- Published on
Islamic Contract Law – Real Clause Comparison (Islamic vs English Drafting)
1. Scenario: Financing a Property
A. English Law Clause (Conventional Loan)
The Lender agrees to lend RM1,000,000 to the Borrower.
The Borrower shall repay the Loan together with interest at the rate of 5% per annum.
Repayment shall be made in monthly instalments over a period of 10 years.
Key Features
2. Islamic Contract Clause (Shariah-Compliant Structure – Ijārah Example)
The Financier shall acquire the Property and lease it to the Customer for a fixed term.
The Customer agrees to pay rental in agreed instalments for the use of the Property.
Ownership of the Property shall remain with the Financier during the lease period.
Key Features
3. Additional Islamic Clause (Shariah Compliance)
The Parties agree that this Agreement shall comply with Shariah principles.
Any provision found to be non-compliant shall be amended to ensure conformity with Shariah requirements.
Key Features
4. Risk Allocation Clause Comparison
English Law
The Borrower shall bear all risks associated with the Property, including damage or loss, and shall remain liable to repay the Loan in full.
Islamic Contract
The Financier, as owner of the Property, shall bear ownership-related risks.
The Customer shall be responsible for usage-related obligations during the lease period.
5. Key Differences from Clauses
Final Insight
One-Line Comparison
1. Scenario: Financing a Property
A. English Law Clause (Conventional Loan)
The Lender agrees to lend RM1,000,000 to the Borrower.
The Borrower shall repay the Loan together with interest at the rate of 5% per annum.
Repayment shall be made in monthly instalments over a period of 10 years.
Key Features
- Based on:
- Loan + interest (consideration)
- Focus:
- Repayment obligation
- No requirement for:
- Asset involvement
- Purely financial transaction
2. Islamic Contract Clause (Shariah-Compliant Structure – Ijārah Example)
The Financier shall acquire the Property and lease it to the Customer for a fixed term.
The Customer agrees to pay rental in agreed instalments for the use of the Property.
Ownership of the Property shall remain with the Financier during the lease period.
Key Features
- Based on:
- Asset (property)
- Structure:
- Lease (ijārah), not loan
- Return:
- Rental (not interest)
- Reflects:
- Real economic activity
3. Additional Islamic Clause (Shariah Compliance)
The Parties agree that this Agreement shall comply with Shariah principles.
Any provision found to be non-compliant shall be amended to ensure conformity with Shariah requirements.
Key Features
- Ensures:
- Religious and legal compliance
- Adds:
- Moral + legal dimension
4. Risk Allocation Clause Comparison
English Law
The Borrower shall bear all risks associated with the Property, including damage or loss, and shall remain liable to repay the Loan in full.
- Risk:
- Placed entirely on borrower
Islamic Contract
The Financier, as owner of the Property, shall bear ownership-related risks.
The Customer shall be responsible for usage-related obligations during the lease period.
- Risk:
- Shared based on ownership and use
5. Key Differences from Clauses
- English Law
- Loan-based
- Interest-driven
- Risk can be one-sided
- Focus on:
- Legal enforceability
- Islamic Contract Law
- Asset-based
- Profit/rent-driven
- Risk-sharing
- Includes:
- Shariah compliance + ethical considerations
Final Insight
- Even though both contracts may:
- Achieve similar economic outcomes
- Structure
- Legal theory
- Moral foundation
One-Line Comparison
- English clause = “Repay money with interest”
- Islamic clause = “Use asset and pay rent lawfully.
0 Comments