Financial Contracts in Islamic law compared to that of American Law Dissertation

Financial Contracts in Islamic law compared to that of American Law - Dissertation Example Financial contracts can be entered in both written and verbal formats and must be discussed and accepted during a single meeting without any noticeable interruptions including multiple negotiation sessions or changes in the meeting venue. Unlike provisions under American law, Islamic financial contracts can be accepted based on personal conduct of the parties (Hassan, 2007). Under special circumstances, non-responsiveness to a given contract proposal is taken as an acceptance. Islamic law also allows further flexibility among parties within a given meeting session whereby parties have the right to refuse a contract up to the point when either party leaves the meeting venue physically. However, variations do exist over the interpretation, implementation and recognition of this feature even within countries where Islamic finance is practiced (Vogel, 2008). Contents of the financial contracts under Islamic law are prohibited from discussing or relating with any item prohibited by the re ligion. Such substances include alcohol and tobacco besides prohibition on gambling. All applicable items that constitute the contract content must further be in the possession or ownership of either party and legally exist at the time of the initiation of the contract (Rayner, 2001). In simple words, items that will be devised in the future may not be included in an Islamic contract. Specific properties of all these items including specifications, origin and quality must be clearly states in the terms of the contract. Other than deals that involve the exchange of money, the exact price at which the goods will be delivered should be agreed upon prior to contract agreement (Hassan, 2007). Contracts based on future prices that are speculative in nature are not allowed and cannot be developed based on the advice of a third party. While there are several types of Islamic financial contract, the most common one that is used for sale and exchange of goods is known as mu’awadat. Goo ds can be sold either for money or can be exchanges as part of a barter transaction. Even exchange of money is valid under Islamic contract. Real estate or equipment can be leased to external parties by using another type of contract known as the ‘ijara’ (Vogel, 2008). The concept of Islamic contracts has been in existence for several centuries in regions like the Middle East, Asia and North Africa where Islam continues to be a major religion (Ayub, 2009). Islamic finance is considered as a tool from the almighty and is based upon relevant Islamic principles that place a high value on moral principles that is expected of all followers of the religion. Conventional American law is aimed at helping create contracts that are ‘ethical’ in nature. Islamic finance advocates a similar approach when developing contracts and related transactions. However, this feature must not lead to an assumption that Islamic contracts bear a close resemblance with Western contrac ts (Rayner, 2001). In fact, contracts agreed upon under Islamic law are rather less binding than conventional American contracts that imply all aspects covered under them. Legal advice and further scrutiny is thus necessary in the case of Islamic contracts to understand the circumstances under which a contract may not be valid. In addition, the application of Islamic contracts has not been uniform across the Islamic world. While countries like Pakistan and Iran apply Islamic law in a stringent fashion, other countries