Islamic Rules Concerning 
Financial Dealings

by Dr. Ahmad Shafaat 

There are many examples of financial dealings among Muslims leading to disagreements, strain in relationships and even fights, instead of leading, as they normally should, to strengthening the bond of Muslim brotherhood and to mutual benefit. Almost everyone in our community must know cases, in which two or more Muslims become partners in a business or one gives a loan to another brother and the result is mutual pain instead of mutual benefit.

On the basis of such examples many Muslims have decided that it is better not to deal with other Muslims in any way, but this negative solution is not very Islamic, since it is not quite consistent with the spirit of Muslim brotherhood.

A more positive solution would be to revive the teachings of Islam regarding financial transactions; teachings which, if revived, could make such transactions far more pleasant and profitable and greatly increase the financial power of the community.

Fulfilling Agreements

All dealings between human beings, financial and otherwise, are based on some expressed or implicit agreements. Honouring these agreements is the key to happy and smooth relationships among members of a community or society. The Holy Qur'an therefore stresses this principle again and again. In several places the Holy Qur'an lists fulfilment of one's commitments among the most important characteristics of a believer.
"(Believers are those) who are faithful to their trusts and to their commitments." [Qur'an 23:8]and "Those who fulfil their commitments when they make them." [Qur'an 2:177]
In other verses honouring agreements is given as a commandment:
"O Believers: Honour your contracts" [Qur'an 5:1]

"And fulfil every commitment. Surely every commitment will be asked about (on the day of judgement)." [Qur'an 17:34]

The failure to honour agreements is one of the primary causes of difficulties in dealings among human beings. This is true especially of financial dealings. If we analyse broken business partnerships or other difficulties in dealings of a financial nature, we will in every case find that these difficulties resulted from a failure on the part of one or more parties to fulfil some agreement implicit in those dealings.

There are four possible reasons why any party may fail to fulfil an agreement: due to failure of memory, due to differing understandings of the terms of the agreement, due to bad faith or due to circumstances beyond the control of the party or parties concerned. The Qur'an and Hadith give guidance aimed at countering each of these causes of a breech of agreement.

Writing and Witnessing the Deal

To avoid failure of memory and to reduce the chances of misunderstanding and bad faith, the Qur'an commands the writing of financial deals and/or having the deal confirmed by witnesses. The Qur'anic commandment is contained in the following two verses, the first of which is the longest verse in the Qur'an:

"O You who have attained to faith! Whenever you give or take credit for a stated term, set it down in writing. And let a scribe write it down equitably between you; and no scribe shall refuse to write as God has taught him: thus shall he write. And let him who contracts the debt dictate; and let him be conscious of God, his Sustainer, and not weaken anything of his undertaking. And if he who contracts the debt is weak of mind or body, or is not able to dictate himself, then let him who watches over his interests dictate equitably. And call upon two of your men to act as witnesses; and if two men are not available, then a man and two women from among such as are acceptable to you as witnesses, so that if one of them should make a mistake, the other could remind her. And the witnesses must not refuse (to give evidence) whenever they are called upon.

And be not loath to write down every contractual provision, be it small or great, together with the time at which it falls due; this is more equitable in the sight of God, more reliable as evidence, and more likely to prevent you from having doubts (later). If, however (the transaction) concerns ready merchandise which you transfer directly unto one another, you will incur no sin if you do not write it down.

And have witnesses whenever you trade with one another, but neither scribe or witness must suffer harm, for if you do (them harm), behold, it will be sinful conduct on your part. And remain conscious of God, since it is God who teaches you (herewith) - and God has full knowledge of everything."[Qur'an 2:282] 

"And if you are on a journey and cannot find a scribe, pledges (may be taken) in hand: but if you trust one another, then let him who is trusted fulfil his trust, and let him be conscious of God, his Sustainer. And do not conceal what you have witnessed, for, verily, he who conceals it is sinful at heart; and God has full knowledge of all that you do." [Qur'an 2:283]

In these verses the Qur'an distinguishes between two types of financial transactions: those that involve credit for a definite period and those that are carried out on the spot. Examples of the first type include loans for a definite period, purchase or sale of goods with either the payment or delivery of goods promised for some fixed time in the future, while the examples of the second type include buying something in a shop on a cash-and-carry basis.

For financial transactions involving credit, the Qur'an commands the writing of the terms of the transaction and having the deal confirmed by two male witnesses or one male and two female witnesses. For on-the-spot transactions, the writing of the deal is made optional while witnesses are apparently recommended. These instructions, it should be noted, are delivered on the assumption that people cannot not read or write. This assumption is still relevant and is likely to remain forever relevant. A majority of mankind still cannot read and/or write and it is likely that there will always be a large minority of such people. But there is another reason why the Qur'anic instructions will always remain relevant. As the level of literacy and education increases in the world so does the complexity of financial dealings, so that an average person is likely to remain incapable of writing and concluding every financial deal on his own. Just as in the time of Qur'anic revelation an average person needed a scribe because he was unlettered, in the modern times an average person needs a lawyer or a financial agent because despite being literate he does not know all that is involved in most modern deals. Similarly the role of witnesses is now often taken by signatures, thumb impressions, notaries/lawyers or court officials, although ordinary witnesses are frequently used.

It might be surprising for some readers that the Qur'an recommends that even on-the-spot transactions such as sale of goods on cash-and-carry basis should have some proof in writing or through witnesses and perhaps because at first sight it looks unnecessary this Qur'anic recommendation has been almost completely ignored in practice in the Muslim world. However, as the business became more organized, the wisdom of the Qur'anic recommendation has been independently discovered in modern times. These days, each time we buy any small or large item in a shop, we are issued a receipt by the seller. This is because as a proof of sale the receipt serves the following purposes, among others:

a) defective items may be returned with little or no arguments;

b) if the shopkeeper overcharged or cheated the buyer in some other way, he may be brought to justice;

c) shoplifters can be caught and brought to justice; and

d) both the buyer and the seller can keep accounts more easily.

We have briefly considered above the usefulness and relevance of the Qur'anic instructions about writing and/or witnessing financial deals. Let us now consider the important question: how obligatory are these instructions?

The writing of deals involving credit is obligatory, since referring to on-the-spot transactions the Qur'an says :

"There is no blame on you if you don't write (the deal)."
which implies that for transactions involving credit there is blame if we do not write the details. This conclusion is further supported by a Hadith in which the Prophet (pbuh) is reported to have said that three types of people cry out to Allah for help but are not helped. One of these three types consists of people who lend money to others and do not get it back because in disobedience to God's commandment they did not write the details of the loan nor had it witnessed.

The purpose served by witnesses is that they provide evidence that the terms of the deal were faithfully written and agreed to by all the parties concerned. Witnesses make it difficult for any party to later accuse the scribe of not faithfully writing the terms of the deal or denying agreeing to those terms. In case both parties can read and write these purposes will be served by signatures. For small deals therefore signatures may be considered sufficient. For bigger deals signatures in the presence of witnesses or a notary would be desirable.

It is clear that a written deal is meaningless without a proof that it was faithfully written and acceptable to the parties. Consequently, when writing of a deal is obligatory, so is providing such a proof in the form of witnesses, signatures, etc.

For on-the-spot transactions, the Qur'an does not make writing an obligatory act but says the witnesses should be present. However, in relaxing the requirement of writing the Qur'an assumes that it is harder to find a scribe than to find witnesses, which was the case in Arabia at the time of the Qur'anic revelation. In our age, it is harder, at each transaction, to arrange witnesses than to arrange a written proof of sale in the form of a bona fide receipt, which in any case provides a better proof than do witnesses. Hence a bona fide receipt fulfils the objectives behind the Qur'anic recommendation concerning on-the-spot transactions.

The Qur'an says that one of the two male witnesses may be replaced by two women witnesses. The reason given is that "if one (of them) forgets, the other can remind her." Thus the basis of the rule is that women, being generally less involved in business matters, may be more prone to forget the details of a deal. Clearly, if we know that certain women or women in a certain society or age have the same knowledge and experience in business matters as the average man, then the rule will not be applicable. It should be noted here that in another matter in which a woman is expected to have as much knowledge as a man the Qur'an accepts a woman's witness at par with that of a man [see Qur'an 24:6-9].

Even Small Details To Be Written

The Qur'an says:
"And do not loath to write it down, be it small or great..."
Here "small or great" probably refers to the amount of loan, but in the case of complex modern deals we can use analogy (qiyas) to understand it to mean "small or great detail". The written deal should be sufficiently detailed so that chances of doubts or misunderstandings arising later any be minimized.

Avoiding Bad Faith

Writing a clear, detailed agreement, duly signed and/or witnessed, can avoid two causes of problems in financial dealings: failure of memory and misunderstanding about the terms of the agreement. It can also reduce the chances of any of the parties involved falling victims to the temptation of taking advantage of the other parties by lying, cheating or other crooked ways resulting from bad faith. But to avoid bad faith more than just writing the deal is needed. There is first of all need for taqwa on which the whole teachings of Islam lay such emphasis. Taqwa is that respect for moral values which comes through fear and consciousness of God and belief in the hereafter.

Enforcing Agreements

But there will always be some people who do not give too much importance to taqwa. They will not hesitate to break an agreement whenever it suits them. For such people there is also need for a legal apparatus to enforce the deals they willingly sign.

In Muslim lands there have always been courts in which disputes among Muslims could be settled. However, in non-Muslim countries we would have to depend on local non-Muslim courts until such time as we establish, like, e.g. the Jews, some community religious courts with some recognized authority to enforce laws.

During the period of our existence in Western countries when we have to depend on local courts, we should take a Muslim brother to court only as a last resort, when there remains no other way to deal with his devious and crooked ways.

First published in Al-Ummah, Montreal, Canada in 1988. Copyright © Dr. Ahmad Shafaat. The article may be reproduced for Da'wah purposes with proper references.