Muamalat in Islam

Prohibition in Al-Wadia’h Contract

2011-03-07T09:51:00.003+08:00

Prohibition in Al-Wadia’h Contract

1. Utilizing the deposit

The scholars are agreed in disallowing the custodian to utilize the deposit without the permission of the depositor. It must be guaranteed if the deposit were used with permission since the contract is safekeeping.

2. Travelling with the deposit

According to Abu Hanifah: The safekeeper have right to travel provided the depositor did not prohibit him from doing so & the route is safe. Therefore the wadi’ah is unrestricted geographically unless explicit in the contract.
If there is a loss then he is not liable for compensation. However must be have taken all necessary precautions to avoid loss or damage.

Maliki: The custodian have no right to travel unless instructed by the depositor. Allowable to transfer the custodian if going on a journey ending his liability.

Shafi’e & Hanbali: The custodian is not allowed to travel and must return the deposit if need be. If the custodian travels he will be liable for compensation if the the deposit lost.

Therefore travelling with deposit is prohibited by the majority of Fiqh Scholars.

3. Entrusting a 3rd party

Absolute not allowed without a good reason.

Abu Hanifah & Malik: Permissible to leave with family members. Contemporary practice it is deemed permissible as banks can guarantee the safety.
The rationale is that as the depositor requires safety, it gives implicit permission for taking such measures to ensure the safety required.

4. Making deposits with other properties

To avoid disputes, if the item deposited is similar to the custodians own assets, they must be separated.

If it is mixed Abu Hanifah qualifies it as negligence.

5. Violating depositor conditions

Most jurists agree that:

If the place is less secure than instructed by the depositor – he is liable.

If the place is equally or more secure – then not liable.

Main issue is security of the deposit.
Since contract is based on trust the depositor should not place restrictions which make it difficult for the custodian to ensure security over the deposit.

Al Wadi’ah – Part III

2011-02-23T09:12:00.001+08:00

Al-Wadi’ah Pillars:

1. Contracting Parites:

a. Muwaddi’ – Depositor

b. Wadii’ – Custodian

2. Wadi’ah – The deposited item or asset

a. Must be valuable – able to be used for commerce.

b. Must be physically able to possess.

3. Sighoh – Ijab and Qabul (Contract - Offer & Acceptance)

Wadi’ah is not valid until there is mutual consent expressed through offer and acceptance (Ijab and Qabul). Offer is revocable unless declare irrevocable or until it is accepted or after a stated or reasonable time. Majority say it is not obligatory. Minority say obligatory only if the depositor cannot find anybody else to protect his property.

Al Wadi’ah – Part II

2011-02-17T18:37:00.003+08:00

Syari’ah Justifications on Al-Wadi'ah

1. Based on the Holy Quran (An-Nisa’:58)

إِنَّ اللّهَ يَأْمُرُكُمْ أَن تُؤدُّواْ الأَمَانَاتِ إِلَى أَهْلِهَا وَإِذَا حَكَمْتُم بَيْنَ النَّاسِ أَن تَحْكُمُواْ بِالْعَدْلِ إِنَّ اللّهَ نِعِمَّا يَعِظُكُم بِهِ إِنَّ اللّهَ كَانَ سَمِيعًا بَصِيرًا

(An-Nisa’: 58)

“Indeed, Allah commands you to render trusts to whom they are due and when you judge between people to judge with justice. Excellent is that which Allah instructs you. Indeed, Allah is ever Hearing and Seeing.” (An-Nisa’: 58)

2. Based on the Holy Quran (2: 283)

“And if you are on a journey and cannot find a scribe, then a security deposit [should be] taken. And if one of you entrusts another, then let him who is entrusted discharge his trust [faithfully] and let him fear Allah , his Lord. And do not conceal testimony, for whoever conceals it - his heart is indeed sinful, and Allah is Knowing of what you do.”

3. Hadith by The Prophet S.A.W:

"Fulfill the trust that is entrusted to you, and do not betray of people who have entrusted you" . Abu Dawud and Tirmidzi

4. There are a collective agreements among the Fiqh Scholars allowing the practice of Wadi’ah since it is essential to the people in Muamalah.

Al Wadi’ah – Part I

2011-02-10T09:22:00.006+08:00

Definition

Wadi’ah is derived from the word wada’a meaning lodge, leave or deposit. In Islamic Banking perspective, wadi’ah refers to safekeeping instrument that allows a person to keep the wealth or assets belonging to oneself with another person. In fact, it was practiced before Islam came. Under an Islamic scheme of savings, customers are assured for an interest free safekeeping services.

However, unlike the conventional banks, Islamic Banks or Financial Institutions not promising the customers any profit or interest for their deposits but they may offer the customers a profit earned by the bank through the investments made by utilizing using the customers money. It is called “Hibah” where it is absolute discretion of the bank.

Quote4today

2011-02-09T11:10:00.002+08:00

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. - Henry Ford

Islamic Banking Logo In Malaysia

2011-02-07T19:07:00.003+08:00

In Malaysia, if you noticed this logo at any banks, do not hesitate to ask for Islamic Banking options. In fact, most of the conventional banks have their own subsidiaries offering Islamic Banking Options.

Quote4today

2011-02-05T16:41:00.003+08:00

"A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain." - Robert Frost

Sharia'h Concepts in Islamic Banking - Part I

2011-02-05T14:08:00.008+08:00

Followings are among of the Sharia'h Concept In Islamic Banking:

1. Wadiah

2. Qardh

3. Hibah

4. Mudharabah

5. Bai' Bithamin Ajil

6. Murabahah

7. Musyarakah

8. Ijarah Thumma Al-bai'

9. Bai'ul Inah (Controversial)

And there are other concepts that have been developed and under development by the Ulama' and professionals to fulfill the needs of the Ummah and also the market.

We will be discussing each of the concept in the next entry.

Wallahua'lam.

Bai’ul Inah – Is it really Permissible? Part V

2011-02-01T23:35:00.002+08:00

Issues Regarding The Practice of Bai’ul Inah

In Malaysia, the Islamic Banking System is believed to apply the first type of Bai’ul Inah (refer to Part IV that have been posted before).

Some of the banks are using the bank’s assets such as computer, photostate machine and even the ATM Machine that have no use to customers. The practice of the first type of Bai’ul Inah is obviuosly prohibited but the Malaysian are still practicing it.

Among of the issues that have been raised in Bai’ul Inah practices in Malaysia are:

1. Perform Bai’ul Inah and imposes conditions in the contract where the customers are required to re-sell the assets to bank at a lower price.

2. Applying the Syafi’e School opinion on the first type of Bai’ul Inah, however the Syafi’e Scool is only allowing the second type of Bai’ul Inah where there are no condition for the customer to re-sell the assets

3. No actual selling and buying transactions (bai’) and the assets are never leave the bank. The selling and buying are only an excuse to give out loan with interest.

Wallhua’lam

Bai’ul Inah – Is it really Permissible? Part IV

2011-01-31T01:39:00.001+08:00

Definition of “Inah”?

Inah is derived from the word “ain” means goods or items since the buyer or the customer who is involved in this contract is in need to get the goods which is in this context, the “MONEY” or in more simple and descriptive words that usually used in the advertisments by banks or financial institutions “fast cash” or “express cash” only with a dash “i” ( -i ) to differentiate from the convetional financing options.

There are 2 (two) types of Bai’ul Inah:

The CUSTOMERS are REQUIRED to immediately sell the items or goods to the BUYER with CONDITION that the customer will sell it at a lower price from the first sale.
The CUSTOMERS are given to keep the items and after the buyer have the ownership, the cusomers have the OPTIONS to sell it back to the BUYER at a lower price from the first sale.

The Fiqh Scholars are collectively agreed on the prohibition of the first type of Bai’ul Inah since it has a condition that required the customers to immediately re-sell the goods to the buyer at a lower price in exchange for cash.

However, there are conflicts in opinion of the scholars regarding the second option of Bai’ul Inah since it may lead to the practice of riba’. The prophet S.A.W said that “Anyone who hover around the Hima-foyer (where prohibited) to fear of falling into it” – Al-Bukhari. Only a certain ulama’ from Syafi’e School are allowing the second type of Bai’ul Inah.

Bai’ul Inah – Is it really Permissible? Part III

2011-01-31T00:30:00.000+08:00

Following is an illustration of a Bai’ul Inah transactions:

For example, Al-ABC Bank is a bank and Ahmad is a customer who is seeking for a financial assistance from a bank for his business. Ahmad came to Al-ABC Bank and applying for a loan through the Bai’ul Inah concept that offered by Al-ABC Bank.

Al-ABC Bank then will sell an asset to Ahmad (e.g: Bank’s Photostate Machine) on deferred payment basis at RM10,000. Thereafter, Al‐Amin Bank will immediately buy back the photostate machine from Ahmad for cash (spot payment) at RM6,000 (price that is lower than the initial selling price).

And in the end, Ahmad will received RM6,00 and indebted Al-ABC Bank for Rm10,000 with an extra amount of RM4,000.

History Of Islamic Banking – Part III

2011-01-30T21:24:00.000+08:00

Saint Thomas Aquinas, an Italian priest in the 13^th century of the Catholic Church asserted that usury was a violation of natural moral law. He stated that putting money out for the generation of more money is an evil unto itself.

Money as defined by Aquinas is consumable goods (Goods that may be depleted or worn out by use). Therefore it is not appropriate to generate more money by lending ot to others. To illustrate the evil of interest, St. Aquinas claimed that usury or riba as a “rent” on the money given out as a loan. It is not fair to charge a rent on the money that has been depleted.

From above, we could see that, the Christians are also prohibited to practice riba'. It was considered as an evil practice since then

Wallahu a'lam

History Of Islamic Banking – Part II

2011-01-29T13:23:00.000+08:00

It was obvious that Islam prohibits the practice of riba’ (usury/interest) as Allah said in the Holy Quran (Al-Baqarah:275):

وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ...

“Allah has permitted trade and has forbidden interest”

The main pillar of Islamic banking is the practice of Riba-free transactions.

Even according to the books of Heaven, (Torah and Bible) stated that interest was evil. In Judaism the enforcement of prohibition of Riba’ are applied only to among Jews but it is compulsory to be applied on the non-Jews (Goyyim). While in Christianity, it is more stern on the prohibition of riba practice, thus it is a sin for a lender to claim for repayment on the loan from the borrower. However, in Islam, it is permissible to claim the loan but even better to release the borrower from the debt.

In conclusion, all of religions in this world are prohibit the practice of riba as it is one form of oppression towards the poor and the needy. In fact, all religions are promoting welfare, brotherhood and harmony. Therefore, the practice of riba’ may lead to other social/criminal problems.

Wallahua’lam

Bai’ul Inah – Is it really Permissible? Part II

2011-01-28T08:59:00.000+08:00

Ibnu Qayyim quoted that the Prophet said “the days will come where people will practices riba in the form of selling and buying transactions”.

From the above Hadith by the Prophet, it is obviously that Bai’ul Inah is not allowed and disliked by the Prophet since it was one form of riba practices.

Ibnu Qayyim (691H/1292M – 751H/1350M) was a respected Fiqh scholar during his time. Among his contributions are in the Islamic Economic System.

Even One of the cause of the fall of Islamic Empire was the practice of riba’ in the form of selling and buying and also ignoring the welfare of the needy. In this case, the practice of Bai'ul Inah was practiced freely as a medium to give out and receive loan and charging interest.

Wallahua’lam.

History Of Islamic Banking – Part I

2011-01-27T10:14:00.000+08:00

Islamic financial system was started during the time of the prophet Muhammad S.A.W. In fact, the Prophet himself is a businessman in Mecca and was called by the Meccan “Al-amin” - meaning an honest and sincere people. He was hired by a wealthy business owner, a widower - Khadijah and later married to at the age 25 year old whereas Khadijah was 40 year old.

The great Irish philosopher, George Bernard Shaw said once about Muhammad S.A.W. : "I have studied him (Muhammad) - the wonderful man - and in my opinion far from being an anti-Christ he must be called the savior of humanity."

Prophet Muhammad was practicing Murabahah concept in His transactions. As we all know, Prophet Muhammad travelled a lot in conducting his businesses. He travelled to Sham (nowadays Damascus) to purchases stocks and securing the caravans from Sham to Mecca. There are threats of pirates and Bedouins during the journey between Mecca and Sham.

Besides Murabahah, Prophet Muhammad S.A.W also practices Musyarakah, Mudharabah concept in his business operations. This is the starting point where the Islamic Financial System was brought to the world as promoting the spirit of fraternity and brotherhood.

Bai’ul Inah – Is it really Permissible? Part I

2011-01-26T15:07:00.000+08:00

Bai’ul Inah – Is it really Permissible? Part I

Nowadays, we are bombarded by advertisements/flyers/pamphlets from banks, financial institutions even Ahlong (loan shark) about their Islamic Financing or Products especially BAI’UL INAH.

First of all, we need to understand what is Bai’ul Inah and why it is favorable by the banks and even ALONG(loan shark). Bai’ul Inah is a selling and buying contract that practices by the banks/financial institutions/Ahlong to BYPASS the prohibition of riba’/interest/usury/faedah (malay) by Islamic Laws or Syari’ah Laws. The selling and buying transaction are only an excuse to give out and receive loan in cash.

The four Schools of Fiqh (Maliki, Hanbali, Hanafi and Shafie) prohibit this practice of Bai’ul Inah since the initial intention of the contract is to give out and receive loan, not selling and buying. However, there is a certain Ulama’ from Shafie School is allowing this practice but under a strict conditions. Currently, Malaysia is the ONLY Muslim country that is allowing the concept of Bai’ul Inah.

Comments/Suggestions/Corrections are welcome.

Muamalat?

2011-01-26T15:05:00.000+08:00

Muamalat is set of rules (fiqh) related to worldly matters such as business/trading/commerce transactions, lending and borrowing contracts. Muamalat also involves the rules regarding the social interactions between human such as marriage, inheritance (waqaf, faraidh) and other human activities

Muamalat nowadays, is always associated to economics and finance since these elements are the key for happiness in this world and hereafter.

As a Muslim, we are believed that all the wealth on this world are belonged to Allah. Humans are only the appointed trustees to manage and distribute the wealth among them. Humans are encouraged to seek wealth through knowledge and skills given by Allah.

The rules and practices of fiqh muamalat are derived from 2 (two) primary sources: the Holy Quran and Hadith of Prophet Muhammad S.A.W

There are other secondary sources of Islamic law which are collective opinions agreed among Shariah scholars (Ijma’) i.e the 4 (four) school of Fiqh – Hanbali, Maliki, Hanafi and Shafie, Analogy (Qiyas), Personal Reasoning by Ulama’ (Ijtihad) and Traditions/Customs (Urf) – as long as it is not in conflict with Shari’ah.

Among the requirement of Shari’ah laws in practicing businesses transacrions:

· Not producing and trading of illicit materials (swine, liquor, stolen goods)

· Not producing and trading of materials which are of no use

· Gharar (Uncertain)

· Contains Elemnet of Riba and

· Involvement of gambling elements