Question: Mashallah yestarday I got another chance to listen you. Mashallah the talk was very informatic. Thanks for making us aware about the reality of this system in which we are living.
Coming to point i have a doubt in market where we are offered by 0% intrest free installments.
For example : if I want to buy a brand new swift car i will approach to the local bank or person who is giving me that offer but if the actual car cost you 3.4 on road. The bank or person who says that they are offering 0% interest if we buy from them at the end the price almost get equal as in the case of interest. So can we take that type of offer of not swift is just an example.
From a brother in Hyderabad
Answer:
1) If the 0% finance schemes include no interest (Riba) at all then they maybe permitted if they don't include any other prohibitted aspects. For example some of those which reposess the vehicle if you default on payment instead of charging interest are allowed. However the schemes that charge you interest if you default on your monthly payments are definitely prohibitted (haram).
2) The following is an explanation of Credit sale from the translation of the excellent Arabic fiqh book Shaksiyyah Islamiyyah (The Islamic Personality) volume 2:
Sale by debt or instalments (taqseet)
The Messenger of Allah (saw) said:
إنّما البيع عن تراضٍ
“Verily trade is only upon mutual consent” (narrated by Ahmad and ibn Majah).
The owner of the good can sell it at the price he is pleased with, and he can refuse to sell it at the price he is not pleased with. Therefore it is permitted for the good’s owner to set two prices for the good, a price for immediate (sale), and a specific price for one specific period or an instalment price for numerous periods. Hence it is permitted for the seller to bargain with the buyer for any of the two prices he will accept to sell. All this is bargaining over the price and not a sale. If they both agree over a specific price and the seller sells to the buyer for the immediate price and the buyer accepts, or he sells for the deferred price and the buyer accepts, then this is valid as it is bargaining over the sale and not the sale. Bargaining is permitted because the Messenger (saw) bargained. Ahmad narrated from Anas bin Malik
أن النبي صلى الله عليه وسلم باع قدحاً وحلساً بثمن يزيد
“That the Prophet (saw) sold a drinking cup and saddle-cloth at yazid's price”
As for the end of the bargaining, the sale has is contracted by the mutual consent of the two contractors upon one specific price for the sale so the sale is valid. This is if there was bargaining over the price of the good whether immediately or deferred then the contract occurred over one of the two specifically and individually. Similarly it is permitted for the seller to sell his good for two prices, the first for cash and the other for credit. So if one person said to another, ‘I sold you this good for fifty in cash and sixty in credit’ so he said to him, ‘I bought it for sixty in credit.’ Or he said, ‘I bought it in cash for fifty’ the sale is valid. Similarly if he said to him, ‘I sold you this good for sixty in credit with an increase of ten over its original price in cash due to the delay in paying the price’ and the buyer said, ‘I accepted’ the sale is also valid. And of greater precedent if he said to him: ‘The price of his good is thirty in cash and forty in credit’ and he said, ‘I bought it for thirty in cash’ or he said, ‘I bought it for forty in credit’ so the seller said, ‘I sold it’ or ‘Take it’ or ‘It is for you’ then the sale is valid because in this last example the bargaining occurred over two prices and the sale over one price. As for the first examples, the sale occurred over two prices. It is permitted in the sale contract to set two prices for one good, an immediate price and a deferred price i.e. a cash price and a credit price as a debt due to the generality of the evidences that came in permitting trade. The Supreme (swt) said:
وأحلّ الله البيع
“Allah allowed trade” [Translation of the meaning of the Qur'an 2:275]
And this is general. As for that for which there came no Shari’ah text forbidding a specific type of sale like the sale of risk for which there came a text forbidding it, then it is an allowed sale. The generality of the Supreme’s statement: “Allah allowed trade” covers all types of trade as allowed except the types for which a text came forbidding them so they became haram by the text excluding from the generality. There did not come any clear text against setting two prices for any good, an immediate price and a deferred price so it became allowed by taking the generality of the ayah. Also he (saw) has said:
إنّما البيع عن تراض
“Verily trade is only by mutual consent”
And the two contractors here have an option and the sale was completed with both their consent. The majority of the fuqaha have stated that it is allowed to sell something for greater than its daily price due to deferment i.e. due to delaying the payment of the price. It is narrated from Tawus, Al-Hukm and Hammad that they said there is no harm if it is said: ‘I sell to you in cash for so much and in credit for so much’ so he goes for one of the two. Ali (ra) has said: ‘whoever bargains for two prices, the first immediate and the other delayed then let him name one of the two before the contract.’ Hence this demonstrates the bargaining over two prices for one good then the contract takes effect over one of them by the consent of both and this is permitted, and the sale in this form is valid. Similarly it is clarified that contract’s offer takes effect over two prices and the buyer’s acceptance of one of the two prices in an explicit clear way with complete specifications, this is similarly permitted due to the generality of the evidences and because there is no clear text forbidding this type of sale. As for what Ahmad narrated
نهى النبي صلى الله عليه وسلم عن صفقتين في صفقة
“The Prophet (saw) prohibited two contracts in one contract”
Its meaning is that in a situation when there are two contracts in one contract like one says: ‘I sell to you this house of mine on condition that I sell you another house of mine for so much’ or ‘on condition that you sell me your house’ or ‘on condition that you marry your daughter to me.’ This is not valid because his saying, ‘I sold you my house’ is a contract and his saying ‘on condition that you sell me your house’ is a second contract and they have gathered in one contract and this is not permitted. It is not meant to prohibit increasing the price due to delayed payment nor the making of an offer on two payments and the acceptance over one of them specifically.
As for what Abu Dawud narrated that the Messenger of Allah (saw) said:
من باع بيعتين في بيعة واحدة فله أوكسهما أو الربا
“Whoever sells two sales in a sale, for him is the lesser (awkis) of the two or (it is) riba”
Its meaning is where there occurs two sales in one good like where one sells a good for a price for a period, then when the period arrives with non-payment of the price seller defers the price for another period increasing the named price i.e. considering the good’s price as a bargaining price for another period so he would have sold two sales in one good. Or he sold him the good for a specific price so the buyer buys the good then he seeks delaying paying the price to a specific period. So the buyer accepts, then he sells him the good another sale for a higher price for a named period i.e. the price is increased and the period deferred. This and its like are two sales in one sale so for him is the (awkis) of the two i.e. the lesser of the two which is the first price. It came in the Sharh Sunan of Ibn Rusulan in the explanation of this hadith: ‘This is that he pays in advance in dinars for a qafiz of wheat for one month then when the period arrives and he seeks the wheat from him, he says: Sell me the qafiz in two months so this becomes two sales in one sale because the second sale entered into the first, so it is restricted to the lesser of the two which is the first.’ Whatever is said in explaining the hadith, its stated text and understanding, the occurrence of two sales in a sale i.e. the occurrence of two sale contracts in one sale contract it is not regarding two prices in a contract or one contract upon two prices, so it does not apply upon the instalment sale or upon credit sale. What is prohibited is the occurrence of two contracts in one contract which applies upon all two-contract sales occurring in one contract or one agreement, nor does it apply upon other than this situation no matter how its forms increase.
In conclusion, if one of the contractors said to the other, ‘I sold you my house for one thousand upon your selling me your house for one thousand’ and he says, ‘I have accepted’ in this one sale contract there occurred two sales which is not permitted since the Prophet (saw) prohibited two sales in a sale and two agreements in one agreement. If he said to him, ‘I sold you this house for one thousand’ and he said, ‘I have accepted’; then he said to him, ‘Give me one month to pay the price’ and he said ‘I increase the price for you’ then sells the same house for a period with a price increased on the original price nominated for the sale. This is not permitted because two sales occurred in one sale or in one good or in one contract with one of the two being increased over the other. In this situation the sale is valid but that which is obliged is the lesser price, and if he took the greater price it would be riba because the Messenger (saw) said:
من باع بيعتين في بيعة فله أوكسهما أو الربا
“Whoever sells two sales in one sale, for him is the (awkis) of the two or riba”
I.e. the lesser of the two or it becomes riba. His statement “the lesser of the two” indicates the validity of the sale and the obligation of the lesser price, so the rule of the lesser obligates the validity of the sale.
Hence it is clarified that what traders do of selling a good with two prices, a specific price if he pays cash and greater price if he pays in instalments, then this sale is permitted. The Shari’ah rule in it is that it is permitted. And what some peasants and owners of gardens do in buying wheat, clothes, animals or tools upon the condition of paying its price at a fixed period until the (khuruj) of the harvest, and the price is increased for them over its immediate price in exchange for deferring payment to the harvest, this is also permitted even if it were setting two prices for a good, a cash price and a deferred price i.e. a debt. However it is a condition of increasing the deferred price over the immediate price of one good that there should not be clear fraud therein like what is done by usurers who dominate over the people. If there is fraud in this sale, the fraud is forbidden and there applies upon it the rule of fraud in sale and advance credit sale. The forbidden is not a deferred sale for a price increased over the price which would be paid immediately.
Friday, December 26, 2008
Wednesday, November 5, 2008
Q&A: Allowing Riba on basis of Dhuroora?
The following is the answer to a question we received from a participant of one of our recent seminars.
Question: Some people use the Islamic principle of Dhuroora (necessity) to justify taking interest based loans when in need, please can you explain why this is wrong.
Answer: Unfortunately today some people misuse Islamic principles in order to justify clearly prohibited actions. One of the most commonly misapplied principles is that of Dhuroora (necessity). People often use it to justify taking interest based loans, working in jobs that involve haram, engaging in bribery and a variety of other prohibited actions.
They attempt to justify this from Islamic texts by saying that when your dying of hunger it becomes permitted to eat pork and other haram foods. From this they generalise and say therefore we can break the Shariah rules under any type of difficulty.
It is true that Allah said:
إِنَّمَا حَرَّمَ عَلَيْكُمُ الْمَيْتَةَ وَالدَّمَ وَلَحْمَ الْخِنْزِيرِ وَمَا أُهِلَّ بِهِ لِغَيْرِ اللَّهِ فَمَنِ اضْطُرَّ غَيْرَ بَاغٍ وَلَا عَادٍ فَلَا إِثْمَ عَلَيْهِ إِنَّ اللَّهَ غَفُورٌ رَحِيمٌ
"He has forbidden you Al-Maytah (meat of a dead animal), blood, flesh of swine, and any animal which is slaughtered as a sacrifice for other than Allah. But if one is forced by necessity without willful disobedience and not transgressing, then there is no sin on him." [TMQ 2:173]
So, the person who is in dire need can eat of what he finds from these prohibited food which is enough to keep him alive.
It must be understood that these rules are specific rules with specific evidences, from them we cannot generalize and say that we are allowed to bend the shariah rules on the basis of any hardship, to do this would be haram.
We must be careful here when we talk about the principle of “necessity “. Let us refer to what the classical ulema have said about this matter.
Imam al Razi Al Jassas al Hanafi says in his Ahkam al Quran (vol 1/159): “Here the meaning of necessity purports the fear for life and limb when someone avoids foods (that are in essence forbidden) …..”
Ibn Qudamah al Maqdasi al Hanabli in his Al Mughni says (9/331): “If it has become established, then the necessity that is expedient is the type that leads to starvation if the food is left”.
He continues to say: “...The reason for the allowance of is the need to preserve the self from destruction because this Maslaha is more beneficial than the benefit of avoiding the impure….”
Imam Abu Hamid Al Ghazali Al Shafi says in his Wasit (7/168): “As for necessity we imply the state that probably will lead to the person’s destruction, If, for example he does not eat and similarly if he fears that an illness would lead to death…..”
Imam Ibn Juzi al Maliki says: “…As for necessity it is the fear of death and it is not conditional that someone is patient to such an extent that he witnesses his own death”. (Al Quanin al Fiqhia p116)
Clearly then we are talking about an acute scenario that is particular. Even this has certain constraints according to many of the Ulema.
(1) That there is no other means to remove this overbearing situation.
(2) That this does not affect the rights of others. In other words we try to look for an exit that does not affect others. At least in principle to such an extent that a number of Ulema forbid Muslims to eat dead human flesh in matters of starvation because this affects the rights of others i.e. those of the dead. Another very common example is the sinking ship scenario. What if we are going to sink because of the excessive weight of the passengers, do we throw a few overboard to their doom to save the majority? The vast majority refuse this scenario of utilitarianism in Dhuroora. Another example is the Muslim prisoner shield that is put up in defence of a non Muslim army. This example is typically allowed for as a Dhuroora on a state level but more importantly because there are textual indications that allow collateral damage if it cannot be avoided. Some scholars understand this point as a Duroorah Kulia i.e. an all encompassing Duroorah (It applies to the Muslims as a whole rather than some at the expense of others)
(3) Uttering Kufr by force is a Rukhsa (legal permission) and it is better according when forced on pains of torture and death to avoid it.
Imam Suyuti in Ashbah wal Nadhair page 63 says : “Eating the flesh of the dead in times of necessity takes precedence over taking someone else’s money (to purchase food).”
The scholars also differed on whether you can take drink alcohol when you are dying from thirst. Imam Shafi thought that alcohol makes the thirst even worse. Others also differed on whether one can take medication that has forbidden elements in it. Finally even some scholars did not consider it a sin if someone refused to take anything forbidden at all. (See Majmu’at al Bu’uth al Fiqhea by Dr Abdul Karim Zaydan pages 141-214)
Anyway all four schools of thought and in fact the consensus agree that Dhuroora in the fiqhi sense makes some things that are forbidden allowed in an acute scenario. Remember this is not a norm but for very particular severe situations. It cannot be made a law. Certainly it cannot lead to a normal rule for an entire population.
So one cannot claim that they have to take an interest based mortgage to buy a house on the pretext of necessity as they can rent or stay with relatives. Similarly someone can’t claim that he has to pay bribery to achieve his interests as he can achieve them in a legitimate way even if it is more difficult. Someone working in a job that involves haram such as in a restaurant where they would have to serve alcohol or as a cashier in a bank where they would have to receive and give riba (usury) can get another job that is halal even if it is lesser in pay.
The countless ayat and ahadith ordering us to undertake our actions according to the commands and prohibitions of Allah (swt) can’t just be washed away based upon some difficulty or hardship.
الَّذِينَ إِذَا أَصَابَتْهُمْ مُصِيبَةٌ قَالُوا إِنَّا لِلَّهِ وَإِنَّا إِلَيْهِ رَاجِعُونَ
أُوْلَئِكَ عَلَيْهِمْ صَلَوَاتٌ مِنْ رَبِّهِمْ وَرَحْمَةٌ وَأُوْلَئِكَ هُمْ الْمُهْتَدُونَ
“And certainly, We shall test you with something of fear, hunger, loss of wealth, lives and fruits, but give glad tidings to As-Sâbirin (the patient ones.).” [TMQ al-Baqarah:155-157]
We should listen to the warning of the Messenger of Allah (saw) when he said:
«بادروا بالأعمال فتناً كقطع الليل المظلم يصبح الرجل مؤمناً ويمسي كافراً، ويمسي مؤمناً ويصبح كافراً يبيع دينه بعرض من الدنيا»
“Be prompt in doing good deeds (before you are overtaken) by turbulence which would be like a part of the dark night. During (that stormy period) a man would be a Muslim in the morning and an unbeliever in the evening or he would be a believer in the evening and an unbeliever in the morning, and would sell his Deen for worldly goods” [Sahih Muslim: Kitab ul-Iman, 213]
Allah (swt) says:
وَمَا كَانَ لِمُؤْمِنٍ وَلاَ مُؤْمِنَةٍ إِذَا قَضَى اللَّهُ وَرَسُولُهُ أَمْرًا أَنْ يَكُونَ لَهُمْ الْخِيَرَةُ مِنْ أَمْرِهِمْ وَمَنْ يَعْصِ اللَّهَ وَرَسُولَهُ فَقَدْ ضَلَّ ضَلاَلاً مُبِينًا.
“It is not for a believer, man or woman, when Allâh and His Messenger have decreed a matter that they should have any option in their decision. And whoever disobeys Allâh and His Messenger, he has indeed strayed in a plain error.” [TMQ al-Ahzaab:36]
They attempt to justify this from Islamic texts by saying that when your dying of hunger it becomes permitted to eat pork and other haram foods. From this they generalise and say therefore we can break the Shariah rules under any type of difficulty.
It is true that Allah said:
إِنَّمَا حَرَّمَ عَلَيْكُمُ الْمَيْتَةَ وَالدَّمَ وَلَحْمَ الْخِنْزِيرِ وَمَا أُهِلَّ بِهِ لِغَيْرِ اللَّهِ فَمَنِ اضْطُرَّ غَيْرَ بَاغٍ وَلَا عَادٍ فَلَا إِثْمَ عَلَيْهِ إِنَّ اللَّهَ غَفُورٌ رَحِيمٌ
"He has forbidden you Al-Maytah (meat of a dead animal), blood, flesh of swine, and any animal which is slaughtered as a sacrifice for other than Allah. But if one is forced by necessity without willful disobedience and not transgressing, then there is no sin on him." [TMQ 2:173]
So, the person who is in dire need can eat of what he finds from these prohibited food which is enough to keep him alive.
It must be understood that these rules are specific rules with specific evidences, from them we cannot generalize and say that we are allowed to bend the shariah rules on the basis of any hardship, to do this would be haram.
We must be careful here when we talk about the principle of “necessity “. Let us refer to what the classical ulema have said about this matter.
Imam al Razi Al Jassas al Hanafi says in his Ahkam al Quran (vol 1/159): “Here the meaning of necessity purports the fear for life and limb when someone avoids foods (that are in essence forbidden) …..”
Ibn Qudamah al Maqdasi al Hanabli in his Al Mughni says (9/331): “If it has become established, then the necessity that is expedient is the type that leads to starvation if the food is left”.
He continues to say: “...The reason for the allowance of is the need to preserve the self from destruction because this Maslaha is more beneficial than the benefit of avoiding the impure….”
Imam Abu Hamid Al Ghazali Al Shafi says in his Wasit (7/168): “As for necessity we imply the state that probably will lead to the person’s destruction, If, for example he does not eat and similarly if he fears that an illness would lead to death…..”
Imam Ibn Juzi al Maliki says: “…As for necessity it is the fear of death and it is not conditional that someone is patient to such an extent that he witnesses his own death”. (Al Quanin al Fiqhia p116)
Clearly then we are talking about an acute scenario that is particular. Even this has certain constraints according to many of the Ulema.
(1) That there is no other means to remove this overbearing situation.
(2) That this does not affect the rights of others. In other words we try to look for an exit that does not affect others. At least in principle to such an extent that a number of Ulema forbid Muslims to eat dead human flesh in matters of starvation because this affects the rights of others i.e. those of the dead. Another very common example is the sinking ship scenario. What if we are going to sink because of the excessive weight of the passengers, do we throw a few overboard to their doom to save the majority? The vast majority refuse this scenario of utilitarianism in Dhuroora. Another example is the Muslim prisoner shield that is put up in defence of a non Muslim army. This example is typically allowed for as a Dhuroora on a state level but more importantly because there are textual indications that allow collateral damage if it cannot be avoided. Some scholars understand this point as a Duroorah Kulia i.e. an all encompassing Duroorah (It applies to the Muslims as a whole rather than some at the expense of others)
(3) Uttering Kufr by force is a Rukhsa (legal permission) and it is better according when forced on pains of torture and death to avoid it.
Imam Suyuti in Ashbah wal Nadhair page 63 says : “Eating the flesh of the dead in times of necessity takes precedence over taking someone else’s money (to purchase food).”
The scholars also differed on whether you can take drink alcohol when you are dying from thirst. Imam Shafi thought that alcohol makes the thirst even worse. Others also differed on whether one can take medication that has forbidden elements in it. Finally even some scholars did not consider it a sin if someone refused to take anything forbidden at all. (See Majmu’at al Bu’uth al Fiqhea by Dr Abdul Karim Zaydan pages 141-214)
Anyway all four schools of thought and in fact the consensus agree that Dhuroora in the fiqhi sense makes some things that are forbidden allowed in an acute scenario. Remember this is not a norm but for very particular severe situations. It cannot be made a law. Certainly it cannot lead to a normal rule for an entire population.
So one cannot claim that they have to take an interest based mortgage to buy a house on the pretext of necessity as they can rent or stay with relatives. Similarly someone can’t claim that he has to pay bribery to achieve his interests as he can achieve them in a legitimate way even if it is more difficult. Someone working in a job that involves haram such as in a restaurant where they would have to serve alcohol or as a cashier in a bank where they would have to receive and give riba (usury) can get another job that is halal even if it is lesser in pay.
The countless ayat and ahadith ordering us to undertake our actions according to the commands and prohibitions of Allah (swt) can’t just be washed away based upon some difficulty or hardship.
الَّذِينَ إِذَا أَصَابَتْهُمْ مُصِيبَةٌ قَالُوا إِنَّا لِلَّهِ وَإِنَّا إِلَيْهِ رَاجِعُونَ
أُوْلَئِكَ عَلَيْهِمْ صَلَوَاتٌ مِنْ رَبِّهِمْ وَرَحْمَةٌ وَأُوْلَئِكَ هُمْ الْمُهْتَدُونَ
“And certainly, We shall test you with something of fear, hunger, loss of wealth, lives and fruits, but give glad tidings to As-Sâbirin (the patient ones.).” [TMQ al-Baqarah:155-157]
We should listen to the warning of the Messenger of Allah (saw) when he said:
«بادروا بالأعمال فتناً كقطع الليل المظلم يصبح الرجل مؤمناً ويمسي كافراً، ويمسي مؤمناً ويصبح كافراً يبيع دينه بعرض من الدنيا»
“Be prompt in doing good deeds (before you are overtaken) by turbulence which would be like a part of the dark night. During (that stormy period) a man would be a Muslim in the morning and an unbeliever in the evening or he would be a believer in the evening and an unbeliever in the morning, and would sell his Deen for worldly goods” [Sahih Muslim: Kitab ul-Iman, 213]
Allah (swt) says:
وَمَا كَانَ لِمُؤْمِنٍ وَلاَ مُؤْمِنَةٍ إِذَا قَضَى اللَّهُ وَرَسُولُهُ أَمْرًا أَنْ يَكُونَ لَهُمْ الْخِيَرَةُ مِنْ أَمْرِهِمْ وَمَنْ يَعْصِ اللَّهَ وَرَسُولَهُ فَقَدْ ضَلَّ ضَلاَلاً مُبِينًا.
“It is not for a believer, man or woman, when Allâh and His Messenger have decreed a matter that they should have any option in their decision. And whoever disobeys Allâh and His Messenger, he has indeed strayed in a plain error.” [TMQ al-Ahzaab:36]
Q&A: Why did the American stock market crash?
The following is the answer to a question we received from a participant of one of our recent seminars.
Question: Can you please breakdown why the American stock market crashed? What factors led to this happening?
Answer: The US President George Bush yesterday 19th September, 2008 announced the need to act immediately to face the challenge posed by the financial crisis that has gripped the United States. He indicated that a plan was on the anvil for government intervention in order to salvage the markets and that this plan envisages enormous funds and also added that this involves certain risks. The president called upon the Americans to have faith in the economy. He said in his address from the White House that this is a crucial time to address the crisis and act to save the economy of the nation from big dangers. He further added that this collapse of the US financial markets was a crucial and decisive time.
Bush's speech indicates the graveness of the crisis gripping his country and that the US is on the verge of a collapse. This is indeed a grim situation. He announced his bailout plan today 20th September, 2008 and presented it to the US Congress for its approval. This according to them involves pumping huge amount of money in the range of 500 to 800 billion US dollars to be borne by the American tax-payers since this money is to be extracted form the budget. This will only exacerbate the budget deficit which has been in the red for the last two years. The US Federal Reserve, which is America's central bank, has already pumped in US $ 85 billion to salvage the giant US insurance company known by it's initials, the A.I.G in exchange for a 79.90% share in the group's equity being acquired by the state. This means extending state control over private sector whenever a need arises or simply nationalisation, and this is contrary to the free market capitalist system which envisages a policy of laissez faire and does not allow state intervention in the private sector or individual ownership. The capitalists argue that such crisis heal themselves and advocate leaving the crisis issue to take care of itself because their view is that this system has in-built mechanisms to cure itself.
The obvious inference from this state intervention by the world's largest capitalist nation belies the claim of the die-hard capitalists' views as well as this intervention conclusively demonstrates the corruption of their system. The Al-Jazeerah TV channel today carried a statement by Mahathir Mohammed, the former Malaysian prime minister who commented on the US state intervention in the crisis and remarked: "when the financial crisis struck us eleven years back, they asked us not to intervene, rather leave the crisis to cure by itself!" this former Malaysian prime minister ruefully regrets the deceit of the capitalist nations to himself, his country and his region when the tragic crisis overwhelmed the Asian stock markets in 1997 including the Malaysian bourse and spelled the doom of what was then called as the 'Asian Tigers'.
In the span of a short time recently, about a dozen mighty enterprises have collapsed including the Lehman Brothers which failed to find a buyer and announced bankruptcy on 15th September, 2008. The Lehman Brothers was the fourth largest US banks with assets of about 800 billion US dollars. Its bankruptcy was sharpened by the fact that its shares prices that had traded at US $ 67.73 per share fell 92% on the day. On the same day, Merrill Lynch was on the verge of declaring bankruptcy, but the Bank of America stepped in on time, bought it up and took over its reigns. But even this could not sustain Merrill Lynch and its shares fell by 36%. In fact all the giant American companies are susceptible and tethering on the verge. This leaves two other US investment giants, Morgan Stanley and Goldman Sachs, they are also vulnerable and their shares have plummeted by 25 and 14% respectively. Apparently, George Bush's plan envisages salvaging these two banks specifically since their collapse would perhaps amount to a decisive blow to the world's largest capitalist nation which boasts of the robustness and resilience of its economy, advancement and welfare of its people and touts these as achievements of the free liberal capitalist system!
Even before this date, the state has maintained control over two of its real estate investment giants, i.e. Freddie Mak and Fannie Mae whose combined losses reached 1.20 trillion US dollars and expected to reach 2.00 trillion US dollars. It is known that their latest crisis began in mid 2007 and the US Federal Reserve along with the European central banks together pumped in hundreds of billions of dollars to sustain these two companies, but in vain.
The crisis started during the real estate boom of 2001 and 2006. These two companies started to sell houses to all and sundry irrespective of their 'credit history' and unmindful of whether their credit history was weak. They sold homes at a 'teaser' interest rate of 7% for the first year which rose to 9.50% two years later. This resulted in doubling of the monthly installments payable by the buyer who had purchased the house and naturally he was unable to pay his loan installments. Now under the capitalist real estate laws, the buyer is not allowed to sell his property before repaying the loan which has by now doubled. Under this law, even if the debtor has sufficient funds to pay for the loan amount, he is not allowed to pay. On the contrary he is bound to pay the installments including the interest for the entire loan period! If for instance his loan was for a period of ten years, he is expected to wait for this period and continue to pay the monthly installments including the interest which results in doubling the loan amount. Thus for every one thousand dollar loan amount, he ends up paying 350 dollars extra. Hence the debtors were unable to repay their installments and the number of such defaulters reached millions, even 3 million according to some estimates. Bush had previously proposed to freeze interest rates for a period of five years in order to enable the defaulters to pay their installments. In the meantime, the number of houses up for sale increased with no buyers for them and the real estate prices plummeted sharply. The number of such houses for sale increased by 75% in 2006 and yet one could not find a buyer. All these factors compounded the problem for these two and other real estate firms like the Lehman Brothers who had ventured into this market.
Usually the companies collapse due to their share prices falling down sharply because of various reasons. We have seen these and other related reasons in the real estate companies crash as well. In addition perhaps there were certain other reasons; political & economic, even ethical like pilfering by the managements and false profit reporting. False profits are reported in order to issue new shares in the markets and bring in additional funding to the company coffers. Later on when the false-profit reports are exposed, the share prices fall flat as happened with American companies in the past.
Thus in addition to loan transactions and corrupt real estate laws, the system of capitalist equity share companies are based on invalid foundation with painful consequences for the people whose money is evaporated in the stock markets. The share prices fell in the stock markets across all sectors and not just in the real estate business alone. It was announced that the industrial average called the Dow Jones and the technology sector called the NASDAQ as well as the broader index, the Standard & Poor's fell by over 4% until this day. This indicates that the crisis is deeper and far more grave perhaps encompasses all sectors. The state therefore felt that the intervention was inevitable and hundreds of billions of dollars needed to be sacrificed at the cost of the people in order to salvage the ailing economy. All this will adversely affect the Gross Domestic Production or the Growth rate in the United States because when companies declare bankruptcy, the production too falls resulting in lesser employment opportunities, higher unemployment rate and the inevitable economic slowdown. Thus the US registered a growth rate of just 1.90% this year before the crisis manifested, while during the same period, China recorded over 9.00% growth for the last financial year. The Gross Domestic Production is regarded as the sum total of goods and services during a given period of time. The production factors recognized by them are the land, labour, capital and management. They consider the increase in capital, technology advancement, and improving the education standard as the main factors for economic growth. This clearly means that the United States has become the old sick woman and not merely the sick man.
The entire world is searing in this heat, the International Monetary Fund (IMF) commenting on this crisis declared that commodity prices will continue to rise and economic growth world wide will fall this year between 3.70 to 3.90%.
The stock markets across Europe, Asia and the Gulf may be affected by this crisis and incur enormous losses including losses suffered due purchase of shares of American real estate companies. It has been announced that the Gulf markets losses have reached 17% while the Saudi stock alone has lost 36% and the Dubai stock markets 32%. All these are the pitfalls of capitalism and globalisation since the United States encumbers the entire world with its own problems and when it collapses the entire world follows its doom. Shouldn't the world disengage itself from this imbroglio! It is for this reason that the German Chancellor Merkel has attacked America and Britain and charged them with being responsible for the mess. It was Germany which had proposed monitoring regulations for stock markets at the last G8 summit and the US and UK had opposed the German proposal. Her statement reflects the German outrage especially over America and the extent of German and European losses due to the American factors. The European banks had earlier announced freezing of their funds in the US real estate markets after suffering mounting losses. The British Chancellor of Exchequer Alistair Darling has told the 'Guardian' that Britain is facing arguably the worst economic downturn in 60 years (the worst since the World War II) which will be more profound and long-lasting than people had expected.
It is abundantly clear from all this that the capitalist system apart from being a false system and its public limited companies as well as their equity system being based on a patently false premise, its financial transactions and miserable lending terms are oppressive to the people. It is amply clear that it is a system living on borrowed time and is on the verge of collapse. It also demonstrates that the doomsday for this system has arrived, this is a glad tiding from Allah (swt) for the believers that victory is round the corner and finally the justice and fairness of Islam shall prevail over the world after capitalists had had their pockets filled unjustly by oppressing the people and were not satiated yet!
Question: Can you please breakdown why the American stock market crashed? What factors led to this happening?
Answer: The US President George Bush yesterday 19th September, 2008 announced the need to act immediately to face the challenge posed by the financial crisis that has gripped the United States. He indicated that a plan was on the anvil for government intervention in order to salvage the markets and that this plan envisages enormous funds and also added that this involves certain risks. The president called upon the Americans to have faith in the economy. He said in his address from the White House that this is a crucial time to address the crisis and act to save the economy of the nation from big dangers. He further added that this collapse of the US financial markets was a crucial and decisive time.
Bush's speech indicates the graveness of the crisis gripping his country and that the US is on the verge of a collapse. This is indeed a grim situation. He announced his bailout plan today 20th September, 2008 and presented it to the US Congress for its approval. This according to them involves pumping huge amount of money in the range of 500 to 800 billion US dollars to be borne by the American tax-payers since this money is to be extracted form the budget. This will only exacerbate the budget deficit which has been in the red for the last two years. The US Federal Reserve, which is America's central bank, has already pumped in US $ 85 billion to salvage the giant US insurance company known by it's initials, the A.I.G in exchange for a 79.90% share in the group's equity being acquired by the state. This means extending state control over private sector whenever a need arises or simply nationalisation, and this is contrary to the free market capitalist system which envisages a policy of laissez faire and does not allow state intervention in the private sector or individual ownership. The capitalists argue that such crisis heal themselves and advocate leaving the crisis issue to take care of itself because their view is that this system has in-built mechanisms to cure itself.
The obvious inference from this state intervention by the world's largest capitalist nation belies the claim of the die-hard capitalists' views as well as this intervention conclusively demonstrates the corruption of their system. The Al-Jazeerah TV channel today carried a statement by Mahathir Mohammed, the former Malaysian prime minister who commented on the US state intervention in the crisis and remarked: "when the financial crisis struck us eleven years back, they asked us not to intervene, rather leave the crisis to cure by itself!" this former Malaysian prime minister ruefully regrets the deceit of the capitalist nations to himself, his country and his region when the tragic crisis overwhelmed the Asian stock markets in 1997 including the Malaysian bourse and spelled the doom of what was then called as the 'Asian Tigers'.
In the span of a short time recently, about a dozen mighty enterprises have collapsed including the Lehman Brothers which failed to find a buyer and announced bankruptcy on 15th September, 2008. The Lehman Brothers was the fourth largest US banks with assets of about 800 billion US dollars. Its bankruptcy was sharpened by the fact that its shares prices that had traded at US $ 67.73 per share fell 92% on the day. On the same day, Merrill Lynch was on the verge of declaring bankruptcy, but the Bank of America stepped in on time, bought it up and took over its reigns. But even this could not sustain Merrill Lynch and its shares fell by 36%. In fact all the giant American companies are susceptible and tethering on the verge. This leaves two other US investment giants, Morgan Stanley and Goldman Sachs, they are also vulnerable and their shares have plummeted by 25 and 14% respectively. Apparently, George Bush's plan envisages salvaging these two banks specifically since their collapse would perhaps amount to a decisive blow to the world's largest capitalist nation which boasts of the robustness and resilience of its economy, advancement and welfare of its people and touts these as achievements of the free liberal capitalist system!
Even before this date, the state has maintained control over two of its real estate investment giants, i.e. Freddie Mak and Fannie Mae whose combined losses reached 1.20 trillion US dollars and expected to reach 2.00 trillion US dollars. It is known that their latest crisis began in mid 2007 and the US Federal Reserve along with the European central banks together pumped in hundreds of billions of dollars to sustain these two companies, but in vain.
The crisis started during the real estate boom of 2001 and 2006. These two companies started to sell houses to all and sundry irrespective of their 'credit history' and unmindful of whether their credit history was weak. They sold homes at a 'teaser' interest rate of 7% for the first year which rose to 9.50% two years later. This resulted in doubling of the monthly installments payable by the buyer who had purchased the house and naturally he was unable to pay his loan installments. Now under the capitalist real estate laws, the buyer is not allowed to sell his property before repaying the loan which has by now doubled. Under this law, even if the debtor has sufficient funds to pay for the loan amount, he is not allowed to pay. On the contrary he is bound to pay the installments including the interest for the entire loan period! If for instance his loan was for a period of ten years, he is expected to wait for this period and continue to pay the monthly installments including the interest which results in doubling the loan amount. Thus for every one thousand dollar loan amount, he ends up paying 350 dollars extra. Hence the debtors were unable to repay their installments and the number of such defaulters reached millions, even 3 million according to some estimates. Bush had previously proposed to freeze interest rates for a period of five years in order to enable the defaulters to pay their installments. In the meantime, the number of houses up for sale increased with no buyers for them and the real estate prices plummeted sharply. The number of such houses for sale increased by 75% in 2006 and yet one could not find a buyer. All these factors compounded the problem for these two and other real estate firms like the Lehman Brothers who had ventured into this market.
Usually the companies collapse due to their share prices falling down sharply because of various reasons. We have seen these and other related reasons in the real estate companies crash as well. In addition perhaps there were certain other reasons; political & economic, even ethical like pilfering by the managements and false profit reporting. False profits are reported in order to issue new shares in the markets and bring in additional funding to the company coffers. Later on when the false-profit reports are exposed, the share prices fall flat as happened with American companies in the past.
Thus in addition to loan transactions and corrupt real estate laws, the system of capitalist equity share companies are based on invalid foundation with painful consequences for the people whose money is evaporated in the stock markets. The share prices fell in the stock markets across all sectors and not just in the real estate business alone. It was announced that the industrial average called the Dow Jones and the technology sector called the NASDAQ as well as the broader index, the Standard & Poor's fell by over 4% until this day. This indicates that the crisis is deeper and far more grave perhaps encompasses all sectors. The state therefore felt that the intervention was inevitable and hundreds of billions of dollars needed to be sacrificed at the cost of the people in order to salvage the ailing economy. All this will adversely affect the Gross Domestic Production or the Growth rate in the United States because when companies declare bankruptcy, the production too falls resulting in lesser employment opportunities, higher unemployment rate and the inevitable economic slowdown. Thus the US registered a growth rate of just 1.90% this year before the crisis manifested, while during the same period, China recorded over 9.00% growth for the last financial year. The Gross Domestic Production is regarded as the sum total of goods and services during a given period of time. The production factors recognized by them are the land, labour, capital and management. They consider the increase in capital, technology advancement, and improving the education standard as the main factors for economic growth. This clearly means that the United States has become the old sick woman and not merely the sick man.
The entire world is searing in this heat, the International Monetary Fund (IMF) commenting on this crisis declared that commodity prices will continue to rise and economic growth world wide will fall this year between 3.70 to 3.90%.
The stock markets across Europe, Asia and the Gulf may be affected by this crisis and incur enormous losses including losses suffered due purchase of shares of American real estate companies. It has been announced that the Gulf markets losses have reached 17% while the Saudi stock alone has lost 36% and the Dubai stock markets 32%. All these are the pitfalls of capitalism and globalisation since the United States encumbers the entire world with its own problems and when it collapses the entire world follows its doom. Shouldn't the world disengage itself from this imbroglio! It is for this reason that the German Chancellor Merkel has attacked America and Britain and charged them with being responsible for the mess. It was Germany which had proposed monitoring regulations for stock markets at the last G8 summit and the US and UK had opposed the German proposal. Her statement reflects the German outrage especially over America and the extent of German and European losses due to the American factors. The European banks had earlier announced freezing of their funds in the US real estate markets after suffering mounting losses. The British Chancellor of Exchequer Alistair Darling has told the 'Guardian' that Britain is facing arguably the worst economic downturn in 60 years (the worst since the World War II) which will be more profound and long-lasting than people had expected.
It is abundantly clear from all this that the capitalist system apart from being a false system and its public limited companies as well as their equity system being based on a patently false premise, its financial transactions and miserable lending terms are oppressive to the people. It is amply clear that it is a system living on borrowed time and is on the verge of collapse. It also demonstrates that the doomsday for this system has arrived, this is a glad tiding from Allah (swt) for the believers that victory is round the corner and finally the justice and fairness of Islam shall prevail over the world after capitalists had had their pockets filled unjustly by oppressing the people and were not satiated yet!
Q&A: Why is Insurance haram?
The following is the answer to a question we received from a participant of one of our recent seminars.
Insurance whether on life, goods, property or any of its numerous types is a contract. It is a contract between the insurance company and the insuring person in which the latter asks the insurance company to give him a promise that it will compensate him for that (‘Ayn) which is spoilt or destroyed or for its price with regard to goods or property, or a certain sum of money with regard to life and the like. This takes place if the accident occurs within a defined period, in exchange for a certain amount of money (premium); and the (Insurance) company accepts this.
Based upon this offer and acceptance, the insurance company undertakes to compensate the insuring person, within certain conditions approved by the two sides, either for the thing which he loses or its price when an accident occurs, or a sum of money which they have agreed upon e.g. in the event of his goods being destroyed, his car being damaged, his house being burnt down, his property being stolen, him dying or the like occurred during a certain period of time, he will be compensated, in exchange for a certain amount of money (premium) which the insuring person pays to the company during that defined period of time.
It appears from the above that insurance is an agreement between the insurance company and the insuring person over the type of insurance and its conditions, so it is a contract. However, according to this contract which was concluded between the two sides . i.e. the agreement . the company gives an undertaking to compensate or to pay a certain amount of money within the agreed conditions. So if an accident occurred to the insuring person upon which the terms of the contract apply, then the company becomes obliged to compensate him for the destroyed thing or
its price according to the market price at the time of the accident. The company is free to pay the price or to compensate for the loss to the insuring person or to others. This compensation becomes a right due to the insuring person, in the company’s responsibility (Dhimma) once the matter mentioned in the contract has occurred, provided the insurance company is convinced that he deserves it or if the court gave such a verdict.
The term ‘insurance’ has been used in this matter. Insurance could be to the benefit of the insuring person, or to the benefit of others such as his children, wife, inheritors, or any other person or group (beneficiary) assigned by the insuring person. Calling this contract ‘life insurance’, or insurance on goods, the voice or any other asset is aimed to market this transaction to the people. Otherwise, the fact of the matter is that the insuring person does not insure his life. He, rather, insures that a certain sum of money will be paid to his children, wife or inheritors or to any other named beneficiary designated by him, when his death occurs. Similarly he does not insure his goods, car, property etc: rather, he insures so as to be compensated for the insured object or its price in case it is injured or damaged. So it is, in fact, a guarantee (Dhamaan), for him or others to obtain a certain sum of money or compensation if something occurred to him that took his life or damaged his property, and therefore it is not a guarantee for his life or his property. This is the reality of insurance. The accurate study of it shows it to be invalid (Batil) from two angles:
Firstly: It is a contract because it is an agreement between two parties, and it includes offer and acceptance, where the offer is from the insuring party and the acceptance is from the company. So in order that this contract be legitimately valid from the Shar’a (divine revelation) point of view, it must contain the Shar’a conditions of the contract. If it contains such conditions it becomes valid, otherwise not. From the Shar’a point of view, the contract should apply upon an object or a benefit. So if it did not apply upon either a thing or benefit it would be invalid, because it would not apply upon a matter that makes it a legitimate contract. This is so because the legitimate contract applies either to a thing in exchange for something else as is the case with selling, forward buying/advance sale (Salam), company and the like; or it applies upon a thing without an exchange like the gift; or it applies upon a benefit in exchange for compensation like leasing; or to a benefit without compensation like lending. Thus the legitimate contract must apply upon something.
The insurance is not a contract that applies upon an object or a benefit; rather it is a contract that applies upon a pledge i.e. guarantee (Dhamana). The pledge or the guarantee does not represent an object for it cannot be consumed nor its benefit be used; nor does it represent a benefit, because no benefit derives from that guarantee itself either by leasing or by lending. As for obtaining money based upon this guarantee, this is not considered its benefit; rather it is a result of a transaction. Therefore, the insurance contract is not considered to apply upon a thing or a benefit, and it does not include all of the conditions required by the Shar’a in a legitimate contract, so it is void.
Secondly: The company gives a pledge to the insuring person within certain conditions, so it is a form of guarantee (Dhamaan). Accordingly, the conditions required by Shar’a in relation to the guarantee have to be applied to the insurance contract so as to be considered a legitimate guarantee. If it contained these conditions it would be legitimate, otherwise not. Referring to the guarantee we find:
The guarantee is where the guarantor (Dhaamin) joins his responsibility (Dhimma) to the responsibility of the person guaranteed for (Madhmoon ‘Anhu) in committing oneself to a certain right (Haqq). So it must include joining one’s responsibility to another’s responsibility; also there must be a guarantor, a person guaranteed for and a person guaranteed (Madhmoon Lahu). So the guarantee is the mandatory commitment (Iltizam) of a right as one’s responsibility without compensation. A condition of the guarantee’s validity is that it should be with regard to a financial right which is already due (for repayment) or which will become due. So if the pledge was not in respect of a due right or a right that will become due, the guarantee is not valid. This is so because a guarantee is the joining of one’s responsibility to another’s responsibility in relation to its fulfilment, so if there is no right in the responsibility of the person guaranteed for, then there is no joining of responsibilities. This is quite clear in the due right.
As for the right which will become due later, as for example when a man says to a woman: ‘Marry this person and I guarantee your dowry’, the guarantor has joined his responsibility to the responsibility of the person guaranteed for such that the guarantor will be bound like the guaranteed for, and that which is proved in the responsibility of the guaranteed for is similarly proved in the guarantor’s responsibility. Whereas, if there is no right due upon anyone or a right that will become due later, then there is no meaning to the guarantee as there is no joining of responsibilities; such a guarantee therefore is not valid. Therefore, if the right was not due upon the neck of the person guaranteed for or it does not become due later, the guarantee is not valid. This is because it is a condition that the person guaranteed for has a guarantor for an object if it is damaged or destroyed, or he is responsible for a debt whether the matter is actual in the case where the right was due and proved to be his responsibility or he is potentially responsible in the case where the right will become due later. So, if the person guaranteed for was not responsible, whether immediately or potentially, the guarantee is invalid because whatever is not due upon the person guaranteed for is not due upon the guarantor. So, for example, in the case of a person who receives clothes from (e.g. cleaner), and somebody told another person: ‘Send your clothes to him and I will guarantee them.’ If the clothes were then damaged, would the guarantor be responsible for the price of the clothes on behalf of the person who received them? The answer is as follows: If the clothes were damaged without his (i.e. the cleaner’s) action or negligence, then the guarantor guarantees nothing because, in the first place, the person guaranteed for (the cleaner) bears no responsibility for the damage. Since the principal (Aseel) is not liable for the damage then, with greater reason, neither is the guarantor. Therefore, there should be a right due to the person guaranteed for from other people, or it will become due later, in order that the guarantee becomes valid. So establishing the right for the person guaranteed for, whether immediately or potentially, is a condition for the validity of the guarantee. However, it is not a condition that the person guaranteed for (Madhmoon ‘Anhu) nor the guaranteed person (Madhmoon Lahu) be named; thus the guarantee will be valid if these were unknown (i.e. not named). So if a person said to another: ‘Give your clothes to a cleaner,’ and the latter said: ‘I am afraid that he will damage them.’ Then the former responded: ‘Give your clothes to a cleaner and I guarantee them if they are damaged’ without specifying the cleaner, the guarantee is valid. So if he gave them to a cleaner and they were damaged, the guarantor would be responsible even if the person guaranteed for was not named. Similarly, if he said: ‘so and so is a good cleaner, and I guarantee him against any damage for any person who gives to him his clothes,’ the guarantee is valid though the guaranteed person is unknown.
It is clear in the evidence of the guarantee that there is a joining of one’s responsibility to another’s responsibility, and it is a guarantee of a right due upon the responsibility (Dhimma). It is also clear that there is a guarantor, a person guaranteed for and a guaranteed person. It is also clear that it is given without compensation, and that the person guaranteed for and the guaranteed person could be unknown. The evidence for that is what Abu Dawud narrated from Jabir who said: “The Prophet (saw) would not pray over any person who died while indebted. A dead man was brought. He (saw) said: ‘Is he indebted?’ They said: ‘Yes, two dinars.’ He (saw) said: ‘Pray for your companion.’ Abu Qatadah al-Ansari said: ‘O Messenger of Allah, they are upon me.’ The Messenger of Allah (saw) then prayed over him. When Allah (swt) opened the land (i.e. conquests in Jihad) for the Messenger of Allah (saw), he (saw) said: ‘I am more entitled to (i.e. responsible for) every believer than his own soul. So if anyone leaves a debt it is upon me to repay, and whoever leaves wealth it is for his inheritors.”’ It is clear in this Hadith that Abu Qatadah had joined his responsibility to the responsibility of the dead man in committing a financial right due upon the debtor. And it is clear in the Hadith that the guarantee includes a guarantor, a person guaranteed for and a guaranteed person; and the guarantee which each of them (the dead person and the guarantor) guaranteed to pay was a right due upon the responsibility (of the deceased) and it was given without compensation. It is also clear that the person guaranteed for i.e. the deceased and the guaranteed person i.e. the owner of the debt were unknown at the time of the guarantee. So the Hadith contained the conditions for the validity of a guarantee, and the conditions for its contracting (In’iqad).
This is the guarantee in view of the Shar’a. By applying the pledge of insurance which is definitely a guarantee, upon it, we find that insurance is devoid of all the conditions which the Shari’ah enunciated regarding the validity and contracting of the guarantee. In insurance, there is no joining of a responsibility to a responsibility in any way. The insurance company did not join its responsibility to the responsibility of another to commit itself in paying money due to the insuring person so there is no guarantee; thus the insurance is void. In insurance, there is no financial right due to the insuring person from anyone that the insurance company committed
itself to pay. This is because the insuring person has no financial right against anyone that the company guaranteed, so insurance is devoid of the financial right. So the insurance company did not commit itself to any financial right so as to validate it as a guarantee in Shar’a. Moreover, what the company was committed to pay of compensation, price or money, was not a right due to the guaranteed person from other people at the time of concluding the insurance contract, whether immediately or potentially, so as to validate it as a guarantee. So the insurance company has guaranteed that which is not due either immediately or potentially, making the guarantee invalid and the insurance consequently becomes void. Furthermore, insurance does not include a person guaranteed for, because the insurance company did not guarantee for anyone a right due upon him so as to be called a guarantee; thus the insurance contract was devoid of an essential element required to exist in the view of Shar’a, namely the presence of the person guaranteed for. This is because it is essential that there should exist in the guarantee, a guarantor, a person guaranteed for, and a guaranteed person. Since the insurance contract did not include a person guaranteed for, it is void. Additionally, when the insurance company pledged to compensate for the object or pay its price if it was damaged, or pay money in case an accident occurred, it pledged to make this payment in return for a certain amount of money (or premium). So this is a commitment (Iltizam) in return for compensation which is not allowed, as one of the conditions for the valid guarantee is that it is without compensation. Thus the presence of compensation (premium for the insurance company) invalidates it. This clarifies the extent to which the contract of insurance is devoid of the conditions of guarantee which Shar’a has stated, and its failure to satisfy the conditions for concluding the guarantee and the conditions for its validity. Therefore, the pledge document (Sanad) which the company gives, guaranteeing thereby compensation and price or guaranteeing property is void from its basis, such that insurance, in its totality, is void in the view of Shar’a.
Therefore, insurance in its totality is prohibited by Shar’a, whether it is insurance on life, goods, property or any other thing(s). The reason for its prohibition is that its contract is void in the view of Shar’a; and the pledge which the insurance company gives according to this contract is void according to Shar’a. So taking money because of this contract and this pledge is prohibited, and it is considered to be the earning of money illegitimately which is included as illicit money (Mal as-Suht).
Insurance whether on life, goods, property or any of its numerous types is a contract. It is a contract between the insurance company and the insuring person in which the latter asks the insurance company to give him a promise that it will compensate him for that (‘Ayn) which is spoilt or destroyed or for its price with regard to goods or property, or a certain sum of money with regard to life and the like. This takes place if the accident occurs within a defined period, in exchange for a certain amount of money (premium); and the (Insurance) company accepts this.
Based upon this offer and acceptance, the insurance company undertakes to compensate the insuring person, within certain conditions approved by the two sides, either for the thing which he loses or its price when an accident occurs, or a sum of money which they have agreed upon e.g. in the event of his goods being destroyed, his car being damaged, his house being burnt down, his property being stolen, him dying or the like occurred during a certain period of time, he will be compensated, in exchange for a certain amount of money (premium) which the insuring person pays to the company during that defined period of time.
It appears from the above that insurance is an agreement between the insurance company and the insuring person over the type of insurance and its conditions, so it is a contract. However, according to this contract which was concluded between the two sides . i.e. the agreement . the company gives an undertaking to compensate or to pay a certain amount of money within the agreed conditions. So if an accident occurred to the insuring person upon which the terms of the contract apply, then the company becomes obliged to compensate him for the destroyed thing or
its price according to the market price at the time of the accident. The company is free to pay the price or to compensate for the loss to the insuring person or to others. This compensation becomes a right due to the insuring person, in the company’s responsibility (Dhimma) once the matter mentioned in the contract has occurred, provided the insurance company is convinced that he deserves it or if the court gave such a verdict.
The term ‘insurance’ has been used in this matter. Insurance could be to the benefit of the insuring person, or to the benefit of others such as his children, wife, inheritors, or any other person or group (beneficiary) assigned by the insuring person. Calling this contract ‘life insurance’, or insurance on goods, the voice or any other asset is aimed to market this transaction to the people. Otherwise, the fact of the matter is that the insuring person does not insure his life. He, rather, insures that a certain sum of money will be paid to his children, wife or inheritors or to any other named beneficiary designated by him, when his death occurs. Similarly he does not insure his goods, car, property etc: rather, he insures so as to be compensated for the insured object or its price in case it is injured or damaged. So it is, in fact, a guarantee (Dhamaan), for him or others to obtain a certain sum of money or compensation if something occurred to him that took his life or damaged his property, and therefore it is not a guarantee for his life or his property. This is the reality of insurance. The accurate study of it shows it to be invalid (Batil) from two angles:
Firstly: It is a contract because it is an agreement between two parties, and it includes offer and acceptance, where the offer is from the insuring party and the acceptance is from the company. So in order that this contract be legitimately valid from the Shar’a (divine revelation) point of view, it must contain the Shar’a conditions of the contract. If it contains such conditions it becomes valid, otherwise not. From the Shar’a point of view, the contract should apply upon an object or a benefit. So if it did not apply upon either a thing or benefit it would be invalid, because it would not apply upon a matter that makes it a legitimate contract. This is so because the legitimate contract applies either to a thing in exchange for something else as is the case with selling, forward buying/advance sale (Salam), company and the like; or it applies upon a thing without an exchange like the gift; or it applies upon a benefit in exchange for compensation like leasing; or to a benefit without compensation like lending. Thus the legitimate contract must apply upon something.
The insurance is not a contract that applies upon an object or a benefit; rather it is a contract that applies upon a pledge i.e. guarantee (Dhamana). The pledge or the guarantee does not represent an object for it cannot be consumed nor its benefit be used; nor does it represent a benefit, because no benefit derives from that guarantee itself either by leasing or by lending. As for obtaining money based upon this guarantee, this is not considered its benefit; rather it is a result of a transaction. Therefore, the insurance contract is not considered to apply upon a thing or a benefit, and it does not include all of the conditions required by the Shar’a in a legitimate contract, so it is void.
Secondly: The company gives a pledge to the insuring person within certain conditions, so it is a form of guarantee (Dhamaan). Accordingly, the conditions required by Shar’a in relation to the guarantee have to be applied to the insurance contract so as to be considered a legitimate guarantee. If it contained these conditions it would be legitimate, otherwise not. Referring to the guarantee we find:
The guarantee is where the guarantor (Dhaamin) joins his responsibility (Dhimma) to the responsibility of the person guaranteed for (Madhmoon ‘Anhu) in committing oneself to a certain right (Haqq). So it must include joining one’s responsibility to another’s responsibility; also there must be a guarantor, a person guaranteed for and a person guaranteed (Madhmoon Lahu). So the guarantee is the mandatory commitment (Iltizam) of a right as one’s responsibility without compensation. A condition of the guarantee’s validity is that it should be with regard to a financial right which is already due (for repayment) or which will become due. So if the pledge was not in respect of a due right or a right that will become due, the guarantee is not valid. This is so because a guarantee is the joining of one’s responsibility to another’s responsibility in relation to its fulfilment, so if there is no right in the responsibility of the person guaranteed for, then there is no joining of responsibilities. This is quite clear in the due right.
As for the right which will become due later, as for example when a man says to a woman: ‘Marry this person and I guarantee your dowry’, the guarantor has joined his responsibility to the responsibility of the person guaranteed for such that the guarantor will be bound like the guaranteed for, and that which is proved in the responsibility of the guaranteed for is similarly proved in the guarantor’s responsibility. Whereas, if there is no right due upon anyone or a right that will become due later, then there is no meaning to the guarantee as there is no joining of responsibilities; such a guarantee therefore is not valid. Therefore, if the right was not due upon the neck of the person guaranteed for or it does not become due later, the guarantee is not valid. This is because it is a condition that the person guaranteed for has a guarantor for an object if it is damaged or destroyed, or he is responsible for a debt whether the matter is actual in the case where the right was due and proved to be his responsibility or he is potentially responsible in the case where the right will become due later. So, if the person guaranteed for was not responsible, whether immediately or potentially, the guarantee is invalid because whatever is not due upon the person guaranteed for is not due upon the guarantor. So, for example, in the case of a person who receives clothes from (e.g. cleaner), and somebody told another person: ‘Send your clothes to him and I will guarantee them.’ If the clothes were then damaged, would the guarantor be responsible for the price of the clothes on behalf of the person who received them? The answer is as follows: If the clothes were damaged without his (i.e. the cleaner’s) action or negligence, then the guarantor guarantees nothing because, in the first place, the person guaranteed for (the cleaner) bears no responsibility for the damage. Since the principal (Aseel) is not liable for the damage then, with greater reason, neither is the guarantor. Therefore, there should be a right due to the person guaranteed for from other people, or it will become due later, in order that the guarantee becomes valid. So establishing the right for the person guaranteed for, whether immediately or potentially, is a condition for the validity of the guarantee. However, it is not a condition that the person guaranteed for (Madhmoon ‘Anhu) nor the guaranteed person (Madhmoon Lahu) be named; thus the guarantee will be valid if these were unknown (i.e. not named). So if a person said to another: ‘Give your clothes to a cleaner,’ and the latter said: ‘I am afraid that he will damage them.’ Then the former responded: ‘Give your clothes to a cleaner and I guarantee them if they are damaged’ without specifying the cleaner, the guarantee is valid. So if he gave them to a cleaner and they were damaged, the guarantor would be responsible even if the person guaranteed for was not named. Similarly, if he said: ‘so and so is a good cleaner, and I guarantee him against any damage for any person who gives to him his clothes,’ the guarantee is valid though the guaranteed person is unknown.
It is clear in the evidence of the guarantee that there is a joining of one’s responsibility to another’s responsibility, and it is a guarantee of a right due upon the responsibility (Dhimma). It is also clear that there is a guarantor, a person guaranteed for and a guaranteed person. It is also clear that it is given without compensation, and that the person guaranteed for and the guaranteed person could be unknown. The evidence for that is what Abu Dawud narrated from Jabir who said: “The Prophet (saw) would not pray over any person who died while indebted. A dead man was brought. He (saw) said: ‘Is he indebted?’ They said: ‘Yes, two dinars.’ He (saw) said: ‘Pray for your companion.’ Abu Qatadah al-Ansari said: ‘O Messenger of Allah, they are upon me.’ The Messenger of Allah (saw) then prayed over him. When Allah (swt) opened the land (i.e. conquests in Jihad) for the Messenger of Allah (saw), he (saw) said: ‘I am more entitled to (i.e. responsible for) every believer than his own soul. So if anyone leaves a debt it is upon me to repay, and whoever leaves wealth it is for his inheritors.”’ It is clear in this Hadith that Abu Qatadah had joined his responsibility to the responsibility of the dead man in committing a financial right due upon the debtor. And it is clear in the Hadith that the guarantee includes a guarantor, a person guaranteed for and a guaranteed person; and the guarantee which each of them (the dead person and the guarantor) guaranteed to pay was a right due upon the responsibility (of the deceased) and it was given without compensation. It is also clear that the person guaranteed for i.e. the deceased and the guaranteed person i.e. the owner of the debt were unknown at the time of the guarantee. So the Hadith contained the conditions for the validity of a guarantee, and the conditions for its contracting (In’iqad).
This is the guarantee in view of the Shar’a. By applying the pledge of insurance which is definitely a guarantee, upon it, we find that insurance is devoid of all the conditions which the Shari’ah enunciated regarding the validity and contracting of the guarantee. In insurance, there is no joining of a responsibility to a responsibility in any way. The insurance company did not join its responsibility to the responsibility of another to commit itself in paying money due to the insuring person so there is no guarantee; thus the insurance is void. In insurance, there is no financial right due to the insuring person from anyone that the insurance company committed
itself to pay. This is because the insuring person has no financial right against anyone that the company guaranteed, so insurance is devoid of the financial right. So the insurance company did not commit itself to any financial right so as to validate it as a guarantee in Shar’a. Moreover, what the company was committed to pay of compensation, price or money, was not a right due to the guaranteed person from other people at the time of concluding the insurance contract, whether immediately or potentially, so as to validate it as a guarantee. So the insurance company has guaranteed that which is not due either immediately or potentially, making the guarantee invalid and the insurance consequently becomes void. Furthermore, insurance does not include a person guaranteed for, because the insurance company did not guarantee for anyone a right due upon him so as to be called a guarantee; thus the insurance contract was devoid of an essential element required to exist in the view of Shar’a, namely the presence of the person guaranteed for. This is because it is essential that there should exist in the guarantee, a guarantor, a person guaranteed for, and a guaranteed person. Since the insurance contract did not include a person guaranteed for, it is void. Additionally, when the insurance company pledged to compensate for the object or pay its price if it was damaged, or pay money in case an accident occurred, it pledged to make this payment in return for a certain amount of money (or premium). So this is a commitment (Iltizam) in return for compensation which is not allowed, as one of the conditions for the valid guarantee is that it is without compensation. Thus the presence of compensation (premium for the insurance company) invalidates it. This clarifies the extent to which the contract of insurance is devoid of the conditions of guarantee which Shar’a has stated, and its failure to satisfy the conditions for concluding the guarantee and the conditions for its validity. Therefore, the pledge document (Sanad) which the company gives, guaranteeing thereby compensation and price or guaranteeing property is void from its basis, such that insurance, in its totality, is void in the view of Shar’a.
Therefore, insurance in its totality is prohibited by Shar’a, whether it is insurance on life, goods, property or any other thing(s). The reason for its prohibition is that its contract is void in the view of Shar’a; and the pledge which the insurance company gives according to this contract is void according to Shar’a. So taking money because of this contract and this pledge is prohibited, and it is considered to be the earning of money illegitimately which is included as illicit money (Mal as-Suht).
Q&A: How do I dispose of shares I already have?
The following is the answer to a question we received from a participant of one of our recent seminars.
Question: As you have clarified that buying and selling shares on the stock market is haram, what shall I do with the shares that I already have? Was I sinful even though I didn't know that doing that was haram? Am I allowed to sell them if I were to completely stop trading on the stock market after that?
Answer: People often have questions about Muslims who buy shares of these companies, associate in establishing them, or hold shares due to their subscription in such companies. Was their action haram, even though they were ignorant of the divine law (hukm shar'i) at the time of their subscription into these companies? Or if some scholars, who did not understand the reality of the share stock company, and gave them a fatwa (of permission) with regard to them, are these stocks and shares which are owned by them halal properties, even though they were earned by a void transaction in Shar'a? Or are they haram, and accordingly not legally owned by them? And are they allowed to sell these shares to (other) people or not? The answer to these questions is that ignorance of the divine law (hukm shar'i) is not an excuse, because it is compulsory upon every Muslim to learn about that which he needs in his life of the divine laws (Ahkam Shari'ah) so that he can carry out all his actions according to the divine law. If that law is one of those laws which are usually unknown for such persons, then he is not blamed for that action and it would be a valid action for him, even though it is invalid in Shar'a. This is because "The Messenger (SAW) heard Mu'awiya ibn Al-Hakam praying for someone who sneezed while he was in prayer. After they finished the prayer, the Messenger of Allah (SAW) taught him that speaking during the prayer would nullify it, and praying for the one who sneezes nullifies the prayer, but he (Messenger of Allah (SAW) did not order him to perform the prayer again." This is the meaning of what was narrated by Muslim and An-Nisai' from Ata'a ibn Yasar. This is because the rule (not talking during the prayer) is usually unknown to a person and so the Messenger of Allah (SAW) excused him and considered his prayer valid. The prohibition of the share stock companies in view of the Shar'a is one of the rules whose like is unknown to many Muslims and so their ignorance can be excused. The action of those who took partnership in them is considered valid, though the companies are invalid, like the prayer of Mu'awiya ibn al-Hakam which is considered valid though he did something in it that invalidates it, as he did not know that talking during prayer invalidates it. The fatwa given by the scholars also takes the rule of ignorance with respect to the one who seeks the opinion. However, the scholar who gives the opinion is not excused because he did not exhaust his effort to understand the reality of the share stock companies before he gave an opinion about them.
With regard to the ownership of the shares by the shareholders, it is a valid ownership and these shares are halal properties so long as Shar'a judged that their action was valid. It is not invalid as they are excused for being ignorant of its invalidity. Selling these shares to Muslims, however, is not allowed, because in Shar'a they are invalid currency notes and the allowance of their ownership is incidental, based upon ignorance (of the hukm) that was excused. When the divine law about it becomes known, then it becomes a haram property that is not allowed to be sold or bought, nor can one delegate other (Muslims) to sell it for him.
The way to dispose of these shares which were owned due to the ignorance of the divine law is to dissolve the company or transform it into an Islamic company. Alternately one can find a non-Muslim who considers the shares of the share stock company allowed and delegate him to sell the shares on his behalf and then receive the subsequent proceeds.
It was reported from Suwaid ibn Ghafalat "that Bilal said to 'Umar bin Al-Khattab: “Your administrators ('ummal) take wine and pigs as kharaj.” He said, “Don't take (these things) from them, but delegate them to sell them and take their price” narrated by Abu 'Ubayd in Al-Amwal. No one denied this action from 'Umar, though it would have been denied if it disagreed with Shar'a, so it became Ijma. Wine and pigs are of the properties of the dhimmis and cannot be properties for Muslims. When they wanted to give them to Muslims in exchange for jizya, 'Umar ordered Muslims not to accept it, but to delegate them to sell them and take the proceedings. Since shares are of the Capitalists properties are haram and cannot be of the properties of Muslims, when passed to Muslims hands, it is not valid for Muslims to take them. Instead they have to delegate to them their sale. Just like the right of Muslims in jizya and kharaj has been confirmed in wine and pigs, and 'Umar allowed them to let the dhimmis sell them on their behalf, it is also the right of Muslims in these shares that they are allowed to delegate the dhimmis to sell (the shares) for them."
Question: As you have clarified that buying and selling shares on the stock market is haram, what shall I do with the shares that I already have? Was I sinful even though I didn't know that doing that was haram? Am I allowed to sell them if I were to completely stop trading on the stock market after that?
Answer: People often have questions about Muslims who buy shares of these companies, associate in establishing them, or hold shares due to their subscription in such companies. Was their action haram, even though they were ignorant of the divine law (hukm shar'i) at the time of their subscription into these companies? Or if some scholars, who did not understand the reality of the share stock company, and gave them a fatwa (of permission) with regard to them, are these stocks and shares which are owned by them halal properties, even though they were earned by a void transaction in Shar'a? Or are they haram, and accordingly not legally owned by them? And are they allowed to sell these shares to (other) people or not? The answer to these questions is that ignorance of the divine law (hukm shar'i) is not an excuse, because it is compulsory upon every Muslim to learn about that which he needs in his life of the divine laws (Ahkam Shari'ah) so that he can carry out all his actions according to the divine law. If that law is one of those laws which are usually unknown for such persons, then he is not blamed for that action and it would be a valid action for him, even though it is invalid in Shar'a. This is because "The Messenger (SAW) heard Mu'awiya ibn Al-Hakam praying for someone who sneezed while he was in prayer. After they finished the prayer, the Messenger of Allah (SAW) taught him that speaking during the prayer would nullify it, and praying for the one who sneezes nullifies the prayer, but he (Messenger of Allah (SAW) did not order him to perform the prayer again." This is the meaning of what was narrated by Muslim and An-Nisai' from Ata'a ibn Yasar. This is because the rule (not talking during the prayer) is usually unknown to a person and so the Messenger of Allah (SAW) excused him and considered his prayer valid. The prohibition of the share stock companies in view of the Shar'a is one of the rules whose like is unknown to many Muslims and so their ignorance can be excused. The action of those who took partnership in them is considered valid, though the companies are invalid, like the prayer of Mu'awiya ibn al-Hakam which is considered valid though he did something in it that invalidates it, as he did not know that talking during prayer invalidates it. The fatwa given by the scholars also takes the rule of ignorance with respect to the one who seeks the opinion. However, the scholar who gives the opinion is not excused because he did not exhaust his effort to understand the reality of the share stock companies before he gave an opinion about them.
With regard to the ownership of the shares by the shareholders, it is a valid ownership and these shares are halal properties so long as Shar'a judged that their action was valid. It is not invalid as they are excused for being ignorant of its invalidity. Selling these shares to Muslims, however, is not allowed, because in Shar'a they are invalid currency notes and the allowance of their ownership is incidental, based upon ignorance (of the hukm) that was excused. When the divine law about it becomes known, then it becomes a haram property that is not allowed to be sold or bought, nor can one delegate other (Muslims) to sell it for him.
The way to dispose of these shares which were owned due to the ignorance of the divine law is to dissolve the company or transform it into an Islamic company. Alternately one can find a non-Muslim who considers the shares of the share stock company allowed and delegate him to sell the shares on his behalf and then receive the subsequent proceeds.
It was reported from Suwaid ibn Ghafalat "that Bilal said to 'Umar bin Al-Khattab: “Your administrators ('ummal) take wine and pigs as kharaj.” He said, “Don't take (these things) from them, but delegate them to sell them and take their price” narrated by Abu 'Ubayd in Al-Amwal. No one denied this action from 'Umar, though it would have been denied if it disagreed with Shar'a, so it became Ijma. Wine and pigs are of the properties of the dhimmis and cannot be properties for Muslims. When they wanted to give them to Muslims in exchange for jizya, 'Umar ordered Muslims not to accept it, but to delegate them to sell them and take the proceedings. Since shares are of the Capitalists properties are haram and cannot be of the properties of Muslims, when passed to Muslims hands, it is not valid for Muslims to take them. Instead they have to delegate to them their sale. Just like the right of Muslims in jizya and kharaj has been confirmed in wine and pigs, and 'Umar allowed them to let the dhimmis sell them on their behalf, it is also the right of Muslims in these shares that they are allowed to delegate the dhimmis to sell (the shares) for them."
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