Islamic Commercial Law

The numerous tragic events of the past few years, such as the terrorist attacks on the Twin Towers in
New York, Bali, Madrid and London, the invasions of Afghanistan and Iraq, the ongoing violence in
those two countries and the attack on Lebanon, have created an interest in Islam generally, and more
particularly in the phenomenon known as the ‘Islamic revival’. One result of this new interest is an
awareness of the role and importance of law in the life of Muslims.

‘Islamic law’ (in inverted commas because, as explained below, the term itself is problematic) covers
all aspects of human behaviour. It is much wider than the Western understanding of ‘law’, and
governs ‘the Muslim’s way of life in literally every detail, from political government to the sale of
real property, from hunting to the etiquette of dining, from sexual relations to worship and prayer.’ 2
Notably for our purposes it also regulates commercial transactions. It follows that the Islamic
conceptual framework is quite unlike that of Christianity in which law is secular. 3 There is no
Christian law of contract, for example, no Christian law of property, whereas bodies of law dealing
with such matters do exist in the shari’a. So, although it would make no sense to refer to ‘Christian
commercial law’, it is meaningful to speak of ‘Islamic Commercial Law’. 4

Various issues need to be explored before we proceed to a consideration of that law.
Shari’a Commercial Law

‘Commercial law’ is an imprecise term. In comparisons as between Western systems, the primary
linguistic difference is that the common law term tends to cover transactions rather than institutions
such as partnerships and companies, whereas civilian law equivalents encompass both. Another
striking difference, which cannot be categorised according to the common law/civilian law divide, is
that between systems which have a formal distinction between commercial and non-commercial law
and those which do not. 8

The considerations do not apply to the shari’a. The distinction between transactions and institutions
is not relevant because, although the shari’a does have contracts which resemble our partnerships, it
has practically no concept of legal personality. 9 As regards the distinction between commercial and
non-commercial law, the jurists did, naturally, categorise the shari’a, but the principal divisions were
akhlaq (morals), ibada (religious observance) and mu’amalat (transactions) and, although they did
recognise the difference between commercial and non-commercial transactions to some extent, 10 this
acknowledgement did not have anything like the same nature or significance as the Western
divide. 11 In the shari’a, the same principles of morality apply to all situations; one should not behave
in one way at home and another way in the office. The shari’a attitude has deep roots, for it reflects
the Prophet’s many years of experience as a trader before his prophetic mission. This uniformity of
treatment is a particularly important aspect of the subject because it gives rise to some major
differences between the shari’a and Western commercial law regimes. The latter, whether or not they
contain a formal distinction, work on the assumption that different attitudes are needed for
commercial as opposed to non-commercial transactions, since business people need less protection
than ordinary individuals and different moral standards apply.

Accordingly, any definition of ‘Shari’a commercial law’ (one might be: ‘all those parts of the shari’a
relating to the exchange of goods and services with the aim of profit’), must be read in the light of the
considerations outlined above.
Development and Eclipse

But what is the shari’a?

The question is perhaps best answered by a brief historical overview. The Prophet Muhammad
received his first divine message in approximately 610 AD, having up to that date been a highly
respected merchant and arbitrator. The message was followed by other revelations, which were
gathered together after his death in the collection now known as the Koran, literally ‘reader’, from
the root ‘qr’’, to read. The Koran contains a considerable number of verses with legal significance, but
is far from being a comprehensive code. It is supplemented by accounts of the Prophet’s words and
deeds, his practice or ‘sunna’, recorded in short narratives called ‘hadith’, the English translation of
which is ‘Tradition’. Even this combination, though, does not provide enough detail to deal with all
commonly occurring problems, so the jurists devised rules to fill the gaps using various techniques,
notably qiyas (analogy) and ijma’ (consensus; at first that of the whole community, then that of the
jurists). Various other concepts were of relevance, of these ‘urf (custom) was of great significance in
commercial transactions.

One concept in particular, ‘ijtihad’, should be mentioned here. Literally ‘effort’, in a legal sense it can
be defined as ‘independent judgment in a legal or theological question, based on the interpretation
and application of the 4 [sources of the shari’a], as opposed to taqlid [following established rules and
doctrine]’. 12 In other words, it is a human activity which interprets the will of Allah as manifested in
the Koran and the Sunna by the use of established juristic techniques. That activity can only be
properly undertaken by someone with a deep knowledge of the shari’a, someone who is ‘mujtahid’. It
is also used to denote creativity in the shari’a, as in the (now somewhat discredited) idea of the
‘closing of the gate of ijtihad’, and more especially in recent time, the adaptation of the shari’a to
modern conditions. 13

The law which emerged was ‘the law of the body politic’, 14 but it was to a significant extent devised,
and almost entirely managed and interpreted, by jurists working within madhahib (singular madhhab,
rendered in English as ‘school’). The madhahib were very largely independent from the ruler who
was, in principle and usually in practice, subject to the law, not its generator or controller. ‘Never
could the Islamic ruling elite, the body politic, determine what the law was.’ 15 Indeed, the body
politic was regarded as corrupt. ‘If Islamic law had represented to Muslims the best of religion and
religious life, then the state stood for the worst of worldly temptation [and] corruption’. 16 Naturally,
interaction and accommodation did occur between the jurists and the ruler, but nonetheless the
independent and dominant position of the shari’a do constitute a major difference between it and the
modern Western idea of law.

On the commercial side, the Muslim conquests created a vast area in which and out of which a great
deal of trading activity took place. It was crossed by important trade routes and, for most of the very
long period of classical Islam, there was a favourable economic environment. ‘Industry was
developed, manpower consisted of free workers, many goods were produced for export and large
quantities of coins were in circulation.’ 17 Gold from the Western Sudan came into the Muslim world,
and circulated freely and there was: ‘intense [banking] activity’, in which bankers: ‘performed all
banking operations: the exchange of money, loans, and the sale of assignments of credit’. 18 As a
consequence, the jurists developed a system which, it seems, (although, as we shall see, the issue is
disputed) 19 served the needs of participants well. However, the Muslim world was eventually
overtaken by the West in areas such as technology, warfare and commercial techniques. This new
superiority was forcefully brought home by a long series of events, including notably the conquest of
Egypt by the French in 1798, the European domination of trade (symbolised for many commentators
by the Treaty of Balta Liman in 1838 between the United Kingdom and the Ottoman Empire) 20 and
generally the political domination of the region by European powers.

One of the consequences was a wish to ‘modernise’, in other words to imitate and adopt those ideas
and institutions which seemed to have given Europe the advantage. The modernisation movement
led to the shari’a being ‘abandoned with astonishing speed and completeness’ in all areas except
family law; 21 shari’a commercial law disappeared from almost the entire region, the one exception
being, for a considerable period, the Arabian peninsula and, more recently, Saudi Arabia alone, and
Western commercial law was adopted in its place.