Sharīʿah appraisal on the issue of imposing burden of proof to the entrepreneur in trust based contracts

Abstract

Purpose

The purpose of this paper is to examine the Shariah view on the legitimacy of requiring the entrepreneur to prove that he/she has complied with all business requirements in case the actual profit was below the expected profit in trust-based contracts such as mudarabah and musharakah.

Design/methodology/approach

This paper is part of the research which applies qualitative research approaches, including among others, content analysis, interviews, observations and descriptive analysis using fiqh muqaran (comparative analysis of jurists’ arguments) in few phases.

Findings

The study found that shifting the burden of proof to the fiduciary is the weightier view and necessary to ensure that both sides are protected. The considerations of protecting people’s wealth (ḥifẓ amwāl al-nās) and mitigating widespread greed (ṭamaʿ) are among the reasons for allowing elements such as ʿurf, tuhmah and dalālat al-ḥāl to be treated as bayyinah in trust-based contracts when the fiduciary is obliged to defend himself from litigation.

Research limitations/implications

The study is meant to strengthen the practices of Islamic banks world wide.

Practical implications

Few protections can be applied for capital provider.

Social implications

This study is meant to give solution in dealing with moral hazard of both parties, and to provide solution to the regulator for policy drafting and to increase confidence to the industry.

Originality/value

The finding is important in assisting the regulators in drafting the policy to protect both parties without neglecting the essence of trust-based contracts.

Citation

Mohamed Naim, A., Habibi Hj Long, M.N., Abu Bakar, M. and Md Hussain, M.N. (2016), "Sharīʿah appraisal on the issue of imposing burden of proof to the entrepreneur in trust based contracts", Journal of Islamic Accounting and Business Research, Vol. 7 No. 2, pp. 148-169. https://doi.org/10.1108/JIABR-03-2015-0009