The to religious constraints the contracts must

The proposition at hand is an extract from Schacht’s book. This proposition is divided into two parts, both of which are inter-connected and will be discussed collectively. It requires for us to discuss the extent of freedom in contracts provided within contracts construed under Islamic financial law, with an exception to few, in line with discussing that if within the ambit of ethical control of the legal transactions, liberty of contract will be incompatible, basically the prohibitions under Islamic financial law.

To begin with, according to Schacht, Islamic legal system seems extremely reluctant to accommodate the concept of freedom to contract within the framework of Islamic financial contracts as under Islamic financial law (“IFL”) there is a scheme of unchangeable nominative contracts that is laid down for them to be followed. Secondly, due to religious constraints the contracts must be construed in a way by the parties that they should respect the moral provisions provided in the Shariah i.e.- Contracts must be made keeping in view the conditions that render a contract valid, avoid interest based contracts, reduction of uncertainty in contracts, usurious practices and other elements falling in the realm of Islamic practices.

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Professor Nick Foster in his article reports a statement by the jurist IBN TAYMIYAH: “men shall be permitted to make all the transactions they need, unless these transactions are forbidden by the Book or by the Sunna” (IBN TAYMIYAH, 1948, p. 167). Professor Nick, explains this statement saying that it does not mean that there is complete contractual autonomy1 but just some space to create contracts without breaching the basic rules laid down under the Islamic legal system. He further quotes the statement given by Schacht in the proposition, supported by an example of a switch and bulb, delivering that parties do get discretion to construe contracts but only to an extent where they do not breach the framework of the Islamic legal system.2 Whereby this is the exact point of contention between the classical Islamic Financial Law and modern financial law practiced in today’s world. The classical doctrine of Islamic Financial Contract is extremely rigid and does not provide a huge window of freedom towards contracts. At the same time, it can be held that with the socio-economic and financial changes in the world, the need of the hour is to bring change to the approach of how Islamic financial contracts are construed. It seems that liberty of contract is an ever evolving subject and with further changes to the financial world globally, the rules may be rearranged in a way again so as to fit in the requirements of the changing world.

The Quran states – “O believers! Do not consume one another’s wealth through unlawful means; instead, do business with mutual consent; do not kill yourselves by adopting unlawful means. Indeed Allah is Merciful to you.’3
The religious scholars concede that Quran clearly states not to consume each other’s wealth through unlawful means ( Riba, Gharar, Usury)4 but to trade with each other with mutual consent (parties are free to contract as they see fit as long as they do not add new effects to the contract5) is permissible under IFL.With the ever changing world, modern scholars have introduced tools to create contracts which render a contract valid under Islamic law. Unlike the concept of nominate contracts6 (discussed later), they grant some freedom of contract, to bring in line the Islamic financial contracts with modern western contracts.

1 Nicholas HD Foster, ‘Islamic Commercial Law An Overview (II)’ 2007 , 4

2 Ibid., 5.

3 Quran 4:28

4 Nayla Comair-Obeid (n 12) 16–17.

5 Jonathan Ercanbrack, The Transformation Of Islamic Law In Global Financial Markets (Cambridge University Press, ) 58.

6 Ibid., 50.

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