Risk Management in
Islamic Financial Instruments
179
declared bankrupt and the creditors can get relief from the entire of all his properties.33 This is
done through an interdiction (hajar) on his properties by the creditors. The bankruptcy
proceedings should ordinarily be managed by a constitued authority, usually the qādi. All the
properties of the bankrupt person are sold with the exception of some necessaries such as
food, drink and clothing. The proceeds of such sale are divided among the creditors. If the
debt of any of the creditors is something concrete and recognizable among the properties of
the bankrupt person, it is restored immediately without selling it.
The conceptual basis of the three concepts of i‘sār , iflās, and taflīs are found in the principles of
social responsibility highlighted in the Qur’an: “And if the debtor is in a hard time (has no
money), then grant him time till it is easy for him to repay, but if you remit it by way of charity,
that is better for you if you did but know.” 34 This legal rule does not suggest that the debtor
should evade repayment of a debt (McMillen, 2012). While contractual transactions are meant
to be fulfilled as a general principle, this exception of debt restructuring or cancellation is
meant for special circumstances. In a related prophetic precedent, it is reported that the
Prophet once said: “If anyone would like Allah to save him from the hardships of the Day of
Resurrection, he should give more time to his debtor who is short of money, or remit his debt
altogether.”35
Nevertheless, Islam recognizes insolvency and once a competent court In his interpretation of
this verse, Al-Qurtubi (2006/1427: 417) in his compedium of legal rulings of Qur’an explains
the need for the judge to seize the property of a person who is insolvent, except for his
personal effects which are of utmost necessity, such as his old clothes and books if he is
scholar. This is further justified by a prophetic saying, which provides: "If a man finds his very
things with a bankrupt, he has more right to take them back than anyone else."36
Though there are different of opinions among the Muslim jurists on some of the issues, the
general Sharī‘ah principles on bankruptcy are summarized thus:
 A debtor may be deemed bankrupt if he has no wealth, or he has wealth, but it will not
cover the debt that is currently due. With regard to debts that are not yet due, the one who
owes them cannot be deemed bankrupt.
 The bankrupt individual may have his assets frozen if his creditors or some of them
request that, so that he will not harm them by that.
 If his assets are frozen, then any transaction he does, whether buying or selling,
establishing a waqf or giving a gift, is not valid.
 The ruler or qādi (judge) may sell his property in order to pay off his debts and leave him
nothing, except what is necessary for him, such as his dwelling, his books, his clothing, the
33 A relevant hadith on this principle provides: “He who finds his property intact with a man (who
bought it but who later on) became insolvent (or a person who became insolvent), he (the seller) is
entitled to get it more than anyone else.” Related by Bukhari and Muslim.
34 Qur’an 2: 280.
35 Related by Muslim.
36 Related by Muslim.