Shariah Contracts for Islamic Finance I

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Questions and Answers

What does Istisna’ primarily involve?

Purchase of goods already in stock

Requesting someone to manufacture an asset (correct)

Selling items before they are manufactured

Selling commodities with payment delayed

In a Salam contract, what must occur in terms of payment?

Payment is fully made in advance on a spot basis (correct)

Payment is optional until delivery

Payment must be partially made in installment

Payment is made after the delivery of goods

What does Ijarah focus on regarding ownership?

Complete ownership is exchanged for compensation

Transfer of ownership to the lessee

Usufruct is maintained while ownership remains with the lessor (correct)

Transfer of ownership along with usufruct

Which statement about Bay’ al-Dayn is accurate?

It can occur on a cash basis or with deferred payments Signup and view all the answers

What are the principles behind Bay’ al-Sarf?

Sale of currency on a spot basis Signup and view all the answers

What is the literal meaning of Istisna’?

Request for manufacturing an asset Signup and view all the answers

Which condition is essential for a Salam contract?

The price must be paid in advance and fully Signup and view all the answers

Which of the following describes the Ijarah concept most accurately?

It involves getting paid for the use of an asset Signup and view all the answers

What does the term 'Sighah al-aqd' refer to in Shariah contracts?

The expression of inner will to form a contract Signup and view all the answers

Which of the following is NOT a method of acceptance in Shariah contracts?

Silent agreement Signup and view all the answers

Which of the following is an essential condition of the subject matter in a Shariah contract?

Existence at the conclusion of the contract Signup and view all the answers

What is required for the correspondence of acceptance to the offer in Shariah contracts?

Acceptance must reflect the original offer Signup and view all the answers

Which of the following best describes the role of 'al-Aqidan' in Shariah contracts?

It signifies the parties involved in the contract Signup and view all the answers

What does Ahliyyah al-wujub primarily refer to?

The legal competency to establish rights and obligations Signup and view all the answers

Which type of contract is NOT part of ‘Uqud al-Mu’awadat?

Partnership Contracts (Uqud al-Ishtiraak) Signup and view all the answers

What is the primary characteristic of Murabahah?

The mark-up is disclosed to the purchaser. Signup and view all the answers

What is Ahliyyah al-ada concerned with?

The ability to execute recognized duties Signup and view all the answers

Which of the following best describes 'Uqud al-Tabarru'?

Charity-based contracts Signup and view all the answers

Which contract is classified under 'Uqud al-Mu’awadat'?

Manufacturing sale (Istisna’) Signup and view all the answers

Which of the following is essential for a contract to be valid?

Legal capacity of the contracting parties Signup and view all the answers

What does the term ‘Uqud al-Ishtiraak refer to?

Partnership contracts Signup and view all the answers

Study Notes

Elements of Shariah Contracts

Three key elements:
- Form of the contract (Sighah al-aqd)
- Subject matter of the contract (Mahal al-aqd)
- Contracting parties (al-Aqidan)

Form of the Contract (Sighah al-aqd)

Represents the declaration of intent by contracting parties to be bound by contract obligations.
Confirmed through:
- Ijaab: Offer
- Qabul: Acceptance
Methods of acceptance can include spoken words, writing, gestures, or conduct.
Conditions for valid offer and acceptance:
- Clear indication of both offer and acceptance.
- Acceptance must correspond directly to the offer.
- Continuity through the duration of the offer and acceptance.

Subject Matter of the Contract (Mahal al-aqd)

Essential conditions for subject matter:
- The subject must exist at the time of contract conclusion.
- Must be precisely determined.
- Certainty regarding delivery must be established.
- The subject matter must be permissible under Shariah.

Contracting Parties (al-Aqidan)

Each party must possess legal capacity (ahliyyah) to contract effectively and be competent (sahih).
Two types of legal ability:
- Ahliyyah al-wujub: Eligibility to establish rights and obligations.
- Ahliyyah al-ada: Capacity to execute duties recognized by Shariah.
Categories of competency:
- Al-naqisah: Deficient
- Al-kamilah: Perfect

Classification of Shariah Contracts

Types of contracts include:
- ‘Uqud al-Mu’awadat: Exchange-based contracts
- ‘Uqud al-Tabarru’aat: Charity-based contracts
- ‘Uqud al-isqaataat: Waiving contracts
- ‘Uqud al-Ishtiraak: Partnership contracts

‘Uqud al-Mu’awadat (Exchange-based Contracts)

Key examples:
- Murabahah: Cost-plus sale
- Istisna’: Manufacturing sale
- Salam: Forward sale
- Bay’ al-Dayn: Sale of debt
- Bay’ al-Sarf: Sale of currency
- Inah: Sale and buy-back
- Tawarruq: Monetisation
- Ijarah: Lease

Murabahah (Cost-Plus Sales)

Definition:
- Literal: Increase in capital or profit of trading.
- Technical: Sale where markup is disclosed based on seller's acquisition cost.

Istisna’ (Manufacturing Sale)

Definition:
- Literal: To request manufacturing of an asset.
- Technical: Contract with manufacturer to produce items as per specified descriptions at a set price.

Salam (Forward Sale)

Definition:
- Literal: Advance payment in exchange for future delivery.
- Technical: Sale where the seller agrees to provide specific commodities at a future date, fully paid in advance.

Ijarah (Lease)

Definition:
- Literal: Reward for services rendered.
- Technical: Contract allowing transfer of usufruct for compensation, maintaining ownership without transfer.

Bay’ al-Dayn (Sale of Debt)

Involves selling debt:
- Can be executed against a debt or otherwise.
- Applies to transactions involving debtor or third parties.
- May be settled on cash or deferred payment basis.

Bay’ al-Sarf (Sale of Currency)

Concerns currency exchange:
- Involves money-for-money transactions.
- Derived from hadith regarding trade of gold and silver.
- Includes spot forex trading practices.

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Description

This quiz focuses on the fundamental elements of Shariah contracts, including the form, subject matter, and contracting parties involved. Understand the intricacies of these contracts to enhance your knowledge in Islamic financial instruments. Perfect for students of Islamic finance and law.