The concept of rights and obligations in Islamic Finance

The concept of rights and obligations play a central role in Islamic Finance. The prohibition of interest is a major facet of Islamic Finance, and the primary outcome of this prohibition is the preservation of the rights of both parties – the party that requires financial assistance and the party rendering it. By replacing the concept of lending money for interest, with the concept of equal risk sharing and trade, the rights of each party to a fair deal is cemented, as well as the obligation of each party to act fairly and justly. Islamic Finance, however, is more than just the prohibition of interest. Every facet of trade must be conducted in a manner such that the rights of each transacting party are protected, and the obligations of each party to each other is duly recognized and enforced. A person cannot renounce his rights, or sign them away, and any transaction structured on this basis will still be considered to be flawed in terms of Shariah.

For example, the owner of a property has the right to charge a rental for the use of his property, provided that such rental is charged in a manner consistent with Shariah, but he also has the corresponding obligation to maintain the property. If the landlord and tenant agree that the tenant will be responsible for maintenance and absolves the landlord of his responsibility, such a transaction will not be valid. The reasoning behind this is that in times of desperation, people are often tempted to waive the rights given to them, where such rights protect them, in order to relieve themselves of their plight. Upon the immediate release, people often realize that divesting themselves of their rights has left them open to exploitation, without the chance of protection.

Exploitation and oppression is expressly forbidden in Islam, and as such, a persons rights are of utmost importance, and cannot be renounced. One of the foremost negative effects of interest based lending is the undue pressure that it places on debtors to repay funds, and the increase in the amount payable over time. Thus, if a debtor delays in paying, for a valid reason, his debt continually increases, to the point where ultimate repayment is out of his reach. Thus the debtors obligation to pay has to be balanced off with his right to accommodation and understanding in the face of difficulties, and the lenders right to collect payment has to be balanced with the lenders obligation to have compassion towards a person in distress. The operation of an interest system makes the implementation and protection of the rights and obligations of both parties in a lending transaction impossible.

The concept of rights and obligations also comes into play in the relationship between employer and employee. The rights and obligations contained in an employment contract need to be fair and equitable, or the contract will be invalid in terms of the Shariah. Employees form the backbone of any business, and if the basis upon which they are undertaking their responsibilities is incorrect, the validity of all income earned by such employees for the business can also be regarded as doubtful. So important are the rights and obligations of transacting parties, that the Islamic Laws of Inheritance are entrenched and unchangeable, even by the person to whom the wealth belongs. In marketing and advertising, there is the right of the trader to advertise and explain the benefits of the products, but also the obligation to remain absolutely truthful and not to unduly coerce consumers into buying the product. When evaluating a transaction for validity in Shariah, the concept of rights and obligations is of utmost importance, and can determine the validity of even seemingly harmless transactions.

Any queries on Islamic finance issues can be directed to Mufti M.A. Minty at almazaahir@gmail.com