Islamic Finance Prohibited Elements Quiz

Prohibited Elements in Islamic Finance

• Islamic financial transactions must follow Islamic contract laws and regulations and should not have any prohibited elements.
• Any defect in Islamic contracts law may cause the invalidity or defectiveness of the contract.
• Types of sales include valid sales (satisfying all conditions and cornerstones) and invalid sales (violating one or more conditions and cornerstones).
• Invalid sales include sales of undeliverable goods, liabilities (including debts), non-existing objects, and gharar sales.
• Defective sales include sales of unknowns, property before receiving it, two sales in one, conditions in sales, suspended conditional sales, sales of absent items, and sales with a forbidden price or time.
• Prohibited elements in Islamic financial contracts include riba, gharar, gambling (maysir), fraud (ghubn), and uncertainty/ignorance (jahalah).
• Riba, technically referring to the premium paid by the borrower to the lender, is completely prohibited under Islamic law and is a source of unjustified advantage.
• Prohibitions of riba are mentioned in both the Quran and Hadith, with riba al-nasiah (interest on loans) being a significant type of riba.
• Riba al-fadl refers to the excess over and above the loan paid in kind, and riba al-qard refers to the benefit or profit of late payment.
• Riba al-yad refers to the benefit derived from the duration between delivery and acceptance of the contracted item and price.
• Gharar, meaning risk and uncertainty, may occur when the contracted item/price/benefits of the contract are exposed to unknown events.
• Prohibited elements also include fraud (manipulating the fact of contracted item) and uncertainty/ignorance (unknown contracted item).