Trading in Islam: Conducting Business in Accordance with Islamic Principles

Introduction

Trading in Islam – Today we will discuss one of the most important topics that every Muslim person in business should know about and must follow to trade honestly and peacefully. As we all know that a person who follows the teaching of the Prophet Muhammad (ﷺ) is known as a Muslim, so it is also necessary for them to understand what are the rules and regulations that must be followed by a Muslim trader to justify and to follow the path carved by the Prophet Muhammad (ﷺ). Those rules and regulations of trading in Islam will be mentioned below in the article.

Honesty is one of the most important teachings if you are going to trade, and the trade must be halal and not haram. Below we will mention all the necessary details regarding this topic with relevant quotes from the hadith and the Quran.

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Basic teachings of Islam regarding trade

In Islam, honesty is given more importance than any other religion if you are going to trade because Islam is the only religion which directs a person in all aspects of life. Islam prohibits economic exploitation, dishonesty, unfair trade practice, injustice and political deception,which is why a true Islamic society is based on absolute intolerant towards dishonesty in trade, fraternity and justice. That is the main reason why honesty in business is given so much privilege in Islam through the teachings of our beloved Prophet Muhammad (ﷺ).

The pre-Islamic societies, such as Hindus, Jews and Christians, were merely practising honest trade because they were either mercenaries or notorious and greedy for money. It was because the Prophet Muhammad (ﷺ) told his companions and followers of Islam to practice true and honest trade so that no other person gets cheated.

What ruins fortune, according to Islam

Islam believes that the food or fortune earned through unlawful means will spoil an individual’s physical and spiritual health; similarly, if one eats rotten food, it will destroy his health. Islam teaches its follower to earn fortune and food through lawful means. Those lawful means are mentioned in the Quran, which was relieved upon our Prophet Muhammad (ﷺ) and in the hadith that are collected by the companions othe Prophet (ﷺ). Read the full article to know those laws before you start trading or to get back on track if you are already dealing.

Islam is the one and only religion that is very strict towards the condemnation of commercial dishonesty. If a Muslim makes up his or her mind to make trade as a profession or wants to set up his own business, he must first gain knowledge and understand the laws and Islamic Shari’ah laws for earning a fortune through lawful means and avoiding unlawful means.

Basic laws to know before trading:

The Holy Qur’an has also stressed upon the importance of honesty in business or trading; one of the Ayat of the Qur’an says: “And, O my people, give full measure and weight justly, and defraud not men of their things, and act not corruptly in the land making mischief. What remains with Allah is better for you, if you are believers” (Surah Hud, Surah: 11, Verse: 86). These words from the Holy Qur’an teach fundamental laws and business and commerce principles. Those basic rules are mentioned below:

  1. To give just measure and weight.
  2. Not to withhold from the people the things that are their due.
  3. Not to commit evil on the earth with the intent of making mischief.
  4. To be contented with the profit that is left with us by God after we have paid other people their due.

These verses from the Holy Qur’an say that a commercial or a business can only be flourished or can be good only if conditions of peace and security are followed. For that reason, it is warned that not to disturb the harmony between lands so that the business can flourish between different parts of the world. The verses found in the Holy Qur’an closes the door to all type of dishonest and unjust practice of transaction. One must not forget that honesty is only a master virtue. If one gives just measures and just weight, it is considered as a fair dealing.

Some of the basic conditions needed to be followed:

In this section of the article, we will mention some of the basic laws of trading in Islam that are told by our Prophet Muhammad (ﷺ) and ALLAH told us through the Holy Qur’an.

The cost offered for selling a good must be priced lawfully:

The cost fixing for good by the seller and the price offered by the buyer must be just and lawful so that neither the buyer nor the seller gets deceived or suffer loss. No seller should sell, and no buyer should buy a good which has been acquired through unlawful methods or after theft or in a fraudulent manner. No Muslim should purchaseanything with the money that got earned through any means of unlawful, bribery or any kind of illegalpossession. This rule holds both buyer and seller for a lawful transaction and possession of goods. It is one of the most important laws to start trading in Islam.

One must not sell until it is in their possession:

In Islamic trade, honesty and transparency are essential principles that ensure that transactions are conducted in a fair and equitable manner. One of the core principles that support these values is that a seller cannot sell something that they do not possess, nor can they profit from something that they have not provided. This principle is rooted in the idea that any trade must involve the transfer of actual ownership and possession of goods or services and that any profits earned must be based on this exchange.

It was narrated from ‘Amr bin Shu’aib, from his father, that his grandfather said:

“The Messenger of Allah (ﷺ) said: ‘It is not permissible to sell something that is not with you, nor to profit from what you do not possess.”’

(Sunan Ibn Majah 2188, Book 12, Hadith 52)

Goods must be bought and sold in the open market:

It is said that trading in Islam that commodities and goods must be sold in an open market so that no deceives are made. The seller and the agents must be aware of the state and condition of the market before any buyers make proposals for their goods. This condition is to prevent the uneven pricing of the same good so that the buyer gets the good at the most reasonable price according to the Shari’ah law.

It is even recommended in Islam that buyers should not meet the merchant on the way to do business with them, as this could lead to unfair transactions. Instead, buyers should wait until the merchant is in the market to ensure that the transaction is conducted fairly and with full knowledge of the market conditions. In fact, if a buyer does purchase goods from a merchant in this way and it is later discovered that the price paid was less than it should have been, the owner of the goods has the option to declare the transaction null and void.

Abu Huraira (Allah be pleased with him) reported Allah’s Messenger (ﷺ) as saying:

Do not meet the merchant in the way and enter into business transaction with him, and whoever meets him and buys from him (and in case it is done, see) that when the owner of (merchandise) comes into the market (and finds that he has been paid less price) he has the option (to declare the transaction null and void).

(Sahih Muslim 1519b, Book 21, Hadith 23)

Do not trade those goods which are prohibited in Islam:

If you are a Muslim merchant, then you must understand what the things that are allowed in Islam to consume and what are not so that you do not end up selling those products which are not permitted in Islam to consume. In other words, we can say that a merchant is only allowed to sell goods that are declared to be halal (lawful) in the eyes of Islam and Allah. For example, selling off those clothes to Muslim females that are thin and will show the body of the female believer or non-believer, dealing with haram meat such as pigs, dealing with alcohol etc.

Some prohibited forms of trading and business:

In this section of the article, we will discuss what are the forms of business that are prohibited to perform in Islam and are declared unlawful or haram upon the ummah of the Prophet Muhammad (ﷺ).

Mulamasa and Munabadha:

Mulamasa refers to the practice of physically touching or handling goods being sold by a seller without their permission. This practice is considered unethical because it can damage or devalue the goods, and it can also create an unfair advantage for the buyer in negotiations. Mulamasa is prohibited in Islamic trade because it violates the principles of honesty and transparency.

Munabadha, on the other hand, refers to the practice of offering a price for goods without any intention of actually purchasing them. This practice is considered unethical because it can lead to confusion and uncertainty in the market, and it can also disrupt the pricing system. Munabadha is prohibited in Islamic trade because it violates the principles of fair exchange and honesty.

Abu Huraira (Allah be pleased with him) reported:

Two types of trarisactions have been forbidden (by the Holy Prophet), al-Mlulamasa and al-Munabadha. As far as Mulamasa transaction is concerned, it is that every one of them (the parties entering into transaction) should touch the garment of the other without careful consideration, and al-Munabadha is that every one of them should throw his cloth to the other and one of them should not see the cloth of his friend.

(Sahih Muslim 1511e, Book 21, Hadith 5)

The monopoly of business:

The monopoly of business means that the access to one good only in one hand or the concentration of the supply chain of one product or business in only one hand. This type of business is prohibited in Islam because this can lead to the exploitation. No gigantic trusts, monopolies and cartels should be entertained in Islamic society because they will destroy the peace and harmony between private and social good.

It was narrated from Ma’mar bin’ Abdullah bin Nadlah that the Messenger of Allah (ﷺ) said:

“No one hoards but a sinner.”’

(Sunan Ibn Majah 2154, Book 12, Hadith 18)

Speculative business for personal benefits or interest:

The term speculation means that buying a good cheaply in bulk but at the time of selling it ata high price; thus, it leads to controlling of the market and gaining some personal gain. If you look closely, you will find out that those who perform speculation are merely benefiting society but are benefiting only themselves. They will try to bring artificial scarcity into the society and will then sell those in their possession at a very high rate. Islam condemns this form of business, and one must not get indulge in this form of trading in Islam.

Salim b. ‘Abdullah (Allah be pleased with them) reported his father havingsaid this:

I saw people being beaten during the lifetime of Allah’s Messenger (ﷺ) in case they bought the foodgrain in bulk, and then sold them at that spot before taking it to their places.

(Sahih Muslim 1527d, Book 21, Hadith 46)

Taking an interest in the transaction:

The transaction, which does include interest,is declared haram and is forbidden in Islam. There are some core differences between interest and profit in Islam which many individuals do get confused so to prevent that one must acquire proper knowledge before starting a business. If an individual invests their capital in a business, it will bring profit; on the other hand, if an individual invests their money in banks, it will get interested.

The core difference between interest and profit is that profit can only be acquired if there is a risk of loss, but if you invest your money in the bank, there is no risk of loss of money; you will get excess just by keeping it there. If the money is invested in a business, the rate of profit is also not fixed, but it is not the same for banking. If a person is trading, he goes through hardship and labour and gives his time to earn, which is considered a lawful and halal method to make money and trade in Islam.

Abu Huraira (Allah be please with him) is reported to have said to Marwan:

Have you made lawful the transactions involving interest? Thereupon Marwan said: I have not done that.

(Sahih Muslim 1528b, Book 21, Hadith 48)

Trading of alcohol:

The trade of alcohol is strictly forbidden in Islam. Consumption and production of alcohol are both considered major sins and are prohibited in the Quran.The Prophet Muhammad (ﷺ)also prohibited any trade related to alcohol. As a result, Muslims are not allowed to engage in any trade related to alcohol, and any profits made from such trade are considered to be ill-gotten gains.

They ask you ˹O Prophet˺ about intoxicants and gambling. Say, “There is great evil in both, as well as some benefit for people—but the evil outweighs the benefit.”

(Al-Baqara, Surah: 2, Verse: 219)

Narrated `Aisha:

When the last verses of Surat-al-Baqara were revealed, the Prophet (ﷺ) went out (of his house to the Mosque) and said, “The trade of alcohol has become illegal.”

(Sahih al-Bukhari 2226, Book 34, Hadith 173)

Making transactions for gambling:

The word gambling is equivalent to Maisir, which means “getting something too easily” or“getting a profit without working for it”. These terms define what the weight of gambling is and what is prohibited for a Muslim person to gamble. Suppose a fortune comes without working, for it is considered to be unlawful and unjust upon other people. In the time of the Holy Prophet Muhammad (ﷺ) among,Arabs were to cast arrows from a bag. It depended upon pure luck whether one is getting is getting something or not. These types of games are haram upon the ummah of the Holy Prophet Muhammad (ﷺ).

O believers! Intoxicants, gambling, idols, and drawing lots for decisions are all evil of Satan’s handiwork. So shun them so you may be successful.

(Al-Ma'idah,Surah:5, Verse: 90)

Conclusion:

Islam is the only religion that strictly tells its followers and believers to do not to practice dishonesty in trade. It also has many rules and regulations which is needed to be followed if one is going to adopt trading or business as their profession. There are some rules and regulations for a female trader that also need to be considered. To understand those rules, you can visit the link given above, or you can ask Qari or scholars of Islam. It is important and necessary for every trader and person in business who believes in Allah and his Prophet Muhammad (ﷺ) must follow the rules and regulation which makes trading in Islam halal and haram.

Frequently asked questions:

In this section, we will see some of the most frequently asked questions related to the trading in Islam.

If the invested amount is equal, then is it necessary to share an equal amount of profit?

No, it is not necessary to share the profit equally until all partners are working equally in the business. For example: if two friends or relatives enter into a business and both have invested the same amount of money. Still,if one of them is handling the business alone, then the one who is managing the business can enjoy 75% of the profit, and the one who has only invested money can have 25% of the profit share. Basically, it depends on how well the partners participate in the business.

Is it allowed to take wages or salaries in advance?

It is only allowed if both the parties have agreed upon giving the wage or salary in advance without holding anything. If the terms were made that the wage should be given in advance, then in this scenario also, you can take the salary in advance.

Is it allowed to buy meat from a non-Muslim shop owner?

No, you cannot buy meat from a non-Muslim shop owner as they do not perform the rituals that are necessary to butcher an animal for consumption; thus, you will be consuming haram meat, which is prohibited in Islam.

What is the saying of Islam on trade?

A Muslim can only take part in those trades which are considered to be lawful and Halal. One must not get indulge in those trade which is prohibited by Islamic laws and is not declared as halal for a Muslim individual to perform.

What are the things that are considered to be haram in Islam to trade?

You must consider several things before opening a business, such as dealing in haram meat (pigs, carcasses and all types of impurities) and trading with interest-based businesses (such as buying two rupees for one rupee that is gambling).

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