Islamic Finance

Opening verse

يَا أَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا أَمْوَالَكُم بَيْنَكُم بِالْبَاطِلِ

Meaning: O you who believe! Do not consume one another's wealth unjustly. (4 An-Nisa': 29)

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1️⃣ Introduction

• The economy is important for meeting daily needs smoothly; many rivalries and conflicts in history have had an economic basis.
• Some modern financial practices agree with Islam; many conflict with it → Muslims must know the difference and act accordingly.
• Earning wealth in the right way and spending it in good ways is one of the highest forms of worship.

The virtue of halal work (at-Tabarani)

Whoever seeks halal wealth so as not to have to beg, to provide for his family and to show care for his neighbours, will meet Allah on the Day of Judgement with a face like the full moon.

The statement of 'Umar (RA)

"Only those who know the rules of the religion should buy and sell in our markets; whoever does not know the rules should not come to the market."

→ Every believer must earn with knowledge of halal and haram.

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2️⃣ The foundations of Islam's teaching on earning

1. A Muslim must always earn only in a halal way.
2. An honest trader deserves Allah's mercy.
3. Lending to someone in need, and helping a debtor repay, are qualities of a believer.
4. Practices such as pledging (pawning) and leasing are used in financial dealings.
5. Islam allows and gives guidance on joint ventures.
6. Interest, adulteration, gambling and cheating – transgressions in which others' property is enjoyed wrongfully.

Living by halal work is both an honour and a duty for a human being.

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3️⃣ Trading methods Islam accepts

(1) Al-Murabahah (المرابحة)

• Goods are sold at cost price + profit.
• The price may be bargained over, or the goods sold at a fixed price.
• Payment may be received all at once or in instalments.
• When payment is in instalments, the trader has the right to increase the profit.

Note: In Islamic finance the instalment (deferred) price may be higher than the cash price, but it must be agreed and fixed when the contract is made; it cannot be raised later because of delay (that would be riba). Learn the textbook's wording and confirm with your teacher.

(2) Al-Mudarabah (المضاربة)

• There must be mutual understanding and a profit-and-loss agreement made in advance.
• Profit – shared between both parties.
• Loss – if not caused by the entrepreneur's negligence, it is borne by the investor alone.

(3) Al-Musharakah (المشاركة) – partnership

• An activity carried out jointly by more than one partner.
• Partners may take part in capital and manpower, as each is able.
• Profit – shared by mutual agreement; loss – borne in proportion to each share.
• The wealth and abilities of many come together, and the needs of society are met.
• Hadith Qudsi: "I am the third of two partners as long as neither betrays the other." (Abu Dawud)

Other permitted dealings

• The term "الاستصناع" (istisna' – manufacturing contract) appears only in the textbook's word list; it is not explained in the lesson – confirm with your teacher.

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4️⃣ Forbidden financial activities

• Interest
• Gambling
• Cheating
• Adulteration
• Fraud in measuring and weighing
• Producing, buying, selling or supporting things that cause harm

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Memory tip

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Quick revision

• 4:29 – do not consume others' wealth unjustly.
• Earning halal and spending in good ways = worship.
• 'Umar (RA): only those who know the rules should come to the market.
• Murabahah – cost price + profit; profit may be higher for instalments.
• Mudarabah – loss falls on the investor (unless the entrepreneur was negligent).
• Musharakah – loss by share proportion; Allah is the third (Abu Dawud).
• Ijarah, salam, rahn, qard hasan – permitted.