Applications of Combining Qarḍ and Commutative Contracts in Financial Institutions in Malaysia

Abstract

It is well-known in Islamic financial institutions that Ribā is prohibited under SharīꜤah due to various reasons, such as to ensure equity in exchange and to protect the wealth from unjust and unequal exchanges. In the Islamic financial industry, there are many contracts which are debatable among the scholars. Combining Qarḍ and commutative contracts is one of the contracts in which scholars hold different views. This is due to the Ḥadīth of Prophet (PBUH) “two conditions in one sale is not allowed, nor combining loan and sale, nor selling what is not in one’s charge”. Thus, this paper aims to investigate whether this type of contract is permissible according to SharīꜤah or not, as it remains to be an issue of debate. By doing so, the paper aims to analyse the above-mentioned Ḥadīth through a qualitative analysis, extracting the correct interpretation. The paper concludes by evidencing that the meaning of loan in the mentioned Ḥadīth is Qarḍ, while this Ḥadīth also includes all commutative contracts since they are similar to sale. The paper also elucidates several forms pertaining to the combination of Qarḍ and commutative contracts such as: a) combining Qarḍ and commutative contract by a stipulation in the contract, b) combining Qarḍ and commutative contract without a stipulation in contract, c) combining Qarḍ and commutative contract without a stipulation, prejudice or collusion. At the end, the paper provides some recommendations for Islamic financial institutions. Keywords: Ribā, Qarḍ, Commutative Contracts, SharīꜤah.

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