Sabeel - Islamic Finance Notes

7/31/2019 Sabeel - Islamic Finance Notes

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(In!the!Name!of!Allaah,!the!Most!Beneficent,!and!the!Most!Merciful)!

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If!you!notice!any!mistakes!in!these!notes!then!inshallaah!tell!me!off!and!give!me!

naseeha!via!email!at:[email protected]!!

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Class:!The!Financial!Times;!Your!dos!and!donts!in!finance!from!an!Islamic!perspective!

Delivered!by:!Sheikh!Haitham!alVenue:!University!of!East!London,!West!Building!

Organised!by:!Sabeel!

Contents!!

1.0!Introduction!

2.0!Transactions!in!Islam!

3.!0!Sale!Contracts!

4.!0!Riba!

5.0!Gharar!

6.0!Conclusion!

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1.1!Introduction!&!aims!of!the!course:!

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Make!it!easy!to!understand!Islamic!finance!and!show!it!is!not!difficult,!and!in!reality!it!is!very!easy.!

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One!of!the!biggest!problems!in!relation!to!courses!on!Islamic!finance!is!the!fact!they!start!small,!explaining!concepts,!and!then!when!we!onto!the!product!itself,!we!forget!about!the!consequences!of!these!concepts.!

Islamic!finance!tends!to!be!studied!in!isolation!away!from!Fiqh!(Islamic!jurisprudence)!in!reality;!you!have!to!have!a!solid!background!in!jurisprudence!when!studying!Islamic!Finance.!

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Islamic!Finance!is!on!a!micro!level;!it!deals!with!specific!elements!not!overarching!features.!!

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Islamic!Economics!is!on!a!macro!level,!it!more!holistic!and!encompassing.!!

Thus,!in!simple!terms!finance!=!micro,!economics!=!macro.!!!

The!Economy!is!the!overall!picture!of!ins!and!outs.!!!

Islamic!finance,!gives!us!the!tools/products,!to!achieve!balance!for!wellbeing!of!society.!!!

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When!we!talk!about!Economics,!we!have!to!consider!other!elements!e.g.!politics!etc.,!that!interfere!with!it.!

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People!tend!to!mix!Fiqh!of!transactions!with!Islamic!finance.!Fiqh!of!transactions!gives!basic!elements!of!the!dos!and!donts!in!Islamic!finance.!!

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We!use!the!rules!from!Fiqh!(Islamic!jurisprudence)!to!build!products.!!

Islamic!finance!is!NOT!everything.!We!have!to!understand!STRUCTURE!before!studying!it.!STRUCTURE!in!terms!of!what!are!we!going!to!study.!By!this,!we!mean!we!need!to!look!at!the!overall!picture!before!going!into!the!detail,!to!help!understand!how!everything!is!considered!on!a!holistic!level.!!

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Basic!definitions>!FINANCE:!I!give!you!something,!you!give!me!something!in!return,!and!this!is!A!FORM!OF!TRANSACTION.!Transaction!can!take!many!forms.!EXCHANGE!is!the!core!concept!we!focus!on.!This!exchange!can!lead!to!consequences!or!have!different!forms.!!

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TYPES!OF!EXCHANGE!e.g.!rent!a!house!in!exchange!for!money,!or!weapons!to!Iraq!for!taking!Oil!(not!always!ethical!exchanges).!These!are!

bilateral!exchanges,!two!parties,!and!direct!exchange.!There!is!also!CHARITY!to!consider,!is!this!a!transaction?!Nothing!in!return.!Finally!LOANS!!GUARANTEE,!how!is!this!defined?!

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EXCHANGING!may!sometimes!be!prohibited!!why?!Because!the!transaction!was!not!just,!this!element!of!injustice!is!prohibited!in!

transactions.!Riba!is!prohibited!as!transaction!related!to!it!leads!to!

injustice.!!

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IMPORTANT:!If!we!understand!the!following!two!concepts,!we!will!understand!Islamic!finance.!1)!What!constitutes!Riba?!2)!What!constitutes!injustice?!

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MAIN!THING:!Exchange!!what!make!a!legitimate!exchange?!Need!to!understand!this!and!identify!Riba!and!injustice.!

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1.2!Overriding!aims!of!Islamic!Economics!

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To!reach!inner!circle!of!Fiqh!of!transactions,!we!have!to!go!via!Islamic!Economics!and!Islamic!Finance.!!

The!CENTRAL!PRINCIPLE!is!that!THIS!LIFE!IS!A!TEST.!We!may!take!this!point!for!granted.!However,!it!is!very!important!to!REMEMBER!this!point!when!studying!this!topic.!We!must!remember!that!this!life!is!not!lasting!forever.!Properties!around!us!may!be!part!of!this!test.!If!we!do!not!live!as!rich!individuals,!this!may!also!be!part!of!that!test,!and!similarly,!if!a!person!is!poor!it!doesnt!mean!Islamic!finance!doesnt!work.!It!is!not!a!failure!if!we!are!not!rich.!

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Aim!of!the!economy:!Balance!between!in/out!to!improve!wellbeing!in!society>>>If!it!improves!wellbeing,!it!doesnt!bring!peace!and!happiness.!

Therefore,!it!doesnt!enable!us!to!achieve!everything!as!a!human!being.!Thus,!the!economy!is!not!the!SOLE!factor!as!it!improves!wellbeing!but!fails!to!make!one!happy!or!peaceful!!It!has!failed.!Thus,!we!should!know!our!ultimate!aim!is!NOT!to!improve!wellbeing!but!to!have!tranquility!and!peace!>!materialistic!wellbeing!is!just!an!element!NOT!a!full!factor.!For!example,!you!can!be!very!rich!but!unhappy!and!poor!but!happy.!Therefore,!its!not!only!about!material!wellbeing.!!!

Also,!if!we!think!of!products!in!isolation!e.g.!insurance!in!isolation!it!is!very!easy!to!fall!into!a!trap.!An!analogy!is!that!to!hygiene,!e.g.!you!open!doors!with!tissue!due!to!the!possibility!of!urine!being!on!it.!In!isolation!

this!has!reason!behind!it.!However,!on!a!macro!level!this!is!unfeasible,!where!do!you!draw!the!line?!Dont!shake!hands?!Similarly,!with!!

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!Insurance,!where!do!you!stop?!Wheres!the!line?!Insuring!everything,!even!insuring!pets!

! The!problem!is!there!is!no!contentment!!There!is!no!belief!in!Allaah!s.w.t!

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The!SECOND!PRINCIPLE!after!knowing!this!life!is!a!test,!is!to!believe!that!Islam!provides!us!with!ALL!the!necessary!tools!to!pass!the!test.!If!it!doesnt!Islam!fails!!This!is!impossible.!Everything!around!us!is!a!test.!!

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57:7;!Trustees!NOT!owners!!

6:165;!To!see!how!we!spend!it!!money!we!have!is!just!a!loan!from!Allaah!s.w.t!and!it!is!given!and!taken.!!

8:28;!Fitnah!!trial!!test!!real!reward!is!with!Allaah!s.w.t!!BREAK!

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Discussion!Point:!Is!pursing!to!be!rich!permissible?!

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Depends!on!intention:!1)!To!please!Allaah!s.w.t!more!e.g.!to!give!more!sadaqah!etc.!2)!Give!sadaqah!so!itll!protect!you!against!the!fire!(action!intercede!on!Day!of!Judgment).!These!things/intention!for!this!is!

praiseworthy.!!!

What!about!rich,!just!to!be!rich?!Permissible!but!remember!you!will!be!questioned!about!it.!

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Does!this!mean!we!live!as!poor!people?!No!!fulfill!basic!needs!and!satisfy!yourself!not!to!look!at!what!others!have.!Use!money!and!wealth!to!establish!deen!of!Allaah!s.w.t.!

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The!credit!crunch!arose!as!a!result!of!greed.!Prophet!s.a.s!said,!This!life!is!sweet!and!greed.!You!taste!its!sweetness,!like!it!and!keep!wanting!more.!E.g.!expensive!watch!!expensive!car!!expensive!hotels!etc.!Everyone!likes!these!things;!its!in!human!nature.!One!thing!leads!to!another!!never!stops.!Have!1!million,!and!want!another!1!million.!

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Work!for!the!right!intention.!Spend!time!in!maximizing!return!in!the!hereafter.!!Wealth!!establish!the!deen!of!Allaah!sw.t!in!yourself!and!in!others.!If!you!follow!tis!concept!you!will!not!be!greedy.!There!is!no!point!where!greed!stops!it!continues!to!expand.!It!can!lead!us!to!not!be!satisfied!with!halal!means,!and!then!lead!to!haram.!Muslims,!dont!jump!into!haram!straight!away,!instead,!hell!start!jumping!into!doubtful!matters!and!then!

do!some!small!haram.!!!!


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1.3!The!Nature!of!Islamic!Finance!

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It!is!impossible!to!implement!part!of!the!Islamic!system!fully!in!isolation!from!other!parts.!This!creates!problems.!!

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Take!hudood!(punishment),!many!people!criticize!it,!because!they!talk!about!it!in!a!western!context,!and!dont!understand!it.!It!needs!to!be!put!in!its!right!context!e.g.!some!may!say!in!relation!to!the!issue!of!capital!punishment!that!capital!punishment!does!not!work!in!America!etc.!However,!its!not!just!about!capital!punishment!its!about!the!ethical,!social!and!ritual!elements!too.!These!all!need!to!be!establish,!all!are!needed!for!it!to!work!to!its!maximum!potential.!!

! ANALOGY:!Car!!engine!put!in!its!places!with!all!other!parts!of!the!car!works,!however,!in!isolation!it!doesnt,!but!we!do!not!dispute!that!the!engine!does!not!work,!only!that!it!works!in!a!certain!context.!Similarly,!one!piece!of!a!mosaic!may!look!ugly,!just!a!piece!of!broken!glass,!but!when!its!put!together,!it!looks!beautiful.!!

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Deferred!payments,!is!one!of!the!biggest!problems!in!finance!!mortgage!e.g.!subprime!in!America.!!

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What!is!the!solution?!Does!Islam!provide!a!solution?!!Implement!it!from!the!beginning;!dont!just!implement!law!when!a!law!is!broken.!!

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Concerning!deferred!payments!!surah!baqarah:!280!!Allow!more!time!until!they!can!pay.!However,!the!banks!will!not!allow!more!time!or!wipe!it!out!!bank!is!here!for!business.!Who!says!Islamic!banks!should!not!give!charity?!Islamic!banks!not!to!make!business.!

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Some!may!say!if!this!is!implemented,!everyone!will!ask!for!longer!or!a!wipe!out.!This!is!why!it!is!imperative!to!establish!the!right!social!and!ethical!framework.!If!this!is!not!there,!then!this!solution!will!not!work!!

we!dont!have!the!right!context.!People!who!dont!fear!Allaah!s.w.t!and!the!Day!of!Judgment!will!abuse!it.!!!

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Islamic!finance!includes!both!proactive!measures!and!preventative!measures.!

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Proactive!in!regards!to!Zakat!(charity!which!is!compulsory)!!some!may!say!how!is!it!charity!if!it!is!compulsory.!It!is!such!because!we!must!look!out!for!others.!!

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2.0!Transactions!

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Aqd!!contract:!Binding!agreements,!of!two!or!more!parties.!There!are!also!financial!and!nonviewpoint,!as!if!we!establish!then!breaking!a!promise!is!morally!incorrect!too.!!!

A!number!of!definitions!arise!from!the!different!types!of!exchanges.!!!2.1.32.1.4!Wealth!and!property!

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We!must!note!that!all!property!in!the!world!is!merely!a!loan!from!Allaah!s.w.t!!

Mal!=!wealth!!

Wealth!in!Islam:!It!is!created!by!Allaah!s.w.t;!it!is!the!property!of!Allaah!s.w.t.!Humans!have!a!right!to!property!as!delegated!by!Allaah!s.w.t.!

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Now!we!will!consider!some!ideologies!that!consider!wealth.!Communism!and!Capitalism.!!

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Communism:!Justice!is!equality.!For!justice,!everyone!has!to!have!equal!wages.!The!wage!should!not!be!equal!to!the!type!of!occupation,!but!based!on!need!NOT!effort.!However,!in!such!a!system,!there!is!no!incentive!to!

put!in!effort,!why!put!in!more!if!sweeper!gets!same!as!doctor!!doesnt!make!sense.!

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Capitalism:!Individuals!free!to!make!as!much!money!as!they!want.!They!have!the!freedom,!to!earn!as!much!as!possible.!!

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Islam!has!the!best!solutionobviously.!!!

How!does!Islam!have!the!best!solution?!It!allows!freedom,!without!infringing!on!others!(freedom!limited),!and!it!is!offset!via!responsibilities>>charity!&!brotherhood.!

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Classification!of!properties!

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Classification!of!fungibility!!All!are!the!same!!homogeneous.!!

Classification!of!non

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Bilateral!!sales!of!a!good!in!return!of!money.!E.g.!like!everyday!exchange!of!money!for!a!commodity.!!

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2.2.2!Validity!of!financial!transactions!

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Invalid!contracts,!have!no!legal!weight!and!therefore!have!no!legal!consequences.!!!

Fasid!and!Batil!contracts.!Hanafis!adopt!Fasid!contracts.!!

Fasid:!Contract!carried!out!incorrectly.!What!should!be!done?!In!a!fasid!contract,!they!say!just!CHANGE!IT!instead!of!breaking!it!altogether.!Example:!Sheikh!Haitham!gives!Mohammed!Najmul!10!but!Mohammed!Najmul!gives!Sheikh!Haitham!13!back.!The!Sheikh,!would!look!at!this!and!say!oh!no,!this!is!wrong!brother;!you!have!given!me!3!more.!

According!to!a!fasid!contract,!rather!than!break!the!contract,!Sheikh!Haitham!will!merely!give!me!back!the!3!and!finished.!!!

Batil:!A!Batil!contract!states!when!a!contract!is!carried!out!incorrectly!as!in!the!case!of!above!when!Sheikh!Haitham!gave!me!10!and!I!gave!him!13!back,!according!to!a!batil!contract!the!whole!contract!is!invalid.!!

!2.2.3!According!to!purpose!

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Many!purposes!for!transactions,!five!categories!are.!1)!Ownership!e.g.!renting!your!hose!etc.!2)!Partnership!3)!Security!4)!Agency!and!Trust!5)!

Others!!Brief!point.!!BREAK!

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3.0!Sales!Contracts!

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Any!contract!is!valid,!unless!there!is!a!problem!with!it.!!!

Principle:!Everything!is!halal!unless!otherwise!stipulated!in!dunya!matters!!why?!Allows!production!of!new!things.!

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However,!in!acts!of!ibaadah!every!action!is!not!allowed!unless!stated!as!halal!in!shariah!!not!allowed!to!invent!things.!

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There!are!four!conditions!a!financial!transaction!must!satisfy!!

1)!Conditions!of!conclusion!2)!conditions!of!validity!3)!conditions!of!execution!4)!conditions!of!bindings.!!

The!main!type!is!validity.!These!conditions!are!there!for!justice!and!remove!possibility!of!disputes.!!

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Elements!of!a!transaction:!Consideration!(price),!commodity!(product),!parties!(people!who!are!buying/selling),!exchange,!and!finally!acceptance!and!agreement.!!

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There!are!THREE!PILLARS!of!contracts.!1)!Counter!parties,!2)!subject!matter!3)!The!form/format!

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Counter!parties:!Have!to!be!satisfied!it!was!carried!out!with!full!consent.!The!contractor!should!be!sane,!above!a!certain!age,!and!have!free!will.!

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Subject!matter:!Ownership!has!to!be!made!crystal!clear.!Should!be!of!halal!benefit,!owned!by!the!counter!party,!can!be!delivered!on!time.!

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Form/format:!Format!of!payment/delivery!etc.!Unity!f!trading!of!sale!session,!deferment!in!delivery!and!permanent!exchange!of!possessions.!!

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Riba!!

Riba!is!based!on!what!you!exchange!!the!value!of!the!counter!value!!items!you!exchange!and!you!get!more!back,!this!is!Riba.!!

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Riba!is!very!connected!to!type!of!commodity!and!type/way!of!exchange.!!

Which!commodities?!Certain!items!(will!see!a!little!bit!later).!!!

The!type!of!commodity!(product/item)!and!the!way/type!of!exchange!are!both!elements!that!interfere!or!both!constitute!in!Riba.!The!Riba!is!connected!to!counter!values.!!

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4.0!Riba!!4.1!The!prohibition!of!Riba!

! The!prohibition!of!Riba!came!in!three!stages.!1)!Discourages!Riba!2)!Prohibit!multiple!Riba!3)!clear!prohibition!of!Riba!

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They!were!so!involved,!they!in!it,!it!talk!time!to!come!out.!!!

Riba!is!a!very!grave!sin.!Some!people!say!it!is!a!necessity.!!However,!we!ask!them!who!permitted!zina.!!

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According!Imam!Malik;!Riba!is!worse!than!alcohol.!!!

Some!say!Riba!occurs!as!a!result!of!injustice,!and!that!without!injustice!Riba!would!not!exist.!!

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There!is!nothing!that!is!prohibited!for!us!in!Islam!that!doesnt!have!benefits!for!us!in!this!world!!dunya.!Thus!we!can!say!we!dont!avoid!Riba!solely!for!the!hereafter,!but!also!because!of!its!benefits!in!this!world!too.!

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Riba!is!a!counter!productive!financial!activity.!!!END!OF!DAY!ONE!OF!SEMINAR!

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DAY!TWO!OF!SEMINAR!

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4.2!Definition!of!Riba!

!! Technical!side!!focusing!on!Riba.!!!

The!most!crucial!thing!to!keep!in!mind!when!we!study!finance!is!that!there!are!two!main!areas!that!are!problematic.!!

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These!two!problems!are!1)!Riba!and!2)!gharar!!ambiguity.!!

If!these!two!problems!are!avoided,!then!circa!80%!of!what!we!do!in!finance!is!on!the!safe!side.!

! Recapping!on!what!we!have!previously!said,!finance!is!based!on!transactions,!which!is!exchange,!thus,!why!we!covered!exchange!in!detail.!!

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We!have!established!a!flow,!linking!all!the!different!elements!together.!!!

We!started!by!showing!the!foundation!of!Islamic!Economy,!before!moving!into!Islamic!finance!and!striking!the!heart!of!it,!which!is!exchange.!!

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We!didnt!dwell!on!sales,!as!this!is!a!vast!subject,!however,!we!discussed!the!key!points!in!relation!to!it.!!

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We!are!now!moving!to!the!main!alarming!area,!which!is!concerned!with!Riba.!

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Thus,!it!is!important!to!always!remember!this!flow!in!what!we!have!studied!and!keep!it!mind!all!the!other!elements!and!understand!how!they!are!all!connected.!!

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We!revisit!the!definition!of!a!contract!here:!Binding!agreement!between!two!or!more!parties!to!exchange.!!

There!are!three!pillars!1)!two!parties!2)!counter!values!3)!Type!of!exchange.!!

Type!of!exchange!should!be!permanent!and!NOT!temporary.!!

At!times!it!can!be!difficult!to!see!who!is!the!buyer!and!seller!e.g.!exchange!50!for!$100,!who!is!buyer/seller!!doesnt!matter!in!this!case!if!we!cant!tell,!as!to!both!they!are!the!buyer,!and!according!to!both!the!other!is!the!seller.!

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A!promise!to!sell!has!the!ability!to!be!void.!!!

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There!has!to!be!a!mutual!agreement!between!buyer!and!seller!that!if!the!seller!fails!to!deliver,!we!will!return!back!to!a!state!as!if!the!contract!did!

not!occur!e.g.!I!will!get!my!money!back.!!

You!can!pay!and!then!have!the!good!delivered!or!visa!versa,!it!doesnt!matter!as!long!as!the!possibility!of!dispute!isnt!there!via!this!mutual!agreement!that!if!neither!is!received!then!we!go!back!to!our!initial!state.!

!RIBA%

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Riba!is!usury/interest.!!

In!Christianity,!they!differentiated!between!interest!and!usury.!They!differentiated!it!by!considering!usury!as!unethical!and!interest!as!ethical.!

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They!considered!usury!as!excessive!amount!of!interest.!However,!interest!as!small!amount.!

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This!is!still!the!case!today,!where!excessive!interest!is!considered!to!be!usury!in!the!financial!world!(a!former!investment!banker!in!the!audience!confirmed!this!point)!

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Two!main!elements!to!consider!1)!Nature!of!counter!values/objects!2)!The!way!you!exchange!them!!These!are!the!two!things!that!define!Riba.!

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Everything!in!the!world!is!either!a!Riba


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Ibnul!Qayyim!rahimullah!said:!The!main!food!for!cattle!is!barley.!!

Whatever,!the!real!reason!!There!must!be!wisdom!as!the!shariah!has!specified!it.!!

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Thus,!to!recap!the!ribawi!items!are!gold,!silver,!dates,!salt,!wheat!and!barley.!!

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For!example,!if!you!transfer!money!to!another!country!and!dont!pay!for!the!service!of!the!transfer,!that!is!Riba,!as!you!have!received!a!service!for!free!which!you!would!have!otherwise!had!to!pay,!so!this!is!an!addition!to!

you!from!the!transaction,!which!constitutes!Riba.!!

Basic!rule:!Every!loan!that!brings!benefit!is!a!kind!of!Riba.!!

Some!may!say!that!quality!of!commodity!matters.!E.g.!I!want!to!buy!5kg!of!ajwa!dates!for!10kg!of!poor!quality!of!dates,!is!this!allowed?!Im!giving!more!because!theyre!poor!quality.!In!short,!this!is!not!allowed.!!

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Prophet!s.a.s:!dates!for!dates!!homogeneous,!equal!for!equal.!However,!whether!its!good!quality!or!bad!quality!not!included!in!discussion,!as!it!

isnt!mentioned!in!the!hadith.!This!applies!to!all!other!items.!!!

Say!I!want!to!exchange!an!old!gold!bracelet!for!a!new!gold!bracelet,!what!do!I!do?!I!have!two!options!1)!sell!old!one!for!cash!in!one!transaction!and!then!in!a!second!transaction!buy!the!new!bracelet!2)!Weigh!the!old!one!and!exchange!it!for!another!one!of!the!same!weight.!

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Money!for!money!=!problematic!!

Pay!money!>!get!a!product!and!money!=!RIBA!!

Pay!money>get!commodity!with!NO!money!=!NOT!RIBA!!

Pay!money>Get!some!money!back!with!no!commodity!!NOT!RIBA!!

CASHBACK;!Example:!Buy!a!phone!!pay!line!rental!and!get!cash!back!after!x!months!!Riba?!YES!why?!Because!commodity!and!money.!

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Solution!to!this!problem:!Deduct!this!cash!back!from!the!outset!of!contract!e.g.!say!cash!back!is!80,!just!ask!to!pay!220!with!no!cash!back!instead!of!300!with!80!cash!back.!

! See!Sheikh!Haithams!fatwa!on!cash!back!http://www.islamicawakening.com/viewarticle.php?articleID=1250!

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If!cash!back!is!on!the!spot!Then!it!is!OK.!!

Same!ribawi!items!have!to!be!exchanged!like!for!like,!and!the!same!in!terms!of!equality!and!quantity.!

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Different!ribawi!items!!dealings!done!on!the!spot.!!

Equality!in!non


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For!non>consequences.!

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However,!a!promise!is!different,!it!has!no!consequences.!!When!scholars!said!double!deferment!was!not!allowed,!they!said!this!when!there!were!legal!consequences.!!

! Delays!!pg.59.!!

!

Pay!now!!product!later/product!now!!pay!later.!Can!this!be!done?!!

Yes!!If!1)!delivered!on!time!2)!No!change!on!product!and!most!crucially!3)!No!possibility!for!any!dispute!(This!is!the!key!element!to!keep!in!mind).!

!

Allowed!to!give!one!and!defer!the!other!one!in!shariah!e.g.!pay!now!and!defer!delivery!of!product!or!get!product!and!defer!payment.!However,!the!conditions!of!the!sale!contract!have!to!be!met,!like!a!normal!sale!transaction.!!Sometimes,!more!conditions!may!have!to!be!specified!e.g.!in!the!case!of!dates!(fruit).!!

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Example;!To!do!a!transaction!of!dates!earlier!e.g.!pays!200!and!gets!dates!a!month!later.!!There!are!some!conditions;!such!as!specifying!qualities!of!the!commodity!we!are!going!to!receive!!providing!there!is!no!possibility!of!dispute.!This!is!why!the!scholars!did!not!allow!deferment!for!dates!without!conditions!being!stipulated!as!dates!may!go!bad!etc.!!

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Thus,!when!there!is!a!deferment!in!a!transaction!you!must!consider!all!the!possibilities!of!disputes!and!specify!conditions!in!the!sales!contract!to!avoid!these!disputes.!! ! ! ! ! ! !! !

Bay!al!Salam/Bay!al!Salaf!was!a!contract!for!deferred!delivery!that!was!originally!sanctioned!during!the!time!of!the!Prophet!s.a.s,!to!facilitate!the!trading!activities!of!farmers!who!were!awaiting!the!harvest!of!crops.!In!more!modern!times!it!has!also!been!applied!to!the!production!of!raw!materials!and!fungible!goods!in!general.!!

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Main!specifications!to!remove!dispute!were!to!specify!quantity!with!weight!and!volume!and!the!time!of!delivery.!! ! ! !! !

The!scholars!said!if!the!quality!can!be!a!source!of!dispute,!then!you!should!specify!the!quality.!!

Most!contemporary!scholars!accepted!this!to!be!applied!to!other!commodities.!! ! ! ! ! ! ! !! !

We!have!looked!at!the!delay!in!deferment!of!a!product.! ! !! ! !

We!will!now!examine!the!opposite!case!of!receiving!the!product!first!and!paying!later.!This!is!known!as!Al Double!deferment!!delay!both!paying!for!product!and!receiving!product.! Double!deferment!in!ribawi!for!ribawi!exchanging!of!products!is!NOT!allowed.!

Double!deferment,!in!non


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The!quantities!of!the!counter!values!MUST!be!equal!and!like!for!like,!when!exchanging!the!same!ribawi!items.!E.g.!exchanging!gold!for!gold!!must!be!exactly!the!same!quantities!!same!thing!for!silver,!wheat,!dates,!barley!

and!salt.!In!all!these!cases,!for!ribawi!items!when!you!are!exchanging!the!same!ones!e.g.!salt!for!salt,!dates!for!dates!!MUST!be!the!same!quantity.! !

The!key!rule!to!not!here!is!that!whenever!you!exchange!a!ribawi!item!for!another!ribawi!item!it!must!be!done!on!the!spot!and!not!deferred!and!in!the!case!of!the!exchanging!the!same!ribawi!items!!they!need!to!be!equal!in!value! ! ! ! ! ! ! ! !! !

For!example,!exchanging!100!for!$200!has!to!be!spontaneous,!there!and!then!on!the!spot,!not!delayed! ! ! ! ! !

! ! ! When!we!exchange!non


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If!it!is!a!trust!then!it!cannot!be!lent,!and!the!bank!is!just!a!trustee!and!they!cannot!lend!it.!! ! ! ! ! ! ! !! ! !

However!if!it!is!a!loan,!like!banks!today,!it!is!adopting!a!non


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5.0!!Gharar!(Tarek!el!Dilwany)!!

Gharar!is!deception/ambiguity! ! ! ! ! !! ! !

The!consequences!of!these!things!are!hidden.! ! ! !! ! !

Ibn!Taymiyyah:!Gharar!occurs!when!there!is!a!risk!taking!and!a!devouring!of!property!from!one!party!to!another.!! ! ! ! !! ! !

Quran!!prohibited!gharar!the!same!time!as!it!prohibited!alcohol.!!! !

Gharar!occurs!in!a!zero

therefore!adds!value,!however!gambling!doesnt!add!anything.!!!! !

According!to!secularists,!gambling!adds!value.! ! ! !! ! ! ! ! ! ! ! !

Zero!sum!game!!A!gift!to!my!son!of!100!does!not!have!any!gharar,!because!Im!not!expecting!anything!in!return,!when!there!is!no!expectation,!there!is!no!gharar.!! ! ! ! ! !! !

However,!in!a!contract!of!exchange,!you!might!think!youre!getting!something!e.g.!betting!=!win/lose!!possibility!of!getting!something.!!

It!is!considered!to!be!the!trading!of!unbundled!risk! ! !! !

With!ownership,!the!individual!carries!the!risks!of!loss,!as!well!as!the!rewards!of!profit.! ! ! ! ! ! ! !! ! ! ! !

In!Riba,!you!cannot!enjoy!the!reward!without!the!risk.! ! !! ! !

For!example;!insurance!!split!risk!with!insurance!company!!however,!youre!gambling!on!risk!!uncertainty!(gharar).!! ! ! !! ! ! !

Gambling!is!a!classic!case!of!gharar.!According!to!scholars,!insurance!=!gambling.!For!example!you!pay!100!insurance,!and!if!your!house!burns!down!youll!get!100,000.!Youre!gambling!on!your!house!burning!down,!otherwise!youve!lost!100.!!! ! ! ! ! !! ! !

Gharar!also!occurs!when!there!is!uncertainty!over!deliverability.!!! ! !

This!arises!in!a!modern!futures!contract!!pay!now!!delivery!later.!!! ! !

Double!deference!is!not!allowed!!delaying!both!paying!and!delivery!of!product.!!

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However,!Hashim!Kamali!didnt!believe!there!was!gharar!if!you!for!example!sold!wheat!now,!even!if!you!didnt!own!it,!due!to!the!clearinghouse.!! ! ! ! ! ! ! !

! ! ! ! ! The!clearing!house!is:!http://en.wikipedia.org/wiki/Clearing_house_(finance)! ! !! !

According!to!Kamali,!the!clearinghouse!gets!rid!of!gharab!in!this!situation!and!therefore!it!is!allowed.!! ! ! ! ! ! !

Also,!as!we!covered!earlier,!this!is!allowed!with!some!conditions!as!seen!in!the!Bayas!Salam/Salaf!agreement!to!pay!now!and!delver!later.!!! ! ! !

Deliverability!!what!do!we!define!this!as?! ! ! !! ! !

Hanafi!madhab:!Believe!there!should!be!the!option!of!inspection!at!time!of!sale.! ! ! ! ! ! ! ! ! !! ! !

Other!schools!of!thought!!accept!minor!gharar.!Imam!Shafi!adds!some!principles.!! ! ! ! ! ! ! ! !! !

Minor!gharar!for!example,!is!when!I!buy!a!packet!of!maltesers;!I!dont!know!if!every!single!malteaser!is!good.! ! ! ! !! !

Another!case!of!minor!gharar!is!all!you!can!eat!buffets! ! !! ! !

Case!study:!http://www.islam


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Wealth!transfer:!If!you!lose!or!win!the!bet,!you!cannot!control!what!happens!to!house!prices.!However,!you!can!change!or!redecorate!a!house!!alter!it!and!thus!increase!its!value.!! ! ! ! !

! ! ! ! ! Stocks!and!shares.!! ! ! ! ! ! ! !! !

Buy!a!share!in!a!company!!you!share!in!the!assets!of!the!company.!Is!this!halal?!Yes,!because,!we!own!the!assets!!risks/rewards!of!ownership.!However,!what!about!Internet!trading?!Why!is!this!not!allowed?!Grey!area.!Main!discrepancy!is!that!you!dont!really!have!control!over!it!in!15!mins.!! ! ! ! ! ! ! ! ! !! !

In!this!current!system:!Everybody!can!gamble!with!double!deferment.!I!can!say!Ill!pay!100!million!and!you!can!that!youre!able!to!deliver!10000!tonnes!of!wheat!!gambling!!might!not!be!able!to!pay!or!deliver!in!the!future!!gambling!!ambiguity!!gharar.!!

ANSAR!FINANCE!GROUP!PRESENTATION!!

Ansar!finance!gave!a!presentation!on!their!schemes!and!products.!More!information!here:!www.ansarfinance.com!and!www.islamic


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6.0!Conclusions!and!Clarifying!Points!

Sheikh!Haitham!clarified!some!points.! ! ! ! !! !

This!culture!of!credit!!digital!spending!etc.!has!caused!us!to!spend!more!money.!! ! ! ! ! ! ! ! !! ! !

Some!may!say!why!do!we!have!to!separate!some!exchanges!into!two!transactions.! ! ! ! ! ! ! ! !! ! ! ! !

Dates!for!dates!of!a!greater!quantity?!What!is!the!solution?! !! ! !

Take!the!dates,!sell!them!and!then!use!the!money!from!this!to!buy!the!dates.!!! ! ! ! ! ! ! ! !! ! !

However,!if!someone!wants!to!be!clever,!they!would!say!that!all!that!is!happening!is!money!in/money!out,!so!why!not!just!omit!it?!Because!same!amount!of!money!in,!same!amount!of!money!out.!Why!do!we!go!through!the!hassle?! ! ! ! ! ! ! ! !! ! ! ! !

The!prophet!s.a.s!told!us!to!do!it!like!this.!What!is!this!difference!between!doing!it!like!this!instead!of!a!direct!exchange!of!dates!for!a!great!quantity!of!dates?!E.g.!10kg!of!ajwa!for!12!kg!of!poorer!dates!is!haram.!However!you!can!sell!the!10!kg!of!ajwa!dates!for!100!and!once!the!100!is!given,!

the!other!person!will!buy!the!12kg!of!poorer!dates.!!What!is!the!difference?! ! ! ! ! ! ! ! !! !

The!first!form!is!haram!and!the!second!form!is!halal.!! ! !! ! !

Does!shariah!want!bureaucracy?!!Why!is!this!the!case?! ! !! ! ! !

Because,!two!separate!transactions!give!us!an!opportunity!to!think!about!the!second!transaction,!if!it!was!just!one!transaction,!there!is!no!opportunity!to!or!ability!to!break!the!transaction.! ! !

! ! Today,!we!see!many!Islamic!banks,!combining!two!transactions!into!one.!For!example,!1)!you!sell!a!phone!to!the!bank!and!are!paid!1000,!2)!you!then!buy!the!phone!back!from!the!bank!for!1500.!The!combination!of!1)!and!2)!together!in!one!transaction!is!Riba.!! ! ! !! ! !

If!it!was!separate,!this!is!fine.!However,!no!bank!will!accept!this.!No!bank!will!accept!you!just!to!give!them!something!and!they!give!you!money!and!they!dont!get!it!back.!! !

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! ! ! ! ! ! ! ! !


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Now!from!this!previous!example,!replace!the!mobile!phone!with!a!house.!1)!House!bought!from!market!for!x!and!2)!you!are!bound!to!buy!it!back!for!y.!This!is!Riba;!they!have!combined!to!different!transactions!into!one.!

This!is!why!they!are!haram.!! ! ! ! ! !! !

Ansar!finance!is!the!only!organisation!where!you!can!buy!it!back!for!its!actual!price.! ! ! ! ! ! ! ! !! !

N.B!You!should!bear!in!mind,!the!following!principle:!Am!I!being!given!money,!to!give!back!more!money?!! ! ! !

! ! !

This!is!haraam,!however,!banks!are!based!on!making!profit!and!will!therefore!not!separate!the!transactions.!! ! ! ! !

! ! ! We!need!community!projects!without!interest!on!making!money!out!of!money.!There!needs!to!be!a!different!ideology!with!the!interest!of!the!community!at!heart.!!

END!OF!SEMINAR!

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Sabeel - Islamic Finance Notes

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