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Main Prohibitions and Business Ethics in Islamic Economics and Finance

Basic Prohibitions
Riba (interest) Gharar (uncertainty) Maisir (gambling)

Business Ethics and Norms


Justice & fair dealing Mutual cooperation Free marketing & fair pricing
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 2

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 3

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 4

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 5

Prohibition of Gharar (uncertainty)


Refers to the uncertainty or hazard caused by lack of 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 6

Prohibition of Gharar (contd.)


Gharar includes Ignorance about genus, species, 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 7

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 8

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 9