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The majority opinion of the Islamic scholars (Fuquaha) regarding life insurance is that a person is entitled Islamically to the amount of his contribution. Any extra amount received on maturity of the insurance scheme may be used for charity. The issue raised in the above question is that the insurance scheme has to be taken compulsorily. It is not by choice but an obligation of service rules. We approached a recognised institution of shari’ah opinions (darul-ufta) and the reply received is translated as under:
“You shall be entitled to use the amount that you deposit in the scheme. The extra amount received should be used for charity (sadqua) in favour of poor and the needy persons.”
Conventional banking system is based on interest whereas transactions in interest is not permitted in Islam. So, providing a house or its portion on rental basis for this interest-based system would amount to participation in the forbidden transactions. However, the case of an Automated Teller Machine (ATM) is somewhat different. Banks arrange ATMs at different places in order to facilitate its customers to withdraw cash at their convenience of time and place. Through this service it becomes possible to withdraw cash at a time beyond the working hours of the banks. Although, this too is part of banking services, but this is not directly related to their interest-based transactions. Hence, an accommodation on rental basis may be provided for installation of an Automated Teller Machine (ATM).
It is obvious that some services of conventional banks are useful, if not desirable. It is true that the major chunk of banking transactions falls under forbidden areas. But one should not lose sight of the positive services of conventional banks. Our aim should be to keep undesirables at bay, keeping the desirables available.
Conventional banks are charging fees for some of these services, like transfer of funds from one account/place to another. In the case of money withdrawn from ATMs, generally, they do not charge any fees. So, we get full amount as fed in the system without any deduction. The revenue and business interest of banks involved in the system, besides initial and/or periodical charges for issuance and continuation of debit or credit cards and penalty for default in their use, are competition with other banks in providing services, publicity and increased flow of funds.
The case of credit cards is somewhat different. Banks charge interest on default in payments against them and cardholders, by default, do default. That is why Islamic scholars discourage use of credit cards, while permitting debit cards.
It is true that selling before getting possession is forbidden by the Messenger of Allah (peace and blessings of Allah be to him). Following tradition is very specific in this regard. It was narrated that Hakeem ibn Hizaam (may Allah be pleased with him) said: I came to the Messenger of Allah (peace and blessings of Allah be to him) and said: A man may come to me wanting to buy something that I do not possess; should I buy it for him from the marketplace then sell it to him? He said: “Do not sell that which you do not possess.” [Narrated by at-Tirmidhi, 1232; an-Nasaa’i, 4613; Abu Dawood, 3503, Ibn Maajah, 2187, Ahmad, 14887]
Another tradition specifically forbids such a deal with regard to foodstuff. However, Ibn Abbas (may Allah be please with him) and other scholars opined that the prohibition is not confined to food-item and extends all commodities. The Messenger of Allah (peace and blessings of Allah be to him) said, “Whoever buys foodstuff, shouldn’t sell it back until he fully received it'”. Ibn Abbas said, “And I think that every other stuff is similar to the foodstuff.” [Narrated by Bukhari, in hadith no. 2025 and Muslim, hadith no. 1525] Thawus, the disciple of Ibn Abbas, curiously enquired the logic behind this prohibition. Ibn Abbas replied, “That is because what really happened was the selling of dirham with dirham, whereas the foodstuff was postponed.” [Narrated by Bukhari, no. 2025]
However, one should understand the meaning of “possession.” It does not apply to merely physically acquisition of somethings. One may actually have something in physical control without being its owner. The converse may be true too. One may be the owner of something which is not in his physical custody. This may be a complex legal issue of the modern world. But, the Messenger of Allah (peace and blessings of Allah be to him) has provided a simple test for this. The litmus test is that if a person bears to suffer loss of anything, he is the rightful owner of that thing and he can sell that. Such a moment may arrive before that item comes under his physical possession. The Messenger of Allah (peace and blessings of Allah be to him) said: right to earn is linked with risk-bearing (Al kharāj bi’ldhamān). [Reported by Dār Qutnī (53/3), Hākim (15/2), Tirmidī (1280), Nasā’ī (4490), Ibn Mājā (2242)] The exact term used by the Prophet is dhamān, which is referred to as responsibility, guarantee, warrant, surety, security and liability.
The above tradition (hadees) may also be translated as “A profit is a reward of responsibility/warranty.”
Another tradition is more explicit on the issue. “there is no profit (lā ribha) for (the person) that bears no risk (mā lam yadhman). [Reported by Nasā’ī: :4629, Tirmidhī:1234]
In simple words, one has the right to earn if he carries the risk of loss. Risk-bearing is the basis of entitlement of gain from such transactions.
In your exact case, if the loss on account of any mishap, like leakage, theft, accident, etc., before the consignment reaches the destination, is upon you then you are entitled to sell the goods because you are in constructive and deemed possession of the items even during its movement from the warehouse of the port (or supplier) to its destination, which may be your place or the place of your purchaser. However, the seller, despite the transaction with you, should not further sell it before physically getting the consignment.
Islamic law (Shari’ah) does not fix any upper limit of the margin of profit. A seller can keep any margin, resulting in high or low prices. The buyer, on the other hand, is not compelled to purchase at the price offered by the seller. He can negotiate, bargain, refuse and move on to other sellers. Both have free wills and the transaction would be affected only on mutual consent. The risk of losing the buyer owing to market competition may compel the seller to offer a price of his commodity commensurate with those of other sellers. Shari’ah, as a matter of general principle, depends on the efficacy of such market forces.
There are specific traditions of Prophet Muhammad (peace and blessings of Allah be to him) where he was asked to fix prices in the market, but he refused. Two such traditions are noted hereunder. Narrated Abu Hurairah: A man came and said: Messenger of Allah, fix prices. He said: (No), but I shall pray. Again, the man came and said: Messenger of Allah, fix prices. He said: It is but Allah Who makes the prices low and high. I hope that when I meet Allah, none of you has any claim on me for doing wrong regarding blood or property. [Recorded by Abu Dawood, hadees number 3450] Narrated Anas ibn Malik: The people said: Messenger of Allah, prices have shot up, so fix prices for us. Thereupon the Messenger of Allah ﷺ said: Allah is the one Who fixes prices, Who withholds, gives lavishly and provides, and I hope that when I meet Allah, none of you will have any claim on me for an injustice regarding blood or property. [Recorted by Abu Dawood, hadees number 3451, and Ib Majah, hadees number 2200]
In the first tradition the Messenger said that Allah makes the prices low and high and in the second tradition he said that He fixes prices. In our own narrative we can say that the system of price adjustment in the open market depending upon their demand and supply has divine approval. So, the state/administration should desist from intervening because that would simply amount to denial of the right of the seller to offer the price that he wishes, which the Messenger of Allah, in the above referred to tradition, has described as ‘injustice regarding blood and property.’ Such interplay of market forces, in today’s parlance, is called ‘invisible hand of market’ and the intervention of the state/administration is known as ‘visible hand of market. Islam encourages the former ‘hand’ and discourages, if not forbids, the latter.
However, it would not be proper to give the blanket statement that ‘invisible hand of market’ has no place in Islamic economics. The state may be compelled to intervene in specific cases where public good is at stake. Obviously, public interest may supersede individual rights in certain cases. Further, no fraud or deception in the name of individual right can be permitted. ‘Profiteering’ and all forms of exploitation have to be checked. The state may, rather it should, intervene in following situations.
As an example of mechanism for market control, the case of purchases of agricultural products from villagers outside the city and selling in the market at higher price may be cited. The Prophet discouraged the practice and directed that the products should be traded only after they reach the market.
Another example is that of Hazrat Umar (may Allah be pleased with him), reported in Muwatta Imam Malik is worth noting. “Umar bin Khattab passed by Hatib bin Balta’ah who was selling dried grapes in the market. Umar told him either to raise the price or leave the market.” However, Imam Shafi’i has presented additional version of the story, as a rejoinder, that after rethinking Umar went to Hatib’s house and told him, “that whatever I told you was neither an expert’s opinion nor a verdict. It was only a personal concern for welfare of people. So, you can sell it whatever rate you like and wherever you like.” It may be noted here that Hatib himself was a companion of the Prophet and any reference of ‘peoples’ welfare’ must have been sufficient for his subsequent behaviour.
It may be summed up that government interference in the market is not justified in normal cases, However, exceptional circumstances, such as the protection of public interest, may require exceptional actions including interplay of the ‘visible hand’ of law.
PENSION: The pension amount is the sole income of the widow and she need not share it to the inheritors of her deceased husband, including her sons and daughters. This ruling is based on the reasoning that the pension amount is in the nature of social security and gift meant exclusively for the widow and it would cease with her death.
ZAKAT ON INVESTMENT IN SHARES: It would be better to discuss the concept of incidence of zakat. Zakat is due only after a person possesses continuously for twelve months of Islamic calendar wealth in the form of a particular level of gold or silver or their cash equivalent. The day he becomes liable for payment of zakat shall be the date for all his future computations of zakat. After that requirement of possessing something for twelve months is not relevant. His zakat will be based every consequent year on the position of wealth on the date he first became liable.
The wealth on which zakat is calculated is also defined. It includes cash in hand, bank balance, gold, silver and investments in the form of shares. Investment in shares is considered a liquid asset like cash. Zakat will be calculated on the market price of such investment on the date of computation. Purchase price or profit or loss on investment have no relevance for the purpose.
ZAKAT ON HOUSE PROPERTY: Zakat is due on specified assets. Generally, there is no zakat on house property. However, if a person deals in purchase and sale of house properties including land and flats then these are his commercial goods and zakat would be payable on their closing stocks. So, in the case that you have enquired, there is no zakat on the flats he is owning. On the date of computation zakat will be calculated based on his liquid asset including cash and bank balances. There is no zakat on income as such, be it on account or rent or from any other source. Zakat is on saving, and not on income. Zakat for a person will be payable on the unutilised liquid asset on the date of computation.
The short reply to your question is in affirmative. The overwhelming majority of Islamic religious scholars (Ulema) has opined that the amount paid in the name of interest on compulsory deductions in provident fund schemes and on matching contribution of employers thereon is not the interest (riba) in shariah and so it is not prohibited. Accordingly, you will get this opinion from almost all religious seminaries (madaris) like Darul Oloom Deoband, Nadvatul Ulema and the Barailly Madarsa, and bodies authorised to issue fatwa (Imarat-e-Shar’iahs). The Minority opinion, if not worthwhile sole opinion, is held AAby Syed Abul Aala Maududi who, although not calling it categorically haram (prohibited), has advised restraint, avoiding its self-benefit. The majority viewpoint needs some explanation.
Employees get three types of payments on settlement of their provident fund. First is their own contribution. Second is employers’ matching contribution. Third is the additional amount termed as interest. Ulema consider all these three elements as permitted for employees and so there is no element of hesitation in utilising all these. The first two amounts, employees’ contribution and employers’ matching contribution, are part of salary which are being paid at the time of close of service, instead of at the beginning. The additional amount called as interest is also not interest (riba) in shari’ah. Interest (riba) in shari’ah is the addition in transactions on account of a condition and an agreement. If anybody pays an extra amount while paying off a loan then it is a favour in payment from his side. And an employer pays extra amount to his employee then it amounts to a reward. Hence, the amount that is called as interest in computation of provident fund payments is not in the category of interest (riba) forbidden in Islam. Mere nomenclature as interest is not sufficient to regard it as the interest prohibited in shari’ah.
There is a lesson to be learnt from the above discussion. The nature of transaction would justify the correct position, not the popular name. Alternatively, we may have the case of a country where bank interest is termed as munafah (profit). That would not make that as such. One may assign any name to anything but the position in shari’ah will be guided by its own assessment based, name apart, on its nature.
One note of caution is needed here. The above discussions are related to compulsory deduction of provident fund as part of a service agreement. However, if anyone opts for voluntary contribution from his salary for any reason, like tax planning or saving, then any additional amount provided on that voluntary portion will be the interest (riba) prohibited in shari’ah. Employers do not provide matching contribution on voluntary contributions in provident fund. There is unanimity of religious scholars on this prohibition of addition on voluntary part of provident fund contribution.
So, where we the commoner stand? Does it appear confusing? No, we have both the opinions, one held by the overwhelming majority of Islamic scholars and the other dissenting voice of Syed Abul Aala Mududi. One may choose that which he thinks proper. The latter opinion of desisting from the commonly called interest would in effect amount to foregoing its benefit and providing the same to a charity. That will be an act of higher degree (azeemat). And, that will perhaps be in line with what Hazrat Umar (may Allah be pleased with him) has called as avoiding even a doubtful element (raiba) in riba.
A number of questions have been asked and concerns raised by various persons through emails, WhatsApp mode and in personal conversations with regard to practical aspects of conceptualisation and computation of zakat. Most of these persons are young professionals and businessmen. It is heartening that more and more individuals are becoming serious about this aspect of their religious obligations. These modern educated individuals are not conversant, and so not at ease, with the terminologies and parlances used by our traditional religious scholars. Further, they need justification and go beyond ‘how’ to ‘why.’ Replies have been provided to concerned persons through the modes they approached. We were cautious to assure that the replies should be in line with the majority opinions of our religious scholars and have been contacting Maulana (Dr.) Raziul Islam Nadvi as the resource person for the purpose. We intend to discuss such concerns and related opinions for general interest in the following lines.
DATE OF COMPUTATION A businessman feels it would be easier if the date of computation of zakat coincides with the date of closing of books of accounts because all formalities including valuation of stock have to be done for the closing of the books of accounts. The books of accounts, in India, are legally required to be closed on 31st March every year. Zakat becomes due and payable at the close of twelve lunar months, i.e. one Islamic calendar. Lunar year is shorter than solar year and this difference become a full year after 36 years. It is interesting to note that Islam uses both the lunar and solar system of years for its prayers (ibadat). Timings of daily prayers like salat (namaz) and saum (fasting) depend on movements of sun whereas annual ritual of prayers like beginning and end of the month of saum, incidence of zakat and haj are related with the sighting of moon.
As regards formalities of closing of books of accounts, computation of zakat would not require full accounts closing activities. Mere ascertainment of current assets (including investments in shares of other businesses) and current liabilities (including provisions of doubtful debts which are unlikely to be recovered) are needed. However, valuation of stock of goods shall have to be done on current market price, as against the principle of “market-price or cost-price whichever is lower” required to be followed in accounts.
PLACE OF VALUATION OF JEWELLERY A software professional is currently working in America with his family. His company in India has placed him on a project there. He asked about the valuation of the gold ornaments of his wife: whether those have to be valued at the rate in America or the rate in his home-town in India. Further, he wants to know about the disbursement of zakat. Can he utilise that for needy [persons] in India or he has to utilise the full amount for those in his present place of residence?
Zakat in this case may be computed on the basis of rate prevalent in his home-town because his stay in America is temporary. In the case of those persons who have shifted for good to any other place all rules (ahkam) of shariah like qurbani and zakat for the new place of residence would apply. Further, it is preferable for him to utilise the zakat for needs of the people of his home-town. However, he can use a portion of zakat for needy persons in his present locality. His choice of disbursement of zakat is not restricted.
ZAKAT ON PROVIDENT FUND There appears to be a difference of opinion regarding inclusion of the amount accumulated in provident funds for computation of zakat. One opinion is that it should be included every year. Another opinion is that it need not be considered very year for the purpose. At the end of the scheme proceed will inflate the income of the individual and zakat will be payable that year if any amount remains unutilised on the date of its computation. There is need to understand different types of provident funds and the rulings with their regards.
In India we have three types of provident funds: General Provident Fund (GPF), Public Provident Fund (PPF) and Employees Provident Fund (EPF). GPF is meant for government servants. PPF can be opted for investment by any individual including those having business or other income. EPF is available to salaried people of organised sectors. In a contributory scheme employer too deposits matching amount whereas he does not do so in a non-contributory fund. The participation of an employee in a provident fund scheme can be either mandatory or voluntary. At times, employees voluntarily opt for higher contribution than what is legally required by law.
Majority opinion of Ulema (theologians) and Fuqaha (jurists) is that compulsory deduction of provident fund and the matching contribution of employers need not be included every year for calculation of zakat. However, if any individual invests voluntarily in any provident fund scheme then this is to be included for the purpose. Contributions in GPF and EPF are mandatory for government and organised sector employees respectively. Further, employees can opt for additional deductions from their salaries. Contributions in PPF is fully voluntary. The logic of excluding mandatory deduction is understandable. It is compulsory and is not in the possession of the employees concerned. Even if they want to withdraw any amount during their service period, they get loans from the account which have to be refunded. The fund becomes a property of the employee only on cessation of his employment.
Of all items traded in a stock markets we need to deliberate only about stock of Equity Shares because other items generally traded there, including bonds and derivatives, are interest bearing. Equity Shares are ownership certificates issues by Companies, representing a portion of their total Issued Share Capital. The stocks of companies which are listed in stock Exchanges are traded in the stock market.
The majority of Islamic scholars opine in favour of holding and trading of Equity Shares. However, some scholars have taken the stand against this. There are two reasons of this dissenting voice. One reason is that these scholars, in minority although, consider that legal persona other than human beings is not correct. So, a company or any other business or other entity cannot have a separate legal entity. Another reason is that the concept of ‘limited liability’ on which equity shares are issued is not acceptable to these scholars.
The majority opinion on the subject is that non-human entities can have a legal persona. They can sue and can be sued. The example of such legal entities in Islamic heritage are Baitul-Ma’al and Waqf. Further, these scholars find nothing wrong in ‘limited liability’ and have recognised it as today’s ‘urf’ (accepted practice).
So, let us go by the majority opinion. Equity Shares can be purchased, acquired and hold and traded. But this is not a blanket permission. It has conditions. The primary condition is that the business of the company whose share is to be acquired should be permitted in Shari’ah. Hence the company should not be engaged in the business of alcoholic drink, tobacco, pork, conventional banking and insurance, pornography, arms, gambling and speculation and the like. Scholars have, in addition to this primary condition, suggested other criteria which are based on prudent approach and overall nature of shariah. Such shares are called as ‘Shari’ah Compliant Shares. There are different agencies that perform the task of screening shares in this light and come out with the list of such permissible shares. Such additional conditions include the following:
Ideally, there should not be any element of non-compliant income like interest and so the ratio in point 1, above, should be zero. But in real situations taking a position like that would amount to denying investment in equity shares. However, some scholars suggest further tightening of the belt and have opted for 3%. Similar is the position of other norms.
One relevant issue may be noted while selling a share. An equity share can be sold only when the company in question has started investment in real assets or in other needs of a business. In other words, shares of a new company which has not commenced any activity should not be traded because that will amount to trading money with money. The money collected from sale of share is already with the company and so the equity share does not represent any share of asset other than that. Islam does not permit trading cash with cash.
Transplantation of organ, including kidney, is permitted with following conditions:
It is pointless to discuss which act, buying or selling of an organ, is a greater sin. If something cannot be sold in the eyes of the Islamic shariah (law), it cannot be purchased too. The whole idea of getting financial benefit from selling any organ and using the sale-proceeds for further economic advantage is obnoxious and void-ab-initio. One should understand that a person is not the owner, as such, of his body or any of its parts. These are provided by God, the Almighty, as a trust to be used in the way He pleases. That is why, suicide is not permitted in Islam. And that is why, the scholars of Islam, both Ulema (theologians) and Fuqaha (jurists) opine that the will of a person for donating any part of his body after his death is not valid because his body, with all his parts, is not his wealth on which his Wasiyat (will) could be valid.
Zakat for a businessman is computed on the net current asset on the date of computation at the close of an Islamic calendar. So, the first aspect is to ascertain the date of computation of zakat. That date, once ascertained for a particular person, will remain the date of computation for all future years. The date of computation of zakat is the one when his wealth/savings, that is net current assets in the case of a businessman, remain continuously at the level or above the prescribed limit for twelve consecutive Islamic calendar months. This level is referred to as the nisab of zakat and it is equal to either 7.5 tola (87.48 gm) of gold or 52.5 tola (612.36 gm) of silver or the cash equivalent of the latter. Once this date of computation is determined then the ruling relating to passage of twelve months becomes irrelevant. Even the income received on a day prior to this date of computations will be included. This point should be understood very clearly as we find so many people confused on the matter.
Net current asset is the excess of all liquid assets and receivables over the payables. Liquid assets, inter alia, include cash in hand, bank balance, cash equivalent of gold and silver and value of trading stock. Investments in stocks (e.g. Equities) are also included for the purpose. Gold, silver, trading stocks and investments in stock market, the equities, are valued at current market price.
As mentioned above, debt-receivables are included in the current asset for the purpose of computation of zakat. So, the question is relevant whether doubtful debts should be included for this purpose or not? If a particular debt has become bad and the possibility of its recovery is remote then it should not be included in computation of zakat. We can understand this with reference to current accounting practices. Some debts are written off the books of accounts as “Bad Debts.” In other cases, “Provision for Bad and Doubtful Debts (PBDD)” are made in the balance sheets against specific debts whose recovery is considered to be most unlikely. However, in abundant caution, a reserve of certain percentage, say five percent, of total debts is created and accounted for in the books of accounts as "Reserve for Bad and Doubtful Debts (RBDD)." So, Bad Debts and PBDD should be excluded, as they are specifics, whereas RBDD, which is non-specifics, should be included, for the purpose of computation of zakat.
The bad and doubtful debts received later would be the inflow of that year and that may impact the zakat of that year if the income so received remains in hand on the next date of computation of zakat.