In Islam, commercial transactions refer to all financial dealings, trade, and business activities that involve the exchange of money, goods, or services. These transactions are not just about profit-making but must follow ethical and fair practices based on Islamic Shariah law. The core principles of Islamic commercial transactions ensure justice, prevent exploitation, and promote transparency in business. There are three major types of transactions: exchange-based transactions, partnership-based transactions, and charitable transactions.
1. Contracts of Exchange (Buying, Selling & Renting)
These transactions involve exchanging goods, services, or money between two parties for mutual benefit.
a) Sale (Bai’)
A sale is a business transaction where a seller offers a product or service, and a buyer purchases it for a set price. In Islam, selling is permitted, but it must be fair, clear, and free from fraud or deception. The item being sold must be lawful (Halal), and both parties must fully understand the contract.
Example: If a shopkeeper sells a mobile phone, he must clearly explain its features, price, and any defects. Hidden defects or misrepresentation are not allowed in Islam.
Key Conditions for a Valid Sale
Both the buyer and seller must agree willingly. The product, price, and payment terms must be clear. The sale should not involve Riba (interest), Gharar (uncertainty), or Maisir (gambling).
Types of Islamic Sales
Murabaha (Cost-Plus Sale): The seller discloses the product’s cost and adds a fixed profit. Istisna (Manufacturing Sale): Goods are manufactured and delivered later, commonly used in construction. Salam (Advance Sale): The buyer pays in advance, and the seller delivers the goods later, often used in agriculture.
b) Leasing (Ijarah)
Leasing is when one party rents out an asset, such as a house, car, or machinery, to another party for a fixed period and price. The owner still holds ownership, while the user pays rent for its use.
Example: If a person rents an apartment, they live in it but do not own it. They pay a fixed rent to the landlord.
Islamic Leasing Conditions
The rental terms must be clear and agreed upon in advance. The leased asset must be used for lawful purposes. The owner (lessor) is responsible for major repairs and damages.
Application in Islamic Banking
Car and home financing under Ijarah follows Shariah principles, where the bank owns the asset and leases it to the customer.
c) Currency Exchange (Sarf)
Currency exchange refers to the trade of one currency for another. In Islam, currency trading is allowed but must follow strict conditions to prevent unfair profit-making.
Example: If a person exchanges US dollars for Pakistani Rupees, the trade must be done instantly, without delay.
Rules for Islamic Currency Exchange
The exchange must happen immediately (spot trading). If the same currency is exchanged (e.g., PKR for PKR), the amount must be equal. There should be no speculation or interest-based profit.
d) Debt Transactions (Dayn & Qard Hasan)
Debt transactions refer to borrowing and lending money or goods. Islam promotes ethical lending practices and prohibits interest (Riba). Instead, Islam encourages Qard Hasan (benevolent loans), where money is given to someone in need without expecting extra payment.
Example: A person lends Rs. 10,000 to a friend, and the friend returns exactly Rs. 10,000 later. No extra amount can be charged as interest.
Islamic Debt Rules
Lending should be interest-free (no Riba). Loans should be documented and agreed upon. Borrowers should repay on time.
2. Contracts of Partnership (Business Partnerships & Investments)
These transactions involve two or more people joining together in a business venture.
a) Mudarabah (Investment Partnership)
Mudarabah is an agreement where one person provides the money (capital), and the other manages the business. The profit is shared according to an agreed ratio, but the loss is only borne by the investor (unless there is mismanagement).
Example: A businessman has a good idea but no money, while an investor has money but no time. They form a Mudarabah partnership—the businessman runs the business, and the investor shares the profits.
Key Features of Mudarabah
The investor provides capital, and the manager runs the business. Profits are shared based on an agreed ratio. The manager does not bear financial losses unless negligent.
Application in Islamic Banking
Islamic banks use Mudarabah to invest depositors’ money in profitable ventures.
b) Musharakah (Joint Partnership)
Musharakah is a partnership where two or more people jointly invest money and share profits and losses based on their investment ratio.
Example: Three friends contribute money to start a restaurant. They divide the profits and losses based on their contributions.
Key Features of Musharakah
All partners contribute money, assets, or labor. Profit and loss are shared based on investment proportion. No partner can guarantee a fixed return.
Application in Islamic Banking
Used for business financing, real estate, and trade partnerships.
3. Contracts of Trust and Benevolence
a) Amanah (Trust-Based Transactions)
Amanah refers to trust-based transactions where one party entrusts another with property, money, or goods for safekeeping, without expecting any return or profit. The person holding the Amanah must care for it responsibly and return it when required. This is a fundamental principle in Islamic business ethics, as it ensures honesty, integrity, and accountability in financial dealings.
For example, if a person gives gold to a jeweler for safekeeping, the jeweler must return it exactly as it was, without using it for personal benefit. If the item is lost due to negligence, the trustee (Ameen) must compensate the owner. However, if it is lost due to unavoidable circumstances (e.g., theft despite proper care), the trustee is not liable.
Key Features of Amanah
The Ameen (trustee) must act responsibly and in good faith. The item held in trust must not be used for personal gain unless permitted. If the trustee is negligent and loses the item, they must compensate the owner. If lost due to unavoidable reasons, the trustee is not responsible.
Types of Amanah Transactions
Wadi’ah (Safe Custody): A person keeps their goods with someone for protection, such as depositing money in an Islamic bank. Wakalah (Agency): One person appoints another to act on their behalf in a business matter. Kafalah (Guarantee): One person guarantees another’s financial obligation, like a surety bond.
b) Hibah (Gift Transactions)
Hibah refers to a voluntary gift given by one person to another without expecting anything in return. It is an act of generosity and goodwill that strengthens relationships and social harmony. Unlike charity (Zakat or Sadaqah), Hibah is given out of personal love and appreciation, not as a religious obligation.
For example, a father gifts a house to his son, or a friend gives a car to another as a sign of gratitude. In Islamic finance, banks sometimes give Hibah (a goodwill bonus) to customers instead of paying interest, ensuring compliance with Shariah.
Key Features of Hibah
A voluntary transfer of wealth or assets. No conditions or compensation required. Strengthens family and community bonds. Once given, cannot be taken back, except in specific cases (e.g., a father reclaiming a gift from a child).
Types of Hibah
Pure Hibah: A simple unconditional gift. Conditional Hibah: A gift with a specific purpose (e.g., gifting land for a mosque). Hibah in Islamic Banking: Banks provide Hibah as a goodwill return to depositors instead of interest.
4. Contracts of Charity (Helping Others Without Profit)
These contracts are based on social welfare and not profit-making.
a) Zakat (Mandatory Charity)
Zakat is a compulsory charity where wealthy Muslims donate 2.5% of their excess wealth to help the poor, orphans, and needy.
Purpose of Zakat
Helps reduce poverty. Purifies wealth. Promotes social justice.
b) Sadaqah (Voluntary Charity)
Sadaqah is an optional donation that can be given anytime to help others.
Example: A person donates money to build a school or helps a needy person with medical treatment.
Benefits of Sadaqah
Brings spiritual and social rewards. Can be in the form of money, food, or any good deed.
c) Waqf (Endowment)
Waqf is when someone donates land, property, or money for permanent social welfare projects, like mosques, hospitals, or schools.
Key Features
Once given, Waqf cannot be sold or owned by anyone. The benefits go to the community forever.
d) Takaful (Islamic Insurance)
Takaful is an Islamic alternative to conventional insurance. Instead of profiting from people’s losses, Takaful works on the concept of cooperation where members help each other in times of need.
Example: A group of people pool money into a fund. If one faces an accident or loss, the fund helps them.
Key Features of Takaful
Based on mutual help, not profit-making. No interest (Riba) or uncertainty (Gharar) involved. Commonly used in health, car, and business insurance.