Business Transactions

Allah Subhanahu wa Ta’ala has created human beings in a state of dependence upon one another. Each individual does not own all the things he needs one person has something which he can spare while at the same t me he may need something which others have and which they can spare. Allah has directed people toward exchanging goods and utilities through buying and selling because such transactions make social and economic life function smoothly and encourage people to be productive.

Various types of transactions and exchanges of property were current among the Arabs at the dawn of the Prophet’s mission. He approved and confirmed such types of transactions which did not conflict with the principles of the Shari’ah and disapproved and prohibited those business practices which were against the purposes and aims of the Shari’ah. The prohibitions were due to specific reasons, as, for example, trading in haram goods, transactions involving fraud or exorbitant profits, or injustice to one of the contracting parties.

The Prohibition of Selling Haram Goods

Trading in goods which are normally used for committing sin is haram. Examples of such things are swine, intoxicants, and other prohibited foods in general, as well as idols, crosses, statues, and the like. Permitting the sale or trade of such articles implies promoting and propagating them among people, and consequently encouraging them to do what is haram, while prohibiting their sale implies suppressing and ignoring them, thereby preventing people from coming into contact with them. The Prophet (peace be on him) said, “Surely, Allah and His Messenger have prohibited the sale of wine, the flesh of dead animals, swine and idols,” (Reported by al-Bukhari and Muslim.)
and also, “When Allah prohibits a thing, He prohibits (giving and receiving) the price of it as well.” (Reported by Ahmad and Abu Daoud.)

The Prohibition of a Sale Involving Uncertainty

The Prophet (peace be on him) forbade any kind of transaction which could lead to a quarrel or litigation due to some uncertainty (See the chapter on “The Prohibition of al-Gharar (Transactions Involving Uncertainty)” in Muslim and others.) or which involved an unspecific quantity to be exchanged or delivered. This includes the sort of transaction in which there is no guarantee that the seller can deliver the goods for which he receives payment. Accordingly, the Prophet (peace be on him) forbade accepting money for a stallion’s or male camel’s covering, for fish in the water or birds in the air which one has not caught, or for the offspring of a camel still in the female’s womb, since there is an element of uncertainty as to the outcome in all such transactions.

The Prophet (peace be on him) observed that people sold unripened fruits which were still in the fields or orchards; if the crop were destroyed by blight or some natural calamity, the buyer and seller would quarrel over who was to bear the loss. Hence, the Prophet (peace be on him) prohibited the sale of fruit until they were clearly in good condition (Reported by al-Bukhari and Muslim.), unless they were to be picked on the spot Similarly, he forbade selling ears of corn until they were white and safe from bright, (Reported by Muslim) saying, “Tell me why, if Allah withholds the fruit, any of you should take his brother’s property.” (Reported by al-Bukhari and others.)

However, not every sale involving what is unknown or uncertain is prohibited; for example, a person may buy a house without knowing the condition of its foundation or what is inside the walls. What is prohibited is selling something about which there is an obvious element of uncertainty which may lead to dispute and conflict, or may result in the unjust appropriation of other people’s money. Again, if the risk of uncertainty is small—and this is determined by experience and custom—the sale is not prohibited. For example, one may sell root vegetables such as carrots, onions, and radishes while they are still in the ground, or fields of cucumbers, watermelons and the like. In the opinion of Imam Malik, all such sales of needed items in which the margin of risk is bearable are permissible. (In Al-qawa’id al-nuraniyyah, p. 118, Ibn Taimiyyah says: “The principles laid down by (Imam) Malik concerning sales are superior to those of others, because he took them from Sa’id ibn al-Musayyib, who is the best authority on the fiqh (jurisprudence) of sales.” Imam Ahmad bin Hanbal’s opinion is close to that of Malik.)

Price Manipulation

In Islam the market is to be free and permitted to respond to the natural laws of supply and demand. Thus, when the prices became high in the Prophet’s time and people asked him to fix prices for them, he replied, Allah is the One Who fixes prices, Who withholds, Who gives lavishly, and Who provides, and I hope that when I meet Him none of you will have a claim against me for any injustice with regard to blood or property. (Reported by Ahmad, Abu Daoud, al-Tirmidhi, Ibn Majah, al-Dari and Abu Y’ala.)

With these words the Prophet of Islam (peace be on him) declared that unnecessary interference in the freedom of individuals is injustice and that one should meet Allah free of blame for such a thing. If, however, any artificial forces, such as hoarding and manipulation of prices by certain merchants, interfere in the free market, public interest takes precedence over the freedom of such individuals. In such a situation price control becomes permissible in order to meet the needs of the society and to protect it from greedy opportunists by thwarting their schemes, for the above hadith does not mean that price control is prohibited regardless of the circumstances, even if it removes harm and prevents obvious injustice. Researchers among scholars have concluded that, depending on the nature of the circumstances, price control may at times be unjust and prohibited, and at other times may be just and permissible.

If price control compels people to sell their goods at a price which is not acceptable to them or denies them the reasonable profit permitted by Allah, it is haram. If, on the other hand, price control establishes equity among people, for example, by forcing sellers to accept a price equal to that commanded by other comparable commodities and restraining them from taking more than this, it is allowed—indeed necessary.

The hadith cited above relates to the first type of situation. Accordingly, if merchants are selling a commodity in the customary fashion without any wrong-doing on their part and the price subsequently rises due to the scarcity of the commodity or due to an increase in population (indicating the operation of the law of supply and demand), this circumstance is from Allah, in which case to force them to sell the commodity at a fixed price would be unjust compulsion.

In relation to the second type of situation, should the dealers in a commodity refuse to sell it, despite the fact that people are in need of it, unless they secure a price higher than its known value, they must be compelled to sell it at a price equal to the price of an equivalent commodity. Price control here means nothing more than establishing comparable prices for equivalent commodities and it is therefore in conformity with the standard of justice demanded by Allah Ta’ala. (Refer to Risalat al-hisbah by Ibn Taimiyyah, as well as to Al-turuq al-hikmiyyah by Ibn al-Qayyim, p. 214 ff.)  continue reading