Islamic Business Ethics and Contract Law

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What is the principle of fairness and justice based on in Islamic Business Ethics?

Quran 4:135, 5:8

What is prohibited in Islamic Contract Law?

Riba and Gharar

What is essential for a valid contract in Islamic Contract Law?

Offer and acceptance

What is the primary objective of Halal Investments?

Avoiding haram activities

What is a permissible investment in Halal Investments?

Sukuk and equity investments

What is prohibited in Halal Investments?

Interest-based investments

Study Notes

Islamic Business Ethics

  • Principles:
    • Fairness and justice (Quran 4:135, 5:8)
    • Honesty and transparency (Quran 17:35)
    • Trustworthiness and reliability (Quran 8:27)
    • Respect for contracts and agreements (Quran 5:1)
  • Prohibitions:
    • Riba (usury/interest)
    • Gharar (uncertainty)
    • Maysir (gambling)
    • Hoarding and monopolization
  • Guiding values:
    • Tawhid (oneness of God)
    • Adl (justice)
    • Ihsan (benevolence)
    • Amal salih (righteous deeds)

Islamic Contract Law

  • Types of contracts:
    • Bay' (sale)
    • Ijarah (leasing)
    • Mudarabah (partnership)
    • Musharakah (joint venture)
  • Essential elements:
    • Offer and acceptance
    • Capacity and consent
    • Consideration (mal)
    • Legality of object
  • Rights and obligations:
    • Rights of the buyer and seller
    • Responsibilities of the lessor and lessee
    • Duties of the mudarib and the rab-al-mal
  • Dispute resolution:
    • Reconciliation and arbitration
    • Role of the qadi (judge)

Halal Investments

  • Principles:
    • Avoidance of haram activities
    • Compliance with Shariah guidelines
    • Transparency and disclosure
    • Ethical and socially responsible investing
  • Permissible investments:
    • Sukuk (Islamic bonds)
    • Equity investments in halal industries
    • Real estate investments
    • Commodity trading
  • Prohibited investments:
    • Interest-based investments
    • Investments in haram industries (e.g. alcohol, gambling)
    • Speculative or uncertain investments
  • Screening and purification:
    • Negative screening (exclusion of prohibited activities)
    • Positive screening (selection of Shariah-compliant companies)
    • Purification of impure income (zakat and charity)

Islamic Business Ethics

  • Fairness and justice are essential principles, as emphasized in Quran 4:135 and 5:8, to ensure equal opportunities and treatment in business transactions.
  • Honesty and transparency are vital, as stated in Quran 17:35, to build trust and credibility in business dealings.
  • Trustworthiness and reliability are crucial, as mentioned in Quran 8:27, to establish long-term relationships and maintain a good reputation.
  • Respect for contracts and agreements is a fundamental principle, as stated in Quran 5:1, to ensure that parties fulfill their obligations and commitments.


  • Riba (usury/interest) is prohibited, as it exploits the borrower and creates unfair wealth.
  • Gharar (uncertainty) is forbidden, as it involves uncertain or ambiguous contracts that can lead to disputes.
  • Maysir (gambling) is prohibited, as it involves chance and speculation rather than fair commerce.
  • Hoarding and monopolization are prohibited, as they restrict fair competition and create unfair market advantages.

Guiding Values

  • Tawhid (oneness of God) serves as a reminder of accountability to a higher power in business dealings.
  • Adl (justice) promotes fairness and equality in all transactions.
  • Ihsan (benevolence) encourages kindness, generosity, and compassion in business interactions.
  • Amal salih (righteous deeds) emphasizes the importance of moral and ethical behavior in business.

Islamic Contract Law

Types of Contracts

  • Bay' (sale) involves the exchange of goods or services for a price.
  • Ijarah (leasing) involves the temporary transfer of use or ownership of an asset.
  • Mudarabah (partnership) involves a Profit-sharing agreement between two parties.
  • Musharakah (joint venture) involves a partnership between two or more parties to achieve a common goal.

Essential Elements

  • Offer and acceptance are necessary for a valid contract.
  • Capacity and consent ensure that parties are legally competent and willing to enter into a contract.
  • Consideration (mal) involves the exchange of something of value.
  • Legality of object ensures that the contract is not for illegal or prohibited activities.

Rights and Obligations

  • Rights of the buyer and seller include the right to fair treatment and protection.
  • Responsibilities of the lessor and lessee include the obligation to fulfill their contractual duties.
  • Duties of the mudarib and the rab-al-mal include the obligation to manage and invest funds responsibly.

Dispute Resolution

  • Reconciliation and arbitration are encouraged to resolve disputes amicably.
  • The role of the qadi (judge) is to interpret and apply Islamic law in resolving disputes.

Halal Investments


  • Avoidance of haram activities ensures that investments are not involved in prohibited activities.
  • Compliance with Shariah guidelines ensures that investments are in line with Islamic principles.
  • Transparency and disclosure ensure that investors have access to accurate and timely information.
  • Ethical and socially responsible investing promotes positive social and environmental impact.

Permissible Investments

  • Sukuk (Islamic bonds) are a Shariah-compliant alternative to conventional bonds.
  • Equity investments in halal industries involve investing in companies that comply with Islamic principles.
  • Real estate investments involve investing in properties that are not used for haram activities.
  • Commodity trading involves buying and selling physical commodities.

Prohibited Investments

  • Interest-based investments are prohibited, as they involve riba.
  • Investments in haram industries (e.g. alcohol, gambling) are prohibited, as they involve supporting prohibited activities.
  • Speculative or uncertain investments are prohibited, as they involve gharar.

Screening and Purification

  • Negative screening involves excluding companies involved in prohibited activities.
  • Positive screening involves selecting companies that comply with Islamic principles and values.
  • Purification of impure income involves removing any unlawful or prohibited earnings and donating them to charity or paying zakat.

Test your knowledge of Islamic business ethics and contract law, including principles, prohibitions, and guiding values.

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