Idris Mojaddidi on “Aqd or Contract in Islamic Finance”

Contract or aqd is Islamic commercial law means to tie or to bind because the contract is binding between the two parties, the offerer and offeree.

Technically, contract is a legal agreement between two or more persons that creates rights and liabilities.

Contracts are the foundation upon which the Islamic finance product rest.

Contract in Islamic Finance

We have got so many types of contracts in Islamic commercial law like uqud ul muamalat, contracts of considerations, such as contract of bay’, contract of salam, contract of istisna’, contract of ijarah, and so forth.

We have got contracts of donation, al uqud ul tawarruq, like contract of loan, contract of gift, contract of waqf, and so forth.

We have also got authentication contracts, or contracts, al uqud ul tawfiqat like contract of rahm, contract of kafalah, contract of guarantee, and so forth.

In Islamic commercial law for a contract to be binding, there has to be an offer and acceptance between the contracting parties.

Offer and acceptance

Offer is an expression of interest expressed by one of the parties inviting the other the other parties to accept his proposal.

An offer has to be, clear, absolute and communicated to the offeree.

Acceptance is an expression of approving the second party’s proposal with regards to the same specifications and details expressed in the offer.

Both offer and acceptance could be made verbally and in writing.

In Islamic commercial law, for a contract to be valid, it has to be made by free consent of both contracting parties, the free consent of the contracting parties is also known as consensus of both parties without any formal compulsion.

If a contract caused by compulsion, by force, by fraud, that contract is considered void in Islamic commercial law.

And also in Islamic commercial law, for a contract to be valid the subject matter of the contract has to be owned by the seller.

Because the Prophet SAW prevent us from selling something which is not in our disposal.

The contracting parties who conclude the contract must have the legal capacity in order to enter into the contract.

The legal capacity also known as ahliyyah.

The legal capacity refers to the physical poverty to the maturity and soundness of mind of contracting parties who are entering into the contract.

In Islamic commercial law, the subject matter of a contract must be halal and legitimate.

If the subject matter will be haram, like pig meat, like dangerous drug, like alcohol, the contract is considered illegal and haram.

And also the subject matter of a contract must be certain and identified in order to avoid the element of uncertainty.


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