Hatem al-Haj – Fiqh of Transactions
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AI: Transcript ©
received my very sorry, it took me a very long time.
Waiting actually
question myself and some of the girls also asked me to reconsider, because the weather was
very appropriate for traveling.
But I figured I'd rather have a routine and people will show up.
Our people, let's go
and
get
you know, the honors by looking at we are breaking fine spaces
the issue of his own transactions
in 30 minutes, but he cannot do justice to the issue of Islamic finance. And the issue of transactions are that, despite the fact that you can do justice 30 minutes, I will start with you, I will not use the projector just 30 minutes
wasted
despite the fact that you can do just to give an introduction, because when we jumped right into the rulings, the rulings would be
basically covered by an index. And then certainly when we talk about throwing things out of the context, we cause confusion, rulings, by the nature of the
word itself rulings,
they basically infer dryness
or some some rigidity. But if you understand and within that context, you will, you will see the mercy and the beauty in those rulings. And also, concerning finance, concerning financial transactions in general.
One of the most important principles that we have to be aware of when we talk about Islamic Finance, is that Islamic finance is revealed by a loss of power
lines are revealed by law. Basically, they come from the source of this man, and it's in the book of Allah in the center of His Messenger. What does that mean? What does that mean? It means a lot of things, it means one of the things that means is that
people, you know, Muslims will have not only external regulators when we implemented Islamic Finance, but it was also clear here, the internal regulators in the hearts of the believers, the practitioners of finance, as Muslims, they know that this is from their board that this was
vital Bible, Lord, do you understand the huge difference between between dealing with a large set of laws that are man made at the center of laws that you as a believer
send around a year ago or a year creates are there there is a huge difference, because these laws are manmade? Does anyone need a lot of external regulators and external regulations to take the I in the practice of the people and that's why you keep on adding regulations and regulations and people keep on circumventing those regulations that you have in there manmade manmade financial regulations, we have seen how people could
find out ways
can be extremely creative about circumventing any regulations that you make.
Why not use the regulations, the financial crisis, the financial meltdown, that happened recently, it did not mean that there were no regulations. There were many recommendations over many, many years
of the establishment of the financial system in this country. And in the past, there have been many, many, many regulations, but the people keep on finding ways to circumvent those regulations. So when you're talking about the set of laws, or a set of rules that the practitioners believe from from their Lord, there will be the added benefit of the internal regulations and the regulation
of regulators within the chests of those people within the hearts of most people. Being also current have been also from a loss of power.
Meaning that their sources of divine source means what it means
But there are constants and variables, because this sort of defining source does not make things very rigid, there's a lot of room for flexibility. So, there are variables here that there are constants or variables and an added advantage, because any set of laws that has no constants whatsoever, nothing constantly
can drift easily towards the right or left or
it can be manipulated easily by armies, and, you know, interest groups and people, influential people, whatever, wherever they come from wherever they actually come from. But when when there are no consequence whatsoever, that those laws and
legislation can be easily manipulated by people from different directions for their interests, and human beings are biased by nature, you're, you're biased, biased, we are biased. It's not just loans human beings, we human beings are biased by nature. So when you have nothing that is cost equals whatever those costs can be easily manipulated, easily check
to easily inject left and right. So that's another characteristic of being revealed from our
Creator.
Another thing that we have to be cognizant of when we talk about
the basically economic efficiency is not the only governing principle in Islamic Finance, Islamic finance is belongs to the matrix of the Sharia, to the general fabric of this area.
Within the general, fabric companies area, the objectives of this area are not limited to prosperity. In this area, one of the objectives was very our 5 million seconds sorry, our preservation of the preservation of life, preservation of intellect,
honor,
and or lineage and property. So property is one of the things you know, economic progress can only development, prosperity, wealth, finance, things that are desirable by this area. But it is not the only reason that is desirable, whether it's early on, and within this context to be able to better understand Islamic finance. So in the economic efficiency is not the only parameter. It's not only games by which the Muslim economist measures the
the basically the suitability of a financial product or financial or business adventure, there is the social economic mobility, social responsibility, social accountability, Muslims cannot invest in oppressive governments, Muslims cannot invest in *, Muslims cannot invest in gamlin, Muslims cannot invest in the bathrooms, these can invest in uncle Hong Kong and so on and so forth. Even if the contract is a permissible contract, you know,
basically meets all the conditions and the prerequisites of a permissible contract. But since the activity itself is not his article is not socially responsible, and it is not permissible by God, then the whole venture will be invalidated. And it will not be
an Islamic sanction, business venture. So there is this aspect, we're not only talking about prosperity as the only objective prosperity is one of the objectives. There are other measures, basically, to gauge the suitability
of a product management product, or the lack thereof
within the framework of the five major objectives of the showdown.
So
if we move a little bit faster, because we want to get to the main issue, if we move it faster, what
there is one more thing that I wanted to tell you many times we give them saying the slab is not capping first, it's not supposed to last and when we don't provide a detailed explanation of what is and for many economists, the thing is not capitalism, socialism, to them
is about if you're saying that Islam is not moving and it's fast still, you have to be the server to the promise because, you know, it's a matter that you have to their honor, the
perception that there is nothing beyond this, you know,
two opposites, so the title of this site. And I would say that, yes, there's not enough calculus for this. So you cannot fit is not enough anymore. But that was made for something else within a foreign law, you can put this into that mode, and say that this is as well. But at the same time, if you want to explain to people, you do want to use the menu, right or wrong. So if you want to tell people about Islamic, you know, politics and so on and so forth, you will not want to say the word elections, that Islam is not, you know, for video elections, that that that that they understand what elections mean, it isn't their lingo that they speak, when they talk about politics, only talk
about things of that nature. So if you tell them, it's not capitalist, not socialist, then you're giving them an explanation within the context of their lingo, they want to get confused, and we'll even go out of this world. So our argument there to say that Islam is compassionate, regulated, if you have to call Islam something or if we have to, you know, attribute something that is found under this compassionate friend of Eden capitalism, because in Islam, there is a great deal of respect of private owners. In Islam, there is free enterprise, and it's not as good as aversion to taxation. In Islam, there is aversion to fixation, fixation on prices. All of these things are the
characteristics of free enterprise and free market, so on. And it's compassionate and regulated for many reasons that they cannot speak about in detail because of the scope of this lecture. But that is important to note. Also, it is important to note that when we talk about Islamic Finance, we're not talking about an exclusionary system that does not allow any patient from other systems because in the area of Mahabharata, lots of kind of Allah did not give us fixed, detailed rulings allowed us guidelines, milestones, and for now about room for human creativity, so financial products, you know,
different vehicles, and so on, you can learn, but make sure that the meet that the prerequisite requirements, astronomy guidelines, they don't, you know,
after the writing,
the Islamic guidelines within the milestones are less than you can adapt, you could allow for human creativity to basically
come up with various
modes of businesses and economic ventures and vehicles and products, etc, etc. That is a very important, you know, look at any book of the year if you look at any book or book, you will find the area of my life is about two thirds of any book topic that topically classified book will flip. But any Hattie's based book, you will find that the area of homiletics, one third party, our robotics, two thirds, what does that mean? A lot more, at least in the area of
pleasure three times as much as much in the area of finance and in the area of meaning to the area where I go, definitely heavily regulated, that area of the home, and if I'm not having the right regulated, allow for that flexibility.
Okay, now, so when we come and talk about Islamic Finance and get started in financial products, Islamic businesses, because financial transactions are
what sets us apart from the different systems. There are some biggies some major
elements or principles in Islam, we're not going to talk about the issues that are very different from from the other systems, we're going to talk about mutual concern, we're not going to talk because there are conditions in the parties to the contract, there are conditions in the contract, contract itself, there are extraneous conditions, there are conditions that apply to the subject matter of the contract that we took with subject matter, the contract that has to be socially responsible should not be admissible to property hierarchy, that something was caught on, and so on. But
in terms of the purchase to the contract, that we haven't reached the majority, and they have to be complicated. It has to be the quantity of capacity and all of these things. But when we talk about the contract itself, there are three big elements, principles to the validity of it.
contributions were one note to note three, complete equity. So, or no. So no, no, no usury and Islam. No God, no gambling
is underway. staking is basically
unusable speculation and tourist and tourist thinking. This is the counterpart of gambling but in transactions that gambling is in play is the counterpart of gambling in transactions. It is like when you say how I will
throw commands and whatever number of fish I catch, they are yours for $5 I wouldn't call them any tricks on cash. I mean, I'll catch anything. I mean, cash. Why? Because
they're humans for us for part of
this contract.
indivisible. Why? Because of the uncertainty. So
in Islam, there has to be transparency, transparency, there has to be integrity, transparency, integrity, accountability, all of these have to be present in an Islamic transaction. So no data, no work, no excessive speculation, and no God, no inequity. Look at the reasons behind the financial meltdown, financial crises have happened recently. And if you don't, you know, you are doing your own research and figure out why he and I need collapse. Why the banks collapse first and why energy commodity and insurance companies didn't last second, and AIG collapse third, and that was basically breaking the back of the camera. When the big collapse, you will find that it was mainly about
usury, and * and Iran, usually and Angelus taking very excessive speculation in the market.
The fact that we don't
have access to equity is let's get equity out of the way. Because equity is two elements, two elements in terms of the equity in a transaction,
one element is
designated. So that which is counter to the Sharia is inequitable. So when we say he says, if you are Medici and you are with a sword, these are your responsibilities or destiny. See, these are your responsibilities as far as when you mess up with that, that is equity, because that's really our determine your responsibilities, as we are determined your responsibilities as a C chord with a sword.
There are that, aside from this very artistic making rules that have to be followed for the transaction to be equitable. There are those
clauses that are made by the two parties to the contract, and does not protect, you know, against government or integrity that is imposed by one party, it does not come under any Islamic rules. But it turns out to be Yes, according to the you know,
many scholars, this is controversial matter. So I'm just going to talk for a minute and then at some mutual concern, some scholars will come back and say no, but if it turns out that someone used in the unity of one of the parties and exploited them, and you know that it was an inequitable transaction, like if we send you a cookie for $5, and it turns out that it is worth 50 cents, that is many scholars would be a form of carbon that we're in equity, and I have the right to get my money back for you for
that transaction. But when it comes into this area, our designated rights and responsibilities of the parties to the contrary, there is a lot a large room for flexibility, a large room for flexibility to allow for mutual concern, particularly in the 100 emails.
Because
many people may feel
free to strike in the area transaction
is pretty flexible.
Because there's so much that is dependent very much on the circumstances in which the province allow someone to lose the Mona Angus rule for him. Muslims are held by or are held to help to their conditions or abide by the conditions. Muslims abide by
conditions. So, in how many is used this money is applied, why we need to allow for a lot of mutual concern contracts if both parties the contract mutually consented to these clauses, we will accept them and accept optional rules or other clauses in the contract. So, we could use this in the final you know modern financial products we could use the flexibility and the different from other go around with you will not find any scholar from any master that is not using the other example, because really
common thing for instance and he is what he considered to be one of the most authoritative economy scholars in the subcontinent
you know, follow the financial products, he oversees the use of foreigners,
they use elements of all forms.
Nowadays, if you will, you will need to do this particularly in the area of financial transactions particularly if you have to go you know at the ATM sophisticated contract where you have to justify from a three hour perspective.
So, you could use a lot of flexibility here, then it would be let's remove equity out of the way he said equity is to first initially artistic naked and it is the law of flexibility here. Certainly there are certain rules that we cannot violate environmental rules. But there is room when there is disagreement between the scholars and flexibility and the car gives us flexibility. We use that disability we argue big things now.
In order for a project to be heard, we have no worry about what principle and the Nova is knowing that no benefits but what complicates lots of contracts like all the insurance contracts will be when finally the Nova concept, right? insurance, all those conventional insurances violate the rule or cancel. So and I have a lot of speculative transactions in the market.
The different credit swaps and
transactions in the market would violate the noir concept.
But there are always exciting alternatives whenever I want to make something hard a lot of gives you the viewer a beautiful alternative It is our failure as Muslims and what we believe me it is our duty as Muslims Muslim countries Muslim governments, Muslim scholars, Muslim public Muslim organizations, Muslim academia Muslim you know, think it is our finger as Muslims that we're not you know, discovering the proper alternatives and implementing them in practice, but when we do they will live and work a lot anywhere that you take for example, the issue of insurance basically, remove it remove the second party and the insurance and turn it into a co operative insurance where
the insured are the insurance just the card holders or the shareholders are the insured and in this type of transaction, this is called
benevolence benevolent transaction it's not a non profit transaction you remove the other party, which is the company but putting our company Yes, the company will not be another party to the contract that company will manage the money that you and I and him will contribute people have this monster getting started the power of insurance between themselves the each one contributes now they have surplus it goes back to the insured if they have done this it is
taken care of by the insured. And this way you want to remove uncooperative ventures are this is not like
it's not too far fetched is not like imaginary is not like to Indian, there are a lot of cooperative ventures even in the West.
Okay, then we come to labor and labor, non labor sensitive Why does it complicate a lot of modern financial transactions because Riba is a breeze in the air nowadays.
So it is, it is in the air.
It is in all those transactions. But what it basically does is that it mobilizes the savings to make them accessible to investors. So it mobilizes the savings so that the savings are people are accessible to investors, but those people could get the fixed fixed three third, do we have tools in his plan to mobilize the savings of people so that they become accessible to him?
Investors suddenly become so that they increase the economic efficiency of the markets. Absolutely. We have something called the modaraba, which is basically a partnership between labor can happen skalka possible labor partnership that isn't without other, we have some info in the background, which is the cost plus sales, cost plus sales, we have a certain
cost plus sales is when they asked me to buy something. For me.
Most of my sales basically is when I buy something from you, with a, like, a markup from the price you bought it for, or like a percentage added to the price that you bought it for, but how can we use it in finance? We did, it's called the veil describe or it is the cost plus same for the purchase order. So I go to the bank and I ask them to buy something for me, yeah, the seventh to me with installments, but we have the moussaka which is the part in the partnership, the partnership
where the the financing institution takes interest in the success of the not the borrower, in this case, the partner. So, if I have a part three and they want to basically buy new machines from America from a factory and go to the financial institution and present them in a study proposal, good study anything interesting might have success, because they will become my partners and this partnership could be a big client in partnership until I find out about configuring
they have a lot more partners. So it declines over time, there is a summary which is also the concept of you know,
there is the price of a commodity in any sale in any sale, there is a price and a commodity. So, it is
the same as price for price that is quotes on currency exchange, it is it is heavily regulated. And the same is commodity for commodity to disclose financial
means bartering is less regulated, but is more regulated than the other forms. So, the most regulated is price per price currency for cars very heavily related than watching piombo marketing which is commodity for preference for commodity witchy we can do this I can send you my projector for your laptop, right we can do this Yes absolutely.
But it is regulated is more or more regulated on the same property which is highest for commodity. But see the property which is priced for commodity you could it could be a cash transaction,
or it could be different payment and transaction
or advanced payment transactions and different payment transactions knowing we all know it you know as I go to sleep ease and environment happiness and fame over two years was the first payment transaction. advance payment transaction is when you go to a partner and attempt the farmer here take $2,000 and in this particular day, you know the 22nd our br our 1437 you will give me two thirds of this grant of weeds. Two thirds of our configured randomly is this permissible? Yes. This was the last one were to place a tool that is meant to mobilize savings mobilize, you know, check cash and you know, get into the market for the growth of the market. Absolutely. So it's nice to
have an interest in the market. And it's man, you know, that's providing tools for us to mobilize the savings. In this case, if people want to buy houses, that the models that we have the models that we can think of, you know certainly seven advance payments will not work for houses because the sun has certain conditions.
But we have that is not which could work for houses by going up
the contract manufacturing, it could work for houses that are details will not go over here like that. But if you go to our company and tell them make me a house with this with a detailed description with a detail description,
This is cool. Darkness is not a contract manufacturer. And outlet is not according to the organization of the Islamic countries,
the assembly of the organization of the Islamic conference, there were some details that they were the aren't the most so awkward when it becomes feasible in our times, you can start to pay now. And you can continue to pay after you receive the house, you can start paying off your house, you get in the house in one year or six months. Whenever you get the house, we really build it for you. And you can continue afterwards. The problem in America is that financial institutions are
the chicken away from investment, the rule there invest the one fixed return. And that is the problem. Because if I want the fixed return, I'm not interested in the interest of the borrower.
We have conflicting interests, right. So you are the borrower, you go to the bank and enjoy them, I want to buy this 300 or $300,000 house, if the house is only worth $250,000.
Bank is interested in selling the two for 300,000 right and wrong, because they make more money off of you because there is a fixed return. If I align the interests of the financial institution with the with the buyer in the go into a declining ownership, or the move into marijuana having Mr. Mr. Orange, you know, cost plus fee for that purchase order that they're
telling me, No, I will not get into this, you know, this house is not worth $300,000 This house is not worth $1,000. Why did the financial crisis happen because they gave me those mortgages, exuberant amounts of money for houses, and the banks did not care because they are making more money. And even if you default, they don't care because they get the money from insurance companies. But guess what happened? Too many people defaulted, the insurance company could not pay any more. The max can AIG the mother insurance company could not pay any more. That is when the system after all, the system breaks down and you get the domino effect throughout the whole world. But if you
align the interests of the financier and the the the customer or the client, then it will be a much healthier atmosphere of investment. We have two main products in the US market, two main targets, one declining ownership. And that is the model of you know, companies like guidance have to the cost plus sales for the purchase order. And that is the model of companies like
DuPont and university Islamic financial, and so on. So they use those models in order to those models. Here's the issue. Are we trying to cut corners? Yes, we are trying to cut corners. Are we trying to basically do patchwork? Yes, I admit I confess to you, we're trying to do punishment, because the overall economic context is usually a strip away. And it is very hard to operate presented without being tainted staying affected by but are we? Are we trying to do something good positivity moves a step forward in the right direction? Yes, I think many of those companies are trying to do this closer to us, then, even if I can't hit the target, I will come as close as they
can within a mark within an environment. And I'm not saying that they have no shortcomings. And I'm not saying that they can do better. I think they could do better and I think regardless, but I'm trying to say Let us praise and commend the positive movement and that has encouraged them to move even closer and closer to the target.
In order for him to release two products to be good. It's not from Islamic perspective that ownership needs to have manifestations that is real ownership, it is not just a trick, it is not just a trick or a device to circumvent the rules. You know that
it was it was seen for the purchase order that product that product has to be owned by the bank before it sells it to you before it says to you. Why because there is a very important principle in Islamic finance which is
A piece of the process of selling two thirds into a legal maximum.
Profit and liability for errors in hand, profit follows liability. Meaning as an investor, you have to be responsible and investing, you can make profit off of
money, because money. Aristotle said this, it is not even, it's not even just that for air, or the Bible, even Aristotle, even even philosophers, Aristotle said money does not beget money.
Because anyone in his right mind knows that money should not be getting money, it is labor, that is beginning the money. So when you make a fixed return on the investment of money you're making, you're you're shifting all the risk, the labor, labor is responsible for all for all of the risk capital is not responsible for the risk at one point money back
or five, or whatever percent increase. Okay. So, the cost, the cost savings for the purchase order is the one big thing that we have to focus on is that that financial institution has to own the product to before the 17th, the declining ownership.
model. The one thing which we have to
focus on is that this has to be reading
for orders of business decline, declining corners, repo owners that were homeowners, so there has to be some responsibility, shouldering by the financial institution as well. And
maybe I'll even be
stuck here. Maybe the questions