2024 IFI L04 Shariah Contracts I.pdf

15/08/2024 1 SHARIAH CONTRACTS FOR ISLAMIC FINANCIAL INSTRUMENTS I 2 Elements of Shariah Contracts 1 ...

15/08/2024 1 SHARIAH CONTRACTS FOR ISLAMIC FINANCIAL INSTRUMENTS I 2 Elements of Shariah Contracts 1  15/08/2024 Elements of Shariah Contracts 3  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) 4  Refers to an expression made by the contracting parties to declare their inner will to undertake a contrat and thereafter be bound by certain obligations  Manifested by  Ijaab – offer  Qabul – acceptance 2  15/08/2024 Form of the contract (Sighah al-aqd) 5  Methods of acceptance: exercised in spoken words but not confined to just verbal communication  Conduct  Writing  Gesture Form of the contract (Sighah al-aqd) 6  Conditions of offer and acceptance: 1. Clear indication of offer and acceptance 2. Correspondence of acceptance to the offer 3. Continuity of offer and acceptance 3  15/08/2024 Subject matter of the contract (Mahal al-aqd) 7  Essential conditions of the subject matter: 1. Existence of the subject matter at the time of the conclusion of the contract 2. Precise determination of the subject matter 3. Certainty of delivery of the subject matter 4. Permissibility of the subject matter Contracting parties (al-Aqidan) 8  A contract can only be established if each contracting party has legal capacity (ahliyyah) that renders them competent (sahih) to offer or accept an offer made in a contract 4  15/08/2024 Contracting parties (al-Aqidan) 9  Two types of Ahliyyah (ability to acquire rights and exercise them): 1. Ahliyyah al-wujub: the legal competency or eligibility of a person to establish rights for themselves and impose obligations upon themselves 2. Ahliyyah al-ada: the legal capacity of a person that enables them to execute duties in a way that is recognised by the Shariah  Al-naqisah – deficient  Al-kamilah – perfect Classification of Shariah Contracts 10  ‘Uqud al-Mu’awadat (Exchange-based Contracts)  ‘Uqud al-Tabarru’aat (Charity-based contract)  ‘Uqud al-isqaataat (Waiving contracts)  ‘Uqud al-Ishtiraak (Partnership contracts) 5  15/08/2024 11 ‘Uqud al-Mu’awadat Exchange-based Contracts ‘Uqud al-Mu’awadat 12 (Exchange-based Contracts)  Murabahah (Cost-plus sale)  Istisna’ (Manufacturing sale)  Salam (Forward sale)  Dayn (Sale of Debt)  Sarf (Sale of Currency)  Inah (Sale and buy-back)  Tawarruq (Monetisation)  Ijarah (Lease) 6  15/08/2024 Murabahah (cost-plus sales) 13  Definition:  Literal: increase in capital or profit of trading  Technical: A sale in which the mark-up is disclosed to the purchaser as per the seller’s purchase price for a trust-sale of a certain specified asset, excluding monetary assets such as debts. Murabahah (cost-plus sales)[pp 233-239] 14  Legality?  Conditions?  Applications?  Issues? 7  15/08/2024 Istisna’ (manufacturing sale) 15  Definition  Literal: to request someone to manufacture an asset  Technical: a contractual agreement with the manufacturer to produce items with specified descriptions at a determined price, and manufactured from his own materials with his own effort Istisna’ (manufacturing sale)[pp 239-242] 16  Legality?  Conditions?  Applications?  Issues? 8  15/08/2024 Salam (forward sale) 17  Definition  Literal: giving, advance and leaving  Technical: a sale contract whereby the seller undertakes to sell some specific commodities to the buyer at an agreed future date in exchange for a price fully paid in advance on a spot basis Salam (forward sale)[pp 242-246] 18  Legality?  Conditions?  Applications?  Issues? 9  15/08/2024 Ijarah (lease) 19  Definition  Literal: the reward given for services rendered  Technical: a contract for the transfer of ownership of usufruct for compensation; a contract of financial exchange Usufruct: the right to benefit from an item Ownership is maintained, not transferred Ijarah (lease)[pp 264-270] 20  Legality?  Conditions?  Applications?  Issues? 10  15/08/2024 Bay’ al-Dayn (sale of debt) 21  A sale of debt  Either against a debt or other than a debt  To the debtor or other than the debtor  On cash basis or deferred payment basis Bay’ al-Dayn (sale of debt)[pp 246-249] 22  Legality? o Types  Conditions? o Types  Applications?  Issues? 11  15/08/2024 Bay’ al-Sarf (sale of currency) 23  Sale of money-for-money  Derived from hadith Muslim no 1587; gold-for-gold, silver-for-silver…  Spot forex Bay’ al-Sarf (sale of currency)[pp 250-252] 24  Legality?  Conditions?  Applications?  Issues? 12  15/08/2024 Bay’ al-‘Inah (sale and buy-back)  Bay’ al-inah is generally known as sale based on the transaction of Nasi’ah (delay).  The (prospective) debtor sells to the (prospective) creditor some object for cash which is payable immediately;  The debtor immediately buys simultaneously the same object for a greater amount for a future date. Bay’ al-’Inah (sale and buy back)[pp 252-255] 26  Legality?  Conditions?  Applications?  Issues? 13  15/08/2024 Tawarruq (monetisation) 27  The practice in the past of seeking silver money  Used in the Hanbali school of taught  Other schools refer to it as inah Tawarruq (monetisation)[pp 256-263] 28  Legality?  Individual/banking  Applications?  Issues? 14