Referral and Its Guideline in Islamic Law

Devin Halim Wijaya2 January 2025

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In recent business landscape, referrals emerge as a popular marketing approach to acquire new customers while getting salesforce from existing customers and other people. While referrals provide a really good marketing leverage for businesses and represents a new way to have additional income for people, their application must adhere to the ethical and legal guidelines of Islamic law (Shariah). This article explores how referral can be practiced within the framework of Islamic law.

Understanding Referrals

Referrals is a system where a person recommend or leading another person to purchase a product or service and receive a reward or commission in return. This way of marketing is very effective to acquire new customers and keep old customers loyal as the existing customer will try to acquire new customer to earn commissions. This also an effective and better way to acquire salesman as people will sell the product and only get paid if they sell units of it rather than hiring salesman and pay them full time salary.

Islamic Contracts That Can be Applied in Referral

Amongst contracts applicable to Referral in Islamic law are:

1.Ju’alah:

In Islamic finance, ju’alah (also spelled ju’ala), in Arabic script جعالة, is a contract (aqd) whose subject matter is a work or task to be done. More specifically, one of the parties (general offeror or ja’il) offers specified compensation (ju’el) to anyone (worker or ‘amil) against achieving a predetermined work, task or result in a period of time, whether predetermined or not.

Application of Ju’alah in referrals coming when the product owner allow lots of

people to sale their product with the base condition of referral which state that the salesman will only get paid if they sell the product. In this case, the product owner is the ja’il, the salesman is the ‘amil, and the commission is the ju’el.

2.Wakalah bil Ujrah

Wakalah bil ujrah is an agreement in the form of an agreement to delegate power or mandate from the first party to the second party based on the reward or service fee given by the first party to the second party for the work or task performed.

Application of this contract in referrals is done when the product owner appoint certain number or people or group to be his representation in selling the product to the customers. As the compensation of it, the representations will get a fixed fee or percentage of sales.

Also read:Excess Inventory: Recipe for Business Trouble

Limitations of Referrals in Shariah

Islamic scholars analyze referral systems through the lens of Shariah to ensure they align with Islamic ethics. Below are key limitations identified:

1.Prohibition of Gharar (Uncertainty)
The inclusion of excessive uncertainty in referral agreements is forbidden. The Hadith states:

نَهَى رسولُ اللَّهِ صلَّى اللَّهُ عليهِ وسلَّمَ عن بَيعِ الغرَرِ ، وعن بيعِ الحصاةِ

The Messenger of Allah, may Allah bless him and grant him peace, forbade the sale of gharar bai’ al-hashah..” (Muslim, Hadith 1513)

Gharar in referral appears when there is no clarity of the referral fee and the conditions to earn those fees. Therefore, referral agreements must be transparent, with clear terms regarding the rewards and their fulfillment.

2.Avoidance of Zulm (Exploitation)
Referral systems should not exploit participants or create undue burdens. All parties should be satisfied with the agreement benefit equitably from it. Allah ta’ala said in surah An-Nisa verse 29:

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُواْ لَا تَأۡكُلُوٓاْ أَمۡوَٰلَكُم بَيۡنَكُم بِٱلۡبَٰطِلِ إِلَّآ أَن تَكُونَ تِجَٰرَةً عَن تَرَاضٖ مِّنكُمۡۚ وَلَا تَقۡتُلُوٓاْ أَنفُسَكُمۡۚ إِنَّ ٱللَّهَ كَانَ بِكُمۡ رَحِيمٗا

“O you who have believed, do not consume one another’s wealth unjustly but only [in lawful] business by mutual consent.” (Surah An-Nisa, 4:29)

In referrals, zulm is usually represented in systems that disproportionately favor businesses over referrers.

3.Legitimacy of Goods or Services
Every product that being promoted in referral system must be halal (lawful) for the referral system itself to be lawful according to Islamic law. Referring products such as pork, alcohol, unlawful videos, and other unlawful stuff can render the referral system unlawful.

Also read:The Concept of Silence and Its Benefits in Islam

Examples and Applications

Member commissions in referral marketing are allowed if they meet Shariah principles which is the clarity and fairness in the commission earning scheme. However, multi-level marketing schemes that involve pyramid structures are impermissible due to elements of gharar and zulm which are represented in the unfairness of the pyramid structures where the top line of the pyramid earn excess fee from their downline without working and every person who enter the system doesn’t really know if he is at the top of the bottom of the structure.

Conclusion

Referral systems can align with Islamic law if structured ethically and transparently. The key is adherence to principles such as fairness, and the avoidance of gharar and legitimacy of the product sold. By following these guidelines, Muslims can engage in referral practices that are both effective and Shariah-compliant.