Islam provides solutions to every aspect of life and financial transactions are very important area. Therefore every muslim should understand the following basic terms:
- Valid Sale
Also, Islam has prohibited four basic things for all financial types of financial transactions:
- Gharar (uncertainty)
- Void contract or Uqood-e-Fasida
Any gain on debt without any due consideration is Riba
(Musnad-ul-Haris/Zawaid-ul-Haisami. Pg No500 Vol. 3)
Riba has two types:
- Riba Al Nasiyah
- Riba Al-Hadieth/Fadl/Fazal
Riba An Nasiyah
This is the real and primary form of Riba. Since the verses of Quran has directly rendered this type of Riba as haram, it is called Riba Al Quran. Similarly since only this type was considered Riba in the dark ages, it has earned the name of Riba Al Jahiliya. Imam Abu Bakr Hassas Razi has outlined a complete and prohibiting legal definition of Riba An Nasiyah in the following words:
"That kind of loan where specified repayment period and an amount in excess of capital is predetermined."
One of the ahadith quoted by Ali ibn at Talib (RAA) has defined Riba An Nasiyah in similar words. The Holy Prophet said: "Every loan that draws interest is Riba."
The famous Sahabi Fazala Bin Obaid has also defined Riba in similar words:
"Every loan that draws profit is one of the forms of Riba"
The famous Arab scholar Abu Ishaq az Zajjaj also defines Riba in the following words:
"Every loan that draws more than its actual amount"
Riba Al Fadl
The second classification of Riba is Riba Al Fadl. Since the prohibition of this Riba has been established on Sunnah, it is also called Riba Al Hadees.
Riba Al Fadl actually means that excess which is taken in exchange of specific homogenous commodities and encountered in their hand-to-hand purchase & sale as explained in the famous hadith: The Prophet said, "Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for date anyway you please on the condition it is hand-to-hand (spot)."
- Gharar (uncertainty)
It is a sale of probable items whose existence and characteristics are not certain due to its risky nature. In other words either the item of sale is uncertain or the outcome is uncertain. E.g. sale of flying birds, sale of unborn calf, sale of fish in sea, un-ripened fruit on trees, run away animal, etc.
- Qimar/Mayser (speculative transactions)
All transactions that have a chance or involves game of chance is called Qimar/mayser. E.g. lottery, prize bonds, lucky draws, etc.
- Void contracts or Uqood –e-Fasiada
There are four basic rules for judging the validity of conditions in a contract:
- A condition, which is not against the contract, is a valid condition.
- A condition, which seems to be against the contract, but it is in the market practice, that type of condition is not void, if its voidness is not proven with the clear injunctions of the Holy Quran and Sunnah. For example 'A' buys an air conditioner on a condition that the seller will provide him five-year guarantee and one year free service. This type of condition does not invalidate the contract.
- A condition that is against the contract and not in the practice of market but it is in favor of one of the contractors or subject matter, this type of condition is void. For example if 'A' says he sells a car with a condition that he will use it on a fixed date every month, this contract will be void.
- A condition, which is against the contract, not in the market practices and not in favor of any contractor, is not a void condition.
Now a question arises what is the ruling of void condition, whether it invalidates the contract or not?
The answer is that there is a detail about the impacts of void condition. Sometimes a void condition invalidates the contract and sometimes it does not invalidate the contract, however, the condition itself is annulled.
To elaborate this, Islamic jurists and scholars have divided contracts into two types:
- Compensatory contracts (Uqood Muawadha) like sale, purchase, lease agreements
- Non-compensatory (voluntarily) agreements (Uqood Ghair Muawadha) like contract of loan (Qard-e-Hasanah)
Compensatory contracts become void by putting void condition. However, non-compensatory contracts do not become void because of void condition. The void condition, however, becomes itself ineffective. For example if 'A' gives to 'B' a loan with a condition of premium at the time of repayment, this condition of interest is void. However, this condition does not invalidate the contract, therefore all transaction done by this borrowed money, will be valid. But the condition of interest itself is revoked; therefore 'B' is not liable for the payment of interest.