about Islamic Finance, Muzaraah

1. Muzaraa 1 Muzaraah - Mukhabarah By: Izzuddin Abdul manaf

2. Definition literally - to joint acts of planting, Termly - a contract for planting compensated with part of the produce Maliki: a partnership in crops. Hanbali: landlord giving a farmer access to work his land or plant it, with an agreement to share the crop. In Iraq: as Qarah, Shafii: working the land in exchange for part of the produce, where the worker/farmer provides all seeds. Muzaraa 2

3. Definition (2) Summary: Muzara'a is an investment contract involving agricultural land, the two parties to the contract are the landlord and the worker/farmer, the contract specifies that crop is to be shared between the parties according to agreed-upon shares. Muzaraa 3

4. Legality Abu hanifa, Syafii: muzaraa is impermissible and defective, and Syafii later permitted the contract as a derivative of the musaqah contract, if the need should dictate it. Jumhur (abu Yusuf and muhammad, malik, ahmad): muzaraa is permissible, based on the dealing of the prophet with the people of Khaybar for ashare in their crops or fruits. And similar to partnerships arises from sharing the produce according to agreed-upon ratios, and to leasing arises from jointly using the land, and compensating the worker with a share of the crop. Muzaraa 4

5. Cornerstones and Characteristics Hanafi: offer and acceptance. considered the contract a least at its inception, and a partnership at its conclusion. Jumhur: the landlord, the farmer or worker, and the object of the contract Hanbali ruled: do not require a verbal acceptance of the offer. that if the farmer commences working the land, that is considered an imlicit acceptance, in analogy to the agency contract. Muzaraa 5

6. Cornerstones and Characteristics (2) Hanafi characterized a contract as a non-binding contract (Ghoir lazim) maliki ruled: once the seeds are sown, or seedless bulbs are planted, the contract becomes binding. Muzaraa 6

7. Conditions Hanafi Contracting parties:1. Each contracting parymus be sane and dicerning, 2. not an apostate male The crop: must be known to all parties, the fact that different crops affect the land differently. the plant: must be eligible for growth in standard agricultural conditions. Produce conditions: 1. nature of the produce must be specified in the contract, 2. must be shared between the contracting parties, 3. Shares in the produce must be specified, 4. must be divided according to un-identified shares. the Agricultural land: 1. must be fertile, 2. mus be known for the muzaraa to be valid, 3. the worker/farmer mus be given full access to the land. the contract object: must be legally and conventionally accepted as an agricultural activity. means of production: the usage of tools or livestoct in agricultural production mus be derivative oth the contrct, and not is purpose. the period of muzaraa: must be known, since the contract is in essence a lease in exchange for a crop-share. Muzaraa 7

8. Conditions (2) Maliki 1. Avoidance of leasing land for a forbidden rent, 2. Both parties must share equally in all inputs (excludeing seeds) and out-puts, 3. Both parties must povide the same type of seeds. Hanbali it is permissible to conduct muzaraan in exchange for part of the produce, and did not require equal sharing of the produce between the contracting parties. Shafii did not stipulate for valid muzaraa (validated as a derivative of musaqah) thet contracting parties share equally in costs or output. Muzaraa 8

9. Types one party may provide the land and seeds, while the other provides labor and livestock and other tools. - valid muzaraa. one party may provide the land, while the other provides labor, animals and seeds. - valid mazaraa one party may provide the land, animals, and seeds, while the oter provides only labor. - valid muzaraa, whereby the landlord wold have hired the farmer, with part of the produce paid as wages Muzaraa 9

10. Types (2) One party may provide the land and animals, while the other provides labor and seeds. - invalid or defective. Muzaraa 10

11. Legal status Hanafis The farmer is responsible for all costs of producing a good crop, since such costs are covered by the contract. All costs associated with the crop must be borne by both parties in proportion to their shares of the produce. Produce must be divided according to the agreed upon ratios, following the hadits: "muslims are bound by their conditions". Muzaraa 11