A systematic method for identifying
the leading causes of illegal islamic
financial transactions
Un método sistemático para identicar las principales
causas de las transacciones nancieras islámicas ilegales
Cómo citar este trabajo
Janahi, K. A. (2022). A systematic method for identifying the leading causes of illegal islamic nancial
transactions. Revista de Cultura de Paz, 6,256–287. https://doi.org/10.58508/cultpaz.v6.165
Dates:
Received: 02/10/2022
Accepted: 10/12/2022
Published: 31/12/2022
Correspondence:
Khalid Abdulaziz Janahi
Conflict of interests:
The author declare no conict of
interests.
Fundings:
No fundings were received.
Khalid Abdulaziz Janahi
1
0000-0002-0744-7097
1
Department of Civil Law, University of Granada, Granada, Spain.
Artículos Originales
Information Autorías
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Revista de Cultura de Paz (2022). Vol. 6 :256–287.
ISSN: 2631-2700
Edita: Cátedra UNESCO de Cultura y Educación para la Paz,
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Janahi, K. A. A systematic method for identifying the leading causes…
RESUMEN
Las ventas y nanzas islámicas se presentan
actualmente como herramientas prácticas en
proyectos de desarrollo a nivel global en países
musulmanes y no musulmanes. La mayoría de las
transacciones nancieras contemporáneas involu-
cran contratos complejos, y no es fácil saber el al-
cance de su compatibilidad con la sharia. Por esta
razón, en este artículo se presentará una lista de las
principales causas que afectan las transacciones
nancieras y de ventas desde la perspectiva de la
sharia. Estos factores ocasionantes se formularon
legalmente y se presentaron en artículos codi-
cados, lo que facilita que los investigadores y los
comerciantes y contratistas del sector nanciero
islámico estudien una transacción y determinen su
legalidad según la sharia. El método propuesto ayu-
da a desarrollar un marco legal para que el sector
judicial determine hasta qué punto los contratos
son compatibles con las disposiciones de la sharia
islámica.
Palabras clave: contratos de compraventa islá-
micos; Principales factores que ocasionan (illah
shariya); transacciones islámicas prohibidas; Codi-
cación de las nanzas islámicas; Objetivos de la
Sharia (al-maqasid al-Sharia).
ABSTRACT
Islamic sales and nance are currently presented
as practical tools in development projects at the
global level in Muslim and non-Muslim countries.
Most contemporary nancial transactions involve
complex contracts, and it is not easy to know the
extent of their sharia compatibility. For this reason,
a list of the leading causes that affect nancial
and sales transactions will be presented in this
article from a sharia perspective. These occa-
sioning factors have been formulated legally and
presented in codied articles, making it easier for
researchers and for traders and contractors in the
Islamic nancial sector to study a transaction and
determine its sharia legality. The proposed method
helps to develop a legal framework for the judiciary
sector to determine the extent to which contracts
are compatible with Islamic sharia provisions.
Key Words: Islamic sale contracts; Main occasion-
ing factors (illah shariya); Forbidden Islamic trans-
actions; Codifying Islamic nance; Sharia objectives
(al-maqasid al-Sharia).
GLOSSARY
Allah: One of God’s most beautiful names and attributes
Prophet Mohammad: The name of Allah’s last and nal Messenger
Quran: The book revealed to prophet Mohammad (peace be upon him)
Sunnah: The way of the prophet Mohammad (peace be upon him)
Sharia: Islamic law
Islamic qh: Islamic jurisprudence
Illah shariya: Occasioning factors
Riba: An interest taken on moneylending
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Janahi, K. A. A systematic method for identifying the leading causes…
Introduction
Islamic jurisprudence mainly touches on four categories: a) acts of worship
(e.g., prayer, fasting, alms, and pilgrimage to Mecca); b) commercial and -
nancial transactions; c) family issues (e.g., marriage, divorce, inheritance);
and d) crimes and punishable acts. In this article, the focus will be on modern
commercial and nancial transactions.
Sharia university students and researchers commonly discuss the dicul-
ty of understanding Islamic jurisprudence science (al-qh) regarding sales.
Anyone who delves into the study of jurisprudence of Islamic transactions
(qh al-mua’malat) is familiar with this complexity. Especially when study-
ing new transactions, one seeks to understand Islamic sharia compliance
through scientic research and recent commercial transaction studies.
Even before an individual knows the jurisprudential provisions, the percep-
tion of contemporary Islamic commercial dealing is challenging. One might
read studies of specic modern jurisprudential transactions but still emerge
confused, with only a vague understanding of the matter. Moreover, a vital
legal maxim of Islamic jurisprudence (al-qh) is applicable when studying
new transactions: The principle sharia ruling of any commercial and nancial
transaction is permissible, and the relevant prohibition must be reasonable
in meaning and logic. This means that sharia forbids only a small number of
transactions. Any transaction that is not expressly prohibited and does not
include any of the causes that prohibit the transaction is automatically sharia
permissible.
Furthermore, it is essential to know that the source of Islamic jurisprudence
is not derived from human beings’ understanding and implementation but
rather is a divine law derived from the revealed words of Almighty Allah (the
Noble Qur’an) and the way (Sunnah) of the Prophet Muhammad (peace be
upon him).
Consequently, the rulings on Islamic nancial and commercial transactions
that Almighty Allah has put forth for the general public to work within their
markets and stores have not been revealed as the monopoly of intelligent
scholars and specialists.
It is not fair for Almighty Allah to impose obligatory sharia rulings on His ser-
vants and forbid them from doing actions that constitute sin if it is dicult
for them to understand and implement these rulings. The issue mentioned
above is worth studying, and proper methodology for studying the sharia
compliance of new types of transactions must be addressed, particularly for
contemporary transactions with a very complex structure.
It is necessary to establish maxims that serve as critical guidelines and lters
to determine the legal condition of contemporary commercial transactions
and understand the sharia provisions for such transactions.
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Janahi, K. A. A systematic method for identifying the leading causes…
This article presents a mechanism to simplify understanding of the jurispru-
dence of contemporary Islamic commercial and nancial transactions and
to avoid factors that make a sharia transaction forbidden. Accordingly, all the
factors that affect a transaction from a sharia perspective will be presented
in this article for the rst time as codied material.
Identifying the Fundamental Occasioning Factors (Illah Shari-
ya
1
) of Prohibited Islamic Financial Transactions and How to
Benefit from ese Restrictions
To develop a comprehensive methodology to determine the correct provi-
sions related to newly structured Islamic nancial and commercial transac-
tions, it is necessary to enumerate the fundamental factors that affect trans-
actions that make them prohibited by Islamic law.
The basis is, as previously mentioned, the following maxim: In principle, any
nancial transactions are sharia permissible. Nevertheless, this is conditional
on ensuring that no sharia prohibitions are involved. Thus, an important ques-
tion arises: What are the main factors of these legal prohibitions? Knowing
what these prohibition-triggering factors are can help to verify the absence
of evidence, which leads to a change in the central maxim: In principle, any
nancial transactions are permissible.
The Efforts of Sharia Scholars to Highlight the Main Factors that Lead to
the Prohibition of Financial Transactions
Several Muslim jurists have attempted to identify some of the main factors
that lead to the prohibition of a nancial or commercial transaction. For ex-
ample, Abū al-Walid al-Bājī (d. 1081 CE), a famous Andalusian scholar of the
Maliki school, said,
Corrupt sales are of three types: First, riba and what a pretext is for riba.
Second, deceit and similar acts. The third aspect is buying an unseen com-
modity, the details of which are unknown. Furthermore, these sales have sim-
ilar aspects and are classied under these three mentioned classications.
Jurisprudence scholars assess new sales based on these criteria.
2
Another Andalusian scholar, judge Ibn al-Arabī al-Mālikī (d. 1148 CE), also
tried to determine what makes a sale forbidden in Islamic sharia. When dis-
cussing forbidden components of sales, he decided that incorrect sales,
1 “It is the interests that the Sharia intended to bring to humans, and the evils that it intended to repel. The mentioned
meaning indicates that the Islamic law is justied in its entirety, by consider the essence purpose of things and the
interests of people. Thus, this essence is subject to consensus among all Islamic jurisprudence schools”. Abden-
nour Basa, Jamila Tilout, and Mohammed Abdou, “al-Ilal al-Shariya Fi al-Istilah al-Maqasidi,” in Mu'jam al-mus'talahat
al-mqasidiyah, ed. Ahmed Al-Raissouni (London: Al-Furqan Islamic Heritage Foundation, 2017), 458.
2 Abu Al-Walid Al-Baji, Fusul al-ahkām wa bayan ma mada alaih al-amal inda al-fuqaha wa al-hukkam (Beirut: Dar
Ibn Hazm, 2002), 215.
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Janahi, K. A. A systematic method for identifying the leading causes…
Do not depart from three categories: ribā, void, and aleatory (gharar). By care-
ful analysis, we nd that gharar is due to invalidity. These legal prohibitions
overlap, although their meanings differ (Ibn al-Arabī 324:1).
3
He also said,
The corruption of the sale is due to three things: Riba, deception, from buying something
with an unknown detail (i.e., buying uncaught sh in the ocean, or a bird ying in the sky
and not being able to catch); or deceiving people and taking their money unjustly.
4
Abu al-Walīd Ibn Rushd (d. 1198 CE), born in Cordoba and known in the West
as Averroes, also attempted to identify the leading causes of sales being pro-
hibited in sharia. He concluded,
The main reasons for the legal prohibition of sales in sharia are the same as
the general causes of corruption, and they are: First, the items being sold are
already prohibited in sharia (i.e., selling alcohol). Second: riba. Or a combi-
nation of both. These mentioned factors that affect sales are the origins of
corruption. Moreover, sharia forbids other sales for similar reasons, such as
fraud and harm.
Furthermore, some sales are forbidden by sharia due to the sale timing (i.e.,
if the sale took place during Friday prayer time). Additionally, some sales are
forbidden by sharia law because the content is already forbidden in sharia
(for example: selling alcohol).
5
Imam Ibn Taimiyyah (d. 1328 CE) briey described the matters that affect
the validity of a contract: “The acquisition of another’s money in illicit transac-
tions falls into two types, which Almighty mentioned in holy Qur’an; they are
riba and gambling”.
6
He elaborated by saying,
The basic principle in all contracts is justice, for [this declaration] was sent by the mes-
sengers and revealed in the holy books. God Almighty said, ‘Indeed, We have sent Our
Messengers with clear proofs and revealed with them the Scripture and the Balance (jus-
tice) so that mankind may keep up justice’ (57:25).
Sharia forbids riba because of its unjust character. Additionally, it forbids gambling be-
cause of the injustice it involves. Likewise, the Qur’an prohibits both transactions because
they involve the wrongful acquisition of another person’s money.
Moreover, all that the Prophet Mohammad, (peace be upon him) forbade in transactions,
such as ambiguity and selling fruits before they seem edible, is included either in riba or
gambling.
7
3 Abu Bakr Ibn Al-Arabi, Al- qabas fe sharh muwatta malik bin anas (Beirut: Dar Al-Qharb Al-Islami, 1992), 1:324.
4 Al-Arabi, al-qabas fe sharh muwatta malik, 2:787.
5 Abu Al-Waleed Ibn Rushd, Bidayat al-mujtahid wa nihayat al-muqtaṣid (Cairo: Ibn Taimiyyah Publishing, 1995),
3:237.
6 Ahmad Ibn Taimiyyah, 1995. “Maj’mua al-fatāwa. Vol. 29. Al-Madina: Saudi Ministry of Islamic Affairs, Dawah
and Guidance.” Accessed June 5, 2021. https://ia800300.us.archive.org/4/items/mfsiaitmmfsiaitm/mfsiaitm29.
pdf, 29:22.
7 Ahmad Ibn Taimiyyah, 1995. “Majmua al-fatawa. Vol. 28. Al-Medina: Saudi Ministry of Islamic Affairs, Dawah and
Guidance.” Accessed February 2, 2021. https://ia800300.us.archive.org/4/items/mfsiaitmmfsiaitm/mfsiaitm28.
pdf, 28:385.
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Janahi, K. A. A systematic method for identifying the leading causes…
Shaikh Abdulrahman al-Saadi (d. 1957 CE), a well-known contemporary
scholar, said, “The greatest prohibitions affecting the validity of transactions
are riba, deception, and injustice”.
8
He also said, “The greatest among them are the maxim of interest, the maxim
of ambiguity and gambling, and the maxim of deception”.
9
Shaikh Muhammad al-Uthaimeen (d. 2000 CE), one of the most famous con-
temporary scholars from Saudi Arabia, said, “The conditions revolve around
three things: injustice, riba, and deception”.
10
He also said, “The basic principle in all transactions is that they must be per-
missible. The prohibition of transactions comes only in the presence of the
following: riba, injustice, or deception”.
11
Shaikh Abdullah Al-Bassam (d. 2002 CE), a reputed Saudi scholar from the
Hanbali Islamic jurisprudence school, said,
To sum up, forbidden transactions are due to sharia, the most important of which are the
following three:
Firstly: Riba, in its three types. Riba in sale and exchange (riba al-fadl); riba that increases
the debt period and leads to the increase in money being exchanged (al-nāsiyāh); and riba
on every type of loan, conditional upon adding direct benet by the lender.
Second: Ignorance and uncertainty, which include many parts and multiple forms.
Third: Deception. [This category] includes multiple types.
12
Shaikh Bakr Abu Zayd (d. 2008 CE), a Saudi sharia scholar, said,
It is well known that every transaction that sharia forbids falls under one of
the three prohibition rules, which are the prohibition of riba, prohibition of ale-
atory (gharar), and prohibition of deception (tāghreer).
Corrupt Islamic transactions occur either because the product is unable to be
delivered, such as in the case of a stray camel, or because the product did not
exist initially at the time the contract was concluded, such as in the case of
selling the fetus in a cow’s belly or selling a fetus that will be in the stomach
of the present fetus in the future. Additionally, if the buyer has no descriptive
information of the product bought [the sale is false]. Moreover, ignorance of
the quantity that will be bought will result in a false transaction.
13
He also said in another book,
Expressly, forbidden transactions are prohibited by sharia in cases of injus-
tice. Usually, [this happens] when the buyer’s money is acquired unlawfully.
No matter how different the structures introduced, these forbidden transac-
8 Abdulrahman Al-Saadi, Taysir al-latif al-mnan khulasat tafsir al-quran (Riyadh: Saudi Ministry of Islamic Affairs,
Dawah and Guidance, 2001), 117.
9 Abdulrahman Al-Saadi. Irshad uwli al-basayir wal’albab linil al-faqih bi’aqrab al-turuq wa aysar al-asbab (Riyadh:
Adhwa Al-Salaf Publishing, 2000), 168.
10 Mohammad Al-Uthaimeen, Al-Sharah al-mumtieu ala zad al-mustaqnae (Dammam: Dar Ibn Al-Jawzi, 2004),
8:184.
11 Mohammad Al-Uthaimeen, Al-ta’leeq ala al-ka (Al-Qaseem: Ibn al-Uthaimeen Fundation, 2018, 6:140).
12 Abdulla Al-Bassam, Tayseer al-allam sharah umdat al-ahkam (Sharjah: Al-Sahaba Bookshop, 2006), 449.
13 Bakr Abu Zayd, Bitaqat al-ai’timan (Beruit: Al-Resala Publishing, 1996), 2.
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Janahi, K. A. A systematic method for identifying the leading causes…
tions are forbidden due to three main reasons, as stated clearly in the Holy
Qur’an and Sunnah of Prophet Mohammed (peace be upon him), which are
riba, deception, and deceit.
14
The ndings of previous scholars can be summarized as follows.
First, most scholars have agreed on three reasons for a transaction being
forbidden: Injustice, riba, and deception. Some scholars have added harm,
others have added deception (the meaning of fraud), and Ibn Taimiyyah men-
tioned redundant transactions.
Second, scholars have mentioned six causes of prohibition, all of which re-
late to contracts and are common reasons nancial transactions are prohib-
ited according to sharia. These causes are injustice (dhulm), harm (dharar),
riba, aleatory issues (gharar), fraud (taghreer), and stratagems in transactions
(ḥiyal).
Advantages of Stating the Main Occasioning Factors of Forbid-
den Islamic Financial Transactions
One of the essential benets of acknowledging the occasioning factors (illah)
is that doing so helps to apply sharia legal provisions to new nancial and
commercial transactions. It provides a systematic method for examining the
new structural transactions and analyzing them for legal prohibitions.
The study of any contemporary nancial transaction is based on two crucial
stages: First, understanding the new transaction’s nature, knowing its details,
and ensuring that it is not fraudulent; and second, the jurisprudential adjust-
ment of this new nancial transaction. This adjustment includes two steps:
a. Studying possible similarities between the modern transaction and a nom-
inate contract in Islamic sales jurisprudence (qh). Consequently, this new
structure transaction will be subject to the provisions of the nominate con-
tract known in Islamic sharia. Alternatively, we may conclude that a given
contract is not based on an example of a previous contract.
b. Ensuring that all new transaction procedures are free of legal prohibitions.
c. However, for the second step to be based on a disciplined methodology,
we subject the new contemporary nancial transaction to the following
crosscheck:
d. The new transaction is tested to determine whether it is free of any of the
following three characteristics: riba, aleatory issues (gharar), and fraud.
e. Next, if the transaction is free from all three illicit characteristics, the basis
of the transaction is subjected to the test of a search for any cause of in-
justice.
14 Omar Al-Mitrik, Al-riba wa al-mueamalat al-masraa nadhar al-shariaa al-islamiyah (Riyadh: Dar Al-Asimah,
1996), Introductory-B.
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Janahi, K. A. A systematic method for identifying the leading causes…
f. Next, the transaction is assessed for harmfulness. The contract should be
free of any condition that causes harm to either the contractors or external
things.
g. Last, a nal check is conducted to ensure that a transaction is an actu-
al contract with no signs of illegal stratagems, redundancy, or virtual con-
tracts aiming to bypass the sharia prohibition of riba.
Provided that all tests performed on the transaction are accurately conduct-
ed, one can generally conclude that the transaction is permissible according
to Islamic sharia law.
As mentioned earlier, to adapt these reasons into a framework for determin-
ing the legitimacy of any sales with a new nancial structure, it is necessary
to determine how to identify evidence of these six occasioning factors that
scholars understand and that are derived from the texts of the Holy Qur’an
and the authentic Sunnah of the Prophet (peace be upon him).
It is also imperative to know the sharia objectives that prohibit transactions
involving any of the mentioned occasioning factors. These factors can be de-
scribed in terms of legal codied articles so that contracting parties, sellers,
and buyers will be aware of them.
Codifying the Dierent Types of Riba as Influencing Factors in
Transactions
Islamic sharia is not alone in prohibiting riba; all monotheistic religions agree
on the impermissibility of the factors that constitute riba. Moreover, in “ap-
proximately 1800 B.C., Hammurabi, a king of the rst dynasty of ancient Bab-
ylonia, gave his people their earliest known formal code of laws. A number
of the chief provisions of this code regulated the relation of a debtor to a
creditor”.
15
Furthermore, most human-made laws place multiple restrictions on interest
by, for example, setting a ceiling or limit on compound interest. According to
the well-known jurist Abd al-Razzaq al-Sanhuri, there is “a traditional hatred
of riba, not only in Egypt, nor in Islamic countries alone, but in most of the
world’s legislation. Riba is hated in all countries and eras”.
16
Moreover, it is essential to mention that Western encyclopedias dene “usu-
ry” as holding the same meaning as riba. Adding interest to a loan or debt
was a forbidden act until the sixteenth century, when Western culture altered
the denition of “usury”:
Usury, in modern law, is the practice of charging an illegal rate of interest for
the loan of money. In Old English law, the taking of any compensation what-
15 Sidney Homer and Richard Syllam, A History of Interest Rates (New Jersey: John Wiley & Sons, Inc., (1963)
2005), 3.
16 Abdulrazzaq Al-Sanhuri, Al-waseet sharh al-qanoon al-madani al-jadeed (Cairo: Dar Ihyaa Al-Turath Al-Arabi,
1952, 2:282).
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Janahi, K. A. A systematic method for identifying the leading causes…
soever was termed usury. With the expansion of trade in the 13th century,
however, the demand for credit increased, necessitating a modication in the
denition of the term. Usury was then applied to exorbitant or unconsciona-
ble interest rates. In 1545, England xed a legal maximum interest, and any
amount in excess of the maximum was usury. The practice of setting a legal
maximum on interest rates later was followed by most States of the United
States, and most other Western nations.
17
One of the most signicant objectives of prohibiting riba is to prevent injus-
tice from befalling the debtor due to a riba practice. Of course, the material
harm that practicing riba inicts on the individual harms society as a whole
because societies are groups of individuals. Among the manifestations of
injustice toward debtors is a wise person paying interest without material
compensation. Except when necessary, exploiting a person’s need is a form
of injustice.
Those with money can exploit people’s cash needs by providing cash loaded
with interest. This interest appears small but accumulates until it is too great
a burden for the needy borrower, who does not receive any additional com-
pensation for the extra interest payments except for a delay in the repayment
terms. This only delays the resolution of the problem. However, by making
the solution more complicated, this “solution” also increases the injustice in
the situation.
Moreover, one of society’s grievances is that riba helps money holders make
money without investing it in economic projects that benet society. This
act separates money from actual value, a situation represented by the eco-
nomic circumstances that generate money crises in every period. As a result,
nancial crises have arisen in every period and harmed national economies.
Decision-makers are forced to forgive large amounts of debt and create new
investment opportunities to revive the economy and ease the debt gap.
In this paper, the original sharia term riba is used as neither of the other terms
(usury and interest) explains the exact Islamic sharia meaning of riba, even
though the linguistic meaning of riba is “increase”. Nevertheless, the ambit of
riba in sharia is much broader than forbidden interest on a conditional loan or
deferring repayment.
Thus, codifying the different types of riba and their details is essential to avoid
forbidden Islamic sharia transactions.
Methodology for Codifying Different Types of Riba as They Appear in Mod-
ern Transactions
The purpose of presenting riba conditions in codied articles is to determine
the best systematic method for assessing whether a transaction involves
17 The Editors of Encyclopaedia Britannica, 2020. “Usury | Law | Britannica. In Encyclopædia Britannica.” Accessed
February 21, 2021. https://www.britannica.com/topic/usury.
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Janahi, K. A. A systematic method for identifying the leading causes…
one of the prohibited types of riba according to Islamic law. Thus, it will be
easier to judge the validity of new types of transactions.
A clear denition of the concept of riba and its multiple types is introduced.
Then, detailed codied articles of the jurisprudential maxims related to the
types of riba are presented. This is because it is vital to provide clear codica-
tions showing the conditions that lead to a transaction being judged invalid
(riba).
Last, a group of codied articles regarding transaction conditions under the
riba umbrella is addressed, and codied articles dening the effect of the riba
condition on the validity of transactions are described.
The Codied Articles Being Proposed
Article 1: Riba is a conditional increase in return for deferring a loan. In addi-
tion, each subsequent postponement of the debt after its settlement is riba,
whether due as a loan, sale, or exchange between fungible commodities/
goods of the same homogeneous type.
Article 2: Riba is forbidden, and a contract shall be void if riba is involved.
Article 3: If a sale based on riba is concluded, the trader must gain nothing
additional but his or her rightful amount of capital. Whether a trader receives
riba or not, it must be returned if the trader seizes additional riba.
Likewise, if a person deals with riba and then repents, he or she must have
no extra return but his or her original capital. The trader must return the extra
amount to the one from whom it was received as interest.
Article 4: Riba is divided into two types:
1. Riba in loans and debts (riba al-quroodh wa duyun): Every debt includes a
conditional increase on the loan’s principal or debt increase in exchange for
delaying payment.
18
• Riba in loans (riba al-quroodh) has one of the following characteristics:
a. A conditional increase in the loan’s capital.
b. The loan gives a conditional benet to the borrower.
• Riba in debts (riba al-duyoon) involves the conditional increase that the
creditor takes from the debtor in exchange for deferment.
2. Riba in sales (riba al-buyua) is an exchange between fungible commodities
(bartering) and is split into two types:
18 Whether for nancing, investment, risk management, legal interest or agreement, xed or variable base, or de-
layed interest; regardless of interest-based forms or designations such as time deposits, loans, and banking facili-
ties of all kinds and purposes; broker loans in nancial markets; issuance or trading of bonds; and the deduction of
all kinds of debts and delay penalties on outstanding debts. All of the above are considered riba.
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Janahi, K. A. A systematic method for identifying the leading causes…
• Riba in excess/surplus (riba al-fadl): An excess taken in exchange for specif-
ic homogeneous commodities sale (barter).
19
• Riba in delay (riba al-nasa): A deferral in exchange for a specic homoge-
neous commodities sale (barter),
20
where receipt of one of the two com-
modities is related to the riba causes mentioned above regarding excess/
surplus and the sharia criterion requires that the commodities be exchanged
immediately and neither of the two exchanged commodities is cash.
Article 5: Riba in sales (riba al-buyua) can be veried by two main maxims:
First, if the two exchanged commodities are of the same homogeneous type
and share the same occasioning factor (illah sharia), then both excess riba
(al-fadl) and delayed riba (al-nāsā) are prohibited.
Second, if the two exchange commodities share the same occasioning fac-
tor (illah sharia) and are of different homogeneous types, then only delayed
riba (al-nasa) is prohibited, and excess riba (al-fadl) does not apply.
Article 6: In an exchange sale contract (bartering) involving the same homo-
geneous commodities
21
and having an exact riba cause, the following con-
ditions must be met, and a breach of one of these conditions invalidates the
contract:
a. The exchange must be on the spot, and deferment is forbidden.
b. The exchanged commodities must be alike and equal.
c. An increase in the volume of the same homogeneous commodities is for-
bidden.
Article 7: The following condition must be met in an exchange sale contract
(bartering) involving different homogeneous commodities
22
with an exact
type of riba. A breach of the following condition invalidates the contract: The
exchange of commodities is forbidden to be deferred but is allowed on the
spot.
Article 8: The quality of the same homogeneous commodities does not af-
fect an interchange’s exemption from riba prohibitions.
23
Article 9: Unawareness of an equal exchange of the same homogeneous
commodity type has the same consequences as full awareness of excess-re-
lated riba.
19 The hadith narrated by Ubada bin Al-Samit (Allah be pleased with him) reported Allah's Messenger (may peace
be upon him) as saying, “Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by
dates, and salt by salt, should be exchanged like for like, and equal for equal. Moreover, payment is being made
hand to hand. If these classes differ, then sell as you wish, if payment is made hand to hand”. Al-Naysāburīi, Sahih
Muslim, 646, Number: 1587.
20 For example, gold for gold, silver for silver, gold for silver, wheat for wheat, or wheat for barley, and what is at-
tached to that from the prophetic hadith narrated in the prohibition of riba or any commodity that is measured under
the analogy method (Al-Qiyas) of Islamic jurisprudence.
21 For example, an exchange between Italian 24 carat gold and Brazilian 24 carat gold, American silver and African
silver, Saudi dates and UAE dates, Egyptian wheat and Mexican wheat, Jordanian salt and Algerian salt, and Chinese
barley and French barley.
22 For example, between gold and silver, wheat and barley, and dates and salts.
23 For example, an exchange between grade A Spanish corn with a lower quality of grade A Spanish corn.
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Janahi, K. A. A systematic method for identifying the leading causes…
Article 10: An exchange between different commodities that share the same
riba occasioning factor (illah) is not permitted under any conditions or stan-
dards.
24
Article 11: It is permissible to exchange two homogeneous commodities of
different quantities with compensation added to the transaction
25
provided it
is not a ploy to bypass excess riba.
Article 12: It is permissible to sell a riba-based commodity alongside anoth-
er riba-based commodity of the same homogeneous type when handicrafts
are involved.
26
The two exchanged commodities are not required to be equal
or identical, and exchanges can vary in their circumstances.
27
There are two
primary conditions for this type of transaction:
a. The sale should not be made for insider trading reasons.
b. The crafted item should not be used to circumvent excess riba.
Article 13: It is not permissible to agree on a sale involving a xed cash price
that will decrease if there is a delay in payment. It is also not permissible to
agree that the sale price will increase if there is a delay in payment.
Article 14: Every loan that benets the lender is considered riba.
Article 15: Every loan in which the lender stipulates an increase in any form
added to the loan is forbidden.
Article 16: Trading in currencies is permitted provided that the following cri-
teria are met:
a. The parties take possession of the exchanged materials before leaving
one another, whether the received material is tangible or virtual, or the sta-
tus of the received material must be stipulated.
b. There should be no conditional option or deferment regarding the delivery
by either party.
c. It is forbidden to deal in the forward/futures exchange market.
d. Possession must be taken off the total exchanged amount. Taking posses-
sion of part of the exchanged amount makes the received amount valid and
voids the remaining amount.
24 For example, an exchange between wheat and barley, dates and sugar, rice and wheat, or milk and ghee.
25 For example, a company offering its stock for trading where the assets are a mixture of productive projects and
cash liquidities.
26 For example, 24 carat gold jewelry in exchange for less-weighted 24 carat gold, bread in exchange for wheat,
olive oil in exchange for olives, and all crafted riba items exchanged for their raw material.
27 The jurisprudential opinions differ on this issue. This opinion was chosen based on market need and because
the excess riba does not apply between the traded items. Additionally, this chosen sharia provision aligns with the
maxim, “The origin of new commercial transactions is: Permissibility (Mu’bah)”. Moreover, the chosen opinion was
favored by two reputed Islamic scholars, Ibn Taimiyyah and Ibn al-Qayyim. See Ahmad Ibn Taimiyyah, Tafseer ayat
ashkalat (Riyadh: Al-Rushd Publishing, 1996), 2:632 and Mohamed Ibn Al-Qayyim, 2002. “I’lam al-muwaqqi’in 'an
rabb al 'alamin. Vol. 3. Al-Dammam: Dar Ibn Al-Jawzi.” Accessed March 1, 2021. https://ia800904.us.archive.org/31/
items/FP57544/3-57546.pdf, 3:407.
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Janahi, K. A. A systematic method for identifying the leading causes…
Codifying Aleatory
28
(Al-gharar)
29
as an Influencing Factor in a
Transaction
In the proposed methodology to evaluate new commercial/nancial transac-
tions and their sharia compliance, a second systematic examination is made
to scan for possible aleatory (gharar) transactions.
Islamic sharia prohibits aleatory transactions in contracts primarily based on
what Prophet Mohammad (peace be upon him) stated in various authentic
sayings (hadith): “The Prophet forbade transactions involving (gharar) alea-
tory and ambiguity” (Al-Sajestani, “Sunan Abi Dawud (3504) - Wages (Kitab
Al-Ijarah)” 83: 4).
Muslim scholars from different jurisprudence schools present various deni-
tions of the sharia term gharar in relation to contracts: 1) An unknown conse-
quence or what the person is unable to deliver when sold, and 2) what is not
known about the quantity or amount of exchanged material or the conceal-
ment of information.
30
The closest equivalent to the meaning of gharar in relation to new forms of
contemporary contracts in English is aleatory, which the Merriam-Webster
dictionary denes as follows: “depending on an uncertain event, or contin-
gency as to prot and loss. Additionally, relating to luck, and especially to bad
luck”.
31
Therefore, the term aleatory is used in this paper as the English translation
of the Islamic legal term gharar. Aleatory contracts are prevalent in the in-
surance industry and are dened as follows: “An agreement that is connect-
ed with an event that is not under someone’s control, that may or may not
happen, and of which the result is uncertain. Most insurance agreements
and derivatives (nancial products based on the value of another asset) are
aleatory contracts”.
32
In French civil law, according to article 1104 paragraph 2, a contract aleatoire
is a “random contract [that] is a reciprocal agreement whose effects, in terms
of advantages and losses, either for all the parties, or for one or more of them
depend on an uncertain event”.
33
28 Some researchers refer to the translation of gharar as excessive uncertainty. From my perspective, this is not
accurate. Uncertainty in trade (trade risk) is permissible in Islamic sharia even if it is excessive. However, the higher
the risk is, the greater the expected prot.
As for gharar in selling, it is permissible if it is minor and cannot be avoided. However, it is not permissible if it is
outrageous or if its avoidance may cause many diculties and high costs.
29 The Arabic meaning of the word gharar is “originally derived from the word taghreer, which means exposing
oneself, or one's money to perdition, without knowing” Al-Sddiq Al-Dharir, Al-Gharar wa atharuh fe al-uqood fe al-qh
al-islami (Jeddah: Islamic Institute for Research and Training, 1993, 51).
30 Al-Dharir, Al-Gharar wa atharuh fe al-uqood, 51.
31 Merriam-Webster, 1828. Aleatory (Springeld, MA: Merriam-Webster Inc). Accessed March 4, 2021. https://
www.merriam-webster.com/dictionary/aleatory.
32 Cambridge Dictionary, Aleatory contract (Cambridge, UK: Dictionary.cambridge.org., Cambridge University
Press, n.d.).
33 Such as the insurance contract, games and bets, and lifetime annuity contracts. A random contract is a contract
regarding value in which the existence of an obligation depends on an uncertain future event, the hazard. Juris pe-
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Janahi, K. A. A systematic method for identifying the leading causes…
Islamic law scholars have a more specic denition of aleatory (gharar). Pro-
fessor Al-Sanhuri denes a probabilistic contract as a “contract in which nei-
ther contracting party can determine when the contract is completed, how
much is taken, or how much is given”.
34
Islamic sharia mentions many reasons for prohibiting sales based on aleato-
ry (gharar) characteristics:
a. A certain level of ambiguity in contracts.
b. A lack of information that leads to riba.
c. Disputes that occur between the contracting parties.
As a result, aleatory (gharar) transactions involve a gambling aspect or are
accompanied by vagueness and greed, which are prohibited in Islamic law
because they involve an unjust obsession with people’s money. However, ale-
atory has a broader meaning than indicating that gambling is occurring. Con-
sequently, all gambling is gharar, but not every aleatory (gharar) transaction
involves gambling.
However, even if the two parties accept the conditions of the aleatory (gharar)
contract, the acceptance of the two parties does not make the transaction
permissible under Islamic sharia. Gharar in contracts has been mentioned in
some civil laws. However, past scholars have not detailed such circumstanc-
es or mentioned example cases. Thus, it is essential to codify the status of
aleatory contracts since doing so is the second method in our proposed
methodology for assessing the sharia legality of new commercial and nan-
cial transactions.
Methodology of Codifying Aleatory (gharar) Contracts as They Appear in
Modern Transactions
The concept of aleatory (gharar) contracts is studied in Islamic jurisprudence
(qh) books. Accordingly, a clear Islamic sharia denition of the meaning of
aleatory (gharar) will be codied and written in modern legal language herein.
Different types of aleatory (gharar) contracts will be explained in detail. An ex-
ample of standard gharar contracts is given with reference to the codication
developed in this paper. However, not every type of contractual ambiguity is
considered gharar. Thus, the presented articles clarify the amount of ambi-
guity permissible in a contract and what is considered an excessive level of
aleatory (gharar) elements and is thus prohibited by sharia.
dia, n.d. “Conract aléatorie. Juris pedia le droit partaé.” Accessed March 5, 2021. http://fr.jurispedia.org/index.php/
Contrat_al%C3%A9atoire_(fr).
34 Abdulrazzaq Al-Sanhuri, Nadhariyat al-haq (Beirut: Al-Halabi Legal Publications, 1998), 140.
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Janahi, K. A. A systematic method for identifying the leading causes…
The Codied Articles Proposed
Article 17: An aleatory (gharar) contract happens when neither contracting
party can determine when a contract is considered complete or what amount
is taken or given in the transaction.
Article: 18: A contract is considered aleatory (gharar) if it meets the following
four conditions; however, if one of these conditions fails, then the gharar does
not have an effect on the contract, and the contract remains valid:
a. A contract is so aleatory that the transaction can be described as ambig-
uous selling.
b. The contract is not necessary.
c. Aleatory elements are part of a contract, but the contract is not intended to
be aleatory itself.
d. Aleatory elements are only one type of nancial contract transaction.
Article 19: Aleatory (gharar) contracts are unlawful in four conditions:
First type: The terms of the contract cannot be met.
Second type: The costs or description of the evaluated materials are unclear.
Third type: The materials sold are not in the trader’s possession.
Fourth type: There is gharar related to deferment that is not clearly dened,
whether concerning the price or a commodity sale.
Article 20: Consent between the contracting parties in a contract known to
involve aleatory issues, jeopardy, or gambling does not make the contract
valid.
Article 21: A contract whose type is not specied before the exchange is
invalid. For example, this may occur when two contracts are combined into
one contract, sale, or lease.
Article 22: Any obscurity or vagueness in the sales contract leads to a dis-
pute, invalidating the contract.
Article 23: Sales that include a condition of a nonrefundable down payment
wherein the advance is forfeited if the buyer does not end up purchasing the
commodity are sharia permissible.
Article 24: Any agreement/contract based on gambling or betting is unlawful
and considered void.
Article 25: Any commitment to a debt due to gambling or betting is legally
void, and the person who agreed to the commitment is not required to act
upon his or her obligation.
35
35 The Spanish Civil Code does not encourage gambling and does not endorse such activities; however, in the
event that the gambler falls into debt due to gambling, unlike Islamic law, he or she is responsible for paying that
debt, as indicated in the following clauses:
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Janahi, K. A. A systematic method for identifying the leading causes…
Article 26: Whoever loses in gambling or a wager may recover what has
been paid within a period to be determined by the judge, even if there is a
different agreement between the parties.
36
Article 27: The preceding provisions are excluded from prizes won for specif-
ic achievements in sports. It is permissible for the prize to be offered by one
contestant or by a third party to give the prize to the winner.
Article 28: Before fruit ripens, selling the fruit separately from the trees is not
permissible. Additionally, plants may not be sold before they are ripe. Unless
the purchaser can benet from the goods as they are, they must be harvest-
ed immediately.
37
Codifying Fraud (Taghreer)
38
as an Influencing Factor in Trans-
actions
Checking for fraud is the third stage of the systematic examination that this
paper introduces. When detecting fraud in contemporary Islamic nance
contracts, it is essential to know the extent of the contract’s compliance with
the sharia laws that naturally govern nancial and commercial transactions.
Moreover, the act of fraud (taghreer) is forbidden in all religions. It is also
prohibited if the act is proven according to civil laws.
39
Likewise, in Islamic
law, many penal provisions for fraud or deception lead to the acceptance of
“Article 1798: The law does not provide any action to claim what has been won in a game of luck, gambling or
chance; but the person who has lost money therein cannot recover what he has voluntarily paid, unless it should
have been obtained pursuant to fraudulent misrepresentation, or such person should be a minor or should have
been incapacitated to administer his own property.
Article 1799: The provisions of the preceding article regarding gambling shall apply to betting” (Ministry of Justice
and Clusen).
36 The Spanish Civil Code does not give legal authority to recover the money lost in gambling, as indicated in the
following articles:
“Article 1800: A person who loses in any gambling or betting in respect of non-prohibited games shall be liable under
civil law.
Article 1801: The judicial authority may, however, nd against a claim where the amount exchange in the gamble or
wager should have been excessive, or reduce the obligation to the extent that it exceeds the custom of an orderly
paterfamilias” Al-Dharīr, Al-Gharar wa atharuh fe al-uqood, 51.
37 Delayed harvesting after a contract is signed is not sharia permissible because it may lead to aleatory elements
and increase the likelihood that fruit is damaged or rotten, which will cause the buyer harm. Therefore, harvesting
must be done immediately after the contract is signed.
Portuguese civil law Article 880 is a similar law:
“1. In the sale of future goods, of pending fruits or of component or integral parts of a thing, the seller is obliged to
exercise the necessary diligence so that the buyer acquires the goods sold, according to what is stipulated or results
from the circumstances of the contract.
2. If the parties attribute a random nature to the contract, the price is due, even if the transfer of the goods does not
take place (Ministry of Justices - Portugal).”
38 The Arabic linguistic translation of fraud is taghreer, which means pushing others to fall into a fraudulent scheme.
39 For example, the Spanish civil code Article 1269 states, “Fraudulent misrepresentation exists where, with insidi-
ous words or machinations on the part of one of the contracting parties, the other is induced to enter into a contract
which he would not have done without them” (Ministry of Justice).
For another example, see French Civil Law, Article 1137: “Le dol est le fait pour un contractant d'obtenir le consente-
ment de l'autre par des manœuvres ou des mensonges. Constitue également un dol la dissimulation intentionnelle
par l'un des contractants d'une information dont il sait le caractère déterminant pour l'autre partie. Néanmoins, ne
constitue pas un dol le fait pour une partie de ne pas révéler à son cocontractant son estimation de la valeur de
la prestation “Article 1137 - Code Civil - Légifrance.” n.d. Accessed March 8, 2021. Www.legifrance.gouv.fr., https://
www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000036829827/.
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the contract by one of the parties. Therefore, contracting parties who engage
in fraud to convince the other party to accept the contract are deceiving the
other party, who would not accept the contract if he or she knew the truth.
Furthermore, fraud may be perpetrated by either of the two contracting par-
ties or by a third party at the request of one of the two parties. Fraud may take
the form of speech
40
or action.
41
Islamic law has many reasons for prohibiting contracts that involve fraud, in-
cluding considering the interests of the general public, preventing the unlaw-
ful acquisition of wealth, protecting parties from fraudulent contracts, and
protecting contractors from harm. Islamic law makes severe provisions for
rulings regarding deception due to the signicant amount of damage that
can occur to individuals and society due to fraud. If fraud were tolerated, im-
pure commodities would spread, and the damage would extend to people’s
food, clothes, and all of their other needs. People would be exposed to risk.
Additionally, companies would produce lower-quality products and rely on
fraud in marketing.
Thus, examples of recent nancial transactions that may involve fraud will be
given below in the section focusing on prohibited Islamic commercial con-
tracts.
Methodology of Codifying Fraud (Taqhreer) as it Appears in Modern Transac-
tions
Western civil laws include codications and provisions related to fraud in
commercial transactions. France is considered to have the rst codied mod-
ern legal system in Europe. French law includes articles on fraud in contracts.
These codied articles will be highlighted and compared with Islamic sha-
ria-related provisions. The codied materials are described to reveal the
effect of the fraud occasioning factor (illah sharia) in modern nancial and
commercial contracts. Additionally, the sharia provisions resulting from fraud
and its impact on the contract are codied in simple legal terms.
The Proposed Codied Articles
Article 29: It is not permissible for one of the two contracting parties to de-
ceive the other using fraud, whether by word or by action, to inuence the
other party to conclude a contract that he or she would not have concluded
otherwise.
Article 30: Fraud makes the contract void if the following four conditions are
met:
40 Examples of fraudulent words (sayings) include transmitting false information about the contracted person,
making claims that the commodity was bought at a higher cost, or a third party promising to purchase commodities
at a higher price to tempt the other party to sign the contract.
41 Examples of fraudulent actions include changing the country, company, or date of manufacturing to give the
impression that the merchandise is of high quality.
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Janahi, K. A. A systematic method for identifying the leading causes…
a. Fraudulent methods are used.
b. The fraudulent aspect inuences the other party to accept and conclude
the contract.
c. The fraud was propagated by one of the contractors or a third party.
42
d. The fraud is hidden and not visible to one of the parties. Moreover, that
party cannot easily detect fraud.
Article 31: The party perpetrating the fraud loses the right of recourse if the
sale is cancelled after the other party becomes aware of the fraud.
Article 32: The contracting party who discovers that the sale is fraudulent
and that the commodity sold was defective may return the sold commodity
in exchange for the original amount paid.
Codifying Injustice (Dhulm) as an Influencing Factor in Trans-
actions
The divine laws dictate that justice should be done in everything and for ev-
eryone. Thus, Islam requires justice and forbids injustice, oppression, aggres-
sion, plunder, and theft.
The Almighty Allah sent Messengers and revealed the divine laws with them
so that the people could do justice in God’s rights over them and in servants’
rights with each other. As Almighty Allah said in the Holy Quran, “Indeed We
have sent Our Messengers with clear proofs, and revealed with them the
Scripture and the Balance (justice) that mankind may keep up justice”.
43
Moreover, to emphasize the necessity of justice and the prohibition of injus-
tice, Almighty Allah said, as narrated in the divine hadith, “My servants, I have
made oppression unlawful for Me and unlawful for you, so do not commit
oppression against one another”.
44
Justice is the duty of all human beings. Thus, it is not permissible for anyone
to oppress another. The Almighty Allah says, “O you who believe! Stand out
rmly for Allah and be just witnesses and let not the enmity and hatred of
others make you avoid justice. Be just: that is nearer to piety, and fear Allah.
Verily, Allah is Well-Acquainted with what you do”.
45
42 French law explicitly states that fraud must be conducted by the other contracting party (Article 1137), and if
fraud is perpetuated by a third party, it does not affect the validity of the contract.
According to Islamic law, fraud affects the satisfaction of the person or entity that accepted the contract. This is
an important psychological criterion that affects the contract’s validity; therefore, there is no difference between
fraud committed by one of the contracting parties and fraud committed by a third party under the condition that it
happens with the knowledge of one of the contracting parties. Al-Sanhuri, Nadhariyat al-haq, 404.
43 Taqi Al-Din Hilali and Muhammad Muhsin Khan, Translation of the meanings of the noble qurʼan in the english
language = tafsir maʻani al-qurʼan al-karim bial-lughah al-injiliziyah (Madinah, K.S.A.: King Fahd Complex for the Print-
ing of the Holy Qurʼan, 1998), 57: 25.
44 Muslim Al-Naysaburi, Sahih Muslim (Riyadh: Bayt Al-Afkar Al-Duwaliyah, 1998, 646, Number: 1548).
45 Hilali and Khan, Translation of the Meanings of the Noble Qurʼan, 5:8.
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This passage conrms that all transactions described in the Holy Qur’an and
by the Sunnah of Prophet Mohamed (peace be upon him) were forbidden due
to the requirement that justice prevails and unfairness be eliminated.
For example, Islamic sharia forbids riba and gambling because of the injus-
tice inherent in these acts and the unlawful acquisition of wealth. Likewise,
many types of sales are forbidden because of their injustice and oppression.
Moreover, injustice has numerous disadvantages and can cause societal ruin.
The famous Arab philosopher and historian Ibn Khaldun (d. 1406 CE) said,
It should be known that forcibly acquiring people’s property removes the in-
centive to purchase and gain property. People then become of the opinion
that the purpose and ultimate destiny of (acquiring property) are to have it
taken away from them.
When the incentive to acquire and obtain property is gone, people no longer
make efforts to acquire any. The extent to which property rights are infringed
upon determines the extent and degree to which the subjects’ efforts to ac-
quire property slackens.
When intensive demand [for property] is extensive and general, extending to
all means of making a livelihood, business inactivity also becomes [general]
because the general extent of [such a high demand upon property] means
the general destruction of the incentive [to do business].
If the demands upon a property are but light, the stoppage of gainful ac-
tivity is correspondingly slight. Civilization and its well-being and business
prosperity depend on productivity and people’s efforts in all directions in their
interest and prot.
When people no longer do business to make a living, and when they cease all
gainful activity, the business of civilization slumps, and everything decays.
46
This paper focuses on the types of injustice in contracts. At the same time,
injustice is an inuential factor in judging new forms of contemporary nan-
cial transactions and the extent of their alignment with sharia provisions.
Methodology of Codifying Injustice (Dhulm) as it Appears in Modern Trans-
actions
There is a question that deserves attention and research: If the exact rea-
sons for the prohibitions mentioned above, namely, riba, aleatory (gharar)
contracts, and fraud (taghreer), are all included in the general meaning of
injustice, then what is the purpose behind highlighting the occasioning factor
of injustice?
The answer to this question is as follows: Some types of contemporary
transactions are not easily discovered. However, once identied, the injus-
46 Abdulrahman Ibn Khaldun, The muqaddimah. Translated by Franz Rosenthal (New Jersey: Princeton University
Press, (1967) 2015), 272.
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Janahi, K. A. A systematic method for identifying the leading causes…
tice-causing factor is apparent. Thus, the leading indicator of injustice is ex-
amined: The unlawful appropriation of things by one party to the contract.
If the indicators of injustice in the transaction contract are examined and no
other occasioning factor appears, there is no reason to prohibit the transac-
tion. However, if another cause appears alongside the injustice, such as alea-
tory transactions or riba, then the transaction is prohibited for both reasons:
aleatory issues or riba and injustice.
To codify the cases in which injustice affects either contracting party, it is im-
perative to establish means to detect such injustice. Thus, professionals can
systematically judge the compliance of a nancial transaction with sharia
standards accordingly.
The Proposed Codied Articles
Article 33: Unjust nancial and commercial transactions are dened as -
nancial or commercial transactions that result in unlawful appropriation by
one of the contracting parties.
Article 34: Injustice between the contracting parties is forbidden. Accord-
ingly, the contract is void after evidence indicates the occurrence of injustice
against the affected contractor.
Article 35: A contract is considered void if the following three conditions are
proven:
a. A contractor obtains wealth from the contract without the knowledge of
the other contracting party
47
.
b. One contractor is aware of the infringement upon the other contracting
party’s rights, but this infringement is not acknowledged in the contract
48
.
c. One contractor knows of the infringement upon the other contracting par-
ty’s rights; however, the rst contractor still agrees to the contract out of
need
49
.
Article 36: A sale that leads to a monopoly over a commodity is prohibited
50
.
Article 37: A trader who buys a commodity to monopolize the market and
control its price when consumers are in serious need of this commodity is
legally obligated to sell that commodity at the market price.
Article 38: A contract assisting with something prohibited by sharia is not
permissible
51
.
47 For example, wealth taken possession of by deception or fraud.
48 For example, the party is forced to surrender his or her wealth.
49 For example, the concluded contract involves riba.
50 Because it leads to price control and harms consumers.
51 For example, selling grapes to wineries. Even though selling grapes is permissible, selling grapes to make into
alcohol is sharia unlawful. This sale causes injustice to the self through sin. Additionally, there is an injustice to
society because it helps spread a prohibited commodity.
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Article 39: All contracting parties deserve potential prot from a commercial
transaction but must also bear potential losses.
Codifying Harm (Dharar) as an Influencing Factor in Transac-
tions
The sixth stage of the proposed methodology is verifying the compatibility
of new nancial and commercial transactions with the provisions of Islamic
law. This involves investigating the possibility of harmfulness (dharar) as an
occasioning factor affecting the legality of the transaction.
One of the essential legal intentions of all divine laws is to prevent people
from being harmed. Instead, the primary goal of Islamic sharia obligations
is to meet people’s needs in this world and the hereafter. It is narrated in an
authentic hadith that Prophet Mohamed (peace be upon him) said, “There
should be neither harm (dharar) nor the reciprocation of harm (Dhirar)” (Ibn
Majah Al-Qazwini 338: 3).
In this paper, the focus is on harm or damage in commercial and nancial
transactions. In other words, the focus is on a particular type of harm that
makes transactions sharia unlawful. In commercial and nancial exchanges,
it is not sharia lawful for a seller, buyer, or any other party to harm someone.
Islamic sharia urges that rights (e.g., ownership) are not restricted only to
avoiding harm; it is not acceptable for anyone to benet if all or part of so-
ciety loses. It was said by the Prophet Mohamed (peace be upon him) that
“whoever causes harm, Allah harms him, and whoever is harsh, Allah will be
harsh with him” (At-Tirmidhi 52: 3).
The harm theory in Islamic jurisprudence differs distinctly from the deni-
tion of “harm” in Western jurisprudence, where any materialistic or moralistic
harm may be subject to compensation by the offender. Materialistic harm
causes losses or lost prot for one of the parties. However, in Islamic juris-
prudence, to receive a guarantee, it is required that the commodity have com-
mercial value. The equivalent value of guaranteed commodities and compen-
sation, without considering the extra benets and work attached to acquiring
the commodity, is a condition for the validity of the transaction (Al-Sanhuri
168: 6).
Furthermore, legal professionals have a term similar to the occasioning fac-
tor of harm (dharar) caused by a transaction that indicates inadequate valid-
ity of the nancial transaction according to Islamic sharia. This legal term is
labeled a wrongful act
52
, which means, as stated in U.A.E. transaction civil
law, that “any harm done to another shall render the actor, even though not
52 According to TransLegal, a reputed web-based law dictionary, the term wrongful act means “any action, error,
misstatement, or omission, etc., that is in violation of the law, especially the civil law” TransLegal, n.d. “Wrongful Act.”
Accessed March 20, 2021. https://www.translegal.com/dictionary/en/wrongful-act/noun/?to=en.
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Janahi, K. A. A systematic method for identifying the leading causes…
a person of discretion, liable to make good the harm” (Ministry of State for
Federal National Council Affairs Article 282: Article 282).
Nevertheless, the legal term (wrongful act) is not the focus of our research
paper because law specialists use this term to mean that the damage, if
achieved, results in an obligation to compensate and guarantee the injured.
In this research, this type of harm in contracts is a reason for prohibiting a
proposed new type of nancial transaction between two contractors. There-
fore, it is imperative to develop a methodology to determine the damage re-
sulting from a proposed contract.
Methodology of Codifying Harm (Dharar) as it Appears in Modern Transac-
tions
As in the previous section, the same question regarding the occasioning fac-
tor of injustice (dhulm) can be asked concerning the harm factor. Moreover,
all previous legal prohibitions (usury, deception, deceit, and injustice) are
combined with the occasioning factor of harm, bearing in mind the extent of
the harm inicted. Moreover, sharia prohibitions have an essential purpose:
to clarify people’s interests and prevent unjust acts. Included in these prohibi-
tions are forbidden nancial and commercial transactions.
Nevertheless, it must be determined when the harm caused affects the valid-
ity of a contract. Are the other factors mentioned above that cause the trans-
action to be prohibited included in the current understanding of the harm oc-
casioning factor? Are there examples of contemporary nancial transactions
where harm being caused is the sole reason for forbidding the transaction?
These questions can be answered concerning illegal transactions.
A clear sharia denition of the harm occasioning factor is codied to differ-
entiate between Islamic jurisprudence and legal meaning. Regulations con-
cerning the harm that warrants the prohibition of a transaction are codied
below. Finally, important Islamic sharia jurisdictional maxims concerning the
harm caused by a transaction are codied.
The Proposed Codied Articles
Article 40: Harm in Islamic nancial and commercial dealings means that
either of the contracting parties inicts harm on themselves or others; as a
result, the harm neither exceeds the benet nor is equivalent to it.
Article 41: Insignicant harmfulness is tolerable in all contract types, even
though harm is still done to one of the contracting parties or others
53
.
Article 42: Harm that warrants the prohibition of a nancial and commercial
is determined by the following conditions:
53 Logically speaking, there is no transaction between two parties without at least partial harm for one of the con-
tractors. Thus, insignicant harm is permissible.
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Janahi, K. A. A systematic method for identifying the leading causes…
a. The harm must outweigh the corresponding benet or be equal to it
54
.
b. The harm occurs immediately or is thought to likely occur in the future.
Article 43: For contractual liability to be fullled, there must be harm to the
creditor/contractor due to the debtor’s/contractor’s failure to meet his or her
contractual obligations. Thus, if there is no harm, then there is no liability.
However, if the harm is probable, liability is not realized until the harm occurs.
Codifying Stratagems
55
(Ḥiyal) as an Influencing Factor in Trans-
actions
The inuential factor of stratagems has been saved for last. The most essen-
tial elements of this factor are as follows.
First, most recent nancing transactions in Islamic nance institutions involve
stratagems (ḥiyal) that affect the transaction’s validity. This statement might
not be acceptable to many Islamic nance industry professionals; however,
the reality of the current transactions of Islamic banks, such as commodity
Murabaha (al-Tawarruq) and nancing through Salam contracts set purely
to bypass riba interest charges, requires that the actual sales transaction be
considered.
Second, it is challenging to detect stratagems because they depend on cti-
tious contracts; stratagems make the contract appear valid and compatible
with sharia while occluding illegal actions.
In our systematic examinations, stratagems (ḥiyal) are the sixth and nal
occasioning factor (illah) that indicates whether a nancial transaction con-
forms to Islamic legal provisions. Specically, stratagems (ḥiyal) are used
to circumvent fundamental Islamic prohibitions in the nancial transactions
sector. Stratagems are mainly used to circumvent riba, which is expressly
forbidden in all its forms in Islamic law. As a result, stratagems usually lead
to ctitious contracts.
Thus, the opinions of Islamic jurisprudence scholars regarding nancial con-
tracts that involve stratagems (ḥiyal) are categorized as follows:
a. One opinion is related to judging the outward appearance of a ctitious
contract. Conformity is apparent in contracts with Islamic sharia provisions,
and the internal purposes of the contract are treated with indifference.
b. The other opinion concerns the approval of ctitious contracts from a sha-
ria perspective. It is also concerned with contracts’ content, purpose, re-
sults, and consequences.
54 In another meaning, sharia law prohibits every sale wherein the harm exceeds the main benet.
55 “Stratagems: Any artice, ruse, or trick devised, or used to attain a goal, or to gain an advantage over an adver-
sary, or competitor” Dictionary.com. n.d., “Denition of STRATAGEM | Dictionary.com.” Accessed March 29, 2021.
https://www.dictionary.com/browse/stratagem.
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Janahi, K. A. A systematic method for identifying the leading causes…
This second opinion is adopted by several reputed scholars from various Is-
lamic jurisprudence schools because it is positioned with the higher purpos-
es of Islamic sharia. Additionally, it is aligned with the statutory laws.
Imam Abu Isḥaq Al-Shatibi (d. 1388 CE), a famous Islamic scholar from
Granada, Spain, described stratagems as follows: “Its well-known fact is that
these stratagems introduce the apparent action of permissibility to nullify a
sharia legal ruling, and convert it to another ruling”.
56
The famous Tunisian
scholar al-Taher bin Ashour (d. 1973 CE) explained Al-Shatibi’s stratagem
denition: “It is displaying the thing that is forbidden by sharia law, and pres-
ents it in a permissible form”.
57
Therefore, we specically examine a new type of nancial transaction that
has fullled all the conditions for its legitimacy. However, it merely deceives
what God Almighty has forbidden or omits what God Almighty has enjoined
upon us.
Moreover, Islamic law jurists have stated that there are many subdivisions of
stratagems (ḥiyal). Scholars’ categorization of stratagems differs based on
their analyses of the purposes of sharia (maqasid al-sharia) and its means
(waseela).
It is essential to pay close attention when evaluating the causes of illicit Is-
lamic nancial transactions and determine the extent of stratagems and their
conict with higher sharia purposes (maqasid Al-Sharia).
Based on the abovementioned analytical method, reputed Islamic jurispru-
dence scholars such as Ibn Taimiyah
58
, Ibn Al-Qayyim
59
, and Al-Shatibi
60
divided the use of stratagems (ḥiyal) into two categories. The rst catego-
ry
61
concerns the scope of stratagems’ legitimacy compared to the means
(waseela) and their purposes. It contains two types:
First type: Stratagems used for forbidden purposes, nullifying rights, or prov-
ing a transaction's invalidity. This type is further divided into three subcate-
gories:
a. The method has a forbidden origin and is intended to achieve something
that is forbidden by sharia.
b. The method has permissible origins but is intended to achieve something
forbidden by sharia.
56 Abu Ishaq Al-Shatībī, 1997. “Al-Muwafaqat usul al-sharia. vol. 5. Al khobar: Dar Ibn Afan.” Accessed March 27,
2021. https://ia802608.us.archive.org/12/items/FPmuafkat/muafkat5.pdf, 5:187.
57 Muhammad al-Tahir Ibn Ashur, Maqasid al-sharia (Doha: Ministry of Awqaf and Islamic Affairs, 2004, 3:317).
58 See Ahmad Ibn Taimiyyah, Al-Fatawa al-kubra (Beirut: Dar Al-Arqam Bin Abi Al-Arqam, 1999). 3: 193.
59 See Mohamed Ibn Al-Qayyim, 2002. “I’lam al-muwaqqi’in 'an rabb al 'alamin. Vol. 5. Al-Dammam: Dar Ibn Al-Jaw-
zi.” Accessed April 2, 2021. https://ia600904.us.archive.org/31/items/FP57544/5-57548.pdf, 5:294.
60 See Abu Ishaq Al-Shatībī, 1997. “Al-Muwafaqat usul al-sharia. Vol. 2. Al-Khobar: Dar Ibn Afan.” Accessed No-
vember 11, 2021. https://ia902608.us.archive.org/12/items/FPmuafkat/muafkat2.pdf, 2: 388.
61 The rst method for categorizing stratagems was initially designed by Ibn Taimiyyah; this was then adapted by
his well-known student, Ibn Al-Qayyam. Subsequently, many jurists followed this methodology.
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Janahi, K. A. A systematic method for identifying the leading causes…
c. The method is legitimate, and the implementation is legitimate. However,
the act is used as a pathway to achieve the illegal, which is how sharia
scholars have made different rulings.
Second type: Stratagems are used for permissible purposes, such as proving
the truth or uncovering a falsehood.
a. The method is unlawful; however, the purpose is to ensure one’s rights.
b. The method is legitimate, and what it leads to is legitimate.
c. The method is used to ensure rights or acceptably prevent injustice. How-
ever, the method was created to achieve a different goal.
The second category
62
concerns the extent of the legitimacy of the strata-
gems in terms of Islamic law purposes (maqasid al-sharia). It contains three
types:
First type: Stratagems that are indisputably invalid (haram) because they
contradict sharia permissible purposes
63
.
Second type: Stratagems that are generally agreed to be sharia permissible
64
.
Third type: Stratagems that are a topic of discussion among sharia schol-
ars
65
.
This paper focuses on the different types of the rst category, which limit the
legitimacy of the nancial transaction according to sharia. However, there is a
convergence in the relationship between stratagems and ctitious contracts.
Because of the purpose of these ctitious contracts, which appear to be le-
gitimate, these ctitious contracts are used to circumvent sharia rulings and
achieve a forbidden goal, such as collecting interest.
Thus, judgments regarding these ctitious contracts are based on the intend-
ed aim of the contract. If this ctitious contract, which is, in reality, a type of
stratagem, does not contradict Islamic law principles or legitimate interests
or if the contract is made to prevent a forbidden act, such as dealing with riba
(interest loans) or restoring rights, then the ctitious contract is permissible
based on previous stratagem categorizations by Islamic sharia scholars.
However, suppose that these ctitious contracts originally contradict the
principles of sharia or legitimate interest, such as signing ctitious contracts
as a trick to achieve forbidden aims, revoke rights, or disguise falsehood. In
62 The second method for categorizing stratagems was initially designed by Imam al-Shatībī, after which many
jurists began following this methodology.
63 For example, engaging in riba deals with non-Muslim clients is not permitted by sharia because Islamic law
prohibits riba deals among all people, not just between Muslims.
64 For example, when one wants to exchange a gold ring for a gold necklace of the same caliber and pay the price
difference between them, this act is not permissible in Islamic law. Therefore, the ring may be sold for cash, and the
money is then used to buy the necklace.
65 The great Andalusian jurist from Granada, Imam al-Shatībī (d. 1388 CE), explained the reasons behind the dis-
pute between the jurists regarding stratagem categorization: “Because there was no clear and denitive evidence,
for attaching this specic stratagem segment to the rst or second type. In a sense, no purpose was found in this
type that is consistent with or clearly contradicts the objectives of Islamic law” al-Shatībī, Al-Muwafaqat usul
al-Sharia, 2: 388.
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Janahi, K. A. A systematic method for identifying the leading causes…
such cases, the ctitious contract is considered a forbidden stratagem under
sharia.
Methodology of Codifying Stratagems (Ḥiyal) as They Appear in Modern
Transactions
It is always challenging to spot stratagems in new nancial transactions.
Most modern contracts are complex. Nevertheless, these contracts still have
apparent goals and hidden intentions. However, intent plays a vital role in
judging contract compliance in this case when the contracting parties choose
to involve riba through ctitious contracts.
In Islamic sharia, transactions are judged according to the intentions and mo-
tives involved. The intention and motives for any behavior, including making
contracts, are considered. If they are acceptable, the behavior is approved;
otherwise, the behavior is rejected. Therefore, a transparent codication
methodology should include a mechanism for identifying suspicious trans-
actions to determine the types of stratagems that affect new nancial trans-
action structures.
Consequently, the following well-known maxim in Islamic jurisprudence is
adopted in identifying stratagems: “The consideration of contracts is based
on their purposes and meanings, not their phrasing. In other words, the con-
sideration of Sharia compliance is based on the contract’s reality and its pur-
poses”.
66
This section focuses on codifying only the stratagem (ḥiyal) types that are
indisputably forbidden (haram). This specic inuential factor (illah) of the
different types of stratagems determines the validity of a transaction.
The Proposed Codied Articles
Article 44: Denition of stratagems (ḥiyal): Engaging in unlawful artice to
appear to be engaged in a legitimate act, bypass a sharia legal provision, or
turn attention to another ruling. Additionally, the provision would not change
or be dropped without employing such a stratagem.
Article 45: Every stratagem that includes a prohibited act is considered for-
bidden.
Article 46: Every stratagem used to achieve something forbidden is forbid-
den; the original ruling does not change simply by changing its shape, form,
or name.
Article 47: Every stratagem involving trespassing upon a right or premised
upon something forbidden is considered a forbidden ploy.
66 Fawaz Al-Qahtani, Al-qawaeid wa al-dhawabit al-faqhia al-muathira al-mueamalat al-masria al-islamia (Al-Ma-
dina: Dar Al-Nasiha, 2017, 2: 357).
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Janahi, K. A. A systematic method for identifying the leading causes…
Article 48: Every stratagem involved in an indebtedness process is a ploy or
riba.
Article 49: Every ctitious transaction intended to access cash is riba.
Article 50: Any contract with the same effects as those mentioned with sha-
ria forbidden purposes, such as riba damages, is riba, and changes in the
contract do not change its real essence.
Article 51: Every sale contract not intended for its stated purposes but rather
to achieve a loan with interest is sharia invalid.
Article 52: If a third party, as a nancier of the sale, enters into a sale contract
between two parties, the sale is a riba ploy in the form of a sale contract that
leads to a loan with excess interest, thus invalidating the contract.
Article 53: Commodities obtained on credit are prohibited from being resold
at a price lower than the original purchase price, except if the characteristics
of the purchased commodity have changed.
Conclusion
Listing the main occasioning factors (illah) that affect nancial transactions
claries the extent to which Islam tolerates innovative nancial transactions
based on Islamic sharia permissibility. Strictly speaking, sharia forbids trans-
actions tied to a narrow circle. However, these forbidden transactions have
alternatives that are permissible in Islamic sharia.
Thus, the researchers build a comprehensive view of illegal nancial trans-
actions in Islamic sharia and explain the fundamental factors that affect a
transaction’s validity and why these factors lead to the prohibition of a trans-
action.
Additionally, by discussing why prohibitions are made based on occasioning
factors, the researchers provide consistent reassurance that there is great
wisdom behind Almighty Allah’s prohibition on certain transactions. More-
over, moving away from these forbidden causes will benet humanity—both
individuals and society as a whole.
Thus, in this paper, six (6) fundamental occasioning factors (illah) are pre-
sented, and they all affect the validity of transactions: riba, aleatory (gharar)
issues, fraud (taqhreer), injustice (dhulm), harms (dharar), and stratagems
(ḥiyal)
67
.
Through a careful analysis of these main occasioning factors (illah) that af-
fect nancial and commercial transactions, it is evident that a common fac-
tor among them is the appropriation of people’s money in unjust and imper-
missible ways.
67 See Diagram 1.
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Janahi, K. A. A systematic method for identifying the leading causes…
The rst occasioning factor (illah) is categorized into two types of riba:
a. Riba in loans and debts (riba al-quroodh and al-duyun). The majority of riba
cases in banking transactions involve loans.
b. Riba in sales (riba al-buyua) is further classied into two types:
• Riba in excess/surplus (riba al-fadl).
• Riba in delay (riba al-nasa).
There should be no problem with riba in sales if the commodity is catego-
rized under riba categories as a direct cash purchase. However, two things
must be considered when exchange trading (bartering) occurs involving
these commodities.
First condition: If the commodities are of the same riba type (i.e., gold or sil-
ver), which means that the exchanged commodities have the same attributes
and characteristics as money, then the exchange must involve the same type
and quantity of a commodity and must be exchanged on the spot.
Second condition: If the commodities are of unlike riba types (i.e., gold and
sugar), which means that the exchanged commodities have different attri-
butes and characteristics from money, then the exchange must be made on
the spot, and the commodities can differ in quantity.
The second occasioning factor (illah) is the attribute of aleatory (gharar) con-
tracts. Knowing that aleatory aspects are an adequate condition for invali-
dating the transaction only in nancial or commercial contracts is essential.
However, if the aleatory contract is a charity contract, the aleatory nature
does not affect the contract.
Furthermore, most contemporary nancial contracts that involve aleatory
factors and are found to be invalid relate to commodities that are not under
the seller’s full ownership. Additionally, aleatory contracts are those through
which commodities with unknown specications and characteristics are
sold. Moreover, if the aleatory aspect is slight and unintentional, this does
not affect the transaction validity according to Islamic law since hardly any
transactions have no aleatory aspects.
The third occasioning factor (illah) is fraud (taqhreer). Islamic law and civil
law forbids fraud in all its forms. Fraud can be perpetrated by one of the con-
tracting parties or by a third party in the contract under the direction of one
of the contracting parties to deceive the counterparty. Fraud is a diabolical
way to obtain people’s money. Thus, it is necessary to tighten the laws that
deter fraud.
The fourth occasioning factor (illah) is injustice (dhulm). It is imperative to
know that all judgments of the legitimacy of transaction factors are related to
injustice. However, the main reason for singling out injustice as an occasion-
ing factor is to simplify the assessment process. Additionally, injustice is a
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Janahi, K. A. A systematic method for identifying the leading causes…
factor that affects transactions themselves. One of the most evident signs of
injustice in contracts is when a contract exploits people’s need for money by
involving high-interest rates, thus binding the needy person and making him
or her a prisoner of the creditor.
The fth occasioning factor is harm (dharar). All transactions involve some
harm being inicted upon one of the parties. However, this rises to an unac-
ceptable level when the harm outweighs the desired benet or at least equals
it.
The sixth occasioning factor is stratagems (ḥiyal). It is essential to note that
this factor is challenging to detect when examining new types of nancial
transactions because it is occluded within ctitious transactions. Moreover,
Islamic jurisprudence scholars’ classications of stratagems differ according
to their sharia purposes (maqasid al-sharia), analyses, and means (waseela).
As a summary of the presented methodology for examining new types of -
nancial transactions to determine the legitimacy of these transactions under
sharia, scholars take two different approaches to evaluate the essence of a
contract and its legitimacy:
• The rst approach focuses on inspecting the outward appearance of the
transaction. The provisions are based on the appearance of the contract,
such as the contract’s main pillars, conditions, and other apparent matters.
The contract’s content is not examined to determine its true essence and
identify the desired result.
• The second approach examines the actual essence of the transaction. This
is the primary approach adopted in this paper. It is an investigation into
the true essence of contracts, not just judgments based on the contract’s
apparent validity.
• Ultimately, this paper contains fty-three (53) codied articles, divided as
shown in Table 1.
Table 1. Codied
articles.
Occasioning Factor Type (illah) Codied Articles
A Riba 16
B Aleatory (gharar) 12
C Fraud (taqhreer) 4
D Injustice (dhulm) 7
E Harm (dharar) 4
F
Stratagems (ḥiyal)
10
Total 53
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Janahi, K. A. A systematic method for identifying the leading causes…
Diagram 1. Funda-
mental occasioning
factors
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