Question and Answers: Ruling for Trade Mediator (Broker and Intermediary)
Below is the answer for question about the ruling for trade mediator, asked by brother Endy Prasetya through the mailing list, answered by Ustadz (Chaplain) Dr. Muhammad Arifin Badri, M.A. – advisor for Indonesian Muslim Entrepreneur Community.
All praises be to Allah, may peace and blessings of Allah be upon Prophet Muhammad, his family, and his companions.
Question no. 1
Is mediator (in general) a lawful occupation? What actually the role of mediator according to sharia?
Mediator/intermediary/pander in trading can either be lawful or unlawful. Thus it a must to differ between the lawful and the unlawful, and a general answer is not permitted in such case.
To have a little insight about the ruling for intermediary, I will mention briefly about it’s details.
The Unlawful Intermediary
There are several intermediaries that are forbidden in Islam, such as:
Becoming a mediator/a pander to sell the goods brought by the villagers to the market/town, is not allowed in Islam.
This ruling is based on a hadith narrated by Ibn ‘Abbas -may Allah be pleased with him- as follows:
“A town dweller should not sell the goods of a desert dweller on behalf of the latter.” I asked Ibn ‘Abbâs, “What is the meaning of: ‘No town dweller should sell (or buy) on behalf of a desert dweller?”’ Ibn ‘Abbâs -may Allah be pleased with him- said, “It means he should not become his broker.” (Muttafaqun ‘alayh)
At traditional markets, usually there are brokers who offer the villager to carry their goods to be sold in the market/town, hence they will get a fine price, and the broker will receive some wages according to their (the goods owner and the broker) agreement in advance.
Every one, particularly the broker, will claim that this practice is clearly beneficial for the villagers, as they will get a good price for their stuffs. But if we think more deeply, we will see that in fact, the villagers only get the benefits for once, but they receive many time losses. Moreover the loss of the town dwellers and society due to this intermediary practice.
To give a better picture of the loss suffered by the society and the villagers who own the stuffs, lets take a look at the explanation below:
The town dwellers usually buy the goods from villagers to be processed as ready to consume products for society. Thus, if the price of the raw materials are high, their end products will be sold by a higher price too. Whereas most of the villagers are consumptive, in a way that they will buy the products of the town dwellers. Furthermore, is not uncommon for the villagers to buy back the goods he or she had sold to the town dwellers, i.e, after it is processed into another form of goods.
For example: A villager sold a living chicken, and when he wanted to go home, he bought a souvenir which was a chicken-filled bak pao (a traditional chinese bread), or padang rice with chicken rendang.
Now the relationship becomes clear, between the price of the chicken brought by the villagers and the price of bak pao and chicken rendang. As the result, the increasing price of the chicken by the help of the broker, will simultaneously increase the price of bak pao and chicken rendang as well. Similar things happened to other goods, which price fluctuates according to the changes of the price of raw materials (such as the nine main livestock) sold by the villagers. Thus, at another hadith, the messenger of Allah -may peace and blessings of Allah be upon him- had explained about this interconnection of price by his saying:
“The Messenger of Allâh said: ‘A town-dweller should not sell on behalf of a Bedouin. Let the people be, and Allâh will provide for them by means of one another.”’ (Narrated by Muslim)
This loss will also suffered by the town dwellers as a whole, thus Islam has prioritized the communal interest than the interest of certain groups of people. Moreover if the benefits for that group can not be fully obtained, as explained previously. (The answer for this no 1 type of intermediary is consistent with the fatwa issued by The Standing Committee for Scientific Research and Fatwa of the Saudi Arabia kingdom, no. 14409)
2. An intermediary that is done by some people, of which the wage will be taken from the payment/price of the goods, unbeknownst to the buyer.
For example, Mr. A has a store that sells building materials. He usually sells roof tile for IDR 1000.- each, but since consumer B comes to his store by the help of C who usually works as a builder, thus A sells his roof tile to B for IDR 1050,-. The calculation is that the IDR 1000,- is the actual price of it, and the IDR 50,- is the fee for C who has brought the consumer to A’s store. Of course, A increases the price without the knowing of B. Hence in this case, B is disadvantaged because he was burdened with IDR 50,- , the fee for C, without any agreement beforehand. And this practice contradicts the decree of Allah The Exalted:
“Believers! Do not devour one another’s possessions wrongfully; rather, let there be trading by mutual consent. ” (The Women: 29)
As for the store owner who gives the fee to C without increasing the price of his goods, thus he still sells it by IDR 1000,- , it is permitted for him to do so.
Or, if he told the consumer previously that the price he get is the actual price of the roof top plus the fee of the mediator, and the consumer consents to it, then this practice is permitted. (This explanation of the unlawful state of intermediary no.2 is consistent with the fatwa of the Standing Committee for Scientific Research and Fatwa of Saudi Arabia Kingdom, no. 16043)
3. If the intermediary is done by a state official or by an employee of a company who is responsible to handle the supply of goods and services or other things, while he already received wages from the state or the company for that job.
In such case, he is not allowed to ask for or receive any payment from the task execution, which is already his responsibility, or from anything that related to that task of him.
Narrated Abu Humaid As-Sâ’idi -may Allah be pleased with him-: The Prophet -may peace and blessings of Allah be upon him- appointed a man from the tribe of Al-Azd, called Ibn Al-Lutabiyya for collecting the Zakât . When he returned he said, “This (i.e., the Zakât ) is for you and this has been given to me as a present.” The Prophet -may peace and blessings of Allah be upon him- said, “Why hadn’t he stayed in his father’s or mother’s house to see whether he would be given presents or not? By Him in Whose Hands my soul is, whoever takes something from the resources of the Zakât (unlawfully) will be carrying it on his neck on the Day of Resurrection; if it be a camel, it will be grunting; if a cow, it will be mooing; and if a sheep, it will be bleating.” The Prophet -may peace and blessings of Allah be upon him- then raised his hands till we saw the whiteness of his armpits, and he said thrice, “O Allâh! Haven’t I conveyed Your Message (to them)?” (Muttafaqun ‘alayh)
Based on this hadith, the scholars have prohibited the state official and the employee of a company to accept any gifts that related to a task he is responsible to do (This answer is in accordance with the fatwa of the Standing Committee for Scientific Research and Fatwa, Saudi Arabia Kingdom, no: 7250).
The Lawful Intermediary
Any form of intermediaries, aside from the three types mentioned above, is lawful, insha Allah, as long as it is carried out by a consent between the goods owner and the mediator, or between the buyer and the mediator, or among the three of them. (This answer is consistent with the fatwa of the Standing Committee for Scientific Research and Fatwa of Saudi Arabia Kingdom, no: 19637 and 19912).
Question no. 2
In real practice, there are 2 sides of the mediators, one works for the seller and another works for the buyer. Is these mediators are lawful? Or should they joined one another in one side of “mediator”?
As long as there is a clear agreement amongst them, it is alright to use separate mediators or 2 types of mediators, one serves the seller and the other one serves the buyer. Or they can use a service of mediators that work together in a body or institution, thus each of the seller and the buyer will not suffered from a large payment, since the fee of the mediators is borne together by the seller and the buyer.
Question no. 3
Is it legal for the mediator to increase the price of the goods by himself?
As long as the owners allows the mediator/broker to increase the price (either it is leave to the mediator to decide or the owner determine the amount by himself), then it is permitted. Because if it is already allowed by the owner, the contract is termed as mudharaba (profit share contract)m or ju’ala (a type of contest), and both of these contracts are permitted in Islam. As for the mediator who intentionally raises the price unbeknownst by the owner, or even the owner has strictly prohibited him from increasing the price, it is not allowed for him to raise it by himself. If he persists to break the agreement, or to raise the price without the consent of the owner, the whole profits is the right of the goods owner, and he is just deserved to take the fee as agreed before. That is because the goods and their selling belong to the owner, thus he is deserves to obtain all rights related to his goods.
“The wealth of a Muslim will not be lawful (for others to have, -translator) but by his sincere willingness. ” (Narrated by Ahmad, Ad Daruqutni, Al Baihaqi, and classed sahih by Ibn Hajar and Al Albani).
Question no. 4
If the answer to question no. 3 is it is allowed; is it legal for the mediator to receive 2 profits at once, which are: 1. From the amount of price that he raised, 2. From the contract he made with the seller that if he succeeded, he shall obtain a certain amount of fee?
As long as the goods owner allows the broker/mediator to take double profits, as what mentioned in the question, it is alright for him to have it. But if there was no clear agreement between them, he is not allowed to take the double profits. Because if there was no permission beforehand for him to take the profit by raising the price of goods from it’s actual price, then it is a betray, since the increasing price will cause trouble for the seller to find any buyer, or minimally, will delay him from finding it, and this is of course a loss for him.
Question no. 5
Is it permitted for the seller team (The boss of the seller orders several of his employees at sales department to take the task) and the buyer team (Buyer boss orders several employees of his company at the supply department) in one institution, to termed themselves as a “mediator”, and after that they join the true mediator (from outside of the institution) ? I ask this because it is common practice among our society that the teams will ask for their share from the profits of transaction, and if it is not granted, they will not assign the project to the mediator.
It has been explained above that this kind of intermediary is forbidden.
Question no. 6
What is your opinion about the “price-setting” practice, in which the profits will later be divided among the mediator, the seller (even the boss also asks for a share), and the buyer (the boss also wants a share)?
This practice is a part of the banned intermediaries, because this is a form of bribery, as explained in the third form of prohibited intermediary.
Question no. 7
What if the mediator are burdened by costs, such as tax, etc, by the buyer and the seller?
This is an inappropriate contract. If we want to take heed of the three prohibited form of intermediaries, undoubtedly such contract will never exist. This contract exists due to the carelessness of the mediator who do what he pleases, unbeknownst by the owner of goods, or without his consent. But if the intermediary take heed of the sharia, it certainly will never happened. That is because the goods and the resulting profits or loss belong to the owner, based in a hadith of the Prophet – may pea d and blessings of Allah be upon him-:
“Profit is the return of responsibility/security.” narrated by Imam Ahmad, Abu Daud, At Tirmidhi, etc, and it is classed sahih by some scholars such as at tirmidhi, Al Hakim, Ibn Al Qatthan, and classed good by al Albani.
Question no. 8
In the coal business, for example, the mediator usually unable to carry out the seller request, that is to sell by cash fob (the items are paid on the barge, at the seller’s harbor), while the buyer asks for cif price (the items are paid after it reached the buyer’s harbor/storage). Then the mediator asks for help from another party, or funder (capital owner) who will buy the items according to the seller’s system, and sell it in a system that is desired by the buyer. The question are:
8a. Is it permitted for the mediator to sell items that are not belong to him to the buyer? (the contract is between the buyer and the mediator, not the buyer and the funder).
There are 2 possibilities in this case:
If the seller (the actual owner) give the mediator full authority to sell his items, to anyone, such method mentioned in the question is permitted. Because in this case, the mediator acts as the representative of the owner, and he sells the coal to the funder, to be sold next by the funder to buyer/end consumer. Thus, the events will be as:
The owner sells his items to the funder, and the funder will further sell the purchased items to the end-consumer. And at both trading processes, the 1st seller (owner) and 1st buyer (funder), as well as 2nd seller (funder) and 2nd buyer (end consumer) deputize it to the mediator to carry on the contract procedures. Or by simpler mean: the mediator represents the 4 parties involved.
2. But if the owner does not give him the full authority to act, and merely permits him to sell his items to the end-consumer, such process of intermediary is not permitted.
8b. Is it allowed for the funder/financier to take profit by requiring to get his capital back plus some percentage of profits? Is it a kind of usury or not? Is there any way to share the profits with the funder according to shari’a?
By understanding both interpretations above, the answer of this question becomes clear. If the occurrence is as the point A, the profit required by the funder is lawful, since it is just a profit from casual trading transaction.
But if it goes as in point B, the profit is unlawful, since the funder merely plays part as a creditor, thus the profit he takes automatically ruled as an usury.
From the answers of the questions above, we could see the beauty and magnificence of Shari’a, which truly honoring the human rights and teaches it followers to be decisive, clear, and honest in every financial moves they make.
Not only Islam honors the possession of it’s followers, but also it teaches all believers to establish trustworthiness and justice in trading, and avoiding all matters that could disadvantage public interests, in their way to fulfill their private interests.
It really is, a beautiful, and noble ways of life, that is absolutely capable of realizing the happiness and peace for the human being. Thus, every believers shall keep studying his religion, and bring the teachings to life.
May peace and blessings be upon the Prophet Muhammad, his family, and his devited companions. And Allah knows best.
Author: Dr. Muhammad Arifin Badri, M.A.
Article of Syaria.com