, dead animal’s meat or idols in return.

Sale by a city-dweller to a desert-dweller

The Prophet prohibited the city-dwellers from purchasing from the desert-dwellers. In another narration, city-dwellers were prohibited from purchasing merchandise from merchants before they reach the market-place. Here, the city-dwellers are people who the knowledge of the price whereas the merchants traveling from other places and the deser-dwellers are ignorant of the prevailing market prices. Availability of information here gives an unfair advantage to one party, which is discouraged in Islam. This prohibition is fundamentally important in an era where those who lack information are commonly taken advantage of.

Sale of grapes to a wine-maker

Though this sale meets all the requirements of a contract (the object sold, grapes, is halal) the sale contract is discouraged by the Hanafi and the Shafe’i jurists while it has been considered invalid and nugatory by the Malekis and the Hanbalis. This shows that if the halal object being sold is to be used in a haram manner, the sale of that halal object becomes haram as well. This also applies to sale of weapons during times of sedition and similar examples.

Fraudulent Overbidding

This refers to the seller artificially increasing the price in an auction by conspiring with a bidder who does not intend to buy but bids just to raise the price.

Two contracts in one

It is prohibited to bring together in one contract two transactions like sale and commission, partnership and exchanging and marriage, agricultural partnership and trade-labour partnership.

Sale contract with alien condition

Though there are a number of opinions on this, the general opinion seems to be that having an unrelated condition in a sale contract is highly discouraged. One example of an unrelated condition is the seller prohibiting the buyer from on-selling the merchandise purchased.

Source: Kharofa, 83-90.

Sale of non-existent or near non-existent things

These sales were prohibited in the context of yet unborn offspring. This has wide-spread application in the present-day context.

Sale of things that cannot be delivered

These sales include fish in the sea and bird in the sky and are prohibited. Though the bird or the fish might eventually be caught and delivered on time, it is impossible to point to a specific or give ample description before the contract is accepted.

Sale involving ignorance or doubt

This typically refers to doubt with respect to the price, or consideration paid. An example of this is contracting to sell a commodity on “market price” where the term “market price” has not been defined in units of money.

Two sale proposals in one

This refers to proposing (first step of the contract) to sell one object at one of two different prices. For example, a proposal to sell a widget at $100 in cash or $150 six months hence is invalid even though the two proposals are valid on their own, independent of each other.

Sale of an impurity

Things considered unclean in Islam like wine, pork, meat of a dead animal and blood, to name a few.

Sale of water

Most jurists allow sale of water if it is from a privately owned source, though the Dhaheri scholars state the sale of water to be prohibited whether from a public or a private source (e.g., fountain or a well). One may, however, charge for the effort to retrieve or treat this water.

Sale of something before receiving the price

The Prophet said, narrated by Ahmad and Muslim from Jaber, “If you have bought foodstuff, do not sell it until you have received it in full.”

Sale of ‘inah

‘Inah or deferred-payment contract is a special arrangement whereby Party A sells an object to Party B for Price X to be paid at a later time and then purchases it back from Party B at Price Y in cash, where Y is lower than X. This effectively results in creating a ribaa like transaction. This sale is considered nugatory or invalid by all jurists, except a small minority among the Shafe’i and Dhaheri schools, who consider it makruh. Unfortunately, this type of sale contract is widely used in Islamic banking in Malaysia based on the minority opinion. We will discuss this is more detail later.

Source: Kharofa, 79-82.

Sale by coercion

If a person is coerced into contracting a sale, the contract is considered invalid. The Hanafi and Maliki scholars give room for the coerced party ’s belated consent once the force is removed. The Shafe’i and the Hanbali scholars consider the sale to be invalid. According to the Hanafi jurists, if a person is forced to sell his property without will, this will be considered an illegal act — meaning that not only is the contract not valid but the coercing party is punishable.

Sale by an insane person

By agreement among all scholars, a sale to an insane person is not valid. By analogy, a sale made to a drunken or a drugged person, or any person unable to reason at the time the sale is made, is also invalid. Interdiction due to illness making the person non compos mentis will fall under insanity as well.

Sale to a blind person

The Shafe’i scholars do not consider a sale to a blind person to be valid. The majority of the jurists, however, agree that if sufficient description of given to the blind person, the sale will be valid.

Sale by a child

A sale by a child (or to a child) is not valid if the child is not discerning or capable of reasoning. There is consensus of the scholars on this. However, when the child is discerning or capable or reasoning, most scholars allow the sale with the requirement of the guardian’s permission. The Shafe’is do not allow such a sale.

Sale of the which is not owned

A sale by a person who does not own the object of sale, and does not have the permission to sell from the owner, is not valid. This stems from the Prophet’s injunction, “Do not sell something which you do not own.” The Malikis and the Hanafis allow this sale if the owner gives a belated permission, after the fact.

Source: Kharofa, 77-79.

The most basic type of an exchange (mu’awadat) contract is a contract of sale. Kharofa outlines seven conditions for a sales contract to be valid. These are:

  1. The contract should be concluded willingly and with mutual consent as per the Qur’anic injunction in Surah an-Nisaa 26.
  2. Both parties to the contract must have the capacity to conduct such a sale. A sale by an insane person (temporarily or permanently insance), a child or a drunken person is not valid. Hanafis permit such a contract by a child as long as the guardians permit it. Hanbalis permit such a contract by a child as long as the child is mature enough to make a decision. The Hanbali position is based on verse 6 of Surah an-Nisaa.
  3. The object of sale should carry a legal benefit to the buyer, usually in the form of property or service received.
  4. The object of sale must be owned by the seller or the seller should have the owner’s express permission. In an agency situation if the owner gives a belated permission, after the sale has taken place, the contract is considered valid but without it the contract is void.
  5. The seller must be capable of delivering the subject of the contract to the buyer, or the sale is nugatory. One cannot, therefore, sell something that is not in his or her possession (e.g., cannot sell a bird in the sky or fish in the water until possession has been taken).
  6. The object of sale should be made known to the purchaser by sight or by ample description. If the object being sold is not seen by the purchaser and has not been sufficiently described, the sale is invalid. A major implication of this is the obligation on the seller to disclose any and all defects in the object of sale to the buyer for the sale to be valid. A strong opinion among the scholars is that the sale will be valid but the buyer will have the option to invalidate it upon inspecting the object bought.
  7. The price, or consideration due, must be known to both parties. Therefore, a contract of ribaa where the price ultimately paid changes by the timing of the payment is not valid due to the uncertainty involved with respect to the price.

Source: Kharofa, 73-76.

Only Allah has the right and the authority to declare a matter permissible or prohibited. This Quranic maxim makes it clear that human beings do not have absolute freedom over the resources made available to them by Allah. Our use of the resources is limited by the limits laid down by Allah.

Allah condemns an ancient Arab nation, Madian, for spending out of their wealth without any limits.

“They said: “O Shu’aib! Does thy (religion of) prayer command thee that we leave off the worship which our fathers practised, or that we leave off doing what we like with our property?” (Qur’an 11: 87)

Furthermore, Allah deems it a lie on Him for a human being to declare lawful what is not and vice versa. He states in the Book:

“But say not - for any false thing that your tongues may put forth,- “This is lawful, and this is forbidden,” so as to ascribe false things to Allah. For those who ascribe false things to Allah, will never prosper.” (Qur’an 16: 116)

Only Allah and, by His permission, His messenger have the right to declare something permissible or prohibited.

“Those who follow the messenger, the unlettered Prophet, whom they find mentioned in their own (scriptures),- in the law and the Gospel;- for he commands them what is just and forbids them what is evil; he allows them as lawful what is good (and pure) and prohibits them from what is bad (and impure); He releases them from their heavy burdens and from the yokes that are upon them.” (Qur’an 7: 157)

Sources: Mawdudi, Abul Ala. Muashiat-e-Islam. 11th ed. Karachi: Ma’araf Islami, 1986. 71-72.

An argument often presented by many Muslims is that ribaa mentioned in the Qur’an is actually different from what we call ‘interest’ nowadays. It is important, therefore, to look at what qualified as ribaa in the pre-Islamic times (Ribaa al-Jahiliyyah).

We find various kinds of of situations where ribaa comes into play. A brief look at these reveals that there is no difference between the pre-Islamic ribaa and the present-day notion of interest.

“Qatadah narrates that the ribaa of pre-Islamic times was that where one person bought property from another with a promise to pay at a later time. If the buyer could not pay the agreed upon amount on the settlement date, the seller would extend the payment period and the amount owed.”

According to this example by Qatadah, the Arabs of the pre-Islamic times considered as ribaa the increase in the amount owed from the original settlement date to the revised settlement date.

“Mujahid held the opinion that the ribaa of the pre-Islamic times was that where the borrower would agree to pay more than the borrowed sum if given a specific time horizon to pay.” 

This is increase in amount owed due to failure to pay or additional time is precisely what we call interest in the present-day economic system. In both cases, we see the debt being swapped for a larger amount based on the passage of time.

“According to Imam Razi the norm of the pre-Islamic days was that the borrower of monies would agree to pay an agreed upon amount on a monthly basis for an agreed upon period of time. At the expiration of that period, the borrower would return the original sum. However, if he could not pay, he would be given more time in return for higher monthly payments.”

These monthly payments were also called ribaa by the pre-Islamic Arabs.

Sources: Mawdudi, Abul Ala. Muashiat-e-Islam. 11th ed. Karachi: Ma’araf Islami, 1986. 232.
Obaidullah, Mohammed.
Islamic Financial Services. Jeddah: Islamic Economics Research Center, 2005. 24.

According to Dr. Refik Beekun, ethics are defined as a set of moral principles that distinguish what is right from wrong, and in an Islamic context, the Qur’anic term khuluq is closest to it. Also, some other terms referenced from Qur’an describing the concept of good are khayr (goodness), birr (rightousness), qist (equity), and ‘adl (equilibrium and justice).

Source: Shikoh, Rafi-Uddin. “Islamic Business Ethics: Book Review.” Dinar Standard. 15 May 2005. 22 Jan. 2006 [].

Scholars describe a valid contract as a contract that is sound in both is pillars and characterists. That means, it does not contain anything that is prohibited by Shari’ah.

An invalid contract, thus, would be one which is not sound in either its pillars or its characteristics, or both. According to the Hanafi scholars there is a this type, a corrupt contract, that is sound in its pillars but not in its characteristics. We will currently ignore the corrupt contract.

Kharofa divides the conditions as below:

Conditions of Confirmation (en’eqad)

  • The existence of two contracting parties;
  • The format and the subject; and
  • Particular conditions for certain contracts to be valid (e.g., presence of two witnesses in a marriage contact without which the contract is nugatory).

Conditions of Execution (nafath)

  • The contractor should be in possession of the subject, or at least should be able to hand it over if it is not in his possession; and
  • There should be no claim from other parties to the subject of the contract.

Conditions of Obligation (lozum)

  • The contract should not contain an element of choice or option; and
  • The subject matter of the contract should be free from defects (that are not disclosed to the contacting party).

Conditions of Correctness (Sehah)

  • The contract must have met each of the three pillars.

Source: Kharofa, Ala’ Eddin. Transactions in Islamic Law. 2nd ed. Kuala Lumpur: A.S. Noordeen, 2000. 28-30.

According to Al-Shawkani:

“Linguistically, Zakat means growth; one says Zaka az-Zar meaning the plant grew up. It can also mean ‘purification.’ In Shari’ah, it implies both meanings. The first meaning is construed as to cause growth in wealth, or as to cause more reward or as to pertain to increasing wealth, such as is the case in commerce and agriculture. This first meaning is supported by the Tradition. ‘No wealth decreases because of Sadaqat (Zakat);’ owing to the fact that its reward is multiple. There is also the Tradition: ‘God increases the reward of Sadaqat.’ The second meaning is construed to imply that Zakat purifies the human soul from the vice of avarice as well as sins.”

For the production to grow without check in an economy, the funds must circulate. In the modern economy hoarding of funds is a prime reason for the slow downs in the economy as people save more and spend less, resulting in businesses losing sales and having to layoff employees (those employees then can’t spend as much once laid off, resulting in further slow downs in the economy).

Zakat ensures that wealth is distributed and circulated in the system, resulting in an ever-growing economy.

We will further discuss the various functions of Zakat in the economy as well as the role it plays in shaping consumer behaviour in later posts.

Source: Abu Saud, Mahmud. “Money, Interest and Qirad.” Studies in Islamic Economics. Ed. Khurshid Ahmad. Leicester: The Islamic Foundation, 1980. 79.

The subject of a contract in law is defined as the element which the party that owes money commits to do. The subject could be performance of an action, refraining from the performance of an action or a transfer of the right to some property.

Source: Kharofa, Ala’ Eddin. Transactions in Islamic Law. 2nd ed. Kuala Lumpur: A.S. Noordeen, 2000. 22.

Most of the economists will define money by its four classical functions:

  1. Means of exchange;
  2. Measure of value;
  3. Medium of deferred value; and
  4. Store of value.

We will go over a brief explanation of each of these functions of money and how it relates to Islamic economics. Specifically, we will discuss some of the deficiencies of money (i.e., fiat money) in light of these functions. Ultimately, the fundamental question we wish to answer is whether money is a commodity.

Source: Abu Saud, Mahmud. “Money, Interest and Qirad.” Studies in Islamic Economics. Ed. Khurshid Ahmad. Leicester: The Islamic Foundation, 1980. 59.

The distinction between a promise and a contract has vast implications for Islamic finance in the contemporary era (especially in murabahah financing) as we will explore later.

Kahrofa describes a promise as a verbal proposition made by one party to undertake something to the benefit of the other. Note the absence here of an explicit ijaab and qabool. Taqi Usmani further explains a promise as a one-sided commitment as opposed to a contract which typically requires two sides (with the exception of unilateral contracts that are rare in nature).

Kharofa explains that a contract has to be executed both from the legal and moral point-of-view, whereas a promise implies only a moral duty. Kharofa argues that fulfilling a promise is not an obligation (wajib), however, it is a noble quality. This view is particularly ascribed to Imam Abu Hanifah, Imam Shafi’e and Imam Ahmad.

Both Kharofa and Taqi Usmani point out that a promise is enforceable in the court under certain circumstances in accordance with the views held by Hasan al-Basri, Sa’id bin al-Ashwa, Imam Bukhari, Ibn al-’Arabi, al-Ghazali to name a few. This implies that a promise is legally enforceable.

Taqi Usmani argues that circumstances in the modern economy necessitate that a promise, for the purposes of Islamic commercial law, be considered binding.

We will not go into the details of the proofs provided for each of these positions as they are available on the Internet in Taqi Usmani’s book (referenced below). For our purposes what is important to understand is that promises are considered binding in Islamic commercial law by the majority of the contemporary scholars with the following conditions:

  1. it should be a one-sided promise;
  2. the promise must have caused the promisor to incur some liability;
  3. If the promise is to purchase something, the actual sale must take place at the appointed time by the exchange of offer and acceptance. Mere promise itself should not be taken as the concluded sale; and
  4. If the promisor backs out of his promise, the court may force him either to purchase the commodity or pay actual damages to the seller. The actual damages will include the actual monetary loss suffered by him, but will not include the opportunity cost.

Kharofa, Ala’ Eddin. Transactions in Islamic Law. 2nd ed. Kuala Lumpur: A.S. Noordeen, 2000. 20-23.
Usmani, Taqi. Islamic Finance - Musharakah & Mudarabah. Karachi: Darul Uloom. Jamia Darul Uloom. 17 January 2006

The evidence on the Qur’an and Sunnah relating to the prohibition of ribaa is reproduced below:

“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper.” (Qur’an 3: 130)

“Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: “Trade is like usury,” but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever).” (Qur’an 2: 275)

“Allah will deprive usury of all blessing, but will give increase for deeds of charity: For He loveth not creatures ungrateful and wicked.” (Qur’an 2: 276)

“O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers.” (Qur’an 2: 278)

Most important here is the distinction Qur’an makes between interest and sale. We will explore this distintion in much more detail late but let us analyse the explanation provided by the Sunnah.

Zaid B. Aslam reported that interest in pagan times was of this nature: When a person owed money to another man for a certain period and the period expired, the creditor would say: You pay me the amount or pay the interest. If he paid the amount, it was well and good, otherwise the creditor increased the loan amount and extended the period for payment again.” (Al-Muwatta, Imam Malik)

The Prophet (pbuh), during his last sermon addressed his revered companions, “Every form of riba (interest) is cancelled; capital indeed is yours which you shall have; wrong not and you shall not be wronged. Allah has given His Commandment totally prohibiting riba. I start with the amount of interest, which people owe to Abbas and declare it all cancelled. He then, on behalf of his uncle, Abbas, cancelled the total amount of interest due on his loan capital from his debtor” (Tafsir Al-Khazin, vol.1, p.301)

The Prophet (pbuh) is reported to have said “Sell gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, in same quantities on the spot; and when the commodities are different, sell as it suits you, but on the spot” (Muslim)

Bilal visited the Messenger of Allah (pbuh) with some high quality dates, and the Prophet (pbuh) inquired about their source. Bilal explained that he traded two volumes of lower quality dates for one volume of higher quality. The Messenger of Allah (pbuh) said: “this is precisely the forbidden Riba! Do not do this. Instead, sell the first type of dates, and use the proceeds to buy the other.” (Muslim)

One may note here that the first two ahadith relate to the prohibition of interest in a loan contract where as the last two relate to the prohibition in an exchange contract.

Source: Obaidullah, Mohammed. Islamic Financial Services. Jeddah: Islamic Economics Research Center, 2005. 23-24.

The most well-known and the most central concept in Islamic economics is the prohibition of ribaa, defined as interest. All transactions in Islam must be free of ribaa. In its literal meaning, the word ribaa (raa-baa-vow) means increase or rise. For example, the root word of it is used in the Qur’an as follows:

فَإِذَا أَنزَلْنَا عَلَيْهَا الْمَاء اهْتَزَّتْ وَرَبَتْ
But when We pour down rain on it, it is stirred (to life), it swells. (Qur’an 22: 5)

In the above verse, the word rabat is used to indicate the swelling of barren and lifeless earth. Similarly Allah (SWT) says:

أَن تَكُونَ أُمَّةٌ هِيَ أَرْبَى مِنْ أُمَّةٍ
Lest one party should be more numerous than another. (Qur’an 16: 92)

In the above verse the word arbaa has also been translated as overcoming or increasing. The word can also be translated as being higher in relation to something else. In the following verse Allah (SWT) describes how Mary and her son too refuge on a higher ground by using the word rabwa:

وَجَعَلْنَا ابْنَ مَرْيَمَ وَأُمَّهُ آيَةً وَآوَيْنَاهُمَا إِلَى رَبْوَةٍ
And We made the son of Mary and his mother as a Sign: We gave them both shelter on a high ground. (Qur’an 23: 50)

The above verses make it clear that the word riba refers to an increase from the original status. This is how the term is then used in Islam with reference to interest.

Source: Mawdudi, Abul Ala. Muashiat-e-Islam. 11th ed. Karachi: Ma’araf Islami, 1986. 229-230.

There are two main types of contracts:

  1. Unilateral; and
  2. Bilateral.

A unilateral contract is gratuitous in character and does not require the consent of the recipient (qabool). Examples of a unilateral contract include gift (hadiah, hibah), off-set of the debt (ibra), will (wassiyyat) endowment (waqf) and loan (qard). Each of these transactions will be explained later in more detail.

A bilateral contract requires the consent of both parties and covers the remaining transactions in Islamic law. The scholars have traditionally divided bilateral contracts into six classifications:

  1. Contracts of exchange (mu’awadat);
  2. Contracts of security (tawthiqat);
  3. Contracts of partnership (shirkah);
  4. Contracts of safe custody (wadi’ah);
  5. Contracts pertaining to the utilization of usufruct (manfa’ah); and
  6. Contracts pertaining to do a work (e.g., wakalah and ju’alah).

These classifications and various contracts that come under these will form the basis of later discussion under contracts and transactions in Islamic law.

Source: “Contracts in Islamic Commercial and Their Application in Modern Islamic Financial System.” Iqtisad Al-Islamy. 2003. Islamic-World.Net. 16 January 2006. [].

The pillars of a contract in Islam are two:

  1. Ijaab - the positive proposal; and
  2. Qabool - the acceptance.

The coming together of ijaab and qabool makes up the contract.

There are three other conditions that Kharofa specifies for a contact to be legally acceptable and impactful.

  1. the existence of two properly and aptly qualified contractors;
  2. a format; and
  3. a place of reference or subject matter.

Source: Kharofa, Ala’ Eddin. Transactions in Islamic Law. 2nd ed. Kuala Lumpur: A.S. Noordeen, 2000. 11-12.

The basic and most fundamental precept of Islam in the area of economics is that all resources that our economic system relies upon are created by Allah. He alone has the ability to make these resources of benefit to us and He alone has allowed us as human beings to benefit from these resources.

This point becomes very clear when one reflects upon the following verses of the Qur’an.

“It is He Who has made the earth manageable for you, so traverse ye through its tracts and enjoy of the Sustenance which He furnishes: but unto Him is the Resurrection.” (Qur’an 67: 15)

“And it is He who spread out the earth, and set thereon mountains standing firm and (flowing) rivers: and fruit of every kind He made in pairs, two and two: He draweth the night as a veil o’er the Day. Behold, verily in these things there are signs for those who consider!” (Qur’an 13: 3) 

“It is He Who hath created for you all things that are on earth; Moreover His design comprehended the heavens, for He gave order and perfection to the seven firmaments; and of all things He hath perfect knowledge.” (Qur’an 2: 29)

“It is We Who have placed you with authority on earth, and provided you therein with means for the fulfilment of your life: small are the thanks that ye give!” (Qur’an 7: 10)

“See ye the seed that ye sow in the ground? Is it ye that cause it to grow, or are We the Cause?” (Qur’an 56: 63-64)

Source: Mawdudi, Abul Ala. Muashiat-e-Islam. 11th ed. Karachi: Ma’araf Islami, 1986. 69-70

Much of Islamic economics and finance is based on contracts between two or more parties. Whether it is a contract to purchase goods or a contract to make a loan, one needs to understand the concept of contract in Islam and how/if it differs from the one we see in the man-made law.

Definition of Contract in Islam

According to Kharofa, the word ‘aqd (contract) in Arabic language means tying tightly, as in tying a rope. Arabs used the word to speak about firm belief or determination. They used to say ‘aqd al ‘ahd to mean ‘make a covenant’ and ‘aqd al yamin to mean ‘give an oath’. Along the same line is ‘adqat al nikah meaning a marriage contract.

The word ‘aqd also carries the meaning of obligations, as used in the first verse of Surah al-Maida. O ye who believe! Fulfil your obligations.

In Islamic jurisprudence the word contract is used to mean an engagement and agreement between two persons in a legally accepted, impactful and binding manner.

Definition of Contract in Man-Made Laws

The definition of a contract according to the French Civil Law in article 1101 is ‘an agreement which commits a person or a group of persons to give something, do something or refrain from something to another person or group of persons.’

The Distinction

The definition of a contract in both Islamic jurisprudence and the civil law are fairly similar. Kharofa states that the Islamic definition is stronger, however, I personally believe the difference is nothing more than artificial.

Source: Kharofa, Ala’ Eddin. Transactions in Islamic Law. 2nd ed. Kuala Lumpur: A.S. Noordeen, 2000. 1-7.