Sharia Compliant Contracts for eCommerce

sharia compliant contracts

Should your ecommerce contracts be Sharia compliant?

If any party to an Internet business deal is a devout Muslim, there’s a likelihood that Sharia (a.k.a. Shariah) compliance becomes an issue because financing and penalties are often included in ecommerce contracts.

This means you’ll want to have an experienced Internet lawyer on board who can prepare a mutually beneficial binding agreement that does not violate Islam’s tenets.

Why Make the Effort to Have Sharia-Compliant Contracts?

There are many ecommerce opportunities online that involve observant Muslims. If you want to do business with them, chances are you’ll need to revise the legal terms and conditions of your agreements to ensure the contracts are not contrary to Islamic religious law.

Does Sharia Compliance in Contracts Violate U.S. Laws?

Rarely. It’s important to note that accommodations are made all of the time in legally binding contracts for parties’ religious beliefs.

  • For example, an observant Orthodox Jew probably will not agree to an employment agreement that requires flying on the Sabbath (Shabbat or Shabbos).
  • Similarly, a fundamentalist Christian may insist that an ecommerce contract’s provisions exclude the rendering of customer service on Sundays.

Sharia and Riba

Islam prohibits (haram) a believer from either paying or charging interest (riba). This creates a dilemma for ecommerce deals that charge interest or impose monetary penalties for late performance or nonperformance.

Fortunately, there are three common methods to avoid riba when structuring Sharia compliant contracts:

  • A lease (ijara) instead of a sale
  • An installment payment deal with an agreed-upon profit but without interest or monetary penalties (murabaha a.k.a. murabahah)
  • Equity participation (musharaka a.k.a. sharika, shirkah, or shirkat)

Other Shariah Compliance Issues for eCommerce Contracts

Although riba is the most common stumbling block to reaching a deal, other Islamic tenets will play a role in how your Internet business lawyer drafts an ecommerce contract so that it doesn’t include haram provisions. For example, terms and conditions must be clear and unambiguous to avoid excessive risk and uncertainty (gharar).

How do you know if your ecommerce contract is Sharia compliant?

For many issues, it will be obvious. For example, if your contract expressly charges interest, there’s a riba problem that needs to be resolved if one of the parties to the agreement is Muslim.
However, there are some gray areas that depend in large part upon the believer’s personal interpretation of what Islam requires. This is particularly true where there are conflicting authoritative opinions (a fatwa) interpreting Shariah law on an issue.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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