May 30

Basic principles of Muamalat

The literal meaning of the term “muamalat” (Plural of muamalah) is “the transaction” while its technical idea is any form of mutual dealings held between men to solve their everyday needs, especially in matters relating to trade and commerce. Muamalat is a social relationship which consists of various economic and non-economic activities. Islamic economy is driven by fiqh al-muamalat which is Islamic regulations that relate to trading/commercial rules.

The importance of Muamalat Element of Muamalat
•To foster coorperation among humans.

•To produce unity and harmony in a community and country

•To prevent cruelty

•To produce responsible “ummah”; who are always competing in “halal” livehood

There are three significant factors:

•The activities  create a responsibility

•It arises from mutual agreement

•It has the formality which bind the activity (such as offer and acceptance

Among the basic principles that play the role in forming Shariah rulings in muamalat are:

Basic principles of Muamalat Description / Remarks
Freedom of contract Muslims are free to act at will to put conditions in their agreements except that which prohibits something which is permissible or permits something which is prohibited
Permissibility as original status of matters The status of all matters other than rituals is permissible until evidence is given that a certain matter is prohibited.
Custom is of force An Islamic legal maxim stated that “ Custom is of force”. In many Shariah commercial contracts, many things may become permissible following customs.

Prohibition in Muamalat

All economic activities are legally permissible as long as these activities do not transgress any of the tenets of Shariah. In line with this maxim, it is the unanimous opinion of all four major Islamic School of Thought (Hanafi, Maliki, Shafi’I, and Hanbali) that all forms of business transactions that transgress any of the tenets of Shariah are considered invalid.

General Principles:

•No contract should be made for selling or buying forbidden products such as alcohol or any other forbidden substances.
•Likewise, no contract should be made for any financial deal on the basis of usury (riba’). For example, in the case of islamic insurance (takaful) it is not allowed and prohibited to invest in interest bearing instruments and to impose and receive late interest payment.
•Contract involves in gambling (maysir) is forbidden in Islam. Any gains derived based on opportunity can be considered as maysir. That’s why in islamic finance, the cost of prizes for competition or lucky draw cannot be taken from participant’s money instead it must comes from the company or shareholder money.
•Contract that involves major uncertainty (gharar) is also forbidden as gharar may make the contract voidable. In the case of takaful, gharar is tolerated as it is base on tabarru’ (donation) contract which is for charity and unilateral in nature as oppose to conventional insurance which is base on buy and sell contracts.

Note: This is part of my lecture slide to UiTM Tapah students 2 years ago

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