Jamizan

Shariah Contracts in Islamic Banking
and Finance :Prohibition of Shariah
Presented at:
In-House Training For EON BANK
Berhad
18 June 2003
Ustaz Wan Jemizan Wan Deraman
Assistant Manager, Education Department
Introduction
• Islam is a divine system, with it Allah (S.W.T.) made
it a comprehensive system and provides clear
guidelines on all aspects of life. Its principles and
system is based on faith, knowledge, justice,
benevolence, goodness and wisdom.
• Islam is not just a religion but a way of life. The

practicality of Islam is beneficial to man irrespective
of time, culture, social and technological
development
Islamic Banking and Finance Institute Malaysia (IBFIM) - 18th - 19th June 2003 2
Introduction
ISLAM
AQIDAH SHARIAH AKHLAQ

(Faith & Belief) (Practices & Activities) (Moralities & Ethic)
Ibadat Muamalat Ahwal Syakhsiyyah Jinayat
Economic Activities
Banking & Financial

Activities
Categories of Shariah
Al Ibadat Relating to worship
Al Muamalat Relating to transactions
Al Ahwal Relating to family

Al Shakhsiyyah matters
Relating to crimes,
Al Jinayat
offence & punishment
Islam,Shariah ,&Fiqh Muamalat
Islam Defined as revealed law
Shariah Fiqh in Arabic is “ Ma’rifat al-

ahkam al-Shar’iyah al Muta’allaq
bi Af’aal al Mukallafin min
Adillatiha al Tafsiliyyah” that is
knowledge of Shariah rulings of
law pertaining to conduct, that have
been derived from their specific
evidence by the Muslim jurist.
Islam,Shariah &Fiqh Muamalat
Fiqh
Muamalat
Muamalat is civil contracts. Thus
fiqh muamalat means knowledge
of Shariah rulings in civil
contracts. Civil contracts are
contracts applied in trade and
commerce.
Sources of Shariah
Al Quran Al Masalih
Al Sunnah Al Urf
Al Ijma’
Al Qiyas
Islam , Commerce
Shariah & Trade
Requirements
z Islam permits trade and commerce and the

contracts that are applied therto are termed
muamalat in the Shariah.
z Muamalat are civil contracts and all civil
contracts can be used in Islamic banking and
finance.
z Thus, in the concept of Islamic banking and
finance its operation is based on contracts
permissible by the Shariah.
Shariah Requirements
Shariah aspects of Islamic banking and finance
revolve around Shariah requirements. The
purpose of the Shariah requirements is:
to ensure that the products

are permissible (halal) and
to ensure that the trading in

them becomes permissible
and valid (halal and sahih)
Shariah Requirements in
Muamalat Contract
Rules to be observed
Avoidance of Prohibition in
Muamalat Contracts
Observing that every contracts

possesses all its essential elements
meets the necessary conditions
Shariah Requirements
Islamic banking products are based on and
developed from permissible (halal) contracts
which do not involve :
• Gharar
• Riba
• Maisir
Contracts which involve gharar,

riba and gambling are forbidden
and void (haram and batil).
Gharar
Gharar Gharar
Fahish/ Yasir/
Type of Gharar
Major
Minor
Gharar
Gharar
The Gharar that causes a contract

to be invalid is major gharar.
Major Gharar
In general terms major Gharar is:
- an uncertainty which is so great

that it becomes unacceptable, or
- it is so vague that there is no

means of quantifying it.
Major Gharar
More specifically Major Gharar arises out of one
of the following:
- Asset or merchandise does not

exist;
- Asset or merchandise cannot be
delivered; or
- Asset or merchandise is not
according to specifications
Riba
Means Extra
Kind RIBA DUYUN
RIBA BUYU’
Riba Duyun
Riba out of lending and borrowing .This kind of
riba is the extra amount of money over and
above the principal of the loan either:
– Imposed by the lender on the

borrower in the contract; or
– Promised by the borrower in the
contract.
Sub-division of Riba Duyun
Riba Duyun is sub-divided into:
Riba Qardh
Riba is imposed or promised from the
beginning.
Riba Jahiliyah
There is no riba at the beginning; riba is imposed
only after default
Riba Buyu’
Riba in trading transactions
This kind of riba may occur out of an

exchange between two ribawi
materials of the same kind where the
necessary rule(s) are not observed.
There is no riba in trading

transactions where a ribawi material
is exchanged with a non-ribawi
material.
Ribawi Material
Basis of Ribawi Material
Medium Of Exchange
• Gold in any form

• Silver in any form
• Currency [the currency of
each country is considered
as one type - RM, USD,Singapore Dollar]
Ribawi Material
Basis of Ribawi Material
Foodstuffs
• Grains - Rice, Wheat, Corn

• Meats - Beef, Mutton, Chicken, Fishes
• Vegetables - Tomatoes, Beans
• Fruits- Apples, Oranges
• Salts- Salts, sugars,condiments and medicines
Occurrence of Riba in Trading
Occurrence of Riba in Trading
• Occurs when rules concerning the trading of
RIBAWI materials are not observed.
Rules :
• Same basis of same kind
• Same basis of different kind
• Different basis of different kind
Rules of Exchange of Ribawi Materials
1. Ribawi materials of the same basis of the same kind.
Examples :
i. 5 grams of 916 gold for 5 grams of 750 gold;
ii. 10 grams of Basmathi rice for 10 grams of A1
rice
Rules :
1. Materials must be of the same weight,
measurement or number of units
2. Payment must be on cash terms
2. Ribawi materials of the same basis of different kinds
Examples :
i. 5 grams of gold for RM200; RM3,800 for USD1,000;
ii. 10 kgs of rice for 15 kgs of wheat;
iii. 1 tonne of palm oil for 2 tonnes of sugar.
..
Rules :
1. Payment must be on cash terms
2. Difference in weights,measurements or
number of units allowed
3. Ribawi materials of different basis of different kinds
Examples :
i. 10 kgs of dates for 1 gm of gold;
ii. 30 kgs of wheat for USD10;
iii. 1 tonne of palm oil for RM1,500
Rules :
1. No rules are imposed.(Difference in
weights,measurements or number of units
allowed.)
Sub-Division of Riba Buyuu’
Riba buyu’u is sub-divided into:
Riba Fadhl
The ribawi materials (of the same basis and same
kind) exchanged are of different weights,
measurements or numbers and they are
exchanged at the same time.
Riba Nasiah or Riba Yad

The ribawi materials exchanged are of equal
weights,measurements or numbers but payment of
the price and delivery of the goods are made at
two different times
.
Riba
Islamic banking does not give out loans.

Therefore riba out of lending and borrowing does
not arise. To avoid involvement with riba in
trading transactions, Islamic banking must
pay proper attention to the requirement that the
buying and selling of the Ribawi Material must be
in line with the rules of exchange of Ribawi
Material.
Gambling
Gambling is betting or charging something that will

be forfeited if one fails to obtain the greater gain
that one hopes for.
Speculation is not gambling. Some jurists say that

speculation is prohibited, but contracts involving
speculation are still valid.
Forbidden Contracts
Forbidden and void contracts which involve
gharar, riba and gambling are:
- Bai al-Mulamasah
- Bai al-Munabazah
- Bai al-Hisat
- Bai Habl-il-Hablah
- Bai al-Madhamin
- Bai al-Malaqih
- Bai al-Gharar
- Lending and borrowing with interest
- Betting
THANK YOU AND WASSALAM
wanjemizan@ibfim.com

Jamizan

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Shariah Contracts in Islamic Banking

and Finance :Prohibition of Shariah

• Islam is not just a religion but a way of life. The

AQIDAH SHARIAH AKHLAQ

Ibadat Muamalat Ahwal Syakhsiyyah Jinayat

Banking & Financial

Al Ibadat Relating to worship

Al Muamalat Relating to transactions

Al Ahwal Relating to family

Islam Defined as revealed law

Shariah Fiqh in Arabic is “ Ma’rifat al-

z Islam permits trade and commerce and the

to ensure that the products

to ensure that the trading in

Observing that every contracts

Contracts which involve gharar,

The Gharar that causes a contract

In general terms major Gharar is:

- an uncertainty which is so great

- it is so vague that there is no

- Asset or merchandise does not

Kind RIBA DUYUN

– Imposed by the lender on the

This kind of riba may occur out of an

There is no riba in trading

Basis of Ribawi Material

• Gold in any form

• Grains - Rice, Wheat, Corn

Riba Nasiah or Riba Yad

Islamic banking does not give out loans.

Gambling is betting or charging something that will

Speculation is not gambling. Some jurists say that

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