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Modern Issues in Islamic Laws

by: Ayatullah al-Uzma Sayyid Abul Qasim al-Khui Translated by: Kamber Asadi Index Page No.
Preface ………………………………………………….3. National
Bank…………………………………………...7 Government
Bank……………………………………….8 “Unknown
Owner……………………………………….9 Letter of
Credit………………………………………….10 Storing
Merchandise…………………………………….12 Bank
Guarantee………………………………………….13 Selling
Shares……………………………………………14 Bank
Explanation………………………………………………16 Bank
Prizes………………………………………………17 Promissory
Notes………………………………………...18 Buying & Selling Foreign
Currencies……………………19 Current
Account………………………………………….20 Bonds or Hire
Purchases…………………………………20 Banking
Activities………………………………………..23 Bills of
Insurance…………………………………………………..25 Goodwill…………………………………………………...26
Autopsy…………………………………………………….27 Artificial Conception……………………………………….28 Road Opened Up By
Government………………………….29 Fasting &
Lottery………………………………………………………32 PREFACE In the name of Allah, Most Gracious, Most Merciful. Praise be to Allah, the Cherisher and Sustainer of the worlds, Master of the Day of judgment, the one who guides us to the Straight Path, and Peace be upon His Messenger, the Owner of the Great Trusted Legislation and Organizer of the Straight Path as well as on his Progeny. With the development of world in all spheres of life, it has become necessary for individuals and societies to keep up with the modern changes which affect the day-to-day activities. These changes have raised several question pertaining to various aspects of Islamic economy and other principles in relation to the modern issues, and we deemed it necessary to publish this booklet providing clarifications on several subjects, under the title “Modern Issues” We trust the believers will find this booklet useful and that it will remain forever a treasure for all of us. BANKING & EXCHANGE Banking and Exchange institutions fall under the following three categories: National – This can be either individual or public shares company; Government Bank – This is purely financed by the state; Company – This is financed by Government and Public. National Bank: It is forbidden to borrow from Bank on interest. It is, however, permitted to buy goods on credit from bank for which the payment is to be made after a specified period with an agreed percentage above market value on the understanding that the bank will re-purchase the said goods on spot at a reduced value and pay cash. This transaction takes the form of purchasing and selling goods and the amount paid to the bank in excess of the actual value is the bank’s profit and not usury. In such cases, the amount involved must be commensurate with the actual value of the goods. For instance. Purchasing a matchbox for Dh. 100/- to repay Dh. 120/- after a period of two months, is considered usury, although it was business transaction. Depositing money in the bank in fixed deposit, savings account or current account which offers a fixed rate of interest, as agreed upon, is forbidden. However, receiving interest without any prior arrangement with the bank, is allowed. Government Bank: Interest received on deposit accounts is to be utilised in accordance with the instructions of the Imam or his representative after obtaining his permission. Borrowing money on interest is considered usury, whether it is through Overdraft or under mortgage. One can, however, borrow under the pretence of “unknown Owner” after consulting the Imam or his representative and with his permission. Depositing money in any form of account in the bank, with the intention of receiving interest, is forbidden. If, however, there was no prior agreement with the bank with regard to rate of interest and if at the same time, one has no intention of claiming the interest even if the bank does not pay, then in such cases, receiving interest is permitted under the pretence of “Unknown Owner” after obtaining permission of the Imam or his representative. The same rule applies to Company Banks as well. A Brief Explanation of “Unknown Owner” As we all know. Bank’s activities are not limited to lending money on interest but extend to various other transactions such as buying and selling currencies, importing goods for clients etc. On which the bank earns interest. The amount which the bank pays as interest, may well have been the profit earned by the bank on such transactions. These are the rules for dealing with Islamic banks. In dealing with non-Islamic Banks, be it private or public shares (company), it is permitted to receive interest and utilise it, without having to obtain permission from Imam. There are no restrictions on borrowing money from these banks. Letter of Credit for Importing: To import goods, the importer is required to establish Letter of Credit with the bank and request them to make payments to the supplier on his behalf and in return he guarantees the bank to pay when the transaction is completed or he may have to refer to the locally appointed agent of the said supplier who demand from the importer to make part payment in advance through the bank and the said goods will be shipped in the name of the agent and when the goods arrive, the agent will deliver the goods after receiving the balance of the values. Letter of Credit for Exporting: To export goods, the exporter has to establish a letter of credit and the bank on his behalf deliver the goods to the importer and receive the value as has been agreed upon; the bank will then pay the exporter the said amount. Therefore. Letters of Credit, be it for import or export, have the same purpose, i.e. to hand over goods and recover values from the client. There is however another method of recovering value of the goods sold. Here, the exporter or importer sends a set of invoices through a bank without prior arrangement. The bank offers the invoice to a customer and if he accepts it, then he establishes letter of Credit. The bank acts as a mediator until that transaction is completed. Establishing Letter of Credit with the bank and appointing the bank as agents to perform transactions on one’s behalf, is permitted. Is it permissible for bank to charge interest form a person who established Letter of Credit ? Apparently, it is allowed, as explained below:- (a) The person established the letter of Credit was hiring the services of the bank, to act on his behalf and as such, the amount charged by bank is considered hire charges. (b) This transaction can be considered as Sale since bank pays for the goods in foreign exchange which the bank purchases at a profit added in the exchange. The difference between the original cost and the amount charged by the bank is considered the bank’s profit. Therefore, it is allowed. The bank takes some profit on the amount paid to the supplier on behalf of the importer, for a specified period. Is this allowed. Apparently, it is allowed. The bank, in this case, is not lending money to the LC opener; the LC is established for the benefit of the beneficiary, at his request. Therefore, it enters under “Guarantee Disposal Law” and not usury However, if the bank was to lend money to the LC opener for the benefit of receiving interest and also received such amount on behalf of the supplier, then it is forbidden unless the amount was received in lieu of a job done or a service rendered. Storing Merchandise: The bank may store goods for the account of importer if there is such an agreement between the bank and the exporter and when the bank pays for the goods. On arrival of such goods, the bank hands over relative documents to the importer with intimation or arrival of goods. If the client fails to receive the goods at given time, the bank takes over the goods and stores it for the client’s account with specific rental without prior arrangement or agreement, the bank may store the goods for the account of the exporter and may offer the goods to other merchants for disposal. In both the above cases, the bank is allowed to receive commission for such services if it is stipulated in the agreement or requested by parties concerned; otherwise, the bank is not allowed to receive such commission. There may be cases where the bank auctions goods which the importer failed to take delivery of, inspite of reminders from the bank can a bank auction such goods and receive the values thereof? Is a person allowed to buy such auctioned goods? Apparently, it is allowed. In such instances the bank performs the duty of an agent of the owner of goods and in accordance with the agreement entered into between them. Therefore, selling is allowed and so is purchasing. Bank Guarantee: Bank guarantee is an undertaking of payment by the bank in favour of a person for the benefit of another person or company to compensate for possible loss or damage arising out of beneficiary’s failure to fulfill his obligations. For example, a contractor is usually required to produce a bank guarantee to the client for a specified amount which will be utilised in the event the contractor fails in the event the contractor fails to meet his contractual obligations resulting in loss to the client. a) Such guarantee is correct and allowed. Obligations by words are to be fulfilled by actions, just as a debtor is obliged to honour his words and repay his debts. b) The contractor is obliged to honour his guarantee and if he fails to fulfill this, the client can approach the bank and demand utilisation of the said guarantee and in return, the bank recovers the amount form the contranctor. c) Is it permissible for bank to charge commission for such guarantee? Apparently, it is allowed, as this can be considered as fees for the guarantee. Selling Shares: Public companies may ask the bank to act as their agents for selling their shares and to negotiate on their behalf and charge a specified fees for their services. This is permitted. It can be considered rental charges since the company hired the bank for a job; it can also be considered wages for the job done by the bank; in both cases, the transaction is correct. The bank is allowed to deal in selling and buying these shares, if it public shares, but if the shares are to be used for usury, then it is not permitted to deal in it, even though it is in the name of a company. Bank Draft __ (Local & Overseas): a) Banks issue draft against payment of the value of the draft plus bank’s commission, in favour of their client for a specified amount payable at the bank’s branch or their correspondent, locally or overseas. The bank is entitled to receive commission on such drafts, as the bank can very well refuse to honour its obligation by not repayint the amount and since they have forfeited the right of refusal, they are entitled to the commission. b) The bank issues a draft to a customer on loan basis if he did not have fund to cover the draft. In this case, the bank is lending money to the other party at the request of the customer and as such, the bank is entitled to profit, as this falls under services. Moreover, if the draft is made payable overseas, then foreign currency is also involved. The bank, having forfeited the right of refusal of payment, is allowed to receive commission. c) A person who is not an account-holder gets draft from the bank by paying cash for the value of he draft and commission. In this case also, commission is allowed. Explanation: The bank is selling a local currency against foreign currency; therefore, the bank is allowed to receive commission. Usury is forbidden in lending. Since the lender receives more from the borrower. However excess amount which the borrower takes from the lender is permitted as this does not fall under the Usury. Bank demands commission for transferring amount from one bank to another, be it local or overseas. Is this allowed? Yes, but on two conditions: First, the transfer of amount should involve selling local currency and buying foreign currency; i.e. receiving in local currency and to pay in foreign currency. Second, commission to be paid to the bank on consideration of non-refund by the bank to fulfill their obligation in a different country where the payment was made to them. This is applicable to individuals as well. There is no difference in rules regarding funds used for draft or transfers, whether a person deals in his own funds or borrowed from the bank. Bank Prizes: The bank at times runs lottery and offers prize to the winner. Is the bank allowed to run such lotteries? If the bank is conducting the raffle without any conditions from their customers, but only to promote their business, then there is nothing wrong with it and whoever wins is allowed to receive the prize amount, as this falls under Unknown Owner after obtaining the consent of the Imam or his representative, in case of Government banks or Company banks. In case of Public or individual banks. This permission is not required. However, such raffle is not allowed if the prize amount is paid to a customer under an agreement for loan etc. even if amount is paid after winning the raffle, as this was previously promised by the bank. Discounting Promissory Notes: One of the services of the bank is negotiating Promissory Notes with a party for the benefit of their customer. The bank notifies the party the due date of Payment, amount and the number of Promissory Notes and when the bank receives the amount they credit their customer’s account with this amount or pay the sum in cash. The bank charges a commission for this service. Similar service is also available for customers on promissory notes from overseas parties. Sometimes, a customer requests bank to receive amount on his behalf without promissory note which the bank does and charges a commission thereon. This is permitted provided the bank receives the value of the Promissory Notes but if it includes money earned on interest as well, on the promissory note, then it is not allowed. Commission charged by bank is considered as wages for their services. Drawer of a Promissory Notes approaches his bank for negotiating the Promissory Note to the Bank on due date for payment. In this case, the bank is not entitled to any commission. If the beneficiary of a Promissory Note approaches his bank for negotiating the Promissory Note, the bank is entitled to commission as mentioned earlier. If a Promissory Note is accepted by a customer although he is not the drawer then in such cases, the bank is allowed to charge commission. Buying & Selling Foreign Currencies: Banks activities include buying and selling currencies in order to make currencies Available for use of public and also to make profit. It is permitted for the bank to buy and sell currencies on profit or loss or at percentage . Current Account: Customers operating current account with the bank allowed to draw amount up to the level of their deposits with the bank. However, sometimes, with the consent of the bank , they are allowed to draw amount in excess of this up to a specified limit for which bank charges interest. Is the bank allowed to charge interest? Obviously, this is not permitted since this falls under usury; but if one abides by the rule mentioned in No. 1 then it is permitted. Bonds or Hire Purchases: This falls under two categories:- First: To be beneficial in purchasing on Hire Purchase such as food, beverages, dresses etc. Second: To attach value by those who are authorized to give value such as the government who gives value to bank notes, stamps etc. (This pertains to Bond.) There are advantages in selling over lending. First: In purchases, ownership exists. The seller transfers the ownership to the purchaser and demands value of the goods in return. Debt develops by owning a thing and promising to pay later on either in the form of the same thing or its cost. Second: Exchange between commodity and its value is sale. Without this there cannot be sale or legality of debt. Supposing you sell 100 eggs in return for 120 eggs there has to be positive distinction in quality of the original and the substitute commodity, to make up for the difference in quantity of eggs in return is more. Otherwise it becomes usury which is forbidden. Third: Purchase is different from borrowing on interest. In borrowing, any increase in the amount to be repaid, takes the form of usury which is forbidden unlike purchases. It is unlawful purchase when the article offered in sale and the article given in return are identical yet different in size measure or weight. This is considered usury. For example, if a person borrows one hundred eggs to return one hundred and twenty eggs of the same size after two months, this is usury but if the eggs sold were bigger and the 20 extra eggs are to make up for the difference in size, then it is lawful. Fourth: Selling on interest is forbidden whereas borrowing on interest is legal except that the added part which covers the interest is illegal, but the original loan is legal. Bank Notes can be sold for lesser value since it is not weighed or measured in transaction. For example if one has “I owe you” note from someone for Dh. 100/- he can sell it to another person for Dh. 80/- Promissory Notes which are negotiated between merchants do not carry the same value as bank notes. It is only a document proving the debt of a person who purchased goods on credit. When the purchaser pays against a promissory note he is paying for the goods which he purchased on credit and if promissory note is destroyed, the dept still exists and has to be paid by the debtor unlike the bank note which, if destroyed, is lost. Promissory Notes fall under two categories:- d) Admitting actual debt; e) Pretance of accepting a dept which does not exist. In case of the first category, the creditor is allowed to sell the dept to another part for a lesser amount; i.e. the creditor holds a promissory note from someone for Dh. 100/- he is allowed to sell it to another person for Dh. 80/- However, he is not in permitted to sell that debt for another debt. In case of the second category the creditor can not sell the promissory note since it does not cover any actual debt but is merely a promises of payment such promissory notes are called “Cordial Promissory Notes” and my cover a commission or similar amounts. In such cases, the Payee can ask the drawer to sell him the said promissory note for a lesser amount, but discounting is not permitted as there never was any actual debt on the drawer. Banking Activities: Banking activities can be categorized as follows:- Business in usury. This is forbidden and one must not participate in any form of this activity and must not receive wages on such activity. Permissible: It is permitted to participate in activities which does not involve usury and can receive wages. Law of usury is same, be it an Islamic or non-Islamic Bank. However, in case of Islamic Bank, the available amount falls under ‘Unknown Owner’ and must not be utilized without the prior consent of the Imam or his representative. But amount available in non-Islamic Banks should be takes as Savior which does not require permission from Imam or his representatives. Bills of Exchange: A bank makes payment to a supplier upon instruction from their client, of an amount due by him to cover the cost of goods he has received. The client may ask the bank ether to debit his account with them or pay cash to cover the bill. In both cases, the deal is legal and correct. Is the bank allowed to receive commission for such service? The answer is : Yes, since the bank has refrained from using the ‘Right of Rejection’ they are allowed to charge a fee. There is no difference in the rule relating to Bills of Exchange with any bank, be it Islamic or non-Islamic, since negotiations of bills of exchange are all one and the same. Insurance: Insurance policy is an agreement between an insurance company and an individual whereby the insurer undertakes to compensate for loss or damage of the subject of insurance for a specified period, against payment of annual, halfyearly, quarterly or monthly premium by the insured. Insurance may cover life, property, vehicles, aeroplane or ships, against partial or total loss The insurance has to request the insurer for insurance cover, giving details of the subject to be insured and mode of payment of premium etc. The insurer then accepts the proposal. The insurer then considers the insured’s request and accepts the risk. They specify the premium for the value of the risk covered and issues the insurance policy. Insurance is allowed in all its forms. The insurer is taking the risk of compensating loss and the insured is paying for this. If the insurance company fails to fulfill its obligation, the insured can cancel the policy and demand refund of premium. If the insured fails to pay the Premium as agreed upon, the insurer is not liable to honour any claim or refund any premium paid by the insured. Insurance cover is for a specified period as agreed by both parties. Goodwill: It is customary in some countries to charge goodwill on property deals. At times, a tenant refuses to pay increased rent and instead of vacating the premises, he hands it over to another tenant after receiving a goodwill amount, without the consent of the landlord. This is not allowed since the property negotiated by the tenant, does not belong to him. If, however, the landlord has no right to increase the rent, or demand the place to be vacated, theTenant is then allowed to negotiate with a new tenant and receive goodwill from him. If there exists a rent control law enforced by the state, the landlord will have no right to increase rent or to demand the property to be vacated. In case the tenant, taking advantage of these restrictions, negotiate and receive goodwill from a new tenant, it is forbidden. If there is no rent control law, the landlord may charge a lower rent than the prevailing ate, but takes goodwill while promising of maintain the same rent at renewal. In such cases, the tenant is allowed to negotiate with a new tenant and receive proportionate amount of goodwill. Autopsy: Autopsy is not allowed in Islam and if performed, blood-money is to be paid. Autopsy on non-believer and doubtful Muslim is allowed, be it in an Islamic country or other places. Autopsy on a Muslim is permitted to save the life of another Muslim, if non-Muslim or Mushrik is not available. Autopsy or removal of a part of the body of a Muslim is not allowed unless it is for saving the life of another Muslim. Is it permitted for a living person to offer a part of his body such as an eye, kidney etc.? It is not permitted to offer important part of the body such as eyes, kidneys etc., however, skin or a piece of flesh is allowed. Donating and receiving blood is allowed. It is allowed to use in one’s body a part of the dead body of a non-believer or polytheist or even a dog. Such part becomes a part of his body and his prayers will still be in order. Artificial Conception: It is not allowed to the sperm of a stranger for the purpose of conception. If it is used and a child is born the legitimate father of the child is the one whose sperm was used and he will have all the rights over the child. Generally, illegitimate children cannot claim any legal rights of inheritance, but here the case is different. The child is considered legitimate. As regards mother’s claim over the child, there is absolutely no difference in her rights over this child or her other children. Same rule applies when the wife takes her husband’s sperm to be used in another woman. Test tube babies are allowed to be produced and such children will have same rights from father and mother as usual. Is it allowed for a wife to conceive artificially by her own husband’s sperm? Yes, it is allowed and the child will be entitled to same rights to the parents as other children. Roads Opened up by the Government: Can a person use the roads constructed by the government on property taken over from nationals without paying compensation? Yes, it is permitted to use such roads, as this falls under the law of “Wasted Property”, it is allowed to be used by others, However, the ownership of the land remains the same and a person is not allowed to purchase the left-over of the land from government. Without the consent of the original owner. Mosque (masjid) existing on the newly developed road will loose its characteristic (A-Masjideyah) and a decision must be taken on the authenticity of the mosque after construction of the road. The mosque has to be protected from dirt (Nejasut) always. The remains of a demolished mosque such as bricks, woods, and land must not be used for other purpose or sold without the permission of the Imam or his representative. To utilise the proceeds of such sale, the rule must be that the nearer one comes first. In such cases, it is appropriate to use the remains of the demolished mosque in the new one. Also the remains can be used for Hossainiya or Madrassah after receiving permission form the Imam or his representative. Road constructed after demolishing mosque or Hossainiya or school, can be used. Shops or such places constructed after demolishing mosque, can be used provided these are useful to the communities. For instance, what is the good of a deserted mosque which is not used ? If, however, the authorities turn such place for unlawful activities, then it should not be used. Ownership of the Muslim cemetery on the main road, if it is the property of an individual, rests with the landowner, just as any other property. If it is ‘waqf’ property, then ‘auqaf’holds the ownership. This is provided, using such road does not affect to have cemetery on the road. If the cemetery is private or auqafowned, it is permitted to be use for a road. Any remains of the cemetery which is demolished cannot be sold or purchased without permission of the owner. If however, the remains or the sale proceeds of the same are used for other Muslim cemeteries permission of the owner is not required. Fasting & praying: A person travelling long distance, during fasting, can bread his fast according to the time at the place of stating his journey, even if the sun is yet to set at the place of his destination. If a person sets off on a long distance flight after performing his morning, noon or Maghrib prayers and owing to the time difference, time for these prayers is yet to come at the place of his arrival, then he should again perform such prayers which are yet to fall due, even though he has already performed these prayers at the place of starting his journey. If a traveller leaves his country during prayer time, without performing the prayer due and arrives at another country the same day where the prayer time is yet to fall due, then how he should perform his prayer, Regular or “Kaza’a”? It is suggested that he prays Regular rather than “Kaza’a”. Lottery: Position with regard to lotteries run by the State or Company, is different depending upon individual cases. Fist: If a person purchases a lottery ticket, with the intention of winning, then it is forbidden. If however, he has already purchased the ticket and won the lottery, run by the State, then he must receive permission from Imam or his representative before utilising the money. But it the lottery is run by Company, then such permission is not required. Second: If a person buys a ticket with the intention of giving the prize money to charity, then it is allowed and if he wins, the money can be utilized for charity after obtaining permission of Imam or his representative, if it is State lottery. But if it is Company lottery, then the money can be utilized without permission from Imam. Third: To give repayable loan to a Company for running lottery and to receive a free lottery ticket from them as a favour in return, is forbidden.

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