Islamic Law of Contract

Abstract

Islamic law of finance and Islamic law of contract strongly emphasize the need and importance of a contract for any specific financial or non-financial activity between two or more parties. This importance is strongly highlighted by Almighty Allah and Holy Prophet (SAW). Fulfillment of the contract is a religious obligation, and only contracts that contain all Sharia'h-compliant conditions can be considered as Islamic contracts. There are two major types of contracts: compensatory (financial) and non-compensatory (non-financial). Similarly, under these two types, there are several types of subsidiary contracts, which are related with partnership-based trade agreements, profit sharing trade agreements, and supporting trade agreements or contracts. In addition, there are certain rules, regulations, and options for both sellers and buyers, which they have to follow. Sharia'h has provided detailed instructions on which conditions can be part of the Islamic contract, and vice versa. All types of valid sales are executed with the help of a contract. Therefore, in Islamic finance, all Islamic financial institutions, including Islamic banks, follow Sharia'h-compliant contracts for selling their products and services.