Lecture Note: Introduction to Shariah Contracts

1. Meaning of Shariah
In simple terms, Shariah is the Islamic way of life. It refers to the divine law or code of conduct
that guides Muslims in all aspects of life including worship, business, family, ethics, and social
justice based on the teachings of the Qur’an and the example (Sunnah) of Prophet Muhammad
(peace be upon him). Shariah is not just about rules and punishments. It’s mainly about helping
people live a good, fair, and moral life that pleases God (Allah). It includes values like honesty,
kindness, fairness in trade, caring for the poor, and avoiding harm to others. In the context of
Islamic finance and accounting, Shariah ensures that business activities are lawful (halal),
interest-free (no riba), fair, and transparent, avoiding cheating, exploitation, and uncertainty.

For example: If someone lends money, under Shariah they cannot charge interest (riba).
Instead, they might enter into a profit-sharing or partnership agreement where both sides share
the risk and reward fairly. So, Shariah = God’s guidance for a balanced and righteous life.

Meaning of Shariah Contracts

In Islamic law (Shariah), a contract is known as ‘Aqd’. It refers to a binding agreement between
two or more parties that creates obligations enforceable under Islamic law. Contracts in Islam
are not only legal tools but are also spiritual and moral commitments. They must be entered
into with honesty, mutual consent, and fairness, and must not involve any elements prohibited
by Islam, such as interest (riba), uncertainty (gharar), or gambling (maysir).

2. Elements of a Valid Shariah Contract

For a contract to be valid in Islamic law, it must include the following three essential elements:

A. Form of the Contract (Sighah)

Definition:
The form refers to the offer (ijab) and acceptance (qabul) expressed by the contracting parties.
This is the communication that shows mutual agreement to the terms of the contract.

Explanation:
The offer and acceptance must be clear, definite, and immediate. Both parties should
understand the terms and conditions and agree to them without coercion or deception.

Example1:
If a seller says, "I sell this car to you for N3,000,000," and the buyer replies, "I accept," this is
a valid contract in form.

• The offer and acceptance must be immediate and in the same meeting or conversation.
• The words used must clearly show that both parties mean business — no jokes, tricks,
or unclear language.
• The agreement can be done in any language or manner, as long as it is clear and
mutual.

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Example 2:
Zainab tells Musa, “I want to sell you my laptop for N150,000.” Musa replies, “I agree to buy
it at that price.” They shake hands. This is a valid contract because both offer and acceptance
were made clearly and instantly.

What Invalidates the Form?

• Delayed acceptance: If one party says, “Let me think about it,” the contract is not
formed.
• Unclear terms: If someone says, “Let’s discuss the price later,” then agreement hasn’t
been reached.
• Forced agreement: If someone is pressured to say “yes,” the contract is not valid.

B. Subject Matter (Mahall al-‘Aqd)

Definition:
The subject matter is the thing or service being contracted for such as goods, money, labor, or
benefit.

The subject matter must meet the following conditions:

a) It must be Halal (lawful in Islam):

• Things like cars, clothes, food, land, and legal services are all allowed.
• Things like alcohol, pork, stolen goods, or anything harmful or forbidden (haram)
cannot be the subject of a contract.

b) It must be clearly known:

• The size, quality, quantity, and features of the item or service must be well described.
• No guesswork or deception is allowed.

c) It must be owned or authorized:

• A person cannot sell what they do not own or have no permission to sell.
• Exception: Agents (wakil) may sell on behalf of owners.

d) It must be deliverable:

• You can’t sell something that no one can deliver, like a wish or a hope.

Examples:

• Selling a goat for N50,000 is valid if the goat exists, is healthy, and belongs to the
seller.
• Selling “whatever fish I catch tomorrow” is not valid unless clearly defined.
• Selling a non-existent house or a tree that has not grown is not valid, except in special
contracts like salam (advance payment) or istisna (manufacturing).

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 • A car, house, land, agricultural produce, or a service (like tailoring or transport) can be
a subject matter.
• Selling alcohol or stolen goods is invalid because they are unlawful in Islam.

Key Analysis:

• Uncertainty (gharar) must be avoided; the buyer must know what they are paying for.
• The item must have economic value and be beneficial in nature.

C. Contracting Parties (‘Aqidān)

Definition:
These are the individuals or legal entities entering into the contract typically referred to as the
buyer and seller, or financier and entrepreneur. These are the people or legal entities (like
companies or banks) involved in making the contract usually a buyer and a seller or a
financier and a client.

Explanation:

Islamic law requires that the people entering into a contract are capable, responsible, and
acting freely.

Who is qualified to be a contracting party?

a) Must be Sane (Aqil):

• The person must understand what they are doing.

• Someone with mental illness cannot enter into contracts on their own.

b) Must be Mature (Baligh):

• The person should have reached puberty or the age of maturity.

• Minors (children) cannot engage in business unless guided or represented by
guardians.

c) Must Act Voluntarily:

• No one should be forced to agree to a contract.

• Forced contracts are considered void in Islam.

d) Must Have Legal Capacity and Authority:

• If someone is representing another person or company, they must have legal

permission to do so.
• A shop assistant can sell goods on behalf of the owner if authorized.

Examples:

• A 30-year-old man buying a house from another adult is valid.

• A 10-year-old trying to sell his father’s car is not valid.

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 • A staff member buying office equipment on behalf of their company is valid if
permitted.

Additional Consideration:

• In agency contracts (wakalah), a representative (agent) may contract on behalf of

another person. Sometimes, someone may act on another’s behalf. For instance, a
lawyer, broker, or representative may sign a contract for a client. This is allowed as
long as the agent has permission and follows instructions honestly.

3. Summary and Practical Insight

Islamic contracts are built on the values of trust, clarity, and fairness. They aim to create
social and economic justice while honoring the dignity and rights of all parties involved. Unlike
secular contracts that often prioritize legality alone, Shariah contracts blend legal rules with
ethical and spiritual principles.

Summary Table:

Element Arabic Term Simple Meaning Key Requirements

Form of Clear offer and
Sighah Must be immediate, serious, and mutual
Contract acceptance
The thing/service Must be halal, known, owned, and
Subject Matter Mahall al-‘Aqd
being exchanged deliverable
Contracting The people or Must be sane, mature, willing, and legally
‘Aqidān
Parties entities involved capable

4. Conclusion
Understanding the elements of Shariah contracts is the foundation of Islamic commercial
jurisprudence. Whether you’re studying Islamic banking, finance, or business law, knowing
how contracts are formed helps ensure compliance with Islamic ethics and principles. When
these elements form, subject matter, and contracting parties are rightly observed, the contract
becomes not just a legal agreement but also a moral and spiritual trust. In essence, a valid
Islamic contract is not only a matter of legality but a spiritual and ethical commitment. The
form, the item or service, and the people involved must all meet certain clear standards of
clarity, fairness, and lawfulness. This ensures that the transaction is just, trustworthy, and
pleasing to Allah.