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The Qur’an and Islamic Finance

The Qur’an and Islamic Finance

By Nizar Alshubaily | January 27, 2019

“You are not allowed to do this”

“You don’t have an Ijazah (permission) to do Interpretation”

“You are not qualified to interpret The Qur’an”

I don’t need any qualifications, the interpretation has already been done for me by the greatest scholars throughout history.

I have heard this many times in relation to explanations of Qur’anic verses within the realm of Islamic Finance. Even recently, in a post where I asked which two contracts are referred to in Verse 72 of Surat Yusuf. Whilst some Islamic Finance experts knew immediately that the contracts were Ju’alah and Kafala, one commentator posted an angry comment saying I don’t have permission to do Interpretation. I showed him the Tafsir of Ibn Kathir, and he went away quietly.

Whilst it is known by many and quoted in many modern and classic books, it seems often that some observers and practitioners of Islamic Finance are not fully aware of the connection between The Qur’an, its verses, the known contracts in Islamic Finance and their permissibility, as evidenced by these verses.

Some seem uncomfortable with the quoting of Qur’anic verses in relation to evidence of permissibility of these contracts, while some are under the wrong impression that this is an attempt at a new interpretation.

This is of course not true, and the connection between specific verses and contracts is well known and is available in many books, modern and classic as well as books of Tafsir (Interpretation). In fact, you can hardly miss it; one is confronted by it just by perusing a few Fiqh books, classic and modern.

I have looked at a number of Islamic Finance manuals in English, and often these verses are missing from the explanation. They tend to concentrate on explaining the contract and its application in a modern banking environment. Thus, it’s not a surprise that at least beginner Islamic Finance students are not aware of this connection and the relevance to scholars of specific verses.

I hope to be able to show you this connection here by taking sample statements made in a variety of books throughout history.

I have used AAOIFI’s Shariah Standards as the base, so let me first start with a quote from the Foreword by AAOIFI Secretary General in the Shariah Standards book:

“The cornerstone of the Islamic finance industry is, and will always be, the adherence to, and compliance with, the rules and principles of Shari’ah, under the broader collective reasoning by prominent Shari’ah scholars and jurists, and based on evidences found in the Qur`an and the Sunnah, in an attempt to deduce Shari’ah rulings that fit current-day reality and practices.”


Guarantees in Trust Contracts 

This is dealt with in Shari’ah Standard No. (5): Guarantees, which states:

“Assets held on trust must be returned to their owners in the manner in which they were received and in their original physical state promptly after the owners demand their return. Allah, the Almighty, says: {“Allah doth command you to render back your trusts to those to whom they are due”} [Al-Nisa` (Women): 58]”

Al-Saadi’s Tafsir explains that this includes all acts, objects, and secrets entrusted to someone, and that it must be done as promised and returned without delay, damage, or reduction.

This verse can also be seen for example in a classic book by Ibn Al-Munthir (d 930 A.D.), “Al-Ijma’ ”, where he relates the consensus on a variety of different issues, one of which is objects held in custody or on trust, and uses the same verse 58 of Surat Al-Nisa’.

Personal Guarantees (Kafala & Daman)

This is also dealt with in Shariah Standard No. (5):

“Permissibility of personal guarantees 

“Personal guarantees derive their permissibility from the Qur’an, Sunnah, consensus and reasoning. In the Qur’an,  Allah, the Almighty, says: {“They said: ‘We miss the great beaker of the king; for him who produces it, is (the reward of) a camel load; I will be bound by it’”} [Yusuf (Joseph): 72]”

In another reference to the verse, they clarify the meaning: “I will be bound by it”, means being a guarantor.

This is of course the story of Prophet Yusuf meeting his brothers after so many years, and placing the King’s cup in his brother’s bag, whilst an accusation was made that it was stolen.

One can see this interpretation in for example in the Tafsir of Ibn Kathir who states that this verse “(For him who produces it, is a camel load), is of Ju’alah (a contract similar to Ijarah) and (I will be bound by it), is of Kafala and Daman. 

This is also emphasized in Shari’ah Standard No. (45): Protection of Capital and Investments:

“The basis for the permissibility of obtaining securities and guarantees for deferred payment contracts is the Qur’anic Verse: {“And if you are on a journey and cannot find a scribe, then (you may resort to holding something as) mortgage, taken into possession”},(6) and {“...who produces it is (the reward of) a camel load; I guarantee it”}.(7)

(6) [Al-Baqarah (The Cow): 283] and (7) [Yusuf (The Prophet Joseph): 72]”

The great scholar Ibn Taymiyyah (d 1263 A.D.) uses verse 72 of Surat Yusuf when discussing Daman (Guarantee) in his “Fatawa” where he points to the verse as evidence of permissibility of guarantee.

The same meaning of Kafala (Guarantee) is echoed by Tafsir Al-Qortoby; who also states that this verse has two evidences, one of Ju’alah and the other of Kafala, and who goes into further details; in fact he writes two lengthy paragraphs about the subject of Kafala.


This is covered in Shariah Standard No. (8): Murabahah

“Permissibility of Murabahah

The authorities for the permissibility of Murabahah are authorities on the permissibility of sale. Among them is the saying of Allah, the exalted: {“...Allah has permitted trade...”}.(3) Some scholars have also cited to support the permissibility of Murabahah the saying of Allah, the Exalted: {“It is no crime for you to seek the bounty of your Lord,”}(4)  arguing that the bounty mentioned here means profit.  

(3) [Al-Baqarah (The Cow): 275], (4) [Al-Baqarah (The Cow): 198]”

In his book “Fiqh Al-Mu’amalat” 2011, Dr. Osama Al-Sallabi, professor of Islamic Studies at University of Benghazi, refers to both the above verses as evidence of permissibility of Murabaha, and adds verse 10 of Surat Al-Jumu’ah {“and seek from the bounty of Allah”} to the evidence. He states that the consensus of scholars is the permissibility of Murabaha as evidenced by such classic works as “Bada’i Al-Sana’i” and “Al-Mughni”.

Of course here, if it’s a Murabahah that involves deferment of payment and thus becomes a debt obligation, then this is covered with verse 282 of Al-Baqarah, or the Verse of Debt, as it covers all legitimate debt obligations.


Shari’ah Standard No. (9): Ijarah and Ijarah Muntahia Bittamleek 

“Ijarah derives permissibility from the Qur`an, the Sunnah, consensus of Fuqaha and Ijtihad (reasoning). On the level of the Qur`an, Allah, the Almighty, says: {“said one of them ‘O my father engage him on wages”},(3) and {“if you had wished, surely you could have exacted some recompense for it”}.(4)

(3) [Al-Qasas (The Narrative): 26], (4) [Al-Kahf (The Cave): 77]”

Both of the above verses relate to a story of Prophet Musa. The first, verse 26 of Surat Al-Qasas is of Musa helping two women give water to their sheep against a group of men in the Land of Midian. One of the women then asks their old father to hire Musa as it was best to hire “the strong and trustworthy (Ajeer)”, which means a person hired.

The second verse is from Al-Kahf and also involves Musa on a voyage with another prophet as they enter into a town that refused to welcome them. Nevertheless, Musa’s companion reconstructs a crumbling wall but does not take an “Ajr”, which causes Musa to comment negatively.

Al-Qortoby states in his Tafsir of the first verse above: “This is evidence that Ijarah was well known and permissible at that time and for every generation, as it is a necessity and benefit to people.” He repeats the evidence of permissibility of Ijarah in his Tafsir of the second verse mentioned above as well.

On the other hand Al-Buhouti (d 1650 A.D.) in his great work “Kashaf Al-Qinaa’”, uses another verse as evidence of Ijarah, he uses verse 6 of Al-Talaq, {“…And if they breastfeed for you, then give them their payment and confer among yourselves in the acceptable way…”} and he also confirms Ijma’.

This includes also Ijarah (Hiring of People) which is covered in Shari’ah Standard No. (34): Hiring of Persons. 

“Hiring of persons is permissible according to Qur`an, Sunnah (Prophetic Traditions) and Ijma’ (consensus of Fuqaha). In Qur`an, this is emphasized in the Verse stating: {“Then if they give suck to the children for you, give them their due payment”}.(2) 

(2) [Al-Talaq (Divorce): 6]”

Dr. Khalid Al-Mushaiqih, Professor in The Shari’ah College, University of Qassim, Saudi Arabia; refers to the same verse above in his book “Synopsis of Transactions” 2013.


This is dealt with in Shari’ah Standard No. (10): Salam and Parallel Salam:

“Permissibility of Salam 

A contract of Salam derives its permissibility from the Qur`an, the Sunnah and Ijma’ (consensus of Fuqaha). On the level of the Qur`an, Allah, the Almighty, says: {“O ye who believe! When you deal with each other, in transactions involving future obligations in a fixed period time, reduce them to writing”}. [Al-Baqarah (The Cow): 282]”

Al-Saadi in his Tafsir states: “This is the verse of debt (Ayat Al-Dayn/Mudayanah) which is the longest verse in The Quran and contains great rulings, of which, that it permits all types of debt transactions (Mudayanat) like Salam and others.”

Sheikh Muhammad Bin Othaimeen (Rahimahu Allah) confirms the above in his Tafsir of the verse and states: “One of the benefits of this verse is the permissibility of Debt, whether this debt was the price of a sold item, a loan, a rent, dowry, or any kind of debt; what’s important is that it is proof of the Shariah legitimacy of debt.”

In his “Ahkam Al-Qur’an”, scholar Ibn Al-Arabi (d. 1148 A.D.), quotes the above verse and states that this is one of the great verses providing rulings clarifying Haram and Halal, and is a foundation of many issues of Sales (Buyou’). He adds further that: “The reality of Debt, is that it includes everything where one of the two items exchanged is immediate and the other is an obligation, as the Arabs denoted what is present as “Ayn”, while the other is “Dayn” and is absent.”


This is from Shari’ah Standard No. (12): Sharikah (Musharakah), and Modern Corporations: 

“The permissibility of Sharikah is supported by the Saying of Allah, the Almighty: {“...And, verily, many partners oppress one another, except those who believe and do righteous good deeds, and they are few...”}. Sad: 24]”

This is the story of Prophet Dawud making a judgment on a case where one brother accuses another of wishing to take his one sheep and include it within his flock of 99 sheep. Upon which Dawud claims that this is an injustice as some “Partners” oppress one another.

In Tafsir Tantawi’s Waseet, it is explained that the word used “Al-Khulata’” means partners as it means to mix, as in mixing money together.

One can see often this verse being quoted in Fiqh books such as “Fiqh of Modern Financial Transactions” 2012 by Dr. Sa’ad Al-Khathlan, former member of The Senior Council of Scholars of Saudi Arabia, who states in his book when discussing the subject, that Sharikah was present in history in past nations and he quotes the above verse.

One can also see this in other modern books for example “Fiqh of Modern Financial Transactions” 2016 by Dr. Abdulrahman Al-Mutairi of Comparative Fiqh School in the College of Shari’ah and Islamic Studies, Kuwait where he states:

“Sharikah is permitted by The Book (The Qur’an), Sunnah, and Ijmaa. In The Book from {“...And, verily, many partners oppress one another, except those who believe and do righteous good deeds, and they are few...”}. [Sad: 24]”

He then details the Hadiths related to this for the Sunnah part from such books as Sahih Al-Bukhari, and quotes the great scholar Ibn Qudamah from his book ‘Al-Mughni” on Ijma’ (Consensus) who states: “There is consensus among Muslims of the permissibility of Partnerships.”


This is discussed in Shari’ah Standard No. (13): Mudarabah: 

“Mudarabah contract derives its permissibility from the following:

From the Qur`an, is the Saying of Allah, the Almighty: {“Others travelling through the land, seeking of Allah’s bounty”}.(4) This verse is interpreted to mean those who travel for the purpose of trading and seeking permissible income in order to provide for themselves and their family.  (4) [Al-Muzzammil (The One Wrapped in Garments): 20]”

This verse is also often quoted as meaning the permissibility of the contract of Mudarabah and is mentioned by Dr. Sa’ad Al-Khathlan in the same book where he states: “Mudarabah is to pay someone money to trade with it and where the profits are divided. It was called Mudarabah as it was taken from “Al-Darb in the land”, which means travelling for commerce, and then he quotes the same verse above.

You can also find the above verse quoted in classical Fiqh books such as “Bada’i Al-Sana’i” by Al-Kasani (d 1191 A.D.) in which he confirms permissibility from The Book, Sunnah, and Ijmaa. In addition to the verse above, Al-Kasani quotes two other verses for Mudarabah: {“And when the prayer has been concluded, disperse within the land and seek from the bounty of Allah, and remember Allah often that you may succeed”}, verse 10 of Al-Jumu’ah, and {“There is no blame upon you for seeking bounty from your Lord”}, verse 198 of Al-Baqara.

In Tafsir Al-Baghawy, we also see the explanation of verse 20 of Al-Muzzamil as meaning those who seek commerce by travelling through the land.


This is covered in Shari’ah Standard No. (15 ): Ju’alah:  

“Ju’alah contract is permissible according to the majority of the Fuqaha on the basis of the Qur`an, the Sunnah, Ijma’ (consensus of Fuqaha) and Ijtihad (reasoning). 

As for the Qur`an, the evidence is in the story of Yusuf (Joseph) and his brother after the announcement of the loss of the King’s great beaker, {“For him who brings it is the (reward of) a camel load; I will stand surety for it”}. [Yusuf (The Prophet Joseph): 72]”

I have already included a note on Ibn Kathir’s and Al-Qortoby’s Tafsir of this verse as both the contracts of Ju’alah and Kafala in the section on Guarantees above.

Dr. Wahba Al-Zuhaili, an eminent scholar describes Ju’alah in his book “Fiqh Al-Mu’amalat Al-Maliyah Al-Mu’asira” or “Understanding Modern Financial Transactions” as “Ju’alah or the promise of a reward is a commitment for payment for a known or unknown work…for example a reward.” “He then quotes the same verse 72 above from Surat Yusuf {“For him who brings it is the (reward of) a camel load; I will stand surety for it”} and adds  “Ju’alah is permissible even if it contains Jahala as it’s of benefit to people.”

Wakalah (Agency)

This is from Shari’ah Standard No. (23): Agency 

“Permissibility of agency by Shari’ah is demonstrated in the noble Qur`an, where Allah, Exalted be He, says: {“...So send one of you with this silver coin of yours to the town, and let him find out which is the good lawful food...”}. [Al-Kahf (The Cave): 19]”

This verse is from the story of the Companions of the Cave who escaped religious persecution and hid in a cave where they slept for over 300 hundred years. Upon waking, one of them was given the task to purchase food.

Al-Saadi states in his Tafsir that this shows the permissibility of Agency (Wakalah) in buying and selling.

This verse is used frequently by scholars in relation to Wakalah. In his book “Al-Uddah”, scholar Al-Bahaa Al-Maqdisi (d. 1226 A.D.) in the section on Wakalah mentions that there is consensus on the permissibility of Wakalah and quotes the same verse above.

Sheikh Saleh Al-Fouzan, member of Senior Council of Scholars and of Permanent Committee on Iftaa’, Saudi Arabia; also uses to the above verse as giving permissibility of Wakalah and refers to further verses such as verse 55 of Surat Yusuf {“Appoint me over the storehouses of the land. Indeed, I will be a knowing guardian”}. 


Shari’ah Standard No. (39): Mortgage and Its Contemporary Applications 

“Mortgage is permissible when the debt transaction takes place while the two parties are on travel because Allah, the Almighty, says: {“And if you are on a journey and cannot find a scribe, then let there be a pledge taken (mortgaging)...”}.(2) Mortgage is also permissible when the contracting parties are not on travel. (2) [Al-Baqarah (The Cow): 283]”

This one is simple; every book practically covers this verse and the permissibility of Collateral. One can see it in all the Tafsirs, and for example in classic Fiqh books such as “Al-Mughni” by Ibn Qudamah (died 1223 A.D.) in which he not only refers to the above verse but also to verse 21 of Al-Tur {“Every person, for what he earned, is retained.”}, and verse 38 of Al-Muddathir {“Every soul, for what it has earned, will be retained.”}, the word retained in Arabic used is “Raheena” whose root “Rahn” means collateral, hostage, imprisonment. He goes on to describe collateral as what is used to cover a debt in case of difficulty, and then states its permissibility in The Book (The Qur’an), Sunnah, and Ijma’ (Consensus).

The usual method in many books, is to first to give the meaning of the word in the language, then describe the meaning of the Contract, then confirm its permissibility within The Qur’an, by quoting the specific verses, The Sunnah, by quoting the Hadiths, and Ijma’, by mentioning the specific scholar and book confirming consensus.

So many books and articles, both modern and from the past contain references to Qur’anic verses in providing legitimacy to contracts used today in Islamic Finance. And these verses are all part of wonderful and wise stories of The Holy Qur’an. 

It’s a shame that many of the manuals in English do not give the same level of detail. It would be most informative for students and practitioners in the industry. There is one manual that I found, by Marifa Academy, called “Islamic Banking & Finance: Principles And Practices, which is faithful to this issue and utilises verses in its explanation, and is a 244 page comprehensive manual.

(My gratitude and appreciation to Dr. Ehsanullah Agha for his wise comments)

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Director Sports, Senior Faculty and Program Consultant Islamic Banking & Applied Finance , IQRA University, Main Campus, Karachi Pakistan

This is an excellent efforts. MashaAllah the contents are enough to convince a person to find his or her way to use the money for his or her need in right direction. Being a Muslim by faith and by practice I must know the status of money and how money become a source of finance. The word finance and its theory is self explanatory and one who believe in humanity he must be aware that money if use for economic purpose move towards lending whereas if it is for socioeconomic it is finance because loan is a liability and financing is an equity. Loan is base on application of rate on the principle that make the money into commodity whereas financing is participated on the result that are applied on net income or profit at an agreed ratio. Financing lead towards ownership whereas load decrease the net worth. I must admit with great concern that this article is most suitable for the academic purpose and I seek permission to advise my large number of student to study and express their concern on the contents with their understanding and inquiries. Many thanks to the researcher. (edited)

Banker, Writer

السلام عليكم ورحمة الله وبركاته

Thank you so much for your kind words brother Yousuf.

It was just a humble effort at clarifying issues of importance.

I am very flattered and honoured by your request, of course you have all the permission to use the article as you find suitable.

Kindest regards

Ibrahim Ludwick 5 months ago
Jamaa Network

السلام عليكم ورحمة الله وبركاته

I recently logged in to see that you replied to a previous comment I left on one of your articles where we had discussed the same ayat from Surah Sad which you mention here. Thank you for taking the time to reply to my comments.

In regards to this same verse, I see you quote the tafsir of Muhammad Sayyid Tantawi, who explicitly declared riba halal, and who is also known for claiming that the niqab has nothing to do with Islam.

No scholar is infallible, but there is quite a qualitative difference between the likes of Ibn Kathir and Tantawi. The position of the former is not a point of contention, while the former is, and yet they are mentioned here as if they carry equal weight and authority.

Also, I'm curious to know your thoughts on this article which compares the classical and modern version of murabahah: (edited)