Trading in Islam: Shari‟ah Rules and Contemporary Applications in Islamic Financial Transactions

This paper attempts to comprehensively highlight the various Islamic laws and guidelines which govern contracts of exchange involving selling of goods and trading of debts. Muslim jurists have extensively researched, reasoned and deliberated over centuries in order to compile a comprehensive framework of principles Muslims are required to adhere to when engaging in selling of goods and trading of debts. This compilation is based on the rulings derived from the Quran and Sunnah and other secondary sources of Islamic law. The paper introduces the readers to various categories of exchange contracts and examines the elements which may render them valid or void along with details on the general conditions and prohibitions in Islam when it comes to trading. More importantly, the paper discusses the contemporary applications of these contracts in the modern Islamic financial industry and apprises the readers of the current Shari’ah issues and challenges being faced by the Islamic financial institutions. The paper also highlights critical issues which the Islamic financial industry needs to overcome to sustain its tremendous growth along with a few recommendations for the industry to improve its practices in future. Keywords: Islamic banking and finance; Shari’ah; Islamic Law of Contracts