4. Islamic Contracts

Contract is the root of an Islamic business as it involves trade and commerce, hence governed by Islamic commercial law. The contract in Islamic business is the measure of transaction validity. It is equivalent to an intention (niyah) taken for an action, which differentiates the action from a ritual practice or custom and which will bring either rewards or sins. The various forms of commercial contract in Islam can be identified in the Holy Quran and in the jurisprudence of Islamic scholars, both ancient and modern. Islamic banking operates under Islamic commercial law and is known as fiqh-al-muamalat in an Islamic legal term. It is an important branch of law dealing with issues of contracts and the legal effect(s) arising from a contract, which can be further categorized into valid, invalid, void contract and so on as the case may be and obligations must be fulfilled in the contract. Contracts ensure transparency of transactions structure, agreed terms and condition between parties to contract. Islamic banking is all about trading and the Islamic contracts are important part of structuring the financial transactions.