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CLASSIFICATION OF CONTRACTS IN ISLAM
Transcript of CLASSIFICATION OF CONTRACTS IN ISLAM
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Islamic system encompasses all aspects of human conducts
Two main sources of shariah: primary & secondary sources
Primary sources are Quran & Sunnah
Secondary sources namely ijma (consensus) and reasoning by qiyas (analogy)
Islam as a system that differs fundamentally from the prevailing conventional system
To be attained through practice & implementation of shariah
Shariah will ensure the realisation of maqasid al-shariah thereby our well being in the world & hereafter
The implementation of shariah in banking & finance should ultimately reach the maqasid al-shariah
The true concepts of Islamic banking & finance may not be realised and the maqasid al-shariah may not be materialized
Various Islamic banking products are developed and introduced based on certain Islamic business contracts
Some products are even develop on hybrid basis
Has stirred a string of discussions & arguments as the products
Islamic Equity Financing Contracts
Islamic Debt Financing Contracts
Other financing contracts
A contract by which two or more persons agree to participate in a business concern, contributing either capital or loss
Profit or loss are distributed among themselves
Forms of Musharakah
Inan (limited partnership)
Abdan (labor partnership)
Mufawadhah (mutual partnership)
Wujuh (credit partnership)
Musharakah is suitable to finance private or public companies and in project financing for short and medium term periods
At least two partners share their capital and profit/loss
The difference is the ownership of the equity at the end of contract period
Applicable to finance the purchase of shares (equity financing) and to finance asset acquisition on shared rental basis
A sale based on the cost price plus profit
The cost price or profit must be known to the buyer.
Bay' Bithaman Ajil
Means guarantee, bait, surety, responsibility
Types of al-kafalah
al-kafalah bi al-nafs - the guaranty for the apprearance of the debtor or his agents in lawsuit.
al- kafalah bi al-mal - the payment of the loan either by the debtor or the guarantor.
Al - hiwalah
Means to turn over or transfer
It is agreement of transferring of debt from one debt to the debtor's account of another or of a claim of a debt by shifting the responsibility from one person to another.
Al - rahnu
Means detained and confined or pledging and pawning.
It is contracts between the pledgor and pledgee to make a property a security in respect of a right of claim on full payment from the property.
In banking and finance, al-rahnu used to the facilitate the supply of necessary short term loan based on qard hasan
Refers to the loan of fungible commodities, usually currency or other standard medium of exchange
The borrower is required to return the equivalent or the like of what he has received.
Sale on a deferred-payment.
A contract tat refers to the sale and purchase transaction for the financing of an asset on a deferred and an installment basis with a pre-agreed payment period.
Sale contract in which advance payment is made to the seller for deferred delivery of goods.
Payment is made in cash at the point of contract but the delivery of the asset purchased will be deferred to a pre-determined date.
Sale contract that allows for an order to be placed with a manufacturer to make certain products according to specifications given, where cash payment may be made in advance or on completion of products.
A contract which involves the sale and buy back transaction of an asset by a seller.
A seller sells an asset to a buyer on a cash basis and later buys it back on a deferred payment basis where the price is higher than the cash price.
It can also be applied when a seller sells an asset to a buyer on a deferred basis and later buy it back on a cash basis, at a price which is lower than the deferred price.
Contract that involves the transfer of usufruct for a consideration at a certain determined period.
The property rented belongs to the lessor
The lessor has the right to repossess the property on default of the lessee.
Bay' Al- Dayn
The sale of a debt arising from trade and services transaction or payable right in the form of a deferred payment sale either to the debtor himself, or to any third party.
Means a thing or commodity committed to the trust and care of person.
In banking and finance it refers to a contract between a bank and a depositor whereby the bank guarantees refund of the entire amount of the deposit.
Types of al-wadiah:
al-wadiah yad al amanah
al wadiah yad al damanah
Journeying through the land seeking the bounty of Allah
Also called muqaradah
Profit generated will be shared between the capital-provider and entrepreneur based on predetermined ratios
Loss incurred shall be borne solely by the capital-provider
Mudarabah application can be found in
Mudarabah Investment Account
Mudarabah Inter-bank Investment
Mudarabah project or contract financing