The Life of a Transaction in Islamic Finance

I often describe the sale item or the subject matter of a contract as the ‘heart’ of a transaction; everything revolves around the sale item and it is central to a transaction. If the subject matter is the heart, the life of the transaction depends on it. If the sale item is destroyed, the transaction dies; if the sale item is defective, it has an impact on the bindingness of the transaction; if the sale item is obscure and vague, the transaction should be annulled and reperformed; if the sale item is non-compliant, the transaction loses life. Thus, the sale item is the core and plays a central role in the life of a transaction. 

The Forms of the Sale Item

The ‘heart’ of the transaction can take various forms. whenever  the ‘heart’ is a different form, it becomes a different species. And just as each species varies in form, substance, utility, strengths and weaknesses, a transaction with a different heart at its core will vary in terms of obligations, recourse, legal rights, remedies and contractual liabilities. The sale item or the ‘heart’ – being the subject matter of the transaction – can take various forms as follows:

  1.   Mal (property)
  2.   Manfa’ah (service)
  3.   Haqq (right)
  4.   Dayn (Debt)
  5.   Adamiyyah (nothingness)

Each form has a different utility which results in unique conditions and circumstances for the transaction and transacting parties. The utility and form of the subject matter is an important element to gauge the health of the contract. 

Understanding the Forms of the Sale Item

1. Mal 

Mal refers to anything which has utility and benefit for people that can be preserved for later use – whether tangible or intangible, digital or non-digital. Most assets, goods, softwares, apps are all Mal from a Shariah perspective. When Mal is the heart of the transaction, it becomes an exchange contract, generally in the form of a sale purchase agreement.

2. Manfa’ah (service)

In plain English, this just means services. Manfa’ah refers to the services and benefits received from assets or from the work of people. Manfa’ah is intangible by its very nature; it cannot be stored, it is only derived and consumed. Further, the experience of each service is variable. Also, the service delivery is inseparable from the service provider. The service delivery and service receipt take place simultaneously. For example, a tenant receives the benefit of living in a house simultaneously to the leased asset providing the benefit. Examples of service-based contracts are leasing and employment. 

3. Haqq (right)

Haqq refers to rights. The subject matter of a contract can take the form of a right. A simple way to understand rights is that they are the gateway to an asset or service. A Haqq is a ticket. A right is always sought for to access something else, either a service, the use of an asset or some other benefit. Not every right is tradable; however, those that are, have several principles governing the correct application of trade.

4. Dayn (debt)

Dayn is just debt. When the subject matter and heart of a contract is a debt, the nature and safeguards for the transaction become more rigid. Dayn is a liability on someone else. It is an invisible entity which bears its weight on others in favour of the creditor. It cannot be traded freely like those subject matters which have their independent existence. Dayn is also more at risk of attracting Riba, which is in essence a benefit from another’s liability without any justification.

5. Adamiyyah (nothingness) 

When the heart of a contract is neither Mal, Manfa’ah, Haqq or Dayn, then there is no ‘heart’ to and therefore no body. As such, there can be no transaction created when there is no life. Such contracts are not valid and do not demand any consideration.  

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