HISTORICAL BACKGROUND

OF COMMERCIAL
TRANSACTIONS

 Islamic commercial law not only

creates new system but re-evaluate or

ratify the existing pre-Islamic
institutions of contractual obligations
and commercial laws completely or
partially.
Makkah and Madinah regarded as two
islands in the waterless steppes and
desert, had close economic ties with
the nomads.
In Madinah, the Christian and Jewish
communities represented the

 Madinans traded in commodities, like perfume,

clothing and wine.

They were also involved in business of moneylending on interest (riba) to foreign businessmen.
Makkah was a busy and prosperous city before
Islam.
Quraysh developed international trade and trade
treaties with other countries.
Makkah was the most suitable place to become
an international trade centre in the region due
to:
the existence of haram(sacred or sanctuary).
Haram was a place where men could come in
without fear of any hostility and molestation.

 Typical combination of place of

pilgrimage and of a commercial centre.

Makkah by the time became a neutral
city due to the trade activities with
various tribes.
Trade and commerce remained
inseparably related to the religious rites,
especially the pilgrimage.
Many merchandise caravans were
protected by the established institution
of the sacred months and enjoying free
access to the markets.

 Makkah was also assisted by its

favorable geographical location, it was

situated at a strategic place in the
Arabian peninsula.
There was active circulation of capital
in the Makkan society.
Agents, brokers and the great majority
of the population lived on credit or
loans.
The contract of Mudarabah was
popularly practiced, any sum of money
or capital was invested in this

 Makkah being a banking centre, businessmen

could make payments to many distance places

or countries.
Makkah was also a clearing house for
international trade and a provider of trading
facilities and insurance of the goods on a very
dangerous route.
Women also took active part in mercantile
enterprises.
Khadijah bint Khuwaylid, Asma bint
Mukharribah, I.e. Abu Jahls mother, who was a
perfume merchant and Hind bint Utbah, the
wife of Abu Sufyan were among the leading
businesswomen at that time.

 Many taxes and charges imposed on

foreign merchants for their entry,

travelling about the city, permit to stay,
passage of their foods, trading,
departure and crossing the borders of
the market areas.
Pre-Islamic Arab was an important
place which attracted many people,
whether they were Arabs or non-Arabs.
Makkah was centre of worship or
pilgrimage since the time of Prophet
Ibrahim.

 The pre-Islamic customary law in

Arabia provides some of the

terminologies to the later technical
terminologies of Islamic law.
Some legal technical terms have often
acquired, a modified or strictly different
meaning in Islamic law.
The use of written document by the
pre-Islamic Arabs is a well-attested
fact.

Makkah after Islam

 Non-Muslims were not allowed to enter

the city of Makkah, after it had been

conquered by Muslims.
Trading in Makkah became a Muslim
monopoly

Quran and the Commercial life of

Muslims

 The Prophetic life of

Muhammad(P.B.U.H) is spread over a

period of twenty three years.
Last thirteen years in Makkah
Ten years in Madinah
Some verses related to bay (sale) or
tijarah (trade and commerce) were also
revealed during his period in Makkah.
The Makkahan surahs of the Quran
testify that Islam promotes trading and
commercial activities.

 Arabs were guilty of fraudulent dealings

in every day trade transactions.

They use false weights and measures
and exchange different kinds of coins.
Quran condemned these activities and
all Muslims are prohibited from getting
involved in any unjust business
transaction.
In surah al-Mutaffifin, Quran uses
strong words against such offenders
and against short measures and
weights: (83:1-6)

 The riba was prohibited early in the makkan

period.
During Madinan period, the Quranic
injunctions on commercial transactions were
extended and became more sophisticated.
Muslims become an ummah or nation with
their own constitution and government,
Prophet himself become their leader.
Madinan surahs stipulated various
restrictions.
A distinction is made between decent
trading and usury (riba), which is unlawful.

Allah says:
God will deprive usury of all blessing, but will
give increase for deeds of charity: for He loveth
not creatures ungrateful and wicked (2:275)
In other verse
O Ye who believe! Fear God, and give up what
remains of your demand for usury, if ye are
indeed believer. If ye do it not, take notice of war
from God and his Apostle: but if ye turn back, ye
shall have your capital sum: deal not unjustly,
and ye shall not be dealt with unjustly (2:27879)

Punishment for the practice of usury:

Loss of God blessing in this world
Torture of hell in the next
Quran also prohibits gambling, bribery,
consuming others property unlawfully
Prohibition of trading during Friday prayer
Quran imposed the regulation of writing and
taking witnesses on contract of loan or
commercial contract.
In contracts where payment and delivery of
goods are made immediately or without
delay, then putting it into writing is optional.

 If a contract of loan or a commercial

contract is made on journey and a

scribe is not available, the Quran
permits the making of contract on a
pledge or security.
All evidence including any contractual
obligation must be given truly.
All obligations must be fulfilled.
The prophet liberal attitude to trade is
obvious from the fact that he himself
had taken an active part in trade.

Codes of ethical disciplines in Islamic

commercial transactions

There are some practices of good

manners, decency and ethical standards
in business contracts, which Muslims
are encouraged to follow and some
practices are discouraged from
following.

Practices encouraged
Wariness of doubtful property and work

Legal and illegal things are clearly defined

and in between them are some doubtful
things which should be avoided.
Doing business early in the morning
it is encouraged to start business or open
shops early in the morning.
The prophet reported to have sent his
servants for trade in the early morning
and got a lot of profit.

 Trustworthiness and trustfulness in

business transaction
Trustworthiness is encouraged in
business transactions. Prophet(PBUH)
said:
the truthful merchant(is awarded by
being ranked) on the day of
Resurrection together with the Prophet,
the truthful ones, the martyrs and the
pious people
Dishonest traders on the other hand are
blameworthy.

 Generosity in Bargaining and Modesty

in claiming debts
One should be easy and generous in
bargaining and whoever demands his
debts do so in a modest manner.
Giving time to debtor to pay his debt
Sufficient time should be given to a rich
person to pay his debt at his
convenience.
One should wait for a poor person to pay
back his debt when he can.

 Voluntary rescission of an unwanted sale (al-

Iqalah)
Al-Iqalah is cancellation of sale (faskh bay) and
it is allowed if it has been concluded before
the possession.
It had been universally recognized during preIslamic times.
It was encouraged later by Prophet as a
recommendable act to relieve any
uneasiness.
Al-Iqalah is not a sale.
After the rescission of the contract, the
parties have to return what they have taken
from one another, i.e. price and goods.

 Its a voluntary cancellation of sale.

If there is no harm to the parties in

case of rescission of a contract and

they are agreed to such an action then
it is allowed.
It is discouraged if it is based on fraud
or any confusion.
Generosity in business
Generosity is strongly recommended to
purify wrongfulness, mal-practices and
unsuitable acts while doing business.

Practices discouraged
Business transactions in the Mosque

Doing business transactions in the

Mosque is disapproved by the
Prophet (PBUH).
Prophet (PBUH) said:
whenever you see a man who is
selling or purchasing goods in the
mosque you should say: God will
never give profit in your business

 Raising voices in the market

It cause much inconvenience, uneasiness,

chaos and indiscipline in the markets. In
pre-Islamic times traders used to make a
lot of noise to attract customers or
prospective buyers. Islam discouraged
such practices.
False Swearing
it cause loss of blessing therefore, it is
disapproved while selling.
False swearing is sinful, even though the
transaction is valid.

 Lies and hiding facts in sale

The seller and buyer should explain the

good and bad points of the transaction.
Lies and hiding in a deal will cause the
loss of the blessing.
Fraudulence in Trade
Some kinds of fraudulence transactions had
been commonly practiced in the preIslamic period like, sale by keeping
animals unmilked for a long time. Islam
discouraged such practices.