islamic zakat system

8/10/2019 islamic zakat system

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Zakat

Zakt(Arabic: "that which purifies"), or alms-giving is the practice of charitable giving by

Muslims based on accumulated wealth, and is obligatory for all who are able to do so. It is

considered to be a personal responsibility for Muslims to ease economic hardship for others and

eliminate inequality. The practice is one of theFive Pillars of Islam.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 2ndyear of Hijra.

Zakat is one of the five pillars of Islam.

It has been mentioned, along with daily Prayers (Salaat / Namaz), over seventy times in the

Quran.

Allahs word commanding ".....and establish regular Salaat and GIVE regular Zakat....." are

referred to in many parts of the Quran.

Allah says in the Quran: "And there are those who hoard gold and silver and do not spend it in

the way of Allah, announce to them a most grievous penalty (when) on the Day of Judgment heat

will be produced out of that wealth in the fire of Hell. Then with it they will be branded on their

forehead and their flanks and backs. (It will be said to them) This is the treasure which you

hoarded for yourselves, taste then the treasure that you have been hoarding." (Al-Quran 9:34-35)
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TYPES OF WEALTH ON WHICH ZAKAT IS IMPOSED

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):

Gold and silver in any form

Cash, bank notes, stocks, bonds etc.

Merchandise for business, equal to the value of Nisaab

Live stock

On income derived from rental business.

Nisab of commercial goods

The amount of wealth which makes one liable for Zakat is called Nisaab.

Gold 87.48 Gram 7.50Tolas 1350Grains 2.8125Troy Oz

Silver 612.36Gram 52.50Tolas 9450Grains and 19.6875 Troy Oz


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Nisaab of cash, stock or bonds, other cash assets is the equivalent amount of Gold or Silver.

Nisaab is calculated by adding up the cash value of all the assets such as gold, silver, currency

etc. and if it is equal TO or in excess of the minimum Nisaab as specified in the above table, the

Zakat is due at the rate of 2.5%

VIRTUES OF ZAKAT: Allah says in the Quran: "The parable of those who spend their

wealth in the way of Allah is that of a grain of corn. It grows seven ears and each ear has

hundred grains. Allah increases manifold to whom He pleases." (Quran 2:261)

The Messenger of Allah (s.a.w.s) said

Islam Began as something Strange and will Revert to being Strange as it Began, so give

Glad Tidings to the Strangers.

References

Samara 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)

The prophet (pbuh) said:"Any owner of gold and silver who does not deliver from them their

right, on the Day of Quiyamah (Day of Judgment), (the gold and silver) will be shaped as foils of


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fire. Then it will be heated in the fire of Hell; (and) then with it he will be ironed on his side, his

forehead, and his back" (narrated by Muslim).

The alms are only for the poor and the needy, and those who collect them, and those whose

hearts are to be reconciled, and to free the captives and the debtors, and for the cause of Allah,

and (for) the wayfarers; a duty imposed by Allah. Allah is knower, Wise." (The Holy Qur'an 9:60).

Allah states in Surah at-Taubahverses 34-35: "34:O ye who believe! There are indeed many

among the priests and anchorites, who in Falsehood devour the substance of men and hinder

(them) from the way of Allah. And there are those who buy gold and silver and spend it not in

the way of Allah. announce unto them a most grievous penalty- 35:On the Day when heat will be

produced out of that (wealth) in the fire of Hell, and with it will be branded their foreheads, their

flanks, and their backs, their flanks, and their backs.- "This is the (treasure) which you buried for

yourselves: taste you, then, the (treasures) you buried!" (The Holy Qur'an 9:34-35).


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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 someone 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.

Islamic Trade and Finance


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International trade

The international Islamic trade finance corporation (ITFC) is the advancing trade to improve the

economic situation and livelihoods of people across the Islamic world. As an Autonomous entity

within the Islamic development bank group, the ITFC was formed to consolidate the trade

finance business that was formerly undertaken by various windows within the IDB group. The

consolidation of the banks trade finance activities under a single umbrella increases the

efficiency of service delivery by enabling rapid response to customer need in a market-driven

business environment.

Muslims are required to behave Islamically in their business dealings because Allah Himself is

witness to their transactions:

" O you who beli eve! Eat not up your proper ty among your selves in vaniti es: but let there be

amongst you traff ic and trade by mutual good-wil l: Nor ki ll (or destroy) yourselves: for ver il y

ALLAH hath been to you Most Mercifu l" [4:29]


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"In whatever business you may be, and whatever portion you may be reciting from the

Qur'an and whatever deed you may be doing We are Witnesses thereof when you are

deeply engrossed therein. [Al Qur'an 10:61]

Concept of free Trade

Free trade is a policy by which governments do not discriminate against imports or exports. Free

trade is exemplified by theEuropean Union /European which have establishedopen

markets with very few restrictions to trade. However, most governments still impose

someprotectionistpolicies that are intended to support local employment, such as

applyingtariffs to imports orsubsidies to exports. Governments may also restrict free trade to

limit exports of natural resources. Other barriers that may hinder trade include import quotas,

taxes, andnon-tariff barriers,such as regulatorylegislation.

Protected Trade
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The imposition of duties or quotas on imports in order to protect domestic industry against

foreign competition; "he made trade protection a plank in the party platform"

More focus on Local products to protect economy & Domestic Trade.

Islamic trade system

Islam is in favor of free trade because;

The whole world belongs to Almighty Allah

The whole world belongs to Muslim

All Muslims are equal & one

The economy belongs to Almighty Allah

The Economy is controlled by Almighty Allah

There is no country & Boundary in the world

Provision will be provided by Almighty Allah (Individuals/nations)

All Muslims are the brothers of each other

Islam orders to support cooperate & serve each other


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Whether Muslims or Non Muslims

The Prophet (peace be upon him) said, "Truthfulness leads to righteousness, and righteousness

leads to Paradise. A man continues to tell the truth until he becomes a truthful person. Falsehood

leads to al fujuwr (i.e. wickedness, evil-doing), and al fujuwr (wickedness) leads to the (Hell)

Fire, and a man may continue to tell lies till he is written before Allah, a liar." [Hadith No. 8.116]

Uniform Trade by Muslims

Muslims are one

No Geographical boundaries

Concept of Free Trade between Muslims

Support Each other like one family

Purpose:

Islam is a 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 nation oppresses other or one country takes the control or


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gets the monopoly in the international market. Its teaching are based on the Unity, Love, cooperation

and equality between nations and countries. This made This Trade as a Universal source of cooperation

for everyone. So the whole humanity becomes one United Family.

Holi Quran

And verily this religion (of Islamic Monotheism) is one religion, and I am your Lord, so fear

(keep your duty to) Me. (Surat ul Mominoon, Chp: 18, V: 52)

The believers are nothing else than brothers (in Islam). So make reconciliation between your

brothers, and fear Allah, that you may receive mercy (Surat ul Hujuraat, Chp: 49, V: 10)

All Muslims are like one body and everything belongs to Allah, thats why Islam wants Muslims

to support each other in Trade. All the Products, sources & factors of Production must move

freely in the world. So the economical needs of all can be fulfilled easily.

Muslim must support others through their economical strong resources. Like Oil, Labor,

Technology, Military equipments etc.

Trade with non Muslim

Islam Allows free Trade even with Non Muslims

Islamic Laws are revealed even for the benefit of Non Muslims.


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All human beings are equal in their economical needs

All Muslims are ordered to support others even non Muslims at the time of their need

O mankind, fear youreLord, who created you from one soul and created from it its mate and

dispersed from both of them many men and women. And fear Allah, through whom you ask one

another, and the wombs. Indeed Allah is ever, over you, an Observer.

Purpose of trade in Islam

To Show Sympathy, care & solidarity

Fulfill the needs of each other

Economical stability

Cooperation with each other

Service to Humanity


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The purpose of trading is to make money. The trade is planned, entered, and exited with the goal

of increasing the size of one's trading account. What other purpose would there be?

"Something set up as an object or ends to be attained: intention b: resolution,

determination"

O you who have believed, fulfill [all] contracts. Lawful for you are the animals of grazing

livestock except for that which is recited to you [in this Qur'an] - hunting not being permitted

while you are in the state of ihram. Indeed, Allah ordains what He intends.

The whole Humanity is the creation (Family) of Almighty. The most dearer to Allah is one,

who is best in treating his creation. (M iskhqaat, H adith: 52)

Trade Policy with Non Muslim Countries


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Countries with good relations

Countries with not good relations

Holy Quran

Allah does not forbid you from those who do not fight you because of religion and do not expel

you from your homes - from being righteous toward them and acting justly toward them. Indeed,

Allah loves those who act justly.

Allah only forbids you from those who fight you because of religion and expel you from your

homes and aid in your expulsion - [forbids] that you make allies of them. And whoever makes

allies of them, then it is those who are the wrongdoers.(Surat ul M umtahinnah, V: 8-9)


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In those verses of Holy Quran, it is clearly mentioned that the Islamic Trade Laws forbid

having trade relations with those nations, who are the enemies and in the state of war with

Muslims. With the rest, it is permitted. And they must get benefit from the products of Muslims.

Islam also emphasis to do favors to others even though they are not good/supportive with you.

Imam Mohammad rt quoted an incident of Prophet peace be upon him.

Once Makkans faced drought at the time of Prophet Peace be upon him. He sent 500

dirhams to Abu Sufiyaan bin Harb and Safwaan bin Umaiyyah (Leaders of Arab) through

a messenger. And they distribute it among the needy of Makkah.

Samama bin Asaal rt was the leader of Yamama. After embracing Islam, he was passing by

Makkah after a visit to Madina. Kuffar of Makkah cursed him and criticized his action. He

angrily said, you will not be able to import the wheat & grain of Yamama until I am ordered by

my Prophet peace be upon him. As a result, People of Makkah started facing the signs of

drought. When Prophet peace be upon him was informed, He ordered Samama rt to allow

Makkaans to import wheat. (Bukhari , Chp: wafd bani H anifa)

Taxes in Trade

Taxes not allowed in Islam.


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In International Trade, mostly rich nations/countries take advantage of their economy by

imposing taxes and duties (custom) on poor. Which is not Fair and an exploitation. Islam has

removed barricades from very beginning by announcing:

(All Human Beings are the Family of Almighty Allah)

If the other countries impose taxes and duties on the products of Muslims, then Muslims are also

allowed to impose restrictions on them on the basis of equality. The Directive (Instructions) of

Umer rt to the Governor of Basra Abu Musa Ashari rt is a very good example in this regard. He

ordered.

Instructions:

Take only that much taxes from Non Muslims, which they normally take from Muslim

merchants.

This order was given to impose a Just/Fair Trading Law on International basis.

It will not only protect the Muslim merchants but also will provide another source of

income to the Muslim State.

It will also force Non Muslim States to reduce their Taxes level especially while dealing

with Muslims.


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Through Islamic Trade System, we can create Economic Justice instead of Economic

Retaliation on the International Level.

If a Non Muslim country does not charge any taxes or duties from Muslims, Muslim

country is also bound not to charge any taxes from them either.

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.


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O you who have believed, fulfill [all] contracts. Lawful for you are the animals of grazing

livestock except for that which is recited to you [in this Qur'an] - hunting not being permitted

while you are in the state of ihram. Indeed, Allah ordains what He intends.

Surat ul -Maida, Chp: 5, V:1

And do not approach the property of an orphan, except in the way that is best, until he reaches

maturity. And fulfill [every] commitment. Indeed, the commitment is ever [that about which one

will be] questioned.Surat-ul -I sraa, Chp: 17, V: 34


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Publicity & Advertisement:

Promotion & Marketing of Products is allowed within the boundaries of Shariah

According to QURAN

And the earth We have spread out (like a carpet); set thereon mountains firm and immovable;

and produced therein all kinds of things in due balance.

And We have provided therein means of subsistence,- for you and for those for whose

sustenance you are not responsible.

And there is not a thing but its (sources and) treasures (inexhaustible) are with us; but We

only send down thereof in due and ascertainable measures (Surah Al-Hijr; 19, 20, 21).

Todays Advertisement

Involvement of Women

Exposure of bodies

Putting Lust in the minds

Lies about the Products (claim of purity & quality)

Fake Praises


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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)

Islamic Philosophy about Publicity:


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It should not be use to benefit the industrialists only. But for the benefits of customers /

individuals as well

Teachings of Islam:

O children of Adam, take your adornment at every masjid, and eat and drink, but be not

excessive. Indeed, He likes not those who commit excess.

And give the relative his right, and [also] the poor and the traveler, and do not spend wastefully.


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Indeed, the wasteful are brothers of the devils, and ever has Satan been to his Lord ungrateful.

(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

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.

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: F azl u l f uqaraa, Hadith: 6)

Audit System


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Definition of audit

An official inspection of an organization's accounts, typically by an independent body

"Audits can't be expected to detect every fraud".

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.

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


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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)

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.


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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.

Imam Malik rt use to test the shopkeepers by asking different questions related to the

masail of buying and selling. If some one use to fail the answers, he use to stop him from

selling saying, Go and learn the Ahkaam of buying and selling first and then stay/sit in

the market for your products.

Imam Malik rt would not accept merchants as a witness for any deal (agreement) until he

was aware of buying and selling rules.

In big sized businesses, when merchants use to travel abroad for their businesses, they

use to request a Faqeeh (Mufti) to accompany them to help in resolving Masail of

Business.

All scholars of Islam agree that no seller is allowed to sit/stay in the market for business

until he is fully aware of all the attiquates / teachings of Business Market.

Purpose:


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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:

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 isalso

considered one of the sources 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 L iwa ul I slam, Cairo, June 1953).

Pricing

Definition of pricing


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decide the amount required as payment for (something offered for sale).

"the watches are priced at55"

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)

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)


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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 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


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required, then is acceptable. If the merchants start charging higher price of basic needs items and

the judge cannot 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 H idaya, Baab Al Karahiya)

Masail of Profit

Definition of profit

a financial gain, especially the difference between the amount earned and the amount spent in

buying, operating, or producing something.

"record pre-tax profits"

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.


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Q: Can a limit be assigned for a Ghaban-e-Fahish?

Q: 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.

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


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(Kitab-ul-Fi qh aala Mazahib ul Arbaa, vol 2, Kitab-ul-Buyu)

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 1/3rdof 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

Loan / Credit

Definition of laon

A thing that is borrowed especially a sum of money that is expected to be paid back with interest.

The act of giving money, property or other material goods to a another party in exchange for

future repayment of the principal amount along with interest or other finance charges. A loan


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may be for a specific, one-time amount or can be available as open-ended credit up to a specified

ceiling amount.

It is totally based on RIBA it is HARAM in Islam

In Islamic point of view

Any form offinancing made according to Islamic law, which forbids the payment or receipt

ofinterest. An Islamic loan may be an interest-free loan, but often it is a more

complextransaction. For example, abank couldbuy anasset forcash and then re-sell it to the

"borrower" for aprofit such that the profit is the same as the bank would have made had it

extended a regular loan. Other types may involve the bank becoming a partner with the

"borrower" so that both co-own the asset or business that the loan finances, and the borrower

graduallybuys the bank's share of ownership with a series of payments. Strictly speaking, most

Islamic loans are partnerships orjoint ventures, but they are called loans because they

accomplish much the same thing as conventional loans. See also:Islamic finance,Murabaha,

Mudharaba,Musharika.

Business is always in need of give and take of loan or credit dealings. According to Islam, there

is no room for charging interest on Loans. Because poor & week will always be in need of some

favors from each other and it is not allowed to take the advantage of some ones need.
http://financial-dictionary.thefreedictionary.com/Financinghttp://financial-dictionary.thefreedictionary.com/Interesthttp://financial-dictionary.thefreedictionary.com/Transactionhttp://financial-dictionary.thefreedictionary.com/Bankhttp://financial-dictionary.thefreedictionary.com/Buyhttp://financial-dictionary.thefreedictionary.com/Assethttp://financial-dictionary.thefreedictionary.com/Cashhttp://financial-dictionary.thefreedictionary.com/Borrowerhttp://financial-dictionary.thefreedictionary.com/Profithttp://financial-dictionary.thefreedictionary.com/Buyshttp://financial-dictionary.thefreedictionary.com/Joint+Ventureshttp://financial-dictionary.thefreedictionary.com/Islamic+Financehttp://financial-dictionary.thefreedictionary.com/Murabahahttp://financial-dictionary.thefreedictionary.com/Musharikahttp://financial-dictionary.thefreedictionary.com/Musharikahttp://financial-dictionary.thefreedictionary.com/Murabahahttp://financial-dictionary.thefreedictionary.com/Islamic+Financehttp://financial-dictionary.thefreedictionary.com/Joint+Ventureshttp://financial-dictionary.thefreedictionary.com/Buyshttp://financial-dictionary.thefreedictionary.com/Profithttp://financial-dictionary.thefreedictionary.com/Borrowerhttp://financial-dictionary.thefreedictionary.com/Cashhttp://financial-dictionary.thefreedictionary.com/Assethttp://financial-dictionary.thefreedictionary.com/Buyhttp://financial-dictionary.thefreedictionary.com/Bankhttp://financial-dictionary.thefreedictionary.com/Transactionhttp://financial-dictionary.thefreedictionary.com/Interesthttp://financial-dictionary.thefreedictionary.com/Financing


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Islam has set few instructions for both Lender & Borrower:

Teachings for Lenders

Teachings for Borrowers

Definition of Lender

An organization or person that lends money

To give or allow the use of temporarily on the condition that the same or its equivalent

will be returned.

To provide (money) temporarily on condition that the amount borrowed be returned,

usually with an interest fee.

To contribute or impart:

To accommodate or offer (itself) to; be suitable for:

Teachings/Instructions for Lenders:

Islam emphasis when you lend to your brother and if he is in crisis, you should give him more

time to pay your debts And if he is not capable to pay you back neither any hope in the future

then you are demanded to forgive him (and expect reward from Almighty Allah).

In other verses honoring agreements is given as a commandment:


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"O Believers: Honor your contracts" (5:1)

"And fulfill every commitment. Surely every commitment will be asked about (on the day

of judgment)." (17:34)

And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you

give [from your right as] charity, then it is better for you, if you only knew.

Al Baqarah, Chp:2: V: 280

Hadith:

If someone among you has a right (loan) on other, and he provide him more time, there is

sadaqah reward for him on each day. (By Imran bin Hussain rt, Musnad-e-Ahmad)

The one who wants that Allah save him from the hardships of the day of Judgment, he should

give more time to his borrower or forgive his rights (loan). (Muslim,KitaabBuyu)


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It is narrated by Abi Yaseer rt that I heard Prophet pbuh saying, whosoever give flexibility (more

time)to a person in crisis (about his loan)or forgive his debts, Allah will provide him His own

shade on the day of Judgment.Muslim, Kitab-ul-Buyu

It is also stated in many Ahadith that Prophet pbuh demanded the lender to talk to the borrowers

and others while dealing for loan in a very soft and polite manner.

May Allah show his mercy on that person, he whenever sells, buys or demands for his loan, deals

in a polite and kind/nice manners(Bukhari,Kitaab-ul-Buyu).

In QURAN

The reader is advised to study section thirty-nine ofAl-Baqarah,before reading on. Three

fundamental statements are made in section 39:

1. Loans should be evidenced in writing and a maturity period fixed for the return of the

loan.

2. The loan agreement should be witnessed by two persons.

3. If a scribe is not available to put the loan agreement into writing, as for instance in a

journey, a collateral should be taken for the return of the loan.

Instructions / Teachings for Borrowers:

Definition of borrowers


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Someone who receives something on the promise to return it or its equivalent

To obtain or receive (something) on loan with the promise or understanding of returning

it or its equivalent

To adopt or use as one's own

In subtraction to take a unit from the next larger denomination in the minuend so as to

make a number larger than the number to be subtracted

To adopt (a word) from one language to use in another

Islam also forces borrower to pay his loan/debts full and on time unless there is any genuine

excuse. Otherwise he will be responsible in the sight of Allah.

Borrowing and Lending is actually an agreement between the parties and the conditions must be

fulfilled by both sides. If the Lender demands for his loan ahead of time or borrowers doesnt

pay on time, then according to the Holy Quran, they are breaking the commandment of

Almighty Allah

In quran

"(Believers are those) who are faithful to their trusts and to their commitments." (23:8) and

"Those who fulfill their commitments when they make them" (2:177)


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If the borrower does not pay his debts without any reason / excuse, It is considered an Offense

(Zulm) by Prophet pbuh.

Prophet pbuh did not use to lead the funeral prayer of a person, who intentionally ignore to pay

his debts.

And they say: "Tales of the ancients, which he has caused to be written: and they are dictated

before him morning and evening."

"We know indeed that they say "It is a man that teaches him." The tongue of him they wickedly

point to is notable foreign while this is Arabic pure and clear. Those who believe not in the

Signs of Allah, Allah will not guide them and theirs will be a grievous Penalty." (Yusef Ali's

translation)

The leftover debt of a rich is Zulm. (Agreed Upon)

Hadith

It is narrated by Salma bin Akwaa rt, once we were sitting with Prophet pbuh. A funeral was

brought. He was asked to lead the prayer. Prophet pbuh asked is there any debt due on him. It

was said, No. then he lead the prayer. Then another funeral was brought. He asked, is there any


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debt due on him. It was replied. Yes. He asked does he leave anything. It was replied, yes, three

Dinaars. Then the debt is paid through these Dinaars and he led the prayer. Then a third funeral

is brought. He asked, is there any debt due on him. It was replied, yes. He asked. Did he leave

anything? Sahaba rt said, No. He then said Lead and offers the prayer of your brother. Abu

Qatadah rt said,

O Prophet of Allah, lead the prayer, I will pay his debts.(Bukhari)

After concoring Makkah, Prophet pbuh use to pay the debts of poor by himself and then use to

lead the funeral prayers. In this regard, he had announced:

When Allah opened the doors of victories for him, he announced: I am dearer to Muslims more

than their souls. Whosoever dies among them, and leave the debts behind. I am responsible /

liable for it. And those who leaves behind any wealth, it belongs to his inheritors. (Bukhari)

On another accasion, he said, whosoever dies and debt is due on him and he leaves nothing

behind. I am liable/ responsible for his debts/dues. (Bukhari)

These Ahadith proves that if the debtor dies without paying his dues and he leave nothing behind

then it becomes the duty of the Muslim State to pay his dues. It will satisfy the soul of that poor

Muslim as well as the lender will get his right.


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It is narrated by Abu Hurairah rt, that one person demanded Prophet pbuh for his loan and he

talked harshly with him. The companions of Prophet pbuh tried to teach him some manners.

Prophet pbuh said, leave him alone. He has the right to talk. Buy a camel for him. Companions rt

said, O Prophet of Allah, we are capable to get a better camel in age than this. He replied. Ok.

Get a better one and give it to him. The best among you is he, who pays back good

(Muslim, Kitaab-ul-Buyu)

Conclusion:

This Islamic Financial System provides:

Benefits to Poor

Service & Flexibility to Rich

Loaning Facility to every Individual

Financial Security to the Lenders

Security Guarantee by State

Smooth running of the Financial & Economic System

Prophet pbuh called the debt of a person an unforgivable crime as it is mentioned in many

Ahadith. He even said about the martyrs, that they will be questioned too.

All sins of a Martyr will be forgiven but debt.(Muslim, Ki taab-ul-Buyu)


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It is narrated by Shareed rt that Prophet pbuh said, the excuses of the one, who is capable of

paying his dues make his honor and punishment permissible. (Abu Dawood & NasaiI, Kitaab-ul-Buyu)

According to Ibn Mubarak

Muslim Qazi / Judge is allowed/permitted to sell out the property of the debtor in the market to

get his loans paid.

Islam emphasis borrower/debtor to pay not only on time but pay more than their actual dues

It should be on unconditional basis neither without any expectation of benefit otherwise it will

turn into Riba.

It is narrated by Abu Rafee rt, that Prophet pbuh took a young camel from a person as a loan.

Then he received few camels of Sadaqah. Abu Rafee rt says, Prophet pbuh ordered me that I

should give one young camel to that person. I said, I see all these camels better & with four teeth

than this one (Young). He replied, OK, give that one to him. Best among human beings is one,

who pays back his dues in good/better shape.Mishkaat

It is narrated by Jabir rt that Prophet pbuh owed me some loan. He paid it back in full as well as

some more. (M ishkaat)

Rahan (Security):


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Islam allows the lender to demand for a Rahan (security) from the borrower before giving any

loan.

Terms & Conditions

Major conditions of Rahan are as follows:

The Profit & Loss of the Marhona (Pledged) thing is the responsibility of the owner. Temporary

benefits will fall in the favors of Murtahin (Pledger) as a fee for his services to that pledged item.

Long term or permanent benefits will be the right of the owner.

E-g: Mr. Umer pledge his cow to Mr. Ali as a security against his loan from Mr Ali. Now this

cow will be considered as an Amanat (Trust). Now if the cow, dies or stolen. It is the loss of Mr.

Umer. if she begets a baby------------, it also will belongs to Mr. Umer. But Mr. Ali can use the

milk of that cow as a fee for his services of keeping and feeding the cow.

It is narrated by Abu Hurairah rt that Prophet pbuh said, on riding animals, it is allowed to ride as

a fee for spending on it when it is pledged as a security. Just like that, the milk of a milking

animal can be use as a fee of spending on it, when it is kept as a security. The one who rides who

drinks the milk They are responsible for their expenses (food, service etc) (Bukhari)


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It is narrated by Saeed bin Musayib ra that Prophet pbuh said, Pledged/Secured thing cannot stop

its owner. For him, there are benefits and there are losses as well.

(M ishkat, by Imam Shafi r a)

Taking benefits from those pledged animals are allowed whether used for ridings or milking (as

a fee of services provided for them).Taking benefits from other pledged items like house, shop,

jewellery are not allowed. If they are rented out (with the permission of owner), then this rent

will be given to the owner

Same Law applies to the agricultural land. If the Murtahin cultivates it, he will get his share

according to the share of the cultivator. If he transfer it to someone else for cultivation on Bataii.

Then this Bataii will be paid to the owner

Bankruptcy:

If a person files the bankruptcy due to his sever financial crisis. Scholars have mentioned few

laws for that Bankrupt. Which are summarized below

Bankrupt can be set free from his debts/dues due to filing the bankruptcy. Court will recover the

dues for the lender even by selling his property.

Hadith:


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it is narrated by Abdur Rehman bin Kaab bin Malik rt that Muaaz rt was a very charitable young

person. He did not keep savings. He use to take loans for charities until his whole

wealth/property was pledged. He came to Prophet pbuh and requested him to talk to the lenders.

If the lenders would be able to forgive Muaaz rt but they did not do so. Then Prophet pubh

started selling out his stuff/goods for the lenders until Muaaz rt stood up empty handed .

(Mishkaat)

If the lender sees his own maal/good/item with debtor, he must take it back. E-g:It is narrated by

Abu Hurairah rt that Prophet pbuh said, whosoever becomes bankrupt and the lender sees his real

good with him. He has the most right to get it back. (Agreed Upon)

If the lenders are more than one, then the court can take the assets of debtor and will distribute

among the lenders according to their percentage. E-g:

It is narrated by Abu Saeed Khudri rt that at the time of Prophet pbuh, one person bought fruits

and made loss in it. He became bankrupt. Prophet pbuh addressed the people to payhim sadaqah.

People paid sadaqah to him. But it was not sufficient to pay his debts in full. Then Prophet pbuh

said to the lenders, take what you get and nothing you will get more than this. (Muslim)


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If the person gets bankrupt, then all the assets, he keeps in his possession are no longer belong to

him. He doesnt have the right to use them. Court can do inhibitation / stop him of using those

assets.

Hadith:

Kaab bin Malik rt narrates from his father that Prophet pbuh has stopped Muaaz bin Jabal rt of

using his assets/goods and then sold it out to pay for his dues. (Abu Dawood, Dar Kutni)

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.


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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)

Desirable Business


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Musharikah

Muzaribah

Definition of musharakah

The literal meaning of Musharakah is sharing. The root of the word "Musharakah" in Arabic is

Shirkah, which means being a partner.

Islamic banking is banking or banking activity that is consistent with the principles of sharia and

its practical application through the development of Islamic economics. As such, a more correct

term for 'Islamic banking' is 'Sharia compliant finance'.

Conditions of Musharikah

Partners must do the Ijab-o-Qubool

Musharikha must be done in existing and acceptable currencies. If it is in shapes of

commodities/goods, then the price estimation (appraisal) of those goods must be made in

the beginning of the agreement.

According to Imam Shafi rt, all kinds of goods / commodities / currencies must be mixed

up completely to avoid confusion. In that case, everybody will be careful in the business

in spending, and will not think/worry of his share of investment.


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According to Imam Sarkhasee rt, it is a condition for an Agreement, that it must be in

written form with all and clear details to avoid confusion and problems in the future.

Hadees-e-Qudsi

ALLAH Subhan-o-Tallah has declared that HE will become a partner in a business

between two Mushariks until they indulge in cheating ar breach of trust (KHAYANAH).

O Believers, when you make any deal of Loan for some certain time, write it down.

(Al Baqarah, 2: 282)

Types of Musharikah (Partnership):

There are four kinds of partnership in Islamic Law

SHIRKAT-AL-ANAN

In this partnership partners contribute their share in cash. Contribution of capital is also not

equal. The profit or loss is also divided on the basis of Capital amount. The liability of each

partner is limited to his invested capital. This type of partnership can be formed between any two

parties (Women, Children, Muslims, and Non Muslims). Generally one partner provides the

major source of finance. A partner has no right to lend anything out of joint assets of the firm.


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SHIRKAT-AL-MUFAVADHA

In this partnership, each partner provides equal capital. Each partner has equal share in the profit

and loss. Each partner is helper and agent of the other partner. All the partners have an equal

status. There is a written agreement. It cannot be formed between the slave persons.

Rights and Duties :In this partnership each partner has the right to negotiate or do any business

contract on the behalf of the other partners.

SHIRKAT-AL-SANAI or SHIRKAT-AL-TAQQABAL

It is an associate of different skills involved in business. Skilled persons like manager,

accountants and labourers provide their skill. While capitalists provide their capital all these

people join together to start the business. The profit is distributed among them according to terms

of agreement.

SHIRKAT-AL-WAJOOH

This type of partnership is formed by agreement for the object of purchasing goods on credit in

order to supply them in the market. One partner is an agent of another partner. The profit and

loss is distributed equally. In this partnership no partner contributes any amount of capital in

business.

Muzaribah
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Definition of muzaribah

This word Muzaribat came out from word Zarbun. It means steping on ground, walking etc.

In this business, Muzarib walks on the ground for other, thats why he is called Muzarib and this

business is called Muzaribah. Some Imams call it Qarraaz.

Muzaribat is a type of business where one party provides the full investment and the other

provides its professional business services and the profit share is divided with mutual

understanding.

And there are some people, who walk on the ground (earth) and seek the provision (Rizq)

of Allah. (Surah M uzammil, Chp: 29: V: 20)

Purpose:

Muzaribah is allowed to reduce the gap between poor and rich. An individual, who is

financially strong but cant run the business either because of having no time, or no

experience or no awareness of the market. On the other side, there are individuals, who

are financially not strong but very skilled and experienced in some certain business. So

they can take the investment from rich and run the business.


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Islam has allowed this type of business for the benefit of poor & rich, skilled & non

skilled. Another wisdom behind it is, Money will always be circulated in the market.

Public will take more economical benefits in shape of having more jobs opportunities,

higher competition and lower prices of the products etc.

Muzaribah by Prophet pbuh:

Prophet pbuh did that form of business with Khadija rt

Goods were taken to the market of Busra (Syria)

Agreed profit sharing ratio was 50% for each.

Slave Maysera were there joined as an Auditor

Sahaba rt did that kind business in their time as well.

All Imams and scholars consider it one of the most favorable businesses of Islam.

Conditions of Muzaribah:

o Rab-ul-Maal must make all the investment in cash form even goods are provided.


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o Investment must be provided by Rab-ul-Maal only. Otherwise it will be counted

partnership (Musharikah).

Authorities & Responsibilities of Muzarib:

Investment of Rab-ul-Maal is like an Amanat (Trust) with Muzarib. Therefore, if loss

occurs in the business, Rab-ul-Maal cant demand for the recovery of his investment from

Muzarib.

In Muzaribah, the position of Muzairb is like the custodian of the investment of Rab-ul-

Maal. Therefore, he is always bound to take the suggestions, advice, permission of Rab-

ul-Maal in making decisions.

Muzarib is not allowed to take any salary from the business. If he is traveling outside, he

is allowed to take the daily traveling wages / allowance and other cost etc. According to

Imam Abu Hanifa, he is also allowed to take medical charges from the business in case of

sickness.

Muzarib will get his profit share only. If he crosses his limits of the agreed agreement of

Muzaribah, he will be responsible and liable for all loss/liabilities.

Muzarib will always divide the share of the profit in the presence of Rab-ul-Maal. It is

the opinion of all Imams.


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Cancellation of Muzaribah:

According to Imam Abu Hanifa rt and Imam Shaif rt.:

Muzaribah can be canceled any time just by giving a notice to the other party.

It can be cancelled at the death of any partner. If the inheritors want to renew or continue this

agreement, it is allowed in Islam.

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)


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islamic zakat system

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