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The Usmani & Co team including the honorable Mufti Taqi Usmani and Dr. Imran Ashraf Usmani visit various global Islamic & Shariah conferences to shed light on the principles of Islamic Finance and other significant subjects benefitting thousands of Muslims worldwide. Usmani & Co is one of the leading shariah advisory firms globally helping hundreds of businesses become genuinely Shariah compliant. Write to us today to find out more details:

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Covid-19: A High Time To Consider Takaful

The sudden outbreak of COVID-19 has left all of us bewildered, and just in a span of a few months over 1.8 million people in Pakistan lost their jobs because of the lockdown. Such high and unanticipated unemployment is followed by disastrous impacts on the lives of the affected individuals and families. A typical family in Pakistan comprises of 5 to 6 members, all being supported by just a single breadwinner. And when in this scenario the only job feeding the entire household comes to a sudden halt, the family crashes. The savings, which were tiny, to begin with, become their sole reliance in such testing times. And God forbid, even if one member contracts the deadly disease the huge hospital bill multiplies their agony.

Now imagine the very same scenario, but with a slight change- the family has subscribed to health takaful. So even when the family’s breadwinner loses his job and household income falls to zero, there is one less worry on the family. The hospital expense will be borne by takaful. Therefore, with strong social protection (takaful) or insurance of individuals, the cost to society imposed by such severe lockdown may be reduced in terms of deprivation and hunger.

We have various takaful companies in Pakistan that are providing their current customers complimentary benefit with respect to COVID-19 and have also introduced a protection plan for COVID-19 which can currently be bought at an affordable price. These takaful companies have further eased the burden of their participants by providing a grace period for payment of the contribution of up to 75 days. How have these companies managed to provide all these benefits? It is therefore imperative here to mention, TAKAFUL.

Takaful is an alternative to conventional insurance but one that follows Islamic law. It is based on the concept of cooperation (ta’awun) and risk-sharing. All participants contribute to a pool of donation (tabarru) fund, which allows participants to provide financial assistance to fellow participants who might suffer a loss. The recompense to the participant, in the event of loss, is according to the actual loss either totally or partially depending on the resources of the fund.

A takaful model, therefore, can be depicted as a co-operation among participants who commonly secure and ensure the interest of each other, in the spirit of brotherhood, by mutually sharing obligation to pay for potential misfortunes that may happen, through donation into a common fund. A takaful operator(company) facilitates this cooperation by providing its expertise in managing the fund. It manages the funds by investing in halaal activities and since all the risk is shared among participants, the surplus that might arise because of the investment is added back to the fund.

It is important to note here that it is investing in halaal activities that always brings with it Allah’s blessing (barakah). A takaful operator(company), however, by adopting a mudharabah, wakalah or other contractual Islamic business models can adequately sustain a fund even in a calamity such as COVID-19.

ا أَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا الرِّبَا أَضْعَافًا مُّضَاعَفَةً وَاتَّقُوا اللَّهَ لَعَلَّكُمْ تُفْلِحُونَ

Allah says in Surah Al-Imran verse 130, “….devour not usury, doubling and quadrupling, the sum lent. Fear Allah and observe your duty to Him, that you may really prosper.”

Furthermore, the intention of donation and easing the burden of a fellow Muslim in times of need only brings with it more blessing(barakah) in any situation.

Abu Huraira reported: The Messenger of Allah, peace, and blessings be upon him, said, “Whoever relieves the hardship of a believer in this world, Allah will relieve his hardship on the Day of Resurrection. Whoever helps ease one in difficulty, Allah will make it easy for him in this world and in the Hereafter. Whoever conceals the faults of a Muslim, Allah will conceal his faults in this world and in the Hereafter. Allah helps the servant as long as he helps his brother. Whoever travels a path in search of knowledge, Allah will make easy for him a path to Paradise. People do not gather in the houses of Allah, reciting the book of Allah and studying it together, but that tranquility will descend upon them, mercy will cover them, angels will surround them, and Allah will mention them to those near him. Whoever is slow to good deeds will not be hastened by his lineage.” (Source: Ṣaḥīḥ Muslim)

With the right advisory compliance solutions and retakaful, one can manage risk and inefficient management practices. Unfortunately, because of ineffective marketing strategies, there is a lack of awareness among individuals and a lack of basic health information among the masses. Taking care of all these challenges and an affordable health takaful plan for groups, individuals, and families can create a snowball effect of wellness and serve the masses.

It comes in Surah Ar Raad verse 11,لَهٗ مُعَقِّبٰتٌ مِّنۡۢ بَيۡنِ يَدَيۡهِ وَمِنۡ خَلۡفِهٖ يَحۡفَظُوۡنَهٗ مِنۡ اَمۡرِ اللّٰهِ​ؕ اِنَّ اللّٰهَ لَا يُغَيِّرُ مَا بِقَوۡمٍ حَتّٰى يُغَيِّرُوۡا مَا بِاَنۡفُسِهِمۡ​ؕ وَاِذَاۤ اَرَادَ اللّٰهُ بِقَوۡمٍ سُوۡۤءًا فَلَا مَرَدَّ لَهٗ​ۚ وَمَا لَهُمۡ مِّنۡ دُوۡنِهٖ مِنۡ وَّالٍ

“ …….Verily never will Allah change the condition of a people until they change it themselves…….”

Written by: Sadaf Sawant (MSC in Islamic Finance from INCEIF, Malaysia)



The Influencers

Ethical finance/trade implies a socio-economic impact on stakeholders in investment and trade activities. Ethical movement promotes fair trade, distribution of wealth, impartial investment and most importantly corporate social responsibility. More and more financial institutions are trying to incorporate ethical considerations into their strategic decision making as Ethical Financing is growing exponentially due to the changes in consumer behaviour. Factors such as Consumer Protection Law, Trade description Act and other legal constraints are being imposed on financial institutions so that they meet the minimum ethical benchmarks.

Pressure groups have vigorously opposed anti-human policies and debt burdens on developing countries too. People tend not to consider religion (particularly Islam) as a factor influencing ethics in finance. In fact, ethics is the most important factor to be considered during transactions according to Islam because the general objective of “Ethical Financing” and “Distribution of Wealth in Islam” both encompass similar norms of honesty, integrity, impartiality and justice etc.

Outline the Objectives

It is important to be well aware of the concept of wealth in Islam in order to distinguish between capitalism and socialism plus how Quranic interprets fairness, justice, righteousness and social responsibility. This is what ethical finance/trade has been propagating over the past two decades.

According to the Holy Quran, wealth in all possible forms is a property of Allah and He has delegated the right of property over a thing, which accrues to man. The Holy Quran says, “Give to them from the property of Allah which he has bestowed upon you.” [24:33]

The monastic approach of capitalism affirms that a man has an absolute and all unconditional right on private property. On the flip side, socialism totally denies the right to private property. In Islam, there is a clear line which indicates that a man has a right on private property but it is not considered an unconditional and absolute right that is bound to cause “Disorder on Earth”. As the Holy Quran says,

“And Seek the (betterment of the) Ultimate Abode with What Allah has given to you, and do not neglect your share from this world, and do good as Allah did good to you (by granting these properties to use ), and do not seek to make mischief in the land.” [28:77]

Establish the Ethics

In order to minimise injustice, unfairness, chaos among traders (مفضی الی المنازعہ ) and inequality, Islam has outlined certain basic principles of finance and trade as well as imposed restrictions on certain kinds of activities in trade (which often lead to inequality and chaos among traders).

The Core Principles

Gharar: According to the Islamic laws, all parties involved should be completely aware of the transaction they are going to execute and there should not be any ambiguity with regards to any term of the contract or the capacity of any party in relation to the execution of the contract. Hence, selling of goods without proper possession is forbidden by Allah’s Apostle, as mentioned in Sahih Muslim “He who buys food-grain should not sell it until he has taken possession of it.” [Book 10: 3640]. This is why many such transactions involving such risks of ambiguities are not allowed by Islamic laws (Shariah), like a short sale, speculative transactions, futures and forwards, derivatives, sale of debt and options etc.

No investment or slightest involvement in prohibited businesses or activities. The Holy Quran says,

“And, O my people, give full measure and weight justly, and defraud not men of their things, and act not corruptly in the land making mischief. What remains with Allah is better for you, if you are believers.” [11: 85-86]

*Interest-free: Interest or Riba will not be given or taken under any circumstances in the light of Quran and Sunnah.

“Ibn Mas’ud says that the Prophet (PBUH) cursed the consumer of riba and the one who feeds it and the one who witnesses it and the one who documents it.” [Ibn Maja: 2277]. .

This interest was also prohibited in other heavenly religions (Christianity, Judaism) as mentioned in the old testaments of the Bible. The rationale is to protect men from greed, unfair exploitation and concentration of wealth in very few hands.

Gambling and insurance is prohibited in Islam. Allah (SWT) says, “O who you believe! intoxicants (e.g. alcohol) and gambling and idols and (lottery by) arrows are an abomination of Satan’s work, so avoid them so that you may get salvation” [Quran 2:219]

Islam promotes equality, justice and fairness in trade plus advocates the concept of sharing of profit, loss and risk proportionally among all the involved parties. The activities which are impermissible according to Islam (as mentioned above) are also considered as “Immoral Activities” among pioneers of ethical finance/trade. These activities are the main cause of “Disorder on Earth” and “Unequal Distribution of Wealth”.

The Ultimate Benefit

It is then significant to place Islamic ethics at the nucleus of finance/trade. These should be used as parameters by the society to establish an economy based on agreed-upon norms, values and virtues. This would not only produce a moral economic system serving the needs of Muslims but also humanity at large where these fundamental objectives are met.

Written by: Jareer Usmani


Making a Profit with Murabaha

Murabaha is derived from the Arabic word Ribh (ربح) which means profit. It is a common type of a contract used by financial institutions in which the buyer and seller agree on a cost-plus price of a product. As you all know that in today’s world ethical financing has grown exponentially and Islam is also based on an ethical model be it in the field of business or finance. Since the time of Prophet (PBUH) this is the main element which has differentiated Islamic Finance from the conventional based system.

Integrity Matters

In a contract of Murabaha, to fulfill the needs of ethical finance, integrity to both the client and monetary institution is required and that is the reason it is important for an institution to inform its client about the product, its cost price, the markup amount and even if it has bought the product on credit. All these details need to be included in a Murabaha contract. In case, during the tenure of the contract, if the client comes to know about the financial institution being dishonest, he has the right to terminate the contract on priority basis.

Interest free Contract

As the Muslim world is in dire need of an alternative system which must be free from interest, contracts such as Murabaha come to rescue them, it is often used by Islamic banks as a mode of finance.

Payment Convenience

Now the question arises that how does an Islamic bank use Murabaha to finance? So, an Islamic bank (Financier) simply buys the product which the client wants or the client can also purchase the product himself (on behalf of the bank). In the second case, the bank will have to transfer the power of attorney (وکالت) to the client. Afterwards, the client would buy the same product at a deferred price from the bank. The client has an option to make the payment to the bank as a whole or in installments as per the Murabaha contract. One should keep in mind that while the client is just an agent to buy the product and he has not paid a penny to the bank, his Shariah status would be of a trustee which means that the ownership would still belong to the bank (along with the risk factors such as theft, fire etc too). However, once the client has paid the deferred price, the ownership will be transferred to him simultaneously and all the risk factors would then be associated with him.

Process Made Easy

Let’s view a Murabaha transaction: Mr X wants to buy 100 vehicles from Company Y, he approaches the bank and the Islamic banking officer recommends him Murabaha, under this transaction the commodity will be bought directly by bank and the cost of equipment and profit (markup) will be known to both the parties i.e Mr. X and financier (bank). The bank would appoint Mr. X an agent (وکیل) to buy the product on behalf of him with the consent of both parties. After the purchase, the product will be in the possession of Mr.X but the ownership would still belong to the bank, Mr. X then may provide the payment of 100 Vehicles (Cost + Markup as agreed) with an option of one-off payment or in instalments. Once the payment is done, the ownership of the equipment would be transferred to Mr X.

Value Added Difference

So how’s that different from conventional system? Differences between them are as follows:

Murabaha is a sale-based contract in which an asset is always involved whereas the conventional system follows an interest % based agreement irrespective of whether an underlying asset exists or not.

Murabaha agreement does not allow profit (to the bank) from late payment fees or burdening customers with others snowboarding interest upon interest charges as the selling price has already been decided.

However, one must also be clear that Murabaha is considered as a borderline transaction among some scholars as it is a debt-based contract and should only be considered when financing through equity-based contracts such as Partnership (مشارکت) or Mudharabah (مضاربت) are difficult. The Murabaha agreement may also allow the bank to keep the mortgage(رھن) against the deferred payment to minimize the risk of fraud. In addition to this, the agreement can also be enforced by law.

Murabaha truly opens avenues for hassle free financing and offers optimum convenience to the client with multiple benefits.

Written by: Jareer Usmani



This question often comes to our mind that Why is Usury (Riba) haram when the Creditor is at a loss if we take into account the concept of Time Value of Money I.E The value of money which the creditor is lending would not be the same at the time when he would receive his money back, so why not charge Interest for the amount to cover for the loss of creditor?

First of All, if Allah has forbidden something then we just can’t argue to find its logic as in real life example if we had asked our servant to buy some medicine and he would’ve questioned the logic behind buying a particular medicine, would we’ve been able to bear his attitude? Similarly, if the creator of the mankind has made trade halal and usury haram then we’re no one to question its logic just as we don’t tend to find the logic behind the fact that he has commanded us to pray 5 daily prayers at their particular time and forbidden us to pray at the time of Sunset and Sunrise so the main objective is being a slave to Allah and adhering to his commandments.

(But, as the loan practice has become too often and you can’t convince people without giving logic and the consequences that the economy has suffered because of the interest-based system then there is no harm in providing logic also.)

Secondly, According to shariah if the creditor is lending money then he should decide whether he is doing it under the basis of Donations/Charity or he is doing Musharkat (Partnership) if he is doing these couple of transactions then in the first case, I.E charity he should only receive the principal amount as according to Shariah when you’re lending someone money, you’re doing an act of kindness and voluntary contribution (تبرع، احسان ) towards the debtor so making a profit out of that is haram if the medium of exchange is same between them, so a creditor should only receive the principal amount he has lend (the concept of Takaful in Islamic Banking is based on this rule). However, if he is doing partnership then both the creditor and debtor may divide the return according to the Profit/loss or Capital ratio.

Thirdly, Time value of money is not totally haram if the medium of exchanges are different such as lending Commodity and taking money as its return or either way, for example in ancient times people use to lend goods and in return, they would get the money (with a surplus) after the agreed period of time, it was a common practice but it was permissible as the medium of exchanges were different and that was Money vs Commodity but if the debtor is unable to pay the amount for the goods at the decided time of paying then the creditor cannot take excessive amount over that as the excessive amount (Penalty) then would be against the basis of the same medium (جنس) For example excessive money taken over principle amount of money agreed before and that’s why the concept of interest on late payment is also haram.

In a nutshell, taking Time value of Money into consideration is haram if the gender of both media of exchanges is same I.E money vs Money or Commodity vs Commodity but if the Medium of exchanges is different for example money vs Commodity then it is permissible. plus one should also keep in mind that the condition in which credit sale is allowed (apart from differences in the medium of exchange) is also that whether it is the case of (commodity vs money) or (commodity vs commodity) the weight and volume of both the mediums must be different for example in money vs commodity, money should be measured by weighing and commodity for eg Wheat should be measured by volume.

As The Prophet said, “Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for a date any way you please on the condition it is hand-to-hand (spot).”

Written by: Jareer Usmani