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 The Concept  of Financial Transactions

The term "Financial transactions" in Islam refers to all contracts that involve using money between people, such as selling, buying, leasing, partnership and all kinds of transactions which people need in their daily lives.

Fundamental Principles of Financial Transactions

The Shari’ah has laid down certain principles and limits for the financial transactions so that the entire framework of these transactions may conform to the Islamic standard of justice and equity according to the Qur'an and Sunnah.

All financial transactions would be considered as valid unless there is an explicit text in the the Qur'an or Sunnah, or religious rule proving its prohibition.

Allah Almighty says:

"هُوَ الَّذِي خَلَقَ لَكُم مَّا فِي الْأَرْضِ جَمِيعًا ثُمَّ اسْتَوَىٰ إِلَى السَّمَاءِ فَسَوَّاهُنَّ سَبْعَ سَمَاوَاتٍ ۚ وَهُوَ بِكُلِّ شَيْءٍ عَلِيمٌ" البقرة:29

Translation: "It is He who created for you all of that which is on the earth. Then He directed Himself to the heaven, [His being above all creation], and made them seven heavens, and He is Knowing of all things." 2:29

 

Forbidden Transactions in Islam

The main forbidden transactions in Islam are divided into three categories:

-       First, Riba (Usury):

Which means 'interest' . It covers any stipulated additional amount over the principal in a transaction of loan or debt.

Allah, the Exalted, Says:

"الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا ۗ وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ۚ فَمَن جَاءَهُ مَوْعِظَةٌ مِّن رَّبِّهِ فَانتَهَىٰ فَلَهُ مَا سَلَفَ وَأَمْرُهُ إِلَى اللَّهِ ۖ وَمَنْ عَادَ فَأُولَٰئِكَ أَصْحَابُ النَّارِ ۖ هُمْ فِيهَا خَالِدُونَ" البقرة: 275

 

Translation: "Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein." 2:275

 

-       Second, Injustice:

Taking other people’s property wrongfully, |such as bribery, deception, coercion, etc.

The prophet, peace be upon him said in this connection, “Beware of injustice, for indeed injustice will be darkness on the Day of Judegment.” (Saheeh Al-Bukhaaree)

-       Third, Gharar :

Which refers to any contract that is based on uncertainty and ignorance and may  lead to disagreements and disputes between the parties to the contract or cause one of them to wrong the other.

It was narrated that Abu Hurairah said:

"The Messenger of Allah forbade Gharar transaction and Hasah transactions." Sahih Hadith.

Ash-Shafi'i said: "The Gharar sale includes selling fish that are in the water, selling a slave that has escaped, selling birds that are in the sky, and similar type of sales."

 

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