Main Prohibitions and Business Ethics in Islamic Economics and Finance

Basic Prohibitions

Riba (interest) Gharar (uncertainty) Maisir (gambling) Justice & fair dealing Mutual cooperation Free marketing & fair pricing

Business Ethics and Norms

Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 1

Prohibition of Riba (interest)

Common myths about Riba
Riba in Quran & Sunnah Surah al-Rum (39), Surah al-Nisa (161), Surah al-e-

Imran (130), Surah al-Baqra (275-281) Riba in ahadith Riba in loans/debt Riba an-nasiha Sale/purchase on cash or credit Loaning and Leasing
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore
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Prohibition of Riba (contd.)

Shariat Appellate Bench (SAB) historical judgment

on riba. Riba in exchange transactsRiba al-Fadl Illah (unit of value and edibility)
When both excess & delay r allowed
When both excess & delay r not allowed When excess allowed but delay not allowed

Riba in other religions

Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore

Rationale behind prohibition of Riba

Socio-economic & distributive justice
Inter-generational equity Economic instability

Removal of injustice from society

Creation of Parasites, Idlers, blood suckers in the society

Low level of savings

Heavy Budgetary deficits
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore
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Rationale behind prohibition of Riba (contd.)

High debt servicing
Inflation along with recession High un-employment Control of Capitalistic countries over poor countries

through debt Cause of financial crisis Riba and other factors (Land, Labor)

Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore

 Refers to the uncertainty or hazard caused by lack of

Prohibition of Gharar (uncertainty)

clarity regarding subject matter or price in sale contract. Sale of object which is not present or whose quality is not known Two sales in one Down payment sale (Arbun) Pebble, touch and toss sales Suspended (Muallaq) sale Future sale

Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore

 Gharar includes Ignorance about genus, species,

Prohibition of Gharar (contd.)

attributes, quantity or Specific identity of product, time of payment or sale of nonexistent objects Selling of goods seller is unable to deliver Conditional sale e.g. I ll sell when it rains. Making the contract too complex to clearly define benefits/liabilities of the parties. Selling goods on the basis of false description Selling known/unknown goods against unknown price Selling without allowing buyer to examine the goods
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore

Prohibition of Maisir / Qimar (games of chance)

Maisir acquisition of wealth by chance whether or not it

deprives the others right In Quran (2: 219; 5:90-91) A form of gharar as person is ignorant of the result. Lottery with coupons / lottery schemes Bank schemes/ prize bonds Insurance schemes Games of chance or speculation Advantage at the loss of others
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore

Business Ethics & Norms

Justice and fair pricing

Honesty & gentleness Prohibition of Najash (bid without intent to buy) Prohibition of Khalabah (misleading marketing) Disclosure, transparency & facilitating inspection

Fulfilling the covenants & paying liabilities Mutual cooperation & removal of hardship

Free marketing and fair pricing

Freedom from dharar (detriment)
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore
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