Historical Background of Commercial Transactions

HISTORICAL BACKGROUND OF COMMERCIAL TRANSACTIONS

Islamic commercial law not only creates new system but re-evaluate or ratify the existing pre-Islamic institutions of contractual obligations and commercial laws completely or partially.

Makkah and Madinah regarded as two islands in the waterless steppes and desert, had close economic ties with the nomads.

In Madinah, the Christian and Jewish communities represented the commercial life in the city.

Madinans traded in commodities, like perfume, clothing and wine.

They were also involved in business of money-lending on interest (riba) to foreign businessmen.

Makkah was a busy and prosperous city before Islam.

Quraysh developed international trade and trade treaties with other countries.

Makkah was the most suitable place to become an international trade centre in the region due to:

the existence of haram(sacred or sanctuary).Haram was a place where men could come in

without fear of any hostility and molestation.

Typical combination of place of pilgrimage and of a commercial centre.

Makkah by the time became a neutral city due to the trade activities with various tribes.

Trade and commerce remained inseparably related to the religious rites, especially the pilgrimage.

Many merchandise caravans were protected by the established institution of the sacred months and enjoying free access to the markets.

Makkah was also assisted by its favorable geographical location, it was situated at a strategic place in the Arabian peninsula.

There was active circulation of capital in the Makkan society.

Agents, brokers and the great majority of the population lived on credit or loans.

The contract of Mudarabah was popularly practiced, any sum of money or capital was invested in this partnership.

Makkah being a banking centre, businessmen could make payments to many distance places or countries.

Makkah was also a clearing house for international trade and a provider of trading facilities and insurance of the goods on a very dangerous route.

Women also took active part in mercantile enterprises.

Khadijah bint Khuwaylid, Asma bint Mukharribah, I.e. Abu Jahl’s mother, who was a perfume merchant and Hind bint Utbah, the wife of Abu Sufyan were among the leading businesswomen at that time.

Many taxes and charges imposed on foreign merchants for their entry, travelling about the city, permit to stay, passage of their foods, trading, departure and crossing the borders of the market areas.

Pre-Islamic Arab was an important place which attracted many people, whether they were Arabs or non-Arabs.

Makkah was centre of worship or pilgrimage since the time of Prophet Ibrahim.

The pre-Islamic customary law in Arabia provides some of the terminologies to the later technical terminologies of Islamic law.

Some legal technical terms have often acquired, a modified or strictly different meaning in Islamic law.

The use of written document by the pre-Islamic Arabs is a well-attested fact.

Makkah after Islam

Non-Muslims were not allowed to enter the city of Makkah, after it had been conquered by Muslims.

Trading in Makkah became a Muslim monopoly

Quran and the Commercial life of Muslims

The Prophetic life of Muhammad(P.B.U.H) is spread over a period of twenty three years.

Last thirteen years in Makkah Ten years in MadinahSome verses related to bay (sale) or

tijarah (trade and commerce) were also revealed during his period in Makkah.

The Makkahan surahs of the Quran testify that Islam promotes trading and commercial activities.

Arabs were guilty of fraudulent dealings in every day trade transactions.

They use false weights and measures and exchange different kinds of coins.

Quran condemned these activities and all Muslims are prohibited from getting involved in any unjust business transaction.

In surah al-Mutaffifin, Quran uses strong words against such offenders and against short measures and weights: (83:1-6)

The riba was prohibited early in the makkan period.

During Madinan period, the Quranic injunctions on commercial transactions were extended and became more sophisticated.

Muslims become an ummah or nation with their own constitution and government, Prophet himself become their leader.

Madinan surahs stipulated various restrictions.

A distinction is made between decent trading and usury (riba), which is unlawful.

Allah says:“God will deprive usury of all blessing, but will

give increase for deeds of charity: for He loveth not creatures ungrateful and wicked” (2:275)

In other verse“O Ye who believe! Fear God, and give up what

remains of your demand for usury, if ye are indeed believer. If ye do it not, take notice of war from God and his Apostle: but if ye turn back, ye shall have your capital sum: deal not unjustly, and ye shall not be dealt with unjustly” (2:278-79)

Punishment for the practice of usury: Loss of God blessing in this world Torture of hell in the nextQuran also prohibits gambling, bribery,

consuming other’s property unlawfullyProhibition of trading during Friday prayerQuran imposed the regulation of writing

and taking witnesses on contract of loan or commercial contract.

In contracts where payment and delivery of goods are made immediately or without delay, then putting it into writing is optional.

If a contract of loan or a commercial contract is made on journey and a scribe is not available, the Quran permits the making of contract on a pledge or security.

All evidence including any contractual obligation must be given truly.

All obligations must be fulfilled.The prophet liberal attitude to trade is

obvious from the fact that he himself had taken an active part in trade.

Codes of ethical disciplines in Islamic commercial transactions

There are some practices of good manners, decency and ethical standards

in business contracts, which Muslims are encouraged to follow and some

practices are discouraged from following.

Practices encouraged

Wariness of doubtful property and workLegal and illegal things are clearly defined

and in between them are some doubtful things which should be avoided.

Doing business early in the morningit is encouraged to start business or open

shops early in the morning.The prophet reported to have sent his

servants for trade in the early morning and got a lot of profit.

Trustworthiness and trustfulness in business transaction

Trustworthiness is encouraged in business transactions. Prophet(PBUH) said:

“the truthful merchant(is awarded by being ranked) on the day of Resurrection together with the Prophet, the truthful ones, the martyrs and the pious people”

Dishonest traders on the other hand are blameworthy.

Generosity in Bargaining and Modesty in claiming debts

One should be easy and generous in bargaining and whoever demands his debts do so in a modest manner.

Giving time to debtor to pay his debtSufficient time should be given to a rich

person to pay his debt at his convenience.

One should wait for a poor person to pay back his debt when he can.

Voluntary rescission of an unwanted sale (al-Iqalah)

Al-Iqalah is cancellation of sale (faskh bay) and it is allowed if it has been concluded before the possession.

It had been universally recognized during pre-Islamic times.

It was encouraged later by Prophet as a recommendable act to relieve any uneasiness.

Al-Iqalah is not a sale. After the rescission of the contract, the

parties have to return what they have taken from one another, i.e. price and goods.

It’s a voluntary cancellation of sale. If there is no harm to the parties in

case of rescission of a contract and they are agreed to such an action then it is allowed.

It is discouraged if it is based on fraud or any confusion.

Generosity in businessGenerosity is strongly recommended to

purify wrongfulness, mal-practices and unsuitable acts while doing business.

Practices discouraged

Business transactions in the MosqueDoing business transactions in the

Mosque is disapproved by the Prophet (PBUH).

Prophet (PBUH) said:“whenever you see a man who is

selling or purchasing goods in the mosque you should say: God will never give profit in your business”

Raising voices in the marketIt cause much inconvenience, uneasiness,

chaos and indiscipline in the markets. In pre-Islamic times traders used to make a lot of noise to attract customers or prospective buyers. Islam discouraged such practices.

False Swearingit cause loss of blessing therefore, it is

disapproved while selling.False swearing is sinful, even though the

transaction is valid.

Lies and hiding facts in saleThe seller and buyer should explain the

good and bad points of the transaction. Lies and hiding in a deal will cause the loss of the blessing.

Fraudulence in TradeSome kinds of fraudulence transactions

had been commonly practiced in the pre-Islamic period like, sale by keeping animals unmilked for a long time. Islam discouraged such practices.