The Ja'ala contract and its applicability to the mining sector

Author

Bin Djilali, Bu Allim

Edition

1 ed.

Publisher

Islamic Development Bank (IDB) Islamic Research and Training Institute (IRTI)

Publication Date

2004-12-31

Country of Publication

Saudi Arabia

No. of Pages

56

ISBN

9960321460

Main Subjects

Financial and Accounting Sciences
Religion
Islamic Studies

Topics

• Islamic jurisprudence
• Contracts
• ٌLeasing
• Wages
• Rewards
• Property transfers
• Postponed sale
• Contracting out
• Leases
• Mining law

English Abstract

This study constitutes an embryo that serves to develop in the future a general framework towards formulating an Islamic contract theory with applications to the different sectors of the economy.

As a first step, we focus our attention on the Ja’ala contract as an alternative for the existing concession contract.

The study discusses how the contract may be used to exploit the mining sector.

First, the study provides an overview of the Shari‘ah framework that governs the Ja’ala contract.

It lays down the main features of this contract and spells out explicitly one of its main features that says "The remuneration may be agreed upon between the Jae'el and the Maj'ul to be part of the capital lost or a fraction of the output".

This feature serves as one of the key assumptions in this research.

A comparison between the main features of the Ja’ala contract and other Islamic modes of finance is also given.

Second, the paper gives a full characterization of the Ja’ala contract in both cases in discrete time as well as continuous time.

It derives the bilateral relationship between the Ja’eel and the Maj'ul and shows how the cost efficiency parameter of the Maj’uul and the extraction rate of the mineral interact in general.

Moreover, the study shows how the trajectory of the extraction rate of the mineral over the agreed period is determined based on the information provided in the report of the Maj’uul.

Third, the paper studies in detail the symmetric information case.

It derives explicitly the optimality conditions and the trajectory of the extraction rate of the mineral.

It shows that the extraction rate of the mineral depends on several parameters namely the cost efficiency parameter of the Maj’uul, the social planner's time preference rate, the market price of the mineral and the geological nature.

It shows that the extraction rate of the mineral is inversely related to the preference of the Ja’eel, but positively related to the market price of the mineral.

Moreover the study derives the cost efficiency parameter of the Maj’uul and shows that it is positively related to the price of the mineral and inversely related to the difference between the initial stock and the stock left over as well as to the Ja’eel's time preference rate.

Finally, the study derives a critical value of the efficiency cost parameter of the Maj’uul corresponding to the case where the left over of the mineral after the agreed period is no more profitable.

Lastly, the study gives some indications on how this research can be extended to include the exploration-extraction case and the asymmetric information case as well as on the possibility of relaxing the assumption of the exogenous property of the price of the mineral.

Table of Contents

• APA
• MLA
• AMA

Language

English

Document Type

Book

Notes

Includes appendix.

Record ID

BIM-655257