Overview of Classification of Contract in Islamic Commercial Law

Overview of Classification of Contract in Islamic Commercial Law


Contract
Contracts in Islamic commercial law are generally divided into:

1. Bilateral Contracts
2. Unilateral Contracts

Bilateral Contracts
Definition
A bilateral contract is an agreement where both parties have mutual obligations and responsibilities.


Work or Services Contracts
Definition
Contracts involving performance of work or provision of services for compensation.


Commission-based contract
Islamic Contract
Juʿālah (الجعالة)
Definition
A contract where a person receives commission or reward for completing a specific task or service.
Mechanism of Action

1. Client offers reward for completing task.
2. Service provider performs work.
3. Reward/commission paid upon successful completion.

Example
Brokerage or reward-based services.


Agency-based contract
Islamic Contract
Wakālah (الوكالة)
Definition
A contract where one party acts on behalf of another party.
Mechanism of Action

1. Principal appoints agent.
2. Agent performs authorized tasks.
3. Agent may receive agreed fee.

Example
Investment agency services.


Safe Custody Contracts
Definition
Contracts involving safekeeping and protection of assets.


Transfer of debt
Islamic Contract
Ḥiwālah (الحوالة)
Definition
Transfer of debt obligation from one party to another.
Mechanism of Action

1. Original debtor transfers liability.
2. New debtor accepts responsibility.
3. Creditor claims payment from new debtor.

Example
Remittance transactions.


Security Contracts
Definition
Contracts that provide assurance or security against default.


Guarantee
Islamic Contract
Kafālah (الكفالة)
Definition
A contract where a guarantor guarantees another person’s obligation.
Mechanism of Action

1. Guarantor undertakes responsibility.
2. Debtor fulfills obligation.
3. Guarantor compensates if default occurs.

Example
Bank guarantees.


Pledge
Islamic Contract
Rahn (الرهن)
Definition
A contract where an asset is pledged as collateral for debt.
Mechanism of Action

1. Borrower pledges asset.
2. Creditor holds collateral.
3. Asset may be sold upon default.

Example
Islamic pawn broking.


Partnership Contracts
Definition
Contracts involving cooperation between parties to conduct business and share profit or loss.


Partnership by reputation
Islamic Contract
Shirkat al-Wujūh (شركة الوجوه)
Definition
A partnership based on reputation or creditworthiness without capital contribution.
Mechanism of Action

1. Partners obtain goods using reputation.
2. Goods sold in market.
3. Profit shared according to agreement.

Example
Trading partnership based on reputation.


Partnership by work and services
Islamic Contract
Shirkat al-Abdān (شركة الأبدان)
Definition
A partnership where partners contribute labor, expertise, or services instead of capital.
Mechanism of Action

1. Partners jointly provide services.
2. Income generated from work.
3. Profit shared according to agreement.

Example
Professional consultancy partnership.


Partnership by capital
Islamic Contract
Shirkat al-Amwāl (شركة الأموال)
Definition
A partnership where all partners contribute capital.
Mechanism of Action

1. Partners invest capital.
2. Business conducted jointly.
3. Profit shared according to agreement.
4. Loss shared according to capital contribution.

Example
Business joint venture.


Partnership by combining capital and work
Islamic Contract
Muḍārabah (المضاربة)
Definition
A partnership where one party contributes capital and another contributes expertise or management.
Mechanism of Action

1. Investor provides funds.
2. Entrepreneur manages business.
3. Profit shared according to agreed ratio.
4. Financial loss borne by investor unless negligence occurs.

Example
Investment financing.


Leasing Contracts
Definition
Contracts transferring right to use an asset for rental payment.


Financial lease
Islamic Contract
Ijārah Muntahiyah bi al-Tamlīk (الإجارة المنتهية بالتمليك)
Definition
A lease where ownership may transfer to lessee at end of contract.
Mechanism of Action

1. Lessor purchases asset.
2. Asset leased to customer.
3. Customer pays rental installments.
4. Ownership transferred at maturity if agreed.

Example
Islamic home financing.


Operating lease
Islamic Contract
Ijārah (الإجارة)
Definition
A lease where ownership remains with lessor permanently.
Mechanism of Action

1. Asset leased temporarily.
2. Customer uses asset.
3. Asset returned after lease period.

Example
Vehicle rental.


Sale Contracts
Definition
Contracts involving transfer of ownership for consideration.


Subject Matter of Sale
Currency
Islamic Contract
Bayʿ al-Ṣarf (بيع الصرف)
Definition
A contract involving exchange of currencies or monetary values.
Mechanism of Action

1. Two currencies exchanged.
2. Exchange rate agreed upon.
3. Immediate possession required.

Example
Foreign exchange transactions.


Rights or intangible properties
Islamic Contract
Ḥaqq Mālī (حق مالي)
Definition
Transfer or sale involving intangible rights or non-physical properties.
Mechanism of Action

1. Rights legally recognized.
2. Rights transferred contractually.

Example
Intellectual property rights.


Receivable
Islamic Contract
Bayʿ al-Dayn (بيع الدين)
Definition
A contract involving transfer or sale of receivables/debt.
Mechanism of Action

1. Creditor owns receivable.
2. Receivable transferred or settled.

Example
Trade receivable financing.


Tangible asset
Islamic Contract
Bayʿ (البيع)
Definition
A sale involving physical assets with material existence.
Mechanism of Action

1. Asset ownership transferred.
2. Buyer pays agreed price.

Example
Property or machinery sale.


Cost or Profit Classification
Discounted-based sale
Islamic Contract
Waḍīʿah (الوضيعة)
Definition
A sale where seller offers asset below original purchase price.
Mechanism of Action

1. Seller discloses lower sale price.
2. Buyer purchases at discounted value.

Example
Discount or clearance sale.


Cost-based sale
Islamic Contract
Tawliyah (التولية)
Definition
A sale where seller transfers asset at original cost without profit.
Mechanism of Action

1. Seller discloses actual cost.
2. Asset sold at same purchase price.

Example
Friendly transfer sale.


Negotiated sale
Islamic Contract
Musāwamah (المساومة)
Definition
A sale where price is negotiated without disclosure of original cost.
Mechanism of Action

1. Buyer and seller negotiate freely.
2. Agreed price finalized.
3. Ownership transferred.

Example
Ordinary market trading.


Cost plus profit
Islamic Contract
Murābaḥah (المرابحة)
Definition
A sale where seller discloses cost and adds known profit margin.
Mechanism of Action

1. Seller purchases asset.
2. Cost and profit disclosed.
3. Buyer pays agreed price.

Example
Islamic financing facility.


Time of Payment Classification
Future payment sale
Islamic Contract
Bayʿ Muʾajjal (بيع مؤجل)
Definition
A sale where payment is deferred to a future date.
Mechanism of Action

1. Asset delivered immediately.
2. Payment made later according to agreement.

Example
Installment financing.


Spot payment sale
Islamic Contract
Bayʿ Naqdan (بيع نقداً)
Definition
A sale where payment is made immediately.
Mechanism of Action

1. Buyer pays instantly.
2. Seller transfers asset immediately.

Example
Cash purchase.


Time of Delivery of Object
Future delivery sale
Islamic Contract
Bayʿ al-Salam (بيع السلم)
Definition
A sale where delivery occurs at a future date while payment is made upfront.
Mechanism of Action

1. Buyer pays in advance.
2. Seller delivers goods later.

Example
Agricultural financing.


Spot delivery sale
Islamic Contract
Bayʿ Ḥāl (بيع حال)
Definition
A sale where delivery occurs immediately after agreement.
Mechanism of Action

1. Contract finalized.
2. Goods transferred immediately.

Example
Retail purchase transaction.


Loan Contracts
Islamic Contract
Qard (القرض)
Definition
A contract involving temporary transfer of money with obligation to repay equivalent amount without interest.
Mechanism of Action

1. Lender provides money.
2. Borrower uses funds temporarily.
3. Borrower repays equivalent amount only.

Example
Qard Hasan financing.


Unilateral Contracts
Definition
Contracts formed through declaration or commitment by one party only.


Will
Islamic Contract
Waṣiyyah (الوصية)
Definition
A declaration regarding distribution of property after death.
Mechanism of Action

1. Person specifies beneficiaries.
2. Will becomes effective after death.
3. Assets distributed accordingly.

Example
Islamic estate planning.


Waiver
Islamic Contract
Ibrāʾ (الإبراء)
Definition
Voluntary release or forgiveness of obligation or right.
Mechanism of Action

1. Creditor waives obligation.
2. Debtor’s liability reduced or removed.

Example
Debt rebate.


Donation
Islamic Contract
Ṣadaqah (الصدقة)
Definition
Voluntary charitable transfer of wealth without compensation.
Mechanism of Action

1. Donor gives asset voluntarily.
2. Recipient receives ownership.

Example
Charitable donation.


Gift
Islamic Contract
Hibah (الهبة)
Definition
Voluntary transfer of ownership without consideration.
Mechanism of Action

1. Donor offers gift.
2. Recipient accepts.
3. Ownership transfers immediately.

Example
Gift from bank to depositor.

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