Ethical Commerce - First Edition

Ethical CommerceThe Halal Way Of Doing Business

First Edition - 2013 - 1434 AH

Halal Zone.comTradeHalal Made Easy

“Consume Halal and your supplica�ons will be heard. By Him in Whose Hands is the soul of Muhammad, when a person puts into his stomach, a morsel of what is forbidden, his prayers are not accepted for 40 days. And a servant of Allah whose

body is nourished by Riba (interest) or by what is forbidden becomes more deserving of the Hell‐fire.”

[Fiqh us Sunnah, 1:412, from Hafiz Ibn Marduwaih]

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Ethical Commerce Course - Introduction

Islam was sent down to mankind as a complete way of life. Unlike most religions, Islam does not confine itself to the realm of worship and spirituality. Rather, it encompasses rituals (prayer, pilgrimage, etc.) as well as mundane affairs like social life (marriage, day‐to‐day prac�ces, etc.) and commerce (trade, industry, etc.). Hence the meaning of 'Ibaadat' (worship) in Islam refers to complete obedience to Allah in all these spheres of human life.

Of these 3 areas, perhaps Commerce is the area most neglected by Muslims today. It is an impera�ve for Muslims to know what is Halal and what is Haram in commercial ac�vi�es, so that their income is pure and so that they do not do injus�ce to anyone. The Halal way of doing business is always the one that is free from injus�ce, fraud or any form of unethical ac�vi�es. Hence when Mr. Noor Mohammed, Founder & CEO of Halal Trade Zone approached me with the idea of pu�ng together a course that will impart this knowledge, I readily agreed.

I have tried to keep the course material simple and yet comprehensive. The material provided will give a businessperson guidelines on what is ok to do and what is not. While most of the present day scenarios of doing business have been covered, there may be some complex transac�ons for which one might not get direct answers about from this material. However, if one has really understood the material presented herein, he/she would at least be able to sense that there may be something wrong with the transac�on, and he would be able to take the issue to a scholar.

The course material contains references to the verses of the Holy Qur'an and the Hadith of the Holy Prophet (SAWS). The material was prepared a�er researching many sources of Fiqh and it was reviewed by highly qualified scholar like, Mu�i Khalid Saifullah Rahmani who is the General Secretary of the Islamic Fiqh Academy, India and also a founding member and secretary of the All India Muslim Personal Law Board and a member of the Interna�onal Fiqh Academy, Makkah, Saudi Arabia. The course contains the following modules:

Module 1 Importance of Earning Halal

Module 2 Types of Halal Earnings

Module 3 Trade and its Regulations

Module 4 Lease and its Regulations

Module 5 Lending and Borrowing and their Regulations

Module 6 Agency Contracts and its Regulations

Module 7 Partnership Contracts and its Regulations

Module 8 Ruling on Banking

Module 9 Ruling on Insurance

Module 10 Ethical practices in Business

Module 11 Family Values

Module 12 Social Responsibility

I ask Allah the Almighty to accept this humble effort and benefit all of mankind through it. Surely He is the Most Noble and Most Kind.

Was Salaam,Raashid Sherif CEO, Rehbar Financial Consultants

Ethical Commerce Course - HalalTradeZone.com

4Ethical Commerce Course - HalalTradeZone.com

Module 1 ‐ Importance Of Earning Halal

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In Module 1 we will discuss the following:

‐ Verses of the Holy Qur'an regarding earning Halal

‐ Hadith of the Prophet (SAWS) regarding earning Halal

‐ Narra�ons of the Pious Predecessors regarding earning Halal

Verses of the Holy Qur'an

Allah says in the Noble Qur'an (2:172):

كلوا من طيبات ما رزقناكم

“Eat from the Halal things which We have provided you”

And He says (2:267):

أنفقوا من طيبات ما كسبتم

“Spend from the Halal things that you have earned”

And He says (62:10):

وابتغوا من فضل هللا

“And seek from the bounty of Allah”

From these verses, we can gather that Allah has made it necessary for every believer to earn, spend and consume only from what is Halal.

Hadith of the Prophet (SAWS)

The Messenger of Allah (SAWS) is narrated to have said:

“Consume Halal and your supplica�ons will be heard. By Him in Whose Hands is the soul of Muhammad, when a person puts into his stomach, a morsel of what is forbidden, his prayers are not accepted for 40 days. And a servant of Allah whose body is nourished by Riba (interest) or by what is forbidden becomes more deserving of the Hell‐fire.” [Fiqh us Sunnah, 1:412, from Hafiz Ibn Marduwaih]

A man came to the Prophet (SAWS) and begged for something from him. The Prophet (SAWS) asked the man: "Have you nothing in your house?" He replied: "I only have a piece of cloth, a part of which we wear and a part of which we spread (on the ground), and a wooden bowl from which we drink water."

The Prophet (SAWS) asked the man to bring him these items. He then auc�oned them off to the highest bidder and gave the money to the man who was begging, saying: "Buy some food and hand it to your family, and buy an axe and bring it to me."

When the man brought the axe, the Prophet (SAWS) fixed a handle on it with his own hands and said: "Go, gather firewood and sell it, and do not let me see you for a fortnight".


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The man went away and gathered firewood and sold it. When he had earned enough money, he bought food and clothing. The Prophet (SAWS) then said to him: "This is be�er for you than that begging should come as a spot on

your face on the Day of Judgment."[Sunan Ibn Majah, 15:2]

The Prophet (SAWS) is narrated to have said: “How excellent pure wealth is for a pious person.” [Musnad Ahmad, 202:4]

Narra�ons of the Pious Predecessors

“A man must look at his bread and money and ask how and where he got them from” – Muhammad b. Muqaa�l

“Only those with understanding of the religion should be allowed to sell in our markets. Otherwise they will consume Riba (interest) willingly or unwillingly.

– Umar (R.A.)

“If you eat Halal, you have obeyed Allah, whether you wanted to or not. And if you eat Haram, you have disobeyed Allah, whether you wanted to or not”

– Some of the Salaf

Some of the pious women in the past would say to their husbands when they le� for work:

“Fear Allah with respect to us and do not feed us that which is Haram. We can bear hunger pa�ently, but we cannot bear the Fire”

From the above sources, we can see the importance that Islam gives to earning Halal. Hence there is an obvious necessity for every Muslim to learn what is allowed and what is not, with regards to his/her earning. A�er all, one of the five things that a person will be asked about on the Day of Judgement is 'About his wealth, from where he earned it and where he spent it'.

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Module 2 ‐ Types Of Halal Earnings

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‐ Types of Halal earnings

‐ Best mode of earning

‐ Condi�ons for making business the best mode of earning

Types of Halal Earnings

Islam has paired livelihood with earning. The best livelihood is the one that is earned. There are narra�ons that equate traveling for earning with struggling in the path of Allah. In one Hadith, the Prophet (SAWS) is reported to have said, “Whoever ends up �red due to earning his livelihood, he ends up forgiven by Allah.” [Majmaul Awsat of Tabraani, from Ibn Abbas]

Islam recognizes many modes of earning, such as Agriculture, Business, Cra�smanship, Manufacturing, Service, etc.

The Prophet (SAWS) himself was a merchant, before receiving revela�on. His Companions were involved in all of the above‐men�oned professions. Even previous Prophets used to earn their own livelihood. Hence it is narrated that “Prophet Dawud (AS) would not eat except from what he earned with his own hands.” [ShuabulIman of Baihaqi, from al‐Miqdam] Similarly “Prophet Idris (AS) was a tailor.” [Fathul Bari of Ibn Hajr, 306:4] and “Prophet Zakariyya (AS) was a carpenter.” [Sahih Muslim, 103:8]

In conclusion, any mode of earning livelihood that is free from injus�ce, chea�ng and other such things which Allah has prohibited, is a mode of earning Halal provision.

Best mode of Earning

The Prophet (SAWS) was asked which is the best of earnings. He replied “That which a man earns with his own hands, and every pure transac�on.” [Musnad Bazzar and Talkhees ul Habeer of Ibn Hajr from Rifaa'ah ibn Raafi']

This Hadith can include many of the professions prevalent today. Hence there are some scholars who feel that agriculture should be considered the best of professions, as it involves working with ones hands, requires reliance on Allah and it also has a wide benefit for the community. Others believe the best mode is Business, as this was prac�ced by the Prophet (SAWS) as well as the Rightly‐guided Caliphs. The reality is that the best mode of earning is dependent on the situa�on of the individual and the community in which he lives, as well as his inten�on.

Condi�ons for making business the best mode of Earning

The Prophet (SAWS) said: “The honest and trustworthy businessman will be with the prophets, martyrs and righteous people.” [Sunan Daraqutni from Ibn Umar]

If a businessman takes care of 5 things in his business, it will be the best and most blessed source of earning for him.

1. Honesty and trustworthiness

The businessman should always remember that a Muslim can never lie. Dishonesty and chea�ng might seem to bring short‐term gain, but in reality it will only bring loss and it will remove blessings from the business. Remember, it takes years to build a reputa�on, but only a minute to lose it.

2. Staying away from the wealth of others


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The businessman should not trade in stolen or illegally acquired wealth, or perform business in a land that he does not have the right to occupy

3. Staying away from trading in doub�ul things

If a person trades something Haram, his earnings will also be Haram. However, a God‐conscious businessman will stay away from trading in even doub�ul things, as such things can result in indulging in Haram. The Prophet (SAWS) has advised: “Whoever stays away from the doub�ul, he has saved his religion and his honor. And whoever indulges in the doub�ul will end up in Haram.” [Sahih Bukhari and Sahih Muslim from Nu'man Ibn Basheer]

4. Considering the benefit of the Muslims

The businessman should keep the common‐good of the Muslims in the fore‐front and subordinate his own benefit to the benefit of the Muslims. This can be done through choosing a business which brings benefit and does not bring harm to the Muslims. Hence trading in drugs, tobacco, explosives, etc. is to be avoided.

Similarly, a businessman should not hoard essen�al commodi�es, as it causes ar�ficial price‐rises and causes harm to the general public.

5. Never being heedless of Allah

The businessman should not forget Allah (God) in his business. Allah praises such people in the Qur'an (24:37), where He says: “They are men whom neither business nor trade diverts from the remembrance of Allah, from establishing prayer or from giving Zakat”.

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Module 3 ‐ Trade And Its Regulations

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Module 3 ‐ Trade And Its Regula�ons


‐ Condi�ons for a valid sale transac�on

‐ Types of op�ons in sale

‐ Factors that can render a sale void

‐ Other prohibited forms of sale

‐ Avoiding Riba in sale

Condi�ons of a valid sale transac�on

The components of a sale transac�on are ‐ the buyer, the seller, the object being sold and the price. For a sale to be proper, the following 7 condi�ons must be met with respect to these components:

1. Both par�es to the transac�on should have intellect and free consent

Hence if either the seller or the buyer lacks in any of these areas, the sale will not be considered valid. Hence a small child or a person being forced to sell or buy something will not be considered as a sale.

2. The sale takes place at present and uncondi�onally

Hence if someone says, for example, “I sell you this coat a�er a month”, or “I buy the suitcase from you, if my visa is approved”, that will not cons�tute a sale.

3. The object being sold must exist at the �me of the agreement

Hence if someone sells fruits of a tree before the fruits are even formed, the sale will not take place.

4 The object being sold as well as the price both must be something having its own value and recognized by the Sharia

Hence if someone sells blood, dead animals, wine or pork, the sale would not be valid. The Prophet (SAWS) is reported to have said: “Verily, Allah prohibited the sale of wine, carcass, pork and idols.” [All of the Sihah Si�ah, from Jaabir]

5. The object being sold should be owned by the seller

Hence the sale of property belonging to someone else will not be valid. The Prophet (SAWS) has said: “Do not sell what you do not own.” [Abu Dawud, Tirmidhi and Nasai from Hakeem ibn Hizam]

6. It should be possible to transfer the object being sold to the buyer at the �me of agreement

Hence the sale of things which cannot be transferred such as a bird in the sky or something that has been stolen, will not take place.

7. The descrip�on and quan�ty of the object being sold as well as the price should be known

Hence selling something unknown or undefined, like someone selling one of a few things, without defining which one, is not considered valid. Similarly, if someone buys something for one of two prices, it will not be valid. The


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Prophet (SAWS) prohibited 'Gharar' in sale. [Sahih Muslim from Abu Hurairah] Gharar refers to excessive uncertainty or ambiguity.

Types of op�ons in sale

An 'op�on' refers to the ability of one of the par�es to rescind the sale contract in certain condi�ons, even a�er the sale. There are 3 main types of op�ons in sale recognized by the Sharia:

1. Op�on of defect

This is due to the finding of the presence of a defect in either the object or the price, a�er the sale, which was not clarified at the �me of the sale. For example, if someone purchases a shirt, and later finds that the s�tching is not proper, he has the right to return it. It is irrelevant whether this defect occurred before the sale or a�er the sale but before the buyer took possession of the object.

2. Op�on of viewing

If the buyer has not seen the object at the �me of the agreement, he has the op�on to rescind the sale agreement upon seeing it. This is due to the Hadith of the Prophet (SAWS) where he says: “Whoever buys something which he has not seen, he has an op�on when he sees it.” [Narrated by Abu Hurairah and Makhool]

3. Condi�onal op�on

This is an op�on agreed upon between the par�es at the �me of the agreement. The limit for this op�on is 3 days. For instance, a buyer can purchase a vehicle with the condi�on that if he does not like it, he will return it within 3 days.

Factors that can render a sale void

Based on the condi�ons of a valid sale, there are certain things associated with a sale transac�on that can render the sale void. They include:

1. Selling something that does not exist.2. Selling something that cannot be transferred to the buyer.3. Selling of debts (both the object and the price are deliverable in the future).4. Gharar (excessive uncertainty).5. Trading something that does not have any value.6. Trading something impure.7. Pu�ng a condi�on or �me for the occurrence of the sale.8. Making one sale a condi�on for the occurrence of another (2 sales in 1).9. Selling moveable assets which are owned by the seller, but which he has not yet taken possession of

(construc�ve possession is sufficient).10. Sale of Inah (Sale‐Buyback Agreement) ‐ A prohibited type of sale in which one sells an item on credit

and then buys it back for a lesser price. This is prohibited as it is effec�vely a means to take interest on a loan.

Other prohibited forms of sale

There are some other forms of sale which would not render a sale void as per Shariah, but are prohibited in the Qur'an or the Hadith and hence must be avoided, as a person who indulges in such ac�vi�es would be sinning in doing so. Some of these are:


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1. Bidding for something without the inten�on of buying it, to increase the price and benefit the seller at the cost of interested buyers.

2. Deceiving the supplier into thinking that the value for his goods have gone down and hence purchasing it from him at a lower price, to make larger profits.

3. Hoarding or limi�ng the supply of goods in a certain market, to create ar�ficial price rise.4. Selling defec�ve goods without men�oning the defect, or even worse, trying to hide the defect.5. Selling a�er the Adhan for the Friday prayer.

Avoiding Riba in sale

Riba is any increase that is prohibited in the Sharia, which can occur in lending as well as in sale. It is a grave sin and has been prohibited in the Qur'an on many occasions.

Allah says in Surah Baqarah, verse 275:

ربا رم ال ل هللا البيع وح و أح

“And Allah has made sale Halal but forbidden Riba”.

The Holy Prophet (SAWS) has said: “Allah curses the one who takes Riba, the one who gives it, the two witnesses to the agreement and the one who writes down the agreement.” [Sahih Muslim from Jabir]

Technically, the term Ribarefers to anybenefit a lender or creditor receives from the debtor as a precondi�on for offering the loan or for increasing the period in which the payment may be made.

Riba in sale can occur in 1) trading currency and 2) trading things that are sold by measure or by weight.

To avoid such Riba, care must be taken that when things of the same type (from the above 2 categories) are being traded (eg: gold for gold, Dollars for Dollars, rice for rice etc.), the transac�on must be hand to hand, and the amount on both the sides must be same. For instance, if I am trading 10 grams of gold for a gold coin weighing 10 grams, I must complete the transac�on on the spot, and I cannot ask for more or less than 10 grams.

However, when things of different types (within theabove 2 categories)are being traded (eg: gold for currency, silver for gold etc., or rice for wheat, dates for salt etc.) it is not necessary that the amount be same, but the transac�on must s�ll be hand to hand. So, I can trade 10 grams of gold for 200 grams of silver, but I must s�ll complete the transac�on on the spot (i.e. the exchange must take place).

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Module 4 ‐ Lease And Its Regulations

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Module 4 ‐ Lease And Its Regula�ons


‐ Condi�ons for a valid lease

‐ Implica�ons of a lease

‐ Termina�on of the lease

‐ Hire‐purchase agreement

Condi�ons for a valid lease

A lease is an agreement through which the lessor hands over the use of the leased object to the lessee in return for a compensa�on (rental). There are 5 condi�ons for the lease to be valid.

1. Similar to the sale transac�on, the par�es (lessor and lessee) both must have intellect and free consent.

2. The leased object as well as the compensa�on must be something having its own value and recognized by the Sharia.

3. The scope of the lease and the period of the lease should be known to both par�es.4. It must be possible for the leased object to be used by the lessee.5. The leased object must be in possession of the lessor at the �me of the agreement. Similar to the sale

transac�on, the possession need not be physical, it may be construc�ve.

Implica�ons of a lease

The compensa�on becomes due either by taking it in advance or by the usage of the leased object by the lessee or by allowing the lessee to use the leased object, whether he actually uses it or not.

The lessee can use the leased object himself, lend it to someone else or sub‐lease it to someone else, unless specifically prohibited from doing so in the agreement.

Major repairs of the leased object are to be borne by the lessor, whereas day‐to‐day repairs are to be borne by the lessee. If the damage is caused due to negligence of the lessee, he can be made to bear even major repairs.

Termina�on of the lease

The lease can be terminated prematurely due to causes such as:

Related to the lessee: If he goes bankrupt or he is no longer in a posi�on to use it (for example, he dies or he has to leave the town)

Related to the lessor: If he has to sell the leased object to avoid bankruptcy

Related to the object being leased: The object no longer serves the purpose for which it was leased (for example, a house is damaged beyond repair)

The lease can also be terminated at any point of �me, by the mutual agreement of both par�es.

Hire‐purchase agreement

This is an agreement where the lessee is made the owner of the leased object at the end of the lease period.


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Module 4 ‐ Lease And Its Regula�ons

Hence, the compensa�on is naturally higher than the market rentals. The object may be gi�ed to the lessee at the end of the lease period or it may be sold to him for a nominal value, or for the residual or market value. For this purpose, the lessor makes a unilateral promise to the lessee that he will transfer the ownership to him at the end of the lease period. This promise is made separately from the lease agreement, as the presence of such a promise within the lease agreement can render it void.

This is a Sharia‐compliant mode of finance for people who are not able to buy a product up‐front and are not able to procure it on instalments, without paying interest.

During the lease period, the regula�ons of lease must be taken care of, and at the �me of sale or gi�ing, the relevant regula�ons must be followed.

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Module 5 ‐ Lending And Borrowing And Their Regulations

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Module 5 ‐ Lending And Borrowing And Their Regula�ons


‐ Condi�ons for a loan

‐ Avoiding Riba in loans

‐ Security for loans

Condi�ons for a loan

A loan is making the borrower owner of something upon the condi�on that he would return the same amount of that thing in the future.

There are 4 condi�ons for a loan to be proper:

1. The lender should be an adult with intellect and must be lending at his free consent.2. What is being lent should be such that it can be quan�fied and returned (i.e. it can be weighed,

measured, or it has similar units which can be counted).3. The borrower should take possession of the loan.4. The loan should not give any benefit to the lender.

Avoiding Riba in loans

Loans are the type of transac�ons in which Riba has always been prevalent.

In the days before Islam, when a lender would ask for the repayment of his loan and the borrower would not be in a posi�on to do so, he would ask the borrower to either pay up or increase the loan amount. This is exactly like the interest prevalent in today's economy, where a bank, financial ins�tu�on or private lender compounds the interest payable and the debt keeps increasing if the borrower does not pay on �me.

As we defined earlier, Riba refers to any benefit a lender or creditor receives from the debtor as a precondi�on for offering the loan or for increasing the period in which the repayment may be made.

This 'benefit' can be in the form of an increase in the loan, either as a lump‐sum increase or a percentage increase, or in the form of some other merchandise or gi� given to the lender, or even some collateral which the lender benefits from. Hence, if the lender takes possession of a vehicle or house of the borrower in which he stays during the period of the loan, that will be considered the forbidden Riba. Hence the tradi�on, “Every loan that brings some benefit is Riba.”

However, if the borrower returns something extra of his own accord, then it will not be considered Riba, as it was not a precondi�on to the loan.

From the above, we can also understand that the lease agreements, where a large amount of money is given to a house owner, and the lender stays in the house without having to pay any rent or at a nominal rent un�l his money is returned, is a mode of benefi�ng from ones loan and it is not permissible.

Similarly, it is not allowed to combine a loan and a sale, as the loan might come with a favourable price to the lender, and we have already seen that “Every loan that brings some benefit is Riba.”

The wisdom behind the prohibi�on of Riba is that the lender is benefi�ng without pu�ng forth any effort, risk or produc�vity from his side. This leads to greediness and s�nginess of the lender and exploita�on of the borrower, sacrificing the spirit of brotherhood and goodness between people.


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Module 5 ‐ Lending And Borrowing And Their Regula�ons

Security for loans

Loans can have 2 types of security.

rdOne is a guarantee, where a 3 party (the guarantor or the 'kafeel') takes responsibility for the returning of the loan if the borrower does not do so.

The second is a collateral for the loan, like a pledge or mortgage. However, as we men�oned, the lender may not benefit from the pledged item. And if the item is lost or destroyed while in his possession, he must pay the borrower the lesser of the price of the item and the loan amount. If the item is destroyed due to the lenders ac�ons or his negligence, he must compensate the value of the item, even if it is more than the loan amount.

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Module 6 ‐ Agency Contracts And Its Regulations

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‐ Condi�ons for an agency contract

‐ Scope of an agency contract

‐ Ending of an agency contract

Condi�ons for an agency contract

Agency refers to the act of making someone stand in ones place for some transac�on(s). The person who is pu�ng someone in his place is the Principal, and the person he is pu�ng in his place is the Agent. The Prophet (SAWS) has made his companions as agents for various transac�ons, including marriage and trade.

Agency may be paid or without any compensa�on.

The condi�ons for an agency contract to be in compliance with the Sharia are:

1. The principal should have the right to perform the transac�on for which he is appoin�ng an agent.2. Both the principal and the agent should have intellect and free consent.3. The scope of the agency contract should be clearly defined and should be allowed by the Sharia (hence

agency for collec�ng Riba or gambling would not be allowed).

Scope of an agency contract

The agent operates as per the orders of the principal and as is the general prac�ce for that transac�on.A person who is made an agent to buy something buys it at the market price or close to the market price.

If the type of thing he must buy was specified, he must s�ck to that. For instance, if he was asked to buy a gold ring, he cannot buy a pla�num one.

A person who is made an agent to sell something can do so on a cash or credit basis (unless otherwise specified), and he has the right to take a collateral for the credit payment.

The agent cannot make someone else his agent for the same transac�on, without the permission of the principal.

And the agent must avoid conflicts of interest. Hence if a person was made an agent to buy something for instance, he cannot buy it from himself or from his immediate family.

The agent will not be made responsible for anything that is damaged when it is with him, except if it is damaged due to his negligence or due to his going outside the scope of the contract.

Ending of an agency contract

The agency contract comes to an end in the following condi�ons:

1. If the principal or the agent revokes the contract. However, the revoking party must inform the other of the revoca�on.

2. If the principal or the agent dies.3. If either of them goes mad (i.e loses intellect).4. If the principal loses the right to do the transac�on for which he appointed the agent.5. Upon comple�on of the transac�on for which the agent was appointed.


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Module 7 ‐Partnership Contracts And Its Regulations

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Module 7 ‐ Partnership Contracts And Its Regulations


‐ Types of partnerships

‐ Condi�ons for a partnership

‐ Scope of partnership

‐ Ending of partnership

‐ Termina�on of partnership without effec�ng the business

Types of partnerships

A partnership is an agreement between 2 or more partners to share the capital and profit of an enterprise. Allah (swt) says in a Hadith Qudsi, narrated by Abu Hurairah (ra), “As long as two partners do not cheat one another, I am the Third Partner. If one of them cheats the other, I leave from that partnership.” [Sunan Abu Dawud and

MusnadHaakim]

Partnerships are primarily of 3 types:

1. Partnership in capital

Here all the partners contribute to the capital of the partnership. However, all the partners may or may not work for the partnership. The profit‐sharing ra�o will be as agreed upon at the �me of entering the partnership, and the loss‐sharing ra�o will be the same as the capital‐contribu�on ra�o.

For instance, A and B might form a partnership by contribu�ng 50% each to the capital. However, since A will be pu�ng more effort into the partnership, 75% of the profits is determined as his share, and 25% as that of B. However, loss will be borne equally by each.

2. Partnership in labour

Here all the partners agree to accept assignments and work for it. The partners may be from the same trade or from different trades, such as 2 tailors, or an electrician and a plumber. And whatever any of the partners accept, it Is necessary for them to perform it.

3. Fund management (Mudharaba)

In this case, there is a fund manager who only works for the partnership, without contribu�ng to the capital, and an investor who contributes capital, but does not work for the partnership. Here too the profit is distributed as per the profit sharing ra�o determined at the �me of entering the contract, and since the en�re capital is contributed by the investor, he will have to bear any loss. The loss for the fund manager is that he would not be compensated for his efforts.

Condi�ons for a partnership

1. All the partners must be having intellect and free consent, as they will be ac�ng as agents for one another in the partnership, and these are condi�ons for the agency contract.

2. The capital of each of the partners must be exis�ng at the �me of forming the partnership.


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Module 7 ‐ Partnership Contracts And Its Regulations

3. The profit sharing ra�o must be determined at the �me of the agreement, and it should be a ra�o of the profit, not a ra�o of the capital, and not a fixed amount.

Scope of partnership

Each partner can buy and sell on behalf of the partnership either in cash or on credit.

Each partner can enter into further agency contracts with other par�es for the benefit of the partnership.The partners, however, may not donate or lend money from the capital of the partnership.

A partner may not take on loan on the partnership without permission from the partners. Even if they agree, the loan must be interest‐free.

The partner cannot be made responsible for any loss incurred by him or any wealth destroyed in his hands, except if it was inten�onal or due to negligence.

Ending of partnership

The partnership will come to an end in the following situa�ons:

1. By the termina�on by one of the partners, upon no�fying the other partners of the same.2. If the capital of one of the partners is destroyed before he joins it with the partnership.3. If any of the partners loses his intellect4. Upon the death of one of the partners. His heirs in this case, will have the op�on either to draw the

share of the deceased from the business or to con�nue with the partnership as partners.

Termina�on of partnership without affec�ng the business

If one of the partners wants to exit the partnership while the others want to con�nue, the other partners may purchase the share of that partner. However in this case, the price of the share of the leaving partner must be determined by mutual consent.

If there is any dispute about valua�on of the share and the partners do not arrive at an agreed price, the leaving partner may compel the other partners to liquidate the partnership and distribute the realiza�on among themselves in the capital‐contribu�on ra�o.

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Module 8 ‐ Ruling On Banking

27



‐ Interest paid by banks and to them is the forbidden Riba

‐ Consumer loans and business loans

‐ Interest on savings deposits

‐ The Islamic alterna�ve

Interest paid by banks and to them is the forbidden Riba

The primary func�on of banks is to accept deposits (i.e. borrow) and provide credit (i.e. lend). The profit of the bank mainly stems from the difference between the higher interest rate at which it lends and the lower rate at which it borrows. As we have seen in the regula�ons of lending and borrowing, any benefit a lender or creditor receives from the debtor as a precondi�on for offering the loan or for increasing the period in which the repayment may be made is Riba. And we also saw that both the paying and accep�ng of Riba is Haram, as per the Qur'an, the Hadith and the consensus of the Sharia scholars.

This interest being charged by banks and financial ins�tu�ons is therefore something that every Muslim must avoid completely.

Consumer loans and business loans

There is no difference between the loans taken for personal consump�on and those taken for business or produc�on, as far as the prohibi�on of interest is concerned. Hence what some people say in jus�fica�on of business loans, that the type of loan prohibited by Allah is only the consump�on loan, has no basis whatsoever. As a ma�er of fact, the majority of the loans that were forgiven and the interest which were foregone by the Companions upon the revela�on of the verses prohibi�ng Riba (esp. 2:278) were business loans.

Interest on savings deposits

Apart from the primary ac�vi�es of lending and borrowing, banks also provide certain services like debit cards, net banking etc. To avail these services, opening an account and having some money in the bank is necessary. Since individuals cannot open current accounts, they may open savings accounts to avail these services. However, it is not permissible for them to take that money for themselves. Nor is it prudent to leave that money in the account to earn compounded interest on it.

Hence, such interest money should be withdrawn and given in charity without expec�ng any reward for doing so. It may not be used for any needs of the person or his family, nor may it be mixed with one's wealth, nor can it be used to pay taxes or u�lity bills.

The Islamic alterna�ve

thTowards the end of the 20 century, along with a general awakening in the Islamic conscious, we saw the development of Islamic banks in many parts of the world. These banks differed not only in their name, but also in their reality from the conven�onal banks in six fundamental ways:

1. Having a connec�on with the Islamic teachings.2. Adop�ng the principle of mercy, kindness and pardoning in all their dealings.3. Having concern for social and humanitarian causes.4. Ensuring equity and jus�ce to both par�es in the transac�ons.


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5. Making labour and capital the basis for earning profits, such that the depositors earn a profit for their capital contribu�on and the bank earns a profit for the fund management it carries out.

6. Inves�ng only in Sharia‐compliant modes of investment.

Sharia compliant modes of investment is another topic altogether. To men�on a few, short term modes of investment include Murabahah, Bai' Salam and to some extent, Ijarah. The long term modes of investment are mostly forms of partnership (Mudharaba and Musharaka) as well as infrastructure projects.

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Module 9 ‐ Ruling On Insurance

30



‐ Commercial insurance

‐ The Islamic alterna�ve

‐ Situa�ons in which commercial insurance is permissible

Commercial insurance

Commercial insurance of any type, as provided by the conven�onal insurance companies is an invalid and Haram transac�on for a Muslim to enter. This is because it has the features of gambling, which is prohibited in Islam. It depends on chance, where some people can make huge money without effort at the cost of others.

Apart from that, there are two other reasons why it is prohibited. One is Riba, as most of the insurance policies promise a return higher than the sum of the instalments paid. Second, there is Gharar (ambiguity) as there are unlimited possibili�es at the �me of entering the contract, and hence there is no proper agreement between the insurer and the insured.

The Islamic alterna�ve

Islam is not against the fundamental idea of insurance. It is the method in which it is achieved by the insurance companies that make it Haram. A Halal alterna�ve would be for the instalments to be structured as charity by a limited number of individuals who require insurance, and for the insurance fund to be invested in a Sharia‐compliant manner.

Whenever any of the members of the fund are in need of some money, it can be given to that member. If there are any profits, it can be distributed among all the members.

This type of a co‐opera�ve insurance fund is closer to the Islamic principles of helping one another, taking care of the needy ones and being concerned for the well‐being of one another. Such a setup also makes more sense than having large corporate insurers come in and do this to earn huge profits from those being insured.

Situa�ons in which commercial insurance is permissible

Similar to the concession to use savings accounts in conven�onal banks due to the inability to do without it, there are certain situa�ons where commercial insurance can also be availed.

One such situa�on is where it is made mandatory by the government. For example, in some countries, people who drive vehicles are expected to insure their vehicles.

Another situa�on is when the insurance is not availed by the individual, but by the organiza�on or society to which he belongs. For instance, an employee of a company is given health insurance by the company as an employment benefit, in that case there is no sin on him.

Also, in some countries, the cost of health care is prohibi�ve to those who do not have insurance. In such situa�ons also, health insurance or medical insurance may be availed.

However, it must be remembered that even in these cases, if an Islamic alterna�ve (Takaful or co‐opera�ve form) is available, it should always be chosen over the commercial one.


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Module 10 ‐ Ethical Practices In Business

33

Module 10 ‐ Ethical Prac�ces In Business


‐ The Islamic way of business

‐ Ethical marke�ng prac�ces

‐ Ethical employment prac�ces

The Islamic way of doing business

Islam is a religion of jus�ce, mercy, kindness, honesty, faithfulness, trustworthiness, advise, perfec�on and spotlessness. These quali�es will only be evident in a person's dealings. Hence if a person's dealings can be described as oppressive, rough, fraudulent, shady, cut‐throat etc. then such a person would be a sinner and his ac�ons have no rela�on with Islam. His earnings will lack the purity that is demanded by Allah.

The more the Islamic spirit is inculcated in ones financial dealings, and the more the spirit of helping, suppor�ng and loving one another is developed among the Muslims, the more Allah's mercy, peace and blessing will be present in their earnings, in their homes and in their lives.

Hence it is necessary for Muslims to choose the best and most pure course of ac�on in all their dealings. In the previous module, we have discussed financial transac�ons in detail. A few examples of the dilemmas that can face a Muslim businessman in other areas of business and how to approach them are men�oned below.

Ethical marke�ng prac�ces

There are certain things that a businessman does to sell his product or service that is not permissible. Here are some guidelines to ensure that one does not fall into grey areas while marke�ng.

1. Be completely honest

While lying and exaggera�on might seem to bring short term gain, in reality it takes the blessing out of business. And in the Herea�er, the liar is the biggest loser. Hence we should be very careful about any adver�sement or marke�ng communica�on that we or our sales people issue, as giving false informa�on in an adver�sement is as good as lying. In some businesses, it is common to claim that something can be delivered by a certain date, while knowing that is not possible. This is also dishonesty.

We have seen the Hadith where it is narrated from the Prophet (SAWS) that “the honest and trustworthy businessman is with the prophets, the pious and the martyrs.” [Tirmidhi and Hakim from Abu Said Khudri]

2. Avoiding swearing by Allah to sell ones goods

Swearing unnecessarily is discouraged in Islam. And the harms from doing so are both to one's religion and one's worldly affairs. A person who takes excessive oaths loses trust of the people and gains a poor reputa�on in the market. The Prophet (SAWS) is reported to have said “False oaths sell the product but destroy the earnings.” [Musnad Ahmad and others]

3. Avoiding use of women in adver�sements and marke�ng

It has become common prac�ce to u�lise women in adver�sements and marke�ng, to get more views and grab a�en�on of males. This is prohibited in Islam. Islam does not restrain women from par�cipa�ng in economic ac�vi�es, but they should not be used for the purpose of emo�onal s�mula�on. That is why Islam does not allow a women to expose any part of her body in public, except for her hands, face and feet.


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Module 10 ‐ Ethical Prac�ces In Business

Ethical employment prac�ces

The employer‐employee rela�onship is either a hiring contract, or a contract to provide certain services. In either case, utmost care must be taken that both the employee and the employer fulfils the obliga�ons of the contract. If an employee fulfils his obliga�on, the employer should not delay in making the payment. The Prophet (SAWS) is reported to have said “The delay in payment by the person who has money is a form of oppression.” [Sunan Nasai

(4689) and Sunan Abu Dawood (3628)]

This gains addi�onal importance when a person hires a labourer for some physical work. In this regards, it is reported from the Prophet (SAWS) that he said “Pay the labourer before his sweat dries.” [Sunan Ibn Majah (2443)]

Also, the employer does not have the right to force the employee to do work not men�oned in the contract or not regularly done by someone in the posi�on or to force him to work over�me without compensa�ng him for the same.On the other hand, the employee should also fulfil his obliga�ons and try to do the work as well as he can. The Prophet (SAWS) is reported to have said “Surely Allah loves it when one of you does his work that he does it well.” [Baihaqi from Aisha (r.a)]

Finally, both par�es to the employment contract, or to any contract for that ma�er, should remember the statement of Allah in Surah Maaidah (5:1)

يها الذين آمنوا أوفوا بالعقود ياأ

“O Believers, fulfil the obliga�ons of the contracts.”

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Module 11 ‐ Family Values

36



‐ Importance of family �es

‐ How to keep the family together

‐ Factors that create dissen�n the family

‐ Warning for those who sever family rela�onships

Importance of family �es

Islam has placed tremendous emphasis on the establishment, maintenance and preserva�on of family kinship. Various Qur'anic verses and Hadith instruct Muslims to be kind, merciful, affec�onate and caring towards parents and rela�ves.

The importance of maintaining harmonious rela�onships with all family members is highlighted in the Qur'an in the following verse (4:1):

“And fear Allah with whose Name you ask one another (for your rights) and be mindful of your rela�ves.”

In this verse, the instruc�on of keeping family �es follows directly a�er the instruc�on of fearing Allah, hence highligh�ng its importance in the sight of Allah the Most Exalted. In another verse (4:36) it is men�oned,

“And worship Allah and do not assign partners with Him and be favourable unto parents and family members and the orphans and the des�tute and the near neighbour and the distant neighbour and the traveller and your slaves. And Allah does not love one who is haughty and proud.”

The great number of Hadith that instruct family kinship further emphasizes the importance of the ma�er. One such Hadith is the one in which the Prophet (SAWS) is reported to have said: “Whoever believes in Allah and the Last Day, let him maintain the bonds of kinship.” [Sahih Bukhari from Abu Huraira]

How to keep the family together

1. Visit them regularly

In an era when the words “no �me” have become a formidable cliché, Muslims are duty bound to keep close

contact with family rela�ves by visi�ng each other regularly. The trend today is to visit someone if there is some

material or worldly benefit, or only if they keep contact with us. Rela�ves should be visited solely for the pleasure

of Allah and to create and maintain love in the family.

2. Help them out

Assis�ng one's rela�ves carries two reward; one reward for assis�ng and one reward for bonding family �es. These

noble quali�es will also be a prac�cal means of guidance for the children. In this way family rela�onships are

strengthened and can be maintained for genera�ons. Certain people feel uncomfortable to assist rela�ves if they

require financial help in the form of Zakat, charity etc. This manner of thought should be corrected. The Prophet

(SAWS) is reported to have said, “Charity given to a poor person is an ordinary charity, but charity given to a

rela�ve serves two purposes: one as a charity and secondly, an act of upholding family kinship.” [Sunan Tirmidhi]


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and “Whosoever desires to have expansion in his sustenance and a prolonged life, should treat his rela�ves with kindness.” [Sunan Tirmidhi]

3. Abundant Gree�ng

Spreading salaam between one another creates mutual affec�on. Muslims are encouraged in the Hadith to greet

one another excessively. Those who ini�ate salaam are protected from pride and haugh�ness.

4. Exchanging Gi�s

Showering rela�ves with gi�s is also an effec�ve method of genera�ng love between people. In one narra�on, the

Prophet(SAWS) says, “Exchange gi�s with one another, you will create love and goodwill amongst yourselves.”

[Musnad Abu Ya'la]

Factors that create dissent in the family

1. Marriage breakdown

This is the single most factor that has disrupted family life and created discord in communi�es. The separa�on of

two individuals directly impacts on both families, and in this way the discord permeates the en�re community.

It is incumbent upon couples to understand the reality and commitment of the marital �e and its impact on

society. If the couple have no other op�on but to divorce, this procedure should be carried out in a dignified and

Islamic manner, and any animosity or any form of oppression should be avoided.

2. Business ma�ers

This is also a major contributor to family problems and disunity. Material interests and love for the world take

precedence and people do not realise the consequences of their words and ac�ons. Ignorance and authority play

a major role, and wealth of the orphans, innocent and weak is usurped. Strict applica�on of the Sharia rules is

required in sensi�ve business issues. At all �mes the family unity should be maintained as top priority.

3. Estate ma�ers

The demise of a family member is some�mes the spark that leads to endless misery for families when the

deceased's estate is not distributed correctly. Hence it is impera�ve for Muslims to keep their financial ma�ers in

order, thereby not leaving an opportunity for family discord. Sharia scholars should be consulted in this regard for

proper Islamic guidance in the field of Islamic inheritance and estate distribu�on.

4. Suspicion and Gossip

These are two major quali�es that wreak havoc, burn and destroy the perpetrator inwardly. Mischief is created

through false informa�on and opinions about people and families causing disunity and family discord. A believer


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should at no �me engage in backbi�ng or harbour evil thoughts about others. There are severe warnings of

chas�sement for people who engage in these sins.

Warning for those who sever family rela�onships

Just as the reward for maintaining family unity is great and fulfilling, similarly the warnings and sin for severing and

breaking the family �es is equally severe.Allah has cursed the one severing family �es in the Qur'an (13:25) where

He says:

“And those who break the covenant of Allah, a�er its ra�fica�on, and sever that which Allah has commanded to be joined (i.e. they sever the bond of kinship and are not good to their rela�ves) and work mischief in the land, on them is the curse, and for them is the unhappy home (i.e. the Hell‐fire)”.

A cursed person is one who is deprived of the Mercy of Allah the most Merciful. This sin is punishable in this world as well as in the Herea�er. Hence in the Hadith, it is reported “There is no sin more deserving of having punishment meted out by Allah to its perpetrator in advance in this world along with what He has for him in the next world than oppression and severing family �es.” [SunanTirmidhi]

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Module 12 ‐ Social Responsibility

40



‐ Logic behind social responsibility

‐ Verses of the Holy Qur'an regarding social responsibility

‐ Hadith of the Holy Prophet (SAWS) regarding social responsibility

Logic behind social responsibility

Human beings use 2 types of resources in this world.

The first type is 'free resources'. These resources are available for all to use, are not owned by any one person, and are free for all, despite their being extremely valuable for man to survive. Examples are air, sunlight, water etc.

The second type is 'limited resources'. These are the resources such as money, land, minerals, food etc. which are used for consump�on or for produc�on. They are differen�ally owned by man, some having excessive amounts and some not having any at all.

Now, while free resources are equally available for the rich, who have lots of the limited resources and for the poor, who hardly have any, it is the rich who are able to benefit from the free resources, because they have the means to do so. This does not mean that they have any more right over these resources than the poor. Rather it means that they have to return to the poor their share of the u�liza�on of these resources which they have benefi�ed from.

Verses of the Holy Qur'an regarding social responsibility

Allah says in the Qur'an (2:177):

“Righteousness is not that you turn your faces towards East or West; but it is righteousness‐ to believe in Allah and the Last Day, and the Angels, and the Book, and the Messengers; to spend of your wealth, out of love for Him, for your kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the ransom of slaves; to be steadfast in prayer, and prac�ce regular charity; to fulfil the contracts which ye have made; and to be firm and pa�ent, in pain (or suffering) and adversity, and throughout all periods of panic. Such are the people of truth, the Allah‐fearing.

Similarly, in another verse (2:274) He says:

“Those who (in charity) spend of their goods by night and by day, in secret and in public, have their reward with their Lord: on them shall be no fear, nor shall they grieve.

Warning those who neglect this responsibility, He says (9:34):

“O you who believe! Verily, there are many of the (Jewish) rabbis and the (Chris�an) monks who devour the wealth of mankind in falsehood, and hinder (them) from the Way of Allah. And those who hoard up gold and silver, and spend it not in the Way of Allah..announce unto them a painful torment”.

Hadith of the Prophet (SAWS) regarding social responsibility

There are numerous narra�ons that talk about the social responsibility of a Muslim. We provide 3 such Hadith here as a sample.


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It is narrated that the Prophet (SAWS) said: “Anyone who works to look a�er a widow and a poor person is like a warrior figh�ng for Allah's cause, or like a person who fasts during the day and prays all night.” [Sahih Bukhari from

Safwan ibn Salim]

The Prophet (SAWS) is reported to have said: “If any Muslim plants something or sows seed from which a man, a bird or an animal eats, it counts as a charity for him.” [Sahih Bukhari and Sahih Muslim from Anas]

In another narra�on, the Prophet (SAWS) is reported to have said: “If anyone would like Allah to save him from the hardships of the Day of Resurrec�on, he should give more �me to his debtor who is short of money, or remit his debt altogether.” [Sahih Muslim from Abu Qatadah]

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The Prophet Muhammad (peace be upon him) said:

“(The significance of) this world (in comparison) to the herea�er is similar to one of you dipping his finger in the ocean and then seeing (the amount of water that)

has stuck to it."

[Sahih Muslim]

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