Fiqh Of Trade


Most of the companions of the Holy Prophet (SAWS) were either traders or manufacturers. The Prophet Mohammed (SAWS) was himself engaged in this profession before he became a prophet.

Trade, in Islamic jurisprudence, is the exchange of commodities based upon the mutual agreement of the two free, sane, adult owners who are capable of handing over what they are trading. Following are the some of the conditions that must be fulfilled for a valid transaction.

Islamic Jurists and Fuqaha has set up some necessary conditions that must be fulfilled for a business transaction to be considered valid and binding in Islam. There are two types of conditions; some related to the participants in the sale while some are related to the goods being traded.

The first three conditions are regarding the participants in the sale:

1. Mutual Agreement

Both the buyer and the seller must willingly agree to all details of the transaction. Thus, someone being forced to buy or sell property invalidates the transaction.

The Holy Qur‟an said “Unless it be a trade with your mutual consent” (Surah Al Nisa 4 Aayah 29)

The Prophet Mohammed SAWS said "Verily business transactions are only (valid) by way of mutual agreement." (Ibn Maajah 2185)

2. Both participants are allowed to engage in transactions

Both the buyer and the seller must be people who are legitimately allowed to engage in business transactions. They must both be free (not slaves), adults (not children who have not reached puberty), sane, and rational.

So the buying and selling of a child or a fool is invalid. But if the child caretaker gives permission, then it is valid according to the Hanafi School of thought. However being Muslim is not necessary for the validity of transaction, hence the buying and selling of a non-Muslim is valid. (Badaye Al-Sanaye, Vol 4)

3. Ownership of property being traded

Both parties in the transaction must own the property they are trading, due to the statement of the prophet.

Both parties in the transaction must own the property they are trading, due to the statement of the prophet.

However, a person may sell something on behalf of another with his permission. Similarly transaction of Fudhuli (Third party who does not own) depends on the permission of the owner.

However, a person may take money from someone to go and buy property for him, as he is not selling anything himself in this case, he is merely a authorized representative.

There are also some conditions that relate to the goods being traded:

1. Permissibility of the Goods

That which is being sold must be something that is halaal (permissible) in its origin.

“He has only forbidden you: carrion, blood, the flesh of swine and that upon which a name other than 'Allah' has been invoked” (Al-Baqarah, 173)

The prophet (PBUH) said "Verily Allaah has prohibited the sale of Maytah, intoxicants, and idols." (Al-Bukhaaree 2236, Muslim 4024)

The dead animal is known in English as 'carrion' or carcass. In Islamic terminology, it means an animal not slaughtered in accordance with the requirements of the Shariah. Thus the eatable parts of the dead animal are forbidden while the bones of the dead animal and the hair, the feathers, hoof, which are not eatables, are clean and their use and buying and selling is permissible. Since the skin or hide of an animal carries impurities such as blood it is forbidden unless tanned. When tanned, it is permissible. The fat of the dead animal and everything made with it is forbidden. There is no way they can be used. Even buying and selling them are forbidden. The bone of pork and its hair is impure and their buying and selling is not permissible because pork is originally impure. Similarly buying and selling of human bone and hair is not permissible due to dignity and respect of human being. (Badaye Al-Sanaye 4)

2. Dispensability

The goods must be things that can be handed over at the time of the sale. Thus, it is not permissible to sell a bird flying in the sky, even if it is expected that the bird will return (i.e. like a trained eagle). Similarly, it is not permissible to sell a fish in the sea, unless it is in an enclosed area that it cannot escape from. The point is that the buyer must be certain that he will be able to hand over the goods when the sale is made.

3. The Absence of Anonymity

Both the goods and the price must be something clearly known to both participants in a sale. Selling an unknown or unspecified item, like "one of the sheep in the pen," or "one of the garments on display," without specifying the actual item, is a kind of gharar referred to in the previously mentioned prohibition.

There are basically four kinds of transactions that are allowed in the Islamic Jurisprudence. Firstly, the exchange of item of value for another item of value is called Baiul Al-Muqayadha. Secondly the exchange of money for an item of value is called Al-Bai Al-Mutlaq. This is general type of transaction. Thirdly, exchange of debt for item of value is called Bai Al-Salam. Fourthly, exchange of money for money is called Bai Al-Sarf.

The Bai Al-Sarf, the exchange of money for money, is permissible according to the basic principle of Hadith. The rules of bay al-sarf derive largely from the well known hadith:"Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt - like for like, equal for equal, payment being made on the spot. If the species differ, sell as you wish provided that payment is made on the spot". (Muslim)

The condition of the validity of this type of transaction is that both the buyer and seller must possess good and price before they separate without any option of annulling the contract and defer payment. This transaction has three forms; gold for gold, silver for silver and one for other. The transaction of gold for gold or silver for silver is allowed only when they should be equal for equal and like for like and the payment would be made on the spot even one would be different in quality because any addition will invalidate the contract because it is the original form of Riba.

Today currency of a country comes in this form of transaction and thus any addition in one side would be considered as Riba and thus not permissible.

However, the transaction of one for another i.e. gold for silver and silver for silver, is permissible with differentiation in quantity because the species differ but possession must be on the spot from both side.

The currencies of different countries can be exchange in unequal terms but possession must be at spot. The Scholars have opined that the currencies of different countries are of different species and the currencies of different countries can be exchange in unequal terms but possession must be at spot.