Tag: banking

Introduction to the Fiqh of Mu’amalat (Jurisprudence of Transactions)

This post is extracted from the book: Money, You & Islam by Dr. Zaharuddin Abd Rahman

Retyped on site by: Muaz R.

The knowledge of Islamic finance can be further explained as follows:

Chapter 2 fig 1 edit

Based on the diagram above, it is evident that the knowledge of finance management and wealth falls under the branch of Syariah, which directs the actions and affairs of every life.

The diagram was not derived from the Qur’an or hadith, rather, the scholars of Islam formulated in order to facilitate the learning process as well as to avoid misunderstanding in every focal group of knowledge outlined above.

According to its origin, the word ‘Mu’amalat’ encompasses all the hukm (ruling) and ordainment of the Syariah in the worldly affairs of humans amongst themselves.

Ibn ‘Aabidin stated: “The components of Mu’amalat are divided into five; wealth exchange, marriage affairs, juristic affairs, inheritance affairs and amanah (trust).”

Nonetheless, a majority of the Fiqh scholars specify it to the ahkaam (rulings) pertaining to wealth only.

Part 1: Fundamental Principles of Fiqh Mu’amalat

Financial administration encompasses many forms and processes. Furthermore, it matures well with time and becomes more complicated progressively. Therefore, the scholars laid out the fundamental principles in Fiqh Mu’amalat, based on rudimentary and substantial evidences, in order to derive hukm.

“The fundamental ruling in the affairs of mu’amalat is the consideration of its intent and well-being (that can be acquired from it).”

In order to explain further on how a hukm in the affairs of mu’amalat is formulated based on the objective to be fulfilled, we look at the ruling of a ruler’s intervention in setting the market price of an item. It is narrated in a hadith:

“The prices had spiked during the time of the Prophet s.a.w. So, the people said, “O Messenger of Allah, fix prices for us.
 Thereupon the Messenger of Allah said, “Verily, Allah is the one Who fixes prices, Who withholds, Who gives lavishly and provides, and I hope that when I meet Allah, none of you will have any claim on me for an injustice regarding blood or property.”

(Related by: Abu Dawood, no 3451; At-Tirmidhi, 1/247: Ibn Hibban, Ibn Hajar and Albani: Sahih)

The scholars view the prohibition of ‘setting’ a particular price during the time of Prophet Muhammad s.a.w. from the perspective of fulfilling the objective of upholding justice. It is based on the above-mentioned principle that highlights:

“The fundamental ruling in the affairs of mu’amalat is based on reasons and objectives.”

After a thorough analysis, the scholars agree unanimously that the maqasid (objective) behind the Prophet s.a.w.’s rejection of his companion’s appeal was to prevent injustice and violation of the seller’s rights in gaining profit according to the market price. Furthermore, there was no oppression during that period.

Nevertheless, when a monopoly on certain items occurred during the time of the taabi’een (the generation following the companions), the scholars of that time, such as Sa’id ibn Musayyab, Yahya ibn Sa’id al-Ansari and others, unanimously agreed that it was permissible upon the Islamic ruler to set a ‘maximum price’. This was, in fact, to prevent injustice upon the buyers. In the previous daleel (evidence), Prophet Muhammad s.a.w. intended to prevent injustice upon the sellers, while in this very case, the scholars of taabi’een derived the hukm of the ‘prohibiton’ to be permissible due to the maqasid to be fulfilled, which was to prevent injustice upon the buyers.

Part 2: Contracts of Islamic Mu’amalat

Chapter 2 fig 2 edited

Each contract entails its own conditions and pillars. In certain cases, one transaction may include two or three contracts. Thus, it is recommended that all the conditions of the contracts are observed.

Part 3: Pillars and Conditions of trading in Islam

The definition of trading in Islam is:

“Exchanging the ownership of property with another property for owning and being owned upon eternity.”

The scholars unanimously agree that trading is lawful based on very clear evidences such as:


“…Allah has permitted trading.”

[Al-Baqarah 2:275]

“But take witnesses whenever you make a commercial contract.”

[Al-Baqarah 2:282]

In order to gain profit, a financial institution usually uses a trading contract with customers. For that purpose, both parties must observe the pillars and conditions of trading.

Below is the summary:

Chapter 2 fig 3 edited

End of Chapter 2: Introduction to the Fiqh of Mu’amalat (Jurisprudence of Transactions) of the Islamic Finance Series.

– Money, You & Islam by Dr. Zaharuddin abd Rahman