In Islamic finance and economics, sharia-compliant contracts (akad syariah) serve as essential guidelines that determine how transactions should be carried out. Every business activity is directed to remain aligned with Islamic values and principles.
From ijarah to kafalah, each contract plays a unique role in ensuring that transactions are conducted fairly and transparently. Read through to the end to get a clearer understanding of how Islamic economic contracts work!
Sharia Economic Contracts
In practice, Islamic economics recognizes several types of contracts within Islamic financial institutions, each with its own purpose and function. Here are some of the most common contracts in Islamic finance:
1. Salam
Salam is a forward-sale contract where the buyer pays in advance, while the seller delivers the goods at a later agreed time. This akad is often applied in agricultural activities. In many cases, Islamic financial institutions act as the buyer and provide funds to farmers or customers.
2. Murabahah
In murabahah, the selling price and profit margin are mutually agreed upon before the transaction begins. The quantity and type of goods must be clearly stated in advance. Once the contract is finalized, the goods are delivered and payments may be made in installments or in full, depending on the agreement.
3. Musyarakah
Musyarakah involves two or more parties who jointly provide capital to run a business or project. One party may act as the manager (mudharib). This model is often used when financing is done collaboratively between a financial institution and a customer.
4. Istishna
Istishna is a contract for ordering goods that need to be manufactured first according to specified requirements. Payments can be made upfront, in stages, or after completion—depending on the agreement.
5. Wadiah
Wadiah is an agreement where someone entrusts an item to another party for safekeeping. In Islamic financial products, this concept is commonly implemented in current accounts and similar deposit services.
6. Wakalah
Wakalah involves giving authority to a representative to act on behalf of another party. This akad is widely used in tasks such as invoicing, order submission, and handling import purchases.
7. Ju’alah
Ju’alah is a contract that promises a reward or fee to someone upon completing a task or delivering a specific benefit. Once the task begins, the contract becomes binding and cannot be canceled unilaterally. The most important element is clearly defining the task or expected outcome.
8. Ijarah
Ijarah is used for leasing goods so that the lessee can benefit from them. In Islamic banking, lease payments are usually considered installments toward ownership. When the lease term ends, the lessee may purchase the item by paying the remaining amount. Because it often leads to ownership, this akad is also called al-Ijarah wal-Iqtina’ or al-Ijarah al-Muntahiyah bi al-Tamlik.
9. Qardh
Qardh refers to a loan contract where funds must be returned within a set period. The repayment amount remains the same as the amount borrowed, without additional charges.
10. Rahn
Rahn is a collateral contract where goods are pledged to obtain financing. It is used when a financing request carries a higher risk and requires additional security. The institution is not allowed to benefit from the pledged asset except for necessary maintenance costs.
11. Hawalah
Hawalah involves transferring a debt obligation from one party to another. This akad is useful when a payment is scheduled for a future date. Implementation must follow sharia rules to remain valid.
12. Kafalah
Kafalah is a contract in which one party guarantees the responsibility of another. It may be used for advance payments, ensuring project completion, or as a requirement for bidding processes.
13. Syirkah
Syirkah refers to a partnership between two or more parties with profit-sharing based on agreed ratios. In simple terms, it is a business cooperation where profits and losses are shared collectively.
14. Mudarabah
Mudarabah is a partnership where one party provides capital while the other manages the business. Profits are shared based on a predetermined ratio. Losses, however, are borne by the capital provider unless the manager is proven negligent or in breach of agreement.
These are the key sharia economic contracts—from salam to kafalah. Each serves a specific function to ensure that transactions remain fair, transparent, and compliant with Islamic principles.
Understanding these agreements becomes especially valuable when you need financial solutions that align with sharia law. BFI Finance Syariah Business Unit (UUS) offers Islamic financing based on ijarah and murabahah contracts.
Their Sharia Financing services can support various needs—business capital, asset purchases, and service procurement, all under sharia supervision and regulated by the Financial Services Authority (OJK).
Fulfilling your needs and achieving your goals can now be #MorePeaceful with BFI Finance Syariah.
