Islamic Economics Course (GIFT Spring 2013)

1
Wel Come
Islamic Economics & Finance
By
Dr. Uzair Albazi
GIFT Business School
GIFT University, Gujranwala, Pakistan
=================================
=====
Ph: 055-3892989 Ext. 170 / Mob: 0301-8749911
Email:
[email protected]
2

COURSE
Topic 01
Introduction & Purpose of the Course
Topic 02
Definition of Interest (Riba), History, Verses of Holy Qur'an,
Ahadith
Topic 03
Economics, Commerce, Business & Trade
VS
Topic 04
Major Principles of Islamic Economics, Commerce, Buss & Trade
Topic 05 (a)
Verses of Holy Qur'an, Ahadith, Islamic Jurisprudence, Terms &
Conditions
3

Topic 5 (b)
Importance & History of Business in Islam
Role of Business in Islamic Society
Trade / Business Before Islam
Surah Al Quresh, its importance in Global Business
Imports & Exports of Arab Society
Currency system of Arab Society
Coins System
Transaction of Money in Islam

Topic 06
Definition of Banking, Origin, Different Types & Stages
Topic 07
Types of Conventional Banks, Banks' Businesses, Role of Banks
in Economy
Topic 09
Daily Functions of Conventional Banks, Types of Bank Accounts
Topic 10
Functions of a Joint Stock Co., Limited Co., Stock Exchange
Topic 11
Views of Scholars, Permissible & Prohibited Functions &
Islamic Solutions
5

Topic 12
Stock Exchange, Stock Market & Shares
Topic 13
Islamic Conditions For Dealing with Stocks, Shares and Cos.
Topic 14
Islamic Financing, Types, Sources
Topic 15
State Bank Of Pakistan Circulars, Economic Data, Economic Plans
Topic 16
Economic Model of Islam
Umer bin Khattab as a first Islamic Economist of a welfare state
Islamic Model of a Welfare State
6

Topic 16
Islamic Modes of Financing, Bai, Types, Islamic Conditions
Topic 17
Musharakah (Basic Rules, Terms & Conditions)
Topic 18
Muzaribah (Basic Rules, Terms & Conditions)
Topic 19
Murabahah, Ijarah, ORIGIN (Basic Rules, Terms &
Conditions)
Topic 20
Sallam, Istisnaa (Rules, Conditions)
7

Topic 21
Possible Role of Islamic Banks in Imports & Exports, Views,
Topic 22
Changes, Effects of Islamic Principles on Global Economy &
its Solutions
Topic 23
Insurance, Solution & Global Scenario of Islamic Banking ,
Reference Books
Islam Ka Qanoon-e-Tijarat
by Dr. Noor Mohammad Ghaffari

Qasas-ul-Ambiya Syed Sulaiman Nadvi rt
Al Farooq Allama Shibli Nomani rt
An Introduction to Islamic Finances
by Mufti Taqi Usmani

International Trade, Investment & Debt Management
Institute of Bankers, SBP
Bab-e-Umar
Encyclopedia of Islam
Bab-e-Moawiyah bin Abu Sufiyan
___do___
Bab-e-Omar Bin Abdul Aziz
___do___
Reference Books
Islam Ka Muashi Nizam
Ghaffari
by Dr. Noor Mohammad
Imam Abu Hanifa ke Siyasi Zindagi

by Syed Manazir Ahsan Gillani
Al Iqtisaad fil Islam (Economic Thought)

Dr. Allama M. Iqbal rt
Reconstruction of Religious Thought in Islam
___do___
Kuliyaat-e-Iqbal (Political & Islamic Welfare
Thought)
___do___
Sikkay Ke Tareekh (History of Coin)
Dairat ul Muarif
10
Reference Books
Central Banking
by DeCock
Commercial Banking
by Prof. Sayers
Practice of Banking
by Sheldon / Tannan
Development of Islamic Banking

by Saleh Kamal
Challenges Facing Islamic Banking

by Munawar Iqbal, Ausaf
11
Reference Books
Circulars of State Bank of Pakistan
SBP
SBP Act
SBP
Banking Companies Ordinance
Banking Recovery Laws
SBP
Principles of Islamic Financing
SBP
by Mouzar Kalif &

Tariqullah
12
Reference Books
Suud
By Anjuman Khuddam-ul-Quran Sindh, Karachi
Bahishti Zewer
By Maulana Ashraf Ali Thanvi
Targheeb-ul-Muslimeen
By Maulana Mohammad Musa Albazi

. Gulistaan-e-Qanaat
By Maulana Mohammad Musa Albazi
13
Reference Books
Halal & Haram (shariat ki rooshni mei)
By Hafiz Abdus Salam Bin Mohammad
Masla Suud
Mufti Shafi rt
Islami Bankari Ki Tashkeel-e-Jadeed
Ishtiaq Ahmed Farooq
14
Web Sites
www.statebank.org
www.islamcity.com
www.islamonline.com
www.lariba.com
www.islamicbanking.com
15
Program Description
(Islamic Banking, Islamic Finance, Islamic Economics):
Program Description (Islamic Economics & Finance):
The program aims to produce specialists in the discipline, well-versed in both the
conventional banking operations and Shariah-compliant rules in financial matters as well as

Islamic Economics so as to meet the demands of fast growing markets for Islamic
economics, banking and finance.
The program provides:

strong foundation in Shariah-compliant Islamic banking and finance practices;
analysis of Islamic structured products, regulation and supervision;
strong foundation in Islamic Finance, Economics and Islamic Law;
generates capability to concentrate on the major field of interest, its types, Trading and its
practices in the current market from Islamic perspectives;
develops innovative skills to handle independent projects of Islamic Banking & Finance
The aim of the course is to provide in depth knowledge and understanding of Islamic
Economics, Islamic Banking & Finance System. The course will further focus on the current
practices in business, Trade and banking and their comparison with Islamic practices. This
is a research oriented course with a purpose of developing key concepts of Islam in regard
to finance, business, Trade and banking. At the end of the course, the students will be able
to distinguish between Islamic and Un-Islamic Economics, finance, banking & business
practices.
16
Islamic Economics, Banking & Finance
Purpose:
To Eliminate Riba (Interest) based Transactions from the

current Banking, Economics, Finance and Trade Sectors
17
INTERNATIONAL OVERVIEW
Global Research Estimations:
Number of Islamic Institutions:
300 +
Islamic Deposit Pool
US$ 1000 B.
Islamic Assets Pool
US $ 600 B
Islamic Financial Investments
US$ 1200 B
(Sukkuk, Mutual Funds, TFCs, etc.)
Average Annual Growth Rate ranges between 20-25%
Number of Countries :
48 +
18
MAJOR COUNTRIES HAVING ISLAMIC BANKING
INSTITUTIONS
MUSLIM COUNTRIES:
Bahrain, Kuwait, UAE, Saudi Arabia, Iran, Malaysia,

Brunei, Indonesia, Sudan, Egypt, Bangladesh &
Pakistan.
NON MUSLIM COUNTRIES:
USA, UK, Canada, Switzerland,Australia, Germany and

Sri Lanka
19
Cont/d
MAJOR INTERNATIONAL CONVENTIONAL
BANKS HAVING ISLAMIC WINDOWS:

Citibank
ANZ Grindlays
ABN Amro
HSBC
Saudi American Bank
Saudi British Bank
American Express
Standard Chartered
JP Morgan
20
ISLAMIC BANKING IN
PAKISTAN
Developments in SBP:
Has already announced a scheme in January 2003 for
opening of Islamic Banks, subsidiary or dedicated

Islamic Banking Branch.
Establishment of an Islamic Banking Department.
Formed Sharia Board.
Recently announced issuance of Bank Licenses only to
Islamic Banks, hence, no new license shall be allowed
to Conventional Bank
Has prepared Essentials as Standards and Agreements
to be used by Islamic Financial Institutions (IFIs).
Governor SBP himself approves issuance of Licenses
for Islamic Banking Branches.
21
Overview of the Differences between

Islamic Banks and Conventional Banks
. 1)
Conventional Banks borrows funds from the depositors
paying interest on the liability side of the its balance sheet.
Islamic Banks makes Partnership, Mudarabah or Profit &
Loss sharing arrangements between the bank and the

depositors.
2)
Conventional Banks lends the funds to the borrowers

charging higher interest on the asset or the investment
side.
Islamic Banks arranges Musharakah or the trade based
financing arrangements (Mudharabah) between the bank &

its investment clients.
22
Overview of the Differences between

Islamic Banks and Conventional Banks
3)
There is iron-wall between the conventional banks and their

depositors.
Islamic Bank entitles the depositors:
-To be informed of what the bank does with their money.

-To have a say in where there money will be invested.
4)
The interest or the return in predetermined or fixed in advance
In Islamic banking, the profit or the return is based on the actual
investment outcome.
5)
In Conventional banking, transactions are financial asset based.
In Islamic Banking, transactions are real asset based.
23

Major Sources:
Holy Quran
Hadith (Sunnah)
Ijma of Ummat
Fiqh (Islamic Jurisprudence)
24
Riba
(Interest)
O Ye Who Believe, Fear from Allah and leave whatever is

from Riba, if you are (true) believers.
(Al-Baqarah: 278)
Time of Revelation:
Ahadith of Prophet Peace Be Upon Him:
25
RIBA
(Interest)
The
interest which you give to increase the wealth of

people, will have no increase with Allah: But that which
you lay out for charity, seeking favor of Allah (He will
increase): it is these who will get a recompense
multiplied.
Ar Rum 39 (First Revelation)
26
RIBA
(Interest)
Because of their abuse, we forbade the Jews good things
which were formally allowed to them: because time after

time they debarred others from the path of Allah: Since they
practice Riba although they were forbidden and cheat others
of their possessions. We have prepared a painful torment for
those of them who disbelieve.
An Nisa 160-161 (Second Revelation)
27
RIBA
(Interest)
O believers, devour not Riba, doubling its rate many times.

Fear Allah, and you will prosper.
Al-e-Imran 130 (Third Revelation)
28
RIBA
(Interest)
Those who devour Riba shall rise up before Allah like men whom
Shaitan has demented by his touch: for they claim that trading is
like usury. But Allah has permitted trading and forbidden usury. He
that receives an admonition from his Rabb and mends his ways may
keep what he has already earned: his faith is in the hand of Allah.
But he that pays no heeds shall be among the people of fire and
shall remain in it forever.
Al-Baqarah 275 (Fourth Revelation)
29
RIBA
(Interest)
Allah has laid His curse on Riba and blessed charity with
increase. He bears no love for the ungrateful sinners
Al-Baqarah 276 (Fourth Revelation)
30
RIBA
(Interest)
O you who believe, Fear Allah and give up what remains of your
demand for interest, if you are indeed a believer. If you do not, then
you are warned of the declaration of war from Allah and His
Messenger, But if you turn back you shall have your principal. Deal
not unjustly and you shall not be dealt with unjustly.
Al Baqarah 278-279 (Fourth Revelation)
31
RIBA
(Interest)
Al-Baqarah 278-279
If you are indeed believers: Prove your claim with your deeds
and actions.
Threat in the strongest words: Not used for any other crime.
Principle amount should be paid back.
Islam emphasis on justice: Deal not unjustly and you shall not
be dealt with unjustly.
After the revelation of this verse, Prophet (SAW) in his last
sermon at Hajjat-ul-Wada, which is called the charter / blue

print of Islam, declared: Interest claim in respect of
transactions during the days of ignorance are null and void and
would not be claimed. To begin with, we forego the entire
interest amount due to my uncle Abbas bin Abdul Muttalib (rt)
32
RIBA
(Interest)
What is Riba:
Riba means any excess compensation over and above
the principal which is without due consideration. Its a

premium paid to the lender in return for his waiting as a
condition for the loan.
In the words of Prophet (SAW), by Ali Ibn Abi Talib.
Every loan that draws interest is Riba.

Every Premium paid over and above the Loan is Riba
33
RIBA
(Interest)
Riba Selected Ahadith
By Hazrat Jabir ibn-e-Abdullah (RT): The Prophet peace
be upon him, cursed the receiver and the payer of

interest, the one who records it and the witnesses to the
transactions and said, They are all alike (in guilt).
(Muslim, Tirmidhi and Musnad-eAhmad)
- By Hazrat Abu Hurayrah (RT): The Prophet peace be

upon him, said, Riba has seventy segments, the least
serious being equivalent to a man committing adultery
with his own mother.
(Ibn Majah)
34
RIBA
(Interest)
Riba Selected Ahadith
By Hazrat Amr bin Al Aas (RT): When interest based
dealing becomes common among people, they will start

facing draught and shortage of food. And when bribery
becomes norm among people they will live under
constant fear of their enemy.
By Hazrat Abu Hurayrah (RT): The Prophet peace be upon
him said,
There will certainly come a time for mankind when
everyone will take Riba and if he does not do so, its
dust/smoke will reach him.
(Abu Dawood, Ibn
Majah)
35
RIBA
(Interest)
The prohibition of interest is not limited to Islam,
but it is shared by Judaism and Christianity.

Some of the old testaments have rendered Riba as Haram.
(See Exodus 22:25, Leviticus 25:35-36, Deutronomy 23:20,

Psalms 15:5, Proverbs 28:8, Nehemiah 5:7 and Ezakhiel
18:8, 13,17 & 22:12)
Agibi Bank was established circa 700 B.C in Babylonian and
functioned exclusively on equity basis.
36
RIBA
(Interest)
Hadith prohibiting Riab-al-Fadl
(By Abu Saeed Khudri
(RT)
Sell gold in exchange of equivalent gold
Sell silver in exchange of equivalent silver
Sell dates in exchange of equivalent dates
Sell wheat in exchange if equivalent wheat
Sell salt in exchange of equivalent salt
Sell barley in exchange of equivalent barley
(Reported in Muslim)
37
RIBA
Definitions:
Imam Abu Bakr Jassaas Razi (rta):
that kind of loan where specified repayment period
and an amount in excess of capital is predetermined.

Summary:
- All conditional benefits on loan falls in the category of

(Riba)
interest
38
TYPES OF RIBA
Al-Nasa (Al-Nasiah) or Riba-al-Jahiliya
Al-Fazal or Riba-al-Bai
Riba Al-Mufrad (Simple Interest):
Interest calculated only on the initial investment

Riba Al-Murakkab (Compound Interest):
Reinvestment of each interest payment on money

invested to
earn more interest.
39
TYPES OF RIBA
Interest (Commercial Interest):
Interest paid on loan taken for productive and profitable
purpose.
Usury (Sarafi Interest):

Interest paid on loan taken for personal needs and
expenses.
40
Riba
Quran strickly forbids all kinds of RIBA
Examples:
Jews of Madinah
Ansars dealings of interest with Jews for agricultural
purposes
Merchants of Makkah
41
Riba
Muslim Khilafah
Loans from Bait-ul-Maal
Business dealings of Sahabas among themselves
42
Riba
LAWS BY ALMIGHTY ALLAH:
Quranic Laws & Principles:
( Interest, lottery, gambling, unlawful businesses and

products)
Ahadith of Prophet peace be upon him
(Sunnah actions, dealings)

Moral Responsibilities for a Muslim
(Services to Humanity & focus towards the success in the

world hereafter)
43
ISLAMIC BANKING
History:
Zubair bin Awam rta
Usman bin Affan rta
Bait-ul-Maal
Caravans of Makkah
Imam Abu Hanifa
44
Loan & Trust

Difference between:
Loan (Qarz)
&
Amanat (Trust)
Conditions of Aqad / Agreement of Qarz
45
Bank Accounts
Current Account / Checking Account

PLS Account / Savings Account
Fixed Deposit Account / PLS Fixed Account / CDs
Foreign Currency Account
Lockers
46
Islamic Banking
Islamic Point of View about depositing money into those
Accounts
47
Economics
What is Economics?
To utilize the limited resources in a way that maximum
needs
and wants are met to ensure the well being of all
members of
the human society.
48
Economics
Problems Faced by Economy:
Determination of Priorities
Allocation of Resources (land, Labor, Capital, Entrepreneur)
Distribution of Wealth / Income
Development
We will compare how Capitalism, Socialism and Islamic

Economic
System addresses to these
problems.
49
(Problem 01)
Capitalism
Every Individual has an
unconditional and absolute

right to participate in any
business to maximize
profits.
Concept of selfish interest.
Supply & Demand will
determine the priorities.
Socialism
No individual has the right
to participate in any
business independently.
State will determine the
priorities as per the overall

planning.
Concept of collective
interest.
50
Allocation of Resources
(Problem 02)
Capitalism
Market force will decide
where to invest resources.
Socialism
Govt. will decide where to
allocate resources
51
Development
(Problem 03)
Capitalism
Market forces will decide
Socialism
Govt. will decide
52
Distribution of Income
(Problem 04)
Socialism
Capitalism
Land
Labor
Capital
Entrepreneur
Profit
Rent
Wages
Interest
-
Land Rent fixed by Govt.

Labor Wages fixed by
Govt.
53
Right to Wealth
Capitalism
Right to wealth is with the
factors of production only
Socialism
Right to wealth with the
Govt. which then

distributes it among the
factors of production
54
Flaws of Capitalism
No bindings / restrictions while maximizing profits.
Blindly follows market forces that creates exploitation of
labor and poor people.
No moral values limitations

Monopolies are created that exploit the society as a whole.
Govt. & Industrialists join hands for mutual benefits and
make laws that exploit common people.
Imbalance in the distribution of Income due to which
concentration of wealth takes place.
55
Flaws of Socialism
The other extreme of not even giving the natural
freedom.
Perfect planning is assumed to be the Cure of all ills.
Govts. are assumed to be the angels which cant commit
a deliberate mistake.
Can not work without a forceful dictatorship.
Creates overall inefficiency in the society. There is no
incentive to work efficiently as there is no individual

profit motive.
56
Economics
Capitalism:
Freedom of business
Law of supply & Demand helps
Resources (land, labor & capital) will be used
Competition will force to improve, create and gain
maximum.
Distribution of wealth among producers of wealth only
(law of supply & demand will help to decide their share)
57
Economics
Producer of Wealth:
Land
Labor
Capital
Owner
will
will
will
will
get
get
get
get
Rent
Wages
Interest
Profit
58
Economics
Socialism:
No Freedom
No Private Ownership
Govt. will decide about
Allocation of Resources
Distribution of Income
Development
It is also called Planned Economy
59
Economics
Principles:
Collective Property
Planning
Collective Interest
Equitable distribution of Income
60
Economics
Islam:
Everything belongs to Allah
Private ownership is accepted
Some restrictions applied to run your economy
Law of supply & demand is accepted
61
Economics
Restrictions:
Halal & Haraam (through Wahi)

(Interest, gambling, lottery)
State Restrictions
(Smuggling, dealing in any restricted business etc)
Moral Restrictions / Responsibilities
62
Economics
Direct Producer of Wealth:
Land
Labor
Capital
Through
Owner
Rent
Wages
(Not Interest) Profit & Risk of Loss
Musharikah & Mudahiribah
Profit or Loss
63
Economics
If everything belongs to Allah, then He decides to share your
wealth with others (their right) through:
Zakaat
Khiraaj
Ushr
Sadaqah
Kaffarah
Sacrifice / Qurbaani
Wirasaat
64
Summary of the Comparison

Capitalism:
gives unbridled and un conditional right
to profit motive and private ownership.
Socialism: goes to other extreme by assuming that perfect
planning by the Govt. is the cure of all ills.
Islam:
gives a balance view among the two extremes
by recognizing the right to private ownership, market forces
and profit motive but the restrictions of:
-Halal & Haram
-Govt. restrictions
-Moral values
Islam ensures equitable distribution of wealth through the
concept of primary ownership of Allah and secondary

ownership of factors of production.
65
Islamic Trade & Finance

Business by Companions of Prophet PBUH:
All Four Caliphs were Businessmen
Ashara-e-Mubashirrah were Businessmen
First Muslim Lady Khadija rt were a Business woman
Abu Bakr rt had a Cloth Mill and a Go down / warehouse of
clothes at place Sakh near Madina.
(ref: Ibn Sad, Tabqaat. Vol 3, p. 131, Zikr Abu Bakr rt)
Umer rt use to deal with Persian business community.

(ref: Musnad-e-Ahmed. Vol. 1, p. 62 &Vol 3, p. 347)
Zubair bin Awam rt use to deal in clothes and use to do
import and export with Syria (Shaam)

(ref: Fath-ul-Baari. Vol. 3, p. 265)
Usman rt use to deal in Parcha Farooshi

(ref: Kitab-ul-Maarif by Ibn Qutaibah. P. 193)

Abu Sufiyan rt use to deal in Oil and Leather.
(ref: Kitab-ul-Maarif by Ibn Qutaibah. P. 193)
Abbas bin Abdul Muttalib rt use to import fragrance from
Yemen.
(ref: Tarikh by Imam Tabri. P. 1162)
Amr bin Aas rt and Ammarah bin Waleed rt use to do business
dealings with King Najashi and his Ministers.

(ref: Fath-ul-Baari, vol. 3, p. 469)
Story of Hazrat Abdur Rehman bin Auf rt

(He was made brother of Sad bin Rabee Ansari rt.
(ref: Bukhari, Kitaab-ul-Buyou, Chp. 1)

Connection of Masjid and Market in islam:
Rights of Allah in Masjid
Rights of Human Beings in Business Market
Businessmen must have strong connection with Masjid, if
he/she wants to be purified.

What are Majalis-e-Zikr?
By Ata bin Abi Rubaah ra

Islamic History of Trade & Business:
Prophet Adam pbuh
Prophet Sulaiman pbuh (ref: Dairat-ul-Maarif by Fareed Wajdi. Vol. 2, p. 540
(Bairut)
First International Business Centers:

Capital Soor of Kingdom Qainqia (Next to Bahr-e-Room of Syrian Territory)
Then Persian Empire take over. City Babul (next to Gulf Sea)
becomes the Global Business Center.

Then Roman take over. (Economy was booming during the time of King
Boomi & Aghost. Downfall started during the time of Scissor Tabeer. Late
King Terajohn, Mark and Bill tried to strengthen their Grip on International
Economy but failed)
Then Arab areas (Makkah during the Hajj, Madina and Taif for Farming
Products) become the Focus and the Center of International Trade
due to:
Peaceful atmosphere
Rich Arab Culture
Strong Religious feelings & Attachments of public for those areas

Traveling of Quresh for Business:
Syria in Summer
Yemen in Winter
(Ref: Surah Quresh, Juzz 30, surah 106)
History:
These journeys started by great grandfather of Prophet Pbuh,
Hashim. Once during a sever drought in Makkah. First time, he

traveled to Palestine and brought Wheat and Flour and served his
nation.
Then he started traveling on continues basis to Palestine & Syria.
(ref: Tarikh by Ibn Tabri. P. 1089)

Quresh Traveling to other Areas:
Africa
Egypt
Sudan
India
Iran (Persia)
Rome
Quresh means Businessman

Security issues/measures of these Caravans
Custodians of Kaaba
Belongs to Spiritual Land
100-300 Guards
Abu Sufiyan Caravan (100 guards + 2500 camels loaded with
merchandise goods worth of 50,000 gold coins)

Exports of Makkans:
Leather
Animals Skins
Dates
Raisons
Imports of Makkans:
Fragrances
(Yemen)
Spices
(India & Africa)
Herbal Producs (India & Africa)
Wheat
(Syria & Palestine)
Silk
(China)
Clothes (Adan)
Labor, Slaves, Army
(Africa)
House Decoration Items
(Syria & Egypt)
Industrial Products like Silk, Cotton, Thread, Velvet Clothes
(Roome)
Military Equipments, Oil
(Syria)
Gold, Gold mixed Sand, Elephant Teeth (Africa)

Arab/Quresh Business Treaties:
Muahadath-e-Elaaf (Agreements of peace & Protection) with
neighboring tribes & nations.

First Treaty was made by Hashim bin Abd Munaaf bin Qusa
with the Scissor (Qaisar) of Syria. On the way back, he also
made Muahadath-e-Elaaf with every nation, he passed by.
After the death of Hashim, his three brothers Abd Shams,
Muttalib and Noufal renew those agreements as well as
made more Business Treaties with other kings like:
Abd Shams made a Business Treaty with King of Najash
Muttalib made a Treaty with the Leaders of Yemen
Noufal made a Treaty with the King of Persia.

Coins:
Dinar:
Roman Dinar, Hiraqali Dinar and Bazinteni Dinar
Dirham:
Tibri Dirham, Baghli (Persian) Dirham

(Wt. 10, 12 & 20 Qirats)
Humari Coins:
No details available in the history

Scales to measure:
Dinar:
Dirham:
Shaeer:
Oqiyah:
Nuwaat:
Misqaal;
Rital;
Nash:
to check the wt of Dinar

to check the wt of Dirham
it was equal to 1/60 of dirham
it was equal to 40 dirhams
it was equal to 5 dirhams
equal to 22 Qirat, Egyptian
misqaal was equal to 24 Qirat
equal to 12 Oqiyah
equal to 20 dirham

(References:)
Futuh-ul-Baldan, Bilazri. P. 467
Muqadimah, Ibn Khuldon, Chp 46,
Encyclopedia of Islam, vol 3, Chp. Makkah
Aghnides, N.P.: Muhammadan Theories of Finance. New York,
1916, p. 264

Business Transaction / Dealings during Jahiliyat:
Bai Munabazah
Bai Mulamasah
Bai Hibl-ul-Hiblah
Bai Sufqah
Bai Muhaqalah
Bai Muzabanah
Bai Musarrat
Bai Urbaan
Bai Baksh
Bai Muztar
Bai-ul-Kaali bil kaali
Bai Ghurar

Organized Business Markets:
It was started by Caliph Mansoor Abbasi
Market of Fragrance
Market of Black Smiths
Market of Carpenters
Market of Clothes
Market of Meat
- At the Time of Fatimees, More additions were made like:
Market of Chickens
Market of Pet Birds
Market of Sweets
Market of Traveling bags and Beds
Market of Fruits
Market of Shoes and Leather Items
Market of Gold
(more than 100 shops in each market)
Each market was facilitated with:
Two ways traffic and two lanes Roads
Hotels
Lower portion to keep the luggage of Passengers
Upper to Reside & Rest
Each Market was Controlled by a Muhtassib

(Supervisor)

Cheaque:
It was started as a medium of exchange during the

time of Caliph Haroon Rasheed
(Ref: Al Hizar-ul-Islamia, vol. 2, p.

316-330)

Major Principles of Business in Islam:
Aqeedah / Belief:
Everything Belongs to Allah

Verses of Holy Quran
Ahadith of Prophet pbuh
All Muslims are like Brothers

Soft Heart in Business


Freedom in Business:
No Restrictions in doing Halal Business
State Laws applied/ imposed for the benefit of Public
Ahadith of Holy Prophet pbuh

Principles of Islamic Business Agreement:
Ability
Mutual Understanding and Agreement
Mutual Support and Help
Obedience to Allah and service to Humanity

Ahadith of Holy Prophet Pbuh
Terms
Definitions:
Bai
Mabeea
Saman
Qadar
Price
Ijab
84
Terms
Tarkah
Dain
Madyun
Daiin
Muzarib
Rab-ul-Maal
Rasul Maal
85
Islamic Concepts
Legal Person
Shares
Under Writing
Limited Company
Kick Back
Roll Over
Libor / Kibor
86
Types of Bai
(according to validity)
Definitions:
Bai Sahih
Bai Batil
Bai Fasid
Bai Mauqoof
87
Islamic Sales Contract

Bai Sahih (Valid Sale):
A sale is valid if all elements together with their
conditions are present
Elements of a valid sale are:
Contract (Aqd)
Subject Matter (Mabeea)
Price (Saman)
Possession or delivery (Qabza)
88
Islamic Sale Contract

Aqd
(Contract)
Possession
(Qabza)
Bai Sahih
(Valid Sale)
Subject
Matter
(Mabeea)
Price
(Saman)
89

Elements of Bai Sahih (Valid Sale):
Contract (Aqd):
Offer & Acceptance (Ijab-o-Qabool)

Oral (Qauli)
Implied (Hukmi)
Buyer and Seller must be:

Sane
Adult / Muture
Wise
Conditions of Contract:
Sale must be non contingent
Sale must be immediate
90

Subject Matter (Mabeea)
Existing
Valuable
Usable
Capable of ownership / title
Capable of delivery / possession
Specific & Quantified
Seller must have title & risk
91

Price (Saman)
Quantified (Maloom)
Specified & Certain (Mutaiyan)
92

Qabza (Delivery / Possession)
Physical (Haqiqi)
Constructive (Hukmi)
93
Basic Rules of Bai

(buying / selling)
Nobody can sell such Product / Commodity which:
Does not exist
No ownership
Not in the possession
Note:
Exceptions are:
(1) Bai Salam
(2) Bai Istisna
94
Sale Agreement
- Difference between Actual Sale & Promise of Sale
95
More Rules of Bai

Bai must be on unconditional basis & implemented right
away. If the sale of any product is attached with a condition
of any future incident or date, it will not be valid.
Bai must be done of such product which has a value/price in
the market
Bai of a product is not permissible, which has no use other
than Haram
96
More Rules of Bai
Product must be identified, clear with all demanding qualities
Selling product must be given in the possession of buyer. It

should not be based on any incident, struggle etc.
Price of the product must be clearly mentioned and identified
There should be no unusual condition in Bai otherwise

it will not be valid
97
Modes of Financing
Musharakah
Mudharibah
Murabahah
Ijarah (Lease or Hire)
Ijarah Wa Iqtinah (Hire-Purchase)
Bai Salam
Bai Istisna
98
Modes of Financing
Musharakah:
It is the same financing contract as Modarabah except that
client also provides a part of capital in addition to
management participation. On the other hand, Islamic bank
may also contribute in the management in addition to its
capital. In that case, management fees and distributable
profit form the enterprise are shared by the client and
Islamic Bank in accordance with ratios fixed under the
Musharakah contract.
99
Modes of Financing
Modharibah:
Modaribah is a contract between an Islamic Bank and the
client whereby the Islamic bank provides specific amount of
funds to the clients for an enterprise for defined purposes
in exchange for a reasonable and highly predictable profit.
The client receives a share in the profit as compensation or
fee for his management.
100
Modes of Financing
Murabahah:
Under this deal, Islamic Bank purchases goods, raw
material, equipment, machinery or any other items of
economic significance from a third party at the request of a
client and sells such goods to the client on spot or deferred
payment basis at it s own sale price. The difference
between the purchase cost of the Islamic bank and the sale
price to the clients forms the profit called Mark Up.
101
Modes of Financing
Ijarah (Lease or Hire):
The bank acquires machinery /equipment, building etc for
his client and charges a certain rental for their use.
Ijarah Wa Iqtinaa (Hire-Purchase):

The bank finances the purchase of equipment and the
client uses them under a contract. The contract provides
that the client will pay the cost of the instrument and a
share in the net rental value of the equipment which is
proportional to the outstanding shares in the total
investment.
102
Modes of Financing
Bai Salam:
Seller undertakes to supply specific goods to the buyer /
bank at a future date in exchange of an advanced price fully
paid at the spot of agreement.
Purpose:
-To meet the need of small farmers who need money to
grow their
crops and to feed their family up to the time of harvest.
-To meet the need of traders for import and export of goods.
103
Modes of Financing
Bai Istisna;
The Bank enters into an agreement with the client for
purchase of any goods before it comes into existence.
It is an order to producer to manufacture a specific
commodity for the purchaser.
104
Condition for a Valid Deal

Conditions for Islamically Valid Dealing:
All/both parties must have the ability of dealing
Deal must be done with free will
No intention of cheating / fraud
No false statement
105
Conditions for Musharakah Dealing

. All given 4 conditions must be applied, Also
Profit ratio for each party must be decided in the beginning
of agreement
Profit sharing ratio must be based on the percentage of
actual outcome of the business, not on the basis of actual

investments percentage
106
Profit Sharing Ratio of

Musharika
Q: Is it necessary to have the profit sharing ratio according
to the actual investment ratio?
Ans: Three Opinions:

According to Imam Malik rt, Imam Shafi rt, it should be
according the investment ratio.
According to Imam Ahmed rt, it could vary, if it is decided
with a free will of all parties.
According to Imam Abu Hanifa rt, it could vary except the
sleeping partner.
107
Loss Sharing Ratio

of Musharikah
According to all Imams, loss sharing ratio of each
partner
must be equal according
to the percentage of their investment.
108
Dissolving Musharakah
Any party can dissolve the Musharakah agreement by give
notice to the other party.

Upon the death of any partner.
If a partner is not in sane anymore (for long time)
109
MUZARIBAH
Features of Muzaribah:
Investment from (one party) Rab-ul-Maal only.
No participation in business or management
All loss must be suffered by Rab-ul-Maal only.
Rab-ul-Maal must carry all liabilities of Business
All assets will be the property of Rab-ul-Maal
110
MUZARIBAH
MUZARIBAH AL MUQAYYIDAH:
-Investment for a specified business only
MUZARIBAH AL MUTALLAKAH:
-Free option to do any business
111
MUZARIBAH
NOTE:
All four Imams agree that no salary will be given to Muzarib
on his/her services.
According to Imam Ahmed rt, compensation for daily food
allowance can be given.
According to Ahnaf, compensation for daily food can be
given only,
if the Muzarib travels out of town.
112
Murabihah
Features:
Basically, its not a mode of financing but a source to avoid
interest dealing. It should be used only where Musharaikah

and Muzaribah not workable.
Just using the name of Mark Up or profit instead of
interest does not make it permissible until all the terms

and conditions set by Islamic Jurisprudence are fulfilled.
113
Murabihah
Its not a type of loan but a deal (Bia/Agreement).
Murabihah can be used as a source of financing only

when the client needs funds to purchase any
product/machinery/equipments etc.
The product which is given on Murabihah basis must be

in the possession of owner.
114
Murabihah
Sharing of risk of loss differentiate Murabihah from the

interest category.
It is important for a Murabahah dealing that the product

must be bought from a third party. On buy back basis,
Murabihah deal will not be valid.
Roll Over is not valid in Murabihah.
If the actual cost can not be identified, then Murabihah

deal is not possible. In that case, we must use Bai
Musawamah.
115
Murabihah
(Agreement)
Client & Bank

(Agreement)
Bank & Wakeel
(Agreement)
Product Pocession
By Bank
Wakeel & Seller

(Deal)
Bank & Client
(Deal)
Liability of Client
116
Murabihah
(Agreement)
Bank
&
Client
Client
&
Bank
Wakeel
&
Bank
Bank
&
Wakeel
Wakeel
&
Seller
117
Ijarah
Features:
Lessor stays as owner and the lessee has the right to use
the item/good.
Leasing is not permissible for consumable goods.

Lessor will be responsible for all liabilities related to that
property/good etc like taxes. Lessee will be responsible for

those liabilities only, which can be used/benefited while
using that good/item etc. like Bills, etc.
118
Ijarah
Risk of loss of that property/good will stay with lessor. If

Lessee is responsible for any Loss/damage, he/she has to
afford it.
Leasing Time, Duration, Rent etc must be decided in the

beginning of the contract.
Lessor cant increase the percentage/share of rent by

himself.
119
Salam
Conditions:
It is necessary to pay the lump sum amount in the
beginning of Bai Salam contract.
Salam is permissible only on those items which can be
quantified or measured.
Salam is not valid for a specific farm/land/garden etc.

The product must be identified, quantified clearly with all
qualities.
The date of delivery, time, and the place must be
mentioned clearly.
120
Istisna
Features:
Not necessary to pay the amount in Advance like Bai Salam
Price must be decided in the beginning of the contract
Qualities, features of that product must be clearly
identified
121
Istisna
Canceling Istisna:
one party can cancel the Istisna deal by giving notice to the
other before starting production/purchasing etc

if the production/work has already started, then it cant be
cancelled from one side.
122
Difference between
Istisna & Salam
Istisna
Istisna is permissible for any
item / commodity which need

to be produced / manufactured.
In Istisna, advance payment is
not necessary.
In Istisna, it could be cancelled,

if the production is not started
yet.
Date, Time of delivery does not
Salam
But in Salam, it could or
could not be. Or Subject

can be anything.
In Salam, it is necessary to
make full payment in
advance.
In Bai Salam, it can not be
cancelled one sided.
have to be fixed.
In Salam, it is the basic

part of the deal.
123
Project Financing
Proposed Methods:
Musharikah
Mudharibah
Basic Principles:
Financing through Musharikah and Mudharibah does not
mean the advancing of money. It means participation in the
business in the case of Musharikah, sharing in the assets of
the business to the extent of the ratio of financing.
An Investor must share the loss incurred by the business to
the extent of his financing.
The partners can determine with mutual consent any ratio of
profit which may differ from the ratio of investment. However
the partner who has excluded himself from the responsibility
of work for the business cannot claim more than the ratio of
his investment.
124
Project Financing
Project Financing:
If the financier wants to finance the whole project, the
form of Mudharibah can come into operation.
If investment comes from both sides, the form of
Musharikah can be adopted. In this case:
If the management is the sole responsibility of one

party, while the investment comes from both, a
combination of musharikah and Mudharibah can be
brought into play according to the rules.
Since it would be a new project, no problem with regard
to the valuation of capital should arise.
125
Project Financing
The distribution of profits according to the normal accounting
standards is not difficult.
If the financier wants to withdraw from the Musharikah, while
the other party wants to continue the business, the later can
purchase the shares of the former at an agreed price. In this
case, the financier may get back the amount he has invested
along with a profit, if the business has earned a profit.
The price of his share would be determined through valuation
of the assets called as constructive liquidation with mutual

consent of the parties.
In the case of loss, however any decrease in the total value of
the assets would be divided between them in the ratio of

their investment.
126
Project Financing
Since financial institutions do not normally want to remain
partner of a specific project for good, they can sell their

share to other partners of the project.
If the sale of the share on one time basis is not feasible for
the lack of liquidity in the project, the share of the financier

can be divided into smaller units and each unit can be sold
after a suitable interval.
Whenever a unit is sold, the share of the financier in the
project is reduced to that extent, and when all the units are
sold, the financier totally comes out of the project.
127
Import Financing
Import Financing:
Conventional Banks charge two types of fee for the
service of letter of credit which the bank provided to the

importer. They are:
Service Charges for the opening an LC

Interest charged on the LCs not opened on full margin.
128
Import Financing
Collecting service charges for this purpose is allowed, but
as interest cannot be charged in any case, scholars have

proposed two methods for financing LCs.
These methods are:
Musharikah
Morabihah
129
Import Financing
Musharikah:
The appropriate substitute for LC is Musharikah. Bank and
importer can make an agreement of Mudharbah or Musharikah
while opening LC. If LC is being opened at zero margin then an
agreement of Mudharbah can be made, in which bank will
become Rabb-ul-maal and importer will be regarded as Mudarib.
Bank will own the goods that are being imported and profit will
be distributed according to the agreement.
If LC is being opened at some margin then Musharikah
agreement can be made. Bank will pay the remaining amount
and the goods that are being imported will be owned by both of
them according to their share of investment. Bank and importer,
with their mutual consent can also include a condition in the
agreement, whereby, Musharikah or Mudharibah will end after a
certain time period even if the goods are not sold. In this case,
importer will purchase the banks share at the market price.
130
Import Financing
Murabihah:
At present Islamic banks are using Murabihah to finance
LC. These banks themselves import the required goods

and then sell these goods to the importer on Murabihah
agreement. Murabihah financing requires bank and
importer to sign two agreements separately. One for the
purchase of goods and other for appointing the importer
as the agent of the bank (that is agency agreement).
Once these two agreements are signed, importer can
negotiate and finalize all the terms and conditions with
the exporter on behalf of the bank.
131
Murabihah
(Agreement)
Bank
&
Client
Client
&
Bank
Wakeel
&
Bank
Bank
&
Wakeel
Wakeel
&
Seller
132
Export Financing
Two important roles of bank in Exports:
They act as a negotiating bank and charge a fee for this
purpose which is allowed in Shariah.
They provide export financing facility to the exporters
and charge interest on this service.
These services are of two types:

Pre Shipment Financing
Post Shipment Financing
133
Export Financing
Pre Shipment Financing:
Pre Shipment Financing can be fulfilled by two methods:
Musharikah
Murabihah
Musharikah:
Bank & Exporter can make an agreement of Musharikah
or Mudharibah, if exporter is not investing, otherwise
Musharikah agreement can be made. Agreement in this
case will be easy, as cost and expected profit is known.
Exporter will manufacture or purchase goods and profit
that will be obtained by exporting, will be distribute
between them according to the pre determined ratio.
134
Export Financing
Problem:
If the exporter is not able to deliver the goods according to
the terms and the conditions of the importer then importer

can refuse to accept the goods and in this case exporters
bank will ultimately suffer.
Solution:
it can be rectified by including a condition in Mudharibah or
Musharikah agreement that if exporter violates the terms and
conditions of import agreement then the bank will not be
responsible for any loss which arises due to this negligence.
This condition is allowed in Shariah as the Rabbul Maal
is not responsible for any loss that arises due to the negligence
of Mudharib.
135
Export Financing
Murabihah:
Murabihah is being used in many Islamic Banks for export
financing. Banks purchase goods that are to be exported at

discounted (less) price than the agreed price between the
exporter and the importer. Bank exports goods at the
original price and thus can earn profit.
Murabihah Financing requires bank and exporter to sign at
least two agreements separately.
One for the purchase of goods

Second one for appointing the exporter as the agent of
the bank
Once these two agreements are signed, the exporter can

negotiate and finalize all the terms and conditions with the
importer on behalf of the bank.
136
Export Financing
Post Shipment Financing:
It is similar to the discounting of Bill of Exchange. Its
alternate Shariah compliant procedure is as follows.
Exporter with Bill of Exchange can appoint bank as his

agent to collect receivable on his behalf. Bank charges
a fee for this service.
Bank can provide interest free loan to the exporter
equal to the amount of bill and exporter will give his
consent to the bank that it can keep the amount
received from the bill as a payment of loan.
137
Export Financing
Here two procedures and
two different agreements will be made.
One will authorize the bank to collect the loan on his
behalf as an agent, for which he will charge a fee.

Second will be for providing interest free loan to the
exporter and authorizing bank for keeping the amount

received through bill as a payment for loan.
This method is valid in Shariah because:

collecting fee for service and giving interest free loan is
permissible in Islam.
138
Islamic Ways of Insurance

Conventional Insurance Principles
Pooling of Risk
Payment of fortuitous loss
Risk Transfer
Indemnification
Profit for the share holders from underwriting results
and investments
139

Why NO to conventional Insurance?
Is something wrong with the concept?
Risk Aversion
Assuring others
Risk sharing
Q:
What is wrong with the practice?
Ans:
The contract between the insurer and the
insured is
technically wrong from the Shariah
perspective because of:
Gharar & Riba
140

Gharar:
Lexically it means uncertainty and technically it means the
uncertainty of the counteract or the subject matter or the

period
in a commutative contract.
The element of Gharar in the commercial insurance
contract
The insurer does not know how much he would owe to an
individual.
Some times an insured does not know either how much

he would pay ultimately to the insurer
In case of no claim from the insured in general

insurance, then Qimar emerges.
141

Riba in Commercial Insurance:
Direct Riba
Excess on one side in case of exchange between the

amount of premium and the sum insured
Indirect Riba
The interest earned on interest based investments
142

The concept of Takaful:
Features:
Taburro (contributions) from the participants (Policy

Holders) to create a fund which will provide financial
help at the occurrence of certain losses
Partnership among the participants
Need of an operator
The management contract between the participants
and the operator
Investments in Shariah compliant modes
143

Different Models:
Pure Mudharabah Model:
The participants and the operator enter into an Mudahrabah contract

from the beginning of the relation, for indemnification and share of
the underwriting results
Wakalah Model (hybrid of wakalah & Mudarabah):
An agency agreement is made between an individual willing to

participate in the fund and the operator working as the manager of
the fund. The operator earns an upfront deductible fee and shares
the profit of investments, it does not share the results of
underwriting.
Wakalah based on Waqf:
The share holders create a waqf fund to extend the help to those who
want to cover against financial loss. The participants contribute to
the fund and the operator manages the fund. All under writing
results belong to the fund which itself has a legal entity.
144
Business Ethics In Islam

Definition of Business In Islam:
Ahadith of Prophet Peace be Upon Him
145
CODE OF ETHICS
Islamic Business
Difference between
Business/Trade (Bai)
&
Interest
Islamic Business Ethics

Major Principles of Trade/Business (Bai):
Free will between buyer & Seller
Cooperation & Solidarity between both parties
Equal opportunities to gain profit for both buyer and seller
Service to Humanity
Major Principles of Riba (Interest):

Confirmed Profit for a lender and chances of Risk of Loss for
the borrower only.

Acceptance based on Selfishness and taking advantage by
the lender but acceptance is based on helplessness and
grief.
Lack of Cooperation between parties.
CODE OF ETHICS
Marketing
Publicity & Advertisement:
Promotion & Marketing of Products is allowed with in the
boundaries of Shariah
Limits / Boundaries:
Todays Advertisement
involvement of Women
Exposure of bodies
Putting Lust in the minds
Lies about the Products (claim of purity & quality)
Fake Praises
CODE OF ETHICS
Marketing
Publicity / Advertisement Effects on Economy & Social
Life:
Attraction toward lavishness

Attraction toward greediness
Increases the graph of the crimes
Attraction toward luxurious life style even though beyond the
earning capacity, which ultimately leads toward corruption
Artificial increase in the demand of products (disturbance in the
natural law of supply & demand), which will lead toward the
demand of increase of supply. Ultimately it lead toward a
materialistic and selfish life.
Effects on the inflation and deflation in the country
Breaks the Basic Islamic philosophy of Simplicity
Most of the crimes (Robbery, stealing etc) are made by rich people
Effects the Moral Values & Culture of the society
Produce an Immoral, unequal, unjust society
Divert the attention from the main goals, objectives & cause
(service to Islam)
CODE OF ETHICS
Marketing
Islamic Philosophy about Publicity:
It should not be use to benefit the industrialists only. But
for the benefits of customers / individuals as well.
Teachings of Islam:
Avoid Lavishness:
O Children of Adam! Take your adornment (by wearing
your clean clothes), while praying and going round (the

Tawaf of) the Kabah, and eat and drink but waste not by
extravagance, certainly He (Allah) likes not Al Musrifun
(those who waste by extravagance).
(Surah Al Aaraaf, Chp 8, V: 31)
CODE OF ETHICS
Marketing
Surat ul Asraa, Verse: 26-27, Chp: 17
And those who, when they spend, are neither extravagant
nor niggardly, but hold a medium (way) between those

(extremes).
(Surat ul Furqaan, Verse: 67, Chp: 19)
Hardworking
&
Simplicity
Muslim is always strong:
Umer rt, once felt that the new generation of Arab becoming use to of
comfort. He advice them to work in the sunshine and stay strong by

saying: Sun is the Hammam (place of bath) for Arabs.
On another occasion, he said to the Arab youngsters:
Be strong and hardworking, these bounties will never stay permanently.
Hadith:
Once Prophet peace be upon him said to Muaz bin Jabal rt, Stay away from
luxurious living style. Certainly, the (true) slaves of Allah never become
use to of luxurious life.
(Ahmad, Chp: Fazl ul fuqaraa, Hadith: 6)
Code of Ethics
Price Control in Islam
Price Control:
According to the Islamic principles, the prices of the market are under the
control of law of supply & demand. One of the main reason / source of the
fluctuation of prices is due to the shortage of basic need products, which
happens due to unislamic activities like storage (Ihtiqaar) etc. Islam strictly
forbids all these kind of activities and opens the door of free market for
everyone. When all those goods will be brought into the market without any
restrictions and their demand and supply will be on natural basis then this
will help to keep the prices of the products on a balanced level.
Islam has not allowed any Govt. to impose restriction on prices and price
level as well as on demand and supply law. It will be the duty of the Govt. to
control this man produced shortage of products, eradicate and discourage
the sources of monopolies and Ihtikaar (hoarding). But if the shortage of
any good occurs due to any natural disaster, then it becomes the duty of the
State to control even from the outside sources
Once during the time of Caliph Umer rt, sign of drought occurred and prices
of the products rise high. He immediately imported wheat and other goods
of basic needs on a large scale from Syria and Egypt and controlled the
happening of drought and the rise of prices.
(Ibn Jouzzi,
Seerat Umar Bin Khattab, P. 154)
Price Control
Hadith: once Sahaba rt asked Prophet bbuh to decide/set the
prices of the products. He refused to do so.
It is narrated by Anas rt that once at the time of Prophet pbuh,
prices rise high. Then the sahaba rt requested Prophet pbuh, O

Prophet of Allah, it will be good, if you decide the prices for us.
He replied, certainly Allah is the one who controls, sustains and
creates ease. I wish that I meet Allah in a condition where no one
claim any offence on me which I have done on him either that
offence is related to blood or goods (Maal).
(Tirmidhi,
Ibn Maaja)
It is narrated by Abu Hurairah rt that a man came to Prophet
pbuh and said, O Prophet of Allah, Please decide the market

prices for us. He replied, I can make only dua for you. Then
another person came and made the same request, He then
replied, only Allah is the controller of prices and I want to meet
Allah in a condition where no offence stay on my shoulder.
(Tabrani)
Price Control
Hadith:
Once the prices went high at the time of Prophet pbuh.
People asked, O Prophet of Allah, prices went high, you

decide the market rates for us. So we can stick on it. He
replied, certainly increasing or decreasing in the prices is by
Allah and it is not suitable for us to interfere in the matters
and decisions of Allah.
(Abu Dawood, Kitaab-ul-Buyu)
These Ahadith of Prophet pbuh clearly shows:

State has no right to set prices
It is considered a Sinful Act
It is considered a Major Offense
Price Control in Islam

Price setting (Taseer) is prohibited according to all
Imams/scholars.
According to Hanabala, famous scholars like Shamsuddin abul firaaj
Abdul Rehman bin Abu Bakr writes:
The ruler has no right to decide the prices for the products of
basic needs. Leave It on the public, however they are willing to
sell it.
Imam Shafi rt has the same opinion.
According to the scholars of Ahnaaf, their opinion is mentioned
by Marghenai rt in his book Al Hidaya with those wording:
It is not appropriate for the ruler to bound the public on controlled

prices because Prophet pbuh said, do not decide prices because Allah
decides it, He creates ease and difficulties and He sustains. And also
that, information of price is the right of the seller therefore, only he can
decide it and state should not interfere in their rights. But if for the
purpose of public benefit, it is required, then is acceptable. If the
merchants start charging higher price of basic needs items and the
judge can not defend the benefits of public but by fixing the state
controlled prices of those items then with the opinions of other skilled
and experts, it is allowed.
(Al Hidaya, Baab Al Karahiya)
Masail of Profit
Ghaban-e-Fahish:
Q: What is Ghaban-e-Fahish?
It means invalid profit. Islam does not restrict the limit
of profit but does not accept the Ghaban-e-Fahish either.

Normally the seller takes the advantage of buyer
because of his need for the Mabeea. Islam has

forbidden of taking this kind advantage of the need of
the buyer.
Masail of Profit
Q:
Q:
Can a limit be assigned for a Ghaban-e-Fahish?

What is the order about the Bai of a Ghaban-e-Fahish.
Ans: Scholars have different opinion in assigning the limit
for Ghaban-e-Fahish.
According to the scholars of Ahnaaf, Ghaban-e-Fahish is
such price which is beyond or above the expected market

price of the public.
E-g: If a product is purchased on Rs 100. and the similar
product through known individuals, offered to the buyer of a
less price than Rs. 100 like 60 or 80 or 70 etc. Nobody made a
guess of Rs 100. Then this already charged price Rs. 100 for the
same product will be considered Ghaban-e-Fahish. This deal can
be cancelled and the product can be returned.
Masail of Profit
Shafi school of thought has the same opinion.
According to Maliki school of thought, Ghaban-e-Fahish
will be considered when the product is sold on at least

1/3rd less or high price than the total of market price. (it
means discounted price or profit margin should not
exceed than the 1/3rd of the total price of the market).
Maliki school of thought put two conditions as well:
No consumption should be made in the Mabeea
Deal (Sale / Purchase must be less than one year old

(Kitab-ul-Fiqh aala Mazahib ul Arbaa, vol 2, Kitab-ul-Buyu)
Masail of Profit
Summary of Ghaban-e-Fahish:
Profit must be limited within the normal buying and
affordable capacity of public.

According to Maliki scholars, it should not be higher
than the 1/3rd of the total market price of the product.

Govt. can impose restrictions on seller for charging
higher profit and can set a punishment rules for them .
Code of Ethics in Islam

Audit System
Audit System:
Islam wants the laws of Business in Islam to be used for the
benefit, welfare of the public and as a source of cooperation

among human beings.
Islam has given this right to the State to control, watch and
supervise the Economic and Business transactions of the
country and to impose the audit system for the benefit &
security of public.
Purpose: To protect the general public from the harms, evils

and selfishness of merchants.
E-g: Prophet peace be upon him use to go to market to
supervise the activities of merchants.
Hadith of Abu Haurairah rt
Audit System
Hadith:
It is narrated by Abu Hurairah rt that Prophet peace be upon him
passed by a hump of wheat. He put his hand in it and his fingers

become wet. He asked the seller, what is this? He replied, O
Prophet of Allah, it became wet because of the _______ Aous of
sky. Prophet peace be upon him said, Why didnt you put that on
the top of that hump then. So the people could see it and will be
saved from this cheating. Remember, those who mix up is not
among us.
Prophet peace be upon him has forbade the Talq-ul-Jalb and Bai
ul Hazir Li Baad. It is also considered one of the source of this Audit

system. Because clever merchants take economic advantage of
innocent sellers. It is also quoted in some riwayaat that prophet
peace be upon him had appointed a Sahabi rt to supervise the
market activities.
(ref: Risala Liwa ul Islam,
Cairo, June 1953)
Audit System
Caliph Umer bin Khattab rt had appointed Abdullah bin
Utbah to supervise the activities of market.
Some times, Caliph Umer rt use to supervise the activities
by himself. Once he was passing by a market and he found

water mixed in milk. He ordered to pour the whole milk.
During the time of other Khulafa-e-Rashideen, as well as
other Muslim Rulers, it was focused to:
Supervise all Business & Market Activities

Business Dealings
Quality Control
Training Programs for Business Activities
Set Business Laws & rules for Buyers & Sellers
Referrence Books
Readable Books:
Al Hasabah Fil Islam
(by Ibn Taimiyaah)

Al Siyasah fi Ahwaal ir Raaiee war Raiyyat
(by Ibn Taimiyaah)

Maalim ul Qurbat fi Ahkaam ul Hasabah
(by Ibn Akhuwaat)

Al Turuq ul Hukmiyyat fis Siyaasah Al Shariya ]
(By Ibn Qayim Al Jouzi)

Al Ahkaam us Sultaniyah
(By Al Mawardi)
Audit System
Ibn Akhuwaah (a famous Islamic Scholar) has written very comprehensive
details about the Audit system in Islam. Where he mentioned different

aspects with complete guideline for all kinds of business professionals.
He writes:
Auditor is responsible to supervise all the activities of wheat from
crushing to flour making. No dust, sand or pebbles should be mixed up in

grinding wheat making flour for the public. No artificial color should be
added in the flour.
Flour should not be made with the feet, knees, elbows. It is considered
immoral & disrespectful to provision. Also sometimes the swet of a
person is added into it. Which is highly disrespectful and Makrooh in
Islam. Bread should be in a standardized shape, size and weight for the
public.
Upon traveling, Transport vehicle should not be loaded more than its
loading capacity.
There should be a separate class/space for the women folk fully covered
and hidden.
An Auditor must be appointed for each and every product available in
the market. The Auditor has the right to approve or disapprove, pass or
fail the quality of goods.
(ibn Akhuwaat, Mohammad bin Mohammad bin Ahmed Al Qarshi, Maalim ul Qurbat
fi Ahkaam ul Hasabah: Cambridge Press, London, 1938, P: 89-94, & P: 227-229)
Audit System
According to the scholars of Islam, Auditor is not only responsible for
the quality control in the market but also to test the Islamic Business
knowledge of merchants. Few examples are taken from the famous book
Al Mudkhal of Abu Abdullah bin Al Haaj by Sheikh Abdul Haiy Al
Kattani.
Umer Bin Khattab rt use to beat that person with his Durra, who
use to sell his products in the market but were not aware of the
Islamic teachings for Business. He use to say, The person, who
is not aware of the Islamic Business Laws especially the masail
of Riba is not allowed to sit in our market.
He also mentioned that its the duty of an Auditor to walk /
patrol in the market and question the shopkeepers about the

basic principles and Masail of buying and selling including the
Riba, that from where this Riba can enter into the business
transactions and how can we get rid of it. If the shop keeper
would answer him correctly, then he would be allowed to
continue his business otherwise he must be stopped until he is
trained & aware of basic teachings of business.
Code of Business Ethics

Trade in Islam
Code of Ethics of Islamic Trade:
Islamic countries will be bound to do trade on the basis of
following codes.
No Haram products can be imported from Non Muslim
countries (wine, alcohol, immoral literature, idols etc).
Prophet peace be upon him forbade the business of Haram
products.
Certainly, Allah swt and His Apostle has forbidden the
trade of wine, dead animals, pig and idols (statues).

(Agreed upon, kitab-ul-Buyu)
The products which effects & weakens the Muslim States
economy or becomes the source of problem/jeopardy for

Muslims in the future are not allowed to export. (weapons,
military equipments raw material and other technology)
All trade agreements (which are not objectionable) will
must be fulfilled & completed by Muslim State / Govt.
Code of Business Ethics in Islam

Holy Quran:
O Believers! Fulfill your promises (Agreements)
(Surat ul-Maida, Chp: 5, V:1)
And fulfill your promises (agreements), certainly, you
will be questioned about it

(Surat-ul-Israa, Chp: 17, V: 34)

Sharing Benefits:
The benefits provided by Muslim state to the Non Muslim traders
will also be taken from the Non Muslim states for Muslim traders.
Some scholars are in the opinion that the custom duties should
not be imposed on any import or export business.
Any type of Toll Taxes and Excise Duties are not allowed in Islam.
Holy Prophet peace be upon him said,
Toll Tax receiver will not enter in the Heaven.

Umer bin Abdul Aziz rt once wrote to one of his Governor:
Stop taking Toll Taxes from the public because this is not a tax
but a
Zulm on the public.
(Abu Ubaid Qasim bin Salam rt, Kitaab-ul-Amwaal)

Purpose:
Islam is an International Global Religion and emphasis on equality
in
all aspects as well as in Trade with other nations.
Thats why, it has not adopted any law which creates anger, hatred
and jealousy between nations and countries.
As a result of it, one nations oppresses other or one country
takes the control or gets the monopoly in the
international market. Its teaching are based on the Unity, Love,
cooperation and equality between nations and countries. Which
made this Trade as a Universal source of cooperation for everyone.
So the whole humanity becomes one United Family.
Zakat
Zakat:
Islam has kept the share of poor and needy in the wealth of
Rich. This will be paid as a duty and amanat of poor but not
as a favor to them. It was ordered in the 2 nd year of Hijra.
Ghuruz at Tijarah =
Commercial Goods
Commercial Goods:
Islam also orders to pay zakat not only on the cash savings
but also on the commercial goods. It includes all types of

commercial goods whether moveable or Immovable (e-g):
equipments, products, machineries, raw material, crops,
jewelry, securities, capital goods etc.
Zakat
Nisab of Commercial Goods:
Same Nisab as of Cash
One Lunar calendar must be passed
Gold 7.5 Tolas
Silver 52.5 Tolas
Or equivalent of cash
1/40 th part will be given as Zakat
All Imam agree that zakat is also due on commercial
goods
Zakat
Quranic References:
Verse:
O Believers! Spend from those pure ..
(Surat ul Baqara, Chp: 2, V: 267

Imam Tabri rt mentioned with the reference of Imam
Mujahid rt that In this Ayat, Clean and pure Maal which you
earn through hardworking means the earnings through
business. Hasan Basri rt, Imam Razi rt have the same
opinion in this regard.
(Tafseer Tabri, Surat ul Baqara, V: 267)
Zakat
Hadith:
Samra bin Jundab rt narrates, that Prophet peace be
upon him use to order us that we must take the zakat out
from our commercial goods.
(Dar ul Qutni, V:2, P: 376)
It is narrated by Abu Zar Ghaffari rt. I heard Prophet
peace be upon him saying, there is zakat in camels, there

is zakat in goats and sheeps and there is zakat in clothes.
Note: Here clothes means those peaces of clothes, which
are purchased for the business purpose. It clearly shows
that there is zakat due on commercial goods.
(Ibn Hazam, V: 5, P: 34-35)
Zakat
Abu Amr bin Hamas rt narrates through his father rt that
once Umer rt passed by me and said, O Hamas rt, pay zakat

of your maal. I said, I have nothing but covers of arrows and
skins. He replied, Do its appraisal and then pay the zakat.
(Ibn Hazam, V: 5, P: 235)
Note: Hamas rt used to do the trade of the covers of arrows and
skins
Zakat
Abu Ubaid rt quotes through Abdullah Bin Umer rt that he
said, there is no zakat on goods except which is purchased

for commercial purposes.
(Abu Ubaid Qasim bin Salam rt, Kitab ul Amwaal,
Cairo, P:429)
Zakat
Important Masail of Zakat:
Zakat is due on commercial goods only.
If the goods are purchased for personal use and then planned
to sell them out. It will be counted as commercial goods then
but the calculation time will start from the day, it will be
practiced.
No zakat is due on machinery, building, houses, equipments,
furniture etc
Zakat will be due on the rent received after a whole lunar
calendar is passed.
Zakat will not be due on the machinery of factories or mills
but on the manufactured goods as well as on raw material.
Zakat will be due on shares after the whole lunar calendar is
passed.
If some one has cash, gold, silver and commercial goods all
together. He will make the appraisal of all of them and will
pay the zakat at the end of the year. This is the opinion of
Imam Abu Hanifa rt, Imam Shafi rt, Imam Ahmed bin Hanbal
rt and Imam AuzaiI rt.
Evidences
Permission of Business In Islam:
Through Holy Quran
Through Ahadith of Prophet pbuh
Companions of Holy Prophet
Four Caliph of Muslims
Ashara Mubasharrah
Muhajreen of Makkah
178
Halal & Haram

Eating Halal:
Verses of Holy Quran:
179
Halal & Haram

Ahadith of Prophet pbuh:
Examples:
Zabiha and Non Zabihah
Muslim And Non Muslim
180
Duties of Muslims
Duties of Muslims in Business World
e-g:
Oil
Gold
Man Power
Land
181
Forbidden Earnings
Definition of Haram Earning
182
Forbidden Earnings
Ahadith of Holy Prophet pbuh:
183
Forbidden Earnings
Details of Forbidden Earnings:
Stealing
Robbery
Swearing
Offense
Lies
Cheating
Unjustly
Haram Business
Deal Without Permission & Authority
184
Attributes of Business & Businessmen

185
Attributes of Business & Businessmen

Ahadith of Holy Prophet pbuh
186
Major Principles of Business in Islam

Everything belongs to Almighty Allah
Trust in Allah
Understanding of Business Issues Avoiding Israaf
Well behaved
Trust Worthy
Hard Working & Sincerity
No greediness
187
Major Principles of Business in Islam

Keep Purity
Charity & Zakaat
Clarifying defective products
Fulfilling Promises & Agreements
Accepting returned goods
188
Forbidden Action in Business:

No loss of Islamic Practices
No Swearing
No Cheating
No Fake Praises
No Buying / selling of stolen goods
No Buying / selling of Haram goods
No mixing (for cheating), (B into A quality)
189
Forbidden Action in Business
No storing for higher profit

No selling of goods without having possession (except Bai
Salam)
No selling of goods without owners permission
190
Forbidden Business
Wine
Pig
Dead Animals & Birds
Interest Based Business
Lottery
Stolen Products
Business in Masjid
191
Forbidden Business
Deal Upon Deal
Idols/Pictures of Living Beings
Unavailable Products
Selling Products without permission
192
Summary
Business Ethics in Islam
Verse of Holy Quran
(Surah Al Qisas, verse

77)
193
Summary
Four Major peaces of Advice:
Achieving Success in the world hereafter

Take your share from this world
Do Ehsaan (Favors)
No Offense (Fasad)
194
Working Plan for Islamic Banking

Working Plan for Islamic Banking:
Structure of Bank Funds
Structure of Public Deposits
Modes of lending
Modes of Financing & Products of Investment
Specialized Financial Operations
Industrial Banking
Agricultural Banking
Trade/Commercial Banking
Co-operative Banking
195
Working Plan for Islamic Banking Cont:

Monetary Policy & Central Banking
Inter & Intra Govt. & Banks Transactions
Policy of National Savings Schemes
Insurance Policy
Policy regarding existing internal interest based debts
Policy regarding external interest based debts
Changes in the taxation system
196
The End
Jazakumullahu Khair
Thank You
197

Islamic Economics Course (GIFT Spring 2013)

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1

Islamic Economics & Finance

Islamic Economics & Finance

Islamic Economics & Finance

Islamic Economics & Finance

Islamic Economics & Finance

Islamic Economics & Finance

by Dr. Noor Mohammad Ghaffari

by Mufti Taqi Usmani

by Dr. Noor Mohammad

Imam Abu Hanifa ke Siyasi Zindagi

Al Iqtisaad fil Islam (Economic Thought)

Reconstruction of Religious Thought in Islam

Development of Islamic Banking

Challenges Facing Islamic Banking

by Mouzar Kalif &

By Anjuman Khuddam-ul-Quran Sindh, Karachi

By Maulana Ashraf Ali Thanvi

By Maulana Mohammad Musa Albazi

Halal & Haram (shariat ki rooshni mei)

By Hafiz Abdus Salam Bin Mohammad

Islami Bankari Ki Tashkeel-e-Jadeed

Ishtiaq Ahmed Farooq

conventional banking operations and Shariah-compliant rules in financial matters as well as

The program provides:

Islamic Economics, Banking & Finance

To Eliminate Riba (Interest) based Transactions from the

Bahrain, Kuwait, UAE, Saudi Arabia, Iran, Malaysia,

USA, UK, Canada, Switzerland,Australia, Germany and

BANKS HAVING ISLAMIC WINDOWS:

opening of Islamic Banks, subsidiary or dedicated

Overview of the Differences between

Loss sharing arrangements between the bank and the

Conventional Banks lends the funds to the borrowers

Islamic Banks arranges Musharakah or the trade based

financing arrangements (Mudharabah) between the bank &

Overview of the Differences between

There is iron-wall between the conventional banks and their

Islamic Bank entitles the depositors:

-To be informed of what the bank does with their money.

The interest or the return in predetermined or fixed in advance

In Islamic banking, the profit or the return is based on the actual

In Conventional banking, transactions are financial asset based.

In Islamic Banking, transactions are real asset based.

Islamic Economics & Finance

O Ye Who Believe, Fear from Allah and leave whatever is

interest which you give to increase the wealth of

Because of their abuse, we forbade the Jews good things

which were formally allowed to them: because time after

O believers, devour not Riba, doubling its rate many times.

be dealt with unjustly.

After the revelation of this verse, Prophet (SAW) in his last

sermon at Hajjat-ul-Wada, which is called the charter / blue

the principal which is without due consideration. Its a

In the words of Prophet (SAW), by Ali Ibn Abi Talib.

Every loan that draws interest is Riba.

be upon him, cursed the receiver and the payer of

- By Hazrat Abu Hurayrah (RT): The Prophet peace be

dealing becomes common among people, they will start