Islamic Business Ethics in e-Commerce Transaction

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The systems and technologies are transforming firms’ relationships with customers, employees, suppliers, and logistic partners into digital relationships using networks and the Internet. So much business is now enabled by or based upon digital networks, the terms “electronic business” and “electronic commerce” are used frequently throughout this article.

E-Business & E-Commerce

Electronic business, or e-business, refers to the use of digital technology and the Internet to execute the major business processes in the enterprise. E-business includes activities for the internal management of the firm and for coordination with suppliers and other business partners. It also includes electronic commerce, or e-commerce.

E-commerce is the part of e-business that deals with the buying and selling of goods and services over the Internet. It also encompasses activities supporting those market transactions, such as advertising, marketing, customer support, security, delivery, and payment.[1]

Islamic E-Commerce

In this article, Islamic e-commerce is introduced. Islamic e-commerce best described as the practice of performing and coordinating critical commercial transactions through the use of computer and other technologies that to better reflect the Islamic point of view.[2]

From Islamic point of view, e-commerce has a similar definition with the conventional commerce, but some rules and obligations must be aligned with the need of Islamic principles and permissible by Islam.

In Islamic business concept, Muslims should be very faithful and God-fearing in any kind of business or trade. Allah says: “But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.” (al-Baqarah 2:275)

Since e-commerce is conducted using computers and networks, there are certain conditions that must be observed to ensure the legality of e-commerce in Islam.[3]

First, there should be clarity in the communication and the products offered must be clearly defined. For example, the pictures of the products must be clearly displayed on the screen, give detailed specifications, the prices, the mode of delivery and the mode of payment must be clearly stated.

Second, both contracting parties must receive the message in order to achieve conformity in the agreement (concluding the contract).

Third, there must be continuity in the communication, whether in the transmission of message or in consulting between one another via e-mail.

Contract plays an important role in Islamic financial practices. According to most Muslim scholars, there are four pillars of contract that must be fulfilled, which are offer (ijab) and acceptance (qabul), two contracting parties, subject matter and the mode of expression (sighah). In other words, for a contract to be Shari’ah-compliant, it must have four features which are:[4]

  1. there are at least two parties in an Islamic contract;
  2. there is offer and acceptance by both parties on the purpose and terms of the contract;
  3. the purpose of the contract must not be haram or offensive to Shari’ah; and
  4. the subject of the contact must change hands upon completion of the contract.

Based on the Islamic laws, contract in e-commerce is considered legitimate as long as all the four pillars/features of Islamic contract are fulfilled. How does it happen?

First, the offer is made by the first party to the contract. Then, the second party is given the freedom of acceptance to enter into the contract. The offer and acceptance must be clear and confirmed by both parties and there must be a connection between offer and acceptance. Second, the capacity of the two contracting parties to enter into a valid contract is majority, the age of puberty and has a sound mind. Third, the subject matter must be beneficial, lawful in Islam, valuable, under possession, in existence and deliverable. Fourth, the mode of expression by both parties should be clear and it could be through words (act), digital signature or in writing.

A not-for-profit organization that was established to maintain and promote Shari’ah standards for Islamic financial institutions, participants and the overall industry; the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) on 2010 has issued Shari’a Standards for Islamic Financial Institutions.

In the Standards, the AAOIFI stated that it is permissible in Shari’ah to launch commercial websites, provided that such sites do not involve any-Shari’ah prohibited act, or using Shari’ah-prohibited means to promote Shari’ah permitted goods and services.

It is also permissible in Shari’ah to conclude online contracts, provided that the contracts thus concluded between the institution and its clients observe the general rules of financial transactions as prescribed by the Islamic laws.[5]

AAOIFI also stressed that an expression of offer and acceptance in online contracts can be in any form that indicates the consent of the two parties to conclude the contract. Irrespective of the method of contracting, an online contract is considered to be valid since the time when other party accepts the offer and whether the offering party has come to know that or not. Regarding the possession in the strict Shari’h sense, it takes place through all accepted methods of actual and legal possession.[6]

As a conclusion, Islam encourages e-commerce as a new way or technology of doing business. However, Muslim businessmen or businesswomen must ensure that he or she strictly followed the Islamic principles of conducting business, which are in lined with al-Quran, Sunnah and the truthful manner.

Allah knows best.

Photo: MyCityWeb


[1] Kenneth C. Laudon & Jane P. Laudon (2014), Management Information Systems, 13th edition, Pearson Education Limited: England, p. 87.
[2] Hanudin Amin (2008), E-Business from Islamic Perspectives: Prospects and Challenges, Journal of Internet Banking and Commerce, December 2008, vol. 13, no.3, p. 2.
[3] Norazlina Zainul et al. (2004), E-Commerce from an Islamic Perspective, Electronic Commerce Research and Applications 3 (2004), p. 283.
[4] Daud Vicary Abdullah & Keon Chee (2010), Islamic Finance, Why It Makes Sense, Marshall Cavendish Business: Singapore, pp. 65-66.
[5] Accounting and Auditing Organization for Islamic Financial Institutions – AAOIFI (2010), Shari’a Standards for Islamic Financial Institutions, no. (38) on ‘Online Financial Dealings’, paragraph 2/1 and 2/2, Manama: Bahrain, p. 679.
[6] AAOIFI (2010), Shari’a Standards for Islamic Financial Institutions, no. (38) on ‘Online Financial Dealings’, paragraph 5/1, 6 & 7/1.