Major Principles in Islam: Seeking the Halal (part 4)
Foundations of halal earning: contracts in Islamic transactions
On the subject of halal earning (al-kasb al-halal), we started by exploring one of the earliest works on the topic, written by Muhammad ibn al-Hasan al-Shaybani, a prominent student of Imam Abu Hanifah. He was a mujtahid in his own right and wrote a short yet foundational book on this topic. His work later inspired many scholars, including Imam al-Ghazali, whose writings we’ve referenced frequently.
Although this series is not entirely based on Imam al-Ghazali’s work, it draws heavily from his book Ihya’ ‘Ulum al-Din, with some adaptations and updates to suit our context. Al-Ghazali organised his discussion on halal earning into five chapters:
- The virtues of earning and its reward
- Knowledge of buying, selling, and financial transactions
- Justice in dealings
- Moderation in transactions
- Compassion towards oneself and one’s religion
We will begin to explore the second chapter.
Understanding contracts in trade
Many people are familiar with some terms used in buying and selling, but others may be unaware of what makes a contract valid or void, halal or haram, or what constitutes doubt (shubha) in financial matters. While we can’t cover every detail of every contract, this session provides a broad overview, again based on Imam al-Ghazali’s structure.
Imam al-Ghazali lists six core types of contracts which he says form the foundation of nearly all transactions. They are:
- Sale (bayʿ)
- Riba-based contracts (interest/usury)
- Salam (forward sale)
- Ijārah (leasing)
- Mushārakah (partnership)
- Muḍārabah (profit-sharing)
Many of you might be familiar with terms like muḍārabah, especially if you deal with Islamic banks. For instance, if you bought your house through an Islamic bank using a Home Purchase Plan (HPP), that is likely a partnership agreement. If you have a savings account at an Islamic bank, it may operate under muḍārabah, where you invest your money, the bank uses it for Sharia-compliant ventures, and profits are shared, usually disproportionately in favour of the bank, as they’re managing the investment.
The sale contract – bayʿ (البيع)
Let’s begin with the first of the six contracts: bayʿ (sale). Every sale contract in Islam is built on three essential pillars:
- The contracting parties
- The subject matter
- The contract form or procedure
If you wish to buy or sell something, these three pillars must be present and valid.
- The contracting parties (العاقدان)
This refers to the buyer and the seller. In Islamic law, it is essential to check the legal capacity of both parties:
- Are they fit to engage in a contract?
- Are they mentally sound?
- Are they aware and in control of their faculties at the time of agreement?
If, for example, someone signs a contract while seriously ill, under duress, or mentally incapacitated, the contract may be invalid. Even if a signature is present, its legality is questionable if the individual lacked the capacity to consent.
Islamic law also examines the intention (niyyah) behind the sale. Was the seller coerced? Was there deception? Consent must be mutual and genuine. The Prophet Muhammad ﷺ said:
«إِنَّمَا الأَعْمَالُ بِالنِّيَّاتِ»
“.Actions are judged by intention”
(Bukhari and Muslim)
Without mutual and informed consent, a sale is not valid.
- The subject matter (المعقود عليه)
Next, we assess the item being sold. Is it lawful to sell? Is it in existence? Is it clearly described?
For example, imagine I am selling you a bottle. The item is the bottle (subject matter), I am the seller, and you are the buyer (contracting parties). This part of the contract also has conditions which we’ll explore shortly.
- The contract form (الصيغة)
This refers to the wording and procedure used to carry out the contract. It must be clear, direct, and not misleading. Ambiguity or concealment may invalidate the contract or render it suspicious.
Each of these three pillars, parties, subject, and form, must be fulfilled for a contract to be valid under Sharia. And under each pillar, there are specific conditions and rules.
To conclude this section, note that these principles do not apply only to sales contracts. The same requirements for valid contracting parties, for example, apply in other contracts like marriage (nikah). Every Islamic contract begins with verifying the people involved.
The conditions of a valid subject matter in sale
Continuing from the previous session, we now turn our attention to the second pillar of the sale contract: the subject matter (al-ma‘qūd ‘alayh). This refers to the item being bought or sold. According to classical Islamic jurisprudence, there are six conditions that must be fulfilled for the sale to be considered valid.
- The item must not be impure (نجس)
The subject matter of the sale must be pure in the eyes of the Shari‘ah. Impure (najis) items cannot be owned, bought, or sold. This is because impurity nullifies legal value in Islamic law.
Examples include:
- Blood: Categorised as impure.
- Pork: Explicitly forbidden.
- Alcohol (e.g. wine, champagne, vodka): Considered impure and haram to buy or sell.
Allah says:
إِنَّمَا ٱلْخَمْرُ وَٱلْمَيْسِرُ وَٱلْأَنصَابُ وَٱلْأَزْلَـٰمُ رِجْسٌ مِّنْ عَمَلِ ٱلشَّيْطَـٰنِ فَٱجْتَنِبُوهُ
“Indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it.”
(Surah al-Ma’idah 5:90)
Some Muslims may operate off-licences or corner shops where such items are sold, but this does not make the act permissible. The sale of haram goods remains impermissible, and the earnings from such sales are also haram.
- The item must be beneficial and lawful
The item must be recognised as beneficial and not harmful. Anything that causes harm or has no lawful benefit is not valid for sale. For example:
- Selling poisonous insects or dangerous animals is generally not permitted, unless for recognised lawful uses, such as medical research or pharmaceuticals.
- Selling cigarettes would fall under the prohibition due to their well-known harmful effects.
This aligns with the Islamic legal maxim:
لا ضرر ولا ضرار
“There should be neither harm nor reciprocating harm.”
(Ibn Majah and Ahmad)
Even if scholars of the past didn’t mention specific items like cigarettes, the underlying principle remains relevant today: anything harmful is not permissible to sell.
- The item must be owned or authorised for sale
You cannot sell something you do not own or do not have permission to sell. Ownership is a fundamental condition.
For example, if someone entrusts you with their book, and you sell it without their permission, this is not a valid sale. Even if the buyer pays a high price, your sale is still invalid unless authorisation is later obtained.
Islamic law does allow for post-sale authorisation. This is known in the Hanafi school as bay‘ al-fuḍūlī (sale by an unauthorised person). If the true owner later approves the sale, it becomes valid. This flexibility allows for practical solutions in real-life situations, but it must be used within permissible boundaries.
- The item must be deliverable
The item being sold must be both legally and physically deliverable. You cannot sell what you cannot hand over. The Prophet ﷺ prohibited sales based on uncertainty (gharar), which includes items not in your possession or control.
Examples:
- A bird that escapes its cage and flies to a tree cannot be sold unless it is retrieved.
- A fish seen swimming in a river cannot be sold unless it is caught and deliverable.
The Prophet ﷺ said:
نَهَى رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ عَنْ بَيْعِ الْغَرَرِ
“The Messenger of Allah (peace be upon him) forbade the sale involving uncertainty.”
(Sahih Muslim)
So, transactions involving items you do not possess or cannot deliver, like birds in the air or fish in the water, are not valid until actual possession is obtained.
- The subject must be clearly identified
Imam al-Ghazali emphasises that the subject matter of any sale must be clearly known in three aspects:
- Identity
- Quantity
- Description
Let’s explore each one:
a) Identity
The specific item being sold must be identifiable. For example, if someone owns a flock of 300 sheep and says, “I’m selling you one of these for £100,” this is not sufficient. Which sheep? Without clarification, the buyer might take the biggest ram, or the seller might provide a weak or underdeveloped sheep. Disputes are likely to arise.
However, if the seller points and says, “This blue-marked sheep, I’m selling you this one,” and there is no ambiguity, the identification is clear, and the sale is valid.
The Prophet ﷺ said:
دَعْ مَا يُرِيبُكَ إِلَى مَا لَا يُرِيبُكَ
“Leave that which causes you doubt for that which does not.”
(Tirmidhi)
The goal in Islamic trade is to minimise dispute and potential harm (ḍarar), and promote transparency and benefit (maṣlaḥah). Unclear identification risks harming either party, which Islam seeks to prevent.
b) Quantity
The quantity must be measurable by:
- Weight (e.g. “1 tonne of wheat” or “50kg of barley”)
- Volume (e.g. the two well-known measures in Al-Madinah were the mudd (مُدّ) and the ṣāc (صَاع))
- Count (e.g. “three identical cups” or “one car”)
- Length or Area (e.g. “5 metres of fabric” or “1 acre of land”)
If selling land, the boundaries must be made clear. Without defined measurements or counts, the sale becomes ambiguous and invalid.
c) Description
When an item is not present, a full and accurate description must be provided. For instance, a seller may describe a car in detail, make, model, year, condition. If the buyer agrees based on this description and the item later matches what was promised, the sale is valid.
However, if the buyer sees the item and realises it doesn’t feel right, even if the description is accurate, they have the right to return it. This is called the option of inspection (khiyār al-ru’yah).
Islamic law allows around 17 different kinds of options (khiyārāt) in contracts. These are not to be confused with modern financial “options.” The Islamic concept includes options like returning a purchased item after inspection, especially if it was previously unseen.
For example, if someone buys a car after only seeing its pictures online and then inspects it in person, they may return it within a specified timeframe if they feel it’s not suitable. This applies even if the description was accurate. The Shari‘ah recognises personal preference and emotional response as legitimate grounds for return, provided no deception is involved.
This also applies to property. If you visited a farm last week, and the owner now wants to sell it to you, you don’t need to re-visit before buying unless significant time or changes have occurred. If there’s been no damage or disaster in the interim, your prior inspection suffices.
This flexible approach reflects Islam’s concern with justice, clarity, and mutual satisfaction in financial dealings.
The six conditions of the subject matter
To recap, the subject matter of a valid sale must:
- Be pure (tāhir)
- Be beneficial and not harmful
- Be owned or authorised for sale by the seller
- Be deliverable
- Be clearly identified
- Have an agreed and measurable quantity or description
Missing any of these conditions may invalidate the contract. Some issues can be rectified, for instance, a lack of ownership can be resolved with later authorisation (tafwīḍ). Others, however, cannot.
The Third Pillar: The Form (الصيغة)
Having covered the contracting parties and the subject matter, we now arrive at the third and final pillar: the form (ṣīghah), also known as the verbal exchange or contractual procedure.
This refers to the offer and acceptance (ījāb wa qabūl). Like in a nikāḥ (marriage) contract, both parties must make clear and immediate verbal or written expressions of consent.
- The offer is made by one party: “I sell you this item.”
- The acceptance is made by the other: “I accept.”
For the form to be valid:
- The offer and acceptance must occur in the same sitting, without significant interruption.
- There should be clarity and sincerity in the language used.
This ensures both parties fully understand and agree to the terms, preventing future disputes.
How scholars derived these conditions
Each of the conditions and examples we’ve explored is grounded in the Qur’an, Sunnah, and juristic reasoning. The scholars of Islamic law studied the narrations of the Prophet ﷺ, examined the practices of the Companions, and compiled these into structured principles. Through ijtihād (deductive reasoning), they extracted these conditions and pillars to ensure justice and clarity in transactions.
The Prophet ﷺ said:
البيعان بالخيار ما لم يتفرقا
“The buyer and the seller have the right to cancel the transaction as long as they have not parted.”
(Bukhari and Muslim)
This hadith forms the basis of the condition that the offer and acceptance must occur within a single, uninterrupted setting.
Explicit and implicit language in sales
The scholars note that the wording used in contracts should be clear and explicit. Phrases like “I sell to you” or “I buy from you” remove ambiguity. This helps confirm that both parties are willingly entering the agreement and not being coerced.
However, in modern practice, not all transactions involve verbal statements. In many cases, actions speak louder than words:
- You pick up a bottle from the shelf.
- You take it to the counter.
- You pay and leave.
No words may be exchanged, but it is universally understood that a sale has taken place. According to many scholars, especially from the Hanafi and Maliki schools, this is a valid contract based on customary usage (‘urf) and mutual understanding.
In some schools like the Shafi‘i, earlier scholars were stricter, requiring verbal declarations. This led to situations where individuals insisted on the seller saying, “I sell you this,” before handing over the money. While this may have been practiced in the past, it is no longer practical, especially in our modern, fast-paced world.
Modern transactions and contemporary practice
Today, sales happen online, via apps, or without direct human contact. As long as the buyer and seller agree, the product is halal, the conditions are met, and there is no deception, then the sale is valid.
What about conditions within the sale?
Sometimes conditions are explicit in the contract (e.g. “You must collect the item yourself”). Other times, they are implicit, based on common market practice. For example:
- You buy a fridge. The seller says, “Come and pick it up.”
- You reply, “No, delivery is usually free.”
If the market norm in your country is free delivery, the judge will rule in your favour. If not, and delivery costs are normally paid by the buyer, the seller is correct. In either case, the judge refers to market practice (‘urf) and expert opinion to make a fair ruling.
Islamic commercial law has always placed great importance on aligning contractual expectations with what is fair, clear, and socially accepted.
Understanding the ethics of contracts and modern applications
It is important for us to learn some of these technicalities, not only to correct our transactions, but also to avoid falling into doubtful (shubuhāt) or impermissible dealings. The Prophet ﷺ said:
الحلال بيّن والحرام بيّن، وبينهما أمور مشتبهات
“The lawful is clear and the unlawful is clear, but between them are matters that are doubtful…”
(Bukhari and Muslim)
By gaining knowledge of these rulings, we can steer our trade and income in a way that pleases Allah.
Is it required in Islam to ask where the buyer’s money comes from?
In Islamic tradition, we do not question the source of someone’s wealth, unless that person is widely known for haram earnings. By default, Muslims are assumed to seek the halal. As the legal maxim goes:
الأصل في المسلم العدالة حتى يثبت العكس
“The default with regard to a Muslim is to assume uprightness until proven otherwise.”
However, if someone is known to deal in haram (e.g. selling alcohol), then we avoid transactions with them to protect our own earnings.
What if the payment itself comes from haram sources?
Money earned through haram means, like the sale of alcohol or bank interest, is itself haram. One cannot purify a transaction by using haram money to buy something lawful. Such wealth should instead be disposed of in charity, without intention of reward.
The Prophet ﷺ said:
إِنَّ اللهَ طَيِّبٌ لَا يَقْبَلُ إِلَّا طَيِّبًا
“Indeed, Allah is pure and only accepts what is pure.”
(Muslim)
What about sales by agents who cannot deliver?
Some agents falsely claim to have access to goods they cannot actually provide. These are deceptive sales. If the agent does not have ownership or access and makes promises to entice a buyer, this is dishonesty and renders the sale void.
Such conduct is condemned. The Prophet ﷺ said:
مَن غَشَّنَا فَلَيْسَ مِنَّا
“Whoever cheats us is not one of us.”
(Sahih Muslim, 102)
Islamic commercial ethics are rooted in truthfulness, transparency, and trust.
Discussion on Future Contracts (Salam)
Salam is a valid contract under strict conditions. Historically, it was used with farmers, who would sell their upcoming harvest in advance to receive funds for cultivation. For example:
- A farmer sells 10 tonnes of wheat to be delivered next season.
- The buyer pays now, taking on the risk and potentially benefiting from a lower price.
This contract was established during the lifetime of the Prophet ﷺ and continues to be relevant today.
However, Salam is not permitted for gold, silver, or currencies. These must be exchanged on the spot. The Prophet ﷺ forbade deferment in transactions involving gold and silver, due to their status as ribawi items.
Ethical issues with gold mining and similar trades
There are ethical implications of modern business and the environmental impact of human consumption such as the environmental damage caused by gold mining.
When you mine for gold, you release mercury. That mercury ends up in your food and your water. We’ve released more mercury into the environment in the last hundred years than in all of human history before that. And the main cause is gold mining.
The Qur’an reminds us of the balance (مِيزَان) that Allah has created on Earth:
وَالسَّمَاءَ رَفَعَهَا وَوَضَعَ الْمِيزَانَ أَلَّا تَطْغَوْا فِي الْمِيزَانِ
“And the sky He raised, and set the balance. That you do not transgress in the balance.”
(Surah al-Rahman 55:7–8)
وَلَا تُفْسِدُوا فِي الْأَرْضِ بَعْدَ إِصْلَاحِهَا
“And do not cause corruption on the earth after it has been set in order.”
(Surah al-A‘raf 7:56)
“As Muslims, we should be at the vanguard of protecting the planet, but instead, we often find ourselves behind those who don’t even share our faith.”
The role of tarbiyah and education
We need tarbiyah, proper nurturing, upbringing, and education. From how we are raised as consumers to how we’re taught to view large corporations, the group reflected on how deeply society has been shaped by capitalist and exploitative values.
We are taught to consume, not to produce. To follow, not to question.
Islam does not separate ethics from business or lifestyle. The principle of ihsān, doing what is excellent and just, applies to how we eat, earn, consume, and interact with the environment.
Based on the talk delivered by Shaykh Haytham Tami to the Convert Club on 17th June 2025